Hyster-Yale Earnings Climb, but Will Its New Business Fuel Future Growth?

The forklift maker posted mixed results in its fourth quarter; but investors are curious about its new acquisition.

Dan Caplinger
Dan Caplinger
Feb 19, 2015 at 7:02PM

Source: Hyster-Yale.

Among industrial companies, Hyster-Yale Materials Handling (NYSE:HY) is far from the best-known player in the business, and its stock has struggled throughout the past year as the maker of lift trucks suffered the same cyclical downturn that some of its clients faced. Coming into Thursday afternoon's fourth-quarter earnings report, Hyster-Yale shareholders had hoped to see modest gains in revenue and earnings.

For its part, Hyster-Yale delivered half of that package, with mixed results that saw solid earnings even in the face of slightly lower sales. Let's look more closely at Hyster-Yale's quarter, and what its newest acquisition might mean for the company going forward.

Hyster-Yale lifts earnings on falling sales
Hyster-Yale gave investors conflicting readings on its most recent quarter. On the revenue front, sales fell about 1%, to $710.7 million, falling well short of the 2.5% growth rate that most investors following the stock had expected. Yet Hyster-Yale's bottom line was better than the consensus forecast, with earnings of $1.61 per share topping expectations by $0.05.

The company's headline numbers for the third quarter were extremely impressive. Revenue climbed 8.1%, to $695.8 million, almost doubling the growth rate that most investors had expected from the forklift manufacturer. Net income came in at $28.4 million, which equated to $1.70 per share, well above the $1.47 per share that was the consensus among industry analysts.

On closer examination, Hyster-Yale's key lift-truck segment successfully dealt with a number of challenges during the quarter. Worldwide new-unit shipment volume climbed by about 800 units, to 23,500, with the company benefiting from a relatively strong North American market. Weakness in Eastern Europe held back volume growth, but Hyster-Yale also reported that parts volume in both the Americas and Europe helped drive gains.

Still, currency impacts, as well as a drop in fleet services, more than offset those gains, and stronger competition forced Hyster-Yale to reduce prices and suffer sales declines as a result, as well. Employee-related costs also climbed, especially healthcare-related expenses; but the company did a good job of controlling overhead to compensate.

Source: Hyster-Yale.

Geographically, the Americas remained the key driver of Hyster-Yale's results, with almost 70% of its revenue and more than 80% of its net income coming in its home segment. Europe's woes were especially apparent, with the company suffering a 16% drop in revenue that slashed profit by more than half on the continent.

Yet the most interesting part of Hyster-Yale's report involved no revenue at all. The company's acquisition of Nuvera Fuel Cells in December reflects Hyster-Yale's belief that the fuel-cell market for forklifts offers a new avenue for growth, and the company reported a $1.4 million loss from the new division.

How will 2015 go for Hyster-Yale?
Hyster-Yale sees a tough 2015 ahead for its forklift business, citing particular weakness in Japan, and flat results in most of its core markets. The Western Europe and Asia-Pacific regions could post modest growth, as could China, but a shift toward lower-priced products will likely reduce the net impact of higher unit shipments. Operating profits will suffer during the first half of 2015 due to higher transition costs from a new Brazilian manufacturing plant, but Hyster-Yale hopes that reductions in net income will be as small as possible despite the loss of some non-recurring tax benefits and higher expected tax rates.

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Source: Nuvera.

Meanwhile, Nuvera is a wildcard for Hyster-Yale. The company expects losses of $13 million to $15 million from Nuvera as the company works on trying to commercialize its fuel-cell technology. With a research-and-development commitment of as much as $50 million during the next few years, Hyster-Yale is obviously committed to Nuvera as a way to give customers more fuel-efficient product alternatives, and thereby capture a competitive advantage. Those efforts will take time to play out, but Hyster-Yale seems optimistic about their eventual outcome.

Looking forward, Hyster-Yale will need to look at ways to flesh out its product line to add more premium products to its lineup. As emissions standards change, Hyster-Yale will have opportunities to get customers to upgrade to higher-margin products -- as long as it can demonstrate their value. If Nuvera produces real innovation that it can incorporate into its products, Hyster-Yale's latest strategic move could prove to be its smartest effort yet.