Hyster-Yale Materials Handling, Inc. — Q3 2012 Form 10-Q
Reporting period: Three and nine months ended September 30, 2012; financial statements are unaudited. The company designs, manufactures, sells and services lift trucks and aftermarket parts, primarily under the Hyster and Yale brands. NACCO spun off the company on September 28, 2012, making this its first quarter as an independent public company.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $585.6 million | $628.8 million | $1,817.1 million | $1,863.4 million |
| Gross profit / margin | $100.0 million / 17.1% | $89.0 million / 14.2% | $295.9 million / 16.3% | $282.7 million / 15.2% |
| Operating profit / margin | $28.3 million / 4.8% | $24.1 million / 3.8% | $82.7 million / 4.6% | $82.0 million / 4.4% |
| Net income attributable to stockholders | $24.9 million | $17.5 million | $65.6 million | $59.0 million |
| Diluted EPS | $1.48 | $1.04 | $3.90 | $3.51 |
Q3 revenue declined 6.9%; lower shipments and unfavorable currency, particularly the euro and Brazilian real, outweighed price increases and parts growth. Worldwide unit shipments were 18,045 versus 19,628. For the first nine months, shipments were 56,852 versus 58,924, and revenue declined 2.5%. Profitability improved despite lower revenue, primarily from pricing and favorable sales mix; higher employee-related and other SG&A partly offset gains. Q3 interest expense fell to $2.5 million from $4.1 million; nine-month interest expense fell to $9.7 million from $11.9 million.
Cash, liquidity and debt
- Nine-month operating cash flow was $68.7 million, compared with cash used of $11.0 million in 2011. Capital expenditures were $10.7 million; cash flow before financing activities was $58.2 million versus negative $21.5 million.
- Cash was $145.0 million at September 30, down $39.9 million from year-end 2011. Financing activities used $98.9 million, including net debt reductions, refinancing fees, spin-off costs and dividends to NACCO.
- Total debt was reported at $144.7 million, down from $226.0 million at December 31, 2011; debt to total capitalization fell to 28% from 43%. The company had $125.4 million outstanding under its new term loan and approximately $13.9 million of other debt.
- The $200 million revolving facility matures in March 2017 and had no borrowings outstanding; availability was $191.4 million after letters of credit. The company reported compliance with facility and term-loan covenants. Management said cash, available credit and operating cash flow should cover operating needs and commitments for the next 12 months.
- At September 30, current assets were $871.8 million and current liabilities were $520.8 million. The term loan and revolver are secured and contain restrictions, including limits on dividends.
Outlook, risks and notable items
- Management expected Q4 2012 global market volumes to be slightly below the prior year, with a slight decrease in company shipments and parts volume. It forecast modestly lower Q4 net income, mainly due to higher taxes and costs, partly offset by improved gross margin.
- For 2013, management anticipated slight global market growth and higher company shipments and parts volumes, led mainly by the Americas. However, it expected 2013 net income to decline versus 2012 due to mix, higher operating expenses and incremental public-company costs of up to $3.5 million pre-tax annually. Europe, Middle East and Africa results were expected to weaken significantly, reflecting depressed Western European conditions, a weak euro and loss of a 2012 currency-hedging benefit.
- Management expected full-year 2012 cash flow before financing to be significantly higher than 2011, and 2013 cash flow before financing to be moderately lower than 2012. Commodity prices were expected to be comparable with prior-year periods.
- Key exposures include global demand, foreign exchange, raw-material and labor costs, supplier and dealer stability, customer financing, product acceptance, competition, product liability, warranty claims and regulatory changes. Foreign-exchange forwards had $447.7 million notional value; the company also used interest-rate swaps.
- Customer financing recourse or repurchase obligations totaled $143.1 million, including $102.9 million related to NFS; estimated collateral value was $162.4 million. The company also guaranteed $95.6 million of NFS debt to GECC. Management said anticipated losses were not significant and it saw no significant current risk of nonpayment, while cautioning that risk could increase.
- Ordinary-course legal and regulatory claims include product-liability and environmental matters. Management believed material costs beyond recorded accruals were unlikely. Warranty obligations, including deferred extended-warranty revenue, totaled $42.4 million at September 30.
- The nine-month effective tax rate was 15.4%, versus 20.2% in 2011. An IRS-approved election led to a $2.1 million deferred-tax-liability release in Q2; the company also repatriated $50.0 million of European earnings. Refinancing-related swap ineffectiveness resulted in a $1.4 million Q2 loss.
Most important facts to verify
- Whether demand, shipments, and revenue trends—especially in Europe—track management’s Q4 and 2013 expectations.
- Cash conversion, inventory levels, and the ability to sustain operating cash flow as market conditions change.
- Debt balances, borrowing-base availability, covenant headroom, and dividend restrictions after the spin-off.
- Exposure and potential losses under dealer/customer recourse obligations and the NFS debt guarantee.
- Whether pricing, product mix, currency movements, material costs, and new public-company expenses produce the forecast earnings trajectory.