Hyster-Yale Materials Handling, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. Unless otherwise stated, amounts are in millions of U.S. dollars. The company designs, manufactures, sells and services lift trucks, aftermarket parts and attachments, and develops hydrogen fuel-cell products. Its principal businesses are Lift Truck (Americas, EMEA and JAPIC), Bolzoni and Nuvera.
Financial performance
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $3,291.8 | $3,179.1 | +3.5% |
| Gross profit / margin | $541.8 / 16.5% | $497.0 / 15.6% | +9.0% gross profit |
| Operating profit / margin | $53.9 / 1.6% | $38.8 / 1.2% | +38.9% |
| Net income attributable to stockholders | $35.8 | $34.7 | +3.2% |
| Diluted EPS | $2.14 | $2.09 | +2.4% |
| Cash from operating activities | $76.7 | $67.6 | +$9.1 |
| Capital expenditures | $49.7 | $38.8 | +$10.9 |
| Cash and cash equivalents at year-end | $64.6 | $83.7 | -$19.1 |
| Total debt at year-end | $287.0 | $301.5 | -$14.5 |
Lift truck revenue rose 4.2% to $3,124.2; Bolzoni revenue declined 1.0% to $345.4; Nuvera revenue fell to $10.1 from $17.0. Lift truck operating profit improved to $85.6 from $67.5. Bolzoni operating profit fell to $4.7 from $9.5, while Nuvera continued to report an operating loss of $36.3.
Revenue growth primarily reflected pricing, higher attachment and parts sales, and a full year of Hyster-Yale Maximal results; unfavorable currency translation reduced revenue by $52.5. Higher lift truck gross profit supported operating profit, partly offset by increased selling, general and administrative expenses. The effective tax rate was 23.6%, versus 6.3% in 2018, when favorable discrete tax adjustments included a $4.4 benefit related to the Tax Reform Act.
Fourth-quarter revenue was $834.8 versus $840.8 in Q4 2018. Operating profit was $8.1, compared with an operating loss of $3.4; net income attributable to stockholders was $3.4 versus a loss of $1.2.
Liquidity, debt and commitments
- Year-end current assets were $1,155.8 and current liabilities were $817.0 (current ratio approximately 1.42).
- Cash from operating activities less capital expenditures was approximately $27.0. Cash flow before financing activities was $34.7, compared with negative $43.3 in 2018.
- The company reported $204.7 of long-term debt on the balance sheet; total debt, including current borrowings and finance leases, was $287.0. Cash less total debt implies net debt of approximately $222.4. Debt to total capitalization was 33%.
- A $240.0 revolving credit facility had $234.7 available at year-end and expires in April 2022. The $200.0 term loan had $175.0 principal outstanding and matures in May 2023. The company reported compliance with facility and term-loan covenants.
- Contractual cash obligations totaled $1,055.5, including $624.8 of purchase and other obligations. Management said available cash, credit facilities and operating cash flows should meet operating needs and commitments over the next 12 months.
Material changes, outlook and notable items
- Lift truck unit shipments declined 1.6% to 100,300; bookings fell to 97,600 from 112,000. Year-end backlog was 41,200 units, valued at approximately $1,070, down from $1,190 a year earlier. Substantially all backlog was expected to ship in 2020; orders may generally be canceled before sale.
- Management expected 2020 consolidated operating profit and net income to increase substantially over 2019, and cash flow before financing activities to increase significantly. Lift Truck profit was expected to improve, with stronger gains in the second half; Bolzoni profit was expected to rise partly because its $2.5 restructuring costs would not recur. Nuvera aimed to reduce its loss and ramp shipments in the second half. These expectations were conditional on market conditions and execution of extensive strategic programs.
- Management forecast strong but lower lift truck market levels across regions in 2020, citing market softening, particularly in EMEA, and describing a projected moderate downturn. Planned 2020 capital expenditures were $86.1, substantially above 2019, to support product development, tooling, IT and manufacturing improvements. Lift Truck targeted a 7% operating margin over the medium term; Bolzoni also targeted 7%. Nuvera’s longer-term objective was break-even.
- Tariffs and material costs remained pressures. The company recorded $11.8 of retroactive tariff exclusions in 2019, while noting that Section 232 and Section 301 tariffs continued to add costs. Key component shortages had affected 2019 production and were generally resolved by year-end, with some lingering first-quarter 2020 effects.
- The filing described early coronavirus-related delays to the restart of Chinese production after the extended Chinese New Year and government mandates. The potential effects on suppliers, China, Italy and broader operations were uncertain as of the filing date.
- Bolzoni incurred $2.5 of restructuring charges for moving North American attachment manufacturing to Sulligent, Alabama; the company said the restructuring was completed in 2019. Nuvera’s 2019 operating loss improved partly on increased third-party development funding. Its battery-box replacement revenue had been deferred before Q4 2018 while warranty costs could not be estimated.
- The company disclosed $179.7 of recourse or repurchase obligations for customer and dealer financing. Separately, its total reported guarantee exposure was $374.3, including an incremental guarantee related to HYG Financial Services’ borrowing from Wells Fargo. Management said anticipated losses were not significant and cited collateral, but actual losses could exceed reserves.
- A Brazilian tax recovery had an estimated gross amount of approximately $25, but the company recorded a net realizable value of approximately $2, subject to administrative, tax-liability and legislative uncertainties.
- No material legal proceeding was reported. The company reported effective internal controls and received unqualified audit opinions on its financial statements and internal control over financial reporting. Goodwill and indefinite-lived intangible asset testing found no impairment in 2019.
Key facts for investors to verify
- Whether 2020 earnings and cash-flow improvement materialized, given management’s significant investment program and market outlook.
- Progress on new product launches, manufacturing changes, dealer initiatives and planned capital spending—and whether they deliver targeted margins.
- Developments in lift truck demand, bookings, backlog conversion, supplier availability, tariffs and foreign exchange.
- Coronavirus-related production and supply-chain effects, including exposure in China and Italy.
- Actual exposure and collateral recovery under financing guarantees and recourse obligations, and the realization and timing of Brazilian tax credits.
- Nuvera’s ability to increase shipments, reduce losses and commercialize fuel-cell products economically.