Joy Global Inc. (JOY)

F1Q2012 Earnings Conference Call

May 31, 2012 11:00 am ET

Executives

Mike Olsen - Executive Vice President and Chief Financial Officer

Mike Sutherlin - President and Chief Executive Officer

Analysts

Ann Duignan - JPMorgan

Henry Kirn - UBS

Vlad Bystricky - Barclays Capital

Seth Weber - RBC Capital Markets

Schon Williams - BB&T Capital Markets

Charles Brady - BMO Capital Markets

Robert Wertheimer - Vertical Research Partners

Robert McCarthy - Robert W. Baird

Presentation

Operator

Welcome to the Joy Global Second Quarter 2012 Earnings Release Conference Call. Today's conference is being recorded.

Now at this time, I would like to turn the call over to Mr. Mike Olsen, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Mike Olsen

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Thank you, Jake. Good morning and welcome, everyone. Thank for participating in today's conference call and for your continued interest in our company. Joining me on the call this morning is Mike Sutherlin, President and Chief Executive Officer, and Sean Major, Executive Vice President, General Counsel and Secretary.

This morning, I will begin with some brief comments, which expand upon our press release and which provide some additional background on the results for the second quarter of our 2012 fiscal year. Mike Sutherlin will then provide an overview of our operations and our market outlook.

After Mike's comments, we will conduct a question-and-answer session. During the session, we ask you to limit yourself to one question and one follow-up question before going back to the queue. This will allow us to accommodate as many questioners as possible.

During the call today, we will be making forward-looking statements. These statements should be considered along with the various risk factors detailed in our press release and other SEC filings. We encourage you to read and become familiar with these risk factors. We may also be referring to a number of non-GAAP measures, which we believe are important to understanding our business. For reconciliation of non-GAAP metrics to GAAP, as well as for other investor information, we refer you to our website at www.joyglobal.com.

Now, let's spend a few moments reviewing the second quarter results. As a reminder, operating results include performance of our legacy surface and underground mining equipment business units combined with the results of the LeTourneau and IMM acquisition. Both acquisitions contributed favorably for the results for the quarter. Additionally, there is considerably less noise than the acquisition of IMM during the current quarter compared to our first quarter. During the second quarter, we increased our ownership of IMM to approximately 99%, and expect to settle the remaining outstanding shares during our third quarter. We also anticipate that Hong Kong Exchange will approve our request to de-list IMM during our third quarter.

During the second quarter, IMM recorded bookings of $98 million, while recognizing $87 million of revenue and $21 million of operating profit before excess purchase accounting charges. The excess purchase accounting charges related to the amortization of the write-up of acquired inventory and totaled $17 million in the current quarter. We also expect to record an additional and final $5 million of excess purchase accounting charges related to IMM during our third quarter based on our current acquisition valuation estimate. Despite the economic slowdown in China, the IMM second quarter results were substantially in line with our expectation.

With regard to LeTourneau, their performance rebounded nicely from the product quality issue and the divested business distractions experienced in our first quarter. LeTourneau recorded bookings of $128 million during the second quarter while recognizing $133 million of revenue and $26 million of operating profits before excess purchase accounting charges. These charges were related also to the write-up of acquired inventory and backlog and totaled $6 million. During our third quarter, we expect to record an additional and final $2 million of excess purchase accounting amortization related to LeTourneau acquisition.

Turning to the legacy surface and underground mining equipment businesses, strong financial results were tempered by moderation in our bookings for the quarter. Bookings of $1 billion in the current quarter were down 34% from a year ago and below the $1.3 billion recorded last quarter. The decrease in new order bookings was comprised of 20% decrease for surface mining equipment and a 38% decrease for underground mining equipment. The 20% decrease in surface equipment bookings in the current quarter was primarily made up of a 42% decrease in original equipment orders as after-market bookings remained flat.

Original equipment orders continue to be strong for copper customers in South America and for coal and iron ore customers in Australia, but were more than offset by decreases in original equipment orders in North America, South Africa and Russia. Surface after-market orders in the current quarter increased in South America and Australia, but were offset by a decrease in after-market bookings in China, India, Russia and South Africa.

The 38% decrease in the second quarter in underground mining equipment bookings was attributable to a 62% decline in original equipment orders and a 12% decrease in after-market bookings. The original equipment bookings declined compared to the second quarter of last year is attributable to weak U.S. coal market and high comparables due to a major longwall system order received in Australia in 2011.

The decrease in after-market orders was due to the reduced underground coal produce production in the United States, which is the result of a mild winter and low natural gas pricing and a larger impact due to the unusually high level of service orders received in Australia in the second quarter last year which were associated with the longwall system orders previously mentioned and which were not repeated in the current quarter.

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