Joy Global Inc. (JOY) will release its fiscal third quarter 2013 financial results before the market bell on Aug 28, 2013. In the prior quarter, this surface and underground mining equipment manufacturer reported a positive earnings surprise of 11.61%. Joy Global currently has a Zacks Rank #4 (Sell). Let’s see how things are shaping up at Joy Global prior to this announcement.
Factors to Consider This Quarter
The fortunes of mining equipment manufacturers are primarily tied to the development and activities of the miners. Miners are presently taking a very cautious step in developing new mines and are selecting projects which can achieve returns without a material improvement in market demand.
The cut in capital expenditure of the miners has resulted in a nearly 35% decline in original equipment bookings. Moreover, prices and margins of the mining equipment suppliers are under pressure as the commodities are in supply surplus.
A major chunk of Joy Global’s revenue comes from its top 10 customers. In the last fiscal year this group contributed nearly 38% of its total revenue. The loss of any of these customers would affect the top line of the company.
On the positive side, the global demand for coal is expected to move up due to the addition of nearly 90 gigawatts of coal-based power generation plants in 2013. Miners will have to produce more coal to meet the surge in demand once the stockpiles are cleared. This might benefit mining equipment manufacturers like Joy Global.
Our proven model indicates that Joy Global is likely to miss earnings this quarter. That is because a stock needs to have both a positive earnings Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here.
Negative Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at -5.80%.
Zacks Rank #4 (Sell): Joy Global’s Zacks Rank #4 further increases the possibility of a negative earnings surprise. We caution against stocks with Zacks Ranks #4 and 5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
Here are some companies tied to the mining industry worth considering on the basis of our model, which shows that they have the right combination of elements to post an earnings beat in the next quarter:
Suncoke Energy Partners, L.P. (SXCP) has earnings ESP of +2.08% and carries a Zacks Rank #2 (Buy).
Alpha Natural Resources, Inc. (ANR) has earnings ESP of +4.00% and carries a Zacks Rank #3 (Hold).
Arch Coal Inc. (ACI) has earnings ESP of +6.45% and carries a Zacks Rank #3 (Hold).
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