Hyster-Yale Materials Handling, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The company designs, manufactures, sells and services lift trucks and related products, including Bolzoni attachments and Nuvera hydrogen fuel-cell products. Figures are unaudited and in U.S. dollars.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $895.4 million | $765.6 million | $1,723.0 million | $1,497.8 million |
| Gross profit | $99.1 million | $116.4 million | $200.3 million | $234.8 million |
| Gross margin | 11.1% | 15.2% | 11.6% | 15.7% |
| Operating income (loss) | $(15.7) million | $5.9 million | $(34.0) million | $9.0 million |
| Net income (loss) attributable to stockholders | $(19.4) million | $1.9 million | $(44.4) million | $7.5 million |
| Diluted earnings (loss) per share | $(1.15) | $0.11 | $(2.63) | $0.45 |
- Q2 operating loss was driven chiefly by lower lift-truck gross profit and higher SG&A. Management cited $85.9 million of material and freight inflation and manufacturing inefficiencies, which more than offset $59.9 million of favorable pricing and higher unit and parts volumes.
- For the first half, operating cash flow was $0.2 million, versus an outflow of $100.7 million in 2021. Cash increased $10.1 million from year-end to $75.6 million; investing used $22.9 million and financing provided $33.5 million.
- At June 30, cash was $75.6 million and total debt was $580.6 million, compared with $65.5 million and $518.5 million at December 31, 2021. Net debt was approximately $505 million. Debt to total capitalization rose to 72% from 58%.
- Current assets were $1,469.8 million and current liabilities $1,329.4 million, a current ratio of approximately 1.11. Inventory was $790.2 million, up from $781.0 million at year-end; accounts receivable was $531.2 million.
- The $300 million revolving facility had $165.7 million drawn and $130.0 million available; other non-U.S. facilities had $26.4 million available. Management reported compliance with debt covenants and stated available cash, credit and operating cash flows should meet needs for the next 12 months.
Material changes and operating trends
- Revenue grew 17.0% in Q2 and 15.0% in the first half, primarily from price increases and greater unit and parts volume, especially in the Americas. Foreign-exchange translation partially offset growth.
- Despite higher revenue, gross profit fell 14.9% in Q2 and 14.7% year to date. First-half lift-truck results absorbed $119.3 million of material-cost inflation, manufacturing inefficiencies from component shortages, lower-margin product mix and unfavorable currency effects.
- Lift-truck backlog at June 30 was 112,000 units, valued at approximately $3.53 billion, versus 84,900 units and $2.07 billion a year earlier. Q2 bookings were 23,200 units, down from 46,900; management said substantially all backlog was expected to ship within 12 months. Backlog excludes 2,700 suspended orders with no current fulfillment plan.
- Segment results were mixed: first-half operating losses were $22.4 million for the lift-truck business and $16.0 million for Nuvera; Bolzoni reported $5.5 million of operating profit. Americas and EMEA revenue increased, while JAPIC revenue declined year over year.
Outlook, risks and notable items
- Management expected a larger-than-previously-projected net loss in Q3 2022, followed by a return to net income in Q4; Q4 earnings were not expected to offset losses from the first nine months. It expected lower second-half 2022 results than projected at the time of the Q1 earnings release.
- The lift-truck business anticipated a significant Q3 operating loss and a substantial Q4 operating profit, but lower than previously expected. Full-year shipments were expected to increase from 2021, contingent on component availability; bookings were expected to decline substantially in the second half compared with the prior-year period.
- Bolzoni expected near break-even Q3 results and a return to profitability in Q4. Nuvera expected moderately reduced 2022 losses excluding the effect of 2021 charges, with higher losses in the second half than the first.
- Management planned approximately $33 million of 2022 capital expenditures and emphasized cost controls and liquidity preservation. It expected to reduce inventory in the second half as delayed trucks were completed, subject to improved component supply.
- Key uncertainties include component and logistics shortages, inflation and pricing lags, China COVID-related lockdowns, the Russia/Ukraine conflict, possible recession and reduced lift-truck demand, foreign-exchange and interest-rate movements, and successful commercialization of Nuvera technology.
- Foreign-currency derivatives had a net liability fair value of $77.6 million at June 30; management expected $42.6 million of related deferred losses to be reclassified to expense over the following 12 months. Q2 comprehensive loss was $98.0 million, including substantial currency-translation and cash-flow-hedge losses.
- Guarantee exposure totaled $328.1 million, including an incremental $208.0 million obligation related to the company’s guarantee of HYGFS debt. Management said anticipated losses were not significant and cited collateral; the filing notes the exposure could change.
- In June, the company purchased an additional 15% interest in Hyster-Yale Maximal for $25.2 million, payable in installments through June 2024. It recorded $15.9 million of redeemable noncontrolling interest tied to a contingent put option on the remaining 10% interest.
- Management said ordinary-course legal claims were not expected to result in material costs beyond accrued amounts. The filing reported no material changes to previously disclosed risk factors, no material control changes, and effective disclosure controls.
Investor verification priorities
- Track whether component availability, freight and material costs improve enough to support the projected Q4 recovery and reduce inventory.
- Compare realized pricing and margins on backlog shipments with current costs; verify whether bookings and shipment expectations develop as management anticipated.
- Monitor operating cash flow, working capital, debt, revolving-credit availability and compliance with covenants, particularly as debt and leverage have increased.
- Assess the scale and timing of derivative losses reclassified to earnings, and the sensitivity of results to currency and interest rates.
- Review guarantee exposure and HYGFS credit performance, as well as the payment obligations and potential put-option consequences related to Maximal.