Hyster-Yale Materials Handling Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 1, 2023

There are 5 speakers on the call.

Operator

Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hyster Yale Materials Handling Third Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. Christina Kmetko, Investor Relations, you may begin your conference.

Speaker 1

Thank you. Good morning, everyone, and thank you for joining us for Hyster Yale's 2023 Q3 earnings call. I'm Christina Kmetko, and I'm responsible for Investor Relations. Yesterday evening, we published our Q3 2023 results and filed our 10 Q, both of which are available on our website. We are recording this webcast.

Speaker 1

The webcast will be on our website later this afternoon and available for approximately 12 months. I'd like to remind you that our comments today, including answers to any questions, will include statements related to expected future results of the company and are therefore forward looking statements. Our actual results may differ materially from our forward looking statements due to a wide range of risks and uncertainties that are described in our earnings release, 10 Q and other SEC filings. We may not update these forward looking statements until our next quarterly earnings conference call. With me today are Al Rankin, Executive Chairman Rajiv Prasad, President and Chief Executive Officer and Scott Minder, our Senior Vice President, Chief Financial Officer and Treasurer.

Speaker 1

With the formalities out of the way, I'll turn the call over to Rajeev to give his perspective on our strong Q3 results and the Global Lift Truck Market.

Speaker 2

Thanks, Christy, and good morning, everyone. I'm pleased to report that Hyster Yale Had another strong quarter with significant year over year revenue and earnings growth. We're continuing to gain momentum as supply chains improve and we're benefiting from actions we've taken over the past several years to drive growth and Sustainable Profitability. In the Q3, consolidated revenues grew by 19% or $1,000,000 to just over $1,000,000,000 Our operating profit improved by almost $84,000,000 from prior year loss. These results exceeded our expectations for several reasons.

Speaker 2

1st, Product margins expanded faster due largely to lower than anticipated material costs. 2nd, we sold more high margin aftermarket parts, and we had lower operating expenses than forecasted. On a global basis, our 3rd quarter shipment increased by 5% over prior year. This was driven by a 23% increase in the Americas, where regional supply chains have significantly improved. Shipments declined in EMEA as production rates were hampered by new product launch issues and a handful of critical component shortages, particularly at our Nijmegen Big Truck facility.

Speaker 2

Shipments were lower in JPEG as a portion of their product coming from EMEA were negatively impacted by production challenges. We continue to experience skilled labor shortages in many of our factories. This contributed to planned production and shipment rate constraints in the quarter. In the Q4 of 2023, We are planning to increase production rates and expect Americas shipment to increase moderately. These higher shipments will likely be more than offset by fewer EMEA shipments, while we continue to resolve new product launch issues during the quarter.

Speaker 2

As a result, we expect a modest decrease in consolidated 4th quarter shipments compared with prior year. In 2024, production and shipment rates are expected to improve in all regions compared with 2023 as component constraints further dissipate and we have a smoother production cadence on our new products. Now I'll move to discussing global market order activity. The latest publicly available lift truck market data shows The Q2 2023 booking activity decreased compared with robust prior year levels. Decreases occurred in all major geographies except China.

Speaker 2

Our internal estimates suggest that Q3 2023 Global lift truck market bookings also decreased compared with prior year. We believe that rate of decline slowed in Europe, But increase in the Americas. The year over year decline in global market bookings is expected to continue into the Q4 of 2023. With this 4th quarter decline, the full year 2023 market is estimated to experience double digit decrease from robust 2022 levels. In 2024, the global lift truck market is forecasted to be comparable to 2023 levels.

Speaker 2

Our first half market bookings decline should be offset by a second quarter half increase. Despite the year over year unit decline, 2024 market volume should compare favorably to pre pandemic levels in most regions. In line with the broader market, our lift truck 3rd Quarter bookings decreased compared to 2nd quarter and prior year levels. Our continued focus on booking orders with strong margins added to the market related decrease. As our strategic initiatives continue to mature, We increased our Americas market share over both the Q2 and prior year despite the forecasted market decline.

Speaker 2

Q4 2023 bookings are projected to increase modestly year over year Due to ongoing market share gains, we expect full year 2024 bookings to increase year over year after a market linked decline in the Q1. Continued market share gains with India and overall flat global market Driving this improvement. With the combination of the increased production and lower bookings during the Q3, We reduced our extended backlog by 8% from Q2 2023 and by 22% compared to prior year. Our backlog is now at its lowest level since the Q1 of 2021. Planned production increase In the 2023 Q4 and 2024 combined with anticipated market declines through the first half of twenty twenty four Should enable further reductions to our extended lead times and backlog levels.

Speaker 2

This will ultimately help us Return to pre pandemic levels over time. Given current expectations, our lead times and backlog levels will likely remain above optimal levels for much of 2024 on certain product lines. Although some product lines such as our warehouse trucks are Expected to return to more normal lead times and backlog levels within the next year. At the end of the third quarter, our backlog value Was $3,500,000,000 This represents almost a full year of revenue and should serve as an initial shock absorber for the business if bookings decline more than anticipated. As we said in the Q2, we have largely worked through the lower priced aged backlog unit.

Speaker 2

We're now building and shipping units that are appropriately priced for the current material cost. As a result, The trend towards higher average unit prices and margins in our backlog continued in the Q3, largely due to benefits from prior year pricing initiatives to offset inflation. Our average sale price per backlog unit increased 21% over the prior year and 7% over the 2nd quarter. 3rd quarter 2023 average booking prices were flat compared with 2nd quarter 2023 and declined modestly versus prior year. The latter was largely due to product mix, Specifically, a high percentage of lower price warehouse truck orders.

Speaker 2

We'll work to balance our pricing and booking rates based on production lead times on a line by line basis, all to maximize profitable growth and free cash flow over time. Material costs generally stabilized. Going forward, for both Q4 2023 and full year 20 24 nominal inflationary increases are expected, particularly for labor costs. We expect to maintain our strong price to cost ratio as we Shipyard Higher Price Backlog. Overall, we believe our average unit margins will improve in the Q4 of 2023 over the prior year and remain at sound levels throughout 2024.

Speaker 2

Anticipated increases in labor and overhead costs are projected to erode The favorable price to cost ratio over the course of 2024. This is expected to result in modestly lower gross margins Compared with 2023, we continue to monitor labor and material costs closely as well as the impact of tariffs and competition and we'll adjust forward pricing accordingly. Before I turn the call over to Scott, I'll comment on our working capital levels and cash flow. We continue to focus on reducing working capital, especially our inventory levels. We made more progress During the quarter, but inventory levels remained higher than we had like, largely due to the production challenges I mentioned earlier.

Speaker 2

We'll continue to focus on ensuring an efficient and consistent flow of materials, so we can build more units while optimizing Our on hand inventory. These actions should lead to a reduction in overall raw material inventory. Intermittent supply and labor constraints can first form isolated production shortfalls and increased inventory, but we have made significant progress in reducing these issues. We expect continued improvement in Q4 of 2023 and throughout 2024. We're also working closely with our dealer partners to balance order and delivery timing with their customers' needs.

Speaker 2

We're committed to increasing our cash flow and deploying it accretively over time. It's important to me, it's important to our Board and it's a primary focus of our CFO. Over to you, Scott.

Speaker 3

Thanks Rajeev. As you just heard, our positive year over year revenue and earnings growth trends continued in the 3rd quarter. The business generated significantly improved financial results that were ahead of our expectations. Once again, quarterly revenues topped $1,000,000,000 Inc. Increasing 19% or 160% year.

Speaker 3

Revenue growth was led by a 19% increase in our lift truck business, Which significantly outpaced the 5% shipment growth rate over the same period. This difference was largely due to a parts volume increase and the benefit from prior price increases in all regions. Favorable sales mix toward higher priced, higher capacity trucks and foreign currency benefits added to the top line growth. Shipments in the EMEA and JPIC regions were lower. Our manufacturing and supply chain teams continued their work on increasing production rates and unit shipments.

Speaker 3

We shipped 25,700 units in the 3rd quarter, increasing by 5% compared to prior year, but declining sequentially. This quarter over quarter decrease was in line with expectations due to seasonal plant shutdowns in Q3. 3rd quarter unit bookings were 18,200 decreasing 12% year over year and 15% sequentially. These declines resulted from slowing but healthy markets in our major geographies. As a result of the higher production rates and lower bookings, our backlog declined to 85,300 units.

Speaker 3

This favorable decrease improves lead times on some of our product lines. As Rajeev noted earlier, lead times are still long with some extending beyond 12 months. Moving to earnings, we reported consolidated operating profit of nearly $59,000,000 representing a 5.9% margin in the 3rd quarter. This was an improvement of almost $84,000,000 compared to a 2022 loss. Our substantial year over year operating improvement outpaced revenue growth for the quarter, resulting in a 52% incremental margin.

Speaker 3

Q3 net income was $36,000,000 for $2.06 per share. This compares to a prior year net loss. Over the past 12 months, Our team has worked hard to overcome the significant headwinds from the pandemic period. We've generated net income of $108,000,000 over 4 straight profitable quarters to a level not achieved since 2014. What a difference a year can make.

Speaker 3

Now I'll cover our individual business results for some additional color. First, the lift truck business generated operating profit of $65,000,000 marking an $80,000,000 improvement over a Q3 2022 loss. Significant product margin increases across all geographies along with favorable currency movements were the principal drivers. Product margins increased for several reasons. 1st, improving supply chains, especially in the Americas allowed for higher production rates of units priced above prior year levels.

Speaker 3

2nd, material cost decreased versus prior year led by the Americas. And finally, we saw a favorable mix shift towards higher margin products in all regions, as well as a shift to higher margin sales channels. Lift truck profit growth was partly tempered by higher employee employee related product liability and warranty expense. Despite overhead cost increases in the Q3, we remain vigilant over our costs and continue to seek more efficient ways to leverage our assets as the business grows. Turning to Bolzoni, We reported a 13% revenue increase while operating profit improved to a $2,900,000 versus a prior year loss.

Speaker 3

Higher revenue and operating profit were a result of increased sales volumes and a significantly improved price to cost ratio. Manufacturing efficiency from higher volumes were partly offset by a mix shift to lower price, lower margin products and higher employee related expenses. At Nuvera, 3rd quarter revenues increased versus prior year due to a shipment of 12 engines required for a hydrogen bus fleet build out. This growth was partly offset by lower aftermarket component in engine sales to the lift truck business. While revenues improved Nuvera's operating loss increased modestly year over year, mainly due to increased development costs for new products and higher employee related costs.

Speaker 3

Looking ahead to the Q4, we expect our higher margin backlog to support increased lift truck revenues over the prior year. We anticipate this increase to drive a 4th quarter operating profit improvement compared to 2022's profitable Q4. Sequentially, we expect 4th quarter profits to decrease somewhat from strong third quarter levels due to an anticipated mix shift toward lower margin sales channels along with higher manufacturing and operating costs. Operating expenses as a percent of sales should hold steady with the 3rd quarter's rate. In 2024, We expect lift truck operating profit to be similar to 2023 with unit margins continuing at healthy levels.

Speaker 3

Moving to Bolzoni, we anticipate 4th quarter operating profit to increase over the prior year's 4th quarter due to ongoing cost discipline. 4th quarter operating profit should be comparable to the 3rd quarter's level. In 2024, Bolzoni expects operating profit to increase year over year with improved unit margins more than offsetting higher costs. Finally, Nuvera is focused on increasing product demonstrations and bookings in future periods. As they continue to expand their global presence, recurring orders from current customers are expected to result in higher 4th quarter and Full Year 2024 Sales Compared With Prior Year Periods.

Speaker 3

The business anticipates its 4th quarter loss to narrow paired with prior year largely due to higher expected shipments and the anticipated receipt of government funding for fuel cell research and development. In 2024, Nuvera's higher expected sales coupled with moderately higher development costs Should produce operating results comparable to 2023. Longer term, increasing engine demonstrations will significantly strengthen the foundation for And net income to improve significantly compared to a profitable Q4 2022, but be below Q3 2023 levels. For full year 2024, we expect profitability levels similar to 2023. We've made substantial progress toward our long term goals of a 7% operating profit margin and a greater than 20% return on total capital employed for ROTCE at the combined lift truck and Bolzoni businesses.

Speaker 3

In fact, the lift truck business exceeded 20% ROTCE for the 12 months ended on September 30. While market uncertainties remain, we expect to make further progress in 2024 on our financial goals and look to sustain the business at these levels moving forward. Moving from returns to cash flow, we made progress during the quarter on improving working capital efficiency and cash generation. During the Q3, we reduced our net debt by $44,000,000 compared to June 30. This was largely due to working capital improvements.

Speaker 3

As a result, our cash balance increased to $78,000,000 We ended the Q3 with approximately $254,000,000 of unused borrowing capacity compared with $216,000,000 on June 30. As a result of the improved profitability and lower debt balances, Our financial leverage as measured by debt to total capital was 61%, improving sequentially by 300 basis points. As we continue to improve free cash generation, we expect further financial leverage reductions. Q3 2023 total inventory and Days inventory outstanding decreased modestly from the Q2, but remained above our desired levels. Finished goods inventory decreased as we cleared units left in shipping at the end of the Q2.

Speaker 3

Conversely, raw materials inventory increased primarily due to EMEA production challenges. We remain focused on further efficiency gains, reducing inventory days on hand as our production rates continue to rise. We're deploying technology tools to help maximize the use of on hand inventory, Ultimately reducing excess inventory levels over time. While supply and labor constraints can cause intermittent problems, We anticipate continued inventory improvements in the Q4 and more significantly in 2024. We generated cash flow before financing activities of $52,000,000 in the 3rd quarter, bringing our 2023 year to date total to $85,000,000 This is a significant improvement over the $7,000,000 generated for the same 9 month period in 2022.

Speaker 3

3rd quarter capital expenditures were $9,000,000 and total $19,000,000 through September 30. We've maintained capital this year due to ongoing economic uncertainty. As a result, we're lowering full year 2023 CapEx estimates to $42,000,000 that's $23,000,000 below the initial forecast of $65,000,000 We expect to generate additional cash in the 4th quarter and make further progress in this area in 2024. As our cash flow improves, we'll deploy these resources accretively to reduce debt and to make additional strategic growth and efficiency investments. We're making solid progress on our objectives and our financial results clearly demonstrated.

Speaker 3

We'll continue to focus on things that we can control and leverage our process discipline to effectively work through things that are outside of our control. Now I'll turn the call back to Rajiv to discuss progress on our core strategies and programs. Anjeet?

Speaker 2

Thanks. Both Scott and I mentioned that we've generated Significant cash flow before financing activities to date. We expect to generate additional cash in the 4th quarter And make further progress in this area in 2024. As our cash flow improves, we'll deploy these resources accretively to reduce debt levels and make additional investments in our strategic growth and efficiency programs. Investing in and executing our core strategies remains a top priority for driving our long term profitable growth.

Speaker 2

Hyster Yale's strategies remain generally consistent with past description, but I will provide a few key updates for each business. The Lift Truck business primary strategic focus remains on launching its modular and scalable products globally. We're also working on several other key projects to increase and enhance lift truck electrification, Increase the adoption rate for our advanced lift truck technologies, transform our sales process using an industry focused approach to better meet our customer needs and to augment further our independent dealer capabilities. We're making solid progress on each of these programs. Over the past 2 years, we have launched our modular, scalable 2 to 3.5 ton internal combustion engine lift trucks in the EMEA and Americas markets.

Speaker 2

This production ramp is occurring gradually given our current extended backlogs. Customer feedback to date Has been strong and bookings and shipments accelerated in 2023. We expect to launch these products in the JPIC market during the 4th quarter. We're making similar enhancements to the 2 to 3.5 tonne electric truck platforms and expect these products to launch Beginning later in 2024, the modular scalable product platform is expected to enhance the business in several ways. 1st, by reducing costs and working capital levels as our supply chain move closer to our flagship factories 2nd, by helping to optimize our manufacturing footprint in each region and increasing revenues by providing customers with a more customizable product that better meets their needs.

Speaker 2

We've recently increased the number of electrified big trucks in third party testing. During the Q3, we delivered an electrified fuel cell reach stacker to the port of Valencia in Spain. This joins the electrified fuel cell container handler currently operating at the Port of Los Angeles. We anticipate delivering 2 new electrified fuel cell products, a terminal tractor and an empty container handler to a customer in Hamburg, Germany in the first half of twenty twenty four. Our Biktar group is also actively exploring additional electrification projects within the European Union and the U.

Speaker 2

S. Finally, the Lift Truck business has key projects focused on applying ongoing technology advancements to its operator assist system and automated lift truck solutions. During the Q3, we entered into a joint development agreement with a leading technology service provider to advance our robotic software technology for vehicle automation. Bolzoni continues to work on streamlining and strengthening its operations as a single integrated operating entity. The company is focused on increasing its revenues in the Americas, while also enhancing its ability to serve key attachment industries and customers in all global markets.

Speaker 2

As part of this effort, Bolzoni is working to expand its Broad Industry Sales, Marketing and Product Support Capabilities. Nuvera remains focused on placing 45 kilowatt and 60 kilowatt fuel cell engines into heavy duty vehicle applications where battery only electrification does not Provide an adequate solution. These applications should offer significant and more near term fuel cell adoption potential. Nuvera is also developing a larger 125 kilowatt fuel cell engine for even heavier duty applications, which is projected to be available in 2025. Nuvera has announced several projects with various third parties to test Nuvera engines and targeted applications beyond the Hyster port equipment I covered earlier.

Speaker 2

Nuvera expects to have Additional products and test application in China and India, in marine application in the Netherlands and in the German port by mid-twenty 24. Additionally, Nuvera plans to launch modular fuel cell operated power generators for stationary and mobile applications. These initiatives are a top priority, and I'm pleased with the progress we've made so far. Now I'll turn the call over to Al for closing remarks. Al?

Speaker 4

Thanks, Rajeev. In closing, I'd like to note that demand for our products is robust, and we're investing in new products that we expect to drive profitable growth. Our strong 2023 results are due to the ongoing implementation of key strategies, the cost structure enhancements made since the pandemic began and the significant manufacturing, marketing, IT and other process improvements made in the past few years. All of these actions, which we've covered in more detail earlier, better position our company for substantial profitable growth over the longer term. Our more mature Lift Truck and Bolzoni businesses are the foundation for this improvement, while the Nuvera fuel cell business' substantial growth prospects are yet to be realized in the future.

Speaker 4

I want to emphasize a point that Scott made earlier. We've now had profitable results for the last 4 quarters. The team has done an outstanding job. The foundation for sustainable and significant profitability The long term has been put in place. We have the right team and the right structure to execute our key strategic programs to sustain strong performance over time and to achieve our long term goals.

Speaker 4

I also want to note that we will be hosting an in person Investor Day in New York City on Thursday, November 16. Rajiv, Scott and I will be there as will our Hyster Group Chief Operating Officer, our Hyster Yale Group Emerging Technology Business Leader and the heads of our Bolzoni and Nuvera businesses We'll provide more detail on our strategic plans and programs at that time and how they will position us for further success. If you're interested in attending, please be in touch with Christie. We'll now turn to any questions you may have.

Operator

And there are no questions today. I will turn the call back over to Kristina Kmetko for some final remarks.

Speaker 1

Okay. Thank you. We'll close with a few final reminders. As Al mentioned, our Investor Day is on November 16th, just a couple of weeks away. If you're interested in attending, please reach out to me today so we can get your name on our final participant list.

Speaker 1

We'll be webcast We'll also post a transcript on the Investor Relations website when it becomes available. If you have any questions, please reach out to me. You can reach me at the phone number on the release. I hope you enjoy the rest of your day. And I'll now turn the call back to Rob to conclude the call.

Operator

This call will be available for replay beginning today and approximately 2 hours after the completion and will run through until Wednesday, November 8, 2023 at 11:59 pm Eastern Time. The number to access the replay is 800-770-2030 or 647-362-9199. A conference ID number to access the replay is 8 2,174. That will conclude today's conference call today. Thank you all for joining.

Operator

You may now disconnect.

Powered by Quartr
Earnings Conference Call
Finward Bancorp Q3 2023
00:00 / 00:00