Hyster-Yale Materials Handling, Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015; unaudited. The company designs, manufactures, sells, and services lift trucks and aftermarket parts under the Hyster and Yale brands. Nuvera Fuel Cells, acquired in December 2014, is reported as a separate segment.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $658.7 million | $684.7 million | $1,281.0 million | $1,360.7 million |
| Gross profit | $110.6 million | $107.3 million | $213.5 million | $219.0 million |
| Gross margin | 16.8% | 15.7% | 16.7% | 16.1% |
| Operating profit | $27.3 million | $47.7 million | $48.3 million | $79.3 million |
| Net income attributable to stockholders | $22.7 million | $32.9 million | $36.6 million | $55.0 million |
| Diluted EPS | $1.39 | $1.95 | $2.24 | $3.26 |
For Q2, revenue fell 3.8% and stockholder net income fell 31.0%; for the first half, revenue declined 5.9% and net income declined 33.5%. Foreign-currency translation was the main revenue headwind: $46.2 million in Q2 and $79.4 million for the first half. Q2 gross profit improved despite lower sales, supported by material-cost savings and higher volumes of higher-margin products, partly offset by $4.9 million of unfavorable currency effects.
Q2 2014 operating profit included a $17.7 million gain on the sale of a Brazil facility. Excluding that gain, Q2 2015 operating profit was lower by $2.7 million, mainly reflecting Nuvera’s $5.9 million operating loss, partly offset by improved lift-truck gross profit. First-half 2015 operating profit also reflected Nuvera’s $11.9 million operating loss and lower lift-truck gross profit. Nuvera’s reported net loss attributable to stockholders was $3.5 million in Q2 and $7.1 million for the first half.
Cash, debt, and liquidity
- Cash was $99.1 million at June 30, 2015, down from $111.4 million at year-end 2014. First-half operating cash flow was negative $2.8 million, versus negative $13.6 million a year earlier; investing cash flow was negative $9.7 million.
- Capital expenditures were $18.7 million in the first half. The company expected a further $36.0 million for the remainder of 2015.
- Total debt was approximately $53.7 million, compared with $31.5 million at December 31, 2014. There were no borrowings under the $220 million revolving facility; availability was $213.6 million after letters of credit. Another $26.0 million was available under other non-U.S. revolving agreements.
- The company reported compliance with facility covenants and said cash, available credit, and operating cash flows should meet operating needs and commitments for the next 12 months and through the facility’s December 2018 expiration.
- Current assets were $843.0 million and current liabilities $519.1 million at June 30, 2015. The filing reports no separate liquidity ratio.
Business trends, outlook, and risks
Q2 shipments increased 3.2% overall to 22,400 units, with growth in the Americas and Europe offset by a decline in Asia-Pacific. Backlog was 30,900 units, versus 28,800 a year earlier; substantially all was expected to ship within 12 months. Bookings’ approximate sales value was $495 million, down from $560 million in Q2 2014.
Management expected global lift-truck markets to weaken in the second half of 2015, with regional demand mixed. It forecast a moderate increase in second-half shipments and parts volumes versus the second half of 2014, but modestly lower revenue due to currencies and a shift toward lower-priced trucks. Lift-truck operating profit for the second half was expected to be comparable with the prior-year period, with a weaker third quarter offset by an expected fourth-quarter increase. Management expected second-half lift-truck net income to decline year over year.
Nuvera was expected to incur a net loss of approximately $7.5–$8.5 million during the remainder of 2015. The company also expected up to $40–$50 million of cumulative operating losses over 2015 and the following one to two years, including approximately $13 million in the remainder of 2015, as it works toward a 2017 break-even running rate. Management targeted approximately 250 PowerEdge unit bookings in 2015, largely in Q4; shipments were expected to begin in late 2015 or early 2016. Commercialization, customer adoption, and competition are key uncertainties.
Other matters to monitor include currency and commodity volatility, weak conditions in Brazil and China, manufacturing-transition costs, and the company’s warranty and product-liability exposure. Dealer and customer financing guarantees totaled $307.7 million at June 30; management said anticipated losses were not significant and cited collateral and other protections. The filing states legal claims are ordinary-course matters and that material costs above accrued amounts are considered remote. A $3.7 million tax benefit from an internal subsidiary sale reduced the 2015 tax provision; effective tax rates were 16.8% for Q2 and 21.9% for the first half.
Important facts for investors to verify
- Whether reported profit comparisons are adjusted for the $17.7 million Brazil asset-sale gain in Q2 2014 and the $3.7 million 2015 tax benefit.
- Whether second-half market, shipment, revenue, and operating-profit expectations were achieved, particularly amid currency movements and weakness in Brazil and China.
- Nuvera’s actual losses, commercialization progress, PowerEdge bookings and deliveries, and funding needs relative to management’s targets.
- Cash conversion and working-capital requirements, planned capital spending, and changes in debt and available credit.
- Potential losses under the $307.7 million of financing guarantees, warranty obligations, and other contingencies.