Thursday, March 6, 2008

Psychology of the Call for JOYG

Joy Global (JOYG) reported earnings this morning. The stock sprinted to fresh 52 week highs above $70.00. Now we offer our two cents on what we heard on JOYG's live Call.

The call was very transparent. Mike Olsen was slow, but steady and consistent in tone, somewhat positive at the 12 minute mark when he addressed revenue growth visibility.
Next up was Mike Sutherlin. We started to feel management synergy. He had a very reliable tone and offered many facts. At 16 minutes 40 seconds into the call, he mentioned a very positive coal sea change in China. At 19:30 he scored points with us by underlining the growing need for coal. Copper was mentioned at exactly 22 minutes as a developing driver due to rising prices.
34:35 into the call we sensed some friction from Mark at Cleveland Research. He sounded somewhat doubtful/suspicious on the pricing power in steel. Answer: "We feel pretty good about backlog" at 40:20. At 42:20 the hint of any disruption from the storm in China was laid to rest, "not affected at all". Joel from Lehman had an incremental margin question at 43:40. The answer: "Exceeding expectations, much more consistent load, China coming on-line with lower cost, margins will grow into the low 20% range" at 44:30.

Joel asked what was the hold up with orders. The "lumpy" word was used, yikes!! We don't like Wall Street gibberish, the first "four letter word used. Jerry from Goldman at 46:50 had questions on run rate and sales ratio. "Build out in China with quality control and training Chinese in Milwaukee is hard work” at 48 minutes. “We will carry high expense levels for a few years” at 49 minutes, but the transparency/honesty scored huge points. A back log follow up question from Jerry at Goldman: "We are booked out through 2008. After market backlog is 6-7 weeks, we'd like 3-4 weeks". Back log is $1.9B (at 52:20). At 52:50, "Our back log numbers may not compare apples to apples." A positive answer.

JOYG is in the right industry at the right time. We feel management sounded more dynamic than a couple of analysts believe. Therefore, we feel strongly the cloudy back log/visibility is a benefit that causes JOYG's stock price to trade at a discount for our readers.

We see JOYG in a much better light and at a higher price with all macro economic factors being equal. There is "Munch" more happiness at Joy Global than at Wal-Mart in our opinion (see the article below). We would not wait too long to buy these shares, but realizing the Employment data is slated for tomorrow, exhibit caution. Buy part of your position in this Green Coal play (JOYG) tomorrow after the Employment data, and add more in market dips. You would be wise to hold these shares for the next five years as that specific time horizon was visible to management, at 1 hour 4 minutes. SG&A (costs) addressed at 1 hour 16 minutes by analyst Barry. Answer at 1 hour 18 minutes: "they will get better in 2008". The call ended at 1 hour 23 minutes.

We want to thank you for your continued support at the Psychology of the Call.

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