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Joy Global Inc. (JOYG)

F4Q09 Earnings Call

December 16, 2009 11:00 am ET

Executives

Michael S. Olsen - Chief Financial Officer, Executive Vice President, Treasurer

Michael W. Sutherlin - President, Chief Executive Officer, Director

Sean D. Major - Executive Vice President, General Counsel, Secretary

Analysts

Jerry Revich - Goldman Sachs

Andy Kaplowitz - Barclays Capital

Ann Duignan - JPMorgan

Charlie Brady – BMO Capital Markets

Michael W. Gallo - C.L. King

Henry Kirn - UBS

Robert F. McCarthy - Robert W. Baird

Seth Webber - RBC

Mark Koznarek – Cleveland Research

Presentation

Operator

Good morning. My name is Amanda and I will be your conference operator today. At this time, I would like to welcome everyone to the Joy Global Incorporated fiscal fourth quarter 2009 earnings conference call. (Operator instructions) I would now like to turn the call over to Michael Olsen, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Michael S. Olsen

Good morning and welcome, everyone. Thank you for participating in today’s conference call and for your continued interest in our company. Joining today on the call are Mike Sutherlin, President and Chief Executive Officer of Joy Global; and Sean Major, our General Counsel and Secretary.

This morning, I will begin with some brief comments which expand upon our press release and which provide the results of the fourth quarter and fiscal year 2009. Mike Sutherlin will then provide his insights into our operations and our market outlook. We will then conduct a question-and-answer session and would appreciate it if you would limit yourself to one question and one follow-up before going back into the queue. This will allow us to accommodate as many questioners as possible.

During the call today, our executives 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 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 turn to the results for the fourth quarter and the fiscal year. In our current earnings release, we have modified the supplemental schedules to hopefully provide more useful information for our shareholders. On a revised supplemental schedules, we had removed the depreciation and amortization information. We have received a call from an analyst requesting this information. It will be included in our annual report on Form 10-Q which we will be filing at the beginning of next week but in the meantime, we will post depreciation and amortization information for the fourth quarter and full year on our website. I am sorry for any inconvenience that this may have caused.

New orders received during the 2009 fiscal year totalled $2.8 billion compared to $4.9 billion of new orders received in 2008. During the 2009 fiscal year, there were $300 million of backlog cancellations, primarily during the first and second quarters, and a $600 million backlog adjustment reduction at the beginning of the third quarter to reflect the company's revised policy for adding original equipment orders to backlog at its surface mining equipment business.

Original equipment new orders in 2009 were $882 million before a $251 million cancellation and were 68% less than they were in 2008, reflecting the softness in the majority of the copper markets in which our equipment is used.

After market orders were $1.9 billion before a $63 million cancellation, over half of which were associated with new machine erection associated with the original equipment, which was cancelled in 2009, compared to $2.1 billion in the 2008 fiscal year. This 8% decline in after market orders was primarily associated with decreased after market demand for the surface mining equipment business where the customers mining non-coal commodities responded earlier to the decline in demand for their products.

Backlog at the end of 2009 was $1.5 billion compared to $3.2 billion backlog at the end of October 2008 which included the $300 million of orders which were cancelled in 2009 and the $600 million third quarter backlog adjustment.

Fiscal 2009 net sales increased to $3.6 billion from $3.4 billion in 2008. This improvement in net sales was driven by an 11% increase in net sales for the underground mining equipment business almost all of which was associated with increased original equipment shipments and a 19% increase in crushing and conveying net sales, the majority of which was associated with the continental sales being reported for the full year in 2009 compared to just over eight months in 2008.

These sales increases more than offset a 6% decline in net sales for the surface mining equipment business. The increase in original equipment in the underground mining equipment segment was due to the significant increases in new machine sales reported in the United States and South Africa.

Operating income in 2009 was $702 million compared to $551 million in the 2008 fiscal year. Return on sales was 20% and 16% for the 2009 and 2008 fiscal years respectively.

The improvement in operating profit in 2009 was due to the increase in sales volume, favourable price realization, improvement in supply chain management, and cost control initiatives. The 2009 fiscal year was adversely affected by a $22 million charge changes in foreign currency translation rate, and $14 million of severance and related costs, while the 2008 fiscal year included a $23 million charge for the cancellation of a repair and maintenance contract and $14 million of incremental first-year purchase accounting amortization charges associated with the continental acquisition. Both operating profit and return on sales percent increased in 2009 compared to 2008 for all three of the company's businesses.

Fully diluted earnings per share were $4.41 in 2009 and $3.45 in 2008. EPS in 2009 benefited from both the improvement in profitability as well as from the reduction in the average outstanding shares from $108.4 million in 2008 down to $103.1 million in 2009. The effective tax rates were 33.4% in 2009 and 29.2% in 2008, which benefited from the discrete tax adjustment.

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