Hyster-Yale Materials Handling, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. The company designs, manufactures, sells and services lift trucks and aftermarket parts under the Hyster and Yale brands, and operates Bolzoni (attachments) and Nuvera (fuel-cell technology). Comparisons are with Q1 2017 unless noted.
Financial performance
- Revenue: $788.2 million, up 10.5% from $713.1 million. Lift-truck revenue rose 10.6%; Bolzoni revenue increased 23.1%, while Nuvera revenue fell 88.5% to $0.3 million. Growth reflected higher volume and parts sales, favorable currency and pricing.
- Profitability: Gross profit was $132.1 million versus $126.1 million; gross margin was approximately 16.8% versus 17.7%. Operating profit declined 15.0% to $19.2 million; operating margin was approximately 2.4% versus 3.2%. Net income attributable to stockholders fell 17.7% to $14.9 million; diluted EPS was $0.90 versus $1.10.
- Drivers of lower profit: Higher selling, general and administrative costs, including employee costs for sales and product development, material and manufacturing cost inflation, and higher interest expense ($4.0 million versus $1.8 million). Improved lift-truck gross profit and Bolzoni results partly offset these items.
- Cash flow: Operating cash flow was $28.5 million versus $102.0 million; cash flow before financing activities was $21.5 million versus $94.9 million. The decline primarily reflected working-capital movements, especially accounts payable returning to normalized levels; higher dividends from unconsolidated affiliates partly offset it. Capital expenditures were $7.4 million.
- Liquidity and debt: Cash was $228.1 million at March 31, up from $220.1 million at year-end. Total debt was $283.4 million, compared with $290.7 million at year-end; debt to total capitalization was 32% versus 34%. The $200 million revolving facility had no borrowings and $195.3 million of excess availability. The company reported compliance with debt covenants and believes available cash, credit and operating cash flows will meet needs for at least 12 months.
- Balance sheet: Current assets were $1,185.0 million and current liabilities $706.9 million. Inventory increased to $428.0 million from $411.9 million. Total equity was $608.0 million.
- Dividends: Cash dividends paid were $5.0 million; declared dividends per share were $0.3025, versus $0.2950.
Material changes and segment trends
- Lift-truck bookings were 27,100 units versus 24,800; ending backlog increased to 36,100 units from 32,200, with approximate sales value of $930 million versus $750 million. Substantially all backlog was expected to ship within 12 months.
- Americas revenue increased 6.4%, but operating profit declined to $27.9 million from $29.6 million as higher expenses offset improved gross profit.
- EMEA revenue rose 21.9%, substantially helped by currency translation; operating profit was $0.9 million, unchanged.
- JAPIC revenue rose 13.0%, but its operating loss widened to $2.2 million from $0.7 million, reflecting lower gross profit and higher expenses.
- Bolzoni revenue rose 23.1% and operating profit increased to $2.7 million from $2.3 million. Nuvera's operating loss widened to $10.0 million from $9.5 million.
- Adoption of the new revenue-recognition standard had no material effect on Q1 net income; reported revenue was $0.3 million lower than it would have been under the prior standard. The company also recorded a $3.9 million cumulative retained-earnings adjustment related to adoption of the financial-instruments standard.
Outlook, commentary and risks
- Management expected full-year 2018 consolidated operating profit to be substantially higher, supported by Bolzoni improvement and a lower Nuvera loss, with a modest lift-truck profit increase. Consolidated net income was also expected to rise substantially, partly because 2017 included $18.4 million of tax-reform adjustments.
- Management expected global lift-truck market growth to be modest. Higher unit and parts revenue was expected to be largely offset by material-cost inflation and increased investment spending. Americas full-year operating profit was expected to be comparable to 2017; regional first-half weakness was expected to be offset by second-half improvement as price increases took effect.
- Nuvera had a backlog of just over 300 battery-box replacements. Management targeted break-even by late 2019, while noting timing depended on sales volumes. Nuvera's 2018 operating loss was expected to decrease, but its net loss was expected to be comparable to 2017.
- Planned 2018 capital expenditures were $50.1 million. Management said spending would support product development, IT infrastructure, manufacturing improvements and equipment.
- Key uncertainties include commodity inflation and tariffs, customer demand and acceptance of price increases, foreign-exchange movements, geopolitical tensions and sanctions in Russia, supply and production disruptions, product liability and warranty claims, and successful commercialization of Nuvera technology.
- The company had agreed to acquire 75% of China-based Maximal for an aggregate $90 million, subject to customary conditions and regulatory approvals; closing was then anticipated in Q2 2018. Legal proceedings were described as ordinary-course matters, with management not expecting material costs beyond recorded accruals. Financing guarantees and recourse or repurchase obligations totaled $364.3 million of stated exposure; management said anticipated losses were not significant and collateral was estimated at $255.7 million for recourse or repurchase obligations.
Key facts for investors to verify
- Whether the expected second-half benefit from pricing offsets material and manufacturing cost inflation and higher operating expenses.
- Whether backlog converts to shipments and revenue as expected, and how order demand develops after customer purchases made ahead of anticipated price increases and tariffs.
- Progress on the Maximal acquisition, including regulatory approvals, closing timing, final purchase economics and integration plans.
- Nuvera's backlog conversion, cost reductions, production-transfer plans and progress toward its late-2019 break-even target.
- Finalization of provisional Tax Cuts and Jobs Act accounting and the sustainability of cash distributions from unconsolidated affiliates, particularly HYGFS.
- Changes in guarantee exposure, collateral values and credit conditions affecting HYGFS, dealers and customers.