Q3 2024 Hyster-Yale Inc Earnings Call
These documents are available in the Hi3L website, we're recording this webcast and the replay will be on our website later this afternoon.
The replay will remain available for approximately 12 months. I'd like to remind you that our remarks today, including answer to any questions, will include comments related to expected future results of the company and are therefore forward-looking statements.
Our actual results made differently from our forward-looking statements due to the wide range of risks and uncertainties that are described in our earnings release, thank you and other SEC filings. We may not update these forward-looking statements until our next quarterly earnings conference call.
Speaker Change: Our presenters today are Al Rankin, Executive Chairman, Rajiv Prasad, President and Chief Executive Officer and Scott Minder, our Senior Vice President, Chief Financial Officer and Precior. With the formalities out of the way, let me turn the call over to Rajiv to begin.
Rajiv: Thanks, Kristi. Morning all and thank you for joining us today. I'll start by providing my operational perspective and some commentary on our markets.
will follow with the detail financial results and outlook. I will close the call with its perspective and then we'll open it up for your questions.
Rajiv: Before I disturb the quarter, I'd like to comment on the impact of Hurricane Helene and Milton last month.
Rajiv: These hurricanes were nothing short of devastating.
Rajiv: Thankfully, all of our employees in the South Eastern United States are safe. Furthermore, daily operations were not directly affected.
Rajiv: We've worked with our dealer, supplier and community in the affected area, to provide support where needed. Now I'll move on to our Q3 results.
Rajiv: I'm pleased to say that we executed wealth in what is normally a seasonally lower-third quarter, primarily related to European plans shutdowns.
Our current quarter results are also being compared against an exceptionally strong prior year.
Once again, regenerated strong product margins and delivered year over year revenue growth. This was led by the America's Lyck truck and both only businesses.
However, headquarters financial results will below our expectations. Let me explain why. In short, we did not achieve our expected production volumes.
Manufacturing operations were hampered by supply chain constraints and a handful of product introduction issues. This resulted in myth, failed creating manufacturing inefficiency and increasing cost.
Rajiv: While I was also lowered in plan, the company Foundation remained solid.
Rajiv: Brighton and unit margins continue well above target levels, operating expenses remained in check and below our expectations.
will continue to balance expenditures with growth needs moving forward. Now I'll share our market view and its impact on our business.
based on global markets, industry data and internal estimates. The company believes that the quarter-three, the 24 global lift truck market declined moderately from prior year levels.
The rate of decrease accelerated compared to Q2, 2024 at more regions of deterioration.
For the full global market is estimated to decline further with the Americas and EMEA decreasing at the farce of pace and JPEG generally stabilizing.
Rajiv: This below-trained market-docking levels are expected to balance out the significantly above-trained market-docking rate experienced between 2021 and 2023.
Returning the market to more normalized long-term growth rates.
Rajiv: In 2025, we expect the global lift truck market to decrease, moderately year over year.
Rajiv: with a first half decline mostly offsetting a second half. Recently, moderate decrease in the EME market likely to be partly offset by stable America's market level.
Within the Americas, our largest region, North America, is expected to increase moderately in 2025 compared to 2024, with improvements occurring in the second half of the year.
This improvement is expected to be mostly Oxford by decrease and...
Rajiv: the Latin American market.
Rajiv: We are working diligently to offset the effects from these market decreases on our business through share gain and sales of new advanced technology products. However, the company's business has been negatively impacted in 2024.
Rajiv: year over a year dollar value factory booking decreased very 6% to 370 million in quarter three. Equentially booking drop by 3% broadly suggesting stabilization at a lower rate.
Rajiv: Well, I global booking for a down compared to quarter two dollar value bookings improved 8% in the Americas. Lightly due to increased volume of higher price, plus one trucks, and the company's new modular scalable, plus five trucks.
Rajiv: EMEA and Jack J. F. Offset Disimprovement with a combined 19% drop.
Rajiv: Our long-term strategic initiatives, again, in momentum, in warehouse applications, we continue to make inroads with our advanced technology and strong product lineup.
Rajiv: We expect quarter 3, 2020 for America's and EMU's booking to reflect warehouse market share gain when final in the 3 data are released.
Additional gains are expected in quarter four and 2020-five.
Rajiv: A modular and scalable product are also expected to increase market share in all regions. As we broaden this product portfolio lineup to include class 1 electric trucks in 2025.
Rajiv: The work continues to aggressively and prospectively extend our roughly seven-month backlog.
While we continue to focus on increasing our booking and our share.
Rajiv: We're also focused on the lightning out production scheduled to match market demand at this point
Rajiv: New Bookings will fill open 2025 production slots, which are in the second half of the year.
Rajiv: The combination of writing, market share and new bookings along with the company.
Rajiv: 2.3 billion backlog should help support the business until market levels improve in the second hour of 2025.
Rajiv: He says the stage for high production levels in 2026.
Rajiv: Overall we believe the current backlog should support 2025 shipment levels that I generate a line with 2024.
Rajiv: That said, global production levels may moderate in 2025 without market share, improvements or share gains.
Rajiv: For much of the last two years we've been hit it from strong pricing, tellwinds and a significant older backlog.
Rajiv: This led to product margins, well above our targeted level.
Rajiv: Looking ahead, we're focused on maintaining competitively-priced products at or above targeted margin levels.
Rajiv: We expect to achieve our targets with continued new model introductions and ongoing cost and pricing disciplines.
Rajiv: I lied one time and I'm in on the market. The left truck industry is very resilient and has gone through similar cycles in the past.
Rajiv: We plan to push through this latest down-thron while still delivering on our customers' promises to provide optimized product solutions and exceptional customer care. We'll continue to execute our strategic initiatives and key projects to fulfill these promises.
Rajiv: I encourage you to learn more about these initiatives and projects in our updated invested day. Currently available on the High-Edit website.
Rajiv: I'll turn the call over to Scott to provide more details financial results out below. Scott.
Scott Minder: Thanks, as Rajiv mentioned, our 224 results were solid. Consolidated revenue of $1 billion grew year over year, while operating profit of $33 million declined compared to an exceptionally strong prior year.
Scott Minder: Net income was 17 million, decreasing from 36 million in Q3, 2023. But covers the results by segments, provide color on the performance drivers.
Rajiv: Lift truck revenues grew 2% versus prior year due to higher average sales prices in a favorable sales mix shift.
Rajiv: America sailed volumes increased but were more than offset by a decline in EMEA volumes.
Rajiv: Do our ongoing pricing discipline, average sales prices rose 25% year over year.
Rajiv: Sales Mix improved mainly due to increased sales of class 1 in class 4 trucks, as well as higher price, higher capacity class 5 trucks in the Americas.
Rajiv: Univolium declined year over year in EMEA, primarily due to lower production rates. This was a consequence of supply chain challenges and shipping delays on new products.
Rajiv: For the recorder, Robin is decreased in the Americas and EMEA. A seasonal plant shutdown led to lower Q3 production rates.
Rajiv: Lift trucks Q3 operating profit was $39 million, declining 40% against the strong prior year period. Lift truck product margins remained well above targeted levels to do to continue favorable sales prices in product mix.
Rajiv: However, these benefits were more than offset by lower margins on parts in fleet services.
Rajiv: Specifically, our part sales have shifted from extensive repairs on aged units, the more preventative maintenance on newer units, the latter generates lower margins.
Rajiv: Lift truck growth profit declined by 7% year over year due to overall sales margins, as well as higher freight costs and other cost inflation-related variances.
Rajiv: These factors combined with increased operating expenses led to the operating profit decline.
Rajiv: for regards to operating expenses.
Rajiv: [inaudible]
Rajiv: We've added sales and marketing staff to help launch new products and technologies that support our share gain efforts. We're investing in new information systems that create a more efficient and seamless customer-facing experience that will launch in 2025.
Rajiv: In addition to these investments, employee-related expenses rose due to wage increases and higher incentive compensation related to our strong 2024 year-to-date results.
Rajiv: Looking at profitability by geographic segment, America's gross profit declined modestly with improved pricing and higher sales volumes offset by increased freight costs and other cost inflation related variances.
Rajiv: freight costs remain elevated due to ongoing geopolitical tensions.
Rajiv: The U.S. dockworker strike in Q3 added to this challenge.
Rajiv: As a result of our U.S. manufacturing locations, we rely heavily on East Coast ports.
Rajiv: We took proactive steps to mitigate potential problems, including expedited shipping and container unloading to minimize the impact on our operations. These actions came at a higher price.
Rajiv: In Q3, EMEA experienced an operating loss compared to prior period profits due to lower unit volumes and unfavorable pricing.
Rajiv: Operating expenses were higher largely to support future business growth.
Rajiv: The increased year-over-year operating loss in our JPIC segment was mainly attributable to reduced unit volumes, partly offset by lower operating expenses.
Rajiv: Beyond the lift truck business, Balzoni's Q3 results were very strong. Revenues increased 5% while operating profit improved by more than 100% over prior year due to increased sales volumes of higher margin products.
Rajiv: These additional volumes allow Bolzoni's manufacturing plants to run more efficiently, thus lowering costs year over year.
Rajiv: Bolzoni's profits increased sequentially despite an expected seasonal revenue decline.
Rajiv: There's one additional item to mention for Baldoni.
Rajiv: In July, the business acquired a majority equity interest in one of its machining suppliers.
Rajiv: This includes an option to purchase the remaining portion in future periods.
Rajiv: This $2 million acquisition is an important investment. It helps to ensure the supply of competitively priced, high-quality components. Its results were included in Bolzoni's Q3 financials.
Rajiv: Moving to Nivera, where the business remains focused on increasing its sales pipeline.
Rajiv: The hydrogen fuel cell industry continues to face slow customer adoption.
Rajiv: This is due to ongoing hydrogen supply constraints and delayed vehicle fuel cell development programs.
Rajiv: Despite Nuvera's rough demonstration pipeline, these industry constraints are delaying Nuvera's bookings and reducing its shipments.
Rajiv: As a result, Nuvera's Q3 revenues decreased to $0.3 million from $1.5 million in Q3 2023. Nuvera's revenue increased compared to Q2 levels.
Rajiv: The various operating loss exceeded prior year largely due to increased utility expenses and facility lease costs.
Rajiv: In addition, Nuvera incurred a $0.2 million severance charge for headcount reductions needed to right-size the organization given the slower hydrogen product adoption rates.
Rajiv: Next, I'll cover the company's tax position.
Rajiv: Our Q3 income tax rate was 37%. This is higher than 2024's forecasted annual rate of 32%.
Rajiv: Our third quarter tax expense and tax rate include a year-to-date true-up adjustment necessary to reflect the increased estimated annual effective income tax rate.
Rajiv: 2024's year-to-date effective income tax rate of 32% is above the prior year's 27% rate.
Rajiv: The elevated 2024 rate largely relates to the ongoing capitalization of research and development costs for U.S. tax purposes.
Rajiv: combined with the ramifications from the company's U.S. valuation allowance position.
Rajiv: 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 calendar year.
Rajiv: Looking beyond the income statement, we generated $70 million of cash from operations during Q3 and the company's financial leverage continued to improve.
Rajiv: Our debt-to-capital ratio of 46% improved by 500 basis points from the June 30th level.
Rajiv: A combination of lower debt and increased cash drove a significant improvement.
Rajiv: As the business generates more free cash, we'll continue to follow the capital allocation framework laid out at our November 2023 Investor Day.
Rajiv: In the third quarter, we used free cash to further reduce financial leverage, fuel growth-related capital expenditures, and fund Baldoni's small acquisition.
Rajiv: At quarter end, the company had unused borrowing capacity of $262 million, compared with $217 million as of June 30th.
Rajiv: We continue to focus on reducing working capital, particularly through inventory efficiency.
Rajiv: However, total inventory increased over Q2 2024 levels, in part due to trucks being completed but not shipped by quarter end, as well as shipping delays on new products.
Rajiv: Working capital represented 21% of sales in Q3 as a result of these elevated inventory levels and reduced annualized sales in the seasonally lower third quarter.
Rajiv: I'll shift to our Q4 outlook and make some brief comments on 2025.
Rajiv: Looking ahead, we expect Q4 consolidated revenues and net income to be roughly comparable to robust prior year levels.
Rajiv: Consolidated full year 2024 financial results are still expected to improve significantly year-over-year, primarily driven by the robust first-half results.
Rajiv: We believe the company's strong 2023 and 2024 financial performance benefited significantly from actions we've taken over the past few years.
Rajiv: to position the company for profitable growth and to deliver on our promises to provide optimal solutions for our customers and deliver exceptional customer care
Rajiv: Overall, these longer-term product development and process improvement projects, initiated in prior years, are leading to a more efficient and flexible organization. We're now better positioned to further optimize our operations and costs.
Rajiv: As a result, in October 2024, we concluded that new programs should be undertaken in the Americas to lower costs, optimize our manufacturing footprint, reduce lead times, and better position the company for improved margins and further growth.
Rajiv: We expect to incur future restructuring charges as we fully execute these manufacturing improvement programs over the next 12 to 36 months.
Rajiv: The details of these programs are still being finalized.
Rajiv: An estimate of charges and expected benefits has not yet been fully determined. We'll provide more details with our Q4 earnings results.
Rajiv: For the lift truck business, we anticipate Q4 revenues and operating profit to be roughly comparable year over year.
Rajiv: Strong product margins from the shipment of higher-priced, higher-margin backlog units are anticipated to be offset by higher freight and material costs and increased operating expenses.
Rajiv: The company's solid backlog and ongoing pricing discipline are providing a foundation that limits the negative impact of the current lower-demand environment on our results.
Rajiv: Looking forward to 2025, our backlog is expected to decrease toward more normalized levels in the first half of the year. This will likely lead to a moderate decrease in lift truck's full year revenue versus 2024.
Rajiv: The revenue decline, combined with anticipated cost inflation and modestly higher operating expenses
Rajiv: are expected to significantly lower 2025 operating profit compared to an exceptionally strong 2024.
Rajiv: For Balzoni, we anticipate lower Q4 revenues compared to prior year as the phase-out of legacy components for the lift truck business exceeds attachment sales growth.
Rajiv: Increased costs for material, freight, and employee-related items will likely moderate Balzoni's improved product margins. As a result, operating profit is likely to decrease compared to prior year.
Rajiv: In 2025, operating profit is expected to improve year-over-year despite lower sales volumes due to the continued phase-out of low-margin component sales.
Rajiv: At Nuvera, the business remains focused on increasing customer product demonstrations and orders.
Rajiv: This includes its new portable hydrogen fuel cell power generator, which began dealer and customer demonstrations in September.
Rajiv: Q4 revenues are expected to increase year-over-year and should be comparable to Q3 2024 levels. Increased product development costs will likely drive a modest operating loss increase compared to the prior year.
Rajiv: Nuvera expects improved year-over-year revenues in 2025 due to higher fuel cell sales.
Rajiv: The benefits of these higher sales are expected to be partly tempered by a modest year-over-year increase in new product development costs.
Rajiv: Nuvera's overall operating results should improve in 2025, compared with prior year, in part due to benefits realized from the reduction in force action taken in Q3 2024.
Rajiv: We continue to make progress toward our 7% operating profit margin target across the business cycle for the Lyft truck and Baldoni businesses.
Rajiv: We exceeded this target in Q1 and Q2 of 2024, both periods of robust demand.
Rajiv: During this current soft demand environment, our extended backlog of higher-margin trucks continues to provide a shock absorber for our financial results.
Rajiv: Bookings are expected to accelerate in the second half of 2025 driving improved production levels in 2026.
Rajiv: In the meantime, strategic actions to reduce costs, improve productivity, and deliver high-quality, highly customizable products made consistently around the globe should enable us to be more profitable in all phases of the business cycle.
Rajiv: These actions are ongoing and will gain momentum in the coming quarters.
Rajiv: As a result of the factors I've mentioned, we expect lower 2025 revenues and a significant operating profit and net income decrease at the consolidated level compared to robust 2024 levels.
Rajiv: We've made progress on reducing the impact of cyclicality on our business and have plans in place to further stabilize our results in cyclically lower periods.
Rajiv: We'll continue to focus on improving our cash conversion rate, primarily by reducing inventory levels.
Rajiv: Beyond working capital, we expect 2024 capital expenditures to be $49 million, down from our initial projection of $87 million.
Rajiv: While we still anticipate meaningful growth in efficiency investment, liquidity is our top priority.
Rajiv: 2024's cash flow from operations should increase significantly compared to the prior year.
Rajiv: In 2025, cash flow from operations is expected to remain strong but decline from 2024's level.
Rajiv: As we continue to generate cash, we'll follow our disciplined capital allocation framework to reduce leverage, make strategic investments that support profitable growth, and generate strong returns for our shareholders.
Speaker Change: Now, I'll turn the call over to our Executive Chairman for his closing comments. Out.
Speaker Change: Thanks, Scott. As Radiv and Scott have outlined, we had a strong quarter.
Speaker Change: Our foundation remains strong despite challenges due to the global market decline. We believe the programs we have in place will help us navigate more effectively through the natural fluctuations of this current market cycle than has been the case in the past.
Rajiv: and that the continued maturation of our strategic initiatives will return us to target levels as the market improves.
Rajiv: We are delivering on customer promises to provide optimal solutions and exceptional care by providing high-value-adding systems such as our modular scalable technology and our operator-assist and full automation technologies.
Rajiv: We're already beginning to see the benefits of our ongoing transition to these technologies.
Rajiv: We have also taken important steps to improve lift truck production efficiencies and in our newly announced restructuring program, we will now be implementing projects to further optimize the company's operations and cost structure.
Speaker Change: All of this supplemented by Rajiv's and Scott's remarks.
Rajiv: leads me to believe our company is well-positioned for substantial longer-term profitable growth.
Rajiv: Now we would like to open the call to questions.
Rajiv: Andrew, are you there?
Andrew: Hello. Gentlemen, we will now begin the question and answer session. If you have a question, please press star followed by one on your touchtone phone. You will hear a three-tone prompt that your hand has been raised and your questions will be pulled in the order they are received. If you wish to decline from the polling process, please press star followed by two. And if you're using a speakerphone, please lift your handset before pressing any keys. One moment for your first question.
Speaker Change: Your first question comes from Chip Moore with Roth. Please go ahead.
Chip Moore: Hey everybody, thanks for taking the question. Good morning. I want to start with the weakness in EMEA this quarter. I think you referenced some supply chain challenges and perhaps some new product rollout issues. Maybe just expand on that, what you saw there, how big was that impact?
Speaker Change: I think it affected our shipments in EMEA. We had some product introduction.
Speaker Change: issues where some rework of the product was required which did not make the end-of-quarter shipment.
Speaker Change: as well as just reduce production rate due to component availability. I'll also say that the market in Europe is
Speaker Change: slow, it's weaker, and so our booking rates on
Speaker Change: at the expected level.
Speaker Change: that we think that stabilizing
Speaker Change: So, we should start to see that.
Speaker Change: can improve a little as we get into the first quarter of 2025.
Speaker Change: And in terms of some of those supply chain and reworks, is that any continued impact there, or do you think that was more... No. No, I think it was one-off. We're launching some of the new...
Speaker Change: some additional features and scalability on our modular and scalable programs. These were the most sophisticated systems and the issues are more related to software and
Speaker Change: just some interface issues. So the teams worked through that and I think we're starting to ship those trucks.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: Great, that's helpful. And if I could ask on...
Speaker Change: cost and productivity initiatives you called out. I appreciate you probably can't give too much detail, but I imagine this is something you've been contemplating for a while. Just maybe high-level thoughts on what you're thinking about and when we might start to see some of those benefits start to roll through. Would this be back half of next year we start to see benefit, or how do we think about that?
Speaker Change: Yeah, so this is, you're right, that this has been our plan. So as we had talked...
Rajiv: in our various investor meetings.
Rajiv: that we're developing the new modular scalable product so that we can build both internal combustion engine trucks and electric trucks on the same line.
Rajiv: And so now that that's feasible and the development of the electric truck is maturing.
Rajiv: We feel that that's a possible
Rajiv: in a kind of a good part for us.
Rajiv: But it does take, you know, today in North America for instance, you know, those trucks are built in different plants.
Speaker Change: So we have to do some rationalization.
Speaker Change: And so we're working through the details of that. Strategically, that's what we wanted to do, but now the teams are going through the more detailed analysis to see how do we make that happen. And there are some other...
Speaker Change: secondary decisions that we have to make along with
Speaker Change: that strategic element and we'll work through that probably in the first two quarters of next year and the transitions that some of the transitions have already happened
Speaker Change: and the bigger ones will take place most likely in 2020, late 2025 and 2026.
Speaker Change: and their benefits will start coming towards the end of 2026.
Speaker Change: Got it. That's helpful. And I'm sure we'll learn a lot more.
Speaker Change: next quarter. And I guess maybe if I could sneak in a last one just...
Speaker Change: Just around, I guess, margin trajectory, a lot of moving pieces, you know, more so on next year, and then I think you referenced, you know, looking for bookings to pick up again in the back half, just your confidence there. Thanks.
Speaker Change: Yeah, I think I'll take it up and maybe, Scott, you could pick up a little bit as well.
Speaker Change: You know, we've done exceptionally good.
Speaker Change: The organization has done exceptionally well.
Speaker Change: at getting up to and maintaining well above our target margins over the last three years.
Speaker Change: At the markets...
Speaker Change: Normalize and actually now dip below.
Speaker Change: and we think this is a temporary measure. It's not really related to the economy. It's related to the dynamics of our industry.
Speaker Change: and now there's a bit of a dip and so there is more intense competition for that business and so we're having to you know kind of
Speaker Change: be more competitive with our pricing.
Speaker Change: But while I say that, the other...
Speaker Change: tool that, you know, the other, you know, strategic element that's starting to be in place for us is our modular and scalable platform, which should...
Speaker Change: help us with, you know, putting the right truck at the right application for our customers and therefore also have the right margin profile.
Speaker Change: So, I expect that things may be a little competitive for the next two or three quarters, but then I expect us to start using the modular scalable platforms to get...
Speaker Change: back to above target economics, maybe not as high as we've been
Speaker Change: getting it in, you know, in...
Speaker Change: the bookings in 2022 and 2023 but kind of somewhere between our target economics and what we've seen there.
Speaker Change: Rajiv, I'll add just one thing to that. Our backlog today is more robust in the first half of the year in the more competitively priced bookings that Rajiv referred to.
Speaker Change: are probably more in the second half of the year. So when you think of unit margins in the context that Rajiv gave.
Speaker Change: We expect to stay above target margins, but you probably have a higher first half and a lower second half because of the market dynamics. I think importantly, though, as we think about our goal of remaining...
Speaker Change: achieving 7% operating profit across the business cycle. As we go through this market downturn, the business is gonna perform better than it has in prior cycles.
Chip Moore: Great. Appreciate all the color, Rajiv and Scott. I'll hop back in queue. Thanks, everybody.
Speaker Change: Your next question comes from Ted Jackson with Northland Securities. Please go ahead.
Ted Jackson: Thank you. I've got a few questions for you. First of all, with the...
Ted Jackson: delay in some of the shipments and the elevated inventory that you had in the third quarter.
Ted Jackson: Will we see a substantial decline in inventory in the fourth quarter? I mean, are we going to see a pretty substantial kick-up in free cash flow because of that? And if so, what kind of decline would we see?
Ted Jackson: expect and then given kind of the outlook you have for 25 how do we think about you know working capital in particular inventory as we think through 2025 first multi-part question thanks
Speaker Change: Yeah, so I'll take the first part of that and then...
Speaker Change: Scott, you could quantify it.
Speaker Change: So what's going on, Ted, is that we've got...
Ted Jackson: Out.
Ted Jackson: We've had various regions, as we go through some of the transitions in our operation.
Ted Jackson: And what we, what this ends up, what ends up happening is there's a lot of...
Ted Jackson: There's a large quantity of trucks that are either in
Ted Jackson: transport in logistic chain or they're waiting to be shipped out of our plants and that increases our, you know, finished good inventory, basically our marketing inventory.
Ted Jackson: So that's a big factor that's driving our working capital up. The second one is that we are getting a slower installation of trucks.
Ted Jackson: from our customers and what's happening there is...
Ted Jackson: We're building now orders that we received in late 2022, early 2023, mostly early 2023.
Ted Jackson: customers have seen large changes so as we start to...
Ted Jackson: as they get notified that their trucks will be built.
Ted Jackson: They are revising where these trucks are going to be applied, and that takes some time to reorganize.
Ted Jackson: and we think that it will definitely be improved by the end of the year but I think some of it will take the first quarter of 2025 to work through because of the longer supply chain of the trucks, the finished goods.
Speaker Change: Just to add on to that a little bit, the company does expect a significant
Speaker Change: Cash Flow Increase as a result of lower working capital in Q4 and as Rajiv laid out
Ted Jackson: We expect those benefits to continue in 2025. There's the short-term nature of marketing inventory.
Ted Jackson: There's also the long-term nature of the programs we have in place to be more efficient and get back to working capital as a percentage of sales around 15%. So big opportunity in Q4 as well as 2025 as revenues are expected to decline, to decrease.
Ted Jackson: inventory and generate additional cash flow.
Speaker Change: Okay. Shifting over to Nuvera.
Speaker Change: Thank you.
Speaker Change: You know, I know during the last call you had expected to see, you know, kind of a pop in revenue in the fourth quarter and it, you know, clearly that's not going to happen.
Speaker Change: So on Nuvera, the first thing is when we think about 2025 and the growth that you think you're going to see there.
Speaker Change: How do we think about that growth? I mean, there's been, you know, a lot of effort by the Biden administration to kind of shove through funding for things that would be very beneficial for New Era before the administration ends. I mean, is that a key driver for you? You know, and if that's the case, I would assume there is some.
Speaker Change: kind of tangible visibility around it that you could discuss. And then also with regards to Nuvera, Nuvera, I can't do two things at once and I didn't quite catch what you said in terms of the severance. Did you say that you went through a downsizing there and there's 2.2.
Speaker Change: Millian and Severance, and if that's the case, can you talk a bit about
Speaker Change: Well, first is that amount correct and then how we would think about that with regards to the cost structure for Nuvera as we put our 2025 models together.
Speaker Change: Maybe I'll start with the second one because it was actually 0.2 million.
Speaker Change: Also, I've got a cold, so I'm not sure how clear I am on these things.
Speaker Change: So, let me go back to the first one and then I'll come back to the second. In the first one, what we're generally seeing is that the market for fuel cells is getting deferred. The main reason for that is availability of hydrogen.
Speaker Change: We've, as we've said, we've had tests in place both in Europe and in North America and those
Speaker Change: Pilots have been significantly affected by availability of hydrogen at the ports.
Speaker Change: As you probably know, there's a huge amount of investment going on in making hydrogen available. It's just not there yet.
Speaker Change: equipment builders are also reacting to that, including us. And, you know, our programs are being deferred to when we feel hydrogen is going to be
Speaker Change: more available in these specific target applications.
Speaker Change: So, that's been the cause of some of the movement. We still strongly believe that hydrogen is the right solution for these high productivity large vehicles that consume a huge amount of energy.
Speaker Change: We've also had electric trucks running around with battery only and we've, you know, we are better understanding the challenges they pose.
Speaker Change: So I think the long-term hypothesis is still correct, the timing is slipping, now you talked about some of the incentive programs.
Speaker Change: or investment program the government's announced and I think they will make a difference.
Speaker Change: We have some pilot programs with select customers for late 2026 and 2027. So majority of those programs will have deliveries.
Speaker Change: I would say in late 26 and throughout 2027.
Speaker Change: So, that gives you a sense for how, you know, this...
Speaker Change: in the application of technologies getting pushed back. Now we are working with, for instance, with the Department of Energy to figure out programs we can implement to, you know, accelerate.
Speaker Change: and that those have been announced and we've and the Vera has won some of those programs which will help with some of the cost as we as we work through these you know this delayed implementation of
Speaker Change: The other thing we've done in light of that is adjusted
Speaker Change: technology and we're continuing to invest in that but we've optimized the operational group in light of the volume that's expected in 25 and 26.
Speaker Change: That's what some of the reduction in workforce was about.
Speaker Change: I appreciate it. I have two more questions if that's okay and they get simpler. The next topic is ball zoning and I want to kind of cycle it circle in with regards to kind of the cost and the acquisition because I was a
Speaker Change: I honestly, I thought that kind of on the expense side, the SG&A side was a little higher than I expected. And if I read through the guidance correctly, then the four quarters would be a little higher than I expected. But I also didn't realize that you'd made an acquisition. So within the context of, you know, kind of the...
Speaker Change: the expense structure for Balzoni in the near term? Is that indeed what's happening, is that you've bought this business and you've layered in a modest amount of expenses on it, and if that's the case, how do I think about that for 25?
Speaker Change: Yeah, this is just a quarter issue, Ted. It was in our other cost of sales.
Speaker Change: Some of it's related to that, but also, you know, we've had, you know, the logistic disruptions that's impacted all the businesses with, you know, with the kind of Red Sea issues.
Speaker Change: Now, that's starting to normalize, but the businesses have made provision for the increased logistic costs they've been seeing.
Speaker Change: Thank you. Bye.
Speaker Change: So whether that comes to fruition or not, we don't know, because since...
Speaker Change: The peak
Speaker Change: you know, holiday shopping, shipment.
Speaker Change: have been completed in, I would say, mid-October, we've seen a decline in shipping rates, so maybe that won't happen. But for 2025, I would use what we've done, you know, the SG&S being in
Speaker Change: Bolzoni in 2024 with a just inflation applied to it.
Speaker Change: Okay.
Speaker Change: And then my last is, actually it's kind of two, I lied. On CapEx, I know you took a big cut to CapEx relative to plans at the beginning of the year.
Speaker Change: would I expect to see that those investments happen in 2025 where we would see, I can't remember what it was you said, like you know 80 some odd million in 2025 as you you know bring those plans to bear you know particularly I guess given what you're talking about doing with regards to some of the efficiency stuff and you know the rationalization for lack of a better term of your manufacturing.
Speaker Change: And then the other thing was, did you say, and again something I might have missed, what you expected for your effective tax rate for all of...
Speaker Change: 24, or did you talk about the fourth quarter at all on that front? I think you talked about something like that and I was taking notes and I missed it.
Speaker Change: Okay, well I'll take the the first part and I'll ask Scott to take the second part. On the...
Speaker Change: on the first part.
Speaker Change: The
Speaker Change: Thank you.
Speaker Change: The CAPEX. CAPEX, yeah.
Speaker Change: I was thinking about tax for a moment. But the CapEx, I think it's because we really pushed hard on what we talked about.
Speaker Change: the optimization of our operational footprint. There's been a large team working on that.
Speaker Change: that program for a while. And as that program has used up a lot of the resources that would typically be available.
Speaker Change: for other operational...
Speaker Change: in the capital programs, those have started to run a little late. We've prioritized this above.
Speaker Change: Pretty much everything else
Speaker Change: And so we will see some of that happen in 2025, that was planned for 24, but I also think there's going to be some other lower priority
Speaker Change: capital programs that will be pushed out of 2025 into 2026 so that we can execute this large program that we, you know, mentioned in our release.
Speaker Change: So I think it's not to do with...
Speaker Change: Funding issues is to do with resource available to execute and some of these programs are fairly
Speaker Change: complex to pull off. We need the right people working on it and that's more of the issue.
Speaker Change: Thank you.
Speaker Change: Yeah Ted, I'll take the tax one. So, we increased our full year estimated tax rate from 31% to 32%. That caused a true-up adjustment in Q3, which made the Q3 rate a little bit higher at 37%. So for the full year, we expect 32%.
Speaker Change: We haven't given guidance on 2025 yet at this point. We'll do that in our Q4 call coming up.
Ted Jackson: Okay, thanks for the patience of picking all that for me.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Kurt Lutke with Imperial Capital. Please go ahead.
Kurt Lutke: Hello Rajiv, Scott, Al, Christina, I appreciate the call. I thought maybe we could just talk about your core...
Kurt Lutke: North American market for a second, in terms of overall demand.
Kurt Lutke: And, you know, when you talk to your customers, are you hearing any themes from them? Are they... Are they...
Speaker Change: Waiting for rates to come down. Are there any catalysts on the horizon that come up in your conversations?
Speaker Change: Yeah, I think the way to think about what's going on in North America is really look at...
Speaker Change: the end of 2025. So what happened between 2021 and 2023, midway through 2023, is the industry booked
Speaker Change: Let's say almost 200,000 more trucks than normal.
Kurt Lutke: Now, don't forget, those trucks were not delivered in that time frame. Because, as I said, we're now delivering trucks that we booked in.
Kurt Lutke: I would say mostly early 2023. Now, what's happening is...
Speaker Change: Customers are getting delivered those trucks.
Speaker Change: Many of them, you know, saw that demand just post-COVID of things.
Kurt Lutke: groups that you have to transport and logistics. So what's happened is
Speaker Change: That's created a bit of a need to digest the trucks that our customers are getting, now starting to receive, and so they're working through that.
Kurt Lutke: We think...
Speaker Change: that this dip will probably start to even out by the second half of 2025.
Kurt Lutke: And then the market will normalize to, let's say,
Kurt Lutke: 20, 29, 20, 20, 18, 20
Kurt Lutke: So that that's what we think is is happening. We're pretty
Kurt Lutke: Sure, that's what's going on, and as we talk to customers, that's what they're trying to do.
Kurt Lutke: So there is the edge taken off the demand, because I think that demand was a bubble. But the base demand is still good and strong, and consumers, as you can see, are...
Kurt Lutke: active in the marketplace. So we, yeah, we don't expect anything in the economy to to be driving this. This is the industry.
Speaker Change: Got it. I appreciate that. Thank you.
Speaker Change: Your market share, you're gaining market share, are you gaining market share in North America and do you think that you'll continue to gain share?
Kurt Lutke: in particular was a very strong quarter in 2023 for us and so you know kind of
Kurt Lutke: I mean, the other thing, yeah, so the quarter three, 2024, you know, is...
Kurt Lutke: in a verse that last year looks...
Kurt Lutke: Okay, but we expect going forward that we will grow share.
Speaker Change: Got it. Thank you.
Speaker Change: the shifting topics.
Speaker Change: You mentioned an adverse shift in mix.
Kurt Lutke: on the part side.
Speaker Change: And can you elaborate on that a bit? And,
Speaker Change: You know, is this the new normal, or do you expect this mix to persist or revert to...
Speaker Change: things that we need to think about. The short, the immediate term is, you know, kind of the need in, it's just a mix between
Speaker Change: Parts that are used for service and parts that are used for repair, and it's just, it's an interesting process.
Speaker Change: in a just a cycle that you know we sold and the margin profile on those are different and We sold more of the service rather than the repair related parts that will even itself out over time
Speaker Change: the more long-term change is
Speaker Change: The electrification, you know, if you move from internal combustion engine to electric trucks, the parts profile is different. The number of parts used in service is different. It's less for electric trucks.
Speaker Change: So that change is going on.
Speaker Change: Our response to that is that we are adding more electric-oriented solutions.
Speaker Change: into our offering.
Speaker Change: you know, kind of incorporating that into our both...
Kurt Lutke: you know, unit sales and parts infrastructure.
Speaker Change: got it that's that's very helpful what what percentage of the installed base is electric do you think
Speaker Change: For us, let's say just take North America for example, I would say
Speaker Change: Thank you. Thank you.
Speaker Change: But if you think about it from a value point of view, in terms of the value of the truck and the value of the parts,
Speaker Change: It's probably more closer to 50-50.
Speaker Change: Got it. I appreciate it. Thank you very much. That's it for me.
Speaker Change: Ladies and gentlemen, there are no further questions at this time. Please proceed.
Speaker Change: Okay. With that, we'll conclude our Q&A session. Thank you so much for participating. A replay of our call will be available later this morning. We'll also post a transcript on the website when it becomes available. If you have any questions, please reach out to me. My information is in the press release. Hope you enjoy the rest of your day, and I'll turn it back to Pamela to conclude the call.
Pamela: Thank you. Thank you. This does conclude your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day everyone.
Speaker Change: And many more. Thank you. Thank you.
Speaker Change: Thank You.