Hyster-Yale Materials Handling, Inc. — Q1 2019 Form 10-Q
Business context and period: The filing covers the three months ended March 31, 2019. Hyster-Yale designs, manufactures, sells and services lift trucks and aftermarket products, and also operates Bolzoni (attachments) and Nuvera (fuel-cell technology). The business is cyclical and operates globally.
Financial performance
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $834.8 million | $788.5 million |
| Gross profit / margin | $126.2 million / 15.1% | $132.1 million / 16.8% |
| Operating profit / margin | $3.4 million / 0.4% | $19.2 million / 2.4% |
| Net income attributable to stockholders | $3.4 million | $14.9 million |
| Diluted EPS | $0.20 | $0.90 |
| Operating cash flow | $(22.4) million | $28.5 million |
| Capital expenditures | $8.6 million | $7.4 million |
Revenue rose 5.9%, while operating profit fell 82.3%. Management attributed the revenue increase primarily to pricing, higher parts sales, the Hyster-Yale Maximal acquisition and growth at Bolzoni and Nuvera. Profitability was pressured by higher material costs, tariffs, supplier-delivery disruptions and manufacturing inefficiencies, as well as higher sales, marketing and product-development costs. The filing reports a 31.9% effective tax rate, compared with 24.7%.
By segment, lift-truck revenue was $788.0 million and operating profit was $10.8 million, down from $26.6 million. Bolzoni revenue increased to $91.8 million, but operating profit declined to $1.2 million, including restructuring costs. Nuvera revenue was $4.5 million and operating loss narrowed to $8.4 million. JAPIC reported a $4.5 million operating loss, including $2.0 million attributable to Hyster-Yale Maximal, including acquisition-related amortization and integration costs.
Balance sheet, liquidity and debt
- Cash was $55.7 million at March 31, down from $83.7 million at year-end 2018.
- Current assets were $1,184.9 million and current liabilities $858.3 million. Total debt was $309.4 million; total equity was $551.4 million. Debt to total capitalization was 36%, versus 35% at year-end.
- Operating cash use reflected working-capital outflows, particularly inventory growth amid supplier shortages, lower affiliate dividends and lower earnings. Inventory increased to $588.9 million from $533.6 million.
- At quarter-end, revolving-facility borrowings were $24.1 million and availability was $171.4 million. The company also had $18.3 million available under other non-U.S. revolvers and was in compliance with debt covenants.
- On April 3, 2019, the revolving facility commitment was increased from $200 million to $240 million. Management said available cash, facilities and operating cash flows should provide sufficient liquidity for operating needs and commitments.
Changes, outlook and key risks
- Bookings and backlog: Q1 shipments were 25,700 units, versus 24,800 a year earlier; bookings were 22,000 versus 27,100. Ending backlog was 40,200 units, compared with 36,100 a year earlier, with an estimated sales value of $1.13 billion. Substantially all backlog was expected to ship within 12 months.
- Management outlook: The company expected 2019 consolidated operating profit to increase significantly over 2018, with improvement concentrated in the second half. It expected first-half lift-truck results below the prior-year period, followed by second-half improvement. Supplier issues were improving but some were expected to persist until midyear. Lower-margin, deal-specific pricing was expected to weigh on Q2 and, to a lesser degree, Q3 results.
- Longer-term objectives: Management targeted 7% operating profit for Lift Truck and Bolzoni over its planning period, and Nuvera break-even for full-year 2020. These are objectives, not guarantees; management said actual results depend on market demand and execution of investment programs.
- Investment and restructuring: Planned 2019 capital expenditures totaled $76.5 million. Bolzoni recorded $1.4 million of Q1 restructuring charges as North American attachment manufacturing moved to Sulligent, Alabama, and production at Homewood, Illinois was phased out. Further 2019 charges of approximately $1.5 million to $3.0 million were anticipated.
- Tariffs: A subsequent April 2019 notice granted retroactive tariff exclusions for certain Chinese components, including counterweights and forks, through April 2020. The company was assessing recoveries; no benefit was included in Q1 results. Other Chinese imports remained subject to duties.
- Accounting and contingencies: Adoption of the new lease standard added approximately $82.7 million of lease assets and $80.8 million of lease liabilities at January 1, 2019, with no material earnings or cash-flow effect. The company reported $398.1 million of total guarantee exposure, including recourse and repurchase obligations and an incremental HYGFS-related guarantee; anticipated losses were described as not significant. Management did not expect legal proceedings to result in material costs above recorded accruals.
- Principal risks: Demand and market-cycle uncertainty, supplier availability and costs, tariffs, foreign-exchange movements, pricing acceptance, product development and commercialization, dealer/customer financing, competition, litigation and warranty claims, Brexit and integration of Hyster-Yale Maximal.
Investor facts to verify
- Whether supplier disruptions ease and inventory and working capital normalize, supporting a return to positive operating cash flow.
- Whether pricing and tariff exclusions offset material inflation, and whether planned second-half profit improvement materializes.
- Whether bookings, market demand and backlog support management’s outlook, especially given lower Q1 bookings and reported market softening.
- Progress and total costs of the Bolzoni facility transition, Hyster-Yale Maximal integration and the company’s broader investment programs.
- Performance of Nuvera against its break-even objective, and the potential exposure from guarantees and customer financing arrangements.