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Joy Says No Accounting Problems at China Unit

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02/15/2013 | 05:46pm CET

MILWAUKEE--Mining-equipment maker Joy Global Inc. (>> Joy Global Inc.) hasn't found any accounting problems at the Chinese company it acquired 14 months ago, said Chief Executive Michael Sutherlin, unlike rival Caterpillar Inc. (>> Caterpillar Inc.), which recently had to write down the value of a Chinese investment by $580 million after finding what it called accounting "misconduct."

In an interview, Mr. Sutherlin also said Joy hasn't found any need to write down the value of its International Mining Machinery Holdings Ltd. unit in China, acquired for about $1.4 billion in 2011. "We don't see that there are any issues with that," Mr. Sutherlin said. IMM makes equipment for underground coal mining.

Joy's stock has slumped in recent weeks, partly because of worries that the company might have problems akin to those Caterpillar found at its ERA Mining Machinery Ltd. unit. On Jan. 18, Caterpillar disclosed a write-down on that unit, equivalent to more than 80% of the purchase price. Caterpillar alleged that former managers of ERA had falsified accounts to inflate reported profits before the $700 million acquisition in June 2012.

On Friday, Joy shares were trading at $62.82, up 11 cents, on the New York Stock Exchange. This is down from about $69 just before Caterpillar disclosed its write-down. Joy's stock also has been depressed by concerns that the current slump in demand for mining equipment could prove lengthy.

Joy's timing on the IMM acquisition wasn't ideal. It came shortly before mining companies in China and elsewhere cut back sharply on equipment orders in the face of sluggish demand for commodities and rising costs. Rob Wertheimer, an analyst at Vertical Research Partners LLC in New York, said IMM was a high-quality business and Joy "paid up for a good asset." He added: "It wasn't cheap for sure."

Mr. Sutherlin said Joy had to pay a premium price for what he called "the one shining star" among Chinese makers of mining equipment that were available for sale. "We didn't see anything else that came close," he said. "I think that premium was well worth it."

IMM's sales slumped last year and are likely to be about flat this year, Mr. Sutherlin said, without providing specific figures. "We're starting to see some early signs of improvement," such as rising demand for electricity in China, which eventually should boost coal mining, he said. "It seems like China has managed through another soft landing, and we're starting to see upside."

Mr. Sutherlin said Joy is trying to improve results at IMM by putting more stress on parts and maintenance. To get closer to the customers, Joy is favoring direct sales rather than sales through dealers.

On Feb. 27, Joy is due to report results for the fiscal first quarter ended Jan. 25.

Write to James R. Hagerty at [email protected]

(CORRECTION: This item was corrected at 11:26 a.m. ET to add omitted information on Joy's stock, in the fourth paragraph. Shares are up 11 cents at $62.82.)

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

Stocks mentioned in the article : Joy Global Inc., Caterpillar Inc.
Stocks mentioned in the article
ChangeLast1st jan.
CATERPILLAR 2.23% 162.41 Delayed Quote.0.81%
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NameTitle
Jeffrey Dawes President, Chief Executive Officer & Director
Masayuki Moriyama Chairman
Korekiyo Yanagisawa Chief Operating Officer, Director & Executive VP
Terumi Sasaki Chief Financial Officer, Director & Executive VP
Kazuhiko Iwata Technical Director