Joy Global Inc. (JOY)

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Joy Global Inc (JOY)

F1Q2012 Earnings Conference Call

February 29, 2012 11:00 AM ET

Executives

Mike Olsen – Executive Vice President and Chief Financial Officer

Mike Sutherlin – President and Chief Executive Officer

Analysts

Ted Grace – Susquehanna

Jerry Revich – Goldman Sachs

Ann Duignan – JPMorgan

Rob Wertheimer – Vertical Research Partners

Michael Gallo – CL King

Schon Williams – BB&T Capital Markets

Charles Brady – BMO Capital Markets

Presentation

Operator

Please standby we are about to begin. Good day and welcome to the Joy Global Inc first quarter earnings conference call. Today’s conference is being recorded. 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, Roxanne. 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 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 would provide some additional background on the results for the first 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 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 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 spend a few moments reviewing first quarter results. As was the case in our fourth quarter the first quarter operating results include performance of our legacy surface and underground mining equipment businesses, along with the impact of the LeTourneau and IMM acquisition. The LeTourneau results were fairly straight forward while the IMM impact on the first quarter is far more complicated. In connection with IMM, the first quarter started with Joy Global owning approximately 29% of the IMM outstanding shares, which we acquired in open market transaction in 2011 at 8 Hong Kong dollars per share.

At the end of December, we received approval of the IMM acquisition from the Hong Kong regulatory authority and we completed the previously announced acquisition of 41% of the IMM shares owned by the Pillar’s Group for 8.50 Hong Kong dollars per share. This transaction triggered two things first, a shift to consolidating the IMM results for the month of January offset by the minority interest in the IMM January net income associated with the 30% of the shares, which Joy Global did not own.

And second the recording of the $19.4 million gain associated with the difference between the 8 Hong Kong dollars per share we paid for the shares Joy Global acquired in 2011 and the approximate market value of 8.50 Hong Kong dollars per share at the end of the first quarter for these shares that were acquired in 2011.

To summarize, the first quarter in connection with IMM included two months of equity income, one month of consolidating the IMM results offset by minority interest. A $19.4 million gain associated with the shares purchased in 2011 and additional interest expense associated with the IMM acquisition.

As these items do not add sufficient confusions to the first quarter result the Chinese New Year came in January this year compared to February last year and the one month that the IMM results were consolidated with Joy Global was significantly impacted by the Chinese New Year holiday.

Finally, on February 10, we’ve successfully concluded our tender offer for the IMM shares that we do not already own by receiving approximately 29% of the 30% that we did not own. This extent will allow us to delist IMM from the Hong Kong exchange sometime in our third quarter.

Turning to LeTourneau the first quarter was the second full quarter of including LeTourneau results with Joy Global. In the current quarter poking net sales and operating income were all below our expectations. A product quality issue identified during 2011 prove more difficult to resolve than originally expected and the distractions on the production floor at the LeTourneau Longview facility as a result of the drilling equipment business also having an unfavorable impact on its early shipment.

But apart quality issues affected bookings, shipments and operating process. The good news is that both issues have been addressed and you expect the LeTourneau results will be back on track beginning in the second quarter. Returning to the legacy surface and underground mining equipment businesses the financial results were very favorable. Bookings in the current quarter were up 9% from a year ago and equaled $1.3 billion of bookings recorded in the fourth quarter of 2011.

The increase in new order bookings was led by a 40% increase for surface mining equipment with flat booking for underground mining equipment. The underground equipment bookings were the second highest first quarter bookings on record. However, the highest first quarter bookings on record was in the first quarter last year when ordered were received for long lost business in Australia.

Read the rest of this transcript for free on seekingalpha.com