Hyster-Yale Materials Handling, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. The company designs, manufactures, sells and services lift trucks and related parts, and operates Bolzoni (attachments) and Nuvera (hydrogen fuel-cell technology). The filing was delayed under SEC COVID-19 relief after the company could not complete impairment testing by the original deadline. Filed May 21, 2020.
Financial performance and liquidity
Amounts are in millions except per-share data. Comparisons are with Q1 2019.
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $785.7 | $834.8 |
| Gross profit / margin | $136.7 / 17.4% | $126.2 / 15.1% |
| Operating profit / margin | $20.2 / 2.6% | $3.4 / 0.4% |
| Net income attributable to stockholders | $15.3 | $3.4 |
| Diluted EPS | $0.91 | $0.20 |
| Cash from operating activities | $(45.7) | $(22.4) |
| Capital expenditures | $17.6 | $8.6 |
- Revenue fell 5.9%, mainly from lower lift-truck volumes and unfavorable foreign currency translation; higher pricing partly offset the decline. Shipments fell 9.3% to 23,300 units.
- Profitability improved despite lower sales: lift-truck gross profit rose, and SG&A declined to $116.5 from $122.8. Management attributed the operating-profit improvement chiefly to lift-truck gross profit and lower expenses. Nuvera’s operating loss widened to $9.4 from $8.4.
- Operating cash use increased, primarily reflecting working-capital outflows, including lower liabilities and employee-related payments. Cash flow before financing activities was negative $63.1.
- Cash was $50.4 at quarter-end, down from $64.6 at year-end 2019. Total debt was $340.1, up from $287.0; debt to total capitalization rose to 39% from 33%. The company reported $193.9 of availability under its revolver and other non-U.S. credit agreements and said it was in compliance with debt covenants.
- Comprehensive loss attributable to stockholders was $28.1, driven in part by foreign-currency translation and cash-flow hedge losses. Derivative contracts had a net liability of $44.8 after permitted offsets.
Material changes and business trends
- Results varied by region. Americas revenue increased 3.0% and operating profit rose to $38.5 from $15.3. EMEA revenue declined 20.0% and recorded a $4.5 operating loss; JAPIC revenue declined 29.7% and its operating loss increased to $6.0.
- Lift-truck bookings were 19,400 units versus 22,000; backlog was 37,300 units versus 40,200. Approximate backlog value declined to $960 from $1,130.
- Bolzoni revenue declined 4.2%, while operating profit increased to $2.7, partly because the prior-year period included costs from a North American manufacturing transfer. Nuvera revenue fell to $1.4 from $4.5.
Outlook, risks and unusual items
- COVID-19 disrupted production, demand and supplier availability. Chinese and European facilities experienced significant production reductions or suspensions in Q1; closures and constraints also affected Americas facilities. Management said the full financial effect could not be reasonably estimated and could materially adversely affect results, cash flows and financial condition.
- Management anticipated substantial Q2 booking declines across regions and significant declines in shipments, revenue and operating profit, including the possibility of an operating loss. It characterized the economic environment as likely to remain very difficult through 2020.
- Cost actions included reduced spending and travel, hiring freezes, temporary-worker reductions, furloughs and compensation and benefit cuts. The company targeted $80–$110 of 2020 operating-expense savings and planned to reduce working capital and reduce or defer capital expenditures. Planned 2020 capex was $54.6, including $37.0 for the remainder of the year.
- Management said cash on hand, credit facilities and operating cash flows were expected to meet operating needs for the next 12 months, while also seeking additional liquidity measures. This outlook is subject to pandemic, demand, supply-chain and financing uncertainty.
- Interim impairment tests, using reduced forecasts and uncertain recovery assumptions, found no impairment of goodwill, indefinite-lived intangibles, tangible assets, right-of-use assets or other intangible assets as of March 31.
- A Brazilian tax recovery had an estimated gross value of about $19, but the recorded net realizable value was about $1.5; timing and ultimate recovery remain uncertain. Customer/dealer recourse and repurchase obligations totaled $171.1. Total disclosed guarantee exposure, including the HYGFS debt guarantee, was $370.0.
Key facts for investors to verify
- Subsequent quarterly results, bookings and backlog, including the duration and severity of COVID-19 demand and production effects.
- Actual cash generation, working-capital movements, borrowing levels, credit availability and compliance with facility covenants.
- Delivery of the targeted $80–$110 in expense savings and the timing or scale of planned capital spending.
- Exposure and potential losses on customer/dealer guarantees, particularly the HYGFS-related obligations.
- Realization and timing of the Brazilian tax credits, and whether economic deterioration changes impairment-test assumptions.