Q4 2019 Earnings Call
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There will be a question answer session.
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I would like Delta had the color be accomplished speaker today, it's Christina Kmetko. Please go ahead.
Thank you very much.
Good morning, everyone and welcome to our 2019 fourth quarter earnings call I'm, Christina Kmetko name responsible for Investor Relations at high for you.
Joining me on today's call or Al Rankin, Chairman, President and Chief Executive Officer Patriot materials handling.
He put aside president and Chief Executive Officer, Patriot Group, and Ken Schilling, Our senior Vice President and Chief Financial Officer.
Yesterday evening, we published our fourth quarter 2019 result, it's held our 10-K copies of the earnings release of 10-K are available on our website for anyone who is not able to list able to listen to today's entire call. An archived version of this webcast will be on our website. Later this afternoon and available for approximately 12 month.
I would also like to remind participants at this conference call may contain certain forward looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in forward looking statements made here today.
Neither our prepared remarks during the phone question and answer session. We disclaim any obligation to update these forward looking statements, which may not be updated until our next quarterly conference call. If at all additional information regarding these risks and uncertainties was set forth in our earnings release and in our 10-K.
Also certain amounts discussed during this call may be considered non-GAAP non-GAAP reconciliations of these amounts are included in our earnings release in available on our website now.
Now, let me discuss our fourth quarter results connectivity I will discuss highlights first and then get into the details.
Our 2019 fourth quarter consolidated revenues decreased modestly to $834.8 million down $6 million from last year's fourth quarter. Despite this decrease in revenues. Our consolidated operating profit increased 8.1 8.1 million from an operating loss of 3.4 million last.
Sure.
The lift truck business is almost 20% increase in gross profit and higher gross margins in all geographic segments was the primary driver [laughter] validated improvement in operating profit, which was partly offset by lower operating result, [laughter] at both Bolzoni anywhere.
Net income also improved to 3.4 million or 20 cents per share from a net loss of 1.2 million or seven cents loss per share.
Looking specifically at the lift truck business I feel groups revenues increased to $798.2 million.
794.2 million in 2018.
In the Americas higher revenues were primarily generated by improved price realization I'm increases, which had previously been implemented oxide material cost inflation and terror as long as increased shipments of higher price trucks.
Overall shipments in the Americas decreased because of substantially fewer shipments of lower capacity lower priced class one class five trucks, the higher Americas revenues were mostly offset by lower revenues EMEA from unfavorable currency movements and fewer shipments as a result, a weakening market and lower revenues and j. peg from reduced.
Activity, while the region made some structural changes.
Consolidated unit shipments improved over the third quarter, but decreased compared with the 2018 fourth quarter because shipments in the 2019 fourth quarter continued to be impacted by a shortage of key component on certain hard to the line products from key supplier.
Although this impact although this impact was to a lesser extent than in previous quarter.
Well the supplier issues were generally resolved by the end of the fourth quarter, there would be some lingering effects in the first quarter of 2020, nor bookings in the 2019 fourth quarter compared with the prior periods shown were partly a result of extended lead times on certain product ranges caused by the same supplier issues as long as lower market level.
Backlog in the average sales price per unit in backlog decreased from the prior year more modestly from the 2019 third quarter as a result of an increase in shipments of higher priced units during the current corridor.
And she'll group's operating profit increased to $17.7 million in the fourth quarter up from $4.2 million last year because of improved results in the Americas in EMEA, partly offset by a higher operating loss and Jay pick as a result of lower parts margins in a shift in mix to low margin products.
In the Americas in EMEA, we were able to realize benefits from price increases as low as pricing actions on lift truck sales that were applied throughout the year that matured during the fourth quarter. These improved results were partly offset by a shift in mix to sales of lower margin products in the Americas and unfavorable currency movements in both the Americas.
In EMEA.
Higher operating expenses, primarily from increased product liability expense of which we have a self retained risk of between three and a half and $5 million for incident, and a higher product development costs to support our core strategies.
So partly offset the operating profit improvement.
At our Bolzoni segment was any reported net income of $200000 and revenues of $87 million. The 2019 fourth quarter compared with net income of 400000 dollar and revenues of 87.1 million in last year's fourth quarter.
Well done is operating profit decreased to $500000 down from 1.9 million last year, primarily due to unfavorable currency movements.
Finally at Nuvera revenues were 1 million in the fourth quarter 2019, which decreased from 2.4 million in the 2019 third quarter.
Revenue comparison is a little messy this quarter since Nuvera reported all of its previously deferred revenues in the fourth quarter of 2018, which included fourth quarter 2018 revenues as well as revenue for earlier periods.
Such a cleaner revenue comparison is to the 2019 third quarter.
There is operating loss for the fourth quarter was $10.4 million up a bit from the 9.8 million dollar loss reported in the fourth quarter 2018, both the decrease in revenues and higher operating loss for the result of lower development funding received from Newberry Third Party development agreement.
Despite an increase in the operating line either net loss of 7.3 million was comparable to the your prior year quarter as a result of an accrued dividends from one of new there's investment.
Looking forward, we continue to focus on our core strategic core strategies and the projects. We are undertaking to execute these strategy, which we believe we'll have a transformational impact our ability to meet the needs of our customer as well as on our competitiveness market position and economic performance over the next three to four years the.
Longer term outlook, we've been discussing this past year still generally hold we have made some adjustments as we updated our 2020 expectations. Let me walk you through these updates.
In total the projects we discussed in 2019 acquired significant upfront expense and capital expenditure investment, although we did not spend as much for capital expenditures as we were originally projecting in 2019.
Further increased investments in both operating expenses and capital are expected to continue to be made and 2020 with capital expenditure is expected to be substantially higher.
In 2020, then in 2019, because certain expenditures would push to this next year.
Well this quarter was again one of increased investment we believed to return from these investments is expected to increase over the next three to four years.
Before I provide an update on our financial outlook, let me provide some updates on specific more immediate projects and how those are expected to affect 2020.
Yeah, but the introduction of the first set a modular and scalable counterbalanced trucks to occur in the second half of 2020 in certain markets.
Hi through UTI and Yell you X brand lift trucks from high feel maximal were launched in the GE pick Brazil, Latin American market. During the 2019 fourth quarter and will be launched over the course of 2020 to all countries. These trucks are designed to provide high quality and reliable lower intensity trucks for global markets in standard trucks for the try.
He's market.
In early 2020, we launched a new three to five ton integrated lithium ion engine lift truck with numerous ergonomic benefits in the Americas and EMEA markets and we expect to launch a seven to nine conversion later this year.
So expect to launch a newer model reached drugs for the Americas market late in the first quarter of 2020.
The first model of the new fuel cell Beebe, our that was to be launched this quarter will now be launched in the second quarter.
The first phase of consolidating China production at the history on maximum facility was completed in the fourth quarter. The second phase is expected to be completed by the end of this year.
We continue to add sales capabilities around the world, but we're also looking to reduce cost and other areas contains funding.
Well done he has shifted.
Oh, it's completed the shift of manufacturing to solar Gen and no further restructuring expenses are expected to be incurred in 2020.
Shipments of new bear products are expected to ramp up in the second half of 2020, but because of all the uncertainty in China surrounding the ramifications of the Corona virus.
I have removed the specific breakeven target date from outlook at this time.
The effects of the Corona virus epidemic continued to evolve daily and there's much uncertainty with regard to the ramifications of the situation currently as a result of the extended Chinese new year and government mandates associated with containing the Corona virus epidemic in China. The startup of production at our Chinese facility has been delayed but is expected.
The ramp up over the next few weeks. However, this timing is contingent on the appropriate utilities transportation and other support services being in place as well as the availability of components from suppliers.
Further the impact in the spread of the virus, which is not predictable at this time may affect our operations in other areas of the world, including Italy, We will continue to monitor the global Corona virus situation and its effects on our businesses and we will take further action as necessary to maintain the health and safety of our global employees and partners into addressing.
Any production and supply chain issues, which may emerge.
Those are the highlights of the changes made to our investor perspective, this quarter regarding the business operation now let me provide more information on the overall financial outlook in summary, while we expect to make continued investments in all of our program similar to what you saw in 2019 in 2020, we expect the maturation of these investments to begin.
And as a result, we expect our consolidated operating profit and net income to increase significantly over 2019.
I've heard to abate the more the most severe shortages from key suppliers in United States have now been successful and as a player shortages that occurred during 2019 were generally resolved by the ended the year with some modest lingering effects in the first quarter of 2020.
The status of tariff has been changing continuously and although we are still experiencing significant additional costs from both the section to 32 and three a one tara.
Section three a one tariffs have been abated somewhat by government granted exclusion and partly offset by our supply chain group curing alternative non Chinese suppliers and negotiating price reduction.
In this context, we expect operating profit in the lift truck business to improve significantly in 2020 over 2019.
Results in the first half of the here are expected to be higher than the first half of 2019 was further substantial improvement expected in the second half of the year compared with both the second half of 2019 and the first half of 2020.
Further improved results are expected with significant increases through 2023.
Objective is to achieve our 7% operating profit margin target in this period, assuming reasonable market conditions continue.
Likewise, we expect Bolzoni is operating profit to increase in 2020, primarily as a result of the absence of $2.5 million of restructuring charges for the Americas operation was further improvements in the following years, leading to an a cheap to achievement of 7% operating profit margin target.
Newbury's results are expected to improving 2020 over 2019.
And he said these three businesses the investments being undertaken are expected to lead to increased operating profit through higher volume decreased product costs and improve pricing, partially offset by higher level of operating expense in future years.
The absolute level of profitability will reflect actual market demand level, which so which showed some softening in 2019, particularly in EMEA when markets are still at robust level. The market appears to be in a downturn, which is currently projected to be moderate and have limited duration.
As a result in 2020 the company is currently forecasting stronger, but lower forklift market levels in all geographic segment. The company continues to forecast the resolution to the Brexit transition in a way that does not significantly harm <unk> business prospects.
Before I open up the call for questions I wanted to discuss a few balance sheet and cash flow item, our cash position at December 31st was $64.6 million.
Up from 62.8 million in the third quarter, but still down from 83.7 million at the end of 2018.
Our debt balance was 287 million down from 351.1 million at September Thirtyth and down from 301.5 million at the end of 2018.
Supplier constraints in the expenditures, we are making associated with our core strategy has significantly affected our cash flow and our working capital. This past year, but we ended the year consolidated cash flow before financing of 34.7 million slightly above last year's amount after excluding the money extended for maximum.
We expect our 2020 full year consolidated cash flow before financing activity to increase significantly over 2019 that concludes my prepared remarks, I will now open up the call for your question.
And just remind her in order to ask a question something press Star then the number one on your telephone keypad.
First question comes a lot of Joe Mcneely Jody Your line is open.
Hello.
Joe seems just pulled himself out of the Q. Please go ahead start one.
We have jobin of monopoly and Oracle. Please go ahead, Sir your line is open.
Yes. Good morning, Thanks for taking my call.
I was wondering if you could talk.
I guess, a little bit deeper in two.
Nuvera.
And what sort of ramp you see for that business.
This year and from a bigger picture perspective.
Given the valuations that.
Your competitors.
In the Fuelcell space have right now switches.
And plug power, whether you consider would consider.
At a certain point in time once the business shows some traction.
Making that an independent company.
You want to comment on the.
Progression of sales Rajiv.
Yeah. So in the second half of their we expect to start shipping our 45 kilowatt engines to.
Industrial and commercial cost the most predominantly in China and of course.
No. Its Christie said that very dependent on how this corona virus progress is a number of those customers are in the <unk> Province, which you may now is this Andrew automotive companies in China. So we're watching that carefully but based on our baseline plans that's what.
We expect.
I think also will be.
We're working to enhance or volume forklift truck.
Applications.
A battery books placement.
And perhaps.
Their trucks Fuelcell park trucks as well.
So we see opportunities in both of those areas, but then as you look to future years.
Or thinking is that.
Vogtle Award engine is gonna be a key driver board room.
Oh, particularly initially applications such as a bosses.
And perhaps a delivery vehicles.
Moderate size.
You know is to.
Thinking about weather.
Oh the business.
[noise] would ever be separated that this board, we don't think about that kind of issue because.
We're very focused on.
Ensuring that.
We have the best product in the industry or the highest quality and reliability.
This is or new products, it's very difficult to get to that position.
We feel that the Oh.
Ability of the.
Hi studio.
Highly sophisticated and experienced.
Engineering and product development and.
Manufacturing capabilities are really very important to success is a new GRW business.
And that companies that don't have the connection.
Between a developing a more venture oriented business and a tour.
Business with all of the different kinds of skills shots.
That's a business like ours Dallas is at a at a disadvantage we want to capitalize on that and that whole process is going to take a considerable amount of time. So at this point. In addition, the company is are currently being financed Oh boy.
Yeah ill and so from a financial point of view, it's for dependent on the.
So at this time that's not.
Something we'd given any any thought to rubber.
What about it just in a relatively remote future and not something we're concentrating on.
Okay.
I appreciate that I guess, just a couple of questions.
In terms of your aftermarket business what percentage of your.
Hi through your total sales come from the aftermarket.
Ken I'm not aware that we we don't really break out those numbers or do we do talk about aftermarket as a percent of coal sales I think that track somewhere around 13% is that right Christie.
I believe it's actually a little or no lift truck yeah, you. It's a good bolzoni, partly bolzoni bolzoni as a separate the those are the numbers we had at third quarter I'd have to go back and double check the numbers it but it just got order yes.
It's a very important part of our business because.
It requires a relatively little capital investment and the margins are considerably higher than the margins.
In our core.
Look for unit business and.
The Oh.
The GE yesterday associated with that business is also rolled into very low in comparison to the.
Forklift truck business so in total its oh.
A very important contributor to not only our profits, but the profit server dealers are our dealers really make.
Their money and the service business and the parts business.
As opposed to the new unit business. So yeah, it's a critical element and it's one where we're trying to expand our offerings from the traditional replacement.
Components.
Uh huh.
Oh.
Replacement parts.
To include new aftermarket capabilities.
Involves such things as.
Telemetry certain times of automation that could be available on an aftermarket basis and generally.
Building.
A series of.
Uh huh.
Supportive activities that will generate good margins for Austin, where we can bring real value to our customers in terms of enhanced productivity and lower cost of ownership.
Of ownership.
Telemetry, particularly important in that regard since it can provide a lot of very useful information to customers that affects not only the trucks, but also.
Actions that should be taken with regard to drivers and other kinds of things and in a time. One safety is really is absolutely critical importance to our customers are these are these are very important capabilities for us to develop and I think our general point of view and a broader sense is that.
As one of the leaders in the industry, but we have their capability to keep off.
And be a leader in these kinds of areas and their sufficiently technical.
And removed from the traditional forklift truck business that.
Some of the more traditional participants in the industry. We think will have trouble, adding that kind of value that we think we can add over time just to clarify Joe it's actually the breakout of all the components on the first page of our 10-K answer and parts or 12% of our 2000.
19 revenues and then Bolzoni separately is 5%.
Right. Okay. That's that's great.
I'm I'm curious you know I that you've been introducing.
You will be introducing and I'm sure you've show I would imagine you've shown a lot of these.
New features on your Fourq lists to your customers and I'm, just kind of curious what kind of feedback you're getting and.
What.
The marketplaces sort of telling you.
We think.
Sure.
Ramps going to go.
Yeah. So in the where as you know winterfest strategies is to drive the lowest cost of ownership for our customers.
And to really understand and fulfill their needs through a lens of thank to market through industries.
Both of those really require solution.
Address the primary parameters that in a create operating costs.
Hey per hour for operating a lift truck and we basically broke break those down into five categories.
First one is the operating costs associated with the operator.
The second one is safety and the product liability issues that go along with and welcome compensation issues that go along with having people drive these in a kind of type environment.
There is a then space utilization.
Of the facility how effectively you can do that.
Energy costs.
Depending on the type of energy system, you use and then this overall productivity. So we've broken those costs into those segment and then we create a value proposition for our customers based on the application behalf and so the sort of solutions that we're very focused on ergonomics and part.
Activity of the trucks. So that you can move more material in a in them and efficient way, we focused on systems that support.
The operator to allow them to drive the truck basically.
Thats got a lot of traction with warehouse customers because they operate in a very tight environment.
Including some of the leading players in that area.
As you could imagine using both lithium ion and particularly fuel cells are we are working without we'd have a motive power team that's working with our customers a number of customers that have the right power solution for them and in general customers want them to find the value proposition.
Our attracted to these solutions.
I would say we're in the early stages of these and this is part of the transformation. We are doing and we're building on knowledge and capability and we expect this to accelerate over the next.
Couple of years.
I'd add to that that.
If you want to speak specifically about 2020 that.
We expect that new line of counterbalanced.
Low intensity trucks to bill really be.
Oh offered.
And.
The much all global markets over the course 2020.
On the other end, our new modular and scalable line of.
Oh counterbalanced trucks, we're just beginning with the lower capacities.
I will be.
Really getting underway and the second half a year and probably not have a major impact on on.
Results in that 2020, although we certainly expect to.
Generate considerable a customer following and as the availability of that truck.
Spans globally over the course of 2021.
We think it should have a substantial impact in 2021. So those are two very important oh product efforts there supplemented by some significant new products in the warehouse area, particularly in low intensity side and in north and.
American core product offerings that.
We think will be new and highly competitive.
Industry in.
Particular segments of those warehouse markets in which they are being offered so.
It's a significant a year for the company in terms of new products and I think it's our view that the momentum of those and their placement in the market will be increasing over the course of the year.
One of the reasons why we have said in a.
Oh overview that Christie gave you earlier that the second half of the year should be better not only than the second half of 29 team, but also better than the than the first half. So we expect a real momentum to be building over the course as the year.
But as you pointed out it's in conjunction with the.
The industry strategies.
Strengthening of our.
Okay.
Direct involvement and sales activities for larger customers.
And.
Continued.
Program to enhance the capabilities of our dealer network on a worldwide basis, So a lot going on and on the other hand, our projects in the main are are very much on track.
And a lot of those projects to reach.
A level of implementation over the course of 2020, some moving into 2021, but from there are on but it's.
The balance shifts significantly from.
Completion of the project too.
Its implementation affectively and gaining the results from them over time in the marketplace and show the Asia, It's you're really critical transition period from our point of view.
Hi, I appreciate all the debts on that that's that's really great.
Look forward to.
Seeing the results.
Thanks, very much guys.
We do too thank you.
And our next question comes a lot of Joe Mondello Sidoti Your line is open.
Hi, everyone. Good morning.
We're running running already about already.
I'm not sure what happened.
So few questions first off it sounds like you're relatively positive.
Relative to.
Outlook for 2020 relative to the orders in backlog So you orders.
20% in the fourth quarter on backlogs.
6% going into 2020 and I'm just curious if you could swing.
Relative to that.
So positive.
Well, let me start by just saying that.
The fourth quarter.
It was significantly affected by the the duration of the backlog and the customers.
We were not able to meet all of our customers' needs because of a product availability that was very much related supplier shortages and I think that.
Those are pretty much resolved, we have some catch up and our own machining activities in terms of course components to.
Using those suppliers.
Raw materials.
But we should be in a better positioned to both got.
New orders.
And also too.
Produced product.
More.
At higher volume levels, and that's going to be a key driver. So are we kind of look at the fourth quarter as a time one.
There were some significant.
Continuing problems from the sourcing point of view and we feel we're pretty much over that but then you have to add all the comments that I made earlier.
About the products that are being introduced in 2020 to kind of get the full.
Implications for.
Volume that we expect to sell for margins.
And for our production capabilities Rajiv you want to add anything sure. So.
I think going into the quarter, we had a conscious plan to reduce backlog because as al said, our lead times or outside our normal windows or extended with does impact customers and impacts orders. So that was a conscious decision.
The second area was we did the fourth quarter is a rich quarter for logic customers the book.
And with the product constraints that we had we consciously focusing on making sure that we were getting the pricing we needed for these products that we could.
In a put into the marketplace and.
That allowed you know really cost that them walk away from some deals in the fourth quarter that were pretty high volume deals, but but in a challenging one from a margin point to be so we made some conscious decision and I think idealists made some conscious decisions in the fourth quarter.
Which caused it to be below our planned for bookings.
But then thats basically led to stronger start to the year.
So I think.
It's a bit of transition and Joe we're still tracking at fairly strong backlog levels at 41200 units.
Average sale average.
Price of a truck in the backlog.
Fine, but only slightly and were just under $26000. We were at $26000 at the end of the third quarter and about 27100 in backlog at the end of last year. The interesting thing is the average price of the trucks. We booked is actually growing we went from 23 six in the ended the year.
Bookings in the fourth quarter last year to 23 seven in the that the price of the trucks, we booked in the third quarter now up to 24, three so we're seeing a small increase and I think that reflective of the comments that both receive an olive made.
Okay. That's a follow up with that could you talk about what you're seeing in just the overall market itself.
Around the world.
Address your three major geographies.
Sure I think I'd have very high level, Joe what Weve continued to see is a market that's at a high level.
In historical terms.
But there is some flattening to softening depending on where you are.
Certainly we saw some softening a significant softening in the North America and the early part of 2019.
But then we noted in fourth quarter came back.
Ended the year around 6% down Europe.
In a kind of softened.
Close to the two at the end of the year. It was 7% down for the for the full year.
So in those two markets have held up pretty well.
In a given if you look at it in historical context, and we expect the same in 2020, JP I guess is tougher to figure out because enough the impact of Corona virus and certainly.
It was a challenge last year and I think.
Starting in 2020 is going to be a slower.
But we had our expectation is going to be flat.
Yes, just it further to the questions that were asked earlier and and yours.
I just say that.
We're very encouraged to have.
Suppliers shortages.
Pretty much behind us and working through the last remnants of that in the first quarter. We're very encouraged to have the new products coming on stream there a lot of really.
Portage.
Projects that are coming to maturity.
You know the one thing that causes us concern is the one that Rajiv mentioned.
At the moment Corona virus.
It is clearly having an impact on the situation in China.
No there.
People are returning from the traditional Chinese new year holiday period.
More slowly and under some government restraints and it's been difficult to get the plants backup and fully operating.
We've had.
As you know some issues and.
Italy and that has an impact at least in the short term loan.
Our plants there so the one unknowable at the moment is what happens and Corona buyers, but I think that's to.
It's not a course just us its broad.
Consideration for the health of the global economy.
And.
We just do watch it very carefully we're trying to do what we can to mitigate any problems that are emerging.
At this time, we kind of see our way toward a.
Only a moderate impact on our.
Activities, but yes.
Unknowable questions involved there.
Okay understandable I wanted to ask a couple of questions.
Truck production.
How much of a I guess one of the questions.
How much of a benefit to the gross margins will be well, Steve as you start rolling these out.
And then also how much costs.
<unk> expense basis well.
If at all in 2020.
Yes so.
And again it will improve our gross margin I don't think we'll get into how much.
Ill will definitely that that's part of the reason we're doing this program.
The intensive expenses both.
For product development and launching the truck as well as capital expenditure is going to be the highest point.
Because.
We are launching it in our Arland plant first and then but majority of the investment that I suppliers will be made then and then ill kind of ramped down from there are still be a high level in 2021, but starting to ramp down.
So it.
It will be higher expenses than.
2019, but not not in a significant way.
Because the majority of the engineering is.
Behind US now, it's mostly validation that's going on with that product.
And kind of improvement associated with the validation.
So we are in a week.
Go ahead.
I was just going to follow up.
Terms is a benefit.
Here both on a.
Demand from but also.
On the gross margin because I think it's going to be a little more cost efficient for you.
Will this be more of a you're saying that you're going to be sort of introducing this mid year second half of 20.
Well, we see much of a benefit and 20 or is it more so going to be more of a needle mover in 21.
Now I'd be more of a needle mover in 2021 job. It's 2020 is going to be.
Ramp up and and the other thing to bear in mind is we're actually going to produce the new Andy old at the same time.
Because this is the hard to the line product for us and.
As you can imagine there's a lot of changes associated with this new product and we wanted to bring it up to volume in AG considered way, while still serving the market with the with the existing products.
Okay and then in your press release Tonight I'm not sure. If you stated in your commentary or not but you mentioned that new products are going to lead to changes in supply chain sources.
Some of your largest facilities you mentioned three of them are undergoing significant changes.
The result in reduced cost is that related to them andro truck or is that something else.
No no no no.
Absolutely related to modular trucks the.
Craig Ivan Berea, and our China facilities are going through significant changes.
To launch that product and our supply chain is.
Quite different than current products.
More concentration with fewer suppliers, but then that leads to higher resiliency, because we have both geographic though as well as.
Kind of plot diversification in our supply base.
And Thats all learned from what we went through in late 2018, and most of the way through 2019 with having supply shortages.
The.
The new products being.
Designed and supplies selected to mitigate those type of situation. So we don't have them in the future.
Okay and in terms of the three Gerry geographic segments, how will the module truck.
Production in production.
How would that.
Play out in terms of.
Threed geography is it going to be more so first and Americas.
Thereafter.
EMEA has to lead mainly because of some emission regulation changes that EMEA is going through with this product is critical to fulfill that.
Which thoughts into second half of this year, which is that stage five emission regulation change in in Europe.
So Europe will launch first in our Craig I would plan.
And then Americas in very I would launch in 2021 more in the middle of 2021, and then we will.
The China will go in between those two so it will be for in a Craig I went first China second and then then Americas in February Aplomb third.
Okay and just.
To be clear.
This is a multi year program and Rajiv was particularly focusing on our lower capacity counterbalanced truck line and.
Other products will be coming other product groupings will be coming later.
In later years, so it's a multiyear program on the other hand.
One of the reasons of course, no surprise that we selected the smaller counterbalance to capacities to.
To come first is that.
This is a this is the largest single portion of the market and on a global basis and with the ability to serve that market.
With these kinds of products and.
Not only standard and premium but also in the low intensity.
Area.
Over time.
Over the next day your year and a half I think it's going to be a very significant.
A benefit.
From our point of view in terms of.
Sales and margin prospects sooner or the other products are critical unnecessary.
But we have.
In most cases pretty competitive products as it is and so this really is designed to go after the heart of the market.
With the fundamentally.
More.
Customer effective products and the timing I gave you Joe is the is more around internal combustion engine trucks and then the electric even on the smaller trucks. The electric wants will come a little later.
Hi, good out in that we have a phased approach to launching these.
The huge program.
Okay.
It is spread out okay. So all the various models.
And can you remind us the size of the smaller counterbalanced markets and what your share is currently.
Okay.
In terms of the low intensity I'm, just I'm wondering because historically.
No.
A whole wrote a big rolling that Mark.
With that strategy with Maxim mall, and now with the module and right.
Well I think I think.
Yes, I think I think the way we're looking at that market is a little different.
When we had the UTILEV brand, we were pretty much looking at what the Chinese sales are in need to the markets and depending on the market there were somewhere between.
15% to 40% for instance in Argentina, but.
Or even higher but what we're doing now is actually looking at low intent the intensity of usage.
And so we think that makes that portion of the market bigger.
And our estimate the somewhere between 35 and 40% of trucks used in most regions.
Fall into that category, where the truck they use less than a thousand hours and they're not lifted to maximum capacity a maximum live tied.
So that we're looking at that market in a very different way than we were even two three years ago.
And we think something you could come from.
We think that some of our big customers can use this low intensity vehicles in certain applications.
Okay. So this is not this is not low.
Minimal sophisticated tight trucks that are sold to emerging markets that are low margins versus Hello. This is low intensity to maybe your bigger.
Some or is that operate in these regions.
Yes, that's the way to think about it.
We expect the margins to be appropriate the cost are appropriate for the usage the truck.
So.
And they are lower but but the margins are still expected to be more normal margins than any kind of low cost.
Yes, it did and there is there any way you framing how big that market is relative to the 1.5 million trucks globally that ourselves.
In the market I think.
I think if you break out the counterbalance when the small trucks.
I would have that than China is obviously, a big part of that market.
It's somewhere around 600000 units.
We think about 40% of that is the low intensity.
And China has a large part of it but it's pretty much everywhere around the world.
And Joe we are by World counter balance counterbalanced truck company than the industry overall, so I.
Wow.
I would.
[music].
From a percentage perspective, greater than 50% of older trucks, we sold our in those classifications.
Cross class one class thus far.
It's important not important product category for us.
Very important.
Perfect.
To transition to your I guess sales and marketing strategy and what you've been investing in.
I know you mentioned that you're closing in on maturity.
You saw Sts.
I think about 10% I want to say.
2019.
At least at the lift truck business I think I've seen it was up 10% or so and that was on.
Minimal sales growth.
So I'm just curious.
You know works how much more what stage in terms of new more incremental investments in 2020 any more color you can provide there yes, I think the sales and marketing investment is maturing in terms of we have the people in place we have the processes.
In place the new tools that developed and now it's a question if execution.
And we are in a refocusing that team that's gone from a development phase of these two from support system to now in execution phase. So we are modifying the organization that little bit to allow them to execute so we think the run rate is is pretty solid from a.
Sales and marketing point of view, we made redeploy some people to again.
Focus on this but not a lot of additions.
Development on the other hand in it we will go through.
Probably some increase in 2020, just as we get into the launch phase, which is always pretty resource intensive.
These programs so.
We'll see that somewhat go up.
Okay, and then in terms of for product development.
Specifically I guess more so on automation.
Are you relative to the overall mark to market in terms of leading.
In automation I know you launch that reach truck in in 2019 any comments you can say today, congrats and I just think.
Could I just make one other comment on that.
No I think.
It probably wouldn't be too far off to say that.
The biggest difference between 2019 and 2020 in terms of.
Gee us in a operating expenses overall.
Yes, basically the fourth quarters going to be pretty much annualized.
Over the course of the of the year and.
That.
You know, we're sort of catching up the rest of the.
The in the earlier quarters in comparison to the fourth quarter.
Thank you referenced.
Just a follow up on that you're referring to the 133 million about cnine that you saw in the fourth quarter.
Well I'd I don't have in my head exactly what that number is on.
Lift truck only basis, but.
I'll, let Paul.
Yes, just strictly on the lift truck only basis.
I was making my comment not on the three businesses.
On that that's where what Rajiv was commenting on was in the lift truck business only in terms of the.
Relative maturity now so.
We're going to have.
Inflationary cost in Rgs in a but I think that increasingly we're at the point where.
We put the capabilities to work now they've got to execute.
And I think this applies equally your comment Delta.
Global who heister Yale.
As the public company as well as lift truck company at some that yes, but I really wanted to focus on strictly on them.
Business.
You are opting you're asking about automation and where we think we are.
So we're taking a multiple approach to automation and again I would just.
When we talk about automation, we're talking about automated forklift trucks, which in a really run dual mode. So you can jump on that operate the truck or had the button and let it run itself. So thats, what we call our dual mode and we've seen that one and this is working with two partners JBT and by.
Earlier.
And that's where we've put both the restrict solution as well as some of our horizontal move as an order because.
With valeo into the market.
We're learning.
And now we're building up back capability.
And certainly the.
The interest from customers have very high but as you can imagine that the the difference between interest and.
And then actually executing a program that quite a timeline because it's such a big change to the infrastructure in the involve changing linking into the the warehouse management system other manufacturing management system.
And and that say quite software intensive as well as system intensive so projects take.
While to mature and then.
And then customers are taking a measured approach to it but we're seeing some good results and.
From a payback and especially in an environment, where in a cut them as a struggling to get.
So you know the.
The personnel to operate forklift truck.
We see this accelerating in parallel to that we are developing our own internal.
Automation system will built around what's happening in the automotive industry and that will be introduced in 2021 as a phase one and then.
For our horizontal movers and then over the next.
Two or three is off to that into a hub counterbalance and and warehouse products.
Finally, the the big trucks.
We have quite a bit in.
Program around automation is very important to us very important to.
Customers, but I think you'll start to get more traction in 2021 and 2022.
Okay, and I wanted to at least one question for Nuvera.
What is the stat, where were you before I guess, maybe corona virus with vehicle certification.
Status right now.
Any color on that and then also could you comment on what you're doing with automation developing low cost suppliers.
In terms of trying to lower the cost base.
Yeah, so it way, we well or was that so those two levels of certification in China, you have to satisfy the engine, which we had done and we were in the process of certifying the truck.
Over the the new year period, so thats come to halt right now.
And.
As soon as.
They are able to the plan is to resume certification.
Of the truck what the truck is certified than you have to do a 20000 kilometers durability cycle and then it's available for putting into the the catalog that the cities can buy from buses buses rather than try.
Yes.
Kind of obsessed about trucks.
Buses, so we think ill defer TENX, assuming that the move on area. It goes back to which that seems to be some movement now that.
The Chinese government seems to be saying, a really encouraging back to work mentality that happened then I think in the end, we'll probably fall about a couple of months behind.
Original schedule.
But we do need to get through these two step so that.
It can that the solution can be then put into the catalogs that the fiftyth can buy from.
Okay.
I'll hop back in queue. Thanks for taking my questions.
Okay. Thanks, Phil.
And our next question comes alive, and Mike Shlisky of Dougherty and company. Your line is open.
Hey, guys.
So one quick question for you on on the pricing environment.
Last year or two you've been you've been doing some deals with some customers to try and gain their fair share.
For it to extend your business now heading into.
Hey did have a softer year lift truck market, which I will try and I would imagine scaling back on an effort that you've done a couple of years and hopefully gotten some of your.
Some targeted accounts I'm curious, whether you'll be able to.
Back some pricing this year, if it's a it's a tighter environment for demand.
Or not and is it getting a little bit shopper out there as far as pricing given that this could be a tougher you that was last year.
Well, let me comment on that.
Because I think it there needs to be a little bit of readjustment of some of the factual backdrop here.
Basically.
The sort of development activities that you were mentioning occurred largely at the end of 2017 in 2018.
In 2019, we felt that.
We had been able to demonstrate the capability of our trucks that we had accomplished.
The purpose that we had in mind in terms of large and important industry customers, particularly in the warehousing area.
And so we focused on ensuring that.
We were gaining margins that were appropriate for the value, adding capability of our our trucks and so last year was a year of very significant.
Improvement and our pricing and our margins gross profit margins in that of course is called out in our earnings release, and so I think the answer to your question is that we see nothing in the environment ahead. It won't permit us to continue to gain the margins that we.
We were able to gain last year, and secondly that as these new products come in.
They themselves will have somewhat.
Improve margins over the products that we had previously been selling.
So that did to the we're more likely to get margin improvement from new products coming in to the marketplace than.
And then continuing a pattern of of last year.
With regard to general pricing.
I think I'll, just reiterate that I think right pricing discipline in 2019 was very good.
We did walk away from some businesses, where we'd probably didn't have the right solution for those customer base and so rather than selling in the using pricing as a tool.
We've just kind of use time as to where we'll go back to them. Once we have the right product for them and Thats really the guts of our industry strategy and our pricing discipline to make sure. We're applying the right product to the right customer and when you do that we seem to do very well from a pricing going to be.
I guess love it averages I guess the question is can you keep that going in 2020, if it's a bit of a softer environment that with the crossover.
But what we said what we also said was that market was weaker in the first half and the second half last year, particularly in the fourth quarter, particularly in the Americas prices are markets to strengthen.
And so I think we see.
More moderate.
Or more stable levels of demand in the course.
120.
Dan.
And of course of 2019 show I don't think we see a lot of further softening happen happening.
If anything it's stabilized at this point.
Okay, that's great color I appreciate it guys.
And just a reminder, in order for time, if each season those in the queue. Please limit yourself to one question and one follow up question. Your next question comes lineup Brett Security of copy often your line is open.
Hi, guys. Thanks for taking my question.
No problem warning.
Good morning.
Just wanted to ask at one of the initiatives you have underway.
More segmented industry specific.
Selling approach just wanted to ask I know, it's still early days, but.
I guess, how thats going both internally with the sales teams and then receptivity both your distribution partners and then any indication again from our customers at this stage.
Yes, I think you know as I said, a little bit earlier, I think the processes and tools have developed very very well.
Well, we are in the stage of evolution as we are.
Now expecting.
The execution to take over and really roll this process and the tools that go with it out to our broader suddenly internally to out salespeople and then through them to dealer network and we expect that to mature over 2020 that.
The leadership team is highly in.
Focused on this.
What we spend a lot about time.
Reinforcing reviewing and then making adjustments.
So and wherever is done.
The way, we expect it to the customers have been very engaged and see the value of it.
No I I think.
To that.
You, it's probably useful to keep in mind that we've had a direct selling program with large national accounts for many many years.
And I would say that that.
That team has been very familiar with.
Selling process that provides solutions for people and very specific industries in applications.
And so this is not an entirely new process for us.
We have formalized selling techniques involved but we have developed to the industry strategies.
And really the first wave and the wave that we're looking to have the biggest effect over the course of Twentytwenty.
As a one of the two channels that Rajiv mentioned, which is the larger accounts, they're smaller than national accounts in general, but they are larger than the accounts. The dealers are typically comfortable selling to that's the area, where we have expanded.
Our selling capabilities very significantly over the last a couple of years.
And we see that coming to a maturity.
Over the course of Twentytwenty and I think it it's.
Reasonable or and sort of obvious that but we have an ability that is greater to train and develop our own people in a set of resources that they can rely on for support.
Then it is too.
I have that kind of a program effectively executed by all of our dealers.
So the dealer.
Application to the dealer execution to that program is going to take longer but secondly, it's also fundamentally have less important because the more.
The dealers are really focused on the smaller accounts.
They are typically less specialized by application, it's more general run of the mill.
Trucks that are.
Sold on a more standard basis and so.
We feel pretty good about how we're.
Rolling that program out, but I would just emphasize it it's it's being implemented mainly.
In 2020 with our own.
People with these larger accounts and I think we've said in the past.
Our market share is generally quite good in the national account or it's also quite good in the small dealer business area, where we've had more challenge is in the middle accounts, where we've now put a direct salesforce end to cover them. So in one sense. We're bringing addition.
All value added with our industry program in another sense, we're deploying a set of sales capabilities that we think are designed to give us our fair share of that business and as we have it and the other two portions of it. So that's another way to think about it.
Got to calibrate that just a little bit Ned and just what al just said, we make the statement in our earnings release that the program using this industry sales approach has been successful in our national accounts and we have some numbers that fourth that in our 10-K. If you look at our National account sales in 2018, there was 16% of our sale.
And then 20, sorry in 2019, there were 21% so that supports the fact that it is successful and that's why we're moving that then onto this we just have to implement just as another as Rajiv probably and better position to comment on this and I am but generally speaking when we bring creative solutions to.
Who our customers.
And.
There's one instance, relatively recently in the heart of the steel industry in North America.
Where we were able to bring some very significant additional solution capabilities to them.
And they they moved away from a long time supplier and.
And moved toward off so part of it as the industry strategy, but it's really giving the customer a better solution to the one that he has today, but it also voyage.
Selling trucks on price, because you're selling trucks on value an ability to solve the customers problem.
Terrific. That's very helpful. Thank you guys.
And our next question comes lighter Mike to Europe of robotic Securities. Your line is open.
Hi, Thanks, very much for taking my question and the comprehensive Investor perspective in the press release.
As it relates to that got it with the question at the Investor day regarding the Companys profitability and why the company isn't more profitable and I guess as you look out over the next few years, what are things that the key investors should be looking at in terms of.
Exceeding your profitability goals and in particular I'm interested in things that maybe not the volume dependent or whether they are operational or strategic just things that you're working on as part of the comprehensive perspective and plan that you put in place. Thank you very much.
Well in fact, I think our point of view is that.
They are largely volume dependent.
We talked earlier about this significant margin enhancement.
Just in standard margins that has come from.
Focusing on solving customer problems, where we can get a margin that is attractive.
We did that over the course of.
2019, we felt we had demonstrated what we wanted to do in certain areas, where as Rajiv said, we may not have had exactly the right product, but we had very important products that we wanted to get into certain leader customer applications.
Now that they've seen the value we want to sell the value and have a reasonable margins in those accounts or we are or disinclined to take that business. So I think there's room for margin improvement.
From new products, but that's not going to be the major driver.
We pointed out that GE us in a is likely to be relatively stable.
If you look at the fourth quarter sort of annualized and seasonal monetized.
Terms of impact.
And.
So volume is really the key and it does two things one.
It adds.
Adjusted gross.
Adjusted standard margin profit from the sale itself, but it also.
Covers.
With that incremental profit.
And with the incremental volume it reduces the manufacturing variances in our plan and then in total the added standard margin with the relatively level adjusted standard margin of brings a larger incremental contribution to the bottom line. So.
It is very significantly a volume story on the other hand, the volume is not driven by just wanting more volume, it's being driven by all these programs that we've been by Scribing and it is a very much program not to be gained by price but to be gain by.
The value that we're bringing to the customers from these new products and the way we're selling them. So.
Thats out there is absolutely right is volume, but the into the nature of the volume for 2020, and 2021 is going to be the into the two two large drivers for the first one is the low intensity products is a part of the market that we haven't really participated in very well and I think now we have the product set.
To go for that part of the market and as I said before these will be in a sales had out targets stand at margins, because you're serving the customer rather than selling just the low cost truck the secondary to the industry approach and we have some new products coming out.
In a out touched on the new reach truck that's coming out in America, but we have some other.
Including the maturity one of the Android a product and then some.
Electrification additional electrification products they are coming out through 2020 that load that support the industry approach along with our.
The whole selling process. So those are the two key areas to watch for.
How we progress on those because they are the key drivers for profitability the additional profitability over the next year or two.
Hi, there no further questions in the queue I turn the call back to the presenters for any closing remarks.
Given the can you and Adam well I think it's clear that.
We feel this is a very important year ahead that.
We have the opportunity to.
Add significantly and all of our businesses too.
Our profitability in total as a company.
And we've got a lot of execution ahead, that's what we're all focused on an as Rajiv comment a little bit earlier, we're trying to ensure that.
The.
People capabilities that we have really can get the job done.
In terms of executing these programs. They are developed that's a certain set of skills now we're going to execute them in the marketplace Thats another set of skills. So.
We're.
Very much focused on that.
And as I said.
My early remarks it.
This is a ramp up process over the course of Twentytwenty.
To be thought about that way in terms of earnings comparisons with the previous year end with.
First half second half.
Thank you yes. Thank you if you do have any follow up questions. Please reach out I'm happy to answer any call. Thank you.
Thank you Mike about your participation in today's conference call. Just a reminder, encore replay of today's call will be available two hours. After today's call is concluded if you'd like to assess that please dial one 805 at 5.367.
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