Hyster-Yale Materials Handling - Earnings Call - Q4 2024

Executive Summary

• Q4 revenue grew 4% year over year to $1.07B and 5% sequentially, while adjusted EPS rose to $1.47 (+3% YoY, +44% QoQ); GAAP EPS declined to $0.58 due to $21.4M of footprint optimization charges in the quarter.
• Lift Truck adjusted operating profit increased 15% YoY on favorable mix and pricing; Americas strength offset EMEA/JAPIC weakness. Bolzoni turned to a small adjusted loss on mix and volume; Nuvera loss improved sequentially on cost actions.
• 2025 outlook: management now expects a significant revenue decline, margin compression toward target levels, higher OpEx run-rate, and operating profit significantly below 2024; capex guided to $40–$80M; cash from operations expected comparable to 2024 as working capital improves.
• Bookings stabilized sequentially (+8% vs Q3) but remain down 17% YoY; backlog normalized to $1.93B. Footprint optimization programs (incurring $21M in Q4) are expected to drive $30–$40M annual benefits beginning in 2027, with implementation costs also in 2025–2026.

What Went Well and What Went Wrong

What Went Well

• Americas Lift Truck drove performance: revenues +13% YoY; adjusted operating profit +43% YoY on favorable mix and pricing discipline.
• Adjusted results improved despite softer markets: adjusted operating profit $53.7M (+10% YoY, +57% QoQ); adjusted EPS $1.47 (+3% YoY, +44% QoQ).
• Working capital and cash generation strengthened: Q4 operating cash flow $81M; year-end net debt fell 12% QoQ; inventory down $100M sequentially; unused borrowing capacity increased to $290M.

“Program benefits are expected to begin in late 2025… Beginning in 2027, these fully developed programs are currently expected to generate significant income and cash benefits from $30 million to $40 million annually”.

What Went Wrong

• GAAP profitability compressed: operating profit fell to $32.3M and GAAP EPS to $0.58, reflecting $21.4M of footprint optimization charges and a 55% tax rate in Q4 (no tax benefit on charges due to valuation allowance).
• EMEA and JAPIC pressured results: EMEA operating swung to a loss on lower volumes/mix; JAPIC loss widened; Bolzoni posted an adjusted operating loss of ~$0.1M on weaker mix/volume and higher costs.
• Bookings/backlog reset: bookings down 17% YoY; backlog fell 42% YoY to $1.93B, driving a significantly lower 2025 production outlook and margin normalization risk.

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and welcome to the Hyster-Yale, Inc. fourth quarter and full year 2024 earnings conference call. At this time, our lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you need assistance, please press star zero for the operator. This call is being recorded on Wednesday, February 26, 2025. I would now turn the conference over to Andrea Sejba. Please go ahead.

Andrea Sejba (Director of Investor Relations and Treasury)

Good morning, and thank you for joining us for Hyster-Yale's 2024 fourth quarter earnings call. I'm Andrea Sejba, Director of Investor Relations and Treasury. Joining me today are Al Rankin, Executive Chairman, Rajiv Prasad, Chief Executive Officer, and Scott Minder, Senior Vice President, Chief Financial Officer, and Treasurer. During our call, we will be discussing our fourth quarter and full year 2024 earnings release issued yesterday. You can find the earnings release and replay of this webcast on the Hyster-Yale website. The replay will remain available for approximately 12 months. Today's conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied. These risks are described in greater detail in the earnings release and in our reports filed with the SEC. On this call, we will be discussing our adjusted results.

We believe that these are useful in evaluating the company's operating performance. Reconciliations of adjusted operating profit, net income, and earnings per share to the most directly comparable GAAP financial measures can be found in the company's earnings release and investor presentation filed with the SEC. With the formalities out of the way, let me turn the call over to Rajiv to begin.

Rajiv Prasad (CEO)

Thanks, Andrea, and good morning, everyone. I'll start by providing my operational perspective and some commentary on our markets. Scott will follow with our detailed financial results and outlook. Al will close the call with his perspective, and then we'll open it up for your questions. As we close out 2024, I'd like to start by recognizing our global team for delivering another solid quarter and a strong finish to an already exceptional year. In quarter four, we generated higher revenue and improved adjusted operating profit versus the prior year and the prior quarter. These strong results were led by the performance of our Americas lift truck business. I'm pleased to report that we made significant progress on our strategic initiatives in the quarter. We began execution on the footprint optimization programs that we shared with you in our quarter three earnings call.

These programs are designed to streamline our manufacturing network and optimize our operations. These programs should lower our costs and reduce our inventories and product lead times. This will better position the company for profitable growth around the world. As a result of these actions, we incurred a $21 million. The costs were primarily initiated in the fourth quarter to streamline our manufacturing footprint and optimize operations. As we further deploy these programs in 2025 and 2026, we expect additional implementation costs ranging from $8 million-$16 million in each of the years. These programs are designed to reduce the negative impact from market cyclicality on our business over time. Program benefits are expected to begin in late 2025 but will be offset by operational inefficiencies due to lower total production, driven by decreased market demand. Benefits in 2026 are expected to be small as we finalize the programs.

Savings are expected to accelerate, generating $30 million-$40 million in annual income and cash benefits starting in 2027. In the Americas, we are focused on programs to right-size the company's production footprint enabled by our expanding lineup of modular products. We'll take advantage of manufacturing synergies created by these designs to further enhance profitability. Executing these programs helps to reduce costs and improve cost absorption rates in our factories, particularly in periods of lower demand. In our EMEA and JAPIC regions, these optimization programs will help streamline cost structures and better position these businesses for long-term profitable growth. Turning to our views on global demand, the global lift truck bookings market continued in its decline in quarter four. Compared to prior year, as expected, lower demand and order cancellation each played a role.

This ongoing market correction is in response to significantly above-trend industry bookings rates in 2022 and 2023. While the booking market declined in 2024, our extended backlog allowed us to maintain strong production rates. Accordingly, our shipments exceeded our bookings in each of the quarters of 2024. As a result, our backlog reached near-normal levels by year-end, faster than our initial plans. Due to our lower bookings and reduced backlogs, we've adjusted our production cadence to maintain a more consistent backlog, one that better aligns with market demand. Operating our factories at this purposeful pace will help to reduce inventories, improve delivery consistency, and ultimately improve customer satisfaction. As market demand improves and our market share is expected to increase across 2025, we expect to gradually increase our production rate. When we do, inventory will increase to support higher production, but from a lower base with improved efficiency.

Early 2025 bookings provide encouraging signs, particularly in our EMEA and JAPIC regions. This elevated activity gives us some confidence that the bookings market will improve across 2025. While there is early optimism, our market outlook could be impacted by ongoing uncertainty created by potential tariffs and trade wars. If the bookings market on our expected market share gain fails to meet expectations, our global production levels will moderate in the second half of the year. Despite this uncertainty, we continue to focus on booking units with margin at or above target levels. New product introductions, especially those with our new onboard technologies, are increasing the potential revenue per unit. Our expanding lineup of modular and scalable models increases our ability to provide customers with products that solve their challenges while also improving our unit economies. Countering these Hyster-Yale-specific opportunities is a more competitive market.

As demand declined in 2024, competitive intensity picked up. We expect this dynamic to continue in 2025 until bookings return to more normal pace. As a result, we expect our strong product margins to decline in 2025 but remain above target levels. Economic uncertainty created by potential tariffs imposed by the U.S. and others remains a key area of concern. We'll remain agile with our pricing strategy, responding quickly if our cost structures are negatively impacted. Now I'd like to discuss our focus for 2025. First, I'll start with the lift truck business. The lift truck business launches modular, scalable 2-ton to 3-ton internal combustion engine trucks in 2024. These products are now available globally, and shipments are increasing. The range will expand with cushion tire, combustion engine trucks, and electric platforms planned for 2025 and 2026.

This approach enhances efficiency by integrating ICE and electric trucks on the same production lines, optimizing manufacturing processes. By using these designs, the company can meet customer demand while reducing operational costs and improving working capital. Automation is a key area of development for us. In 2024, we began customer testing for Yale Relay and Hyster Atlas forklifts. By early 2025, a new platform for automated lift trucks and an intuitive portal will be launched, simplifying setup and reducing the need for custom programming. This will help warehouses cut labor costs and software expenses. The enhanced lift truck lineup offers significant value to warehouse customers. We have developed strong technology adoption strategies and specialized training for our dealers. We saw modest market share gains in 2025 and are poised for above-market growth. The lift truck business aims to leverage electric truck advancements in areas once dominated by combustion trucks.

We continue to expand the electrification of our internal combustion engine counterbalance products using both lithium-ion batteries and fuel cell engines for certain economically specific applications. These projects capitalize on the company's long history of developing electric powertrains and expanding solutions for customers who want to lower their carbon footprint. Our portable equipment projects are a promising step to broaden our product range. Next, I'll discuss Bolzoni. Bolzoni aims to lead the attachment business by delivering innovative, customized solutions to address specific material handling needs. Bolzoni is dedicated to driving growth through core projects beyond the lift truck market. Bolzoni is committed to designing products that enhance safety, reduce damage from incorrect handling, and improve efficiency. This includes incorporating advanced technologies, components such as sensors, lasers, cameras, and optical readers.

To expand its industry reach, Bolzoni is working with leading companies in the automated guided vehicle or AGV sector to offer customized attachments, often with embedded technologies to facilitate better overall performance. These efforts are expected to increase volumes and margins over time. Lastly, our next steps with Nuvera. Nuvera aims to lead in fuel cell technology by focusing on 45 kW and 60 kW fuel cell engines tailored for heavy vehicles and power systems where batteries fall short. The early adopter applications are anticipated to have near-term adoption potential. During 2025, Nuvera looks to expand HydroCharge, a mobile power product providing clean off-grid power for rapid electric vehicle charging and clean energy genset applications. In the near term, mobile power generation appears to have the greatest opportunity for commercial application. This supports a number of applications where diesel or battery power generation will not work effectively.

Nuvera is now undertaking a focused study on the size and timing of a mobile power strategy. Now I'll turn the call over to Scott to provide more detailed financial results and outlook. Scott?

Scott Minder (SVP, CFO, and Treasurer)

Thanks, Rajiv, and good morning. As you just heard, our revenues and adjusted profits improved year over year and sequentially. We had a strong year and ended with a solid quarter. I'll start by briefly covering our full-year consolidated results. We reported 2024 revenues of $4.3 billion, a 5% improvement over prior year. Our year-over-year top-line growth significantly outpaced the global GDP growth rate. Full-year adjusted operating profit of $267 million improved by nearly $60 million versus prior year. 2024's adjusted operating profit margin was 6%, representing the strongest full-year performance in the company's history.

These gains were largely due to the performance of our lift truck business, where revenues grew by 5% and adjusted operating profits improved by 28%. 2024's adjusted net income was $159 million, increasing 26% from the strong prior-year period. 2024 was a strong year, and we took the opportunity to further fund our strategic initiatives. We invested in additional sales and marketing staff to help accelerate new product introductions and support our share gain efforts. We invested in new information technology tools that create a more efficient and seamless customer experience. Lastly, we initiated the footprint optimization journey enabled by our new modular products. As Rajiv stated, this will ultimately save us tens of millions of dollars per year and reduce the negative impact of market cyclicality on the business. To close out our strong 2024 performance, our fourth-quarter results were solid.

At the consolidated level, revenues of $1.1 billion grew by 4% versus prior year and by 5% sequentially. Adjusted operating profits were $54 million, increasing by 10% and by nearly 60% compared to prior year and prior quarter, respectively. Adjusted earnings per share was $1.47. Next, I'll provide color by segment and geography on the quarter's performance drivers, starting with our lift truck business. Q4 lift truck sales increased 4% year-over-year, largely due to an improved sales mix. The Americas benefited from a mix toward higher-value Class 4 and 5 trucks, while EMEA's sales mix was negatively impacted by a shift to Class 3 products with lower average revenues. As we further implement our market penetration strategies, we're focused on providing the right product with the right technology at the right price.

Our customers win through higher productivity and lower total cost of ownership, and we're better able to deliver on our financial commitments over time. Sequentially, revenues grew by 6% as a result of increased deliveries in the Americas and seasonality-driven improvements in EMEA. The lift truck business delivered an adjusted operating profit of $62 million, increasing by 15% compared to prior year and by 55% sequentially. Volume and mixed benefits contributed to strong product margins in the quarter, well ahead of our targeted levels. Partly offsetting these gains were increased costs for freight and warranty. We continue to see historically high freight rates despite some relief over the past few months. We've taken proactive steps to mitigate these costs, but port strikes and geopolitical issues have limited our ability to fully leverage the lower freight rates.

With regard to warranty cost increases, new product introductions often result in increased initial warranty claim rates. We're in the midst of a generational product shift toward our new modular scalable designs. These new trucks are replacing a prior generation of well-tested and highly reliable trucks. Over time, we expect our new models to equal or surpass the quality of the prior generation, in part due to the increased component commonality and more focused supply base. Turning to Bolzoni, the business reported Q4 revenue of $84 million, which was $4 million lower than prior year. Q4's adjusted break-even operating loss was below the prior-year level. Bolzoni's product mix negatively impacted unit margins, and lower volumes drove manufacturing inefficiencies. Operating expense was above prior year, primarily due to employee costs and the sale of a small non-core business in Europe.

At Nuvera, the Q4 adjusted operating loss improved sequentially due to lower marketing expenses and reduced employee-related costs as a result of headcount reduction initiatives initiated in Q3. The hydrogen fuel cell industry continues to face slow customer adoption rates due to ongoing hydrogen supply constraints and delayed customer vehicle development programs. Despite Nuvera's active demonstration pipeline, these industry constraints are delaying Nuvera's bookings and reducing its shipments. Next, I'll cover the company's tax position. Our Q4 income tax rate was 55%. This is significantly higher than the full-year 2024 rate of 34%. The fourth quarter's increase was due to the non-deductibility of the footprint improvement and operational optimization charges. The company wasn't able to recognize a tax benefit on these charges due to its valuation allowance position. These items will be included in future tax periods as severance and other expenses are recognized.

2024's effective income tax rate of 34% is higher than the prior year's rate of 29%. The elevated 2024 rate is largely due to the ongoing capitalization of research and development costs for U.S. tax purposes, combined with the ramifications from the company's U.S. valuation allowance position. This combination also affected 2023's tax rate, but the impact was partly offset by our ability to utilize U.S. net operating losses during the 2023 year. Turning to the balance sheet, in Q4, we generated $81 million of cash from operations, increasing 2024's full-year generation to $170 million. We used a portion of these funds to further reduce debt, which dropped by more than 5% compared to Q3 levels. In addition, we delivered on our commitment to shareholder returns with a consistent and strong dividend and a roughly $5 million Class A common stock repurchase in the quarter.

At year-end 2024, the company had unused borrowing capacity of $290 million, improving by nearly $30 million compared to the end of Q3. We continue to focus on reducing working capital, particularly through inventory efficiency gains. Total inventory decreased by $60 million from prior-year levels and by $100 million sequentially. These gains stem from better alignment between production needs and on-hand materials as we adapt our manufacturing cadence to reduce variation in our factories. Additionally, finished goods held in customer-ready status improved due to increased shipping and customer installation discipline. As a result, working capital represented 18% of sales in Q4, down from 21% in Q3. Now I'll cover our outlook for full-year 2025, including color around our first-quarter expectations. Due to the anticipated decrease in our lift truck production levels in Q1 and for full-year 2025, we expect a significant year-over-year revenue decrease in both periods.

Lift truck gross profit margins are likely to decline toward target levels due to the negative effect from reduced volumes and increased market competitiveness. Operating expenses are expected to increase year-over-year in 2025 to support long-term profitable growth initiatives. We anticipate an operating expense run rate similar to Q4 2024 levels in each 2025 quarter. The company is focused on offsetting a portion of these higher costs through increased use of its low-cost shared service capabilities and through more efficient tools and processes. As a result of the lower revenues, margin declines, and increased expenses, we expect first quarter and full-year 2025 operating profit to be significantly below the exceptionally strong 2024 performance. Moving to Bolzoni, 2025 revenues are expected to decline, while operating margins should increase. Both of these changes are a result of the ongoing phase-out of lower-margin legacy components sold to the lift truck business.

Bolzoni's 2025 operating profit is expected to be comparable to 2024. At Nuvera, the company is focused on increasing customer product demonstrations and orders, especially for its new HydroCharge product beginning in 2025. Nuvera anticipates full-year revenues to increase, largely due to sales of this new mobile unit designed to provide off-grid charging for a variety of electric vehicle types. We expect a modest increase in product development costs year-over-year to support further development of the new, more powerful 125 kW fuel cell engine. In total, Nuvera's 2025 operating results are expected to improve modestly compared to 2024, in part due to benefits realized from 2024's reduction in force action. Turning to the consolidated view, I'll start with our outlook for taxes. The company anticipates its 2025 effective tax rate to be elevated, largely due to the ongoing capitalization of R&D costs and its valuation allowance position.

The U.S. Congress is actively debating an important tax law change that could reverse the R&D cost capitalization rule, thus treating them as a period expense. If this occurs, the company's tax expense outlook would change materially. While our effective tax rate is likely to remain elevated, 2025's tax expense is expected to be well below 2024 levels due to lower overall profitability. At the consolidated level, 2025 revenues and profits are expected to decline significantly compared to 2024's operating results. This is largely due to the soft global bookings market experienced by our lift truck business in 2024. As Rajiv said earlier, we expect our markets to gradually improve in 2025, providing some momentum as we move into 2026. The company remains focused on reducing the negative impact from market cyclicality on its business. As markets grow and reach new heights, the business should maximize its operational results.

We did that in 2023 and 2024, making solid progress toward our long-term operating profit goal of 7% for the lift truck and Bolzoni businesses. As markets decline, as we anticipate in the first half of 2025, the business should remain profitable but very likely have margins below the 7% target. We're working diligently to strengthen our business's foundation to create higher highs and higher lows across the business cycle. And finally, we intend to generate and deploy cash across all phases of this cycle. Turning now to our outlook for cash flow drivers, we made progress on reducing working capital levels in 2024, but the gains were well below our expectations. Intense efforts to accelerate our improvement pace, particularly around inventories, are underway, and we expect to generate more substantial progress in 2025.

Overall, we anticipate cash generated from operations to be comparable to strong 2024 levels, as working capital improvements generally offset the net income decline. 2025 capital expenditures are expected to range between $40 million-$80 million. This wide range of outcomes is due to current economic and geopolitical uncertainty, particularly in the U.S. and in EMEA. We'll closely monitor spending during the first half of the year and accelerate investments if the market and our share increase as expected. As we continue to generate free cash, we'll follow our disciplined capital allocation framework to reduce leverage, make strategic investments that support long-term profitable growth, and continue to generate strong returns for our shareholders. Now I'll turn the call over to Al for his comments.

Al Rankin (Executive Chairman)

Thanks, Scott. I want to emphasize the significance of the information Rajiv and Scott have shared today. We had a strong 2024 that built upon the previous year's results, which were robust by historical standards. We exceeded our initial expectations despite a substantial market decline and significant geopolitical uncertainty. This was largely due to our lengthy and margin-rich backlog built during the robust lift truck markets of 2022 and 2023. I'd like to take this opportunity to commend our global team for delivering these strong results. Looking forward, our path forward is guided by sound long-term core strategies. I'm confident we have the right team and business structure in place to execute our key strategic programs, weather the near-term cyclical downturn, achieve our long-term financial goals, and provide strong shareholder returns over time. And with that, we'll take your questions.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two, and if you are using a speakerphone, please lift the handset before pressing any keys. The first question comes from Ted Jackson at Northland Securities. Please go ahead.

Ted Jackson (Managing Director and Senior Research Analyst)

Oh, thanks. Thanks for taking my questions. Good morning.

Rajiv Prasad (CEO)

Morning.

Al Rankin (Executive Chairman)

Good morning.

Ted Jackson (Managing Director and Senior Research Analyst)

I wanted to start out, Al. I believe last quarter when you had discussed the market outlook for 2025, kind of based off industry data, that the view was that it was a weaker second half, a stronger, I mean, first half, a stronger second half, and that for the full year of 2025, that the bookings market for lift trucks globally would be more or less flat. When I go through the commentary with regards to the quarter and what you presented, it sounds like that that view has tempered somewhat and that the market at a global level maybe will be down. Is that the right way to read the commentary that I've gotten from you all? That's my first question.

Rajiv Prasad (CEO)

Hey, Ted, it's Rajiv. I'll take that question. I think our guidance is pretty consistent with what we said last time. We do expect the first half to be lower, of course, as we've stated. But we do see from our projections, we see an increase in the second half of the year, as Scott said, and then we're going into a pretty good 2026. I think we've described why we had the downturn. It's because of the overbooking we saw in 2022 and 2023, which moderated and then really curtailed in the second half of 2024.

The other thing that we hadn't talked about last time is, towards the end of the year, after our conference call, we saw an increase in cancellations. I assume that was driven by customers really adjusting their demand for the upcoming year. So that we talked a little bit about, we brought the production rates below what we had anticipated.

And those two elements were the big drivers for it: is the market dropped more than we expected, and then we got higher cancellations than we were anticipating. So we adjusted for that. We expect if I just look at the last couple of months, we haven't seen the same scale of cancellations, nowhere near. We seem to be back to normal kind of levels. So we expect that to moderate. We still expect the market to be low in the first half, but then come back in the second as some of the orders that were placed prior get, and deliveries that have been made get consumed by customers and applied. Does that make sense? Hello?

Operator (participant)

Apologies. We did seem to lose the caller. I can turn it back over to Andrea for any closing comments at this time.

Andrea Sejba (Director of Investor Relations and Treasury)

Thank you for your questions. We'll now conclude our Q&A session. We thank you for participating. A replay of our call will be available online later today. We'll also post a transcript on the Hyster-Yale website when it becomes available. If you have any questions, please reach out to me. My contact information is on the earnings release. I hope you enjoy the rest of your day. And now I'll turn it back to Joanne to conclude the call.

Operator (participant)

Thank you, ladies and gentlemen. This concludes your conference call for today. Our replay will be available until March 5th, 2025, by dialing 1-888-660-6345 and entering conference code 49516. We thank you for participating and ask that you please disconnect your lines.