Joy Global Earnings Call Nuggets: Orders Outlook and Cost Analysis
Joy Global, Inc. (NASDAQ:JOY) recently reported its third quarter earnings and discussed the following topics in its earnings conference call.
Brad DeStricki – Barclays: This is (Brad DeStricki) on for Andy. So, first question, I guess, if I look at your bookings of $700 million this quarter that, obviously, implies revenue well below the $4 billion level. So, what gives you the confidence that orders will pick up here in the fourth quarter and will be sustainable at a higher run rate than what we saw this quarter?
Michael W. Sutherlin – CEO and President: I think you better look at two pieces of that and maybe the smaller piece is the aftermarket. But you’ve seen in the U.S., the early stages of correction are fundamentally slower to overcorrection to get parts inventories down and to stretch out some of the rebuilds. And then as things settle in those aftermarket order rates begin to move back up to a level that’s in line with the production change. So, what we’re seeing in the U.S. is the bottoming is starting to see modest quarter-over-quarter improvement. As you go through the corrections in Australia and China, we’re seeing the drop at the frontend and so that’s becoming a drag on our third quarter bookings for aftermarket. We’ll start to see Australia improve, and I think that we may see some more headwinds out of China. But fundamentally we think that the aftermarket is going to start to become incrementally better. But the big one is the original equipment. Original equipment for us has been notoriously lumpy. We’ve said that repeatedly over the last several years, and I think that’s a factor we have here today that – in addition to slowing CapEx and some of the projects that have been slowed down in our project tracking list. At the same time, we’ve earned in some timing issues on some projects that we’re working on, we had the choice of trying to accelerate those to get them into the quarter, but in the process of doing that we end up losing some negotiating position and that could affect margins, it could affect terms and conditions, and in the long-term it’s just not good for our business. So, we always – in those situations we take a long-term view and we left the timing be what it may and continue to work to pricing levels and terms and conditions that we think are right for the business. So, as a result of that we have some stuff in process that we didn’t get into the quarter and it wasn’t good for us to do that. So, we have that to look forward to as we look to the fourth quarter. But down the road, we also see a number of other projects, and again, some of the timing is going to be a little bit iffy, but we do see the commitment on our customers to move some of the projects forward and we expect to see some projects that are over and above our base rate bookings.
Brad DeStricki – Barclays: Then just as a follow-up. Can you talk about decremental margins in the quarter; I think it actually seemed a little higher in the quarter I think than we have come to expect. I think as you mentioned as the cost saves flow through that you expect them to get back to that low 30% range you’ve talked. But can you talk about what impacted detrimentals in the quarter and your expectations going forward?
James M. Sullivan – EVP and CFO: This is Jim Sullivan. 34% is our detrimental target over the course of the year. Quarter-to-quarter we will and have seen fluctuations against this target driven by one-off items and certain other factors. You may recall last quarter that detrimental margin was a bit higher than target due to some transitory items in the Underground business specifically the facility rationalization initiatives, the start-up of our China facility and the acceleration of IMM integration activities. This quarter, the actual detrimental rate was just below 46% or about 8 million higher than the 34% target and here again the short fall was mostly in the Underground business and there were two primary factors; one, last year the Underground business adjusted their bonus accrual in the third quarter down so if you look at the bonus accrual last year versus this year it is about 5 million higher this year. Secondly, as I mentioned in our prepared comments the OE mix of sales this quarter for the Underground business was more weighted to longwall systems with the structural steel content high on roof support the value added is a bit lower there. So, really this quarter was a combination of both those items. I think looking forward again over the course of the year adjusting for some noise we do feel like with cost reduction actions that we have taken already and that we are prepared to take here over the next few quarters that we can deliver on that target going forward.
Steve Volkmann – Jefferies & Company, Inc.: Actually question along the same lines. Jim, thanks for sketch out of the phase 2 and 3 cost savings programs. I guess, I’m just curious on the other side of the equation what type of cost, you will incur while running through these programs?
James M. Sullivan – EVP and CFO: So, we’ve incurred roughly $10 million of restructuring cost year-to-date. We expect the fourth quarter to be about that amount maybe a little bit higher for the full year, we could be as high as $25 million. So, fourth quarter we’re going to see some actions. Most of those actions are going to cash restructuring related costs, severance and some other things. As we turn into next year, and the incremental benefits that we talked about for next year on that $15 million, you are probably looking at a payback that’s pretty short. So, it could be up to another $10 million of cash next year…
Steve Volkmann – Jefferies & Company, Inc.: Then, I guess, I’m curious I don’t know if you want to get into this yet. But maybe just – if you could sketch out a little bit specifically of kind of what you are doing, plant closures or consolidations or insourcing so forth. I guess, what I am trying to understand and think about is that usually when you have these types of reorganizations and so forth, there is learning curve issues. So, you can have a quarter, or two or three where things are a little bit below whatever the final run rate is going to end up being from a margin perspective. I’m just curious if that’s something I should be concerned about?
Michael W. Sutherlin – CEO and President: Let me give you just – a bit of an overview comment, and Jim can talk about some of the cost issues. We have been – our strategy has been to outsource, particularly structural fabrications, in the up cycle and we get to a point at the – and got to in 2012, where we were outsourcing about 35% of our production hours and that number has been coming down and they have some more to take down, but we’re probably in the low 20s and we’ll get that percentage down into the mid to upper teens kind of area. So, that really does help offer some of the volume adjustments we have to go through. The facility consolidations we have some smaller satellites, special purpose facilities. And as we go through operational excellence programs and lean out our main factory, we end up freeing up effectively, the large amount of capacity within roof line. We’re now in a position we could begin to move production around in areas that allow us to be more cost efficient in those production areas. So, we get – methodology is the same, processes are the same and we get improved volumes by moving some production around and that’s going to help us quite a bit. We’ve also got the benefit as we continue to move down The One Joy Global program of looking at manufacturing processes whether that’s surfaced underground equipment separately and we would factor one of our recent moves has been to move some underground equipment that was in the underground category. We’ve moved some of that production into another facility that’s been primarily focused on Surface Equipment. So, in making those kind of moves we end up giving economy a scale and process efficiencies in the manufacturing process. So, on the other hand, we can write off the cost of closing – or downsizing the facility, but we incur cost and sometimes in the facility to realign this production floor to being both sufficient and bringing on the new production and that was some of the cost we had in our last quarter that Jim talked about, I think we had $12 million or $15 million of extra cost, a lot of that’s in getting the new facility prepared to handle the production that’s not in the category of a restructuring cost. So, Jim, I don’t know if you want to give a little bit more detail on the cost?
James M. Sullivan – EVP and CFO: Mike, I thought that was a terrific summary.
Steve Volkmann – Jefferies & Company, Inc.: I’ll pass it on but, I guess, it sounds like you are fairly confident that you won’t see a lot of business interruptions and inefficiencies in this process?
Michael W. Sutherlin – CEO and President: As a business we move people around a lot. So, some of these moves we’ve got people from the facilities that we are taking production out of (indiscernible) in the early stage, so it is pretty much of a (indiscernible) it is not just over the wall. So, we do everything we can to try to smooth out that process and make it run as smooth and efficiently as possible.
James M. Sullivan – EVP and CFO: As we said there will be a little bit of noise because we call out the restructuring items and give you clear visibility to the charges, but we don’t call out specifically in terms of our reported results kind of the transition cost where you are standing up a new facility and you are running both facility kind of concurrently. So, there will be a little bit of that going forward. I think the other impact you might see as we get further down the road with some of the facility rationalization as there maybe some choppiness on our inventory levels just simply because we are just very focused on making sure that we can deliver on our commitments to our customers. We saw little bit of that timing in the second quarter on inventory, it came back in the third quarter. We are certainly focused on trying to keep that in good shape, but there could be a little bit of lumpiness associated with inventories in our facility rationalization.