Hyster-Yale Materials Handling, Inc. — Q1 2013 Form 10-Q
Business and period: The company designs, manufactures, sells and services lift trucks and aftermarket parts, primarily under the Hyster and Yale brands. This unaudited report covers the three months ended March 31, 2013, compared with Q1 2012; balance-sheet comparisons are with December 31, 2012.
Financial performance
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Revenue | $644.9 million | $629.5 million; up 2.4% |
| Gross profit / margin | $109.2 million / 16.9% | $99.0 million / 15.7% |
| Operating profit / margin | $32.1 million / 5.0% | $29.8 million / 4.7% |
| Net income attributable to stockholders | $24.6 million | $21.2 million |
| Basic / diluted EPS | $1.47 / $1.47 | $1.27 / $1.26 |
| Operating cash flow | $0.4 million | $19.1 million |
| Capital expenditures | $9.0 million | $1.6 million |
Revenue growth reflected higher shipments, pricing and parts sales, partly offset by foreign exchange and lower shipments in Europe. Worldwide shipments were 20,756 units versus 20,079. Gross profit improved on pricing and product mix; higher SG&A and unfavorable currency effects partially offset the gain. The effective tax rate was 19.9% versus 21.2%; Q1 2013 included $1.4 million of discrete tax benefits, primarily related to changes in U.S. and foreign tax laws.
Liquidity, debt and balance sheet
- Cash was $131.1 million at March 31, down $20.2 million from year-end. Operating cash flow was nearly flat as a $38.8 million working-capital use—primarily higher receivables—offset earnings and other operating items.
- Total debt was $138.8 million, down from $142.2 million at December 31; debt-to-total-capitalization was 28%, versus 29%. The $200 million revolving facility had no borrowings and $191.6 million of excess availability, after letters of credit. Other foreign revolving lines had $28.7 million of availability.
- The term loan balance was $116.1 million; the company also reported approximately $14.5 million of other debt. The company was in compliance with facility and term-loan covenants.
- Current assets were $856.3 million and current liabilities $516.7 million. The company paid $4.2 million in dividends, or $0.25 per share, during the quarter.
Segments and material changes
| Segment | Revenue Q1 2013 (Q1 2012) | Operating profit Q1 2013 (Q1 2012) |
|---|---|---|
| Americas | $418.5 million ($395.3 million) | $24.7 million ($19.1 million) |
| Europe | $174.6 million ($181.9 million) | $5.7 million ($9.6 million) |
| Asia-Pacific | $51.8 million ($52.3 million) | $1.7 million ($1.1 million) |
The Americas drove consolidated revenue and operating-profit growth; Europe’s operating profit declined, reflecting weaker market conditions and currency effects. Cash flow from operations fell substantially year over year, principally because receivables increased with higher sales and a shift toward customers with longer payment terms. Capital spending rose, including initial costs for a new Brazil facility and IT improvements. The backlog was approximately 27,500 units, compared with 22,300 a year earlier and 27,300 at year-end.
Outlook, risks and contingencies
- Management expected moderate global market growth in 2013, led by the Americas, with Europe continuing to decline. It anticipated higher shipments and parts volumes overall.
- Full-year 2013 operating profit was expected to be comparable to 2012. Higher operating expenses and public-company costs were expected to offset higher gross profit. Net income was expected to decline, partly because 2012 included a $10.7 million valuation-allowance release and 2013 was expected to have a higher tax rate.
- Management expected Americas segment results to improve and Europe results to decrease significantly. Cash flow before financing was expected to remain significant but decline year over year; an additional $51.2 million of 2013 capital expenditures was planned.
- Key stated risks include lift-truck demand, customer and dealer financing, pricing acceptance, raw-material and supplier costs, currency and trade-policy changes, product-development and delivery execution, competition, product liability, warranty claims, and regulatory changes.
- Customer financing recourse or repurchase obligations totaled $156.2 million, with estimated collateral value of $172.4 million; anticipated losses were not significant, but future risk could increase. Separately, the company guaranteed $117.9 million of NFS debt owed to GECC. Management said it did not know of circumstances likely to cause NFS default.
- Ordinary-course legal claims include product-liability and environmental matters; management considered material costs beyond recorded accruals remote. The company reported effective disclosure controls and no material changes in internal control during the quarter.
Important facts for investors to verify
- Whether Americas growth and the roughly 27,500-unit backlog convert into shipments and revenue, while Europe remains weak.
- Receivables, customer payment terms and working-capital needs, given the sharp decline in quarterly operating cash flow.
- Delivery and cost of the Brazil facility and other planned capital spending, and the expected proceeds from selling the existing Brazil facility.
- Whether operating profit meets management’s full-year outlook and how tax-rate changes affect net income.
- Exposure and reserve adequacy for customer financing guarantees, NFS’s guaranteed debt, warranties, and foreign-exchange movements.