Hyster-Yale Materials Handling (NYSE:HY) has made its fortune on helping its customers handle goods and manage inventory and logistics with its forklift trucks. Yet in order to manufacture its products, Hyster-Yale itself has to deal with the challenges that any manufacturing operation faces. Even as demand for lift trucks has risen due to better conditions in the industrial sector, Hyster-Yale has faced its own obstacles in being as efficient as it can possibly be.
Coming into Tuesday's first-quarter financial report, Hyster-Yale investors were prepared to see a decline in earnings but still wanted stronger revenue growth. The forklift maker wasn't able to avoid a drop in its bottom line, but it didn't suffer as much as some had feared it would. Going forward, though, concerns remain about whether the impact of steadily rising material and manufacturing costs will weigh on Hyster-Yale's long-term profit growth.
How Hyster-Yale started 2018
Hyster-Yale's first-quarter results showed the conditions that the company is dealing with right now. Sales climbed more than 10% to $788.2 million, topping the $775 million that most of those following the stock were expecting to see. Net income dropped 18% to $14.9 million, but even though adjusted earnings of $0.90 per share were down from year-ago levels, they still were better than the consensus forecast for $0.86 per share.
Overall, the lift truck business continued to do the lion's share of the work in producing success for Hyster-Yale. Revenue for the segment was up by nearly 11%, and declines in operating profit from the business were limited to 11%. New unit shipments rose by 1,500 year over year to 24,800 units, and bookings jumped 2,300 units to 27,100, resulting in a $70 million boost to booking volume. That brought worldwide backlog figures up to 36,100 units worth $930 million, up by 3,900 units and $180 million over the past year.
Hyster-Yale saw mixed results throughout its regional segments across the globe. In the Americas, revenue was higher by 6%, with operating profit falling just 6%, and the company cited strong sales of several different types of lift trucks for the gains. The Europe, Middle East, and Africa region got a big benefit from favorable currency impacts, with a 22% rise in sales and roughly flat operating profit from year-ago levels on strong shipment volumes across its product line. The Asia-Pacific region split the difference, seeing sales climb 13%, but operating losses widened from the first quarter of 2017.
The company's other businesses had little impact on overall performance. Attachment specialist Bolzoni enjoyed double-digit percentage gains in revenue and earnings, but fuel-cell division Nuvera kept losing money with negligible revenue.
What's ahead for Hyster-Yale?
Hyster-Yale is still sounding some warning signs about the sustainability of its growth in some areas. For instance, in the Americas, the company thinks that some customers accelerated orders in the hopes of avoiding potential tariffs and paying up for rising material cost inflation. Those inflationary pressures will make it hard for Hyster-Yale to keep growing operating profit, especially in the first half of the year. Implemented product price increases should help in the latter half of 2018. In Europe, similar issues exist, along with the fear of escalating political tensions and sanctions in Russia. China could help boost the Asia-Pacific region's numbers, although higher labor costs will also weigh on that segment's bottom line.
Even so, Hyster-Yale is working to ensure it can keep its business moving forward. New products and better production rates will help serve a hungry market, and one area of emphasis will be on electric lift trucks to meet with customer demand in that industry niche.
Investors didn't have a sharp immediate reaction to the news, and the stock didn't move in pre-market trading Wednesday following the Tuesday evening announcement. Rising costs for materials and other production needs are likely to weigh on Hyster-Yale's near-term results for some time, but in the long run, shareholders need to focus on the opportunities for overall growth in lift truck demand to assess how the company is likely to fare.