Q4 2020 Hyster-Yale Materials Handling Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Heister, Yale fourth quarter and full year 2020 earnings conference call.
And at this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
I'll ask a question during the session you will need to press star one on your telephone.
Please be advised that today's conference is being worked on it.
I would now like to hand, the conference over to your speaker today Ms. Christina Thank.
Thank you. Please go ahead.
Good morning, everyone and welcome to our 2024th quarter earnings call I am Christina <unk> and I'm responsible for Investor relations at hasty Yeah. Thank you for joining us this morning.
On today's call are al Rankin, Chairman and Chief Executive Officer.
<unk> Prasad, President and Ken Schilling, our senior Vice President and Chief Financial Officer.
Yesterday evening, we issued our fourth quarter and full year 2020 results and filed our 10-K copies of our earnings release from 10-K are available on our website for anyone who is not 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 An archived version of this webcast will be on our website.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 months.
Our remarks that follow including answers to your questions contain forward looking statements.
These forward looking statements are subject to risks and uncertainties besides that could cause.
Actual results to differ materially from those expressed or implied.
The forward looking statements made here today.
These risks include among others matters that we have described in our earnings release issued last night and in our 10-K and other filings we make with the SEC.
We disclaim any obligation to update these forward looking statements, which may not be updated until our next quarterly earnings conference call if at all.
Also certain amounts discussed during this call may be considered non-GAAP. The non-GAAP reconciliations of these amounts are included in our earnings release and available on our website.
In a moment I'll discuss our fourth quarter results.
First let me turn the call over to our chairman and CEO al Rankin for some opening remarks.
Good morning, everyone.
Thank you for joining us today.
Theres no doubt that 2020 was one of the most unusual years in recent history.
Global pandemic created very significant disruptions to our business and to the daily lives of muscle.
While many uncertainties regarding the pandemic remain the availability of a number of vaccines provides us hope that we can get past this sometime in 'twenty and 'twenty one.
Until then we will continue to focus on keeping our employees safe and limiting the spread of the book, while still serving our customers as effectively as possible.
Throughout this uncertain time, our workforce around the World has remained focused and agile my view is that our team has done a great job of navigating effectively.
Alan Junior and evolving environment to meet the needs of our customers while delivering at the same time solid results from the fourth quarter and full year results that were substantially stronger than we initially anticipated at the start of this pandemic.
Kristina will provide the financial details in a moment, but I have a few high level comments first.
Overall, the fourth quarter, our business still felt the impact of the pandemic and the low bookings we experienced during the peak period of the pandemic related shutdowns.
We had been seeing improved market demand and increasing bookings, but at the same time these improvements and the continuing effects of COVID-19 are creating challenges in other areas, especially including increasing costs and supply chain constraints.
Despite these challenges primarily as a result of the cost containment containment actions, we implemented in the first half of the year, our 2024th quarter results were significantly higher than the prior year quarter, Despite lower unit volumes.
<unk> from these cost containment actions resulted in a decrease in operating expenses of $25 million in the fourth quarter and $72 million for the full year.
And that is at the high end of the savings range outlined last quarter.
We also had lower provisions for estimated self insurance claims during the quarter compared with last year.
However, these lower expenses were offset by approximately four and a half million dollars of restructuring charges related to actions taken to make our global commercial operations more cost effective.
Ken will talk about this problem program.
Further in his section.
And this pandemic altered work environment, the resiliency of our work force it's been impressive at.
Work force overcame significant headwinds this past year, including uncertain customer demand supplier delivery interruptions and workforce availability.
Among others.
We greatly appreciate your efforts to remain positive safe and productive in the face of adversity, while also minimizing costs.
As a result, we believe our highest yield management team global work force and our businesses are well positioned to manage through the remainder of this pandemic and come out of it in a very strong position.
After Christy reviews, the results for the quarter Rajiv will discuss our business operations and our strategic projects and Ken will then talk about our outlook is uncertain and evolving environment.
Now, let me turn the call over to Christie to cover the results for the quarter.
Thank you al.
Start with the quarter highlights and then discuss the individual segments.
Fourth quarter consolidated revenues decreased to $719 6 million dollar down 13, 8% from last year's fourth quarter, mainly due to lower shipments, resulting from the continuing effects of very low bookings during the peak period of the global pandemic shut down as long as the pace of the subsequent market recovery.
However, as al mentioned, our consolidated operating profit increased significantly to $13 7 million from $8 1 million in the prior year fourth quarter. This improvement was primarily the result of lower operating expenses.
Starting from the cost containment actions previously implemented partially offset by a $13 eight per cent decrease in gross profit because of lower unit shipment volume net.
Other income increased to $13.1 million or 78 cents per share from $3 $4 million or 20 cents per share in the prior year quarter.
At our lift truck business Hyster, Yale group's fourth quarter revenues decreased $14 three per cent to $683 $9 million from $798 2 million in 2019, primarily because of fewer shipments in the Americas and EMEA segments.
Consolidated shipments decreased by approximately 3300 units due to due to fewer shipments and all but class one electric counterbalance trucks in the Americas and JPEG.
And class three warehouse trucks from Jay pick as well as class two warehouse trucks in EMEA.
He will provide more detail about our bookings and shipments in a moment.
Fourth quarter 2020 operating profit in the lift truck business increased 37, 9% from the prior year quarter, mainly because of lower operating expenses in the Americas and EMEA, resulting from cost containment actions previously implemented and European government subsidies.
This improvement was partially offset by a decrease in gross profit in all segments due to the lower unit volumes and mix of trucks sold as well as higher operating expenses in our <unk> segment, primarily because of cost to restructure the J P operations for long term efficiency and productivity and the ongoing transfer of production to history on that.
Some of them.
At the ball is the only segment revenues decreased.
Decreased 21, 5% in Boston, He reported an operating loss of $1 $3 million compared with operating profit of $500000 in the fourth quarter of 2019.
The decreases in revenues and operating profit was due to lower sales volume, resulting from the decline in global economic activity subsequent to the pandemic related shutdowns.
Finally at Newbury fourth quarter revenues increased modestly to $1 $1 million up from $1 million to the prior year in the prior year and the operating loss declined moderately to $9 $7 million from standpoint of $4 million in 2019.
The improvement in results was due to the favorable effect of cost containment actions. Those are the results for the quarter now let me turn this over to Rajeev, who will provide an update on our operations and our strategic projects.
Thank you Christy let me start by saying that I could not be more proud of how our global team has performed over 'twenty 'twenty in light of from many challenges thrown their way by the COVID-19 pandemic.
The hard work and disciplined execution shown by our global workforce has been exceptional as we continued to work through these challenges.
Across the company, we focused on maintaining the safety of our employees and preventing the spread of the virus.
We have a good track record in doing that however, the ongoing high volume of cases continues to create uncertainty and strength.
Just as important as ever that we are diligent and maintained strong safety procedures. Despite the pandemic fatigue, we continued to experience as we reach the one year mark of dealing with this pandemic.
Let me reiterate I am very proud of.
<unk> team for their ability to stay focused and effective in these uncertain times and for their effort to maintain the protocols. We have establish to keep our work force and those around them safe.
Moving on to our operations as Al mentioned lift truck market activity has been improving lift truck market grew faster than anticipated during the fourth quarter of 2020 with market ending the quarter significantly higher than pre pandemic levels ex.
Excluding China, which increased 56% over the prior year fourth quarter, the global lift truck market increased nine 3% compared with the fourth quarter of 2019.
Compared to the third quarter, the global lift truck market, including China increased 11, 4% driven.
Driven by a 28% increase in Americas, 23% increase in EMEA as well as 19, 7% increase in China, but indeed J P. <unk> region. The China increase was offset by offset by the remainder of J P for an aggregate increase of 9%.
N.
The market improvement over the third quarter.
Additional large customer bookings translated into substantial increase in our 2020.
Fourth quarter back bookings.
Okay.
Specifically in December in our primary market of Americas.
Americas and EMEA.
Despite the substantial increase in bookings unit shipments were only moderately higher than 2023rd quarter and below the 2019 fourth quarter.
Shipments were lower because of very low levels of booking during the peak periods of the pandemic related shutdowns and lower production rates that were put in place to match market conditions.
Since the shutdown earlier in the year, we have carefully increased production levels at our plants to align them more closely with anticipated levels of demand and talking booking levels.
Our focus on increasing production rates to meet accelerating market demand is based on building backlog first to ensure a stable base for future production.
Strong 'twenty 'twenty fourth quarter bookings led to a significant increase in backlog over the third quarter.
And our backlog level that has close to that was close to pre pandemic levels.
We expect increased bookings in 2021, because we anticipate that the market will continue to improve over the pre pandemic level and because of the strategic initiatives and projects. We continue to pursue at each of our businesses to generate.
It sound long term financial returns however.
Definitive period for achieving these financial returns are still uncertain due to both the timing of the full impact of our strategic projects and the timing of them.
The moderating financial impact of the pandemic.
Now, let me spend just a few minutes talking about our strategic projects. Despite the potential volatility of near term economic activity. We continue to execute on our long term strategy by advancing our key strategic initiatives.
While essentially all of the projects are required to execute our initiatives continue to move forward in the context of COVID-19 pandemic the pace of certain projects have been given greater emphasis than others to reduce near term operating expenses and capital expenditures in.
In addition, certain accelerated projects have experienced delays as a result of the impact of pandemic related challenges.
We continued to introduce a number of new products, but our primary focus.
And the lift truck business is on a new set.
Set of modular scalable product families covering both internal combustion engine and electric trucks.
We have been focused on maintaining to the degree possible timing of the introduction of the first of these products. The standard version of two to three ton internal combustion engine lift trucks for the EMEA market.
<unk> is now expected to be launched in the second quarter of 2021, a bit later than we mentioned last quarter. The launch of this new heart of the line range of two to three ton counterbalanced truck is expected to continue through 2021 and early part of 2022 in EMEA and Americas.
We expect the modular nature of these new products to enhance our ability to meet customer needs at lower cost and while.
And with more application specific.
Susan.
Both at the.
Industry level and at the individual customer level.
In this rapidly changing environment, we have accelerated our efforts to finalize and implement our.
Our industry strategies, and our investments in the industry focused sales capabilities to support our dealers.
Given the COVID-19 environment, we have also focused on enhancing our remote selling capabilities through technology and enhancements.
Those only continues to focus on ex Americas growth strategy by strengthening its ability to serve industries.
In the North American market by introducing a broader range of locally produce attachments with shorter lead times to service customer base and through continuing to sell cylinders and various other components produced intelligent.
Alabama plant.
Sony is also implementing as one company three brands organizational approach to help streamline corporate operations and strengthen is North America and J P commercial operations.
Nevada continues to focus on serving heavy duty applications, particularly bus and truck applications with its 45 kilowatt 60 kilowatt engines, which were both released for sale during 2020.
As a result of these milestones Nomura has accelerated 45 kilowatt and 60 kilowatt engine commercialization operation from the global market and is focusing on ramping up bookings on these products in 2021 as.
As Nomura rents ramped up production of fuel cell stacks and engines and Leverages partnership opportunities numerous objective is to reduce its losses and then achieve.
We achieved breakeven in the long term <unk> expect it to contribute.
Substantially to our overall earnings as evidenced by our recent.
Transaction involving technology that was created by Nevada Endurant January 2021, we sold part of this ownership interests for $15 $7 million, recognizing a gain of $4 $6 million, which will be reported in our first quarter 2021 results the <unk>.
Interest is expected to be sold later this quarter.
Overall, it is our intention to emerge stronger from this pandemic and to thrive as a bit as business conditions improve.
We believe.
Prioritize strategic projects will put us in that position I will now turn the call over to Ken for an update.
Regarding future quarters and measures taken to enhance liquidity.
Thanks Rajiv.
While recent market and booking activities is strong and growth since the 2022nd quarter shutdowns have been better than expected level of future bookings and resulting shipments are still uncertain.
Overall, we continue to operate on the assumption that the economic environment and markets will remain difficult in 2021 until the COVID-19, vaccinations and all through the therapies are more widely available and cases decrease to substantially lower levels. We're.
We're not able to control the macroeconomic factors that drive the demand for our products, but we are executing on actions that are within our control to keep our employees healthy as COVID-19 cases still remain high around the globe and at the same time moderating any resulting additional near term financial impacts of the pandemic.
Beginning in March of 2020, we put in plans, we put plans in place to mitigate the impact of declining markets and bookings and the consequential impact of reduced manufacturing.
<unk> from pandemic related shutdowns by initiating cost reduction measures, which were designed to lower cost and enhanced liquidity. These measures included spending and travel restrictions.
<unk> reductions and temporary personnel.
Blows suspension of incentive compensation and profit sharing.
Reductions in salary reductions.
We are encouraged to report that market and business conditions permitted us to reinstate pre pandemic salaries benefits and incentive compensation programs effective January 1st of this year.
Cost containment actions associated with hiring use of contract and temporary employees travel and meetings as well as other discretionary spending are continuing.
These measures are expected to remain in place until market and economic uncertainty dissipates and our results improve further which we will which we expect will occur over the course of 2021.
As we can flow to the future to prepare to a return to a more normal pace.
Endemic operation and expense levels, we performed an in depth global review to reestablish a more cost effective long term cost structure.
As a result of this review in the fourth quarter of 2020, we recognized a restructuring charge of approximately $4 $4 million, which I. Previously mentioned this charge was largely per sovereigns, which we expect to pay in 2021, we anticipate.
Patent covering additional charges of approximately $1 4 million in 2021 for costs related to this restructuring and we are estimating benefits from this restructuring of approximately $10 4 million annually beginning in the year 2022.
As Rajeev mentioned, we adjusted production levels at our manufacturing plants during 2020 to align them more closely with market demand and target bookings from.
Throughout the fourth quarter, we increased production moderately to adjust for improved market levels, but we've maintained our focus on establishing a strong stable backlog level as the foundation for higher production rates in 2021 give a mark to market growth expectations.
Expected bookings and backlog barring any new widespread COVID-19 related shutdowns.
However, some new or intensifying headwinds are expected to present significant challenges for us in 2021, we expect to contend with further pandemic related global supply chain constraints components shortages shipping container availability and higher freight cost as well as the anticipated significant material cost inflation.
<unk>, resulting from the increasing pace of the expected market recovery.
And the likelihood of non renewal of U S tariff exclusions, which we have benefited from over the past 12 months.
These items could affect both the cost of our products and our ability to ramp up production rates we.
We will continue to focus on carefully adjusting our production levels to match market and book and changes in supply availability by closely working with our suppliers to help ensure we have adequate component supplies levels as production rate changes.
We also anticipate that commodity costs will continue to rise as the year progresses, we continue to monitor potential future supply costs and tariffs closely and adjust our pricing accordingly.
Given these factors, we expect operating profit and net income in the first quarter of 2021, excluding the gain from the.
From the sale of the company's <unk> investment that Rajiv previously discussed to be moderately lower than the 2024th quarter and lower than the 2021st quarter. We expected lower operating profit is due to a strong increase in commodity prices, which was resulting an anticipated increase in material cost.
Inefficiencies expected as a result of global supply chain constraints, and the reinstatement of incentive compensation and full salaries and benefits.
We do anticipate a favorable currency impact based on current currency rates to partially offset these headwinds.
Let me take a step back and explain that our expectations for 2021 first quarter are based on the most recent information we have available but as the past quarters have shown the effect of the pandemic on the economics and lift truck market environments can change our expectations rapidly.
Further shutdowns of plants or supplier shortages could occur lockdown measures are still in place and in a number of European countries to mitigate the spread of COVID-19 virus with similar actions could be taken by other countries.
Other than the recent brief while the related shutdowns in North America, we are not having to close any of our plants as a result of lockdown measures, but we're monitoring the situation in each plant and added a number of our suppliers based upon areas, where Covid 1919 cases are high.
We are prepared to take further action if necessary to maintain the health and safety of our global workforce and to address production and supply chain issues, which may develop.
As a result, this pandemic related uncertainty and its effect on our supply chain continue to limit our ability to forecast bookings.
Shipment levels beyond the first quarter of 2021.
I would also like to note that our expected reported tax rate from 2021 will return to levels more comparable to 2019 reported tax rate than to what we experienced in 2020.
Looking to the future in the context of an improved booking trends, we expect to increase our investment in working capital and other expenditures to support growth in our business capital expenditures were $51 $7 million in 2020, and we are planning for capital expenditures of approximately $71 million in 2021.
While we expect to make substantial additional investments in our business in 2021, maintaining liquidity has also continued to be a priority at.
At December 31, our cash on hand was $151 $4 million and our debt was $289 $2 million compared with cash on hand of $89 9 million and debt of $297 7 million at the end of the third quarter. In addition as of day.
The number 31, we had unused borrowing capacity of approximately $266 $4 million under existing revolving credit facilities compared with $260 million at the end of the third quarter.
I'd also like to point out for the 2020 full year, our consolidated cash flow before financing activities increased significantly to two to $123.
$2 million up from $34 $7 million from 2019.
I'll now turn the call back over to al.
Al you might be on me as for cash.
To ask for questions.
I should note that yields very strong.
We have an outstanding group of leaders and employees, who are effectively manage production and supply chain complexity.
Kept hyster Yale on a positive path.
Since the pandemic began.
Can't let up.
<unk> is still with us.
Reassured by the strength and resilience of our people.
I believe that we will deliver solid sales and earnings performance over the coming years and that our long term strategies and prospects will have a very significant positive impact in the future.
We're now open for any questions you may have.
As a reminder to ask a question you will need to press star one on your telephone.
Withdraw your question press the pound key.
And our first question comes from the line of Steve <unk> from Sidoti <unk> Company. Your line is open.
Hi, good morning, everyone and thanks for the detailed commentary.
I know.
You mentioned caution a lot on the call. The flip side is you had another a second straight really strong quarter of bookings your backlog is back to pre pandemic levels.
I know, there's a ramp towards but how can we think about 2020 in February but how can we think about 2021 sales compared to pre pandemic 2019 sales.
Let me just make an introductory comment then I'm going to ask Rajiv to.
To elaborate.
Yeah.
And Ken's remarks, and Rajeev sitting in mine and yours, you referred to.
Uncertainty in the difficulty of forecasting.
We have the.
Mike.
Impact.
And in many ways it's changed.
The level of economic activity.
In terms of its impact on different segments of the economy.
And.
Certain areas Youre seeing a significant ramp up in economic activity in there.
Everyone I. Thank her broad variety of industries are concerned about.
The impact of the increasing volumes on different sectors of the supply chain.
The ramp up that you were asking about is highly dependent on.
On our ability to.
<unk>.
Okay.
Out in a timely way.
All of the components that are necessary to build all of those trucks.
I think we're cautious about our ability to predict that there are challenges out there or you've seen them at other industries with that backdrop I'd ask rajiv to make any further comments, we'd like to make yes. Thanks, Alan the only thing that I would like to build on that.
Maybe I'll split this into two firstly around bookings and the next thing around our ability to build the trucks.
With some of the constraints that al talked about in terms of bookings.
The complexity is.
In forecasting is how much of this what we are seeing and what we saw at the end of the year. It pent up demand and how how much is stable demand moving forward.
But as we start to look at 2021.
To us it.
We're seeing good.
Market.
Size.
Increasing over.
2020 and <unk>.
Not that dissimilar to 2019.
So I think that that.
Yes.
The booking side on.
On the production side, we are seeing significant constraints in supply chain and its for the reasons that we've already discussed.
There is demand.
Is outstripping supply.
So.
People are put on.
Some level of income.
Strained and shipping component.
Then we have some suppliers are having difficulty with COVID-19 and then there's the logistic challenges that we've talked about due to container availability in basic shipping line.
Availability so.
Complex.
And from an and and Thats, whats, making project and difficult.
The only thing I'd add to that is that.
Rajeev said, we're very encouraged by the bookings were.
Keeping at least so far assuming that.
Theres not a significant retrenchment due to sort of pent up demand.
I think.
Debt.
We'll be producing those trucks that are booked sooner or later so they're in the system, they're going to be produced and theyre going to have an impact on the results, but it is very difficult to say when.
That's very helpful.
Ken in the past you've done a pretty good job of trying to quantify what you did last year in terms of the cost savings.
With the temporary cuts I'm, just trying to get a sense of could you talked about some are back some or not there is also the restructuring do you have a sense of at least the percentage of the costs that are gonna be back from the earlier part of the year.
Yes, I think.
Characterize it is the largest portion of gross cost savings programs. We are the ones that we have that.
We have brought back.
Salary and benefits.
Those types of programs were sizable.
So they would represent a significant portion, but I don't want to underestimate the efforts that we're making to hold costs down and I think you need to look back to trends back to 2019.
In terms of Costa ticket.
To develop your own guidance on where you think expenses are going okay.
Ken I will reiterate what al said, we're seeing significant inflation net come on very quickly.
As you know kind of demand has outstripped.
Supply.
At the outset because of multiple in basically all day into the industry's ramping up simultaneously.
I think I was trying to respond back to the I thought this year.
Thats DNA stadia through our Covid program. So my.
My comments were limited that and I, absolutely agree with what you're saying about cost of production.
Great and if I could just one more in just if you could add a little bit of commentary on new barrel, one being more positive given the new administration in the U S. And then two just with so much talk around fuel cell technology now do you think.
You talked about China first but do you think there are other markets, who can start marketing your engines.
Yeah, I'll start that one off absolutely you know we've talked about in our building our commercial operations and we're doing that globally, we are seeing traction in.
And China of course, but also in some other countries in Asia as well as in Europe, We've seen Europe come on really strongly and start to think about.
Our field sales.
And then America is slower.
Recently, we announced our collaboration with capacity.
But that's similar or other discussions going on with Nomura and other Oems now one thing I would say is as we start to work with Oems.
The lead time between getting a business award and actually producing the truck, which is really the development time.
And it can be significant so we will kind of give you more color on that as we start to get some of this business.
We'll report out as many as we can.
Okay. That's helpful. Thanks, so much for your time this morning.
Your next question comes from the line of Gentry Klein from Cetus Capital. Your line is open.
Hi, Thanks, very much for the call I was actually just about to ask the similar question on.
On about geographies, you're focused on for Nevada.
I guess.
Given that you answered that my.
The only thing I just wanted to just stay with we believe there is a tremendously valuable asset with proprietary technology and capabilities.
To provide a competitive advantage even versus many of the publicly traded fuel cell companies.
And we also believe that it.
It has a greater potential as a standalone entity outside of Hyster, Yale. So therefore request that the company and the board.
On unlocking the significant value by exploring the divestiture of spinoff or sale of a new era as soon as possible.
Thank you.
I would just comment.
Our board always actively thinks about the best way to build value for our shareholders.
And they certainly do that in the context of new bearer.
Awesome.
Net.
Newburg right.
A young business.
Needs a lot of sophisticated.
Port and professionalism.
And.
In order to build on its position showed that it's durable over the long term.
That's what we intend to do we're certainly cognizant of.
Some of the developments in the marketplace, but we're very long term player and we wanted to develop the business and the best way possible.
Over the long term.
And I can leave it at that.
Again, if you would like to ask a question press star one on your telephone keypad.
And we have a question from the line of Michael <unk> from Dws. Your line is open.
Hi, Al and thank you for the comments I actually had a little bit of a follow up to the previous question.
I guess we're at.
At a very.
Interesting environment.
From a financial market.
And that there's just so many of these special purpose acquisition vehicles.
Seeking something exactly like what <unk> has to offer and it just seems that you would get paid.
Paid something far more than new barriers to value. If you were to take this opportunity.
Sell it.
Whereas this moment isn't going to last forever I mean, it'll it'll be gone. So it just seems it just seems like too.
It just seems like it's almost kind of them not to sell it I guess.
[laughter].
We're in the fuel cell business for the long term one way or another we think it's a tremendous business and.
We will be attending two what.
And the way that.
From a management at the board collectively think is the best way to manage the business for the long term. So again I'd leave it at that.
Okay. Thank you.
And there are no further questions at this time I'll turn the call back over to Christina <unk> for some closing remarks.
Thank you Al did you have anything you wanted to say further.
I have no further <unk>.
Marks to make at this point Christine Okay. Thank you again, everyone for joining US today, we do appreciate your interest and if you do have any follow up questions. Please.
Please feel free to give me a call my numbers off the top of the earnings release.
Have a great day.
Ladies and gentlemen, this concludes today's conference call a replay for today's call will be available approximately two hours. Following the completion of the call and expire on March 4th at midnight to listen to a replay of today's call. Please dial 805, 858367 and enter conference.
1692988, Thank you for participating you may now disconnect.
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