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Why Mining for Profits Proved Ineffective for Joy Global

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Nov. 20 2020, Updated 11:28 a.m. ET

Weak commodity markets

Mining equipment supply and services to US coal mining companies accounted for 76% of Joy Global’s (JOY) US revenue, and so the revival of the commodity cycle is of the utmost importance to JOY.

The company manufactures mining equipment that is used extensively for both surface and underground mining of coal, copper, iron ore, oil sands, gold, and other mineral resources. But JOY expects US coal demand to diminish due to falling natural gas prices. Eventually, this will result in high coal inventory and low mining demand, which will JOY’s operations, because it supplies mining equipment to mining companies.

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JOY’s revenues have been under pressure due to lower revenues from original equipment sales (down by 25% on a half-yearly basis). It has also seen declines in service sales (down by 26% on a half-yearly basis) and reduced demand in nearly all regions, including North America, Latin America, China, and Australasia but excluding for Eurasia and Africa. In the latter segment, JOY provides aftermarkets parts and services for both above-ground and underground mining industries and certain industrial applications.

Caterpillar (CAT), Terex (TEX), and Illinois Tool Works (ITW) are some of the major companies in the mining equipment industry. In these companies’ fiscal 1Q16 revenues, we’ve seen declines over fiscal 1Q15. CAT’s 1Q16 revenue, for example, declined by 25.2% on yearly basis, and TEX’s and ITW’s 1Q16 revenues declined by 4.6%, and 2.0%, respectively, on a yearly basis.

Notably, JOY makes up part of the S&P Mid-Cap 400 Pure Value ETF (RFV) and the VanEck Vectors Coal ETF (KOL), accounting for 3.4% and 4.9%, respectively, of these funds’ total holdings.

In next part, we’ll examine Joy Global’s financial performance.

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