Hyster-Yale Materials Handling, Inc.
) have dropped 4% since the company reported an 11% decline in
its first-quarter 2014 earnings to $1.31 per share on Apr 30.
Results also fell below the Zacks Consensus Estimate of $1.49 by
Benefits from higher gross profit and reduced interest expense
due to lower debt levels and lower interest rates during the
quarter were largely offset by higher employee-related expenses
attributable to increased headcount in marketing and engineering
to support the company's five strategic initiatives. Higher
income tax in 2014 as a result of a higher effective income tax
rate and the absence of favorable tax adjustments from changes in
certain U.S. and foreign tax laws recognized in the prior year
resulted in a reduction in earnings.
Revenues in the quarter increased 5% year over year to $676
million. Increase in sales of higher-priced lift trucks in all
market segments, the favorable effect of unit price increases
implemented in 2013 primarily in the Americas to offset the
impact of weakness in the Brazilian real and an increase in fleet
services and parts volume in the Americas led to the increase.
However, a slight decrease in unit volume and unfavorable
currency movements (due to the weakening of the Brazilian real
and the Australian dollar, which was partially offset by the
strengthening of the euro against the U.S. dollar) were a minor
offset. Revenues were in line with the Zacks Consensus
Revenues grew 9% year over year to $457 million in the
Americas. Sales in Europe decreased 3% to $169 million from $175
million in the year-ago quarter. However, revenues in the
Asia-Pacific region were $50 million, down from $52 million in
the year-ago quarter.
Cost of sales was $564 million in the reported quarter
compared with $536 million in the prior-year quarter. Gross
profit increased 2% year over year to $112 million. Gross margin
contracted 40 basis points (bps) to 16.5% year over year.
Selling, general and administrative expenses increased 4% to
$80 million on a year-over-year basis. The rise was primarily due
to higher marketing and engineering expenses to support the
company's five strategic initiatives. Operating profit in the
reported quarter dipped 2% year over year to $31.6 million.
Worldwide backlog was around 28,900 units as of Mar 31, 2014
compared with 27,500 units as of Mar 31, 2013. In the first
quarter of 2014, worldwide new unit shipments were 20,600 units
compared with 20,800 units in the year-earlier quarter.
Hyster-Yale ended the quarter with cash and cash equivalents
of $107 million, down from $176 million as of 2013 end. Cash flow
used in operations was $16.9 million in the quarter compared with
$0.4 million in the prior-year quarter.
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Hyster-Yale expects the global market for forklift trucks to grow
slightly in 2014. Strength in certain developed western markets
is expected to be partially offset by some weakness in the
developing markets. Market growth and a strong backlog in exiting
the first quarter of 2014 will aid unit shipments and parts
volumes increment. The Americas is expected to contribute a major
part of the increase, with smaller increases in the Asia-Pacific
The company anticipates sales to improve moderately in 2014.
Material costs are however, expected to be higher in 2014
compared with 2013. Operating profit is also expected to increase
on the back of favorable effects of strategic initiatives and
product enhancements. A lower estimate for equity incentive
compensation is also projected to contribute toward a higher
Net income will improve moderately in 2014 compared with 2013 as
improved operating profit as well as lower interest expense are
expected to be partially offset by a higher expected effective
income tax rate. The higher effective income tax rate in 2014 is
mainly due to the effect of higher United Kingdom income taxes
due to the 2013 valuation allowance release, combined with an
anticipated increase in income in the Americas operations, which
have a higher tax rate.
Cash flow for 2014 is expected to decline primarily due to
increase in capital expenditures resulting from the construction
of a new plant in Brazil.
Hyster-Yale will benefit from new programs and platforms that are
expected to be developed and launched over the next few years
based on longer-term segment needs or technological change
opportunities. The company also remains focused on improving
margins in its internal combustion engine business through the
execution of its five strategic initiatives. However, material
costs as well as marketing and employee costs are expected to
increase further in 2014.
Notably, the company anticipates demand in Europe to remain weak,
given the stressed macroeconomic conditions there. Increase in
capital expenditures, largely due to information technology
improvement in Brazil will also hurt growth. Moreover, volatility
in foreign exchange rates and an overall uncertain economic
environment are other headwinds.
Cleveland, OH-based Hyster-Yale engages in the design,
engineering, manufacture, sale and servicing of a comprehensive
line of lift trucks and aftermarket parts. At present, it has a
Zacks Rank #4 (Sell).
However, some better-ranked stocks in the same industry include
Columbus McKinnon Corporation
Altra Industrial Motion Corp.
The Babcock & Wilcox Company
). All of these have a Zacks Rank #2 (Buy).