Hyster-Yale Materials Handling, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Amounts are in millions of dollars unless noted. The company designs, manufactures, sells and services lift trucks and aftermarket parts under Hyster and Yale, and operates Bolzoni attachments and Nuvera fuel-cell businesses.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $840.1 | $748.2 | $2,563.1 | $2,246.0 |
| Gross profit | $86.9 | $65.1 | $287.2 | $299.9 |
| Gross margin | 10.3% | 8.7% | 11.2% | 13.4% |
| Operating loss | $(24.9) | $(54.3) | $(58.9) | $(45.3) |
| Net loss attributable to stockholders | $(37.3) | $(77.2) | $(81.7) | $(69.7) |
| Loss per share | $(2.20) | $(4.59) | $(4.84) | $(4.15) |
| Interest expense | $7.7 | $4.1 | $18.9 | $10.7 |
- Q3 revenue rose 12.3%, driven mainly by pricing and aftermarket parts; unfavorable currency translation partly offset the increase. Q3 gross margin improved, but the company remained loss-making.
- For the first nine months, revenue rose 14.1%, but gross profit fell 4.2%. Management cited $222.9 million of material cost inflation, higher manufacturing costs associated with component shortages, and $30.5 million of unfavorable currency effects, including derivatives. Pricing and parts volume partly offset these pressures.
- Q3 operating loss improved primarily because the prior-year quarter included $24.8 million of Nuvera impairment and inventory-loss charges. The nine-month net loss increased year over year, despite the absence of those charges and of a prior-year deferred-tax valuation allowance.
Cash flow, balance sheet and debt
- Nine-month operating cash flow was positive $34.3, versus negative $191.8 in 2021. The improvement largely reflected smaller working-capital cash uses, especially inventory. Capital expenditures were $19.7; investing cash outflow was $27.2; financing cash outflow was $1.9.
- Cash was $68.6 at September 30, 2022, compared with $65.5 at December 31, 2021. Inventory was $779.0, broadly unchanged from year-end, and management said it remained above normal because of production delays and parts shortages.
- Total debt was $545.0, up from $518.5 at year-end; debt to total capitalization increased to 80% from 58%. Total liabilities were $1,797.6 and total temporary and permanent equity was $135.2. Stockholders’ equity fell to $114.0 from $357.1, including substantial accumulated other comprehensive losses.
- The $300.0 revolving facility had $127.0 outstanding and $168.8 available; other non-U.S. credit lines had $21.9 available. A $225.0 term loan had $222.2 principal outstanding. The company reported covenant compliance and said available cash, credit and operating cash flows were expected to meet needs for the next 12 months.
- Current assets were $1,375.6 and current liabilities $1,307.4. The increase in current liabilities from year-end included higher deferred revenue and other current liabilities.
Outlook, risks and notable items
- Management expected a modest consolidated operating profit and pretax income, but a modest net loss, in Q4 2022, partly due to tax expense in jurisdictions without valuation allowances. It forecast a return to solid operating profit and net income for full-year 2023, subject to supply-chain and cost assumptions.
- The lift-truck business expected Q4 2022 operating profit and substantial operating profit in 2023, citing higher-margin backlog, expected production growth, pricing and cost-saving measures. Bolzoni expected to return to profitability in Q4 and improve in 2023. Nuvera expected moderately reduced Q4 losses and losses comparable to 2022 in 2023.
- Global lift-truck markets were expected to contract further in Q4 2022 and in 2023, although 2023 volumes were projected to remain above pre-pandemic levels. Bookings fell to 20,700 units in Q3 from 37,100 a year earlier; backlog was 108,200 units, valued at approximately $3.7 billion. Substantially all backlog was expected to ship within 12 months.
- Management highlighted inflation, especially energy costs in EMEA, supply-chain constraints, component shortages, manufacturing inefficiencies, foreign-exchange and interest-rate volatility, potential recession, geopolitical developments and customer acceptance of price increases as material uncertainties. It expected full-year 2022 capital expenditures of approximately $34.7 and prioritized reducing inventory and preserving liquidity.
- Foreign-currency contracts had a net liability fair value of $97.4 at quarter-end; $56.8 of deferred losses was expected to be reclassified to expense over the following 12 months. The company also reported $323.2 of total guarantee exposure, including obligations associated with HYGFS financing; management said anticipated recourse losses were not significant and collateral supported the arrangements.
- In June 2022, the company acquired an additional 15% of Hyster-Yale Maximal for $25.2, payable in annual installments through 2024, bringing ownership to 90%. A contingent put option could require acquisition of the remaining 10%.
Most important facts for investors to verify
- Whether pricing and improving backlog margins outpace material, freight, energy and manufacturing costs as production recovers.
- Whether component availability improves enough to deliver the forecast shipment growth and reduce elevated inventory and lead times.
- Liquidity, covenant headroom, floating-rate debt costs and the ability to manage working capital while meeting debt and acquisition-payment obligations.
- Potential earnings and equity effects from foreign-exchange hedges, accumulated other comprehensive losses, and tax valuation allowances.
- Progress toward the stated 2023 profitability outlook, including the performance and funding needs of Nuvera and the realization of Bolzoni’s projected recovery.