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Caterpillar Inc. (CAT), Arch Coal Inc (ACI): Are Joy Global Inc. (JOY) Earnings Doomed to Drop?

Joy Global Inc. (NYSE:JOYwill release its quarterly report on Wednesday, and the stock has suffered recently from the weakness in the commodities markets on which Joy’s customers rely for their profits. With analysts expecting Joy Global earnings to drop substantially from year-ago levels, though, forward-thinking investors have to wonder whether the long-term picture for the company is actually a lot better than it currently appears.

Joy Global Inc. (NYSE:JOY)Joy Global Inc. (NYSE:JOY) enjoyed a substantial boom during the bull market in commodities, as its stock soared more than 2,000% between 2003 and 2008 and went on to hit even higher levels during 2011. Since then, though, China’s slowdown has knocked major commodity markets for a loop, and companies like Joy Global that supply the equipment for miners to produce those commodities have had to deal with the resulting fallout. Let’s take an early look at what’s been happening with Joy Global over the past quarter and what we’re likely to see in its report.

Stats on Joy Global

Analyst EPS Estimate $1.36
Change From Year-Ago EPS (25%)
Revenue Estimate $1.18 billion
Change From Year-Ago Revenue (15.2%)
Earnings Beats in Past Four Quarters 3

Source: Yahoo! Finance.

Where are Joy Global earnings headed?
Analysts have gotten even more pessimistic about the prospects for Joy Global earnings in recent months, cutting their July quarter estimates by almost $0.20 per share and their long-range fiscal 2014 projections by $0.85 per share. The stock hasn’t suffered too much more than it already had earlier in the year, though, falling just another 5% since late May.

The key reason why Joy Global has suffered such a sharp decline in earnings has to do with its concentration on serving the coal industry. With about two-thirds of its revenue coming from coal-mining companies, Joy Global has had to deal with the second-order effects that low natural-gas prices have had on coal, as prices have fallen so dramatically that even major coal producers have faced substantial strain.

Yet Joy Global Inc. (NYSE:JOY) certainly hasn’t been the only company to feel the pinch from poor commodities markets. Caterpillar Inc. (NYSE:CATreported earnings last month that were far lower than expectations, as the company had to deal with weakness both in its construction and infrastructure equipment business as well as the mining-equipment segment it bolstered with its acquisition of Bucyrus that it completed two years ago. China was a big problem for Caterpillar Inc. (NYSE:CAT), and given that Joy Global has extensive exposure to the Chinese market, those results could bode ill for Joy’s earnings prospects.

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