Hy Lifts Pair
Image: Hyster-Yale.

Throughout the supply chain, companies have to move goods from one place to another many times, and forklifts play an essential role in getting products where they need to go. Hyster-Yale Materials Handling (NYSE:HY) is a forklift specialist with a strong reputation in the industry, yet recently, it has seemed vulnerable not just to the sluggish behavior of the industrial economy but also to competition from up-and-coming players like Plug Power (NASDAQ:PLUG) and its GenDrive fuel-cell-driven forklift power system. Coming into Wednesday's third-quarter financial report, Hyster-Yale shareholders were prepared for weaker sales and earnings, but the extent of the actual revenue drop that Hyster-Yale suffered was much worse than expected, even though earnings came in above expectations. Let's take a closer look at how Hyster-Yale did this quarter and what might lie ahead for the company in the future.

Hyster-Yale takes a big drop
Hyster-Yale's third-quarter results didn't look pretty. Sales dropped more than 6% to $652.1 million, which was far worse than the 2% revenue decline that most investors were looking to see. Net income also fell sharply, with a drop of more than 25% to $20.9 million, but the resulting earnings of $1.28 per share were actually more than a dime per share higher than the consensus forecast among investors.

A closer look at Hyster-Yale's numbers shows some the hurdles that the company has had difficulty getting past. Lift-truck operating profits eased downward by 2% from the year-ago quarter, but net income declined at a steeper 12% rate. New shipments actually rose by about 700 units to 22,400 during the quarter, but bookings fell by 1,100 to 18,600 units. Backlogs remained relatively stable, rising 1% to 27,100 but falling by 3,800 units over the past three months.

Geographically, Hyster-Yale saw difficult conditions across the globe. The Americas segment took a big hit from the fall in the Brazilian real, and customers also shifted from higher-priced Class 5 trucks to lower-priced Class 3 warehouse trucks. European sales fell primarily because of the euro's weakness, with currency-neutral sales figures actually rising. The Asia-Pacific segment held up the best, with less than a 2% revenue decline despite lower shipments in China and the impact of unfavorable currency movements.

Once again, the Nuvera fuel-cell business unit hurt Hyster-Yale's results, with revenue of just $500,000 and a net loss of $4 million. Despite the losses, Hyster-Yale remains committed to finding viable ways to commercialize Nuvera's fuel cells, with its products competing against Plug Power and also offering existing Hyster-Yale clients an alternative to converting to Plug Power products.

Can Hyster-Yale get things moving upward again?
Hyster-Yale doesn't have high hopes for the immediate future of the forklift market. It believes that the global market will remain soft in the fourth quarter, with revenues expected to fall again and with operating profits to be substantially lower than in the year-ago quarter. Tougher conditions in the Americas, Europe, and the Asia-Pacific region are likely to weigh on Hyster-Yale's near-term results, as shifts to lower-margin products, currency impacts, and macroeconomic factors could hold back a recovery.

For 2016, Hyster-Yale has a more mixed picture. Strength in Europe could offset continued weakness in Asia-Pacific and the Americas, but operating profits are likely to suffer from higher expenses and lower-margin sales. Hyster-Yale wants to focus on maintaining and building market share, which explains not only its strategic efforts in its core business but also the investment it has made in Nuvera to fight off Plug Power and other potential competitors.

Hyster-Yale needs to keep focusing on navigating the ebb and flow of the global forklift market, with an eye toward squeezing as much potential from Nuvera as possible without spending too much capital in the effort. If it keeps executing well, then a cyclical upturn among its customer base should help Hyster-Yale's sales and earnings return to more normal levels.

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.