Q4 2024 Hyster-Yale Inc Earnings Call
Innovation, we will conduct a question and answer session.
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Andrea <unk>: This call is being recorded on Wednesday February 26, 2025, I would now like to turn the conference over to Andrea <unk>. Please go ahead.
Andrea <unk>: Good morning, and thank you for joining us for Hyster, Yale 124 fourth quarter earnings call I'm, Andrea <unk> director of Investor Relations and Treasury.
Speaker Change: Joining me today are al Rankin Executive Chairman, Rajiv Prasad, Chief Executive Officer, and Scott <unk>, Senior Vice President Chief Financial Officer and Treasurer.
During our call we will be discussing our fourth quarter and full year 2024 earnings release issued yesterday, you can find the earnings release and replay of this webcast on the Heister Yale website.
Speaker Change: The replay will remain available for approximately 12 months.
Speaker Change: Today's conference call contains forward looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied.
Speaker Change: These risks are described in greater detail in the earnings release and in our reports filed with the SEC.
Speaker Change: On this call we will be discussing our adjusted results.
Speaker Change: We believe that these are useful in evaluating the companys operating performance reckon.
Speaker Change: A reconciliation of adjusted operating profit net income and earnings per share to the most directly comparable GAAP financial measures can be found in the company's earnings release and Investor presentation filed with the SEC.
Speaker Change: With the formalities out of the way, let me turn the call over to Rajiv to begin.
Rajiv: Thanks, Andrew.
Rajiv: Good morning, everyone.
By providing my operational perspective, and some commentary on our markets.
Bob: Bob will follow with a.
Bob: Detailed financial results and outlook.
Bob: We will close the call.
Bob: Factors and then we will open it up for your questions.
Bob: As we close out 2024, I'd like to start by recognizing our global team for delivering another solid quarter.
Our strong finish to an already exceptional year.
Bob: In quarter, four we generated higher revenue.
Bob: Improved adjusted operating profit versus the prior year and the prior quarter.
Bob: These strong results were led by the performance of our Americas lift truck business.
Bob: I am pleased to report that we made significant progress on our strategic initiatives in the quarter.
Bob: We began execution on the footprint optimization programs that we shared with you in our quarter three.
Bob: Earnings call.
Bob: These programs are designed to streamline our manufacturing network and optimize our operations.
Bob: These programs should lower our cost and reduce our inventory and product lead times. This will better position the company for profitable growth around the world.
Bob: As a result of these actions, we incurred a $21 million.
Bob: The costs were primarily.
Bob: Initiated in the fourth quarter to streamline our manufacturing footprint and optimize operations.
Bob: As we further deploy these programs in 2025 and 2026, we expect additional implementation costs ranging from.
Bob: 8% to $16 million in each of the years.
Bob: These programs are designed to reduce the negative impact from market cyclicality on our business over time.
Bob: Program benefits are expected to begin in late 2025, but will be offset by operational inefficiencies due to lower total production.
Bob: Driven by decreased market demand Benny.
Bob: Benefits in 2026 are expected to be small as we finalize the programs save.
Bob: Savings are expected to accelerate generating.
Bob: $30 million to $40 million in annual income and cash benefits starting in 2027.
Bob: In the Americas, we are focused on programs to right size the company's production footprint enabled by our expanding lineup of modular products.
Bob: Take advantage of manufacturing synergies created by these designs further enhance profitability.
Bob: Executing these programs helps to reduce costs and improve cost absorption rates in our factories, particularly in periods with lower demand.
Bob: EMEA and Japan regions. These optimization programs will help streamline cost structure and better position these businesses.
Bob: Long term.
Bob: Profitable growth.
Bob: Turning to our views on global demand.
Bob: The global lift truck booking market continued.
Bob: This decline in 2000 in quarter four.
Bob: Compared to prior year as expected lower demand and order cancellation. Each played a role this ongoing market correction is in response to significantly above trend industry bookings rates in 2022 and 2023.
Bob: While the booking market declined in 2020 for our extended backlog allowed us to maintain strong production rates.
Bob: Accordingly shipments exceeded our bookings in each of the quarters of 2024.
Bob: As a result backlog reached near normal levels by year end faster than our initial plans.
Bob: Due to lower bookings and reduce backlogs, we have adjusted our production cadence to maintain a more consistent backlog.
Bob: One that better aligns with market demand.
Bob: Breaking our factories at this pub.
Bob: Perfect.
Bob: It will help to reduce inventories improve delivery consistency and ultimately improve customer satisfaction.
Bob: As market demand improves and our market share is expected to increase across 2025, we expect to gradually increase our production rate.
Bob: When we do inventory will increase to support higher production, but our from a lower base with improved efficiency.
Early 2025 bookings provide encouraging signs, particularly in our EMEA and <unk> regions.
This elevated activity gives us.
Bob: Confidence that the bookings market will improve across 2025.
Bob: While there is.
Bob: Early optimism.
Bob: Outlook could be impacted by ongoing uncertainty created by potential tariffs and trade wars.
Bob: If the bookings market on our expected market share gains.
Bob: Sales to meet the expectations global production levels will moderate in the second half of the year.
Bob: Slide this uncertainty we continue to focus on booking units with margin at or above target levels, new product introductions, especially those without new onboard technologies are increasing the potential revenue per unit or.
Bob: Our expanding lineup of modular and scalable models increases our ability to provide customers with products that solve the challenges.
Bob: Also improving our unit economies.
Bob: Countering these <unk> specific opportunities as a more competitive market.
Bob: As demand declined in 2024 competitive intensity picks up we expect this dynamic to continue in 2025 until bookings returned to more normal pace.
Bob: As a result, we expect a strong product margins to decline in 2025, but remain above target levels.
Bob: Economic uncertainty created by potential tariffs imposed by the U S and other.
Bob: <unk> remains a key area of concern we will remain agile with our pricing strategy.
Bob: Responding quickly.
Bob: Our cost structures are negatively impacted.
Bob: Now I'd like to discuss our focus for 2025.
Bob: First I'll start with the lift truck business.
Bob: The lift truck business has launched as much of a scalable two to three ton internal combustion engine trucks in 2024.
Bob: These products are now available globally and shipments are increasing.
Bob: The range will expand with cushion tire.
Bob: Austin engine trucks.
Bob: <unk>.
Bob: Electric platforms planned for 2025 and 2026.
Bob: This approach enhances efficiency by integrating ICD and electric trucks in the same production lines optimizing manufacturing processes.
Bob: By using these designs the company can meet.
Customer demand, while reducing operational costs and improving working capital.
Bob: Automation is a key area of development for us in 2024, we began customer testing for Yale relate.
Bob: And ISO Atlas forklifts.
Bob: By early 2025, new platform for automated lift trucks, and then intuitive Puerto will be launch simplifying setup and reducing the need for custom programming. This will help warehouses cut labor costs and software expenses.
Bob: The enhanced lift truck lineup offer significant value to warehouse customers.
We have developed strong technology adoption strategies and specialized training for our dealers.
Bob: We saw a modest market share gains in 2025 and are poised for above market growth.
Bob: The lift truck business aims to leverage electric truck.
Bob: Advancements in areas once dominated by combustion trucks.
Bob: We continue to expand the electrification of our internal combustion engine counterbalanced products using both lithium ion batteries and fuel cell engines.
Bob: Economic specific applications.
Bob: Projects.
Bob: Capitalize on the company's long history of developing electric powertrains, and expanding solutions for customers, who want to lower their carbon footprint.
Bob: It equipment projects promising step to broaden our product range.
Bob: Next I will discuss those army.
Bob: <unk> aims to lead the attachment business by delivering innovative <unk>.
Bob: <unk> solution to address specific material handling needs ozone is dedicated to driving growth through core projects beyond the lift truck market.
Bob: <unk> committed to designing products that enhance safety reduce damage from incorrect handling and improve efficiency.
Bob: This includes incorporating advanced technologies components, such as sensors lasers cameras and optical readers.
Bob: To expand its industry reach both Sony is working with lead leading companies in the automated guided vehicle or HGV sector to offer customized attachments, often with embedded technologies to facilitate.
Bob: Better overall performance. These efforts are expected to increase volumes and margins over time.
Bob: Lastly, our next steps with Nevada Rivera aims to lead in fuel cell technology by focusing on 45 or 60 kilowatt fuel cell engines Taylor for heavy vehicles.
Bob: And our it systems.
Bob: Our factories full short the early adopter applications are anticipated to have near term adoption potential.
Speaker Change: During 2025, Newbury looks to expand hydro challenge in mobile power product, providing clean off grid power for rapid electric vehicle charging and clean energy Gen set applications.
Speaker Change: In the near term mobile power generation appears to have the greatest opportunity for commercial application.
Speaker Change: This supports our none.
Speaker Change: Number of applications, where diesel or.
Speaker Change: Battery power generation will not work effectively Nevada is now undertaking a focused study on the size and timing of our mobile power strategy now I'll turn the call over to Scott to provide more detailed financial results and outlook Scott.
Scott: Thanks, Rajiv and good morning, as you just heard our revenues and adjusted profits improved year over year and sequentially. We had a strong year and ended with a solid quarter.
Scott: I'll start by briefly covering our full year consolidated results, we reported 2020 for revenues of $4 3 billion.
5% improvement over prior year, our year over year topline growth significantly outpaced the global GDP growth rate.
Scott: Full year, adjusted operating profit of $267 million improved by nearly $60 million versus prior year.
Scott: 24, <unk> adjusted operating profit margin was 6% representing the strongest full year performance in the company's history.
Scott: These gains were largely due to the performance of our lift truck business, where revenues grew by 5% and adjusted operating profits improved by 28%.
Scott: 2024, as adjusted net income was $159 million, increasing 26% from the strong prior year period.
Scott: 2024 was a strong year and we took the opportunity to further fund our strategic initiatives.
Scott: We invested in additional sales and marketing staff to help accelerate new product introductions and support our share gain efforts, we invested in new information technology tools that create a more efficient and seamless customer experience.
Scott: Lastly, we initiated the footprint optimization journey enabled by our new modular products.
Scott: As Rajeev stated this will ultimately save us tens of millions of dollars per year and reduce the negative impact of market cyclicality of the business.
Scott: To close out our strong 2024 performance our fourth quarter results were solid at.
Scott: At the consolidated level revenues of $1 1 billion grew by 4% versus prior year and by 5% sequentially.
Scott: Adjusted operating profits were $54 million.
Speaker Change: <unk> by 10% and by nearly 60% compared to prior year prior quarter respectively.
Speaker Change: Adjusted earnings per share was $1 47.
Speaker Change: Next I'll provide color by segment and geography on the quarters performance drivers starting with our lift truck business.
Speaker Change: Q4 lift truck sales increased 4% year over year, largely due to an improved sales mix.
Speaker Change: The Americas benefited from a mix toward higher value class four and five trucks.
Speaker Change: EMEA sales mix was negatively impacted by a shift to class III products with lower average revenues.
Speaker Change: As we further implement our market penetration strategies, we're focused on providing the right product with the right technology at the right price for.
Speaker Change: Our customers wind through higher productivity and lower total cost of ownership and we're better able to deliver on our financial commitments over time.
Speaker Change: Sequentially revenues grew by 6% as a result of increased deliveries in the Americas and seasonality driven improvements in EMEA.
Speaker Change: The lift truck business delivered an adjusted operating profit of $62 million, increasing by 15% compared to prior year and by 55% sequentially.
Speaker Change: William and mixed benefits contributed to strong product margins in the quarter well ahead of our targeted levels.
Speaker Change: Partly offsetting these gains were increased costs for freight and warranty.
Speaker Change: We continue to see historically high freight rates, despite some relief over the past few months.
Speaker Change: We've taken proactive steps to mitigate these costs.
Stripes and geopolitical issues have limited our ability to fully leverage the lower freight rates.
Speaker Change: With regard to warranty cost increases new product introductions often results in increased initial warranty claim rates.
Speaker Change: We're in the midst of a generational product shift toward our new modular scalable designs. These.
Speaker Change: These new trucks or replacing a prior generation well tested and highly reliable trucks.
Speaker Change: Over time, we expect our new models to equal or surpass the quality of the prior generation in part due to the increased component commonality and more focused supply base.
Speaker Change: Turning to bolt zoning the business reported Q4 revenue of $84 million, which was $4 million lower than prior year.
Speaker Change: Q4s adjusted breakeven operating loss was below the prior year level.
Speaker Change: Although need product mix negatively impacted unit margins and lower volumes drove manufacturing inefficiencies.
Speaker Change: Operating expense was above prior year, primarily due to employee costs and the sale of a small noncore business in Europe.
Speaker Change: And new Vera Q4, adjusted operating loss improved sequentially due to lower marketing expenses and reduced employee related costs as a result of head count reduction initiatives initiated in Q3.
Speaker Change: The hydrogen fuel cell industry continues to face slow customer adoption rates due to ongoing hydrogen supply constraints and delayed customer vehicle development programs.
Speaker Change: Despite the very active demonstration pipeline these industry constraints by delaying new various bookings and reducing and shipments.
Speaker Change: Next I'll cover the company's tax position.
Speaker Change: Our Q4 income tax rate was 55%.
Speaker Change: This is significantly higher than the full year 2024 rate of 34%.
Speaker Change: The fourth quarter's increase was due to the non deductibility of the footprint improvement and operational optimization charges.
Speaker Change: Company wasn't able to recognize a tax benefit on these charges due to its valuation allowance position.
Speaker Change: These items will be included in future tax periods as severance and other expenses are recognized.
Speaker Change: 2024 effective income tax rate of 34% is higher than the prior year's rate of 29%.
Speaker Change: Elevated 2024 rate is largely due to the ongoing capitalization of research and development costs for U S tax purposes, combined with the ramifications from the company's U S valuation allowance position.
Speaker Change: This combination also affected 2020 threes tax rate, but the impact was partly offset by our ability to utilize U S. Net operating losses during the 2023 year.
Speaker Change: Turning to the balance sheet in Q4, we generated $81 million of cash from operations, increasing 2020, four's full year generation to $170 million.
Speaker Change: We used a portion of these funds to further reduce debt, which dropped by more than 5% compared to Q3 levels.
Speaker Change: In addition, we delivered on our commitment to shareholder returns with a consistent and strong dividend and a roughly 5 million class a common stock repurchase in the quarter.
Speaker Change: At year end 2024, the company had unused borrowing capacity of $290 million, improving by nearly $30 million compared to the end of Q3.
Speaker Change: We continue to focus on reducing working capital, particularly if your inventory efficiency gains.
Speaker Change: Inventory decreased by $60 million from prior year levels and by $100 million sequentially East.
Speaker Change: These gains stem from better alignment between production needs and on hand materials as we adapt our manufacturing cadence to reduce variation in our factories.
Additionally finished goods held in customer ready status improved due to increased shipping and customer installation discipline.
Speaker Change: As a result, working capital represented 18% of sales in Q4 down from 21% in Q3.
Speaker Change: Now I'll cover our outlook for full year 2025, including color around our first quarter expectations.
Speaker Change: Due to the anticipated decrease in our lift truck production levels in Q1 and for full year 2025, we expect a significant year over year revenue decrease in both periods.
Speaker Change: Lift truck.
Speaker Change: Gross profit margins are likely to decline toward target levels due to the negative effect from reduced volumes and increased market competitiveness.
Speaker Change: Operating expenses are expected to increase year over year in 2025 to support long term profitable growth initiatives.
Speaker Change: We anticipate an operating expense run rate similar to Q4 of 2024 levels each 2025 quarter.
Speaker Change: The company is focused on offsetting a portion of these higher costs through increased use of its low cost shared service capabilities and through more efficient tools and processes.
Speaker Change: As a result of the lower revenues margin decline increased expenses.
Speaker Change: We expect first quarter and full year 2025 operating profit to be significantly below the exceptionally strong 2020 for performance.
Speaker Change: Moving to <unk> 2025 revenues are expected to decline while operating margins should increase.
Speaker Change: Both of these changes are a result of the ongoing phase out of lower margin legacy components sold to the lift truck business.
Speaker Change: <unk> 2025 operating profit is expected to be comparable to 2024.
Speaker Change: At New Vera company is focused on increasing customer product demonstrations and orders, especially for its new hydro charge product beginning in 2025.
Speaker Change: <unk> anticipates full year revenues to increase <unk>.
Speaker Change: Largely due to sales of this new mobile unit designed to provide off grid charging for a variety of electric vehicle types.
Speaker Change: We expect a modest increase in product development cost year over year to support further development of the new more powerful 125 kilowatt fuel cell engines.
Speaker Change: Total <unk> 2025 operating results are expected to improve modestly compared to 2024.
Speaker Change: Due to benefits realized from 'twenty 'twenty four is reduction enforce action.
Speaker Change: Turning to the consolidated view I'll start with our outlook for taxes.
Speaker Change: The company anticipates, its 2025 effective tax rate to be elevated largely due to the ongoing capitalization of R&D cost and its valuation allowance position.
Speaker Change: U S. Congress is actively debating an important tax law change that could reverse the R&D cost capitalization.
Speaker Change: Thus treating them as a period expense.
Speaker Change: If this occurs the companys tax expense outlook would change materially.
Speaker Change: While our effective tax rate is likely to remain elevated two.
Speaker Change: 2025 tax expense is expected to be well below 2024 levels due to lower overall profitability.
Speaker Change: At the consolidated level 2025 revenues and profits are expected to decline significantly compared to 2020 fours operating results.
Speaker Change: This is largely due to the soft global bookings market experienced by our lift truck business in 2024.
Speaker Change: As Rajeev said earlier, we expect our markets to gradually improve in 2025, providing some momentum as we move into 2026.
Speaker Change: The company remains focused on reducing the negative impact from market cyclicality on its business.
Speaker Change: As markets grow and reach new heights, the business should maximize its operational results we.
Speaker Change: We did that in 2023 and 2024.
Speaker Change: Making solid progress toward our long term operating profit goal of 7% for the lift truck and bolt on businesses.
Speaker Change: As markets decline as we anticipate in the first half of 2025.
Speaker Change: Business should remain profitable, but very likely have margins below the 7% target.
Speaker Change: We're working diligently to strengthen our business foundation to create higher highs and higher lows across the business cycle.
Speaker Change: Finally, we intend to generate and deploy cash across all phases of the cycle.
Speaker Change: Turning now to our outlook for cash flow drivers.
Speaker Change: We made progress on reducing working capital levels in 2024, but the gains were well below our expectations.
Speaker Change: Hence efforts to accelerate our improvement pace, particularly around inventories are underway and we expect to generate more substantial progress in 2025.
Speaker Change: Overall, we anticipate cash generated from operations to be comparable to a strong 2024 levels is working capital improvements generally offset the net income decline.
Speaker Change: 2025 capital expenditures are expected to range between 40 and $80 million.
Speaker Change: This wide range of outcomes is due to current economic and geopolitical uncertainty, particularly in the U S and in EMEA.
Speaker Change: We will closely monitor spending during the first half of the year and accelerate investments if the market and our share increase as expected.
Speaker Change: As we continue to generate free cash will follow our disciplined capital allocation framework to reduce leverage make strategic investments that support long term profitable growth and continue to generate strong returns for our shareholders now.
Speaker Change: Now I will turn the call over to al for his comments.
al: Thanks Scott.
Speaker Change: To emphasize the significance of the information Rajeev and Scott you've shared today.
Speaker Change: We had a strong 2024 that build upon the previous year's results, which were robust by historical standards.
Speaker Change: Exceeded our initial expectations, despite a substantial market decline and significant geopolitical uncertainty.
Speaker Change: This was largely due to our lengthy.
Speaker Change: And margin rich backlog built during the robust lift truck markets through 2022 and 2023.
Speaker Change: I'd like to take this opportunity to commend our global team for delivering these strong results.
Speaker Change: Looking forward our path forward as guided by sound long term core strategies I'm confident we have the right team.
Speaker Change: And business structure in place to execute our key strategic programs, whether they're near term cyclical downturn achieve our long term financial goals and provide strong shareholder returns over time.
Speaker Change: That will take your questions.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone you will hear a pod that you had has been raised.
Speaker Change: Should you wish to decline from the polling question. Please press star followed by the Q and if you are using a speaker phone. Please lift the handset before pressing any case.
Todd Jackson: Our first question comes from Todd Jackson Northland Securities. Please go ahead.
Todd Jackson: Thanks for taking my questions.
Speaker Change: Good morning.
Todd Jackson: Good morning.
Todd Jackson: So I wanted to start out I believe last quarter when you had.
Todd Jackson: Discuss the market outlook for 25 and are based off industry data that the.
Todd Jackson: The view was that.
Todd Jackson: Weaker second half stronger I mean first half stronger second half and that for the full year of <unk> 25 that.
Todd Jackson: The bookings market for lift trucks globally would be more or less flat when I go through the commentary with regard to the quarter and what you presented it sounds like that.
Todd Jackson: That that view is tempered somewhat in that the market in a global level.
Todd Jackson: Maybe we'll be down there is that the right way to read the commentary that I've gotten from you all that's my first question.
Todd Jackson: Yes.
Todd Jackson: Hey, Ted its rajeev I'll take that question.
Todd Jackson: But our guidance is pretty consistent with what we said last time, we do expect.
Todd Jackson: The first half to be.
Todd Jackson: Lower of course, as we've stated, but we do see a.
Todd Jackson: From our projections, we see an increase in the second half of the year.
Scott: Scott said and then we.
Speaker Change: Going into a pretty good 2026.
Speaker Change: I think we've described why we had the downturn is because of the.
Speaker Change: The over booking we saw in 'twenty, two and 'twenty, three which moderated and then really curtailed in the second half of 2024.
Speaker Change: The other thing that we hadn't talked about last time is towards the end of the year. After our conference call we saw.
Speaker Change: An increase in cancellations I assume that was driven by customers.
Speaker Change: Adjusting their demand for the upcoming year.
Speaker Change: So that we've talked a little bit about we brought the production rates below what we had anticipated and those two elements were the big drivers for it is the market dropped more than we expected and then we got higher cancellations than we were anticipating so we adjusted for that.
Speaker Change: We expect.
Speaker Change: If I just look at the last couple of months, we and that we haven't seen the same scale of cancellations nowhere near where it seemed to be back to normal levels.
Speaker Change: So we expect that to moderate we still expect the market to be low in the first half.
Speaker Change: And then come back in the second is some of the.
Speaker Change: And the orders that were placed prior again.
Speaker Change: And I am deliveries that have been made get consumed by.
Speaker Change: Customers then applied.
Speaker Change: That makes sense.
Speaker Change: Hello.
Speaker Change: Apologies have switched it seem to lose Carla I can turn it back over to Andrew <unk> for any closing comments at this time.
Andrew: Thank you for your questions. We will now conclude our Q&A session. We thank you for participating a replay of our call will be available online later today well also post a transcript on the hyster Yale website. When it becomes available if you have any questions. Please reach out to me my contact information is.
Julian: On the earnings release I Hope you enjoy the rest of your day and now I'll turn it back to Julian to conclude the call.
Julian: Thank you ladies and gentlemen, this concludes your conference call for today.
Julian: <unk> will be available until March 5th 2025.
Speaker Change: Dialing 188866, GMO suite for five and entering conference code 49516.
Julian: Thank you for participating and ask that you. Please disconnect your lines.