Hyster-Yale Materials Handling, Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing is an annual report, not a standalone fourth-quarter filing. Amounts are in U.S. dollars; financial figures are in millions unless noted.
Business context
The company designs, manufactures and services lift trucks primarily under the Hyster and Yale brands. Its businesses include lift trucks, Bolzoni attachments and Nuvera hydrogen fuel-cell products. Lift trucks accounted for approximately 77% of 2018 revenue; aftermarket parts approximately 13%. The company acquired a 75% interest in China’s Maximal on June 1, 2018, and included its results in the JAPIC segment from that date.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 | Change |
|---|---|---|---|
| Revenue | $3,174.4 | $2,885.2 | +10.0% |
| Gross profit / margin | $497.1 / 15.7% | $502.6 / 17.4% | Profit down $5.5 |
| Operating profit / margin | $38.8 / 1.2% | $74.1 / 2.6% | Down 47.6% |
| Net income attributable to stockholders | $34.7 | $48.6 | Down 28.6% |
| Diluted EPS | $2.09 | $2.94 | Down 28.9% |
| Operating cash flow | $67.6 | $164.7 | Down $97.1 |
| Capital expenditures | $38.8 | $41.0 | Down $2.2 |
| Cash and cash equivalents, year-end | $83.7 | $220.1 | Down $136.4 |
| Total debt, year-end | $301.5 | $290.7 | Up $10.8 |
Revenue growth reflected higher unit and parts volumes, favorable currency movements, improved pricing, Maximal and Bolzoni. Lift-truck shipments increased 9.1% to 101,900 units. Profitability weakened as material and manufacturing costs, freight and tariffs outpaced price recovery, while selling, general and administrative expenses increased. Operating cash flow was also affected by working-capital changes, including higher inventory. Cash flow from investing activities was $(110.9), including $78.0 for acquisitions; financing activities used $87.6. The current ratio was approximately 1.46, based on current assets of $1,131.6 and current liabilities of $776.2. Cash less total debt was approximately $(217.8).
Year-end backlog was 43,900 trucks, valued at approximately $1,190, versus 33,800 units and $860 at year-end 2017. Substantially all backlog was expected to ship in 2019, but orders may generally be canceled before sale.
Fourth-quarter revenue was $837.7, but the company reported an operating loss of $3.4 and a net loss attributable to stockholders of $1.2. Management said Nuvera recognized previously deferred revenue for battery-box replacement units in the quarter after it could reasonably estimate associated warranty costs; the related warranty costs were also recorded.
Material changes and unusual items
- The Americas lift-truck segment’s operating profit fell to $75.4 from $109.6, chiefly due to material and freight inflation and tariffs, partly offset by price increases. Management identified a $25.7 shortfall in 2018 between realizing price increases and the onset of cost increases.
- JAPIC revenue rose 39.2%, including Maximal; its operating loss widened to $14.5 from $6.1, reflecting acquisition-related and strategic selling costs.
- Bolzoni revenue increased to $200.9 from $177.2 and operating profit to $9.5 from $6.4. Nuvera revenue was $12.3; its operating loss narrowed to $38.3 from $42.0.
- The 2017 comparison included $19.8 of HYG Financial Services equity income associated with the Tax Reform Act and $38.2 of tax expense from the Act. In 2018, the company recorded a $4.4 tax benefit from finalizing related calculations; the reported tax rate was 6.3%, compared with 47.9% in 2017.
- The company recorded a $5.1 mark-to-market loss on its Balyo investment in 2018. No goodwill or indefinite-lived intangible impairment was identified in the 2018 annual tests; a $4.9 Nuvera long-lived-asset impairment had been recorded in 2017.
- Maximal purchase-price allocation remained preliminary at year-end. The company paid $81.0 at closing, plus $9.0 into escrow and $3.2 for adjustments; final purchase accounting was expected by the second quarter of 2019.
Outlook, risks and contingencies
Management expected 2019 consolidated operating profit to increase significantly versus 2018, with improvement weighted to the second half. It expected lift-truck income to improve, although the first half was expected below the prior-year first half; margins were expected to recover from inflation and discounted backlog deals mainly by the third and fourth quarters. Longer-term targets included 7% operating profit for the Lift Truck business and Bolzoni, and Nuvera break-even in the fourth quarter of 2019 and full-year 2020. Management described these as plans and targets dependent on market conditions, execution and product commercialization, not guaranteed results.
Planned 2019 capital expenditures were $79.1, more than double 2018 actual spending, primarily for product development, IT, manufacturing improvements and equipment. Strategic programs include new modular truck families, supply-chain and manufacturing changes, dealer and digital investments, Bolzoni’s move of North American attachment manufacturing to Sulligent, and Nuvera product development.
- Key risks include the cyclical lift-truck market; tariffs, raw-material inflation and supplier constraints; foreign-exchange movements; intense competition; reliance on independent dealers; and execution, integration and commercialization risks, particularly for Maximal and Nuvera.
- Maximum undiscounted customer financing recourse and repurchase obligations were $192.7. Estimated collateral fair value was $245.7; anticipated losses were not significant and reserves were recorded. The company also disclosed a separate guarantee exposure related to HYGFS; total exposure under its guarantee calculations was $376.6, including recourse and an incremental obligation to Wells Fargo.
- The company reported no material legal proceeding and said it believed costs beyond recorded accruals for existing claims were remotely likely. Environmental remediation, product liability and self-insurance estimates remain subject to uncertainty.
- At year-end, the company had $83.7 cash, $185.9 availability under its principal revolving facility and $18.3 availability under other non-U.S. lines. It was in compliance with debt covenants and said available resources should meet needs over the next 12 months. Debt is substantially floating-rate and secured; total debt-to-capitalization was 35%.
- Management and the auditor reported effective internal control over financial reporting, but Maximal—about 9% of assets and 2% of 2018 revenue—was excluded from the internal-control assessment.
Most important facts for investors to verify
- Whether 2019 price recovery, tariff and material-cost offsets, supplier improvements and second-half profit improvement materialized as forecast.
- Whether backlog converts to shipments and revenue, given cancellation rights and below-target pricing on certain orders.
- Maximal’s finalized purchase accounting, integration, performance and contribution to JAPIC results.
- Nuvera’s path to the stated break-even targets, including demand, warranty costs and commercial adoption.
- Working-capital and cash conversion trends, inventory levels, planned capital spending and debt/liquidity headroom.
- Potential cash or earnings effects from financing guarantees, foreign-exchange hedges, tax uncertainties, pension obligations and environmental or product-liability claims.
The consolidated financial statements received an unqualified audit opinion from Ernst & Young LLP.