Hyster-Yale Inc (HY) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 Hyster-Yale Materials Handling, Inc. Earnings Conference Call. My name is Jackie and I will be your coordinator today.

At this time all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. (Operator Instructions) I will now like to turn the presentation over to Ms. Christina Kmetko, please proceed.

Thank you. Good morning, everyone. And thank you for joining us today. Yesterday the press release was distributed outlining Hyster-Yale's results for the 2013 second quarter. If you have not received a copy of this earnings release or you would like a copy of the Q, you may obtain copies of these items on our website at www.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 on the call 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 was set forth in our earnings release and in our 10-Q. In addition, certain amounts discussed during this call are considered non-GAAP. The non-GAAP reconciliations of these amounts are included in our 2013 second quarter earnings release, which is available on our website.

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

Thanks, Christy. As all of you probably know, Hyster-Yale Materials Handling announced net income of $36.2 million or $2.16 a share on revenues of $660 million for the second quarter of 2013. That compared with net income of $19.5 million or $1.16 per diluted share on revenues of $602 million in the second quarter of 2012. Operating profit increased to $35.9 million for the second quarter of 2013 from $24.6 million in 2012.

The second quarter 2013 effective tax rate was a negative 4.9% compared with an effective tax rate of 9.3% in the second quarter of 2012. The 2013 tax rate includes a tax benefit of $12.8 million or $0.76 per diluted share from the release of certain portions of previously recorded income tax valuation allowances related to the Company's European operations.

The second quarter 2012 effective tax rate includes a tax benefit of $2.1 million from the release of a deferred tax liability provided for unremitted foreign earnings in the second quarter of 2012.

EBITDA for the trailing 12 months ended June 30, 2013 was $159.6 million, and the Company's cash position was $162.7 million as of June 30, 2013. Debt at that same date decreased to $134.8 million from $142.2 million as of December 31.

The stock repurchase program that's in place permits the purchase of up to $50 million of the Company's outstanding Class A common shares. And since the inception of the program in November of 2012, Hyster-Yale has purchased approximately 100,000 shares for an aggregate purchase price of $5.2 million, including $3 million purchased during the six months ended June 30.

Revenues increased in the second quarter compared with the second quarter of 2012, primarily as a result of an increase in unit volumes and parts sales in the Americas. In addition, price increases implemented in 2013 mainly to offset the impact of weakness in the Brazilian real also favorably affected revenues. Unfavorable foreign currency movements mainly attributable to a weakening of the Brazilian real against the US dollar partially offset the increase in revenues.

In the second quarter, worldwide new unit shipments increased, primarily in the Americas, to approximately 20,900 units from shipments of approximately 18,700 units in the second quarter of 2012 and approximately 20,800 units in the first quarter of 2013. Worldwide backlog was approximately 29,300 units at June 30 compared with approximately 24,200 at June 30 a year ago and approximately 27,500 units at March 31st of this year.

The significant increase in the second quarter 2013 net income compared with the year ago quarter was driven by a substantial increase in operating profit and the $12.8 million tax benefit. Operating profit for the second quarter of 2013 improved mainly due to an improvement in gross profit as a result of the increase in units and parts volumes and the favorable effect of price increases all mainly in the Americas.

These improvements were partially offset by higher employee-related expenses in the second quarter of 2013 primarily due to higher incentive compensation estimates and increased marketing expenses to support the Company's five strategic initiatives.

Looking forward, the overall global market is expected to continue to grow moderately in the remainder of this year compared with 2012. This growth is expected to be driven primarily by increases in the Americas as a result of growth in Brazil and Latin America, and continuing recovery in North America demand, and by moderate growth in the Asia-Pacific, Middle East and Africa markets.

Europe markets are expected to remain weak mainly as a result of Western Europe macroeconomic conditions. In the context of these market conditions and expected increases in market share, the Company anticipates an overall increase in unit shipments and parts volumes over the remainder of this year compared with the year ago. The majority of this increase is expected to come from the Americas with weakness in Western European unit shipments.

The Company expects operating profit for the remainder of this year to be down slightly from the second half of 2012. An increase in operating expenses, as a result of increases in marketing and employee-related costs put in place over the course of 2012 and in 2013 to support the Company's five strategic initiatives, and the effect of incremental public company costs the Company will incur as a stand-alone public entity in the third quarter, is expected to offset the expected increase in gross profit as a result of increased sales volume.

Net income in the second half of this year is expected to decline compared with the second half of last year as a result of the absence of the $10.7 million valuation allowance release taken in the fourth quarter of last year and an expected higher effective income tax rate. The higher effective income tax rate, excluding the effect of the second quarter valuation allowance release in 2013, is primarily because the Company will now record the effect of US state, European and Australian income taxes in the second half of this year and future years and income is expected to shift from Europe to the Americas.

Geographic segment operating profit results for the second half of this year are expected to continue to improve over the second half of 2012 in the Americas segment, which includes the North America, Latin America and Brazil markets, but decrease, especially in the third quarter as a result of seasonal shutdowns in the Europe segment, which includes the Middle East and Africa markets.

Within Europe, the anticipated weakness of the Western European market and the absence this year of the significant benefit gained in the second half of 2012 from currency hedging are expected to contribute to the decline in the Europe segment results. Asia-Pacific results for the second half of this year are also expected to be lower than the second half of 2012 largely due to a decline in value of the Australian dollar.

Cash flow before financing activities in 2013 is expected to be significant, but decline compared to 2012, as the Company anticipates an increase in capital expenditures in 2013 largely due to the construction of a new plant and to information technology enhancements in Brazil.

The Company remains focused on gaining market share over time as well as on improving margins on new lift truck units, especially in its internal combustion engine business, through the execution of its five strategic initiatives. We have previously outlined those five strategic initiatives, and they are outlined in detail in the press release.

Also, to meet the specific application needs of its customers, the Company is focusing on developing utility, standard and premium products. To this end, the Company has development programs underway for its electric-rider, warehouse, internal combustion engine, and big truck product lines.

The launch of the final model in the electric-rider lift truck program, the four to five ton cushion tire electric-rider truck, in the Americas, during the first quarter of 2013 completes the upgrade of this product line to position it as a leading solution for customers who desire environmental, running cost and productivity benefits of electric counterbalanced trucks.

In the future, as segments and applications emerge, some niche projects -- products are expected to be introduced on this platform. With the completion of the Electric Rider program, the Company has now launched new platforms or significant upgrades to the majority of its product line.

Beginning in 2014, the Company is instituting a new model year update program for annual improvements of key performance and capability features of its existing lift truck model platforms. This new program is expected to keep these platforms soundly positioned in the market over time.

Improvements will be timed for different product lines through the year to ensure resource leveling and efficient program execution. New platforms are expected to be developed and launched on emerging segments or significant technological changes.

To support its warehouse growth initiative, the Company expects to introduce a new Reach Truck for the European warehouse industry in the first quarter of next year along with major upgrades to its Americas warehouse products by the fourth quarter of this year.

In mid-2011, the Company introduced into certain Latin American markets a new range of UTILEV-branded lift trucks, which meet the needs of lower-intensity users. This new UTILEV-branded series of internal combustion engine utility trucks was gradually introduced into global markets during 2012, and is expected to continue to gain market position this year.

The Company offers only one to 3.5 ton internal combustion engine UTILEV lift-truck models and one model for both Hyster and Yale of the standard internal combustion engine lift truck for medium-duty applications. In 2013, the Company expects to expand its UTILEV lift-truck series. The Company also expects to launch additional trucks in the standard model series in future years.

That completes my overview of the second quarter earnings results for Hyster-Yale Materials Handling. And I'd now be happy to answer questions.

(Operator Instructions) Mig Dobre, Robert W. Baird.

Good morning. Mig Dobre with Baird. Congratulations on a very, very good quarter.

Thank you.

Can you maybe provide us a little bit more color on how you're thinking about the total number of units that you're looking to ship this year? You've done about 42,000, I think year-to-date and obviously you're on track for about 82,000. I'm wondering if you sort of see this run rate pick up in the back half considering that you've had very strong bookings, as far as I can tell probably the best bookings since 2008.

Well, at this point, I would say that our bias is still toward keeping our bookings, our backlog levels at pretty full levels, and there are still uncertainties in various areas around the world, particularly as we indicated in our press release in Western Europe. And also there are unsettled conditions, economic conditions in Brazil and although China wouldn't affect us directly, it can have an indirect effect.

And so you know, I think we're going to stick with what we said in the press release, which is that, we certainly do expect an increase in unit shipments over the remainder of this year compared to a year ago, but sort of quantifying that is something I don't think we want to go further at this point than we really are saying here because, as I say, we have some flexibility as to when we produce units and from our vantage point, it is -- we have to meet customer lead time needs within the flexibility that we have.

We want to make sure that when we add people in our plants around the world that they're going to be there permanently, the demand is truly developing and then our market share programs are developing in a way that we are anticipating. And so, I think we'll stick with what we've said in the press release.

Okay, well, when I look at your bookings year-to-date, strong in both the first and the second quarter. Can you sort of maybe help us better understand how much of this was purely the market growing in the Americas and how much of it was perhaps you outgrowing the market and gaining some share because that's something that you highlighted as a focus for the Company, and as an add-on to that, what role did UTILEV play here?

I think again what I'd rather do is talk about our full year perspective because we have customers that are highly seasonal in their purchasing habits and so I think it's still certainly our perspective that we'll have increased share for the full year, and secondly as we said that we are seeing growth in the Americas markets Brazil, Latin America, recovery in North American demand.

And the rest of the world is probably not growing a lot as we see it. So, we're more dependent on the execution of the share gain programs in other areas of the world. But that's kind of the overall story that I think we see.

So let's assume that you're going to continue the run rate that you currently have on shipments and you're going to do about 80,000 units this year. If I look historically, the prior peak that you had was back in, I believe, 2007 and 91,000 units shipped. I guess I'm wondering how should we think about the pent-up replacement demand that still exists out there in the market, how long do you think it's going to take you to get back to the prior peak? Is this a one or two year event. Can you exceed the prior peak given new product introduction? Can you give us any color there?

Yes, let me just say I think [there's less to] comment about our units sold because that's a function of our share in the markets. But let me comment more to your point about the markets. I still think that in the major markets in the western world that we're seeing still a moderate, cyclical upturn.

And so, as we are looking at it, we see the opportunity for the market to continue to grow. If you exclude the sort of the element of China which -- where our position is much, much smaller, we see it continuing to grow through the end of the five-year period so from 2012 to 2017, but it begins to moderate in '16 and '17. So, we don't see it coming to a peak.

And we see continued growth from the levels of 2013 through '14 and '15, but really moderating thereafter. Now in the Americas, where the market is moving up, I don't think it's -- the danger of a cyclical peak is a lot lower at the moment than it has been in previous cycles because the economy is not over-heated, and frankly we much prefer this kind of environment from an operating perspective than the rapid growth and then a significant decline. In Europe, it's sort of further moderated by the Western Europe segment. And so, our forecasts for 2014 through '17 period do assume some recovery in the Western Europe economic environment, but not rapid.

And in Asia, we see the influence of China moderating demand in the nearer term, but then some more substantial increases in the later part of the period. And so, all of that leads to more significant percentage increases over the next couple of years and then more moderate increases but not real evidence of a peak and a decline until a little bit later.

And I certainly understand all of that. I guess the question that I was really trying to get at, I'm basically not necessarily trying to pin down as to when you think the peak would be, but what the growth opportunity would be in the cyclical upswing. And when we're looking at units comparing it, for instance, what you could do this year compared to what you've done in prior cycles, given that you've got (multiple speakers).

I think all we're really prepared to say is, it will give you the perspective on the market which I just gave you. As far as our share is concerned, I think what we've said is roughly this that we have the capacity available to increase our share -- our share plus growth in the market by -- on the order of 50% from a year ago.

And what I would say again is that the five strategic programs are designed to accomplish share increases. I think it's very difficult for us to say or for anyone to say that these share gain programs are going to pay off in precisely this period over that period.

But over the next five years or four to five years, we see as an opportunity for significant share gain because we think that the five strategic programs will be mature enough to have some substantial benefit in the later part of the period.

So I think if you think about the comments I made on the market and then you can make some assumptions on the amount of share gain. We certainly have as a goal filling up our plants just exactly when we do that is a little harder to predict.

Great. Last question from me would be on the operating income outlook, as I understood it from your comments being down a little bit year-over-year in the back half trying to reconcile that with bookings and pretty good shipment volumes probably as well as positive price costs. Can you help me sort of better bridge that gap?

Let me just elaborate -- let me just reiterate what I think I said in my comments. You're certainly right that we do expect our volume and our gross profit to improve. We do -- we will not replicate the foreign currency hedging gain that we had a year ago in the third quarter. So that has an impact.

On the other hand, we do expect increases really for two or three reasons in GS&A in the second half. One, we called out and said that we begin the transition, we will be a public company through the whole period of the second half which we were not a year ago. So there are some incremental expenses associated with that.

Secondly, we will begin to see the cumulative impact of the capabilities we've been putting in place to execute the five strategic programs. And finally we do make adjustments for compensation for our people, and because of the performance of the business, we do anticipate that the incentive compensation programs will pay off at a rate, which exceeds the previous year and that will have an impact on our GS&A.

So the full year GS&A running rate that we see in the second half will reflect all of those things and I would say in a broader sense that it's kind of the running rate, which at the moment, we see plus or minus being the running rate as we go into 2014.

In other words, we will have in the second half, by and large, the capabilities in place and the expenses being incurred for our strategic programs, which will then be carrying forward. So, our expectation would be that 2014 GS&A would see increases that are much more on the order of inflation and perhaps even conservative inflation than we've seen in the last couple of years as we've been putting in place the capabilities for these five -- the execution of these five strategic program. So, those are the major factors in the way they play into our prospects as we look forward.

Great. Thank you for taking my questions.

Thank you.

[Daniel Knell, Aristides Capital].

Yes, good morning. This is actually Chris Brown on for Daniel. I just had one more clarification on the net income guidance versus the second half of last year. [I'm showing] in the third quarter last year you are in the $1.48 a share and in the fourth quarter I have $1.93 before extraordinary items and $1.33 after. When we're comparing the second half of this year to the second half of last year, are we comparing using that $1.93 for the fourth quarter last year or $1.33 for the fourth quarter last year?

Actually I have to narrow my comments, and I should have done this before. Those comments are really comments about the operating profit line. And as you know, we have other factors that come to bear particularly income tax rates and much of the numbers that you just gave me are also influenced by income tax rates.

So, income tax rates for the last few years, we have had the benefit of loss carry forwards and because we had valuation reserves, those losses dropped right to the bottom line. The performance of the business has been such that we have been reversing those reserves.

And that means that we get a big pop in 2013 or to some degree in 2012 and then we had to pay a fuller tax rate going forward. So, I think the place to really concentrate is on the operating performance of the business.

So we're talking about -- is the $28.3 million in 3Q of last year and $28.8 million of operating income in 4Q, is this the relevant numbers that we're comparing to year-over-year?

That would be what I addressed my comments to.

Okay, fantastic. Thank you very much.

Yes.

(Operator Instructions) At this time we have no questions on the queue.

Okay, thank you very much everybody. Christy?

Thank you for joining us today. And we do appreciate your interest. And if you have any additional follow-up questions, please feel free to give me a call. My number is 440-229-5168.