Hyster-Yale Materials Handling, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2020. The company designs, manufactures, sells and services lift trucks, attachments and aftermarket parts, primarily under the Hyster and Yale brands; it also operates Bolzoni and Nuvera. All amounts below are in U.S. dollars unless stated otherwise.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $652.4 million | $766.0 million | $2,092.5 million | $2,457.0 million |
| Gross profit / margin | $103.4 million / 15.9% | $135.0 million / 17.6% | $343.7 million / 16.4% | $400.6 million / 16.3% |
| Operating profit / margin | $7.3 million / 1.1% | $19.5 million / 2.5% | $36.2 million / 1.7% | $45.8 million / 1.9% |
| Net income attributable to stockholders | $5.1 million | $12.8 million | $24.0 million | $32.4 million |
| Diluted EPS | $0.30 | $0.76 | $1.43 | $1.94 |
- Cash flow: Nine-month operating cash flow was $76.1 million, versus cash used of $17.3 million in 2019. Capital expenditures were $37.2 million; investing cash outflow was $29.8 million. Cash increased $25.3 million to $89.9 million.
- Liquidity: Current assets were $1,031.4 million and current liabilities $677.8 million at September 30, 2020. The company reported $235.6 million available under its $240 million revolving facility and $31.1 million available under other non-U.S. revolvers. No borrowings were outstanding under the main facility.
- Debt and equity: Company-reported total debt was $297.7 million, compared with $287.0 million at December 31, 2019; debt to total capitalization was 33%. The $200 million term loan had $167.5 million principal outstanding and matures in May 2023. Total equity was $602.6 million.
- Dividend: Quarterly dividend was $0.3175 per share, unchanged from Q3 2019. Nine-month dividends paid were $16.0 million.
Material changes and drivers
- Q3 revenue fell 14.8% year over year, mainly on lower lift-truck and parts volumes across regions and lower Bolzoni sales amid COVID-19 disruption. Lift-truck unit shipments declined 12.3%; bookings were nearly flat year over year at 22,700 units. Lift-truck backlog ended at 33,600 units, down from 43,400 a year earlier.
- Q3 operating profit declined to $7.3 million, primarily due to lower gross profit from reduced volumes. Lower SG&A, favorable pricing and $1.6 million of EMEA government subsidies partly offset the decline. Q3 2019 had included $8.7 million of favorable retroactive tariff-exclusion adjustments.
- Nine-month revenue declined 14.8% and operating profit declined 21.0%. The company cited lower volumes, pandemic-related manufacturing inefficiencies, unfavorable currency movements and the absence of $11.8 million in 2019 tariff-exclusion benefits; cost reductions and $6.6 million of EMEA government subsidies partially mitigated the impact.
- Working-capital changes contributed to the cash-flow improvement: receivables and inventory declined as the company adjusted to lower demand. The filing cautions that interim LIFO inventory valuation depends on year-end estimates.
Outlook, risks and unusual items
- Management said lift-truck markets improved faster than expected in Q3, with bookings strengthening from Q2. It expected Q4 operating profit and net income to be significantly higher than both Q3 2020 and Q4 2019, based on expectations established before the latest COVID-19 case increases.
- Management nevertheless expected difficult market conditions through the remainder of 2020 and into 2021, with booking levels uncertain. Renewed restrictions, plant or supplier shutdowns, weaker demand and supply-chain interruptions could undermine the outlook. Management anticipated further production increases in Q4, subject to demand and no new shutdowns.
- Company-wide cost actions were intended to generate $60–$75 million of 2020 operating-expense savings versus 2019; approximately $47 million had been realized through September 30. Planned 2020 capital expenditures were approximately $61 million.
- Management described strategic product and operational programs as investments in long-term competitiveness, while acknowledging that they may weigh on near-term results. The first new modular 2-to-3-ton EMEA lift-truck range was expected to launch in Q1 2021, with Americas models expected in the second half of 2021. Nuvera was pursuing commercialization of its 45kW fuel-cell engine and development of a roughly 60kW engine.
- COVID-19 was identified as a key risk to demand, employee availability, operations and supplier continuity. Other risks include foreign exchange, tariffs and input costs, access to credit, dealer/customer credit quality, product liability and warranty claims, and commercialization and acceptance of new products.
- Unusual items: Q3 included a $1.2 million U.S. pension settlement loss and a $1.0 million discrete tax benefit. Nine-month results included a $4.3 million discrete tax benefit related to the expiration of the statute of limitations for certain acquired tax positions, with an offsetting pre-tax indemnity-receivable expense.
- Contingencies and guarantees: A Brazilian tax-recovery claim had an estimated gross value of about $18 million, but the company estimated net realizable value at $1.4 million, expected over one to five years; timing and realization remain uncertain. Total customer/dealer recourse or repurchase obligations were $147.0 million. Reported total guarantee exposure, including the HYGFS-related guarantee, was $348.3 million; management said anticipated losses were not significant and collateral supported the arrangements.
- The company reported compliance with its revolving-facility and term-loan covenants. Management believed cash, available facilities and operating cash flows would cover operating needs and commitments for the next 12 months and through the facility’s April 2022 expiration.
Important facts for investors to verify
- Whether Q4 bookings, production increases and earnings improved as management expected, particularly after the COVID-19 resurgence noted in the filing.
- Whether cost-saving targets were achieved and how much of the savings were temporary measures versus sustainable structural reductions.
- How working-capital reductions affected cash generation, and whether planned working-capital investment to support growth pressures liquidity.
- Actual realization and timing of the Brazilian tax credits, and potential exposure under customer/dealer guarantees and the HYGFS debt guarantee.
- Progress, launch timing, customer uptake and financial returns from new lift-truck products and Nuvera fuel-cell commercialization.