Joy Global turns attention to research and development during downturn in industry
The one bright spot that can come from a commodities slowdown, such as one the mining industry currently finds itself in, is that companies can devote more time to research and development.
The Milwaukee-Wisconsin Journal Sentinel reported that Joy Global has done just that and as a result has come up with a new rock cutting tool that Joy Global president and CEO Edward “Ted” Doheny called the Holy Grail in mining.”
The recent downturn in mining has hit Joy Global hard. Sales for its equipment could be down as much as 50 percent from the peak in 2012 and the decline in spending could stretch until 2017.
Yet the new technologies developed could position the company well and fundamentally changing the way mining is done throughout the world.
Joy has “cracked the code” on a process for mechanically cutting rock in underground mines, Doheny said, adding that it will make the mines safer and more efficient by eliminating the need for explosives.
Machine automation is another area the company is focused on, including technology that allows mines to run underground machines by remote control.
Still, Joy’s earnings have slid in the mining industry downturn. In mid-December, the company reported a fourth-quarter loss of $1.3 billion, compared with a profit of $129.7 million in the prior year's fourth quarter.
“Investors are worried that the (mining slump) is going to grind these guys down, and that sooner or later they are just going to go bankrupt because there's nothing left. But even in these very difficult times, four years into the downturn, Joy is still generating $100 million to $150 million in free cash flow,” said analyst Joel Tiss with BMO Capital Markets..
The hard times have hit home for Joy’s employees. Hundreds of them are on layoff, and the company closed one of its Milwaukee facilities.
In addition to its U.S. manufacturing plants, Joy has factories in China, where it has partnered with Chinese companies.
About 10 percent of Joy’s business is in China, but that's expected to rise as more than half of the world's coal production comes from that country.
Other Wisconsin manufacturers, including Johnson Controls Inc., Rockwell Automation and the mining equipment division of Caterpillar also have much at stake in China.
The slowdown in China's industrial growth has shaken the world economy, including the mining sector.
“In the short term, it’s tough. But in the long term there’s an opportunity for us (in China),” Doheny said.
One element of the company's manufacturing strategy involves building mining equipment in China for India, Russia and possibly Western markets.
At some point, mining will rebound as the world economy improves and factories need more steel and other mined materials.
"The commodities are there; everything in the world is either mined or grown," Doheny said.
He added, “We have to get people excited about the industry we serve, and excited about the new technologies, because getting through this trough we need to have the best and the brightest people to get to the other side.”