Hyster-Yale Materials Handling, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; unaudited. The company designs, manufactures, sells and services lift trucks and aftermarket parts, primarily under the Hyster and Yale brands. Nuvera, acquired in December 2014, is reported as a separate fuel-cell segment. Amounts below are in millions except per-share data, percentages and unit counts.
Financial performance
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Revenue | $622.3 | $676.0 | Down 7.9% |
| Gross profit / margin | $102.9 / 16.5% | $111.7 / 16.5% | Profit down 7.9%; margin unchanged |
| Operating profit / margin | $21.0 / 3.4% | $31.6 / 4.7% | Down 33.5% |
| Net income attributable to stockholders | $13.9 | $22.1 | Down 37.1% |
| Diluted EPS | $0.85 | $1.31 | Down 35.1% |
| Operating cash flow | $(3.4) | $(16.9) | Improved $13.5 |
| Capital expenditures | $9.8 | $4.9 | Up $4.9 |
Drivers: Revenue declined primarily from $33.2 of unfavorable foreign-currency translation and $20.4 from lower unit volume and product mix, partly offset by $2.0 of higher parts revenue. Unit shipments fell 3.4% to 19,900. Operating profit was pressured by lower gross profit and Nuvera’s $6.0 operating loss, partly offset by $3.4 lower SG&A. Management cited Brazil plant-transition inefficiencies, weather-related U.S. shutdowns, higher U.S. health-care costs and unfavorable currency; material-cost deflation partly offset these items. A $1.0 non-cash charge to mark interest-rate swaps to fair value also weighed on net income.
Segments: Lift-truck business operating profit was $27.0 versus $31.6; Americas $17.2 versus $25.7, Europe $8.7 versus $6.3, and Asia-Pacific $1.1 versus a $0.4 loss. Nuvera reported $1.2 revenue, $0.8 gross loss and $6.0 operating loss.
Balance sheet, liquidity and cash flow
- Cash was $91.5 at March 31, down $19.9 from year-end. Current assets were $818.9 and current liabilities $533.1.
- Total debt was $35.1, versus $31.5 at December 31; debt-to-total-capitalization rose to 8% from 6%. The company had $23.4 of borrowings outstanding, no borrowings under its $220.0 revolving facility, and $213.2 of facility availability after letters of credit. Additional availability under other non-U.S. lines was $32.9.
- Operating cash use improved mainly because working-capital use moderated, including a $25.2 cash inflow from accounts receivable, partly offset by a $32.0 inventory outflow. Cash flow before financing was negative $11.4.
- Accumulated other comprehensive loss widened to $145.4 from $101.1, reflecting a $40.3 foreign-currency translation loss and a $4.6 loss on current-period cash-flow hedging activity.
- The company paid $4.5 in dividends; the quarterly dividend was $0.275 per share, compared with $0.25 a year earlier.
Outlook, risks and contingencies
- Management expected global lift-truck market growth to moderate to nominal growth for 2015. It forecast a moderate increase in company unit shipments and parts volumes but a modest decline in full-year revenue, citing currency headwinds and mix shifts.
- Excluding the $17.7 gain on sale of the Brazil plant in 2014, 2015 lift-truck operating profit was expected to be similar to 2014. Management anticipated substantially lower first-half operating profit, partly offset by improvement in the second half. It expected Americas operating profit to be moderately higher, Europe lower and Asia-Pacific higher, all versus 2014 and excluding the Brazil gain where applicable.
- Nuvera was expected to incur a 2015 net loss of approximately $14–$17 and research and development expense of approximately $24–$27. Management expected limited revenue early in the year and increased revenue from planned product commercialization in Q4; it targeted approximately 250 PowerEdge unit bookings in 2015. Commercialization and demand remain uncertain.
- Capital expenditures were expected to total an additional $47.1 for the remainder of 2015. Management said cash, credit availability and operating cash flows should provide sufficient liquidity for the next 12 months and through the revolving facility’s December 2018 expiration.
- Guarantee exposure totaled $289.0, including $180.2 of customer/dealer recourse or repurchase obligations and a $143.8 incremental obligation associated with the company’s guarantee of NFS debt, after the filing’s stated adjustments. Management said anticipated losses were not significant and cited collateral, but performance is not assured.
- Management reported ordinary-course legal and regulatory claims and did not expect costs materially in excess of recorded accruals. The company was in compliance with its credit-facility covenants; disclosure controls were deemed effective.
- A new risk relates to GECC’s announced plan to sell most of its financial-services assets. A sale or termination of the NFS joint venture could disrupt dealer/customer financing and negatively affect sales, revenue, profitability and market share if comparable alternatives are unavailable.
Important facts for investors to verify
- Whether the Brazil plant transition reached full production by the end of Q2 2015 and whether the expected second-half recovery offset first-half weakness.
- Whether currency, shipment volume and product mix developed consistently with the revenue and segment-profit outlook.
- Nuvera’s commercialization timetable, bookings, actual revenue and cash needs relative to the stated 2015 loss and R&D expectations.
- Changes in GECC/NFS ownership, financing availability, and the company’s related guarantee exposure and collateral coverage.
- Working-capital requirements, capital spending, cash generation, borrowing levels and compliance with facility covenants.