Joy Global Inc. (NYSE:JOY)’s fiscal third quarter earnings didn’t provide much to write home about. However, the company’s outlook for the U.S. coal industry did. Following up on this, income investors should take a look at U.S. coal miners like Alliance Resource Partners, L.P. (NASDAQ:ARLP) and Rhino Resource Partners, L.P. (NYSE:RNO).
Joy Global Inc. (NYSE:JOY) sells mining equipment. Its earnings in the July ended quarter were down 5% year over year after falling over 15% in the April quarter. The sales declines were about 5% and 12%, respectively, in the two periods. In fact, after the fiscal second quarter, the company lowered its guidance for the year.
Although management reiterated its full-year guidance for the year when it announced third-quarter results, it noted that the “fourth quarter will reflect the transition to lower volumes” as the company burns down its backlog. In fact, it doesn’t see much light at the end of the tunnel until the end of 2014 because its customers continue to put off big projects.
Investors are best off avoiding the company for now, particularly since its dividend yield of about 1.4% isn’t a compelling reason to stick around through lean times. That said, in its second quarter release, Joy Global Inc. (NYSE:JOY)’s management noted that “The U.S. coal market was the first to correct. Those corrections are mostly completed, and demand for coal-fueled power generation is improving.”
In the third quarter release, Joy Global Inc. (NYSE:JOY) was even more specific: “Stockpile depletion [at U.S. utilities] will continue in the second half…” which “…should result in coal production increases in 2014.” That’s good news for the beleaguered U.S. coal industry.
Leading the pack
In its second quarter release, Joy Global Inc. (NYSE:JOY) went on to note that “most of the incremental coal burn above $4.00 [natural gas] will come from the Illinois Basin and Northern Appalachia…” These two coal regions account for the majority of Alliance Resource Partners, L.P. (NASDAQ:ARLP)’ coal production.
Alliance Resource Partners, L.P. (NASDAQ:ARLP) increased its net income guidance at the end of the second half. That’s not surprising since its coal sales volume was up about 13% year over year in the second quarter. So, despite a 7% decrease in coal prices, the company reported yet another quarter of record results. It also upped its quarterly distribution.
Alliance is a good choice for conservative income investors. It yields around 6.1%, and the distribution has been increased at least annually for a decade. Moreover, it is performing well despite the industry’s current woes. Although the shares aren’t as moribund as others in the coal space, Alliance’s yield, regular distribution hikes, and modest capital appreciation potential should make it a compelling investment opportunity for just about any investor.