Hyster-Yale Materials Handling, Inc. — FY 2016 Form 10-K
Reporting period: Year ended December 31, 2016; filed February 28, 2017. The company designs, manufactures and services lift trucks and aftermarket parts under the Hyster and Yale brands, and also operates Nuvera fuel-cell activities. In 2016 it acquired Bolzoni, a maker of lift-truck attachments, forks and lift tables. The filing reports annual results and unaudited fourth-quarter results.
Financial performance and position
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $2,569.7 million | $2,578.1 million |
| Gross profit / margin | $427.5 million / 16.6% | $430.8 million / 16.7% |
| Operating profit / margin | $34.9 million / 1.4% | $103.5 million / 4.0% |
| Net income attributable to stockholders | $42.8 million | $74.7 million |
| Diluted EPS | $2.61 | $4.57 |
| Operating cash flow | $(48.9) million | $89.4 million |
| Cash and cash equivalents at year-end | $43.2 million | $155.1 million |
| Total debt at year-end | $211.2 million | $53.1 million |
Revenue declined 0.3%, but included $115.6 million from Bolzoni, acquired in April 2016. Lift-truck business revenue declined 4.8%; shipments fell 2.4% to 84,800 units. The $68.6 million drop in operating profit reflected lower lift-truck gross profit, higher lift-truck SG&A and increased Nuvera losses. The lift-truck business generated $74.6 million in operating profit, while Nuvera recorded a $39.6 million operating loss. Net income exceeded pretax income partly because the company recorded a $4.0 million income-tax benefit.
Cash used in operations was driven largely by working-capital outflows, including higher receivables and inventory and lower accounts payable; the company attributed the latter partly to an unplanned acceleration of supplier payments in the Americas in December. Investing cash use was $145.1 million, including $116.1 million for acquisitions. Capital expenditures were $42.7 million. The company reported a $240 million secured revolving facility, with $106 million drawn and $127.7 million of excess availability after letters of credit; it was in covenant compliance. The filing states that available cash, credit facilities and operating cash flows should provide sufficient liquidity for the next 12 months.
Current assets were $810.0 million and current liabilities $576.5 million at year-end. Debt to total capitalization was 31%, compared with 10% in 2015. The annual dividend was $1.17 per share; dividends paid totaled $19.2 million.
Fourth quarter: Revenue was $690.6 million, gross profit $111.0 million, operating profit $8.4 million, net income attributable to stockholders $12.2 million and diluted EPS $0.74. In Q4 2015, the respective figures were $645.0 million, $110.6 million, $26.2 million, $17.2 million and $1.05.
Material changes and notable items
- Operating profit fell 66.3% and stockholder net income fell 42.7% year over year. Management cited lower prices, reduced volumes and manufacturing absorption, adverse currency effects, higher U.S. health-care costs, and increased development, marketing and acquisition-related expenses. Material-cost deflation of $28.6 million partly offset these pressures.
- Bolzoni contributed $115.6 million of revenue and $35.7 million of gross profit after acquisition; its reported operating result was a $0.1 million loss. Acquisition-related costs were $6.6 million. Purchase accounting was preliminary, and the company recorded $50.7 million of goodwill at year-end.
- Nuvera’s operating loss widened from $24.6 million to $39.6 million as development, production start-up and commercialization costs increased. Product development costs company-wide rose to $107.0 million from $88.3 million.
- The tax provision was a $4.0 million benefit, versus $29.4 million expense in 2015. Tax items included release of a valuation allowance following Italian tax approval and other discrete benefits; management expects a higher tax rate in 2017 and no recurrence of 2016 tax benefits.
- Lift-truck backlog rose to 29,600 units, with an approximate sales value of $710 million, from 26,900 units and $660 million at year-end 2015. Substantially all backlog was expected to ship in 2017; dealer orders generally may be canceled before sale.
Outlook, management commentary and risks
For 2017, management expects the global lift-truck market to be broadly comparable to 2016. It forecasts higher lift-truck unit and parts revenue and operating profit, supported by market-share initiatives, new products and pricing; net income is expected to increase modestly, partly offset by a higher tax rate and the absence of 2016 tax benefits. Commodity costs, particularly steel, are expected to rise from 2016 levels.
Regional expectations differ: Americas revenue and operating profit are expected to increase despite a moderating market; EMEA revenue is expected to rise but operating profit to decline, with currency, inflation and expense pressures; JAPIC revenue and results are expected to improve, weighted toward the second half. Bolzoni expects higher revenue and improved profit. Nuvera expects significantly higher shipments and revenue, a lower loss in 2017, and quarterly operating break-even as an objective for 2018. Volume production of fuel-cell products at Greenville was expected to begin in the second half of 2017; current unit production costs remained above target.
- Key risks include cyclical demand, competitive pricing and dealer performance; foreign-exchange exposure; commodity inflation and reliance on a limited number of suppliers for certain components; and execution of strategic initiatives and integration of Bolzoni.
- Nuvera commercialization is uncertain: cost reductions, manufacturing scale, customer adoption and intellectual-property protection are important to the investment case. Alternative power technologies may prove more attractive.
- Customer/dealer financing creates recourse and repurchase exposure of $149.3 million. Separately, the company reported total guarantee exposure of $274.3 million, including an incremental $151.4 million obligation related to its guarantee of Wells Fargo financing to HYG Financial Services. The company cited secured assets and historically limited losses, but defaults could exceed reserves.
- Other risks include litigation and product liability, environmental remediation, pension funding, tax uncertainties, tariffs and political developments, and the effects of the U.K.’s exit from the European Union. No material legal proceeding was reported; management considered material costs beyond recorded contingencies remote.
Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. However, Bolzoni was excluded from management’s and the auditor’s internal-control assessment; it represented 16% of year-end assets and approximately 4% of 2016 revenue.
Most important facts for investors to verify
- Whether the 2017 lift-truck revenue, margin and market-share improvement forecasts materialized, especially against higher material costs.
- Whether Bolzoni integration delivers expected operating leverage and whether the preliminary purchase-price allocation changes.
- Nuvera’s actual production ramp, unit economics, customer demand and path toward the stated 2018 quarterly break-even objective.
- Cash conversion and working-capital trends after the 2016 operating cash outflow, alongside debt, facility availability and covenant headroom.
- Actual losses and collateral recovery under customer-financing guarantees, including the distinct recourse exposure and HYGFS debt guarantee.
- Tax-rate changes and the realization of deferred tax assets, particularly those associated with Brazil and other non-U.S. jurisdictions.