Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  
TRANSCRIPT SPONSOR
Wall Street Breakfast

Joy Global Inc. (JOYG)

F3Q07 Earnings Call

August 29, 2007 11:00 am ET

Executives

Jim Woodward - CFO

Mike Sutherlin - President and CEO

Analysts

Mark Koznarek - Cleveland Research

Charlie Brady - BMO Capital Markets

Robert McCarthy - Robert W. Baird

Seth Weber - Banc of America Securities

Barry Haimes - Sage Asset Management

Michael Gallo - C.L.King

Jerry Revich - Goldman Sachs

Randy Saluck - Mortar Capital

Lee Rosenbaum - Putnam

Barry Bannister - Stifel Nicolaus

John Olson - Houston Energy Partners

Presentation

Operator

I would like to welcome everyone to the Joy Global Inc. third quarter 2007 earnings conference call. (Operator Instructions) Mr. Woodward, Chief Financial Officer, you may begin.

Jim Woodward

Thank you very much. Good morning everyone and thank you for participating in today's call. I will begin our discussion with a review of our third quarter results, then Mike Sutherlin, our President and CEO, will have some comments on our global markets and the outlook and then we will take your questions. By the way, when we do get to the question period today, we would appreciate it if you would ask one question and one follow-up and then get back in the queue for the next question so that we can answer as many as possible.

In our comments, forward-looking statements should be considered along with the risk factors noted in our press release and of course our 10-K. We also refer you to our website joyglobal.com for additional information.

Also just as a reminder, we will be hosting an analyst day in New York City on September 20, just a few weeks away where we will be discussing some of the significant aspects of our five-year strategic plan. In addition to Mike and myself and other key members of our senior management team, Ted Doheny, President of Joy Mining Machinery, and Mark Readinger, President of P&H will be discussing their respective business segments. We look forward to seeing many of you there and the presentation and Q&A will be webcast.

So now let's get started with our view of the third quarter operating results. Candidly, although there are some positives, third quarter results in both our underground and service segments were below our expectations. Let's begin with our underground segment at Joy Mining Machinery. As we mentioned in our July 25th press release and you have also heard from many of our public customers, contrary to our expectations at the end of the second quarter, the US underground coal market continued to be soft. If you recall although we did not expect to see any increases in OE orders until calendar '08, we had predicted that our aftermarket would benefit from marginal increases in production.

This prediction was based on several factors including a 4% year-over-year increase in electricity demand at that time, coal stockpiles that had started to decline slightly and prices that appear to be firming, especially in Central App. However what we actually experienced was a slowing in the year-over-year growth in electricity demand due to mild weather, an increased use of natural gas for generation, and rather than continued decline in coal inventories and firmer prices, increasing stockpiles and slightly weaker prices. These factors resulted in a continuing decline in production as our customers promptly -- and candidly properly -- continued to trim their production schedules and focus on reducing their cash costs, but it did result in lower than planned aftermarket sales in our underground segment.

Unfortunately, usually when it rains it pours, sometimes literally. In addition to a weaker US market, flooding in the United Kingdom and a national labor work stoppage in South Africa also unfavorably impacted our Joy Mining Machinery underground shipments in the short run by putting us behind schedule. All of these factors resulted in a decline of 1% in underground sales for the quarter and 9% if adjusted for the addition of Stamler in late '06.

Operating margins in the underground segment declined by 300 basis points at 18.3% of sales versus 21.3% in the prior year quarter. The decline reflects in part an increase in period costs due to the loss of fixed overhead absorption resulting from the operational issues I mentioned. We are moving to reduce costs in the United States and the United Kingdom underground businesses to conform to the weaker US market and the movement of our production to our new factory in China. These and other cost reduction efforts resulted in a charge of $3.3 million during the quarter for related severance costs. Also comparing with the previous year, there were $2.6 million of additional costs in the current quarter associated with the Stamler acquisition.

Finally, we continue to invest in the required sales and service infrastructure to support expected future sales in China. Incurring these costs in advance of the sales has the effect of reducing current margins but is a necessary component for our success in this very strategic market in the future.

The issues faced in our surface segment were slightly different. Sales at P&H were up over the prior year quarter by over 11% but as I stated, they were still below our internal expectations. Although we have invested increased capacity for electric mining shovels and aftermarket components over the last couple of years, the increase has not grown fast enough to satisfy demand. This has placed a lot of pressure on our own operations and the supply chain.

As you can appreciate when you are operating at capacity and you have any hiccups in the process, it becomes very difficult to recover. You just do not have any idle machines or people to deploy to help you get back on schedule quickly. An hour lost on a bottleneck operation, is generally an hour lost forever. Unfortunately as we mentioned in the July 25th release, we had a couple of those hiccups in the P&H supply base during the third quarter. One was a long-term casting supplier of P&H and the other was a new fabrication supplier in China. The root causes of the problems at both suppliers have been corrected and we do expect them to be back on schedule by the end of the calendar year. However, it did result in a reduction in sales due to decreased shipments.

In addition, revenue for our long lead time electric mining shovels is recognized on a percentage of completion method. If a shovel does not meet certain manufacturing benchmarks, revenue is not recognized. Thus a delay in the schedule even if the machine ultimately meets all contractual dates, will cause a shift in the quarters where revenue recognition occurs. To address capacity constraints at P&H, our continuing strategy is to invest in key components that have high intellectual property content and to outsource non-proprietary components such as large fabrications. In the former category, we completed an investment of approximately $20 million in Milwaukee this year and announced an investment of $50 million in a second plant in Tianjin, China on the current Joy campus which will be dedicated to P&H proprietary components. We expect to break ground on this new facility this fall and begin production in the spring of 2008 with full production targeted for 2009.

The new fabrication supplier in China that I mentioned is another example of this effort. It is important to note that we are expanding capacity and shovel components in this region not just because of lower cost but also because this is the region where these products are ultimately destined. In addition to these moves, the P&H team continues to focus on improving operational efficiencies and manufacturing cycle time.

Despite the operational issues experienced at P&H during the quarter, their operating margins in this segment increased by 240 basis points to 19.5% from 17.1% in the prior year quarter. Although sales were less than our production plans, the higher levels of activity year over year did result in increased absorption of fixed overhead. In addition, sales growth exceeded the growth in SG&A expense resulting in a lower percent of sales compared to the prior period.

So now let's turn to order bookings. While sales in both segments were below our expectations, P&H quarterly sales still increased year over year while Joy Mining sales declined. In order bookings, however, the opposite is true. Bookings in the underground segment increased 18% over the prior year quarter while the surface segment declined 13%. Orders in the underground segment increased for both original equipment and aftermarket with OE bookings driven primarily by orders for powered roof support systems in the United States and Russia. Underground aftermarket orders were strong in China and also reflected the addition of Stamler. The orders for long lead time powered roof support systems from US customers reflects their continued positive outlook for this market despite the short-term weakness. Mike will speak more to this market in a moment.

The overall reduction in order bookings in the surface segment continues to reflect the lumpiness of original equipment orders rather than any reduction in prospects. The requirements for recognizing an order booking include a signed agreement with all terms and conditions finalized or a significant down payment along with commitment letters. While we have many orders in various stages of the booking process, it is not until it passes these requirements that we will officially recognize it, thus the lumpiness factor.

Aftermarket bookings in the surface segment increased from the prior year quarter but were offset by reduced original equipment bookings. Also just as a reminder, we do not record lifecycle management or maintenance and repair contracts as bookings upon signing. We record the related booking revenue as earned over the life of the contract, thus they effectively do not appear in our backlog. This may differ from the method used by some of our competitors.

On a more positive note, during the quarter we generated over $150 million in operating cash flow primarily on the strength of advanced payments for new machines. Ending inventory levels were impacted negatively by the shortfall in shipments from our production plants but we should get back to our targets as we catch the schedules up.

As disclosed last quarter and updated in our July 25th release, we had a potential accounts receivable collectability issue of $19 million associated with the power roof support system designated for a customer in China. I am happy to report that the customer opened the appropriate letter of credit in August and shipment of the roof supports have been scheduled and will be completed this year. We now expect to receive all monies owed under this contract.

Capital additions during the quarter were $19.3 million or 3% of sales. This is consistent with our previous guidance of increased CapEx in the range of 3.5% to 4% of sales associated with capacity additions at P&H including the new China plant, continued building of the Joy Mining infrastructure in China and the previously announced new facility in Australia which will combine six smaller existing facilities into one. This new Australian facility will be jointly used by P&H and Joy Mining and will also consolidate the Donnelly acquisition we made in the first quarter of this year thus completing that integration.

Finishing up with some housekeeping items, the cash tax rate in the third quarter was 18% compared to a book rate of 29%. We anticipate that the full year book rate will be 31% and the lower rate in Q3 reflects the required adjustments of year-to-date numbers to achieve that rate by year end. If you recall from our previous conversations, we anticipate a cash tax rate of approximately 15% until our NOLs are exhausted which is expected to be in fiscal 2009.

During the quarter, we repurchased 440,000 shares of our common stock for $22.2 million. As I've discussed with some of you during closed window periods, our market purchases are on a program basis under an existing 10b5-1 plan. We continue to believe that a sustained and consistent presence in this market is a best approach.

Now I will turn it over to Mike for the outlook on our markets.

Mike Sutherlin

Thank you, Jim. I would also like to add my welcome to those on this call. As Jim has explained in his review of our financials, we continue to respond to both opportunities and challenges in a dynamic market environment. Although there seems to be more challenges recently, both can best be understood in the context of the markets we serve. So I will first review those markets.

With the exception of US coal, the strength in our markets has increased on the back of continued commodity demand from the emerging markets in general and especially from China and India. Both of these countries continue to grow at rates over 10% and they alone are adding as much as 250 to 300 basis points to worldwide economic growth rates.

China is already the world's leading consumer of almost all metals and its consumption will soon exceed that of the G-7 countries combined. As a result, the emerging markets are adding secular demand to an otherwise cyclical industry to create a stronger for longer commodity growth market.

The international coal markets have strengthened significantly over the past six to eight months, primarily due to demand growth from China and India combined with supply constraints in many of the exporting countries including Australia, South Africa, Indonesia and Russia. China's coal production growth has been impressive, but inadequate to meet the needs of its even higher growth in domestic coal demand. As a result, China's net coal exports have been declining by 20 million to 30 million metrics tons a year and this year China has become a net coal importer. The deficit could grow to 100 million metric tons by 2010.

India's government bureaucracy cannot efficiently produce its ample coal reserves and the countries imports are expected to grow from 30 to 85 million metric tons over the next four years. Although less noticed, the UK and Germany continue to build coal fueled electric generating plants. Infrastructure constraints have severely limited Australia's and South Africa's ability to respond and expansions are not expected to come online until 2009. Energy policies in both Indonesia and Russia have those countries burning more coal for domestic power generation to maximize export of oil and natural gas. As a result, the supply response has been inadequate and the price of seaborne traded thermo coal has increased from $45 to as much as $70 a metric ton in less than a year. Supply is expected to remain in deficit and prices high for the next several years creating a strong market for further capacity expansion in both seaborne coal and domestic supply coal in China and India. The Pacific market could face a deficit of 15 million metric tons this year and that could rise to 25 million metric tons in 2008.

Copper continues its strong growth despite the very weak US housing market which has been more than offset by demand growth in China of 6% to 8% this year. Supply disruptions continue to undermine production growth. Projects that have or will be completed during the ten years from 2003 to 2013 will add only 3 million tons of copper production for a growth rate of just 2% to 3% against the demand growth forecast of 3% to 4% over the same period. As a result, the three major copper producers alone have announced $26 billion in additional expansion projects with $10 billion more in feasibility. As a result, copper is expected to remain a supply deficit for several more years adding support for current pricing levels.

Iron ore has the strongest fundamentals of all of our commodities. Over the last three years production is up 57% but not sufficient to keep pace with demand. Over the same period, seaborne prices are up 125% but are still less than the marginal cost of iron ore production in China which creates an effective pricing floor. Demand growth remains strong especially from China. Prices are expected to go up an additional 30% over the next two years and the major producers have announced further capacity expansion projects that will add another 30% to 70%. China steelmakers are investing in smaller Australian producers to create additional capacity expansion in Western Australia.

The oil sands continues to be a primary growth market for our P&H business. Projects continue to be cost justified at oil prices of $35 to $45 per barrel providing strong economics for expansion projects. Further expansion is also supported by the federal government's decision to apply emissions targets on a unit of production basis. As a result, five new oil sands projects have been approved this year and our shovel prospect list has grown. We continue to expect the shovel demand in oil sands to be six to eight total units per year and for this demand to extend for at least another ten years.

That leaves US coal, our most challenging market. Despite customer discipline that has taken surplus production off line, demand and prices in this market continued to be soft for longer than expected. This is mainly the result of declining demand for electricity. Although electricity demand is still up from last year on a year-to-date basis, the comps on a quarterly basis have been declining and the third quarter through August 11 is running 3% behind last year. This is even more dramatic when you recall that last year was only the fourth time in the last 50 years that there was no year-over-year demand growth in electricity.

But there are positive signs in the US coal market. Power generators have been burning natural gas to enable them to build coal stockpiles and generator stockpiles are estimated at 50 days of supply at the end of July. Part of this build is in response to higher stock target levels to hedge against supply and transportation disruptions but there may also be some opportunistic stocking especially if one anticipates rising prices in the future. Many of our major customers have a significant portion of their 2008 production still unpriced and this would suggest that they expect coal prices to improve going forward. This view is supported by the fact that they have announced selective contract signings at prices well above current spot levels. One customer announced pricing of PRB coal at levels essentially 50% above their 2006 realized prices. The same customer also reports Central Appalachia coal prices 35% above the beginning of the year prompt levels. Another customer contracted Western bituminous coal at prices more than 30% above its recently realized prices for that region. Finally, a third customer reports Northern Appalachian realized prices up 9% from the same period last year. All these examples are positive for the future direction of US coal.

US market has also been helped by the strong demand in pricing in the international coal markets. This has created an opportunity to increase exports for Eastern thermal coal especially to Europe. Strong global demand for metallurgical coal could shift up to 10 million tons of Eastern coal from the thermal market back to the met market.

The positive longer-term view of US coal is further supported by additional electricity generated capacity that will come online in the next few years. There is about 10 gigawatts of coal fuel generating capacity that is under construction and another 10 gigawatts in advanced stages of development. We believe these will be completed as planned and will burn an additional 80 million tons of coal.

Noteworthy in this regard is the recent appeals court ruling that allows Peabody to begin construction of their 1.6 gigawatts Prairie State power plant. By the end of 2009, an additional 40 gigawatts of coal fuel electricity generating capacity will be scrubbed creating an opportunity for up to 90 million tons of high BTU Eastern coal. Although this will not increase total US coal demand, the shift to Eastern coal will have a favorable mix impact on our revenues.

Beyond the near term, the outlook for coal fuel electricity in the United States is less certain due to the lack of a comprehensive national energy policy and efforts to use the current election cycle to drive quick decisions on emission regulations. The combination of strong global economic growth and exceptionally high growth in the emerging countries as they industrialize has created an unprecedented demand for all forms of energy.

Despite interim cycles, this long-term trend will continue. As a consequence, it is not possible to meet global or national energy needs in the future without the strong participation of coal. Reality demands that we seek solutions and not simply choices and one of the most important solutions will be the investment in clean coal technologies. Developing these clean coal technologies is not only essential to meet future energy demands but it will provide a major fuel source that is reliable, secure, environmentally compliant and at a fraction of the cost of other energy sources.

Despite this generally positive outlook for our market, we still have challenges to solve. We left a significant amount of revenue on the shipping dock in the third quarter and we must address and resolve the root causes. In the P&H surface mining equipment business, the slippage was due primarily to supplier delays. We have a recovery plan that gets us back on schedule by the end of calendar 2007 and those suppliers are delivering to that get well plan.

As Jim mentioned, one of the suppliers was a fabricator in the emerging market. This has been a slower qualification start-up process than anticipated due more than anything to the distances and time zones involved. However this vendor is strategically important because it will support the gearing to come from our new P&H facility in Tianjin and it will move our supply chain to more cost competitive locations. This is a harder solution to implement but it is the right decision for our long-term needs.

As Jim also said, the slippages at our Joy underground business were more unusual and involve flooding in the UK and a national labor action in South Africa. Both P&H and Joy slippages are examples of challenges that result from working at full capacity. Although production issues and their solutions are not unusual occurrences, we no longer have sufficient capacity to easily catch up the lost production. This makes our recently increased levels of capital expenditure all the more important.

We are also using this time to realign our underground business to the current conditions in niche markets. Although the US coal market will recover, the timing of that recovery is much less certain. Over the past several years, we have demonstrated our ability to quickly respond to increasing demand for our equipment. We therefore believe the right decision is for us to size our business to current activity in the US market and be prepared to respond when the demand begins to improve. As a result, we have reduced both direct and overhead costs at our US underground operations.

We also have a long-term strategy to translate capacity from high cost to low cost countries. The first stage of implementing this strategy was the completion of the Joy mining facility in our Tianjin, China campus earlier this year. We have been loading that facility and in the third quarter we made a corresponding reduction of costs in our UK operation. The severance costs associated with both of these actions are included in the third quarter.

We have done a good job of reducing working capital but it is primarily due to increased efforts to get advanced payments. Inventory continues to be a challenge. Although inventory associated with the shipping shortages more than offsets the reported inventory increase, we are still not satisfied with the rate of progress in improving our overall inventory velocity. We are intensifying our focus on inventory management because inventory is directly related to expanding our realized full capacity and to improving our operational efficiencies. And both are important elements of our forward guidance.

So with that, let’s look at our guidance. Our guidance for the next four quarters reflects our strong outlook for the international markets but is tempered by a more cautious view of the timing of recovery in the US coal market and the capacity limitations affecting our P&H business. With these in mind, we expect our revenues over the next 12 months to be in the range of $2.6 billion to $2.8 billion. Corresponding operating earnings are anticipated to be in the range of $490 million to $530 million. We believe this level of operating earnings combined with continued repurchase of our shares will result in diluted earnings of $2.90 to $3.15 per share in the next 12 months.

So with that, I would like to turn the call over to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Mark Koznarek - Cleveland Research.

Mark Koznarek - Cleveland Research

Jim, I am afraid I got on the call just a little bit late and you were in your discussion about the underground mining margins. I am wondering if you wouldn't mind going through that again briefly? Then I have some questions about that once you've concluded, but I just want to make sure you didn't touch on them already.

Jim Woodward

Certainly, Mark. The underground mining margins were down 300 basis points as we mentioned and it was impacted by a couple of items. Most significant was the operational issues that we had in the UK and South Africa in terms of the flood and the work stoppage in South Africa, which resulted in higher unabsorbed fixed overhead for higher period costs in that sense.

We also had continued investment in infrastructure, particularly selling and support expenses in China well ahead of the sales levels. But candidly, while that has an impact of reducing the current year margins, it is certainly necessary to do for the long-term margins. Those are two of the bigger items.

Mark Koznarek - Cleveland Research

We also had that realignment cost?

Jim Woodward

Sorry, yes, we did have the right alignment cost of $3.3 million and the cost associated with Stamler of $2.6 million.

Mark Koznarek - Cleveland Research

If you were able to normalize out the three items that you mentioned there, would margins have been closer to even or is there still a significant margin impact of the mix shift away from domestic underground, particularly the domestic underground aftermarket? If that is the case, do we not really get healthy margin improvement back in the underground business until the US market recovers? A multi-step question there.

Jim Woodward

It is and the answer is kind of mixed. Certainly on a run rate basis without those costs and those operational issues, our margins would have been closer to flat but they wouldn't have been all the way there. The one area that from a mix standpoint especially in the order pattern right now that we are experiencing that may plague us a little bit going forward is the increased emphasis on roof supports which do carry a lower margin than some of our other products like shears and continuous miners.

Mike Sutherlin

If you look at the underground margins and you exclude these exceptional items like the severance costs and the Stamler purchase accounting, as I look at that, the margins would be down slightly. But I think they have done a really good job of holding margins in a soft market and they have done really well to contain costs and to make sure that they continue to support good margin performance.

As we look at the US market, we get impacted by aftermarket and original equipment both, and our original equipment and aftermarket margins are not dramatically different so both of those have had an impact on the underground business. Stamler is more heavily included in the underground business than in the P&H business. So if you take Stamler out there, year-over-year revenues would have declined , I think Jimmy said 9%. So we have had a slight margin erosion with that 9% decline but really if you take the exceptional items out and I think last year we probably had one or two extraordinary gains in the comparable quarter, so the margin performance just from my perspective has been quite good considering the softness in their bookings and the scramble they have to do to quickly try to convert bookings into shipments.

Mark Koznarek - Cleveland Research

The message that I am getting is there is obviously some unusual expenses in there. It sounds like some of them might linger into the current quarter but we really shouldn't see year-over-year margin improvement in this business until we get some stabilization or even a little bit of growth in US underground. Is that fair?

Jim Woodward

That's fair. I don't think we are going to see significant margin improvement until we get year-over-year revenue growth in the underground business. Without some participation from the US coal markets, it is hard to get significant revenue improvement. We are getting good results out of the international markets but that is just generally offsetting the softness in the US market. Maybe a little bit to the positive but not significantly to the positive.

Operator

Your next question comes from Charlie Brady - BMO Capital Markets.

Charlie Brady - BMO Capital Markets

In your comments and in your release you talked about reducing expenses related to the US market and I guess also in the UK. Can you just flesh that out? What exactly are you doing there? Have you done everything you are going to do and are there additional costs that are going to flow through? How long will those flow through?

Jim Woodward

Well there are some additional costs as we continue to realign both organizations. In fact, there will be some additional costs especially the move to China, Charlie, is a multistage move. So that is going to involve several pieces over the next couple of years as that plan comes up to capacity. The US will depend heavily on what happens in the US market, as Mike indicated, but we have plans in place to continue to rationalize our US cost structure to be consistent with the market and if it continues to be soft there may be some additional moves that we are going to have to make.

Charlie Brady - BMO Capital Markets

Does that mean you are reducing facilities or just a headcount reduction? Can you be more explicit on exactly what is going on in terms of taking expenses out of the US marketplace?

Mike Sutherlin

So far we have had headcount reductions both direct labor and overhead. We have taken the opportunity to squeeze down some overhead costs and we believe that the overhead costs we have taken out can be taken out permanently, and just force our operations to be more efficient. As we look forward, we believe that we need to keep our underground business sized to its current market conditions. Part of what we are doing is increase our production in China and that is sucking up production that would otherwise have been done now in the UK and that has been part of the downsizing of the UK associated with moving that production to China. There is more of that to go. Obviously we want to fully load that facility in China and our long-term strategy is to continue to put capacity in low-cost countries. So that is a long-term factor.

In the US, we are looking at facility consolidation and if we need to continue to reduce costs to match it to the current market and to do as much as we can to hold our margins, we are prepared to do some facility consolidations to get more overhead costs out of the US underground business as well.

Charlie Brady - BMO Capital Markets

Just on the follow-up on the underground side, in the aftermarket quarter increase of 25%, how much of that was from Stamler?

Mike Sutherlin

A small portion. I don't have the number right in front of me, Charlie. I can get back to you but a small portion of it was Stamler. The majority was China.

Operator

Your next question comes from Robert McCarthy - Robert W. Baird.

Robert McCarthy - Robert W. Baird

Good morning, guys. Can you spend a little bit of time just on the idea that we are facing a difficult US underground demand environment? It has been difficult for some time. So could you speak to the idea of what you are seeing in terms of year-to-year changes and how that might moderate going forward? Basically I am trying to get at the idea of when do we anniversary the worst of the declines? When can we look for year-to-year stability even without any pickup in demand?

Jim Woodward

Rob, our third quarter underground business I think in the US, we were down in the US, probably it was a slight improvement but overall we were down. We still are seeing the impact of a declining aftermarket in the US as people delay their machinery bills as they stretch out their timing a little between maintenance and repairs and things like that. In our last quarter, we thought that the worst of it was behind us but we still see those kind of actions on the part of our customers.

At the same time, we have customers that are booking original equipment orders. We have customers that are talking about aftermarket programs like fleet management programs and other kind of things that provide more continuity and sustainability for aftermarket revenues but right now it is a mixture of the two.

If you look at the exploration, the impending exploration of the synfuels credit, if you look at the increased cost of implementing safety regulations, realistically I think there will be more pressure on some of the higher cost Central Appalachian operations and some of those will probably go offline as well as a result of those cost increases. So we continue to see a lot of pressure in Central Appalachia. We have our highest aftermarket exposure is in that same region. We see more growth in places like Northern Appalachia and the Illinois basin over the longer run. So we are seeing a shift in our US business from a market that we have a high aftermarket exposure to, to markets that we have good but not as good of an aftermarket exposure to. So I think that that is a factor that we will be working with here certainly over the next six to 12 months.

Robert McCarthy - Robert W. Baird

I was sort of struck by the easing booking levels at P&H. And I wonder if you could talk a little bit about how much that has to do with having already sold out available capacity through whatever period of time and how much of that might be other factors that we are not talking about? Within that, I am specifically interested in how much of your capacity you have sold at this point?

Mike Sutherlin

The bookings are notoriously lumpy and probably more so on the P&H business.

Robert McCarthy - Robert W. Baird

I understand that but they have been declining for the last couple of quarters off of a strong first quarter number.

Mike Sutherlin

Yes, our prospect list on the P&H side continues to be very strong. In fact our prospect list for mining shovels continues to grow. At the same time, the process of booking these orders tends to drag out. We are looking at more multiple machine orders today than we would have had a year or two ago. So as a customer comes in and wants to contract for multiple machines that are delivered over maybe slots that will extend over six to nine months, that just adds more complication to those contracting discussions and stretches that process out.

We have been very disciplined about not trying to accelerate that to get the booking in because the acceleration always works against us in terms of terms of conditions always risks taking less favorable terms and conditions to accelerate the process and we don't want to do that. But certainly we feel very, very confident about the outlook for mining shovels. I mean we still are mostly concerned about increasing our capacity to serve the aftermarket and hopefully to get some uptick on our original equipment delivery capability.

At this point, the delivery that we have, we are booked out all of 2008. We are booking well into 2009 on electric mining shovels and roughly midway into 2009. But that delivery is not creating any kind of push back from our customers. We certainly are not seeing any order losses to date because of delivery. So what we have done really a pretty nice job of is more extensive communications with our customers on our available slots and getting them to look at some of these decisions earlier than they might otherwise have and try to reduce the impact of the delivery on their decision process.

Jim Woodward

Just further building on that, there are a number of shovel orders in the process today as we speak. And we mentioned before about customers because of lead times coming to us from multiple shovel commitments over a period of time. Based on our plans right now, if we as Mike said, if the fourth quarter comes the way we think it is with the demand that is out there right now, then we will be sold 18 to 24 months out by the end of our fiscal year.

Robert McCarthy - Robert W. Baird

Jim, when you all talk about having sold 2008, what should we understand to be the number of shovels that you would anticipate delivering in '08?

Jim Woodward

As I have mentioned before, Rob, in some of our conversations, I believe this year we are going to deliver roughly 22 shovels. We are building at a 26 plus or minus rate right now. And as the new Tianjin plant comes on although it will be dedicated to the aftermarket for a while, that gives us increased flexibility to move that to shovels if we desire once we have satisfied the aftermarket.

Operator

Your next question comes from Seth Weber - Banc of America Securities.

Seth Weber - Banc of America Securities

One of your competitors intimated recently that they have been seeing some more aggressive pricing from Joy Mining on the underground side. Can you comment on that?

Jim Woodward

When we heard those comments, I will be honest you with you, we went back and checked ourselves just to make sure that things weren't going on that we weren't aware of. But while there has been some shift in our mix in terms of products, in terms of the absolute margin rates on our individual product lines there has been no deterioration in terms of aggressive pricing around there. So we have been relatively successful recently in roof support orders and although those orders have met all of our guidelines, historical guidelines for margins, for gross margins, our only thought may be is that there is some obviously some lost business heartache out there but we maintain our discipline and we think that is important to do in a market like this.

Mike Sutherlin

As Jim said, we have been and we continue to be a business that focuses on margin and not market share. So we have been selective on products like roof supports and like drag lines focusing on those opportunities that give us adequate margin and we continue to do that and that really hasn't changed. We do believe that we add value like in the roof support market we add value through our systems engineering and project management capability. We have been able to get major orders from some key customers based upon our ability to turnkey the design build, commissioning and start up of that long wall face and that capability has really helped us quite a bit.

We certainly are providing value that the customer doesn't necessarily have in their own staff. They have labor shortages and they are stretched like everyone else so when we put a project management capability in front of them, it is very attractive to them. We have actually performed very, very well with those project management opportunities. We have delivered those projects. They have performed well. They have started up well and they have been on time, on schedule, and on budget. So I think there are some things there that have allowed us to pick up some additional long wall orders in the current market conditions and it goes back to selling value rather than trying to chase orders based on price.

So I am not sure where the comment came from but it is certainly is inconsistent with our history. It is inconsistent with our philosophy and I think it is inconsistent with the ways we try to add value into the long wall systems market in particular.

Seth Weber - Banc of America Securities

Is this still a business model that you think long-term can generate incremental margins of mid-20% range?

Jim Woodward

That is our target, yes. As we mentioned before, one of our biggest opportunities there unlike the last several years where we were filling up essentially empty facilities, now that our facilities are pretty full, as Mike mentioned and I mentioned, we still think there are some substantial opportunities from an operational standpoint to reduce our cycle time, increase our efficiencies and thereby drive improved margins in that mid 20 range on an incremental basis.

Seth Weber - Banc of America Securities

Mike, can you comment on any changes to the competitive landscape in China from local manufacturers?

Mike Sutherlin

We try to equate China to being like a war, it is a series of battles you fight all the way through. Certainly what we have seen more recently is the impact of politically correct decisions. I think we have a great product. We have great value. We have great aftermarket lifecycle management services in China and that really has helped us over there. But recent directives by the current Premier of China have caused some customers to look more intensely at domestic Chinese customers. We have seen situations where equipment significantly less capable than our own equipment and of course less price as well is tried because that seems to be the politically correct thing to do.

We are working very hard to position ourselves as a Chinese manufacturer using our Tianjin campus and other things to be perceived more as a Chinese company, using Chinese capacity, having Chinese workforce and things like that. But certainly there is a combination of performance and politically correct decisions and that is certainly what we are working through right now. I think just one more of those issues we have to work through is not unlike some of the things we work through in other markets as they have gone from emerging to maturing markets in the mining aspect.

So our progress in China is good. I think as Jim mentioned, our order rates, the aftermarket order rates in the third quarter from China has been especially strong so we continue to look at China, our 2010 targets and the long-term opportunities in China to be very good and we are continuing to make pretty significant investments in China because of those opportunities. But it is not going to come easy. It is going to be a constant battle all the way through. But we feel pretty good about the value that we are adding.

We are looking at matching our equipment to needs in China rather than all worldwide equipment. There may be some China specific applications where we have to have equipment that is longer life but lower cost more in tune with the China decision making processes that we see today. But that is something that we are just in the early stages of looking at.

Operator

Your next question comes from Barry Haimes - Sage Asset Management.

Barry Haimes - Sage Asset Management

I wondered if you could follow up a little bit on what is going on in India? That has been a market that has been a little bit slow to develop in spite of the fact that they have a lot of coal and I wonder if you could just give us the update on what is happening there? Thank you.

Mike Sutherlin

India is a market that we sort of have a love-hate relationship with from the standpoint that we think that there is tremendous long-term opportunities but we continue to be frustrated with how long it takes for those opportunities to materialize. We have equipment running in India. It is doing extremely well and we have continuous miners that are outperforming some old Chinese and Russian long walls that are running in India. And yet the follow-on orders there have been slow in coming. We are continuing to sell equipment and put new equipment in India but it is at a relatively slow pace.

There has been a lot of discussion about privatizing some of the mining opportunities in India. We are seeing a number of Indian construction companies begin to position themselves so that they could go to work as mining operators in India and we think that is going to be a breath of fresh air and provide some upside opportunity to sell equipment on performance and outside the normal government bureaucracy.

We also see at least one global contract mining company that is beginning to establish a presence in India and that will be an opportunity as well. So we are seeing some very, very early stages of things changing in India. It is very early, too early to say that we see a bright optimistic future ahead although I think that the future will improve. At this point it is a slow steady process and nothing dramatic.

Operator

Your next question comes from Michael Gallo - C.L. King.

Michael Gallo - C.L.King

Follow-up question on Central App. Obviously the decline in that region really hurts you in the quarter. As we look at the longer-term outlook for Central App, it seems that production in that region is going to continue to decline for at least the next few years and not by an insignificant amount.

So I was wondering as the production shifts from Central App to other regions, certainly Central App has a very high aftermarket content for you, whether you think you can make up that revenue elsewhere or whether you think that there is ultimately some longer-term degradation in the revenues you are able to generate from the US underground business?

As an aside to that, what your outlook is for Central App whether you see it stabilizing at some level over the next couple of years?

Mike Sutherlin

The transfer of the market from Central App to other markets, I think that it is happening and I think it will continue to happen. One of the reasons for it is that Central App is just a very high cost location to operate. Part of the high cost and part of the high aftermarket revenue we get out of Central App comes from the fact that most of the customers have to cut a significant amount of rock to get the coal out of the ground. So it is not unusual to have customers that have on a run of mine basis have 50% of what their cutting and taking out of the mine, 50% of that to be rejected in the cut plans. So with that high reject rate you are just cutting more material per ton of coal but it is also harder cutting as well.

As production shifts to the Northern Appalachian and Illinois basin regions which is where it will end up going, the rates are higher and the cutting conditions therefore are a bit easier so it does have an adverse effect on our revenue per ton of coal produced. We continue to work with customers in those regions on more comprehensive service programs and that will help provide some offset. But in the long run, coal out of Central App to Northern Appalachian and the Illinois basin will have an adverse impact on our aftermarket revenues just because of the cutting conditions, not because of market shares or anything like that but just because of cutting conditions.

Central App, because of the high cost and the difficult cutting conditions is a market that works on premium pricing. A significant amount of most of the Central App producers production is going into the met coal market and Central App was strong when there was a significant sulfur premium for low sulfur Central App coal but as more power generating plants get scrubbed, that sulfur premium begins to diminish.

We have seen if you go look at the charts you will see a long-term decline in coal production in Central App. I think it has been accelerated more recently but I think that the long-term decline curve will continue. I think that market will continue to decline and be a premium price market whether it is thermal that can be sold for premium prices or whether it is met coal production.

Michael Gallo - C.L.King

If you could just touch on some of the other commodities that I think maybe you didn't touch on such as the need for electric mining shovels for things like uranium or some of the other areas. Thank you.

Mike Sutherlin

We have mining shovels that are worked in a variety of different metals including gold and others. There are some uranium projects that are going on. Those are co-mingled with copper and so when we look at that, the demand is out there and we sort of incorporate that as we look at that demand in the copper markets. In fact, one of the biggest projects we have on the drawing board right now for uranium it may well be that uranium becomes a byproduct and copper is a primary product they are going to produce out of that mining operation.

We don't have a significant amount of shovels that operate in those other metals. If you look at gold and you look at diamonds and you look at things like that, there is just not a significant amount of shovels that operate in those markets. I would imagine that our sales may be one or two a year of shovels that go outside the commodities that we cover.

Operator

Your next question comes from Jerry Revich - Goldman Sachs.

Jerry Revich - Goldman Sachs

Looking at your next 12 month guidance, the sales forecast is $200 million below your next 12 guidance last quarter. Roughly speaking, can you please break out for us the lower assumption in US coal versus supplier disruptions that are built into that $200 million number?

Jim Woodward

The assumption for US coal is in there. The forecast is tempered by that. We didn't assume supply disruptions. What we said was we assumed some capacity constraints in the short-term at P&H that we hope we don't have anymore supply disruptions. But we have not broken out the difference between the two of those. At this point as I mentioned with Rob, it is very hard to call the bottom of the US coal market.

We thought it was this quarter when we were at an inflection point. We continue to think it is very near term but given what we would be told, but we are still not seeing that year-on-year improvement yet. So the guidance is more consistent with what we said in our July 25th release where we were lowering our sales by $150 million to $200 million and our EPS and results accordingly being probably a little bit more conservative based on those two factors.

Jerry Revich - Goldman Sachs

In the quarter, what was the price impact of the supplier production issues this quarter on sales?

Jim Woodward

We really haven't quantified that except to say that in both businesses, the results were below our internal expectations. I think I can say that our sales were roughly 8% to 9% below where we thought they would be going into the quarter because of the issues that we talked about.

Jerry Revich - Goldman Sachs

To be clear, that is combined weaker US aftermarket and production issues or just production issues?

Jim Woodward

Production issues with the capacity constraints at P&H.

Mike Sutherlin

Let me go back and touch on your question about the forward guidance. We have guidance right now that is $2.6 billion to $2.8 billion. We preannounced earlier that the full year 2007 was going to be $150 million to $200 million below our guidance range for the year. Our intent in that was that we were going to be $150 million to $200 million below the bottom of that range and I am not sure that that was accurately reflected in people's estimates. So from our perspective, we said that in essence we said that we thought that 2007 number was going to be $150 million to $200 million below our guidance range which meant below the 2.7 that we had in that guidance range.

So we as we look at our current rolling guidance, we see the current rolling guidance to be up from where we did in the preannouncement. That reflects some improvement in capacity and inefficiencies. It doesn't have any disruptions but it also doesn't anticipate any significant improvement in the US coal market. In fact it sort of anticipates the US coal market is going to stay about where it is.

Jerry Revich - Goldman Sachs

Just to clarify one quick point here, are you still on track to hit the updated fiscal '07 guidance that you just alluded to?

Mike Sutherlin

Yes, we are, yes.

Jim Woodward

Again, just to reemphasize what Mike said, when we issued the release we said we were $150 million to $200 million at 10% to 15% below the guidance range. And our interpretation of that was below the bottom end of the previous range that we had given, which was $2.7 billion to $3 billion and 285 to 325. Unfortunately, a couple of people just took that off the top and the bottom, established a new mid point, which was still in the original range, and that wasn't what we intended. We will have to be a little more specific in the future.

Operator

Your next question comes from Randy Saluck - Mortar Capital.

Randy Saluck - Mortar Capital

First of all, you made a statement in your press release that you anticipated completing your stock buyback program earlier than the end of '08. So it sounds like you are going to be more aggressive, and I think that is great given where your stock is. Is it your goal to re-up the buyback and maybe institute another one, especially if your stock does not improve?

Mike Sutherlin

Randy, I think in our press release we said that we anticipate completing the buyback.

Jim Woodward

By the end of calendar 2008.

Mike Sutherlin

Yes, by the end of calendar 2008. The authorization expired in calendar 2008, and we said we expected to complete the buyback by the time that the authorization expired. So I don't think we intended to say that we were going to finish that early. We said we would finish it by the time the authorization expired.

Randy Saluck - Mortar Capital

Philosophically when your stock is depressed as it is now, does that mean you will be more aggressive or do you tend to smooth it out a little bit more? Just curious how you think about the buyback.

Mike Sutherlin

We start out on a buyback with the position that we are a significant cash flow generating business. We have been able to generate pretty significant cash flows as we have been growing our revenues and expanding our capacity. So I think it demonstrates our ability to generate cash flow on all phases of the cycle. So we have a long-term need to put that cash to good use, and absent some significant acquisition program or some significant acquisition opportunity, we can fund our growth requirements, we can fund our CapEx requirements and still have significant cash left over. So we are going to be a company that is going to be buying back shares over the long-term, and that is our expectation that we will be buying back shares this year, next year, and five years from now.

Certainly within that broad objective of returning cash to shareholders, we also want to take advantage of near-term opportunities. When the stock price we believe is undervalued, we certainly would like to be more aggressive in buying back shares. But that is just a little bit of an opportunistic condition within a long-term plan to be buying shares in the marketplace.

Randy Saluck - Mortar Capital

Certainly where the stock is today would be a good place to get aggressive. Second question, there was an article recently which talked about potential easing of permitting restrictions for Central App, particularly in, I think it was in West Virginia. Can you comment on that, how real that is, how that might impact your business? Would it allow for greater production, which would possibly require more of your equipment, but then I guess it could be an impact on pricing? Can you just talk about that for one second?

Mike Sutherlin

Yes, the permitting processes in Central Appalachia have been very difficult for our customers. Particularly on surface or open pit mines, the permitting process has been very difficult. It has typically had a lot of challenges, and so it is a very protracted process for our customers. I think most of our major customers have adapted to that and they have guys that are well schooled in the process, and they just understand that they have got to do a lot more homework and they have got to be better prepared. They also have to accept that they are going to get challenged and they will have to go back in to court and defend themselves against the environmentalists who are typically the ones that challenge these permits.

But right now, I don't think that permitting in Central Appalachia is a pacing item. I think economics are the pacing item, and so I don't really believe that permitting has a major factor. We don't have a lot of customers that have mines that are wrapped up in the permitting issues. I think we still have more capacity than we have demand in the US at this point, and I don't think that the permitting is going to open up a lot of new production for us in the near term.

In the long-term, permitting, although it's a longer process our customers adapt; they run that very well and they just accept that they have to start earlier. So in the long term, I don't think that the permitting issues have reduced the capability of bringing capacity online in Central Appalachia.

Operator

Your next question comes from Lee Rosenbaum - Putnam.

Lee Rosenbaum - Putnam

Can you just comment about the status of where your debt was at the end of the quarter? It looks like quarter over quarter, long-term obligations were down a bit.

Jim Woodward

Yes, they were down roughly $50 million.

Lee Rosenbaum - Putnam

Right. Did you buy back some debt as well?

Jim Woodward

No, no. The long-term bonds we didn't buy any back, no. They are still out there.

Lee Rosenbaum - Putnam

What accounts for the decrease? I guess we will have to wait for the 10-Q?

Jim Woodward

Yes.

Lee Rosenbaum - Putnam

What were some of the other categories in there, please?

Jim Woodward

We did reduce our revolver during the quarter by $75 million as the decision made earlier in the quarter, and our debt at the end of the quarter was bonds and about $50 million of revolver.

Mike Sutherlin

Just to clarify on that point, during our closed window period when we close our trading window for insider trading, we close that in the last month of our quarter. And in the closed window period, we run with a 10b5-1 plan. So the buybacks that we have been exercising in the last month have been driven by the plan that obviously, using the cash to pay down the revolver was based upon how much we could buy in the marketplace by the definitions that we have in the 10b5-1 plan.

Operator

Your next question comes from Robert McCarthy - Robert W. Baird.

Robert McCarthy - Robert W. Baird

Just a couple of quickies to follow up. Tax rate assumption in your forecast?

Jim Woodward

31% for '07, 32% for next year.

Robert McCarthy - Robert W. Baird

Do you have the ability to give us an update, the Company has historically talked about revenue developed in developing markets, four in particular. Do you have a view on how much that number will be up this year compared with last year?

Jim Woodward

We tend to give you a little better insight on that, Rob, at the Analyst Day on the 20th.

Robert McCarthy - Robert W. Baird

Fair enough. And then just to follow up the comment before about revised outlook compared with original outlook as contained in the preannouncement a month ago, the implication is that you were looking for $2.65 to $2.70 of earnings per share in fiscal '07?

Jim Woodward

It was $.10 to $.15 off of $2.85 to $3.25. I'm sorry. You were correct. It was $0.15 to $0.20. You are correct.

Robert McCarthy - Robert W. Baird

All right. So that $0.15 to $0.20 off of a $2.85 at the bottom of the range would be $2.65 to $2.70.

Jim Woodward

You're correct.

Robert McCarthy - Robert W. Baird

And you said your outlook has not changed over the last month?

Jim Woodward

Right.

Robert McCarthy - Robert W. Baird

Does that include earnings as well, because you hadn't talked about it?

Jim Woodward

That's correct.

Operator

Your next question comes from Mark Koznarek - Cleveland Research.

Mark Koznarek - Cleveland Research

Jim, you and Mike both have talked about the realignment that is unfolding in the underground business. How much expense associated with that is incorporated in the rolling 12-month outlook?

Jim Woodward

Actually in terms of the rolling 12 months for domestic, there is very little right now and that is as I mentioned earlier going to be more or less dependent on what happens in North America in the US coal market. In the UK, we have included roughly another million or $1.5 million. I think about GBP700,000 or so, $1.5 million of continued restructuring costs for the UK.

Mike Sutherlin

Mark, Jim is exactly right on the numbers. But we also don't have a lot of cost improvement in our rolling numbers as we take out costs and we occur those severance costs, we get some cost benefit in subsequent quarters and we haven't reflected very much of that under the assumption that as we roll forward the costs we incur will be covered by the subsequent savings.

So we have some push/pull that goes on as we downsize that I think that we can cover any future severance costs, or restructuring costs in the US can be covered within our guidance because they have some conservative outlook on some of the savings in that guidance and we can use that savings to cover some of the subsequent costs that we are going to incur.

Mark Koznarek - Cleveland Research

So it is sort of a pay as you go and the benefits pretty quickly offset the expense?

Mike Sutherlin

As we are continuing to take costs out but we have a number of facilities in the US so it is not one big decision. It is usually a very complex decision about where we take costs out and where we move production around and that tends to be made in piecemeal because of the complexity and the number of locations that may be involved in that. So it tends to be more of a rolling process even though we know today that if the market doesn't improve we may have to take more costs out. It's just not something we can roll up and make one big decision and one big implementation.

Jim Woodward

It's a very dynamic process right now as we react to the market and the speed at which China comes up to speed from a production standpoint and what is happening in the US market.

Mark Koznarek - Cleveland Research

So the way to think about it is it is hard to calculate this, but presumably your productivity has been really good because of the volume leverage and other things that you guys have instituted over the past few years. It sounds like that productivity for a period of time in the underground business will plateau because of this pay as you go dynamic and then we will start to improve after we have concluded it. So is that reasonable?

Jim Woodward

That is a fair assessment but it has potential in short term, as an example, the $1.5 million that we have in the rolling guidance also pays itself back in roughly six months as an example of some of the savings that Mike talked about as we move forward.

Operator

Your next question comes from Barry Bannister - Stifel Nicolaus.

Barry Bannister - Stifel Nicolaus

If I look at the $3.3 million of severance and restructuring, did all of that flow through the Joy underground P&L?

Jim Woodward

Yes, it did.

Barry Bannister - Stifel Nicolaus

So if I add $3.3 million of severance and $2.6 million in the Stamler charge, I am up to $5.9 million. Now if your margins in Joy had been flat year over year, you would have reported Joy profits of $10.5 million higher underground. So the remaining $4.6 million, would you break that out as what was mix like roof supports and what was anything else?

Mike Sutherlin

Barry, the next biggest component on that would be the loss of overhead absorption associated with the flooding in the UK and the labor outage in South Africa. So in South Africa, we roughly lost a week's worth of work in our shops and in the UK there was a disruption that was probably in the neighborhood of a week-and-a-half to two weeks because of the flooding. People couldn't get to and from work. We couldn't get parts in and out so our overhead absorption, the third biggest item was the overhead absorption.

Barry Bannister - Stifel Nicolaus

Lastly, I struggle I think like other callers do on this whole forward four quarter thing versus just using a fiscal year basis for your guidance. But I looked at First Call and I added up the next four quarters and The Street was looking for $3.53 of EPS and you came in with the guidance of $2.90 to $3.15 and that is a pretty major miss of about 14%.

Now I know you were talking to Robert McCarthy's question regarding this fiscal year, but something must have fallen off on what you or we viewed as the takeoff point in second half fiscal '08. So did you see some push back on your views regarding Eastern US or other factors that kept your profits down?

Jim Woodward

Well, just to be clear, our guidance that we gave previously for the next rolling prior to this was $3.25 to $3.50. So The Street was much higher than what we had given at that point in time. But that as we said, both in our press release this time and in our July 25th press release, I think two major factors that tempered our outlook are basically a realization that US underground coal is not going to come back in any appreciable way any time soon. And as Mike mentioned, electricity demand continues to decline which is the real driver for some of that.

Candidly, we are tempering; we had higher expectations for capacity increases at P&H which on a short-term basis even though by 2009 when Tianjin comes up to speed, we will be at higher levels on a short-term basis it is very difficult to increase capacity much more significantly at P&H than we had hoped. So it's the capacity constraint and the US market that are the two big tempering items from the last guidance.

Mike Sutherlin

Barry, one of the things as we gave our preannouncement, we went back and talked about our 2007 numbers coming in below our guidance range and our intent there was to take those numbers off the bottom of that guidance range. Obviously we probably would not have preannounced had we thought we could get into the lower part of that range and so that was where we started from. As we go forward, we also have positioned our guidance and I think to improve the predictability of that guidance and rather than putting numbers out there that we think we could make if things went right or the US market improved or other things, we put numbers in there that we feel pretty confident that we can make those numbers going forward.

We don't have any specific plans for our production disruptions and those kind of things we had in the third quarter but we know the reality is that some of those will come along as well. So we have put our guidance so that we have a sufficient collar around our expectations so that we can take some of those things and not have to go back and have misses; that we can take the normal occurrences that go on in that complex manufacturing operation and still meet our guidance that we are giving.

So part of that is a little bit less optimistic view of the US market particularly from a timing standpoint. Certainly some of that is us just getting a little bit more conservative to make sure that our guidance has some allowance for error and still we feel confident that we can deliver on the guidance that we are putting out.

Operator

Your next question comes from Seth Weber - Banc of America.

Seth Weber - Banc of America Securities

I apologize if I missed this, but is it possible to quantify what your exposure to Central App region is both on the OE and aftermarket as a percentage of revenue?

Mike Sutherlin

We just don't break the regions down to that level of detail, Seth. We will say though that Central App in our US underground business, Central App is our largest revenue region in our US underground business. It has got the largest impact on original equipment, it has got the largest impact on aftermarket. If you look at the underground coal production, Central App is 25% of the US underground coal production so the impact on our business is significantly higher than that if you look at it from that standpoint.

Operator

Your next question comes from John Olson - Houston Energy Partners.

John Olson - Houston Energy Partners

I was going to ask you exactly the same question as the last gentleman. But can you also give us some dimension on China, how important that is to the overall earnings profile of the company?

Mike Sutherlin

China right now is running in the range of 15% of our revenues. But it is certainly has the highest growth profile for us. As we look forward, we look at it in our business say over the next five years, we expect China to be our largest market segment and at the expense of some other markets that will not grow as fast.

So the importance to us of China is in its impact on our business going forward rather than on the impact today. It is only 15% of our revenues today but certainly as we look out over the future we expect that to continue to grow. We have seen consistent double-digit growth rates in China revenues. We expect those double-digit growth rates to continue and so it is a critically important part of our growth in revenues and growth in profitability and our outlook for growth in the business in general.

If you look at China it is our number one growth or it has higher growth, much higher growth potential than our other markets, much higher growth potential than the oil sands even.

Operator

At this time there are no further questions. Are there any closing remarks?

Mike Sutherlin

Yes, thank you. I would just like to thank everyone for their participation on this call and also to remind the callers that we are having our analyst day in New York on September 20th and we look forward to seeing you there. We will be talking about our outlook for our business and a derivative of the strategy of our business that we have been working on. So we are looking forward to seeing everyone on September 20th in New York. Thank you very much.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Joy Global F3Q07 Earnings Call Transcript
This Transcript
All Transcripts