Joy Global Inc. (JOYG) posted an EPS of 73 cents for the first quarter of 2010, surpassing the Zacks Consensus Estimate of 64 cents but below the year-ago earnings of 83 cents. The better-than-expected earnings were primarily driven by improved commodities market and better orders during the quarter.

During the quarter, the company merged its operating Continental Crushing and Conveying segment into Joy Mining Machinery and P&H Mining Equipment segment. The results from the prior year have been restated to reflect this integration. Full results for crushing and conveying products are now reported with Joy Global, while the results for sales into the surface market are additionally reported with P&H.

Behind the Headline Numbers

Revenues declined 3% year on year to $729 million in the quarter, as a result of a 12% decline in the Underground Mining Machinery (UMM) segment offset by an 8% increase in the Surface Mining Equipment (SME) segment. Original equipment sales decreased 10%, driven by an 18% decline in the UMM segment and flat sales results in the SME segment.

Aftermarket sales improved 2% in the quarter. Domestic sales fell 17%, whereas international sales grew 14% during the quarter.

New order bookings improved 22% to $808 million in the quarter, largely driven by a 303% increase in original equipment orders and an 8% improvement in aftermarket orders. By operation, order bookings improved 19% for UMM segment and 125% for SME segment. The order backlog stood at $1.55 billion at the end of the quarter, compared to $1.47 billion a year ago.

Operating income in the quarter was $117.6 million compared to $135.2 million last year. The decrease in operating profit was substantially due to $10 million associated with lower sales volumes and unfavorable absorption on decreased manufacturing levels, and a $9 million increase in pension expense. These items were partially offset by $6 million of favorable foreign currency translation.

Cash provided by operations in the quarter was $60 million compared to cash used in operations of $36 million in the prior-year quarter. Inventories in the quarter were essentially flat at $144 million. Capital expenditures were $14 million compared to $23 million in the prior-year quarter.

Outlook Upbeat

Joy Global management is optimistic about the road ahead and expects 2010 to be a year of improving order rates. Management foresees the greatest potential for original equipment orders in copper, international coal and iron ore with orders primarily coming from North and South America, Asia and Africa. Aftermarket orders are expected to continue to improve steadily as its international customers return to production during 2010.

Encouraged by the improving fundamentals in the commodity markets and the on-going work with customers, management expects the expansion projects will move to equipment orders during 2010. However, they do not expect 2010 revenues to improve significantly, as they expect original equipment orders booked in 2010 to become shipments in 2011 and a steadier rate of improvement for aftermarket orders.

Joy Global reiterated its revenue guidance in the $2.8-$3.0 billion range for 2010. However, the company continues to see the positive bottom-line impact of programs to improve process efficiencies and efforts to contain costs. This is expected to favorably impact earnings and thus, management raised the upper end of its 2010 EPS guidance range by 20 cents to $2.85-$3.05. Furthermore, the company expects spend $100 million towards capital in 2010, driven by increased investment projections.

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