Hyster-Yale Materials Handling - Earnings Call - Q3 2025

Executive Summary

• HY posted Q3 2025 revenue of $979.1M, up 2% q/q but down 4% y/y; adjusted diluted EPS was $(0.09). Results were pressured by ~$40M of tariff costs and lower truck volumes, partly offset by pricing/mix; operating cash flow improved to $37.1M on inventory efficiency.
• Versus consensus (S&P Global), HY delivered a modest top-line and EPS beat: revenue $979.1M vs $955.7M*, and adjusted EPS $(0.09) vs $(0.14); EBITDA missed on an S&P definition basis (company adjusted EBITDA $15.1M vs EBITDA consensus $22.1M). Values marked * retrieved from S&P Global.
• Outlook turned more cautious: management expects Q4 revenue to decline vs Q3 and a moderate operating loss given reduced production rates and persistent tariff headwinds; tariff policy changes could reduce Q4 impact by $2–$3M.
• Subsequent events: HY declared a $0.36 dividend payable Dec 16, 2025, and announced a restructuring to reduce ~575 roles (Q4 pre-tax charge ~$21M; annualized savings ~$40–$45M from Q1’26), lowering break-even amid low industrial volumes.

What Went Well and What Went Wrong

• What Went Well

  • Sequential revenue growth (+2% q/q) and improved operating cash flow ($37.1M) driven by inventory optimization; working capital fell by ~$30M sequentially and stood at 20% of sales.
  • Bookings improved to $380M (from $330M in Q2) with gains in EMEA/JAPIC; management noted strong October booking pace in Americas Class 5, hinting at stabilization.
  • Strategic progress: rollout of modular/scalable platforms across NA/Europe with positive feedback; ~600–700 automated trucks in field with continued product cadence, positioning HY for higher-margin technology revenue streams.

• What Went Wrong

  • Tariffs materially impacted profitability (~$40M in Q3 direct costs) and HY could offset less than half through pricing due to backlog commitments and competitive dynamics; operating profit fell to $2.3M vs $33.1M y/y.
  • Backlog deteriorated to $1.35B (from $1.65B in Q2) as shipments outpaced bookings, particularly in the Americas; management expects further near-term backlog degradation and moderated production.
  • EMEA faced intensified competition from low-cost imports and inflationary input costs; segment operating loss widened to $(16.9)M with margin pressure likely to persist near term.

Transcript

Operator (participant)

Today, everyone, and welcome to the Hyster-Yale, Inc. third quarter 2025 earnings call. All participants will be in a listen-only mode. Should you need assistance, please email a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your touchstone phones. To withdraw your questions, you may press star and two. Please note today's event is being recorded. I'd now like to turn the floor over to Andrea Sejba. Ma'am, please go ahead.

Andrea Sejba (Director of Investor Relations and Treasury)

Good morning, and thank you for joining us for Hyster-Yale's third quarter 2025 earnings call. I'm Andrea Sejba, Director of Investor Relations and Treasury. Joining me today are Al Rankin, Executive Chairman, Rajiv Prasad, President and Chief Executive Officer, and Scott Minder, Senior Vice President, Chief Financial Officer, and Treasurer. We'll be discussing our Q3 2025 earnings release issued yesterday. You can find the release and a replay of this webcast on the Hyster-Yale website. The replay will remain available for approximately 12 months. Today's call contains forward-looking statements subject to risks that could cause actual results to differ from those expressed or implied. These risks are outlined in our earnings release and SEC filings. We'll be discussing adjusted results, which we believe are useful to supplement our GAAP financial measures.

Reconciliations of adjusted operating profit, net income, and earnings per share to the most directly comparable GAAP measures are available in our earnings release and investor presentation. With that, I'll turn the call over to Rajiv.

Rajiv Prasad (CEO)

Thanks, Andrea, and good morning, everyone. I'll begin with our view of the current economic environment. How it is shaping customer behavior, and how Hyster-Yale is responding. Scott will follow with our financial results and outlook, and then we'll wrap up before we open the call for questions. Throughout the first half of 2025, we maintained a cautiously optimistic outlook, predicting an improvement in market demand in the second half of the year. However, since our last update in August, that optimism has faded largely due to the impact from tariffs on the market demand and on our costs. This shift in sentiment is not unique to our industry. It's a broad trend across the capital goods sectors. Customers are navigating volatile interest rates, tariff pressures, and geopolitical developments, all of which are influencing long-term investment decisions. This is reflected in our own experience during the third quarter.

These were overall lift truck market demands declined across all regions and most product categories compared to Q2. Many customers are postponing capital expenditures and taking a more conservative approach to balance sheet management, citing uncertainty about the trajectory of the interest rates, inflation, and broader economic stability. Despite the broader market contracting, Hyster-Yale's booking activity ticked higher compared to both the prior year and the previous quarter. This dollar value booking increase is partly due to higher prices on our trucks, driven by higher tariff-related material costs. Bookings rose to $380 million in Q3, up from $330 million in Q2. Gains were led by the EMEA and JPAC regions, while the Americas remained stable. Bookings improved across all product classes, with Class 1 trucks showing solid growth, improving our positioning in the warehouse segment.

Notably, in October, we saw a strong bookings rate in the Americas for Class 5 trucks, and to a lesser extent, Class 2. While it's still early, this uptick may signal that the market is beginning to stabilize and that customers are recognizing the need to invest in new equipment. We view this as an encouraging indicator amidst an otherwise cautious environment. While quoting activities remain solid, ongoing macroeconomic uncertainty, largely due to tariff and interest rate discussions, is causing delays in customer order conversions. To safeguard our competitive position, we're implementing targeted initiatives aimed at increasing bookings to enhance market participation and quote closure rates. These actions support our dual commitment to deliver optimal solutions and outstanding customer service. For example, we've announced our product offerings by expanding to our full-range, modular, and scalable lift truck models that support customer applications from basic to complex.

This allows customers to select configurations that best fit their operational requirements and budget constraints. The flexibility of our solution helps customers increase productivity at the lowest cost of ownership. In addition, our advanced warehouse truck technologies provide improved safety, efficiency, and automation options, helping customers optimize their material handling processes and reduce operational costs. On the customer's care front, we're strengthening our connections with dealers and end customers by offering comprehensive support throughout the buying cycle. Our dedicated account teams work closely with customers to analyze fleet performance, identify opportunities for upgrade, ensuring recommendations are tailored to each customer's specific challenges. We also provide responsive after-sales support, including rapid maintenance services and proactive parts availability to minimize downtime and keep operations running smoothly. Regular training sessions for dealer personnel ensure that our partners are equipped to deliver prompt, knowledgeable service to end users.

By engaging closely with our customers, we can better understand their changing priorities and collaborate to solve their most critical needs. We back these efforts with robust support services, continuing to deliver value beyond the product. We strive to help our customers maintain efficient, reliable fleets across all business conditions. We have a deep understanding of our market and our customers' buying cycles. We recognize that many customers are choosing to postpone investment in new lift trucks due to the current environment. However, we're confident in the market's long-term market growth drivers and demand for existing fleet upgrades over time. Our experience shows that older customers may defer purchases for a period. The rising costs and operational efficiencies issues associated with maintaining aging equipment make new fleet acquisitions inevitable. As maintenance expenses and downtime increase, the financial and productivity advantages from new truck investments become more apparent.

This cycle reinforces our confidence in the long-term stability and vitality of the market. We're committed to supporting our customers through every life cycle phase with flexible solutions tailored to their evolving needs. Globally, the competitive landscape is changing rapidly. We're facing increasing pressure from low-cost foreign competitors, especially in South America and Europe. This competition is most pronounced in the Class 5 market for standard and value configurations, compressing margins in those markets. To address these challenges, we're expanding our lineup of modular, scalable models to more fully meet the requirements of all potential customers. These products, including those from our own China operations, will make us more competitive across all capability and price points in this critical product class while also protecting our margins.

In addition, our new warehouse products and advanced truck technologies are helping us to stand out in global markets and are receiving strong customer feedback. At the end of Q3, our backlog stood at $1.35 billion, down from $1.65 billion in Q2. Shipments outpaced new bookings in the quarter, particularly in the Americas. This reduction was driven by fewer trucks, partially offset by higher value trucks due to increased product costs. Favorable currency further diminished the real value of our backlog, intensifying the effect of lower truck volume. Maintaining a backlog that supports multi-month production is increasingly difficult in the current environment. The pace of market recovery remains below expectations despite underlying demand as a result of persistent uncertainty. As a result, we're managing our production schedule and inventory levels with caution, ensuring alignment with real-time market signals.

Our expectation is for demand to remain soft in the near term, with production rates adjusted to reflect actual booking and cancellation trend as well as backlog health. We're moderating near-term production expectations to preserve manufacturing efficiency, optimize inventory, and maintain appropriate backlog levels. As a result, we anticipate further backlog degradation in the near term. If shipments continue to outpace bookings, we may need to take additional actions to better align our cost structure with evolving market conditions. We've seen many market cycles, and our experience tells us that resilience and readiness are key. Regardless of external factors, we remain focused on what we can control: efficiency, productivity, innovation, and responsible cash management. To ensure this commitment, we're executing on several fronts to position Hyster-Yale for the long-term success. These are operational efficiency.

We continue to streamline operations, optimizing inventory levels and improving working capital efficiency to generate cash in a lower revenue and profit environment. Manufacturing flexibility. Our modular vehicle designs allow us to produce the same model in multiple regions, giving us the flexibility to shift production in response to tariff changes or supply chain disruptions. Customer engagement. We're deepening relationships with our dealers and end customers. We're listening closely to their evolving needs and co-developing solutions that address their most pressing challenges. Product innovation. We're accelerating the rollout of new products and technologies that enhance performance, reduce total cost of ownership, and differentiate us in the marketplace. Market readiness. We're watching leading indicators closely and preparing to scale quickly. Our goal is to be a first mover, ready to capture growth as soon as customer confidence returns. Global optimization.

We're realigning our manufacturing footprint and supply chain to ensure cost competitiveness and responsiveness across all regions. These actions are enabling us to navigate the current environment with agility and discipline so that when the market recovers, we're prepared to emerge stronger. Over the longer term, we're reducing earning volatility through a lower break-even point and more resilient product margins. We remain committed to our strategy. By maintaining operational discipline and investing in the right areas, we're confident in our ability to deliver sustainable growth and profitability over time. Now I'll turn it over to Scott to walk you through our financial results and outlook for the remainder of 2025.

Scott Minder (Senior VP, CFO, and Treasurer)

Thanks, Rajiv. Let's take a closer look at our Q3 results, starting with the lift truck business. Lift trucks' Q3 revenues were $929 million, reflecting a 4% decline compared to the prior year.

This decrease was primarily due to lower truck volumes across all product lines. Lower volumes were a direct result of ongoing economic uncertainty, which has led to a slowdown in customer bookings over the past several quarters. In response to the softer demand and lower backlog, we adjusted our production rates to better align with current market conditions. Looking at the results by region. In the Americas, truck volumes fell with a significant drop in our higher-value Class 4 and 5 trucks in the 1 ton-3.5 ton range. Many industrial customers deferred lift truck purchases due to lower equipment utilization rates within their existing fleet. These were largely caused by reduced manufacturing output amid demand uncertainty. Looking at EMEA, revenues increased year-over-year, primarily due to higher truck sales and favorable currency translation.

Sequentially, overall lift truck revenues improved, supported by stronger sales of higher-value 4-9 ton electric and internal combustion trucks. Q3's operating results fell short of our expectations, primarily due to higher tariff costs, including new tariffs on steel imports during the quarter. Operating profit declined by $27 million year-over-year, mainly driven by lower truck volumes. Some of these negative impacts were offset by our strategic pricing actions and a favorable sales mix shift toward higher-value 4 ton-9 ton trucks in the Americas. Additionally, Q3's operating costs decreased compared to the prior year, mainly because of lower employee-related expenses, including reduced incentive compensation and savings from Nuvera's previously announced strategic realignment. Breaking down regional performance, operating profit in the Americas declined, primarily due to higher tariff costs and lower truck volumes. These negative factors were partially offset by increased selling prices and reduced freight expenses.

In EMEA, the operating loss was mainly a result of pricing and margin pressures, as lower-priced foreign trucks increased their market share in a variety of European markets. Additionally, material costs were elevated due to inflation. Sequentially, adjusted operating profit decreased, largely due to lower product margins from increased tariff costs. Moving to Bolzoni, Q3 revenues were $87 million, dropping 11% year-over-year. This decrease was primarily driven by our planned phase-out of lower-margin legacy transmission components and softer lift truck demand in the US. Gross profit declined moderately, but a favorable product mix offset the impact from lower volumes and reduced manufacturing overhead absorption. Q3 operating profit was $2.1 million, down from $6.2 million in the prior year, with higher employee-related costs negatively impacting profitability. On a sequential basis, Bolzoni sales decreased, mainly due to lower specialized attachment sales in the Americas.

Gross profit remained stable, supported by a favorable product mix in EMEA. However, operating profit declined due to increased employee-related expenses. Next, I'll cover the company's tax position. We recorded an income tax benefit of $2.9 million in Q3, reflecting the positive impact from recent U.S. tax reform. This legislation allows us to immediately expense research and development costs versus deferring a significant portion over the next several years. Looking at cash flow in our balance sheet. Q3 operating cash flow of $37 million improved by nearly 25% from Q2's level. This favorable move was largely driven by improved inventory performance. Excluding foreign currency and tariff-related impacts of $40 million, Q3 inventory decreased by $155 million year-over-year and by $35 million sequentially. Q3 working capital stood at 20% of sales, down from Q2 levels but above our long-term target.

The company continues to make progress on its initiatives to align production schedules with available materials and expects further inventory improvements in the coming quarters. Q3's net debt of $397 million remains in a solid position, improving modestly from the prior year and prior quarter. While our debt levels did not reduce significantly, stability in a volatile demand and cost environment highlights our focus on cash generation and disciplined capital allocation. The company's unused borrowing capacity of $275 million increased by 6% from Q2. Q3's financial leverage, as measured by net debt to adjusted EBITDA, increased to 2.9x due to lower earnings. We remain committed to managing our debt and leverage ratios across market cycles. We're focusing on the things that we can control, optimizing working capital and maintaining operating and capital expense discipline.

These actions help to ensure that our leverage level remains supportive of our strengthened credit ratings. With that, I'll move on to our fourth quarter outlook. First, I'll outline some key tariff-related assumptions in our guidance. Chinese tariffs in aggregate of 79%. Section 232 tariffs included for steel and steel derivatives. Our Section 301 tariff exemption for lift truck parts ends on November 29, 2025. There are no lift truck-specific tariffs put into place. Our demand projections use bookings, backlog, and market trends. We assume no demand drop due to a U.S. or global economic recession. Finally, our proactive sourcing, costing, and pricing initiatives are expected to reduce but not fully offset negative tariff impacts. Recent informal announcements suggest that Chinese tariff levels will be reduced and that our Section 301 tariff exemption will be extended by one year to November 2026.

These changes, if finalized, will benefit our Q4 financial results by $2 million-$3 million compared to our current assumptions. Evolving tariff policies continue to shape our financial outlook. Despite our mitigation strategies, tariffs remain a major challenge for the company. In Q3, direct tariff costs totaled $40 million. While also dampening demand levels across a variety of end markets and customers. These negative impacts are expected to persist for the foreseeable future. The business is working diligently to limit these negative impacts. Our sourcing teams proactively seek alternative suppliers and regional solutions to reduce our exposure to high-tariff countries. At the same time, we're driving operational efficiencies and maintaining cost discipline to enhance our margin resilience. In addition to these actions, pricing has been a critical lever in our mitigation strategy.

As the tariff landscape has shifted in value and focus, we've seen a variety of competitor approaches in the market. As an American company with a significant domestic manufacturing base and a global supply chain, we've felt the tariff impact more quickly and often more robustly than others in our market. As a result, we led with pricing actions that have delivered a strong year-to-date benefit. However, they've not fully offset the negative tariff impact, largely due to the rapid changes in tariff rates applied to different countries. Competitive intensity has increased in our core markets as industry volumes have contracted. As a result, we're focused on a range of tactical and strategic actions to support long-term growth and profitability. The ongoing tariff policy uncertainty makes it increasingly challenging to predict future financial impacts.

In this environment, we remain committed to cost discipline and to driving revenue through higher truck volumes, increased penetration of new technologies, and enhanced market adoption of our new products, including additional modular truck configurations and lithium-ion batteries. With the foundation laid, I'll cover our Q4 outlook, starting with the lift truck business. We expect Q4 revenue to decline compared to Q3 due to lower production rates caused by reduced bookings over the past few quarters. We're projecting a moderate operating loss, mainly due to lower production rates and persistent tariff headwinds. We anticipate that elevated tariff levels and softer market demand will remain negative factors into early 2026. Our outlook assumes positive impacts from cost control and prior pricing actions to serve as partial offsets. We'll watch market demand and tariff rates closely, and we will take additional cost actions as needed to maintain profitability.

Longer term, we continue to make progress on the project announced in late 2024 to streamline our U.S. manufacturing footprint. So far this year, we've invested $2.4 million, with another $3 million planned for Q4. This project is expected to deliver between $30 million and $40 million in annualized savings by 2027, lowering our financial break-even point and enhancing our margin resilience. Turning to Bolzoni's Q4 outlook, revenues are projected to decrease slightly compared to Q3, reflecting weaker demand in U.S. Operations. Operating profit is expected to be modestly above Q3, as product mix improvements compensate for lower sales volumes. I'll close with a few comments on financial discipline and capital allocation and how they position us for the future. Over the past several years, we've increased our business's resiliency, improving product margins with pricing discipline and lowering costs, ultimately enabling us to better navigate challenging market cycles.

While we continue to target a 7% operating profit margin across the business cycle, it's important to recognize that tariffs have significantly and unexpectedly increased our costs and created substantial market uncertainty. They've negatively affected industry demand, our bookings, our backlog, and ultimately our revenue. While we've taken meaningful actions to offset these impacts, we expect our near-term financial results to fall well below targeted levels. Looking ahead, our focus remains on taking actions that further strengthen our financial performance during economic downturns. We're driving significant fixed cost reductions, building greater revenue resiliency, and investing in innovative new products that we believe will allow us to capture profitable market share over time. Generating solid operating cash flow and deploying capital accretively remain top priorities throughout the business cycle.

For the full year 2025, we anticipate cash flow from operations to be solid but well below strong 2024 levels, reflecting significantly lower net income, partially offset by working capital improvements and cost-saving benefits. Strategic investments are core to our ongoing business strategy. In 2025, we expect capital expenditures to be between $50 million and $60 million, with investments focused on developing new products, manufacturing efficiencies, and IT infrastructure upgrades. These investments will help to streamline our operations, lower our financial break-even point, and position the company for long-term profitable growth. As we generate cash, we're committed to our capital allocation framework, reducing debt, making strategic investments to support long-term profitable growth, and delivering sustainable shareholder returns. Now, I'll turn the call over to Al for his closing remarks.

Al Rankin (Executive Chairman)

Thank you, Scott. We are operating in a period of extraordinary transition, facing both significant challenges and new opportunities.

Today's environment is particularly shaped by the effects of elevated tariffs, which have raised our operating costs and made supply chain planning and pricing more complex. While these tariffs present short-term obstacles, we expect their impact to gradually stabilize as prices and tariffs come into equilibrium. This transitional phase is further complicated by a cyclical low in industry booking demand following an unprecedented surge in bookings during the COVID-19 pandemic. However, shipment levels have remained significantly higher than factory booking levels, which suggests to us that the time for new factory booking orders is now being reached. As booking demand returns to more typical levels, we will also need to navigate the shift in competitive environment to increase value and standard applications with discipline and strategic foresight. Broader economic factors also influence our outlook.

The manufacturing sector is showing shipment resilience, yet ongoing volatility and fluctuating interest rates continue to affect both investment decisions and customer purchasing behavior. These conditions highlight the need for a flexible and highly responsive, forward-looking strategy, which allows us to adjust quickly to protect and build long-term market positions. In response to these near-term pressures, our strategic focus remains on transformation and sustainable growth. As Rajiv and Scott have described, we are both strengthening our core counterbalance business and investing in warehouse lift trucks, technology solutions, energy solutions, and attachments. These initiatives are helping us address current challenges and position our company to capture future opportunities. Our goal is to ensure both competitive advantage and market responsiveness in the next market upturn. We remain committed to providing optimal solutions and exceptional care for our customers.

We are confident that the actions we are taking today will deliver lasting benefits to our customers, shareholders, and stakeholders. As we continue navigating this complex environment, we look forward to keeping you up to date on our progress and achievements. This concludes our prepared remarks. We will now open the call for questions.

Operator (participant)

Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then one to join the question queue. Our first question today comes from Chip Moore from Roth. Please go ahead with your question.

Chip Moore (Managing Director and Senior Research Analyst)

Hey, thanks for taking the question. Hey, everybody.

Rajiv Prasad (CEO)

Hi, Chip.

Chip Moore (Managing Director and Senior Research Analyst)

I just want to—hey, I just wanted to ask on the current environment of demand uncertainty. Obviously, every cycle is unique, but just how would you compare this, I guess, with some of the prior ebbs and flows you've been through over the years and how long you think these deferrals could last? It sounds like you're thinking maybe you see some improvement perhaps early next year, but what are your thoughts?

Rajiv Prasad (CEO)

Yeah, maybe I'll get started and others can make their comments, Chip. I think the way that we see the market, market's still pretty active. What I mean by that is there's still a request for quote processes running. People are reaching out to our salespeople and our dealers. What is slow is decision-making. I think that's really driven by.

The volatility of the environment people find themselves in, whether they're worried about tariffs because, for instance, we have surcharges and some of our competition do, or our competition has adjusted their prices. Those things are difficult for our customers. The other piece is they're worried about interest rates and what dynamics that's going to have with that whole environment. There's a cutting environment, but there are other things going on. I think it's just. One last thing I would say, Chip, is a large number of our customers have still also been digesting trucks that they ordered in the past, which we've been—we're towards the end of it, but we've still got probably another quarter of production to go, which was ordered a while back. If you look at it from a customer's point of view, they've been getting a series of trucks.

They haven't been ordering anything because they've been digesting it. I think that's coming to an end. We expect slowly the market will start to recover. People will start to make those decisions because there is no avoiding it, ultimately. I think the next two to three months, maybe a little longer, is going to be that stop-start where processes are being implemented but decisions are not being made. We've seen that open up a little bit over the last few weeks, but I think there's still got a ways to go. The other one last element is our dealers were in the similar situation with their inventory, and those inventories have mostly worked their way down. We're starting to get orders from our dealers now as well to restock.

Chip Moore (Managing Director and Senior Research Analyst)

Got it. That's helpful color, Rajiv.

I guess maybe a follow-up would be if you do see more degradation, if we get some sort of macro downturn. What actions could you take if needed, and what would really trigger that?

Rajiv Prasad (CEO)

Yeah, Chip, I mean, we're pretty much looking at everything right now. All of our cost structures, how we're utilizing our plants. Is there a better way to run the plants? We haven't come to conclusions. We will come to conclusions, I would say, in the next few weeks. We are actually—I mean, if you look at it from a production point of view, we're going to prepare for something like you're talking about, but still stay vigilant and ready to ramp up if we start to see bookings and backlogs grow. We are going to take a bit of a conservative posture for the next quarter or two.

Chip Moore (Managing Director and Senior Research Analyst)

Got it. Appreciate that.

Maybe just more long-term, as things do normalize, just strategically. Around some of the investments you're making, just more of an update on the new modular scalable platform, how that's progressing, any challenges. Then lithium-ion, right, some strategy there. Just maybe speak to that. Thanks.

Rajiv Prasad (CEO)

Yeah. I think for modular scalable products, if you look at our most important markets, North America and Europe, those products, the full scale has just got to those markets now. We've had it in Asia-Pacific for a while, and Latin America for a while. And we've had very, very positive feedback from those markets. Now, as our dealers and some customers start to see the full scale, we're getting similar responses from them. Based on some advice from our dealers, we've updated some of our nomenclature for them to better position the products in this new way.

We feel really good. We're still due to land and distribute significant numbers of these trucks. That will happen over the next three months or so. Then we'll start to get a better feel for how the customers are feeling about the more, what we're calling the prime match and the core match, which I would call the standard and the prime kind of solutions in the field. Very similar with lithium-ion. We have one customer in North America where we've put lithium-ion batteries in a large number of their operations. It's been very successful. Then we're launching our integrated lithium-ion solution, what we call the XTLG or MXLG. LG is lithium-ion, and the XT MX is the name of the model. These will be rolled out both in North America and Europe. They're already in Asia-Pacific and being very successful.

So we feel really good about where lithium-ion is going. Early next year, we'll have it. We'll introduce a new set of electric trucks, which will come ready with lithium-ion batteries.

Chip Moore (Managing Director and Senior Research Analyst)

Great. Thanks very much. I'll hop back in queue.

Operator (participant)

Our next question comes from Ted Jackson from Northland Securities. Please go ahead with your question.

Ted Jackson (Managing Director and Senior Equity Research Analyst)

Thanks for taking my questions. Good morning. Great. First question would be, with regards to weaknesses you're seeing, I know you've talked about it from more of a macro level with uncertainty and tariffs and whatever. What about from a vertical level? The Americas is the key one. I mean, I've understood from people I've talked to that, in particular, for instance, the auto market has been a little soft because you have a few things in headwinds. One is the sort of redeployment of assets around EVs that weren't necessarily needed.

There was some excess there. I'm also curious, you had this aluminum issue and the impact with the auto markets because there was a bunch of news with regards to Ford trucks and such. I guess what I'm asking is, is there any kind of vertical for you that stands out in terms of some of the headwinds? How is it auto? If it's not, can you talk a little bit about your auto exposure and what's going on in America? You got to come. Yeah.

Rajiv Prasad (CEO)

I think in terms of material availability, I don't think we have any specific issues. I mean, we obviously have our normal, I would say, back to 2018, 2019 type of things where we get stuck out because of some reason or suppliers late with delivery. No foundational issue with our. Materials or components. The other piece, though, is the cost of it, right? I mean, certainly, we're not so aluminum-intensive, but we are definitely steel and iron-intensive. And those have kind of been a significant issue for cost, but also of transition. We were using global steels in North America. We're transitioning to now mostly US steel as much as we can, especially in our Mexico operations.

That's good. I mean, from a customer's point of view, in terms of how they're being impacted, we've certainly seen a slowdown on the manufacturing side. You've touched on auto. We would also put kind of most heavy manufacturing in that environment. I think retail has been fine. I think I would say even light manufacturing and distribution has been fine. Food and beverage has been okay. I think a majority of it has been the heavy side.

Obviously, that's very important to us when we're talking about the paper industry, the metals, large equipment. That's been the big customer issue. We're starting to see that ease a little bit. As I said, it's very new. We haven't seen that spread yet.

Ted Jackson (Managing Director and Senior Equity Research Analyst)

Okay. I mean, yeah. What you're telling me then is more larger equipment, more industrial. Moving over to pricing pressure, you're seeing a lot of pricing pressure, you said, with EMEA and JPAC. Does that mean you're not seeing as much pricing pressure in the Americas? If so, why? I mean, is this maybe a sideline that you're actually benefiting from tariffs on that front because it's keeping cheaper Chinese stuff out, or?

Rajiv Prasad (CEO)

No. I think pricing pressure is everywhere. Normally, that happens when we're not fully utilizing our capacity.

Everybody wants the extra capacity, extra share to drive it. What I was saying is that we did not have all the right solutions in place. The scalable solutions, they were going through their validation process. We need to meet some very specific requirements, for instance, UL in North America, and we need to meet all the CE requirements in Europe. That has taken a while, and now we are ready to deliver trucks. It was more an availability issue, not so much that we did not see the competitive pressure. I would say that certainly, if I look at how the Chinese competitors are behaving in EMEA and Asia-Pacific versus North America, there is definitely some inhibition in the United States because of the tariffs. We are also being, in some of these trucks that we compete with, them on do also come from China for us.

It is not as if we have an advantage, but at least until recently, we did not have the availability because of completing our validation processes.

Ted Jackson (Managing Director and Senior Equity Research Analyst)

When I listen to some of the things it is saying with pricing pressure and your response to pricing pressure, the biggest response for pricing pressure for you is, I mean, it is not that you are getting more aggressive in discounting. It is that you are going to have the new modular products going to allow you to be able to offer a lower-priced product.

Rajiv Prasad (CEO)

Absolutely. The idea behind this whole scalability was give the customer the product that works in their application. If we can do that, they will get the productivity they need at the lowest cost of ownership. That is the mission behind this whole scalability. It is going to take a little bit of time to get that through to our network and our customers. We've been working on that, getting everybody ready. We had some feedback. We've adapted to that feedback. I think now it's just a case of getting the products out in the hands of our customers so they can see how good these are and feel that it's the right option for them. I think you're absolutely right. We expect our margins to be around our target margins because we're putting the right truck at the right customer, whereas in the past, we'd have taken what we had and tried to put it into segments where it didn't work, compromising the margin.

Ted Jackson (Managing Director and Senior Equity Research Analyst)

My last question is, you referenced in the press release that you're going to be taking actions to increase your closure rates. The quoting activity is fine.

Yeah, the quoting activity.

Rajiv Prasad (CEO)

Our participation is fine. What we're starting to do is work closely with customers to understand what their actual fleet position is. Customers focus on what their core value proposition is, and material handling for a number of them isn't. We are going to do some extra work with them to show them that if they have older vehicles in their range, that they should. That could lead to being on the wrong side of cost of ownership. We will also create some, working with our partners, create some very specific solutions for them in terms of what's in the truck, but also how we finance it, etc. There are a number of steps. We're really going customer by customer and looking at what it would take for the customer to get over the hurdle on not wanting to make this decision when there is all this volatility around them.

Ted Jackson (Managing Director and Senior Equity Research Analyst)

So just really more sharpening of the pencil, if you would, then.

Rajiv Prasad (CEO)

Yeah. And making that whatever we're doing, much more focused on that customer rather than a general, "Hey, look, let's do this. Let's reduce price," or, "Let's offer extended warranty," or, "Let's do something else," right? I mean, if the customer is concerned about something, we want to be able to solve their problem.

Ted Jackson (Managing Director and Senior Equity Research Analyst)

Okay. I understand. Okay. Thank you for taking my questions.

Rajiv Prasad (CEO)

Thanks. You're welcome.

Operator (participant)

Our next question comes from Kirk Ludtke from Imperial Capital. Please go ahead with your question.

Kirk Ludtke (Managing Director)

Hello, everyone. Thank you for the call.

Rajiv Prasad (CEO)

Sure. Thank you.

Kirk Ludtke (Managing Director)

I just had a follow-up on the automation topic. Amazon's efforts to automate their facilities have been in the press recently. And I was hoping maybe you could expand on the pace of automation. Is it accelerating, and what impact that has on your mix?

Rajiv Prasad (CEO)

Yeah. Let's say the interest in automation is enormous. Because of some of the basic trends that we're seeing, availability of people. Kind of, and if you do get people, what is their expertise like in driving trucks? The implementation has been slower than we would expect. Part of that is, as you automate, you have to redesign some work. You have to redesign some of the material flow. The approach we've taken is we're working with customers in a very partnered approach so that they can experience what automation can do for them. Once they realize that, then they're able to identify how they could reconfigure their operation to better suit. At the moment, we're working with some of the largest companies. I won't go into those, but all the ones that are talking and writing about automation, we're working with at the moment.

I think it's going to take a—I think it's one of those things that's going to take some time for people to really understand. How best to deploy these technologies, how to implement them and integrate them into their operations, and then it'll take off. I expect a build-up, but then a kind of fast acceleration after that.

Al Rankin (Executive Chairman)

Kirk, I would add that as that trend takes hold, those trucks, whether they be with our hybrid automation or our full automation, come with higher prices and higher margins generally. The benefit will accrue to the customer and their total cost of ownership, but will come back to us as well from sale of the unit and the ongoing revenue of the technology.

Kirk Ludtke (Managing Director)

You would consider this automation to be a positive for your business?

Rajiv Prasad (CEO)

Yes. Absolutely. I mean, we have automated trucks.

We have about 600 or 700 of them running around today. And we're building that up slowly. We have our primary product released now and in the marketplace. And then every six to nine months, we'll be releasing another automated product.

Kirk Ludtke (Managing Director)

Excellent. Thank you. And then a follow-up on the excess equipment that you see out there. And when do you expect that excess equipment to be depleted and orders to pick up? Quarter? Any guess as to timing?

Rajiv Prasad (CEO)

Yeah. I think we're working with our network to get their excess inventory in the right place by the end of the year. So we expect our dealers—and there are certain signs of it, as I said—to start ordering to the factory rather than fulfilling from their inventory as their retail. And then customers, similarly. We understand our backlog. We also understand the industry backlog.

The majority of what customers were waiting for have already been delivered. It takes a little bit of time to cuss and some help in the customers to switch stance. They have not been running RFQs, some of them, especially the heavy side of the business, and really making decisions. That is where I talked to Ted about that we are putting some special activities in place to help customers get through that process efficiently.

Kirk Ludtke (Managing Director)

Got it. Lastly, I guess, is some of your customers' hesitancy on placing orders—are they waiting for interest rates to come down? Is that part of what is going on here, or are there other—I am sure there are a lot of things. Is that a meaningful factor?

Rajiv Prasad (CEO)

I think if I just think about ourselves, right, we are like them. We are kind of looking at the ISM numbers. We are looking at what is going to happen to interest rates. We're looking at tariffs and the dynamics of tariffs and what it means to us. We're also looking at, in the worst conditions, what sort of capital requirements do we have? And then once you've evaluated all of that, you go, "All right, what should I do now?" The one thing that gets left out because it's not obvious to the customer is their fleet has aged as well. The downside of that is that their cost of operation is going to go up. We just want them to put that into the mix of their analysis and help them with it. That is the way we feel we can move them off center because we can absolutely understand why those elements could create a bit of a freeze moment.

For making capital, at least capital expenditures that you feel that you have some flexibility with.

Kirk Ludtke (Managing Director)

Got it. That's super helpful. If I could just sneak one last one in. On the tariff front, I think I heard you say. You're not at an advantage. I mean, everyone's sourcing the same components from the same countries. You're not at an advantage. You're not at a disadvantage with respect to your competitors?

Rajiv Prasad (CEO)

I think that's generally true, but there are definitely exceptions. I mean, if I just take South Korea as an example. If you are a South Korean manufacturer, you can pretty much import parts from anywhere, mostly tax-free. You can build with Korean steel. When you bring it in, you'll have to pay the duty on steel. Then on top of that, 15%.

Duty on the truck. I think the same thing from Japan. I think those end up being—whereas we're buying U.S. steel, which, because of the duty, those just—I need to look at the price of steel and see what's happened. We're paying duty depending on where it comes. A lot of our components come from globally, so China, India, other Far East and Eastern European countries, and you could be paying significant tariffs on those, especially from China and India. When you build trucks with those in North America, I think under those conditions, we feel that's a bit of an unfair situation.

Operator (participant)

Our next question comes from.

Rajiv Prasad (CEO)

Yeah, go ahead.

Operator (participant)

Our next question comes from [Jack Fitzsimmons] from Prudential. Please go ahead with your question.

Okay. Thanks for taking my question.

I think you mentioned cancellations in the prepared remarks, so I was just wondering if you saw a pickup in cancellations in 3Q, and if so, if you could just quantify that number.

Rajiv Prasad (CEO)

Yeah. I mean, I think now we're not—the majority of our cancellations are behind us. They were particularly difficult during, I would say, second quarter, first and second quarter. I think as our backlog has come down, those have really whittled out. We wouldn't expect many cancellations looking—there weren't many during this quarter, and we wouldn't expect many moving forward.

Got it.

And these cancellations were from orders that were made in late 2023 or 2024. There weren't cancellations of recent orders.

Got it. That's helpful. And then just one more from me. I guess in the release, you mentioned $40 million tariff impact in 3Q.

Just clarification, is that net of price increases and other actions? If not, kind of how much of that cost were you able to mitigate and do better?

Yeah. Maybe I could say a few words, and then Scott can. Do not forget, we build trucks in backlog. As I already said, the market is pretty intense because of us not all fully utilizing our capacity. We felt that there was not an easy way for us to go back. We tried to go back to the marketplace. Customers pretty much said, "Hey, we will just go back to the market." On these backlog trucks, we were not able to get in any extensive way any pricing on it. We took the cost. We had to, and the majority of that $40 million was the tariff, and it mostly hit our P&L.

I think that will still be somewhat the case next quarter because we're still in that situation. The things we're booking now are better from incorporating the tariffs in them, either as surcharges or price increases. We'll get—Scott, do you want to.

Scott Minder (Senior VP, CFO, and Treasurer)

I think you covered it pretty well. I would say, yeah, the $40 million was the gross tariff cost, and we were able to offset less than half of that with price in the quarter for the factors that Rajiv laid out.

Operator (participant)

Our next question comes from Eric Ballantine from CVC. Please go ahead with your question.

Eric Ballantine (Director)

Hey, guys. Thanks for taking the call. Just kind of a follow-up on that question on the backlog and the pricing. I know in the past you've talked about that you want a profitable backlog and so forth.

Now it sounds like there's still some unprofitable or lower profitable units in the backlog. Of the overall backlog, what kind of percent is related to those kind of unprofitable, lower profitable units? When do you think that when you start showing the value of the backlog, $1 billion, $1.2 billion, whatever that number is, that's really 100% profitable backlog or pretty close to?

Rajiv Prasad (CEO)

Yeah. I think we'll get there. Yeah. I think we'll get there in January, January, February. I think we still have some. I wouldn't say that these were bad margins when taken. Those were actually very good margins. We've had, as you heard, $40 million worth of tariffs, which were not around when we took those bookings. Really, the uncovered, untariff-covered backlog will be out of mostly by early first quarter next year in terms of what we're building.

Of course, we're booking those right now.

Eric Ballantine (Director)

Yeah. Okay. Okay. On your comments about the fourth quarter and the profitability falling off there, I know you've talked about that you did not want to go back to the days of EBITDA negative and so forth. I mean, obviously, EBITDA is falling off pretty significantly this year. I mean, are we looking at a situation where we could potentially be back into the EBITDA negative sometime in next year until the industry flips around, or are you pretty confident that you're going to stay at least positive?

Rajiv Prasad (CEO)

I think it's really difficult to tell at the moment. You saw us. We're pretty close to break even this quarter. I think as we've guided, we're going down, so going a little lower for the next couple of periods.

I think that's the best I can do right now.

Eric Ballantine (Director)

Okay. Okay. And then just kind of on the AI issue, I mean, your comments around you're working with the customers, is it really the customers are the issue in the sense of you have the product that you can deliver to them that's functional. AI, automated, and so forth? It's really the customers that need to kind of figure out their plants and figure out what they want. How they want to operate, or is there something else that's kind of limiting you guys?

Rajiv Prasad (CEO)

Yeah. The way we've designed our automated solution is really more from a material handling point of view. We're not software guys. We use software, but we're really material handling people. And we know to most effectively use—again, we're using our own solutions in our own plants.

We know what it takes to optimally use it. We think we have a role to play in that with our customers. We've always felt that with the solutions we put in place, that's part of our value proposition. That's how we can differentiate ourselves and give the customer a solution that is better value for them. We're getting all of our salespeople, dealers ready, as well as customers, to be able to do the same thing. We have a pilot going on right now with a number of key customers working with our internal automation implementation team to pilot these concepts. So far, we've had very, very positive feedback from those customers in what we're doing. It's seen as very differentiated.

Operator (participant)

With that, we'll be concluding today's question and answer session.

I'd like to turn the floor back over to Andrea Sejba for closing remarks.

Andrea Sejba (Director of Investor Relations and Treasury)

Thank you for your questions. A replay of our call will be available online later today, and the transcript will be posted on the Hyster-Yale website. If you have any follow-up questions, please feel free to reach out to me directly. My contact information is included in the press release. Thank you again for joining us today, and I'll turn the call over to Jamie to provide the replay information.

Operator (participant)

We would like you to note that to access the replay of today's event, you may dial 855-669-9658 or 412-317-0088 and use the access code of 479-9887. Again, that is 479-9887. Replay will be available approximately one hour after the completion of today's event. We do thank you for attending the presentation. You may now disconnect your lines.