Hyster-Yale Inc (HY) 2012 Q3 法說會逐字稿

Welcome to the Hyster-Yale Materials Handling, Inc. 2012 Third Quarter Earnings Conference Call. My name is John and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Ms. Christina Kmetko. Ms. Kmetko, you may begin.

Thank you. Good morning, everyone, and thank you for joining us today. Yesterday, a press release was distributed outlining Hyster-Yale's results for the third quarter ended September 30, 2012. If anyone has not received a copy of this earnings release or would like a copy of the Q, you may obtain copies of these items on our website at hyster-yale.com.

Our conference call today will be hosted by Al Rankin, Chairman, President and Chief Executive Officer of Hyster-Yale Materials Handling. Also in attendance are Michael Brogan, President and Chief Executive Officer of NACCO Materials Handling Group, and Ken Schilling, Vice President and Chief Financial Officer. Al will provide an overview of the quarter and then open up the call to your questions.

Before we begin, I would like to remind participants that this conference call may contain certain forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements made here today. Additional information regarding these risks and uncertainties were set forth in our earnings release and in our Q.

In addition, certain amounts discussed during this call are considered non-GAAP numbers. The non-GAAP reconciliation to these amounts are included in our 2012 third quarter earnings release, which is available on our website.

I will now turn the call over to Al Rankin. Al?

Good morning. Hyster-Yale Materials Handling, Inc. net income for the third quarter increased 42% to $24.9 million, or $1.48 per share, on revenues of $585 million, and that compares to net income of $17.5 million, or $1.04 per share, on revenues of $629 million a year ago.

Operating profit increased to $28.3 million for the third quarter, from $24.1 million, with operating margins improving to $4.8 million -- to 4.8%, from 3.8%, respectively. Both third quarters reflect the normal seasonal plant shutdown and costs associated with customary third quarter production schedules at the manufacturing plants.

EBITDA for the third quarter and for the trailing 12 months was $38 million and $145.7 million, respectively. I note, of course, that EBITDA is provided as a supplemental non-GAAP measure. Reconciliations are in the earnings release.

At the close of business on September 28, NACCO Industries completed the spinoff of Hyster-Yale Materials Handling Group and the financial results of Hyster-Yale for the third quarter and for the nine months ended September 30, I would note, do not include any additional customary expenses associated with being a stand-alone public Company.

As an independent public Company, Hyster-Yale expects to incur annual incremental expenses of up to $3.5 million pre-tax for normal and customary expenses associated with being a public Company, such as expenses related to public reporting, obligations, director's fees, and insurance.

As an independent Company, Hyster-Yale's Board of Directors will at its first regularly scheduled meeting in mid November evaluate and determine a dividend payout rate. In doing so, the board will consider the financial conditions of the business. Hyster-Yale's current intention is to pay regularly quarterly dividends.

Revenues decreased in the third quarter of 2012, compared with a year ago, primarily as a result of unfavorable foreign currency movements, mainly caused by a weakening of the euro and the Brazilian real against the US dollar and a define in unit volume, primarily in Europe and the Americas. The favorable effect of unit price increases implemented in 2011 and early 2012, primarily in Europe and the Americas, partially offset the decrease in revenue.

In the third quarter of 2012, worldwide new unit shipments were approximately 18,000 units, and that compared to a year ago of 19,600 units. Shipments of 18,700 units were also shipped in the second quarter as a comparison. Worldwide backlog was approximately 25,600 units at September 30, approximately -- and at September 30 the year ago, and approximately 24,200 at June 30.

The significant improvement in net income was driven primarily by improved gross margins as a result of the favorable effect of price increases, mainly in Europe and the Americas, and a favorable shift in sales mix in the Americas to higher-margin products and in Europe to higher-margin markets and products.

Also contributing to the increase in net income, specifically in the Americas, were favorable foreign currency movements which lowered the cost of trucks and components imported from facilities and suppliers located in countries that use the weakened euro and British pound, as well as higher equity earnings of NMHG Financial Services, a 20% Company-owned joint venture, and lower interest expense from lower borrowings and lower interest rates.

These improvements were partially offset by higher selling, general and administrative expenses, mainly as a result of higher employee-related expenses in the third quarter, primarily due to increased headcount in marketing and engineering, and the absence of a $2.9 million pre-tax benefit recognized in the third quarter of 2011 from the elimination of post-retirement life insurance benefits and certain post-retirement medical benefits.

Looking forward, for the fourth quarter of 2012, the Company expects global lift truck market growth to continue to moderate, with global volumes slightly down from the prior year. Flat to slightly higher markets in North America, Brazil and China will be offset by decreases in Western Europe, Japan and Latin America. In 2013, slight growth is expected in the overall global market compared with 2012.

That growth will be driven primarily by increased volume in the Americas, principally as a result of moderate growth in Brazil and Latin America, as well as moderate growth in the Asia-Pacific and Middle East and Africa markets. Europe is expected to continue to decline, mainly as a result of Western European macroeconomic conditions.

In the context of these market conditions, the Company anticipates a slight decrease in overall shipments and comparable parts volume in the fourth quarter compared with a year ago, but an increase overall in shipments and parts volumes in all markets in 2013 compared to 2012, with the majority of this increase driven by the Americas.

Expectations for material cost increases have moderated. The Company expects commodity prices for the fourth quarter of 2012 and 2013 to be comparable with prior year periods. And presently, price increases implemented in the first quarter of 2012 have offset the higher material costs experienced in the first nine months of 2012.

Net income is expected to decline modestly in the fourth quarter of 2012 compared with a year ago, primarily as a result of an increase in income tax expense. An expected improvement in gross margin from an anticipated shift in sales mix to higher margin products and markets during the fourth quarter of 2012 is expected to be offset by higher marketing, engineering and employee-related costs.

Net income in 2012 is also expected to decline -- in 2013. It's also expected to decline compared to 2012 due to an anticipated shift in mix toward lower margin products and markets and to an increase in operating expenses as a result of increases in marketing and employee-related costs to support the Company's five strategic initiatives and the incremental public company costs the Company will incur as a standalone public entity.

Fourth quarter 2012 and full year 2013 geographic segment results are expected to improve in the Americas but decrease significantly in the Europe, Middle East and Africa. The fourth quarter 2012 decrease is expected as a result of weak market conditions in certain European countries and the transition in ownership of a significant dealership.

In 2013, the anticipated decline in the Western European market as those economies continue to be depressed and especially the anticipated effect of a weak euro and the loss in 2013 of the significant benefit in 2012 from currency hedging are expected to contribute to the decline in the Europe segment results.

Cash flow before financing activities for the full year 2012 is expected to be significantly higher than 2011, primarily from reduced working capital requirements as the global lift truck markets continue to moderate in the Americas, China and Asia-Pacific and decline in Europe. Cash flow before financing activities is expected to be down moderately in 2013 compared to 2012.

Over time, the Company is focused on improving margins on new lift truck units, especially in its internal combustion engine business, and gaining market share through the execution of five strategic initiatives -- one, offering the lowest cost of ownership by utilizing the Company's understanding of a customer's major cost drivers and developing solutions that consistently lower cost of ownership and create a differentiated competitive position; second, improving the Company's warehouse market position through enhancing dealer and customer support and incentives and implementing other programs to increase focus on key customers; third, enhancing independent distribution by implementing programs aimed at broadening account coverage of the market, expanding the Company's dual brand strategy, and ensuring strong dealers in all areas of the world; four, expanding in Asian markets through offering products geared toward the needs of these markets and focusing on strategic alliances and enhancing relationships with local partners in China, India and Japan; and fifth, understanding customer needs at the product and aftermarket levels in order to create and provide a differentiated, full range of products and service solutions for specific industry applications.

Specifically in the context of understanding customer needs at a detailed level, the Company is focusing on meeting specific application needs by developing utility, standard and premium products. To this end, the Company's new electric-rider, warehouse, internal combustion engine and big truck product development programs continue to move forward.

The new electric-rider truck program is designed to bring a full line of newly designed products to market. The Company launched the four to five ton electric-rider truck in Europe in early July of this year and expects to launch the final model in the new electric-rider lift truck program in the first quarter of next year.

In 2011, the Company introduced into certain Latin American markets a new range of UTILEV branded forklift trucks, which meet the needs of lower-intensity users. This new UTILEV brand series of internal combustion engine utility lift trucks is gradually being introduced into global markets during 2012. All of these new products are expected to improve revenues and enhance operating margins as well as help increase customer satisfaction.

In addition, stricter diesel emission regulations for new trucks began to go into effect in 2011 and will be in effect fully by 2015 in certain global markets, and the Company expects to launch a range of lift trucks over this period that will include engine systems that meet these new requirements.

That completes my overview of the third quarter earnings of Hyster-Yale as an independent Company and I'd now open up the discussion to any questions that you may have.

Thank you. We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from Robert McCarthy from Robert W. Baird. Please go ahead.

Thank you. Good morning, everyone.

Good morning.

Good morning.

Congratulations on the solid profit recovery in the quarter. I'll ask a handful of questions and then get back in queue, if that's okay. My first question has to do with sales mix. In your outlook last quarter, your expectation -- you indicated expectations for the second half of this year would include weaker sales mix. But in your release, you talk of stronger sales mix in the third quarter and expectations that stronger sales mix will continue in the fourth. I'm wondering, what has changed?

I think that probably the most important thing -- and this is a general comment -- is that our Class III sales volumes have been lower than we anticipated and some of the big truck and higher capacity internal combustion engine trucks have been greater than we anticipated. But I think a number of factors were at play in the difference between our thinking earlier about the second half, and particularly about the third quarter.

In general, the gross profit improved, and a lot of that was related to lower material inflation than we had anticipated. Things have really improved in that area compared with our expectations earlier. Secondly, our expense levels were anticipated to be higher. But because of the uncertain outlook in the second half, we pulled back on some of those expenses, to some degree as a matter of timing, but -- and to another degree just as a matter of recognizing that there were considerable uncertainty.

The developing countries, particularly China and Brazil, have been moderating over the year. And Western Europe, of course, has significantly changed in comparison to the first half of the year. So I think all of those factors came together. It isn't just sales mix. So that's a broader answer to your question.

But very helpful, thank you. And so given your forecast for weaker mix in 2013, I guess I'm really just looking for some color here. It's self-evident to say that you don't expect the trends that you saw in the second half to persist through 2013, but I'm hoping maybe you could expand on that a little bit.

It's pretty tough for me to expand at this point. What we're giving you really is a perspective based on a very rough cut at next year. These numbers will be refined considerably before we lock in profit plans [that of] expectations with our operating people.

And I am reluctant to say too much more about it, in that we certainly expect to have increased bookings in some of these areas where our -- some of these areas where the trucks have lower value, particularly the Class III motorized hand trucks that perhaps we've had through the first nine months of this year. The volumes were somewhat weak.

Those orders can come in in a lumpy fashion and sometimes related to promotional programs that are a part of our activities, and so there's an element of, if you will, one, of strengthened sales in some of the lower margin, lower value products, and at the same time moderating market conditions, particularly in Western Europe. You put that all together and some of the higher value trucks are reduced in sales volume. So Europe is the big uncertainty area.

Yes, okay. Well, I appreciate you sharing your thoughts with us. And so, then, I'll finish up for this round anyway with asking about your comments on net income outlook, again, short-term. After last quarter, you've indicated expectations that the second half would likely be down on the net income.

Given the strength of the third quarter and given that you've identified that the primary driver of a net income decline in the fourth quarter compared with last year would be tax rate, I assume that your outlook more broadly for the second half of the year now no longer includes -- again, this is the second half -- no longer includes a decline compared with 2011.

I think another way to think about it is that our thinking hasn't changed radically about the fourth quarter. It was the third quarter that we thought was going to be quite a bit weaker.

Okay, that's good. And so related to that, can I ask if we remove -- if we neutralize the tax credit or the tax benefit that you had last quarter, your nine-month tax rate, consolidated, is around 18%. Is that the kind of number that we should expect the full year to end up at? In other words, is that roughly a good estimate for fourth quarter? That is, of course, substantially higher.

Let me just not sort of get into the details of the tax rates, but say rather that I think the implication is that the operating profit levels will be relatively similar, we hope, and that --. We had a good quarter in the third quarter in our joint venture in financing, so we had some strong results between operating profit and income before tax.

And you could see some moderation in that area, but the main effect will be higher tax rate. And it's coming mainly from the fact that the -- we anticipate that fully taxable areas will have a stronger impact on our results.

Just as a mechanical matter, the year-to-date third quarter ETR is our forecast for the full year, as any public Company would calculate. So if you're looking for guidance, it's actually in the numbers in the year-to-date ETR, obviously excluding the one-time call-out that Al mentioned on equity earnings.

Yes, okay. Great. That's very helpful. I'll get back in queue. Thank you.

Okay. Are there other questions?

Our next question comes from [Graham Mayhard] from [Lobe Capital]. Please go ahead.

Hi, guys. Congratulations. I joined a little bit late, so I just have two quick questions. One, it looks like, at least what I can tell just going over the numbers, that the decline in European revenues was substantially severe this quarter, but your operating profit year-over-year was up.

And I was wondering if you could speak to sort of, one, sort of the general outlook, what should we look for for the next couple of quarters on that, and then, two, what accounted for the operating profit being up but revenues declining? I don't know if I can just do it in my head, like 16.8%, 17%, something like that.

Remember, I think one of the comments in our earnings release was that currency accounts for a considerable, really a major portion of the revenue decline.

Right.

And so that's a big factor in Europe because the euro is at considerably lower levels than a year ago. And other than that, they had a good quarter in their operating profit levels and that really reflects some of the trends that I was talking about just a minute ago in terms of lower inflation than we anticipated and a better mix.

There are some impacts that we have had and will have perhaps more from -- we had a transition in dealership ownership in one country for one brand in Europe. And in that particular situation, it's going to lead to some improved efficiencies on the part of the dealer. And so there's a period when the volumes will be reduced as they rationalize the distribution operations, and all of that is in our long-term benefit. So there's some short-term consequences, but that's another factor that's coming to bear.

Got it. Got it. Thank you. And then the second question -- again, I'm joining late, so I'm sorry for everybody if I'm reiterating something that you've already said, but are there -- are you guys planning on doing anything with the dividend and when will that be decided and what are you guys thinking about for that?

Yes. I did touch on that in my comments, and I think what I'd do is just reiterate what I said very briefly because I think that's all we're prepared to say at this point. And I just said that Hyster-Yale is now an independent Company and the board of directors, which is going to meet in mid November, will evaluate and determine a dividend payout rate.

And, of course, obviously it will be based on the financial conditions of the business and the assessment of the board as to appropriate dividend rate. But I noted that it is Hyster-Yale's current intention to pay regular quarterly dividends.

So at this point, that's all that we can say. We don't speculate on those numbers, but we will be having that discussion with our board in a week-and-a-half, I guess.

Right, right. I understand. All right. Guys, thank you very much. Congratulations.

Thank you.

Our next question comes from Jon Braatz from Kansas City Capital. Please go ahead.

Good morning, gentlemen.

Hi.

I'm rather new to Hyster, but I guess my first question is, as an independent Company now, are there some things that you might be able to do that you were unable to do, either on a manufacturing basis, spending basis, some things that you might be able to do that you were maybe constrained in doing before as part of a larger Company?

We set out in our press releases at the time of the spin-off some reasons for spin-off, and I would just say a couple of those as things that probably fit into the category that you are raising. The most important one, I think, is clearly that we believe we can align senior management incentives more effectively with the shareholders' interests and the needs of the business by being a public Company.

We are implementing a long-term incentive compensation program which will be based on a numerical grant that's appropriate for each position in the Company. The individual will receive enough cash to pay the taxes on that grant, and the remainder will be paid in stock of the public Company. And that stock can't be sold for 10 years.

So the performance of the Company over the long-term as a public entity and as long-term valuation will be a primary driver of the holdings of our senior management team. This is a program we've used to considerable effect at NACCO Industries, but only with NACCO Industries employees, because we have a belief that each one of our subsidiary companies should be compensated based on the results of that individual subsidiary company.

So now, we can combine the approach that we used with NACCO and with the subsidiary Hyster-Yale because it's now spun-off. So that's one key reason for it.

A second one I've mentioned is that we anticipate that there will be a number of opportunities to enter into various kinds of growth arrangements, especially in Asia, which we think may in one way or another involve the use of Hyster-Yale's stock as a public entity. It may not be necessarily in a direct sense of acquisition, it may be in association with the joint ventures and partnerships. But nevertheless, we feel that that is a flexibility that will be beneficial.

I guess more generally you could also say that it's pretty clear under this kind of arrangement that everybody's focused on materials handling industry, there's a more direct connection with the public marketplace, with investors.

And I think overall this is going to be beneficial to the Company and it's certainly been well received by our Hyster-Yale and NACCO Materials Handling Group -- that's the operating Company under Hyster-Yale -- employees.

So I think this is all very positive in terms of motivation and direction and reward.

Okay, okay. I have a couple of other questions. I spoke with -- I called a couple of your dealers, and I guess I was sort of taken aback by the fact that one of your dealers says his biggest competitor [hotwire] -- your Hyster dealer said his biggest competitor is the Yale dealer. And I guess -- how pervasive is that and how often are your Hyster dealers indeed competing against Yale? And is that my -- it's probably a little depressing --

No, that's a comment we hear from time to time. And it's not surprising, but I would note two things. Number one, there's plenty of territory out there other than the two -- the Hyster and Yale dealers -- for people to compete against. But more importantly, we have underway a program of what we call dual ownership of our distribution.

Okay.

And so I think it's -- one of the five strategic programs is called enhancing our independent distribution. And the logic behind dual distribution ownership is that the Yale dealers can be focused in the areas of their strength, which tends to be lighter duty applications and warehousing applications, and that Hyster dealers can be increasing -- can increasingly focus on areas of their strength, and they have a terrific reputation in heavy duty applications and indeed carry exclusively the big truck line at the higher levels.

So the idea there is that if a dealer owns both he's not going to want his efforts of his salespeople and others to be focused on anything other than separate segments of the market. And so I think that's the direction we're moving. In general, though, the issue that you mentioned tends to be one that only influences things on the margin in terms of economic margins, not in terms of market share.

But it's an issue that we're sensitive to, that we manage, and we've been managing it for a long time and there's no amount of -- sometimes individual dealers simply seeing the competition and reacting in the way that you heard about as opposed to telling you the stories about the deals that they've had difficulty with with regard to Toyota and others.

Yes, okay. One last question. CapEx spending, I think in the 10-K you maybe talked about maybe $25 million for this year. Is that a number that we should see going forward?

It's been moving up in comparison to 2011. I think it's up -- that number would be up $8 million or so. And I think that you can assume that our capital expenditures would be higher in 2013, but there are going to be some special activities going on in 2013 in our Brazilian operation. We have a plan, which is proceeding forward, to construct a plant to replace the one that we have, which is in the central city of Sao Paulo, and there will be some substantial capital expenditures associated with that.

But I would say, if you looked in the longer-term, probably the running rate is going to be somewhat higher than the number for 2012, but considerably lower perhaps than what we anticipate for 2013. Let me just say that I have to caveat that with saying that we don't have full visibility on 2013 yet. We haven't really -- we've got an indication which I would call something of what people would like. And, as you well know, in capital expenditures, what people might like is not necessarily what we conclude is the best thing to do for the Company.

Right.

So we're in the process of getting all of the ideas out on the table, and over the next couple of months we'll be setting priorities. But that gives you some general flavor, I think.

Okay, thank you very much.

Yes.

Our next question comes from [Jeff Monette] from (inaudible). Please go ahead.

Hi, guys. Nice quarter.

Hi.

I wanted to touch on something from your release, where it basically alluded to the transition in ownership of a significant dealership in the network. Can you give a little bit of color around that?

I think I mentioned that just a minute go, in Europe we have a situation and it happens to be in one of these dual distribution -- dual ownership distribution situations that I just described. We're very pleased with the transition in ownership, but what it means is strictly that the dealer will rationalize things like his inventory management system and parts, his administrative and overhead structure. He's bring down certain inventory levels from the levels that the previous dealer had. It will reflect simply better management as well as some element of management within a dual ownership situation.

So what we mean by transition is just that the dealer -- the new dealer is in place, up and running, bought the old dealer, but that there are some short-term consequences in terms of immediate volume as we get to what we expect to be a much better position than we have been in for the last few years.

So ultimately a timing issue rather than a more severe long-term problem?

Oh, it's quite the reverse. This is really good news.

Excellent. That's good to hear.

It's just got a little short-term issue connected with it, so maybe we should have made that clear.

Very good. Thanks very much, guys.

Yes.

Our next question comes from Robert McCarthy from Robert W. Baird. Please go ahead.

Thanks. Yes. I wanted to actually in a way follow-up on the question you just got, focusing on Europe and your outlook for next year. In your outlook comments about 2013, you specifically call out expectations for an increase in shipments and parts volumes in all markets. But then, when talking about segment results later in your release, you're very specific about the expectation for a significant decrease in Europe, Middle East and Africa.

So I wondered if you could talk about the apparent dissonance between that. I assume that the hedging gains that you identified from this year are perhaps the large swing factor that explains --.

Let me back up, first, and address --.

Okay.

-- another part of it. The comments about the declines have to do with markets. The comments about the increases had to do with our volumes.

Yes.

And we had a number of factors that hampered our own volumes or, if you will, market share. There were a couple of things of particular note going on. One was some of the transition in dealerships that I just described. A second is that some of our higher share markets -- Spain and Italy -- were undergoing greater market contraction this year, and the change in ownership occurred in a high share situation.

In addition, our market shares have been moving up sort of quarterly in 2012, so we're looking for improved shares as a result of the sort of stabilizing at the markets and not having the dealer inventory readjustments that occurred in some cases in -- especially in Spain and Italy. Because from the dealer's point of view, when the market goes down they have inventory.

The inventories are calibrated to a higher market level, and when the market declines, the first thing they do is stop ordering trucks, except for special customer orders, and they work through the inventories and so there's a delayed flattening for us.

And because we have independent distribution, our dealers react immediately when there's a change in the marketplace. It's our belief that many of the other -- many of our competitors who own some or all of their distribution don't manage their businesses in that way, and it's one reason why their dealers have a lot more capital involved and they own a lot of that. So our perspective is that in the long-term, in terms of returns on capital, this is just fine. So that's really the answer I would give you.

If I can extrapolate from that a little bit, it might be fair to say then that if we were able to weight the 2013 European market outlook for your relative strength, regionally within Europe, that you expect market conditions, although it may still be declining, it would be less of a headwind next year than it has been in '12?

I think that's a fair comment. For example, if Germany declines, which we expect is likely to happen -- the German market, that is --

Right.

That's not a big impact for us because our share position is considerably lower. That's the heartland of our competitors.

Yes.

And so there's that factor. But remember, we have five strategic initiatives underway and we expect those over the next three to five years to -- on some sort of [oppressive] basis, to improve our share position. So there are a group of factors coming together which we expect to lead to improved unit volumes next year despite the market outlook.

And --

But let me say, we'll be -- I've always got a caveat, just by saying that we've got some preliminary numbers here that we're working with. Secondly, our attitude -- we have a process of top level review of market sizes, market shares, and plant loading. And with uncertain market conditions, such as we have now, in the short-term, we would rather run the risk that the backlog goes up than that we can open slots in our manufacturing plants. And so we're trying to be pretty conservative.

You saw in the third quarter that our backlog went up in comparison with the June backlog. And our backlogs are within reason, and if they go up it's going to affect our ability to get business. But nothing is really more damaging to our profitability and productivity than open slots, which mean that too much material is coming in, inventories go up, the plants become less efficient, and so on and so forth.

So from an attitudinal perspective, we're in a cautious forecasting mode and will be as we refine our estimates for next year -- our guesstimates for next year and putting our profit plan together. And the theory behind that is if things get better, believe me, we can respond. So that's an additional perspective for you.

Thank you. It sounds like a way to go. So I just have two other questions I wanted to ask, one about pricing and one about free cash flow. You commented that commodity prices, input costs have stabilized. You're getting some contribution right now from past price increases. Would it be fair to say that without resumed signs of cost inflation we should not expect any material price increases from you for 2013? Or is some form of price increase a regular annual event for Hyster-Yale?

Well, I wouldn't call anything to do with pricing a regular annual event. We will certainly be looking at selective price increases where we think that the margins are not reflective of what they should be and where we think the market conditions are adequate to help us recover other kinds of costs that do continue to go up.

For example, even though material costs are not going up, our salaries are continuing to go up and our -- obviously our -- at least in the United States, our benefit costs are going up. So there is a motivation to do what I would call more modest and selective price increases, and we'll be looking at that very carefully.

And then, I think it's fair to say that is a process that would go on every year, except those years when the industry's in a downturn situation and that cyclicality sort of overwhelms that.

Right.

And your second question was --?

Your free cash flow outlook for 2013 is for it to decline modestly -- or, I'm sorry, moderately from 2012. You mentioned capital spending going up. I surmise from the comments in the release that you expect a smaller contribution to cash flow from working capital as well. I'm wondering, one, can you confirm that that would be the case? And two, which of the two things would be the bigger driver of the decline?

Well, I think -- I guess on balance that there will be some working capital usage next year, in all likelihood, just given the unit volume forecast that I gave, assuming that we stick with those forecasts.

Right.

And so there is some increase in working capital, although certainly before we're finished we don't expect that the days outstanding as a percent of sales are going to change in any significant way. And, of course, at the end of the year it's dependent on what we see coming up in 2014 more than it is 2013, and we do see conditions better. I think in '14, and we'd be moving through, we certainly hope and expect at this point, moving through some of the weaknesses, especially in Europe.

And I think I outlined the CapEx story. There will be maybe some changes in Europe. We have some projects that have been delayed for a period of time, but the big issue is the Brazilian one that I mentioned in the Americas. And that program, we'll be looking at the timing of that. We've got some final timing decisions to be made, which are closely linked to the final timing of the acquisition of the property, and that process is underway.

On the other hand, we are implementing a new SAP system in Brazil that's an expensive operation. That's the one place around the world where we have not had the up-to-date systems that we have in the rest of the world. Those are being implemented. I think the teams are down there now, really getting that project going, and that's a substantial capital project. That's about all I can give you at this point.

All right. Thank you for all your comments.

Okay.

Our next question comes from Ross Haberman from Haberman Management. Please go ahead.

Good morning, gentlemen. How are you?

Great.

Just two quick questions. You talked a lot about the capital expenditures. Could you break that out and tell us sort of what's for the -- what's for expansion plans and what's sort of maintenance number of the $25 million you referred to?

Of the $25 million, there's really no expansion in those numbers. When the Brazilian plant goes forward, there will be some element of replacement and some element of expansion. I think the perspective that perhaps is the most important thing to have at this point is that we have made very significant changes to our plant and equipment over the last 5 to 10 years.

That has left us with fewer plants, less backward integration, much higher throughput capacity, and much higher productivity and efficiency. But it's also left us, with exception of Brazil, with modern, upgraded plants, all of which have fully implemented demand flow technology in their assembly operations and other operations, which is our particular vehicle for implementing lean manufacturing in the Company.

And so we have plenty of capacity to respond to volume increases, both from the market and from our share gain objectives. The market in the developed world is not back yet to where it was in 2007, especially in the United States where we have the highest share position.

So capacity increases are not really the issue for us. It's much more mundane issues of replacement that we're focused on at this stage of the game, with the exception -- again, I emphasize -- of Brazil, where we have a plant that I believe is about 50 years old and in the wrong place.

And just one other question. You talked about, I think your discussion, about I guess you're bringing out I guess a lower priced product. Could you talk in general about any acquisitions or are there any other product lines which you guys are looking at? Or you have all the product lines you want and you're just -- you're real focused going forward as to going to make it more efficient as opposed to going out and buying another company with a different type of product line to either vertically integrate or diversify up it?

Well, the way I would answer the question is to say that we have or are close to having, through our product develop programs, a full line of products that are appropriate for the forklift truck industry. So we don't have motivation to either acquire or develop in brand new areas at this point.

We've got some flushing out to do in both utility product line that you referred to, where we don't have all the products in place in all the countries. And that's well underway. And secondly, in what I would call the standard products, where we have some of the products in place and we have programs to address that more comprehensively.

The other way to answer your question is to say that in putting ourselves in a position to offer these products at the lowest cost, we have supply chain activities which include partnerships. And those partnerships can be sources of appropriate product at appropriate costs. And we have those in and we've had those in Japan for over 40 years. We have, effectively, working partnership arrangements in China as well.

And some of these are focused on components and some of them are focused on certain kinds of trucks where we have concluded it's economic to buy the truck and ship it to where it needs to be sold rather than fabricate and assemble it in our own direct operations, although some of those may in the course of time be joint ventures, which is the way we do business in Japan.

So what I see is much more of that kind of activity as opposed to the sort that you mentioned at the opening of your question, which would really involve acquisition for purposes of having new product lines.

Thanks a lot, guys. The best of luck.

Okay. Other questions?

We have no further questions at this time. Mr. Rankin, do you have any closing remarks?

I'd just like to thank everybody for joining in on this first earnings announcement for Hyster-Yale. And I think that the Company is off to a good start and we have real expectations that the added motivation that's going to come from being an independent Company is just what we need at this point in time. That's it. Thank you.

Thank you for joining us today. We do appreciate your interest. And if you do have any additional questions, you may reach out to me at 440-449-9669. Thank you and have a wonderful day.

Thank you, ladies and gentlemen. This concludes today's conference. There will be a replay available 90 minutes after the conclusion of the call. To access the replay, please dial 888-843-7419 and use pass code 33644991 followed by the pound sign. Thank you for participating. You may now disconnect.