Joy Global Inc. (JOY)

Q3 2012 Earnings Call

August 29, 2012 11:00 am ET

Executives

Mike Olsen - Executive Vice President and Chief Financial Officer

Mike Sutherlin - President and CEO

Analysts

Andy Kaplowitz - Barclays

Schon Williams - BB&T Capital Markets

Eli Lustgarten - Longbow Securities

Jerry Revich - Goldman Sachs

Ted Grace - Susquehanna

Seth Weber - RBC Capital Markets

Presentation

Operator

Good day and welcome to the Joy Global, Inc Third Fiscal Quarter Earnings Conference Call. Today's conference is being recorded.

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

Mike Olsen

Thank you, Brian. Good morning and welcome, everyone. Thank you 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 Shawn 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 our results for our third quarter of our 2012 fiscal year. Mike Sutherlin will then provide an overview of our operations and our market. After Mike's comments, we will conduct a question-and-answer session.

During this session, we ask you to limit yourself to one question and one follow-up question before going to the back of 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 the understanding of our business. For a 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 third quarter results. As a reminder, in our 10-Q and 10-K filing, the business segment reporting, the operating results for Surface Mining Equipment segment include a legacy P&H Mining Equipment results plus LeTourneau acquisition results.

While the Underground Mining Equipment segment operating results include the legacy Joy mining machinery results, plus the IMM acquisition results, both acquisitions continue to contribute favorable to the results of the quarter although the general economic slowdown in China impacted IMM's performance.

During the third quarter, we settled the remaining 1% of outstanding IMM shares and our request to delist IMM from the Hong Kong exchange was approved. In the third quarter, IMM recorded bookings of $64.6 million while recognizing $69.1 million of revenue and $10.5 million of operating profit before excess purchase accounting charges.

The excess purchase accounting charges totaled $7.7 million in the current quarter, the result of continued refinement of our acquisition valuation estimates for IMM. We expect the final charge of $2 million for excess purchase accounting in our fourth quarter.

Since the IMM acquisition was completed, IMM results have been unfavorably affected by softness in the Chinese coal markets and increased competition from local Chinese equipment manufacturers.

At the same time during the period since the completion of the acquisition, the work our teams have done with IMM has reconfirmed the strength and potential of their businesses and the significant opportunities which exist for Joy Global to provide product improvements and operational efficiencies. Actions are already in motion to begin to achieve these benefits and to differentiate the IMM products in the Chinese market and to increase market share.

In the third quarter LeTourneau continued to deliver strong operating results. The wheel loader business recorded bookings of $91.7 million in the current quarter by recognizing $110.9 million of revenue and $22.2 million of operating profit before excess purchase accounting charges.

During the third quarter, we amortized the final $2.1 million of excess purchase accounting related to the LeTourneau acquisition while finalizing our acquisition valuation.

Now, moving to the legacy surface and underground mining equipment businesses, strong financial results continue to be tempered by moderation in our bookings for the quarter. Bookings of $928 million in the current quarter were down 35% from a year ago. The decrease in new order bookings compared to the prior year was comprised of a 39% decrease for surface mining equipment and 26% decrease for underground mining equipment.

The 39% decrease in surface equipment bookings in the current quarter primarily made up of 66% decrease in original equipment orders from the record level of OE bookings received in the third quarter, last year.

Aftermarket bookings fared better and were substantially flat with the aftermarket orders received a year ago. Original equipment orders were down in all regions with the exception of Australia. The increase in aftermarket bookings in Eurasia and South America were offset by a decrease in aftermarket bookings in North America, Australia, Asia and Africa.

Current quarter legacy surface orders for original equipment and the aftermarket will reduce by foreign exchange impact of $5 million and $11 million, respectively. The 26% decrease in the third quarter in underground mining equipment bookings, which is attributable to a 55% decrease in original equipment orders or aftermarket bookings were substantially flat with a 2% increase.

The original equipment bookings declined compared to the quarter of last year was due to weak demand for room and pillar equipment in the U.S. coal market and high comparables due to our roof support system ordered in Russia in 2011.

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