Hyster-Yale Materials Handling, Inc. — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. The company designs, manufactures, sells and services lift trucks and aftermarket parts, primarily under the Hyster and Yale brands. Nuvera, acquired in December 2014, develops fuel-cell products and related systems. Financial amounts are in millions except per-share data.
Key financial metrics
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $652.1 | $695.8 | $1,933.1 | $2,056.5 |
| Gross profit | $106.7 | $111.3 | $320.2 | $330.3 |
| Gross margin | 16.4% | 16.0% | 16.6% | 16.1% |
| Operating profit | $29.0 | $36.3 | $77.3 | $115.6 |
| Operating margin | 4.4% | 5.2% | 4.0% | 5.6% |
| Net income attributable to stockholders | $20.9 | $28.4 | $57.5 | $83.4 |
| Diluted EPS | $1.28 | $1.70 | $3.52 | $4.97 |
| Operating cash flow | Not stated for the quarter | $31.3 | $41.2 |
Liquidity, debt and cash flow
- At September 30, 2015, cash was $114.6, current assets $859.6 and current liabilities $530.9; the current ratio was approximately 1.62, compared with 1.57 at December 31, 2014.
- Total debt was approximately $47.0, up from $31.5 at year-end 2014; debt to total capitalization rose to 9% from 6%. There were no borrowings under the $220.0 revolving facility, with $213.6 available after letters of credit. A further $25.7 was available under other non-U.S. credit lines. The company reported covenant compliance.
- Nine-month cash flow before financing activities was $14.3, versus $17.0 in 2014. Investing used $17.0; financing used $4.8. Cash increased $3.2 to $114.6.
- Capital expenditures were $28.9 for the first nine months; an additional $24.0 was estimated for the remainder of 2015. Management said available cash, credit facilities and operating cash flows should cover operating needs and commitments for the next twelve months.
Material changes versus prior periods
- Q3 revenue declined 6.3%; nine-month revenue declined 6.0%. The strong U.S. dollar was the main reported driver, with lower-priced product mix also weighing on results. Nine-month unit shipments rose 0.9% to 64,700, while revenue fell.
- Q3 operating profit fell 20.1%, primarily reflecting Nuvera’s $6.6 operating loss; the lift-truck business also had lower gross profit, partly offset by lower SG&A. Nine-month operating profit fell 33.1%, including Nuvera’s $18.5 loss and the absence of a $17.7 Brazil property and facility sale gain recorded in 2014.
- Q3 stockholder net income fell 26.4%; nine-month net income fell 31.1%. A $3.7 tax benefit from an internal subsidiary sale and repatriation of foreign earnings partly offset the nine-month decline.
- Revenue and profit varied by region: Americas Q3 operating profit improved to $35.5 from $31.1, while Europe fell to $0.2 from $4.4 and Asia-Pacific recorded a $0.1 operating loss. Currency translation materially reduced reported revenue and European profit.
- Lift-truck backlog at quarter-end was 27,100 units, with an approximate sales value of $670, down from 26,800 units and $720 a year earlier. Substantially all backlog was expected to ship within twelve months.
Outlook, commentary and risks
- Management expected global lift-truck markets and consolidated shipments to be softer in Q4 2015 than a year earlier. Q4 revenue and lift-truck operating profit were expected to decline, reflecting lower volumes, adverse currency, product mix and system implementation costs; price increases, lower incentive compensation and lower material costs were expected to provide some offset.
- For 2016, management forecast higher revenue, shipments and parts sales, but lift-truck operating profit roughly similar to 2015 and net income moderately lower, primarily due to mix, higher operating expenses and a higher expected tax rate. These are forward-looking expectations, not guarantees.
- Nuvera was expected to incur a Q4 2015 operating loss of approximately $5.5–$7.0 and a 2016 loss of approximately $23–$26. Management targeted quarterly break-even by the end of 2017 at stated production volumes. PowerEdge sales were expected to begin in 2016; commercialization, customer adoption and the expiring U.S. energy tax credit are relevant uncertainties.
- Other risks identified include weak Brazil and Asia-Pacific demand, currency volatility and less favorable future hedges, customer and dealer financing, commodity and supplier costs, product liability and warranty claims, and successful execution of cost reductions and Nuvera commercialization.
- Unusual items included a $1.2 non-cash pension settlement charge in Q3 2015 and the 2014 Brazil asset-sale gain. Warranty obligations were $56.1 at September 30. Legal and regulatory claims were described as ordinary-course matters; management did not expect material costs above accrued amounts.
- Guarantee exposure was reported as $306.1, including $185.1 of customer recourse or repurchase obligations and an incremental $157.6 obligation related to the GECC guarantee, with specified adjustments in the filing’s exposure calculation. Management said anticipated losses were not significant and identified collateral, but noted risk could increase.
Most important facts for investors to verify
- Whether foreign-exchange movements, hedge expirations and regional currencies continue to pressure revenue and operating profit.
- Whether expected Q4 and 2016 shipment, margin, cash-flow and tax-rate trends develop as management projected.
- Nuvera’s commercialization progress, production volumes, funding needs and path toward break-even.
- The quality of lift-truck backlog and the implications of lower backlog value and product-mix changes.
- Potential calls on the company’s recourse, repurchase and GECC guarantee exposures, along with warranty and other contingencies.