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Caterpillar Inc. (CAT), Joy Global Inc. (JOY): Why Wednesday Could Prove Critical for This Stock

Not all investment decisions go right, even if they are made in companies that belong to sectors no economy can do without. One great example is the mining equipment industry. Without those shovels and excavators, miners will not be able to unearth rich natural resources vital for the economy.

Yet, mining equipment leaders like Caterpillar Inc. (NYSE:CAT) and Joy Global Inc. (NYSE:JOY) have had a tough time lately as a global slowdown forced miners to push back investments, thereby hurting their top and bottom lines significantly. The persistent weakness in stocks of both companies reflects those fears.

Of the two, Joy Global Inc. (NYSE:JOY) investors have been hit harder, with the stock losing 5% over the past three months, and a dismal 21% year to date, as of this writing. With the company set to report its third-quarter numbers Wednesday, can investors expect a breather?

Caterpillar Inc. (NYSE:CAT)

Why revenue won’t matter
Joy Global Inc. (NYSE:JOY) surprised the Street in each of its last three quarters. If the company does it again Wednesday, it will be welcome news. Analysts have low expectations, projecting Joy Global Inc. (NYSE:JOY) to post a sharp 25% drop on earnings per share on a 15% decline in revenue.

While a decline in revenue is never good news, what investors should really look for in Joy Global Inc. (NYSE:JOY)’s upcoming earnings release is any increase in new orders and backlog. Because Joy records revenue only when it delivers prior orders, growth on the top line doesn’t really mean Joy Global Inc. (NYSE:JOY)’s business is doing well, nor does it say anything about where Joy’s business is headed. On the other hand, an increasing backlog means higher potential revenue in the future, which is what investors really want to see.

Stay low
Unfortunately, Joy’s third quarter may disappoint. Backlog in Joy’s previous quarter slipped 8% sequentially, while new bookings declined 8% year over year. The downward trend is likely to continue into the third quarter, since Joy’s order flow directly depends on how much mining companies want to spend. As of now, most miners are sitting tight on their wallets.

For instance, Rio Tinto plc (ADR) (NYSE:RIO)‘s capital spending on exploration and evaluation declined $483 million year over year during the first half of the year. Furthermore, Rio Tinto plc (ADR) (NYSE:RIO) aims to cut its full-year capex spending by 20% from its 2012 level. That’s exactly the same percentage that mining company Peabody Energy Corporation (NYSE:BTU) will lower its capital spending by this year.

Watch out for…
On a brighter note, Peabody Energy Corporation (NYSE:BTU) foresees an improving coal market in the U.S. for the second half as inventory levels ease. Joy also booked one project that was pending for almost a year in its previous quarter, signaling that mining projects might have finally started moving.

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