Hyster-Yale Materials Handling, Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. The filing also reports unaudited fourth-quarter results. The company designs, manufactures and services Hyster- and Yale-branded lift trucks and operates Bolzoni (attachments) and Nuvera (fuel-cell technology).
Financial performance and liquidity
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $2,885.2 million | $2,569.7 million |
| Gross profit / margin | $502.6 million / 17.4% | $427.5 million / 16.6% |
| Operating profit / margin | $76.0 million / 2.6% | $34.9 million / 1.4% |
| Net income attributable to stockholders | $48.6 million | $42.8 million |
| Diluted EPS | $2.94 | $2.61 |
| Cash from operations | $164.7 million | $(48.9) million |
| Cash and cash equivalents at year-end | $220.1 million | $43.2 million |
| Total debt at year-end | $290.7 million | $211.2 million |
- Revenue rose 12.3%; lift-truck shipments increased 10.1% to 93,400 units. Growth reflected higher unit and parts volumes, improved pricing and Bolzoni’s inclusion for a full year; Bolzoni was acquired in April 2016.
- Operating profit more than doubled, primarily on higher lift-truck gross profit from increased shipments, production efficiencies and improved pricing, partly offset by higher SG&A and material-cost inflation. Interest expense increased to $14.6 million from $6.7 million.
- Operating cash flow improved substantially, with working-capital changes contributing $55.8 million versus a $112.6 million use in 2016. The company attributed much of the swing to accounts payable normalizing after accelerated supplier payments in December 2016. Capital expenditures were $41.0 million.
- At year-end, current assets were $1,131.4 million and current liabilities were $692.4 million. The company reported $195.9 million of excess availability under its $200 million revolving facility and $16.8 million available under other non-U.S. lines; it said available funding and operating cash flows would cover expected needs.
- Debt includes a $195 million term loan outstanding, carrying a 5.57% weighted-average rate at year-end, plus other debt, revolving borrowings and capital leases. Debt to total capitalization rose to 34% from 31%. The company was in compliance with debt covenants.
Fourth quarter: Revenue was $795.5 million, operating profit $16.4 million, and net loss attributable to stockholders $2.4 million (diluted loss per share $0.15). The reported quarterly loss included the Tax Cuts and Jobs Act effects.
Material changes and unusual items
- The 2017 tax provision was $44.9 million, a 47.9% reported effective rate, compared with a $4.0 million tax benefit in 2016. The company recorded a provisional $38.2 million tax expense from U.S. tax reform, including $33.1 million for the transition tax and $5.1 million from remeasuring deferred taxes.
- HYGFS, the company’s 20%-owned financing joint venture, generated $19.8 million of equity income for the company related to a provisional tax-reform benefit. Management noted this favorable item alongside the $38.2 million tax expense when explaining 2017 earnings.
- Nuvera’s operating loss widened to $42.0 million from $39.6 million. A fourth-quarter $4.9 million impairment followed delays in expected commercialization and break-even timing; Nuvera’s 2017 net loss attributable to stockholders was $26.7 million.
- Lift-truck backlog reached 33,800 units, valued at approximately $860 million, versus 30,700 units and $740 million at year-end 2016. Substantially all backlog was expected to ship in 2018, but orders may generally be canceled before sale.
Outlook, risks and contingencies
- Management expected the global lift-truck market in 2018 to be broadly comparable to 2017, with moderate growth in the Americas, EMEA and Asia-Pacific partly offset by a modest decline in China. It expected 2018 operating profit to increase, with higher sales partly offset by operating costs and material inflation; net income was expected to rise substantially, partly because 2017 tax-reform charges would not recur. The forecast effective tax rate for the global lift-truck business was 21%–24%.
- Management expected Nuvera operating losses to decrease modestly in 2018 and targeted break-even within two years, while cautioning that timing depends on sales and commercialization. Production of battery-box replacements was expected to transfer to the lift-truck business, with production at Greenville targeted to begin in early 2019.
- The company had signed an agreement to acquire 75% of Zhejiang Maximal Forklift for $90 million, subject to closing conditions and regulatory approvals; closing was anticipated in the second quarter of 2018. A separate $10 million incentive payment to a key Maximal executive is conditional on compliance with specified covenants.
- Principal risks include the cyclical lift-truck market, commodity-cost inflation and pricing lag, foreign-exchange movements, international trade and regulatory changes, supplier concentration, dealer performance, and the commercialization and economics of Nuvera technology.
- Financing-related exposures include $203.5 million of customer recourse or repurchase obligations and a reported total guarantee exposure of $340.8 million, including obligations related to HYGFS. Management said expected losses were not significant and collateral was generally available, but actual losses could exceed reserves or collateral values.
- The company reported ordinary-course legal and regulatory matters but no material legal proceeding. It cited potential environmental, product-liability, self-insurance and pension exposures. Ernst & Young issued unqualified opinions on the financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective.
Key facts for investors to verify
- How much of the 2017 earnings improvement is sustainable after separating core operating gains from the tax-reform effects and HYGFS equity income.
- Whether 2018 price increases and product mix can offset steel and other input-cost inflation, especially given management’s forecast of weaker first-half results in some regions.
- Cash conversion and working-capital trends, including whether the 2017 operating-cash-flow rebound persists beyond the normalization of 2016 supplier payments.
- Debt, floating-rate exposure, covenant headroom and the scope and collateral coverage of customer-financing guarantees.
- Progress on Nuvera commercialization, losses, the impairment assumptions and the stated break-even timeline.
- Closing conditions, final economics and integration plans for the pending Maximal acquisition, as well as finalization of provisional tax-reform amounts.