Joy Global Earnings Call Insights: Base Bookings Outlook and Customer CapEx
Joy Global (NASDAQ:JOY) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.
Base Bookings Outlook
Andy Kaplowitz – Barclays Capital: So, you booked a little over $1.1 billion in bookings in the quarter with one of the projects that you’ve been talking about and so, I guess, your base bookings are really around $1 billion, maybe a little higher. Is that the range we should be thinking about as we go forward, somewhere in that sort of $1 billion to a little over $1.1 billion range, and then how does that translate into next year? We’ve talked about this the last couple of quarters, it seems like that level of revenue forecast for ’14 is probably off the table but, I needed to ask you that question.
Michael W. Sutherlin – CEO and President: Yeah, we look at our base book – in effect if we go back to the second quarter of last year and look at that sequence of quarters for the last – now this will be five quarters that we look at, we adjust out the projects and we get a base booking number that’s around $1.1 billion, plus or minus and it varies a little bit, but we look at that as a $1.1 billion base rate and then projects on top of that. I think that shows up even with the projects. If you take the projects out we have a base of like you say just $1 billion, but we have been there before and then we have had base rates that have been a little bit above $1.1 billion. So I think that – (and comfortably) we see that as still being a range. As we look out at the projects and as we look at the prospect list and the timing and sequencing of those projects we expect to see new projects come into bookings, but probably in a pattern and in a frequency and having an impact that’s relatively consistent with what we have seen over the last few quarters. So we see more or less a continuation of the current market conditions including booking levels going forward. What that does for next year’s guidance we are not really at a point that we are prepared to give guidance for next year. But you can look at the bookings rates and if you project that pretty flat you are probably going to be close to what we are looking at right now.
Andy Kaplowitz – Barclays Capital: Then if you think about the aftermarket, I mean, yes, definitely improvements from 2Q which we did expect. But maybe if you can give us a little more color on what’s going on there? Because essentially in Underground you are still down pretty significantly year-over-year, is that just still kind of U.S. and maybe Australia, year-over-year comparisons that are difficult and then those will get better as the year goes on?
Michael W. Sutherlin – CEO and President: Yes. We will talk a little bit about the U.S. aftermarket because it probably represents what we see is the worst case because we have the most severe production cuts impacting the U.S. Underground and we saw that go through about five quarters to – for the order rates to come down, bottom out and begin to improve. We saw the order rates bottom between the fourth and first quarters and an improvement in this quarter. In a sequential basis the order rates for the U.S. Underground aftermarket were up about 15% sequentially first quarter to second quarter. That’s a long way from gaining back the losses that we’ve had over that longer period of time from top to bottom. But we are starting to see a turning point and with the outlook for the U.S. market starting to improve we’re beginning to see machine rebuilds comeback into horizon and other kind of elements, I think that (fit) the aftermarket in the U.S. back up to a level that’s consistent with coal production volume changes. So, the coal production volume is down 7% or 8% and then our aftermarket will eventually settle in at that level. It’s below that level today, starting to come back and it will take a few more quarters before it gets back to that level. I think we see that in the international markets that probably have been a little bit quicker based on the fact that the international markets took a pretty significant drop in the first quarter and started to come back already in the second quarter. I think it tells you that there’s – this is more about cutting costs and driving cost reductions, which often translates into reducing mine site inventory levels. I think Jim talked about the need to be careful about inventory, because our customers don’t have the – they are carrying the inventories of parts that they used to, so now they are going to need and expect us to have instantaneous delivery more certainly than we had over the past few years. There is a very limited amount that you can get out of that, if production is not declining at the same time. In the international markets, production has been relatively flat and so those costs have a very limited ability to come down and that’s what we are seeing I think during the first and second quarter. So we expect those international aftermarket numbers to begin – continue to move up and somewhere around the end of the year, whether it’s the fourth quarter, first quarter of next year we should start to be back at the levels that we ramped when we finished last year.
Rob Wertheimer – Vertical Research Partners: Wanted to ask on the conversations you’re have with the mines on the bigger picture. Maybe I can just ask two or three things at once and see how you want to respond but, if major projects are down 30 and CapEx is down 40 or more for your customer CapEx. I’m curious about the split there, whether it’s the 30% down on the major projects is dollar weighted or whether they’re spending less, or do you think that shift of mines to spending more onto a small fill in ground field is net positive or net negative for your products? Then, one last question if I could squeeze it in is on, as they try and try and address this a little bit, to find ways to save money on equipment or are they finding ways to be more efficient or is it really just shuffling our cost for a couple of quarters?
Michael W. Sutherlin – CEO and President: So, three pretty good questions here. As we look at our customers CapEx plans and programs, we’re pretty well connected with them. We work with the customers pretty closely and in most cases, we’re working with them on projects and equipment definitions and project specification a year, year and half before they make their equipment selection decision. So we’re pretty much upstream. We have people, in many cases, we have engineers sitting in offices with our customers engineers, working collaboratively on projects and through that process we can actually see the projects that they’re deploying resources on. Sometimes they have CapEx approvals for project but there’s no one working on them, and we can sort of pair out the difference between those two. The mines also spend CapEx on a number of other things like port facilities and other things that don’t affect us. So, we try to separate out the CapEx that’s deployed on mining equipment versus the CapEx that’s in the broader spectrum for most of the diversified mining companies. As we look at our original equipment bookings and go back to 2011, in 2011 my view was above trend year because we were still catching up from the slowdown of 2009 and 2010 and even from that above trend line level we have seen the original equipment bookings through the first half that are down about 35%. Our prospect list is down sort of in the 40% range pretty consistent with that. So we look at what our customers announce for CapEx, we look at what they are working on and then we take a back view from our own data set and look and make sure all that correlates and it continues to tell us that their spend levels on mining equipment are down sort of in the 40% or so minus range. But it also – then our order rate experienced and it’s something – we believe that those kind of reductions in CapEx have been flowing into our order rates for quite some time last three, four, five quarters for sure and they are already reflected in the base order rates and that’s why we have quite a bit of confidence that there is a base there that we can work from. As we look at Brownfield projects, maximum projects are I think good, in many ways. One is that, if you have equipment working at mine site you are going to have an advantage on the addition of the equipment to that mine. We do a lot of our aftermarket through life cycle management contracts. So we are not just selling parts. We have a total headcount level of around 18,000 people. We have almost 4,000 of those whose job is at mine site running life cycle management programs and work on our equipment for the customer. So, in that context I think we have an advantage when it comes to brownfield expansions, and adding new equipment, and certainly the work we’ve done in operational excellence to lower the cycle time is giving us a really significant delivery capability improvement, and I think that’s an advantage as well, when customers want to move quickly on brownfield opportunity. So, the big projects are good and the big projects come in lumpy and they’re more intensely bidded and quoted and we spend a lot more time on engineering its specifications. Brownfield is pretty straightforward, so from that standpoint they’re not as big a bite, but they’re better in many ways, more efficient for us to work with brownfield compared to the greenfield. It just takes a lot more brownfield projects to add up to the same number. So, if we look today, we see the brownfield kind of mentality, the greenfield projects in fact that we’re looking at are often adjacent to other mine properties that our customers own. So, they understand the geology. In many cases, they can share infrastructure, load out facilities and prep plants and things like that. So, those tend to be smaller greenfield projects and not brownfield expansions, but they’re smaller greenfield projects. So, I think that’s going to be pretty typical of where our customers are going to be deploying CapEx, until we get into a more robust demand environment.
James M. Sullivan – EVP and CFO: Have we answered all your questions or not now?
Rob Wertheimer – Vertical Research Partners: You basically did. I mean I’ll just – in terms of clarifying on one thing, your big project spend is down fairly, but presumably the maintenance or replacement to the extent there is any of that left and then if presumably brownfield is a little bit more spend on new equipment versus the port stuff. It would seem that the current order rate is below where the CapEx rate is trending two or three years out? I don’t want to try and box you in. It’s just that I am trying to interpret what you said?
James M. Sullivan – EVP and CFO: Yeah, I definitely think we’re at a low point. There’s no doubt about that. I think the question is, what does the slope look like as things get better and how long will that take, but I definitely believe we’re at the low point right now. I think the good news from our perspective is that, the old projects that weren’t going to make the ROI thresholds have been cleaned out, new projects have replaced them. So, we’re looking at a new set of projects that have been reviewed by new management teams and I think that they’re much more likely to go forward. It gives us, I think a much, much stronger confidence that there’s a base level of work that we’re going to get out of our customers as we always put a market demand to improve. So, that’s not going to go further down. That’s not going to go to zero and the activity levels that we’ve seen I think represent a bottom that will slowly improve until we see more demand uptake and I think they’ll accelerate from there.