Hyster-Yale Materials Handling, Inc. — Q3 2013 Form 10-Q
Business and period. The company designs, manufactures, sells and services lift trucks and aftermarket parts, primarily under the Hyster and Yale brands. This unaudited report covers the three and nine months ended September 30, 2013, compared with the corresponding 2012 periods. Amounts below are in millions of dollars except per-share data.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $643.9 | $585.6 | $1,948.4 | $1,817.1 |
| Gross profit / margin | $111.6 / 17.3% | $100.0 / 17.1% | $335.1 / 17.2% | $295.9 / 16.3% |
| Operating profit / margin | $31.3 / 4.9% | $28.3 / 4.8% | $99.3 / 5.1% | $82.7 / 4.6% |
| Net income attributable to stockholders | $23.5 | $24.9 | $84.3 | $65.6 |
| Diluted EPS | $1.40 | $1.48 | $5.02 | $3.90 |
Revenue rose 10.0% in Q3 and 7.2% year to date. Higher unit volumes and price, especially in the Americas, drove growth; foreign exchange and lower-priced product mix partly offset it. Q3 shipments were 21,176 units versus 18,045; nine-month shipments were 62,790 versus 56,852.
Q3 operating profit improved, but net income fell, primarily because of higher income tax expense and lower equity earnings from NFS. Year-to-date net income increased, aided by operating improvement and a $12.8 million tax benefit from releasing UK valuation allowances. The nine-month effective tax rate was 11.5%, versus 15.4% in 2012; Q3 rates were 21.9% and 14.4%, respectively.
Cash, liquidity and debt
- Cash was $184.7 at September 30, 2013, versus $151.3 at December 31, 2012. Total assets were $1,151.7 and total equity was $416.2.
- Nine-month operating cash flow was $88.8, compared with $68.7 in 2012. Capital expenditures were $23.6, versus $10.7; cash flow before financing activities was $75.3, versus $58.2.
- Reported total debt was $121.8, down from $142.2 at year-end 2012; debt to total capitalization declined to 23% from 29%. The company made a voluntary $20.0 term-loan prepayment. The $86.9 remaining term-loan balance was classified as current because management expected to repay it within 12 months in connection with potential refinancing.
- The $200.0 revolving facility had no borrowings outstanding and $192.4 of excess availability after letters of credit at September 30. A further $46.6 of availability existed under other foreign revolving lines. The company said it was in compliance with facility and term-loan covenants and expected available cash, credit and operating cash flows to cover needs.
Outlook, commentary and notable items
- Management expected moderate global forklift-market growth for the remainder of 2013 and in 2014, with weakness in Western Europe and Latin America near term; it anticipated higher unit shipments and parts volumes, principally in the Americas.
- Q4 2013 operating profit was expected to increase slightly year over year, while net income was expected to decline because of the absence of a prior-year tax valuation-allowance release and a higher expected tax rate. For 2014, management forecast moderate operating-profit improvement but only a slight net-income increase, in part due to higher taxes.
- Management intended, if favorable terms were available, to repay the remaining term loan with cash and enter a new revolving credit agreement in Q4 2013. It estimated a roughly $3.0 pretax charge to write off term-loan financing fees if refinancing occurred; no assurance was given that refinancing or further prepayment would happen.
- Management expected cash flow before financing activities to be significant but lower in 2013 than 2012, and lower again in 2014, largely due to higher capital spending, including a new Brazil plant. Remaining 2013 capital expenditures were estimated at $15.4.
- A Brazil real-estate and facility sale was agreed for R$42.5 million (about $19.5 at the stated exchange rate), with completion expected by July 22, 2014. The company had received a $9.9 deposit, recorded as a liability; the deposit is not sale revenue, and any gain was expected at closing. Proceeds were intended to support a new Brazil facility.
- Q3 included a $1.2 pension settlement loss. The company also recorded substantial non-cash incentive-compensation expense as its share price rose. Foreign exchange, commodity costs, product mix, warranty claims, financing access and execution of product and market initiatives remain relevant risks.
- Customer financing recourse and repurchase obligations totaled $154.2; the company also guaranteed $139.2 of NFS debt. Management said anticipated losses on recourse obligations were not significant and collateral was estimated at $167.0. Ordinary-course legal and regulatory claims were disclosed; management believed material costs beyond recorded accruals were remote.
Most important facts for investors to verify
- Whether the planned term-loan repayment and refinancing occurred, on what terms, and whether the expected financing-fee charge was recorded.
- Whether revenue and margin growth continued, particularly in the Americas, and how lower-margin product mix and foreign exchange affected results.
- How much of year-to-date earnings growth reflected the $12.8 tax valuation-allowance release, and the subsequent effective tax rate.
- Progress, costs and timing of the Brazil facility sale and new-plant investment, including environmental-remediation conditions and final sale proceeds.
- Changes in liquidity, debt covenant headroom, customer-financing guarantees and recourse exposure, and actual cash conversion relative to reported earnings.