August 30, 2012 / 1:00 PM / in 5 years

TEXT-S&P: Joy Global Inc rtgs unaffctd by down forecast

Aug 30 - Standard & Poor’s Ratings Services today said that its ratings and outlook on U.S.-based mining equipment manufacturer Joy Global Inc. (BBB/Stable/--) are not affected by the company’s third quarter earnings and its revenue guidance for 2012 and 2013. Joy reported today that weaker demand conditions in global commodity markets, and in the U.S. coal market in particular, are hurting demand for its products and services: new equipment orders (OE) were down over 60% in the quarter before the impact of acquisitions, and aftermarket orders were down slightly. Our rating incorporates the highly cyclical nature of Joy’s end-markets and the high volatility of OE orders, but also the stabilizing nature of Joy’s aftermarket operations. These account for more than half of Joy’s revenues, and should, as has historically been the case, continue to support the company’s profits and cash flow generation in a down cycle.

Assuming quarterly orders normalizing at about $1.2 billion (compared with $1.1 billion in the most recent quarter), we now believe that total revenues could decline about 10% next year. Pressure on profit margins, while likely from current record levels, should be tempered by the cost management actions that the company has started to implement, and we do not expect EBITDA to fall significantly below $1 billion. Provided the company calibrates its shareholder return and acquisition initiatives to its cash generation, and based on current credit ratios of about 1.5x debt to EBITDA and funds from operations (FFO) to debt of about 50%, we therefore expect that the company will continue to maintain credit metrics that are adequate for the rating, including FFO to debt of more than 35%.

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