Hyster-Yale Materials Handling, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; unaudited results compared with the three months ended March 31, 2016. The company designs, manufactures, sells and services lift trucks and aftermarket parts, and also operates Bolzoni, an attachments business, and Nuvera, a fuel-cell technology business. Bolzoni was acquired April 1, 2016, so it contributes to current-period results but not the prior-year comparison.
Financial performance
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $713.1 million | $604.2 million |
| Gross profit / margin | $126.1 million / 17.7% | $97.9 million / 16.2% |
| Operating profit / margin | $23.4 million / 3.3% | $9.7 million / 1.6% |
| Net income attributable to stockholders | $18.1 million | $10.0 million |
| Diluted EPS | $1.10 | $0.61 |
| Operating cash flow | $102.0 million | $(18.3) million |
| Capital expenditures | $6.4 million | $6.6 million |
Revenue rose 18.0%, driven by higher lift-truck unit and parts sales and $41.6 million of Bolzoni revenue; foreign currency reduced revenue by $4.6 million. Lift-truck shipments increased 13.7% to 23,300 units. Bookings were 23,700 units, and backlog ended at 30,000 units, with an estimated sales value of $710 million; substantially all backlog was expected to ship within twelve months.
Operating profit improved mainly on higher lift-truck gross profit and Bolzoni’s contribution, partly offset by a larger Nuvera operating loss. Nuvera recorded a $9.5 million operating loss versus $6.1 million a year earlier, reflecting higher development, production-startup, marketing and employee costs. Net income growth also benefited from improved operations but was partly offset by the absence of a $4.0 million discrete tax benefit recorded in Q1 2016. The 2017 reported tax rate was 25.5%.
Liquidity, debt and balance sheet
At March 31, 2017, cash was $65.3 million, up from $43.2 million at year-end. Current assets were $864.5 million and current liabilities $613.0 million, a current ratio of approximately 1.41. Total debt was $143.1 million, down from $211.2 million at December 31, 2016; debt to total capitalization declined to 22% from 31%. The company reported $46.2 million drawn on its $240 million revolving facility and $187.9 million of excess availability, and was in covenant compliance. It also had $48.2 million of availability under other non-U.S. revolving credit agreements.
Operating cash flow was boosted by a $71.3 million working-capital contribution, principally accounts payable. Management attributed the comparison with Q1 2016 partly to supplier payments returning to normalized levels after an unplanned, systems-related acceleration in December 2016. Financing cash outflow was $73.6 million, largely reflecting repayment of borrowings; cash flow before financing was $94.9 million. Management said cash, facilities and operating cash flows should be sufficient for operating needs and commitments over the next twelve months and through the revolving facility’s April 2021 expiration.
Material changes and segment developments
- Lift-truck business: Revenue increased 11.3% to $672.2 million; operating profit rose to $30.6 million from $15.8 million. Americas operating profit increased to $29.8 million from $15.4 million, supported by shipments, production efficiencies, pricing and favorable currency. EMEA operating profit declined to $1.5 million from $2.0 million as expenses and currency pressure offset improved gross profit. JAPIC’s operating loss narrowed to $0.7 million from $1.6 million.
- Bolzoni: Contributed $41.6 million revenue and $2.3 million operating profit in the quarter. Acquisition-related amortization is expected to continue at approximately $1.5 million per quarter.
- Nuvera: Revenue was $2.6 million, including no recognized revenue yet from 29 fuel-cell systems shipped during the quarter. The company is transitioning toward commercialization and reorganizing responsibilities with the lift-truck business.
- Debt and working capital: Revolver borrowings fell as the company repaid amounts outstanding at year-end following the December supplier-payment timing issue. Accounts payable increased to $353.9 million from $242.4 million at year-end.
Outlook, risks and contingencies
Management expected modest global lift-truck market growth in 2017, with company shipments and revenue expected to grow faster than the market through anticipated share gains, new products and higher unit and parts volumes. Full-year lift-truck operating profit was expected to exceed 2016, while full-year net income was expected to increase moderately, partly offset by a higher tax rate and the absence of 2016 tax benefits. Revenue growth was expected to be more modest in Q2 and pick up in the second half; the second-half operating-profit improvement was expected to be more modest than the first-quarter increase.
Americas revenue and operating profit were expected to improve over the remainder of 2017, with pricing and sales mix benefits partly offset by material inflation and higher expenses. In EMEA, management expected revenue growth but lower operating profit over the remaining quarters as expenses and material inflation outweighed revenue and pricing benefits. JAPIC revenue and results were expected to improve, particularly in the second half. Bolzoni’s 2017 revenue was expected to increase modestly and profit to improve substantially versus the twelve months ended March 31, 2017. Nuvera losses were expected to decrease progressively in 2017 and 2018, with quarterly break-even targeted during 2018, contingent on cost reductions, reliability improvements and achieving target engine volumes.
Key risks identified include cyclical or weaker lift-truck demand; financing availability; economic and political uncertainty; acceptance of pricing and new products; raw-material, labor and supplier costs or disruptions; foreign exchange, tariffs and regulation; competition; litigation, product liability and warranty claims; successful cost-reduction programs and Nuvera commercialization; and potential effects of the United Kingdom’s exit from the European Union.
Legal and regulatory claims are described as ordinary-course matters; management considered material costs beyond recorded accruals remote. Customer and dealer financing guarantees totaled $282.2 million of exposure at March 31, 2017, including an incremental $158.8 million obligation related to the HYGFS financing guarantee; management reported no significant expected losses and cited collateral. The company also reported $144.7 million of recourse or repurchase obligations. No material changes in risk factors or market-risk exposures were reported. Disclosure controls were assessed as effective.
Important facts for investors to verify
- How much Q1 operating cash flow reflects sustainable earnings versus the timing and normalization of accounts payable.
- Whether expected market-share gains, product launches, pricing and shipment growth support the 2017 profit outlook amid material-cost inflation and regional currency pressure.
- Nuvera’s commercialization progress, cost and reliability targets, loss trajectory, and feasibility of the 2018 break-even objective.
- Potential exposure under HYGFS guarantees and customer/dealer recourse obligations, including the adequacy and recoverability of collateral.
- The eventual financial-statement impact of adopting the new revenue-recognition standard, which management was still evaluating.