Milwaukee-based mining equipment manufacturer Joy Global continues to struggle as lower commodity prices and weaker foreign economies, including China's, are hurting demand for its products. As a result, the company is planning significant "cost reductions."
The company's net income fell more than $70 million in the first quarter as the company reported a $40.2 million net loss and said it expects its customers will put off equipment maintenance and purchases because of low commodity prices.
[caption id="attachment_124046" align="alignright" width="350"] Joy Global's Milwaukee headquarters.[/caption]
Ted Doheny, Joy Global Inc. president and chief executive officer, said the results were inline with expectations and the company would look to address things within its control.
“With the increased challenges in some of our end markets, we are further leveraging our footprint optimization and other operational excellence strategies cross the business and are now targeting over $100 million in cost reductions for the year,” Doheny said.
The company previously indicated it was seeking $85 million in cost reductions.
The company’s first quarter loss included $27 million in restructuring charges from employee severance and termination costs and accelerated depreciation. The company is expecting additional restructuring charges in the range of $20 million to $30 million for the rest of the year as it continues to reduce staffing levels and “optimize” its global manufacturing and service footprint.
Doheny said the company's manufacturing footprint, which had to support a larger business when the mining industry was doing well, is currently about 25 percent utilized. The goal for the year is to reach 45 percent utilization and eventually to hit 75 percent. Doheny acknowledged that without strong growth coming in the near future, reaching those levels will require facility closures.
"There will be additional actions," he said.
Asked if there were any specific plans for operations in Milwaukee, Joy Global spokeswoman Caley Clinton said in an email that the company is looking to position itself to better weather the highs and lows of the market in the long term and there were no specifics at this time.
The mining equipment manufacturer’s revenue fell 25 percent to $526.3 million during the first quarter of its fiscal year. The drop in revenue occurred across the board as the company battles falling commodity prices and weaker economies in China and around the world. The company’s underground products segment was down 29 percent to $274.5 million. The surface products segment was down 20 percent to $276.5 million. Sales for services were down 20 percent and original equipment sales were down 39 percent.
The company said the struggling U.S. coal market has seen the biggest increase in headwinds. The company cited ongoing regulatory forces and market-based challenges for coal’s struggles. Those include increased natural gas production and inventories and a mild winter. Revenue from the United States was down 44 percent to $139 million while the rest of the world brought in $387.3 million, a 15 percent decrease.
Doheny said the company’s product development strategies are still moving forward and the company is seeing successes in field trials on its hybrid excavator and underground hard rock loader.
“We believe that these organically developed machines will deliver significant value to our customers and we look forward to delivering them to the market place later this year and into 2017,” Doheny said. “Providing customers with highly differentiated equipment and service systems solutions to improve safety and lower their cost per ton is the core of our strategy.”
The company did see a backlog increase from $873 million to $897 million. It was the first such increase since the second quarter of 2014.