We updated a research report on Joy Global, Inc. JOY on Sep 24, 2015. Joy Global continues to face choppy demand in the international markets on lackluster economic growth. Dwindling coal exports and slower-than-expected U.S. demand are expected to reduce U.S. coal production by more than 86 million short tons in 2015. This will go particularly against Joy Global as coal miners contribute the largest share of its revenues.

Stringent regulations and lower natural gas prices are affecting the demand for thermal coal in the U.S. power sector. However, the company’s initiatives to reduce expenses are appreciable. But unless commodity prices improve, mining activity will not pick up and Joy Global will continue to be affected by soft demand.

Joy Global reported lower-than-expected results in the third quarter of fiscal 2015, with earnings per share and total revenues lagging the Zacks Consensus Estimate.

Amid lower customer spending on new projects, which has resulted in a 31% year-over-year decline in fiscal third-quarter bookings, Joy Global increased its focus on innovative new products and services that will boost production and lower mine operating costs. Given the slackness in demand, the company has accelerated the development of its global facility and service network optimization plans.

Management expects to incur additional restructuring charges in the range of $10 million to $20 million in the fiscal fourth quarter, with total cost savings of $60 million for the fiscal, an increase of $10 million from its previously announced savings target.

Despite having customers in other industries, Joy Global’s revenue generation to a large extent is tied to coal market demand. Nearly 61% of the total revenue of the company is generated from its thermal and metallurgical coal-mining customers. In Aug 2015, the U.S. Environmental Protection Agency released the final version of the Clean Power Plan. The plan calls for CO2 reduction of 28% by 2025 and 32% by 2030, from 2005 levels.

Per a release from the U.S. Energy Information Administration, nearly 19 gigawatts of coal-fired generating capacity are expected to be retired between 2015 and 2016 to meet the Mercury and Air Toxics Standards. This could adversely impact Joy Global’s equipment sales to coal operators.

Moreover, Joy Global operates in a very competitive environment, competing directly or indirectly with other manufacturers of surface and underground mining equipment, some of which are much larger than the company.

Zacks Rank

Joy Global currently has a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the broader mining space are Denison Mines Corp. DNN, OCI Resources LP OCIR and UR-Energy Inc. URG. All three stocks currently have a Zacks Rank #2 (Buy).

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