Hyster-Yale Materials Handling, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Financial statements are unaudited. The company designs, manufactures, sells and services lift trucks and aftermarket parts, and also operates Bolzoni (attachments) and Nuvera (hydrogen fuel-cell technology).
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $654.4 million | $856.2 million | $1,440.1 million | $1,691.0 million |
| Gross profit / margin | $103.6 million / 15.8% | $139.4 million / 16.3% | $240.3 million / 16.7% | $265.6 million / 15.7% |
| Operating profit / margin | $8.7 million / 1.3% | $22.9 million / 2.7% | $28.9 million / 2.0% | $26.3 million / 1.6% |
| Net income attributable to stockholders | $3.6 million | $16.2 million | $18.9 million | $19.6 million |
| Diluted EPS | $0.21 | $0.97 | $1.13 | $1.17 |
Q2 revenue fell 23.6% year over year, mainly from lower lift-truck and parts volumes across regions and lower Bolzoni sales amid COVID-19 disruption. Q2 operating profit declined 62.0%; reduced volume and manufacturing inefficiencies outweighed lower SG&A. First-half operating profit rose 9.9%, as cost reductions more than offset lower gross profit. First-half net income attributable to stockholders decreased 3.6%.
- Cash flow: First-half operating cash outflow was $12.0 million, compared with $70.9 million used in 2019. Investing cash outflow was $23.3 million, including $29.9 million of capital expenditures; financing provided $34.4 million. Cash declined $4.1 million to $60.5 million.
- Liquidity and debt: At June 30, current assets were $1,047.7 million and current liabilities $723.0 million. Total debt, as presented in the company’s capital-structure discussion, was $337.7 million; cash was $60.5 million. Revolving-credit availability was approximately $217.8 million across the facility and other non-U.S. lines. The company reported compliance with debt covenants.
- Margins and dividends: Q2 gross and operating margins were approximately 15.8% and 1.3%; the quarterly dividend was $0.3175 per share.
Business changes and outlook
- COVID-19 reduced customer demand, disrupted suppliers and caused production reductions or suspensions at Chinese and European facilities. Global lift-truck shipments fell 23.6% in Q2 year over year; bookings and backlog were also substantially below prior-year levels.
- Bookings improved from their April low through May and June, but June bookings remained approximately 25% below June 2019. Management said recovery was uncertain and appeared to be flattening. The June 30 backlog was 31,500 units, with an approximate sales value of $810 million; substantially all was expected to ship within twelve months.
- Management expects a modest loss in Q3 2020. It could not confidently forecast bookings for the rest of 2020 or 2021, or related shipment levels; no full-year earnings outlook is provided in the filing.
- COVID-related cost actions include spending and travel restrictions, reduced temporary staffing, furloughs and compensation and benefit reductions. Management targeted $50–$75 million of 2020 operating-expense savings and reported approximately $28 million achieved through June 30.
- Planned 2020 capital expenditures were reduced to approximately $55 million from the previously disclosed $86.1 million estimate. Strategic product and manufacturing programs continue, but some projects are being reprioritized or delayed. The first new modular counterbalanced-truck range was expected to launch in the second half of 2020.
- Nuvera reported Q2 revenue of $0.7 million and an operating loss of $8.3 million. It received an integration certification for its 45kW engine for bus applications in China; testing and further certifications were pending, with sales ramp-up targeted for late 2020 and 2021.
Risks, contingencies and unusual items
- Principal risks include the pandemic’s duration and economic effects, lower demand, supplier and production disruption, customer and dealer access to credit, foreign-exchange and tariff exposure, and successful execution and commercialization of new products and cost programs.
- The company reported a $4.3 million discrete tax benefit in Q2 related to the expiration of the statute of limitations for acquired uncertain tax positions; an offsetting pre-tax indemnity-receivable expense was recorded.
- Brazilian tax credits had an estimated gross value of approximately $18 million, but the company recognized a net realizable value of only $1.5 million, which it expected to realize over one to five years. Timing and realization remain subject to uncertainty and potential legal or legislative developments.
- Customer financing recourse and repurchase obligations totaled $172.5 million. Separately, reported total exposure related to guarantees was $379.9 million, including an incremental obligation related to HYGFS financing; anticipated losses were described as not significant and reserves were recorded. These are contingent exposures, not reported debt.
- Management said interim impairment testing found no impairment of goodwill or the tested assets. The filing reported no legal proceedings under Part II, Item 1.
Key facts for investors to verify
- Whether bookings, orders and backlog recover after the June 2020 improvement—and how that translates into shipments and cash generation.
- Whether the company delivers the targeted $50–$75 million of 2020 expense savings and maintains liquidity while operating cash flow is negative.
- Debt, covenant headroom, and the availability of revolving credit as the downturn continues; the main facility expires in April 2022.
- Whether the Q3 modest-loss expectation and reduced $55 million capital-spending plan remain current as conditions change.
- Realization of the Brazilian tax credits and the potential cash impact of recourse, repurchase and HYGFS guarantee exposures.