Hyster-Yale Takes a Big Hit on Its Bottom Line

By Markets Fool.com

Sometimes, focused businesses do best, and Hyster-Yale Materials Handling (NYSE: HY) has concentrated on helping customers move their inventory with its forklift products. The problem with that type of business is that it depends on the health of its industrial customer base, and coming into Tuesday's third-quarter financial report, Hyster-Yale investors expected that earnings would fall substantially even if revenue managed to post modest growth. Hyster-Yale ended up disappointing shareholders on the top line as well, with both sales and net income declining from year-ago levels. Let's look more closely at how Hyster-Yale did during the quarter and whether it can bounce back in the near future.

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Image source: Hyster-Yale.

Hyster-Yale drops the ball

Hyster-Yale's third-quarter results fell short of expectations on all counts. Revenue fell 3.5% to $629.3 million, in stark contrast to expected sales gains of about 4%. Net income fell more than 40% to $12.3 million, and that produced earnings of $0.75 per share, below the consensus forecast for $0.80 per share.

Taking a closer look at the numbers, Hyster-Yale's operational performance was also weaker than it's been in past quarters. Unit shipments of lift trucks worldwide fell by 2,100 units to 20,300. Looking ahead, though bookings did manage to post a solid bounce, climbing by 1,800 units to 20,400. That brought worldwide backlog up to 30,600 units, higher by 3,500 from year-ago levels, and those orders should be worth about $730 million. Nevertheless, the lift-truck business posted a severe decline in segment profitability, with operating earnings falling by more than 40%.

All three of Hyster-Yale's geographical segments saw overall revenue declines. The Americas region was particularly weak, with a 10% drop in revenue stemming from lower shipments across the region, especially in North America and in Brazil. Deal-specific pricing in the North American market and lower parts sales also hurt the top line for the region. Meanwhile, revenue losses in Europe, the Middle East, and Africa were limited to about 6% on reductions in certain types of warehouse and internal combustion engine trucks, and the Japan and Asia-Pacific region suffered 12% declines in sales on a relatively small base of revenue.

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Meanwhile, Hyster-Yale's other businesses kept losing money. Fuel-cell subsidiary Nuvera had a net loss of $7.6 million, while the recently acquired lift-truck attachment company Bolzoni suffered net losses of $2 million. Nevertheless, the company celebrated the first deliveries of Nuvera Fuel Cell systems, and Hyster-Yale hopes that this will prove to be the first step in making the unit profitable in the long run.

What's ahead for Hyster-Yale?

Hyster-Yale provided mixed guidance for its various segments. In the Americas, profits from the fork-lift business will likely fall in 2017, while better economic conditions in Europe should improve results there. The Asia-Pacific outlook calls for little change. Overall, higher tax rates are expected to cut into Hyster-Yale's earnings in 2017, and tailwinds from lower commodity costs could further threaten net income even if market share gains and stable global markets keep revenue rising.

Still, that isn't stopping Hyster-Yale from trying to innovate. The company is looking to gain market share by emphasizing its competitive advantages, including low cost of ownership and independent distribution. At the same time, new products like its Pedestrian Pallet Stacker and a new lift truck line with a Class 5 internal combustion engine have already started to be made, and Hyster-Yale expects them and other products to help boost name recognition and overall sales.

In the long run, Hyster-Yale investors have to hope that the global economy will bounce back and get companies more interested in investing in equipment to help make them more efficient. When that happens, it will be Hyster-Yale's best chance to increase its business penetration and make the most of an end to tough times among its key customers.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Hyster-Yale Materials Handling. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.