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How Has Joy Global’s Stock Fared ahead of Fiscal 2Q16 Earnings?

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May. 31 2016, Updated 8:06 a.m. ET

Joy Global’s stock performance

Joy Global’s (JOY) stock entered a falling trend in January 2015. This was due to the oversupply in commodities markets along with capex (capital expenditure) cuts by mining customers. However, the stock has been rising since the start of January 2016. Joy Global has risen ~37.9% YTD (year-to-date), as of May 24. In comparison, the Energy Select Sector SPDR Fund (XLE) has risen ~10.2% YTD.

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What impacted Joy Global’s business?

Joy Global’s (JOY) industry enjoyed unparalleled success on the back of the growing Chinese economy from 2005 to 2015. Following China’s slowdown, the industry has been hit hard by reduced mining capex and an oversupplied commodities market. Commodity prices as a whole have been dropping.

In fiscal 2015, Joy Global’s product sales slumped to 26% of total revenue, while service sales accounted for 74% of total revenue. The increasing divide between the product segment and the service segment is an area of concern. New equipment sales not only provide additional revenue but also allow Joy Global to continually update its product line by investing more in research and development.

As a result of market conditions, JOY’s revenue declined 16% from $3.8 billion in fiscal 2014 to $3.2 billion in fiscal 2015. With impairment costs of $1.3 billion, Joy Global took a net loss of $1.1 billion in fiscal 2015. The backlog is roughly 25% of its level four years ago, and order bookings are down 25% compared to fiscal 2014.

Caterpillar (CAT), Terex (TEX), and Illinois Tool Works (ITW) are some of the major companies in the mining equipment industry. CAT and TEX have fallen 19.8% and 11.4%, respectively, on a YTD basis, while ITW has risen 8.6%, as of May 24.

JOY is a part of the WisdomTree SmallCap Earnings Fund (EES) and accounts for 0.89% of the fund’s total holdings. EP Energy Corporation Class A (EPE) and Sanderson Farms (ATW) are also among the top ten holdings of EES. They account for 2.0% and 0.9% of EES, respectively.

In the next part of this series, we’ll discuss Joy Global’s share repurchases and dividends.

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