Hyster-Yale Materials Handling, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The company designs, manufactures and services Hyster and Yale lift trucks, attachments and aftermarket products, and operates Bolzoni and Nuvera. Amounts below are in U.S. dollars; financial figures are in millions unless noted.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $748.2 | $652.4 | $2,246.0 | $2,092.5 |
| Gross profit / margin | $65.1 / 8.7% | $103.4 / 15.9% | $299.9 / 13.3% | $343.7 / 16.4% |
| Operating income (loss) | $(54.3) | $7.3 | $(45.3) | $36.2 |
| Net income (loss) attributable to stockholders | $(77.2) | $5.1 | $(69.7) | $24.0 |
| Diluted earnings (loss) per share | $(4.59) | $0.30 | $(4.15) | $1.43 |
| Operating cash flow | Not presented by quarter | $(191.8) | $76.1 |
Revenue rose 14.7% in Q3 and 7.3% year to date, supported by lift-truck and parts volumes, Bolzoni growth, service revenue and foreign exchange. Growth did not translate into profit: material and freight inflation, supply-related manufacturing inefficiencies, lower-margin product mix, restored employee compensation and Nuvera charges weighed on results. Management attributed $37.2 million of Q3 gross-profit pressure to material and freight inflation; the nine-month impact was $50.6 million.
Q3 results also included a $24.8 million Nuvera inventory and property impairment/valuation adjustment: $14.8 million inventory reduction and $10.0 million property, plant and equipment impairment. The nine-month tax provision was $20.5 million despite a pretax loss, including a $38.4 million valuation allowance against deferred tax assets. A $4.6 million gain on sale of the OneH2 investment partly offset year-to-date losses.
Balance sheet, debt and liquidity
- At September 30, cash was $61.4 million, down from $151.4 million at December 31, 2020; inventory rose to $758.0 million from $509.4 million.
- Total debt was approximately $428.0 million, versus $289.2 million at year-end 2020. Debt to total capitalization increased to 46% from 31%.
- The company reported $73.6 million drawn on its $300 million revolving facility and $222.0 million available under it, plus $23.9 million available under other non-U.S. lines. The $225 million term loan matures in May 2028; $224.4 million of principal was outstanding. The company reported compliance with debt covenants.
- Operating cash outflow reflected working-capital investment, notably inventory and receivables, amid supply constraints. Cash flow before financing activities was $(201.9) million. Financing activities provided $114.7 million, principally from additional borrowing.
- The company paid $16.2 million in cash dividends during the first nine months. The quarterly dividend was $0.3225 per share.
Outlook, risks and notable items
- Management expected significant consolidated operating and net losses in Q4 2021 and the first half of 2022. It expected a return to operating profit in the second half of 2022, conditional on reasonable improvement in component availability and stabilization of material and freight costs.
- Lift-truck production and shipments remained constrained. Management anticipated low margins through Q4 2021 and, at best, the first half of 2022 because price increases would reach shipments with a lag. It expected bookings to decline substantially from Q3 levels.
- Lift-truck backlog reached 98,800 units, with an estimated sales value of $2.45 billion; substantially all was expected to ship within 12 months. The company cautioned that supply constraints could limit conversion of backlog into shipments and revenue.
- Nuvera continued to incur substantial losses. Management anticipated moderately reduced losses as fuel-cell shipments improved, but recorded impairment and inventory charges and noted possible further impairment testing.
- Other risks include continuing COVID-19 effects, component and shipping shortages, inflation, tariffs, demand and pricing uncertainty, foreign-exchange movements, and successful commercialization of Nuvera technology. Management said it believed available cash, credit facilities and operating cash flows would meet needs for the next 12 months.
- The company has a $305.0 million total stated exposure related to customer financing recourse/repurchase obligations and its guarantee to Wells Fargo; management said expected losses on recourse obligations were not significant and did not identify a significant risk of HYGFS default. The Brazilian tax-credit recovery remains subject to administrative approvals, eligible tax liabilities and other uncertainties.
Most important facts for investors to verify
- Whether supply-chain constraints, freight and material costs, and price increases evolve as assumed in the projected second-half 2022 recovery.
- How quickly the large backlog converts into production, shipments, revenue and cash, and whether cancellations or delivery delays emerge.
- Whether cash burn and working-capital needs remain manageable given lower cash, higher debt and ongoing losses.
- Whether Nuvera can commercialize products, reduce losses and avoid further impairment charges.
- The recoverability of deferred tax assets, realization and timing of Brazilian tax credits, and continued compliance with debt covenants.