Hyster-Yale Materials Handling, Inc. — Q3 2017 Form 10-Q
Business context and period. The unaudited filing covers the quarter and nine months ended September 30, 2017. The company manufactures and services lift trucks and related products, and operates Bolzoni (attachments) and Nuvera (fuel-cell technology). Its lift-truck business is reported across Americas, EMEA and JAPIC.
Financial performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $691.1 million | $629.3 million | $2,089.7 million | $1,879.1 million |
| Gross profit / margin | $121.4 million / 17.6% | $104.6 million / 16.6% | $369.2 million / 17.7% | $316.5 million / 16.8% |
| Operating profit / margin | $17.9 million / 2.6% | $5.4 million / 0.9% | $59.6 million / 2.9% | $26.5 million / 1.4% |
| Net income attributable to stockholders | $16.5 million | $12.3 million | $51.0 million | $30.6 million |
| Diluted EPS | $1.00 | $0.75 | $3.09 | $1.86 |
- Q3 revenue rose 9.8%; nine-month revenue rose 11.2%. Growth reflected higher lift-truck shipments and parts sales, improved pricing, favorable Q3 currency movements, and Bolzoni revenue.
- Q3 operating profit improved mainly on lift-truck gross profit and better Bolzoni and Nuvera results. Material-cost inflation and higher lift-truck selling, general and administrative expenses partly offset gains. Nine-month operating profit more than doubled, primarily on higher lift-truck volume, production efficiencies and pricing.
- Cash flow: Nine-month operating cash flow was $157.3 million versus $22.9 million in 2016; capital expenditures were $25.1 million. Cash at September 30 was $238.2 million, up from $43.2 million at year-end 2016. The cash-flow improvement included favorable working-capital changes, notably accounts payable normalizing after accelerated supplier payments in December 2016.
- Debt and liquidity: Total debt was $294.1 million versus $211.2 million at year-end 2016; cash less total debt was approximately negative $55.9 million. Debt-to-total-capitalization was 35%, up from 31%. The company had $196.0 million of availability under its $200 million revolving facility, plus $46.6 million under other non-U.S. lines; it reported compliance with debt covenants. A $200 million term loan was entered into in May, with $197.5 million principal outstanding at quarter-end and a 5.24% weighted average rate.
- Current assets were $1,102.7 million and current liabilities $671.6 million at September 30, 2017.
Material changes and unusual items
- Q3 lift-truck unit shipments increased 8.4% year over year; nine-month shipments increased 9.0%. Ending backlog was 35,100 units, compared with 30,600 a year earlier; substantially all was expected to ship within 12 months.
- Interest expense increased to $6.2 million in Q3 from $1.9 million, and to $10.6 million for nine months from $5.0 million, reflecting higher borrowings and financing costs.
- The Q3 income-tax benefit included a $4.7 million release of a Brazilian valuation allowance. The nine-month 2017 tax provision was $7.3 million, compared with a $2.6 million benefit in 2016; management expected 2017 tax benefits not to recur to the same extent.
- The company recorded a $1.0 million U.S. pension settlement loss in Q3 and revised expected 2017 pension contributions to approximately $0.5 million for U.S. plans and $9.2 million for non-U.S. plans.
Outlook, commentary and risks
- Management expected Q4 2017 lift-truck shipments and revenue to rise year over year, with operating profit improving but net income expected to be comparable to Q4 2016. For 2018, it expected global markets broadly comparable to 2017, moderate operating-profit growth, and a modest decline in net income due to higher interest and tax expense and nonrecurring 2017 tax benefits.
- Segment expectations varied: Americas market growth was expected to moderate in 2018, with operating profit comparable to 2017; EMEA operating profit was expected to increase; JAPIC’s market was expected to decline modestly, while company revenue and operating results were expected to improve through strategic initiatives.
- Nuvera remained loss-making. The company targeted break-even in late 2019, dependent on sales volumes and commercialization progress. BBR manufacturing was expected to transfer from Nuvera to the lift-truck business by the end of 2018.
- Management cited commodity inflation, particularly volatile steel costs, and intended to adjust pricing. Principal disclosed risks include cyclical demand, pricing acceptance, raw-material and supplier costs, foreign exchange, new-product execution, litigation and warranty exposure, and successful Nuvera commercialization.
- Guarantees and recourse or repurchase obligations totaled $296.3 million of reported exposure, including an incremental obligation related to HYGFS financing; management said anticipated losses were not significant and collateral supported the arrangements. Ordinary-course legal proceedings were disclosed, with no material excess losses expected beyond recorded accruals.
Important facts for investors to verify
- Whether demand, backlog conversion and pricing sustain the revenue and margin gains, particularly amid material-cost inflation.
- Cash-flow quality and working-capital normalization after the unusual supplier-payment timing in late 2016.
- Debt repayment, interest costs, covenant headroom and the terms governing dividends under the term loan and revolver.
- Whether the Q4 and 2018 outlook is achieved, including the forecast tax-rate effect and the sustainability of 2017 tax benefits.
- Nuvera’s commercialization milestones, costs, BBR production transfer and progress toward the late-2019 break-even target.
- Potential losses under HYGFS guarantees and customer recourse obligations, plus warranty and product-liability developments.