Joy Global is pretty happy for a company that builds equipment destined to spend the majority of its life down in a hole. The company makes heavy equipment for the mining industry through two subsidiaries. Its Joy Mining Machinery subsidiary makes underground coal-mining equipment that includes armored face conveyors, roof supports, longwall shearers, and shuttle cars. Subsidiary P&H Mining Equipment makes electric mining shovels, rotary blasthole drills, and other equipment used in surface open-pit mining; it also provides parts and service through its P&H MinePro Services network. Joy Global operates manufacturing and service facilities worldwide; about half of its sales are made outside of the US.
In the aftermath of Caterpillar's 2010 acquisition of Joy Global's chief rival Bucyrus International, the company has been in deal-making mode. In mid-2011 Joy Global acquired mining equipment manufacturer LeTourneau Technologies from Rowan Cos. (RDC) for about $1.1 billion. The deal gives Joy Global access to large, electric-drive wheel loaders used in mining. LeTourneau's mining equipment business segment will be integrated with Joy's P&H mining business. However, Joy said it will sell the drilling products business of LeTourneau to Cameron International for $375 million in order to use the cash for its acquisition of Chinese mining equipment maker International Mining Machinery Holdings Ltd. (IMM). Joy Global outlined a plan for acquiring 41% of IMM's share from private equity firm The Jordan Company and obtained the share through a tender offer to investors in late 2011. The deal, valued at $584 million, gave the company a 69% controlling stake in IMM and expanded its presence in the Chinese coal mining equipment market.
Although it is one of the largest producers of underground mining equipment, Joy Global confronts a highly cyclical marketplace driven by commodity pricing and industry consolidation. In addition, more than two-thirds of Joy Global's revenues come from coal mining customers, exposing it to public outcry over climate change and other risks.
Although Joy Global experienced cancellations and deferred new orders throughout most of 2009, its backlog recovered and grew by almost 40% in 2010. About two-thirds of the increase was driven by demand for new equipment and the remainder for aftermarket parts and service. Net sales declined slightly due to flagging shipments of original underground equipment. Nevertheless, earnings increased, buoyed by higher interest income coupled with lower interest expense and income taxes. Cash generated from operations reached a new high.
Joy Global benefits from focusing on aftermarket sales and service (about 60% of sales). This capability extends the life of its installed base of (expensive) machinery through spare parts and repair services, as well as supports long-term customer relationships and a steady revenue stream. Its surface mining equipment business also offers aftermarket services for equipment made by other OEMs.
To optimizing aftermarket sales and services, the company has built service centers in key mining regions -- Canada, Chile, Australia, and South Africa -- and plans to open new centers in Russia and India. The latter initiatives are anticipated to help offset some of the decline experienced in more mature domestic markets. Concurrently, it has managed to shift an increasing portion of its aftermarket revenue from one-time transactions to extended maintenance and repair contracts or machine exchange programs. The company has also introduced remote equipment monitoring systems, allowing maintenance personnel to check machines for reliability and safety, fleet status, productivity, and other performance related issues using wireless technology. – less