Hyster-Yale Materials Handling, Inc. (NYSE:HY) Q3 2023 Earnings Call Transcript

Hyster-Yale Materials Handling, Inc. (NYSE:HY) Q3 2023 Earnings Call Transcript November 1, 2023

Operator: Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hyster-Yale Materials Handling Third Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Christina Kmetko, Investor Relations, you may begin your conference.

Christina Kmetko: Thank you. Good morning, everyone, and thank you for joining us for Hyster-Yale’s 2023 third quarter earnings call. I’m Christina Kmetko, and I’m responsible for Investor Relations. Yesterday evening, we published our third quarter 2023 results and filed our 10-Q, both of which are available on our website. We are recording this webcast. The webcast will be on our website later this afternoon and available for approximately 12-months. I’d like to remind you that our comments today, including answers to any questions, will include statements related to expected future results of the company and are, therefore, forward-looking statements. Our actual results may differ materially from our forward-looking statements due to a wide range of risks and uncertainties that are described in our earnings release, 10-Q and other SEC filings.

We may not update these forward-looking statements until our next quarterly earnings conference call. With me today are Al Rankin, Executive Chairman; Rajiv Prasad, President and Chief Executive Officer; and Scott Minder, our Senior Vice President, Chief Financial Officer and Treasurer. With the formalities out of the way, I’ll turn the call over to Rajiv to give his perspective on our strong third quarter results in the global Lift Truck markets.

Rajiv Prasad: Thanks, Christie, and good morning, everyone. I’m pleased to report that Hyster-Yale had another strong quarter with significant year-over-year revenue and earnings growth. We’re continuing to gain momentum as supply chains improve, and we are benefiting from actions we have taken over the past several years to drive growth and sustainable profitability. In the third quarter, consolidated revenues grew by 19% or $161 million to just over $1 billion. Our operating profit improved by almost $84 million from a prior year loss. These results exceeded our expectations for several reasons. First, product margins expanded faster due largely to lower-than-anticipated material costs. Second, we sold more higher-margin aftermarket parts, and we had lower operating expenses than forecasted.

On a global basis, our third quarter shipment increased by 5% over prior year. This was driven by a 23% increase in the Americas, where regional supply chains have significantly improved. Shipments declined in EMEA as production rates were hampered by new product launch issues and a handful of critical component shortages, particularly at our Nijmegen big truck facility. Shipments were lower in JAPIC as a portion of their product coming from EMEA were negatively impacted by production challenges. We continue to experience skilled labor shortages in many of our factories. This contributed to planned production and shipment rate constraints in the quarter. In the fourth quarter of 2023, we are planning to increase production rates and expect Americas shipment to increase moderately.

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Q&A Session

These high shipments will likely be more than offset by fewer EMEA shipments while we continue to resolve new product launch issues during the quarter. As a result, we expect a modest decrease in consolidated fourth quarter shipments compared with prior year. In 2024, production and shipment rates are expected to improve in all regions compared with 2023 as component constraints further dissipate and we have a smoother production cadence on our new products. Now I’ll move to discussing global market order activity. The latest publicly available Lift Truck market data shows that second quarter 2023 booking activity decreased compared with robust prior year levels. Decreases occurred in all major geographies except China. Our internal estimates suggest that third quarter 2023 global Lift Truck market bookings also decreased compared with prior year.

We believe that rate of decline slowed in Europe but increased in the Americas. The year-over-year decline in global market bookings is expected to continue into the fourth quarter of 2023. With this fourth quarter decline, the full-year 2023 market is estimated to experience double-digit decrease from robust 2022 levels. In 2024, the global Lift Truck market is forecasted to be comparable to 2023 levels. Our first-half market bookings decline should be offset by a second-half increase. Despite the year-over-year unit decline, 2024 market volume should compare favorably to pre-pandemic levels in most regions. In line with the broader market, our Lift Truck third quarter bookings decreased compared to second quarter and prior year levels. Our continued focus on booking orders with strong margins added to the market-related decrease.

As our strategic initiatives continue to mature, we increased our Americas market share over both the second quarter and prior year despite the forecasted market decline. Fourth quarter 2023 bookings are projected to increase modestly year-over-year due to ongoing market share gains. We expect full-year 2024 bookings to increase year-over-year after a market-linked decline in the first quarter. Continued market share gains with India and overall flat global markets are driving this improvement. With the combination of the increased production and lower bookings during the third quarter, we reduced our extended backlog by 8% from second quarter 2023 and by 22%, compared to prior year. Our backlog is now at its lowest level since the first quarter of 2021.

Planned production increases in the 2023 fourth quarter and 2024, combined with anticipated market decline through the first-half of 2024, should enable further reductions to our extended lead times and backlog levels. This will ultimately help us return to pre-pandemic levels over time. Given current expectations, our lead times and backlog levels will likely remain above optimal levels for much of 2024 on certain product lines, although some product lines such as our warehouse trucks are expected to return to more normal lead times and backlog levels within the next year. At the end of the third quarter, our backlog value was $3.5 billion. This represents almost a full year of revenue and should serve as an initial shock absorber for the business if bookings declined more than anticipated.

As we said in the second quarter, we have largely worked through the lower-priced aged backlog unit. We’re now building and shipping units that are appropriately priced for the current material cost. As a result, the trend towards higher average unit prices and margins in our backlog continued in the third quarter largely due to benefits from prior year pricing initiatives to offset inflation. Our average sale price per backlog unit increased 21% over the prior year and 7% over the second quarter. Third quarter 2023 average booking prices were flat compared with second quarter 2023 and declined modestly versus prior year. The latter was largely due to product mix, specifically a high percentage of lower-priced warehouse truck orders. We’ll work to balance our pricing and booking rates based on production lead times on a line-by-line basis, all to maximize profitable growth and free cash flow over time.