Hyster-Yale Materials Handling, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. The filing covers Hyster-Yale Materials Handling, Inc. and subsidiaries, a global lift-truck, attachments and fuel-cell business. Financial statements are unaudited.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $856.2 million | $765.9 million | $1,691.0 million | $1,554.4 million |
| Gross profit | $139.4 million | $125.3 million | $265.6 million | $257.4 million |
| Operating profit | $22.9 million | $10.8 million | $26.3 million | $30.0 million |
| Net income attributable to stockholders | $16.2 million | $5.6 million | $19.6 million | $20.5 million |
| Diluted EPS | $0.97 | $0.34 | $1.17 | $1.24 |
| Operating margin | 2.7% | 1.4% | 1.6% | 1.9% |
- Revenue and margins: Q2 revenue rose 11.8%, driven by volume and product mix, pricing, the Maximal acquisition and higher Bolzoni and Nuvera revenue, partly offset by foreign exchange. Q2 gross margin was approximately 16.3%, compared with 16.4%. First-half revenue rose 8.8%, while gross margin declined to approximately 15.7% from 16.6%.
- Profit trends: Q2 operating profit more than doubled, principally from improved lift-truck gross profit, including pricing and tariff-related benefits. First-half operating profit fell 12.3%, as higher product-development and other SG&A costs outweighed gross-profit growth. First-half net income also declined, reflecting lower operating profit and higher interest expense.
- Cash flow: First-half operating cash flow was negative $70.9 million, versus positive $52.0 million a year earlier. Working capital absorbed cash, particularly receivables, up $70.1 million in the cash-flow reconciliation, and inventory, up $66.9 million. Capital expenditure was $18.4 million; investing cash outflow was $17.6 million. Cash declined $33.4 million to $50.3 million.
- Liquidity and debt: At June 30, cash was $50.3 million and current liabilities exceeded current assets by $344.3 million of working capital (current assets $1,232.6 million; current liabilities $888.3 million). Total debt in the company’s capital-structure presentation was $370.9 million, up $69.4 million from year-end; debt to total capitalization rose to 39% from 35%. The $240 million revolving facility had $71.2 million drawn and $164.5 million available; additional non-U.S. credit availability was $18.4 million. The company reported compliance with debt covenants.
Material changes and notable items
- Lift-truck unit shipments increased 10.0% in Q2 and 6.8% in the first half. Backlog at June 30 was 44,100 units, compared with 41,700 a year earlier; substantially all was expected to ship within 12 months. Bookings’ approximate sales value was lower year over year in both Q2 and the first half.
- Q2 results included $4.9 million of favorable retroactive tariff exclusion adjustments, including $3.1 million of prior-period tariff refunds. Other imported Chinese components and trucks remained subject to duties; management was assessing further potential recoveries.
- Bolzoni recorded $2.0 million of restructuring costs in the first half while moving North American attachment manufacturing from Homewood, Illinois, to Sulligent, Alabama. The company anticipated an additional $2.2 million to $3.5 million of restructuring costs in 2019–2020.
- Adoption of the new lease standard added approximately $82.7 million of right-of-use assets and $80.8 million of lease liabilities at January 1, 2019; management said it did not materially affect earnings or cash flows.
- Nuvera continued to report operating losses, though its first-half operating loss narrowed to $16.6 million from $19.5 million.
Outlook, management commentary and risks
- Management expected 2019 consolidated operating profit to increase significantly over 2018, with much of the improvement in Q4. It expected the third quarter to reflect continued investment and Q4 to improve over both Q4 2018 and the first three quarters of 2019.
- Lift Truck results were expected to improve in 2019, with further gains anticipated through 2023 and a 7% operating-margin objective, assuming reasonable market conditions. Management cited ongoing supplier shortages, discounted customer deals and material-cost pressures, with margin recovery expected by Q4.
- Bolzoni results were expected to decline in 2019 due mainly to restructuring, with a longer-term 7% operating-margin objective. Nuvera was expected to reach break-even during the second half of 2020; management noted delays to shipments for a key China customer because of additional product validation.
- Full-year 2019 cash flow before financing was expected to decline significantly versus 2018 excluding the Maximal acquisition, due to higher working capital and capital spending. Working capital was expected to improve in the second half, but not fully offset first-half increases.
- Management described lift-truck markets as historically high but softening, particularly in the Americas, and forecast strong but moderating 2019 market levels. Key risks include demand cyclicality, supplier availability and costs, tariffs and trade policy, currency movements, product execution and acceptance, dealer/customer financing, litigation and warranty claims, and successful execution of strategic investments.
Most important facts for investors to verify
- Whether receivables and inventory unwind as expected and operating cash flow recovers in the second half.
- Whether planned Q4 margin recovery materializes despite supplier shortages, discounted backlog deals and tariff uncertainty.
- Actual tariff refunds and the continuing cost impact of duties on non-excluded goods.
- Final restructuring costs and timing, alongside execution of the Bolzoni facility transfer.
- Progress against Nuvera’s break-even timeline and the company’s longer-term operating-margin targets.
- Debt, revolver availability and covenant headroom as borrowing needs and investment spending evolve.