Hyster-Yale Materials Handling, Inc. — Q2 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 quarter and six months ended June 30, 2013; comparisons are with the corresponding 2012 periods unless stated otherwise. Amounts are in millions except per-share data.
Financial performance
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $659.6 | $602.0 | $1,304.5 | $1,231.5 |
| Gross profit | $114.3 | $96.9 | $223.5 | $195.9 |
| Gross margin | 17.3% | 16.1% | 17.1% | 15.9% |
| Operating profit | $35.9 | $24.6 | $68.0 | $54.4 |
| Operating margin | 5.4% | 4.1% | 5.2% | 4.4% |
| Net income attributable to stockholders | $36.2 | $19.5 | $60.8 | $40.7 |
| Diluted EPS | $2.16 | $1.16 | $3.62 | $2.42 |
- Revenue rose 9.6% in Q2 and 5.9% for the first half. Higher unit and parts volumes, chiefly in the Americas, and pricing gains drove growth; currency movements partly offset it.
- Operating profit improved on stronger gross profit, but higher SG&A—including incentive compensation and marketing costs—and unfavorable foreign exchange were offsets. Worldwide Q2 shipments increased to 20,858 units from 18,728; June-end backlog was about 29,300 units versus 24,200 a year earlier.
- Q2 income benefited from a $12.8 million release of UK deferred-tax valuation allowances; the Q2 effective tax rate was negative 4.9%, and the first-half rate was 6.7%. The release materially boosted reported net income.
- First-half operating cash flow was $40.1, down from $53.1. Working-capital changes used $40.6, principally reflecting higher receivables; capital expenditures were $17.0. Cash increased $11.4 to $162.7.
- At June 30, total debt was $134.8 and equity was $383.5; debt to total capitalization was 26%, down from 29% at year-end 2012. The $200 million revolving facility had no borrowings and $191.6 of excess availability after letters of credit; other foreign credit lines had $43.7 of availability. A separate disclosure reports $111.5 outstanding on the term loan and $16.3 of other debt. The filing reports fair and book value of revolving credit agreements and long-term debt, excluding capital leases, of $127.8.
- Cash dividends paid in the first half were $8.4; the company also repurchased $5.2 of Class A shares under its $50 million authorization through June 30.
Material changes, outlook and risks
- Regional results: Q2 Americas revenue was $433.2 and operating profit $27.9, up from $378.6 and $14.0. Europe revenue was nearly flat at $171.3, but operating profit fell to $7.3 from $9.5. Asia-Pacific operating profit was $0.7 versus $1.1.
- Outlook: Management expected moderate global market growth in the remainder of 2013, led by the Americas, and anticipated higher unit shipments and parts volumes year over year. Europe, particularly Western Europe, was expected to remain weak. Management expected second-half 2013 operating profit to be slightly below second-half 2012, as higher operating expenses and standalone public-company costs were expected to offset higher gross profit. Second-half net income was expected to decline, partly because of a higher tax rate and the absence of a prior-year valuation-allowance release. Full-year cash flow before financing was expected to be significant but below 2012, with higher capital spending.
- Investment and unusual transaction: Full-year 2013 capital expenditures were expected to include an additional $34.2 in the second half, primarily for a new Brazil facility, product development and IT improvements. The company received a $9.9 deposit in Q2 under an agreement to sell its existing Brazilian land and facility for approximately $19.5 in total. Completion was expected in July 2014 or earlier, subject to conditions; $0.9 was to be escrowed pending environmental remediation, and any gain was expected at closing. Proceeds were intended to help fund the new facility.
- Contingencies and risk: Dealer/customer financing recourse or repurchase obligations totaled $156.9; management said expected losses were not significant and collateral value was estimated at $170.4. The company also guaranteed $127.9 of NFS debt to GECC. Management reported no significant perceived risk of default, but future performance is not assured. Ordinary-course legal claims were disclosed; management considered material costs beyond recorded accruals remote. Foreign currency, demand, customer financing, pricing, supply and product-liability risks remain relevant.
- Management stated it had sufficient liquidity for operating needs and commitments over the next twelve months and until the revolving facility expires in March 2017. It reported compliance with credit covenants. No material changes to previously disclosed risk factors or market-risk exposures were reported.
Important facts for investors to verify
- Whether shipment growth and backlog convert into profitable sales, particularly given continued weakness in Western Europe and currency headwinds.
- How much of first-half earnings growth reflects ongoing operations versus the $12.8 million tax valuation-allowance release, and how tax rates develop in the second half.
- Receivables, working-capital demands, capital spending and cash-flow performance as the Brazil facility project advances.
- Completion terms and environmental remediation for the Brazilian property sale, including receipt of escrowed and final proceeds.
- Exposure and collateral recoverability under the $156.9 million of recourse/repurchase obligations and the $127.9 million NFS debt guarantee.
- Debt disclosures and liquidity availability, including the distinction between total balance-sheet debt and the separately described term-loan and other-debt balances.