Coal news and updates

Joy Global, a company that manufactures and services mining equipment for coal mining, reported weaker-than-expected third quarter earnings results Thursday and blamed the top- and bottom-line misses on a struggling thermal coal landscape. And with an oversupply of coal that Joy says could last well into next year, the company is also lowering its full-year forecast — even as some analysts say that now is the time to be bullish on thermal coal.

 

Joy Global reported $875.7 million in third quarter revenue, a 33.7% drop from the year-ago quarter and well under the $949 million Street consensus. Net income came in at $71.3 million, a 61% plunge compared to the same quarter in 2013 and a figure that produced earnings per share of 71 cents, down from $1.72 in third quarter earnings per share this time last year. Excluding special items, earnings per share came in at 80 cents, missing the analyst consensus by six cents.

 

Though Ted Doheny, Joy Global’s president and CEO, said that the company is operating well in a “challenging commodity market environment,” Joy’s earnings release put a good deal of focus on those challenges, highlighting everything from the geopolitical situation in Ukraine to production cuts in China headwinds for the coal industry. “Warm winter weather in Europe along with elevated global coal inventories compounded an already oversupplied seaborne market and have driven prices towards $70 per tonne,” Joy said, adding, “Oversupply conditions are likely to persist through at least mid-2015.”

 

Domestically, the picture isn’t much prettier. ”The U.S. thermal coal market continues to face challenging conditions despite 4% economic growth in the U.S. during the second quarter,” the company said. “U.S. coal production is still lagging behind last year as depressed prices, cooler than normal summer weather, and decreased export activity has weighed on overall demand.”

 

As a result of the challenges the company has faced in 2014 as well as the challenges it expects to continue to face, Joy Global tightened and slightly lowered its full-year revenue guidance to a range of $3.65 billion to $3.75 billion, down from a prior range of $3.6 billion to $3.8 billion. Full-year earnings per share are expected to fall between $3.15 and $3.30 as compared to the previously-reported range of $3.10 to $3.50 per share.

 

Despite Joy Global’s less-than-enthusiastic outlook, others in the industry see a turnaround in sight for the thermal coal. In an industry note titled “like a phoenix, thermal coal rises from the ashes,” Citi analyst Ivan Szpakowski recently wrote, “After a difficult past eight months for coal, we expect prices to rally through year-end. Our bullish view towards the September-December period is not new, but recent developments have only increased our conviction, and we believe that entering September, now is the time to open a position.”

 

Pointing to a monsoon season in India that has brought 18% less rainfall than usual — which in turn weakens capacity for hydro-driven power – Szpakowski said that “the weak monsoon should  have a demand-side impact, boosting electricity consumption from agricultural pumps.” This, paired with a prediction that Chinese and Indonesian demand for coal should increase in coming months, gives Szpakowski a more optimistic outlook — though he, too, still sees softness in the European market, noting, “With slower-than-expected European growth and renewables’ share continuing to rise, we find it difficult to construct an argument to be bullish EU coal imports.”

 

Following the release of the earnings results, shares of Joy Global fell into negative territory and are currently down about 1%. Year-to-date, the stock is up about 10%. Meanwhile, the coal ETF, Market Vectors Coal ETF, is also in the red in Thursday trading, but only by about 0.15%. Year-to-date, it’s up just 1.3%.

 

 

 

Source: http://www.forbes.com/