Hyster-Yale Materials Handling, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; financial statements are unaudited and compare with Q1 2013. The company designs, manufactures, sells and services lift trucks and aftermarket parts, primarily under the Hyster and Yale brands.
Financial results
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $676.0 million | $644.9 million |
| Gross profit / gross margin | $111.7 million / 16.5% | $109.2 million / 16.9% |
| Operating profit / operating margin | $31.6 million / 4.7% | $32.1 million / 5.0% |
| Net income attributable to stockholders | $22.1 million | $24.6 million |
| Diluted EPS | $1.31 | $1.47 |
| Effective tax rate | 30.1% | 19.9% |
| Cash from operating activities | $(16.9) million | $0.4 million |
| Cash and cash equivalents at period end | $107.3 million | $131.1 million |
Revenue grew 4.8%, while net income fell 10.2%. Revenue benefited from higher-priced trucks, 2013 price increases and stronger Americas parts and fleet-services volume; foreign currency and slightly lower shipments partly offset growth. Worldwide shipments declined 1.0% to 20,641 units. Gross profit increased, but operating profit was pressured by unfavorable currency movements and higher SG&A, including marketing and engineering investment. Lower interest expense partly offset higher tax expense; Q1 2013 had benefited from favorable tax adjustments.
Balance sheet, liquidity and cash flow
- At March 31, total assets were $1,127.9 million, total liabilities $656.2 million and total equity $471.7 million.
- Total debt was $33.0 million, down from $69.5 million at December 31, 2013; debt-to-total capitalization decreased to 7% from 13%. Cash fell $68.4 million during the quarter.
- The $220 million secured revolving facility had no borrowings outstanding at quarter-end and $213.3 million of availability after letters of credit. Additional availability under other foreign revolving facilities was $28.5 million. The company reported covenant compliance.
- Operating cash use reflected working-capital outflows of $49.2 million, particularly inventory growth, and the absence of $6.8 million of affiliate dividends received in Q1 2013. Investing cash use was $5.5 million; cash used before financing was $22.4 million.
- Financing cash use was $45.8 million, primarily reflecting repayment of revolver borrowings, alongside $4.2 million of dividends and $3.5 million of treasury-stock purchases.
- Capital expenditures were $4.9 million in Q1; a further $55.4 million was estimated for the rest of 2014, primarily including a new Brazil facility.
Segments and material changes
- Americas: Revenue rose 9.2% to $456.9 million; operating profit increased 4.0% to $25.7 million.
- Europe: Revenue fell 3.2% to $169.0 million; operating profit increased 10.5% to $6.3 million.
- Asia-Pacific: Revenue fell 3.3% to $50.1 million; the segment moved from $1.7 million operating profit to a $0.4 million operating loss.
- Backlog was approximately 28,900 trucks, or $715 million, at March 31, up from 27,500 trucks/$684 million a year earlier and slightly below 28,200 trucks/$717 million at year-end. Substantially all was expected to be sold during 2014.
Outlook, risks and contingencies
Management expected moderate global lift-truck market growth in 2014 and anticipated higher unit shipments and parts volumes, primarily in the Americas, supported by market-share initiatives and backlog. European shipment growth appeared less likely than previously expected amid Eastern European uncertainty and dealer transitions. The company forecast moderate sales growth and higher operating profit excluding an anticipated gain on the sale of its current Brazil plant; it expected first-half operating profit to decline year over year, with second-half improvement more than offsetting that decline. Net income, excluding the Brazil sale gain and the 2013 tax valuation-allowance release, was expected to improve moderately. Cash flow before financing was expected to decline from 2013, mainly due to higher capital spending.
Management cited risks including market demand and financing availability, Eastern European uncertainty, pricing acceptance, material and supplier costs, foreign-exchange movements, product development and acceptance, litigation and warranty claims, and delays or cancellation of the Brazil plant construction or existing-facility sale. Material costs were expected to rise slightly; currency movements and commodity volatility remained concerns.
- Customer financing recourse or repurchase obligations totaled $149.5 million; estimated collateral fair value was approximately $166.0 million. Anticipated losses were not significant, but future exposure could change.
- The company also guaranteed $157.0 million of NFS debt to GECC, representing its guarantee exposure; NFS had not defaulted, and management reported no known circumstances indicating an expected default.
- Management considered it remote that ordinary-course legal and regulatory claims would result in costs materially exceeding recorded accruals. No legal proceedings were listed in Part II.
- Non-U.S. pension contributions expected for 2014 were revised upward to approximately $8.5 million from $3.7 million.
Most important facts for investors to verify
- Whether the expected Brazil facility sale and new-plant construction proceed on schedule, and the resulting cash proceeds, capital spending and gain.
- Whether inventory and working-capital outflows reverse and operating cash flow improves.
- Whether the expected second-half profit recovery offsets first-half weakness, especially in Europe and Asia-Pacific.
- Actual impacts from foreign-exchange movements, material costs, tax rates and strategic-investment spending.
- Changes in dealer/customer financing guarantees, NFS credit exposure, and compliance with revolving-facility covenants.