Hyster-Yale, Inc. (HY) Earnings Call Transcript

Good day, and welcome to the Hyster-Yale Inc. Third Quarter 2026 Conference Call. [Operator Instructions] Please note that today's event is being recorded. I'd now like to turn the conference over to Andrea Sejba, Director of Investor Relations and Treasury. Please go ahead.

Good morning, and thank you for joining Hyster-Yale's Third Quarter 2026 Earnings Call. Joining me today are Al Rankin, Executive Chairman; Rajiv Prasad, President and Chief Executive Officer; and Matt Cornell, our new Chief Financial Officer. We're pleased to welcome Matt to today's call. We will discuss our third quarter 2026 earnings release, which was issued yesterday. The release and a replay of this webcast will be available on the Hyster-Yale website. Today's call contains forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. These risks are described in our earnings release and SEC filings. We will also discuss adjusted results, which we believe are useful supplements to GAAP financial measures. Reconciliations of adjusted results to the most directly comparable GAAP measures are available in our earnings release and investor presentation. Before turning the call over to Rajiv, I will briefly cover third quarter highlights. Third quarter 2026 results improved sequentially. Stronger bookings began to translate into higher shipments and structural cost savings supported operating performance. Revenue increased 2% sequentially to $827 million as higher shipments volumes more than offset lower parts sales. Operating results improved by $10 million, driven by higher shipment volumes and lower employee-related expenses. These improvements more than offset $20 million of lower tariff-related recoveries compared with the second quarter. As a result, both operating loss and net loss narrowed compared to the second quarter of 2026. For the quarter, adjusted EBITDA returned to positive at $6 million. Operating cash flow increased to $26 million, $10 million above the second quarter, which primarily reflects stronger earnings and improved working capital execution, particularly in accounts payable. Bookings were $550 million, up 45% from prior year. This was the fourth consecutive quarter of elevated bookings relative to the cyclical low point in 2025. Backlog remained steady at approximately $1.6 billion. With the overview of third quarter results, I will now turn the call over to Rajiv to discuss the market environment, our fourth quarter and longer-term outlook as well as the actions we are taking to strengthen the business.

Thank you, Andrea, and good morning, everyone. Third quarter performance showed further signs of the company's recovery. Most importantly, we are beginning to see stronger bookings convert to production and shipments. At the same time, our pricing, sourcing and cost actions are helping us manage challenging cost environment. I'll first discuss demand and fourth quarter outlook, then I'll explain the structural actions we are taking to improve our competitive position, cost structure and cash generation. Industry conditions have continued to improve from 2025, although demand varies by region and customer application. Deferred fleet replacement needs are converting into new equipment purchases. Customer acceptance of our value and standard product offerings continue to grow. As noted, third quarter bookings remained well above the cyclical low. Backlog held steady as production approximated shipment during the quarter. Together, they give us a solid base of demand as we increase production. Our product investments are a key reason for this momentum. They are broadening the portion of the market we can address. As customer demand shifted, recently introduced lighter intensity lower-priced products helped offset lower sales of higher value standard and premium counterbalance trucks. These expanded product offerings are not simply substitute for our previous models. They extend our reach into applications and price points where we historically had less coverage. They also help us win new customers and create opportunities to increase manufacturing scale over time. Looking ahead, we expect our value and standard offerings to continue supporting volume growth, profitability and market share gains. This includes the 1 to 3.5 ton, the 4 to 9-ton and the big truck product lines. Our objective is to match product capability and total cost of ownership more precisely to each application. We're also using modular and scalable product solutions, which reduce complexity across engineering, sourcing and manufacturing. Building on this momentum, we expect fourth quarter bookings to exceed both the fourth quarter of 2025 and the third quarter of 2026. This is supported by improving industry conditions, anticipated market share gains and broader customer acceptance of our expanded product portfolio. However, inflation, tariffs, geopolitical uncertainty and increased competition remain important variables. Strong booking activity is expected to translate into meaningfully higher production and shipment volumes in the fourth quarter. Higher shipments are expected to drive sequential revenue growth. Increased production should also improve manufacturing absorption and operating efficiency. This is the key operating lever in our fourth quarter outlook. More volume moving through our plants expected to improve the utilization of our people and facilities and better absorb fixed manufacturing costs. Converting bookings into shipment is our priority. That is not automatic. During the third quarter, customer delivery schedules and production transition slowed expected conversion. These transitions were associated with tariff mitigation and sourcing initiatives that could continue to affect shipment timing. Our teams are focused on sequencing production, managing component availability and coordinating deliveries. We're also closely managing delivery dates and product mix. This will help us convert the backlog efficiently, on schedule and without compromising customer service. Based on these factors, we expect gross profit and gross margin to improve sequentially primarily due to higher production and shipment volumes, improved manufacturing efficiencies and the benefits of pricing, sourcing and cost reduction actions. These benefits are expected to be partially offset by elevated tariff-related costs, inflation and competitive pricing, particularly in South America and Europe. Operating results for the fourth quarter are expected to include anticipated implementation costs associated with the new programs I will discuss shortly. Excluding these costs, the same drivers expected to improve gross profit are expected to support stronger operating performance. As a result, adjusted net income is expected to be above the third quarter and return to positive levels. Alongside the expected fourth quarter earnings improvement, we remain focused on cash generation and working capital discipline. Our inventory and working capital progress provides a strong foundation as production and shipment increase. Priority is to have the right inventory to convert backlog into revenue while managing working capital. Looking to 2027, we expect demand and production levels to remain healthy. This is supported by gradually strengthening market conditions and our growth initiatives. It should drive volume and revenue growth. However, we expect operating profit improvements to be more gradual than the recovery in demand and production. The reasons are continued cost pressure, a competitive pricing environment and the time required for strategic growth initiatives to mature. Our previously announced 2024 U.S. manufacturing footprint optimization projects remain on track to deliver increased operational benefit in 2027. These benefits are expected to help offset ongoing cost increases and support underlying product margins. They're not expected to translate fully into incremental margin expansion. Our 2025 restructuring program is progressing as planned, and we expect to realize the full benefit of $40 million to $45 million of savings by year-end 2026. Together with the completed Nuvera realignment, which delivered $15 million of savings in 2025, these programs have lowered our structural breakeven point. This progress gives us a stronger base. It has also allowed us to identify additional opportunities to strengthen our business and improve our operation. These opportunities are driven by the market. The types and volumes of lift trucks customers demand have changed significantly. Customers want a broader mix of value, standard and premium solutions with competitive lead times and strong route-to-market coverage. Regulatory requirements, tariffs, inflation and shifting regional demand adds to these changes. To compete, we need a cost structure that performs across the cycle with a more selective use of capital and resources. We are continuing to adapt to the market and build a more focused and flexible operating model. In the fourth quarter of 2026, we launched a major set of projects to strengthen our cost structure, capital efficiency and long-term competitiveness. Our modular scalable products have created new product opportunities and production efficiencies. Together with our previously announced restructuring plans, they provide the foundation for these projects. The projects should improve operations and better align our business with evolving market and regulatory requirements, including changes in the types and volumes of lift truck customers' demand. The projects are focused on 5 key areas. First, we are reshaping the product portfolio and route to market; second, we are reducing manufacturing complexity and costs, including plant consolidation; third, we are consolidating supporting facilities and activities; fourth, we are simplifying the organizational structure; and fifth, we are reducing capital intensity. These 5 areas work together. A more focused portfolio reduces complexity across engineering, sourcing and manufacturing. A simpler organization and footprint improves execution. Lower capital intensity helps convert more of our earnings improvements into cash. We are targeting at least $100 million of annual cost reduction at maturity, which is anticipated in 2029. These savings come from direct cost reduction and from mitigating future expense associated with higher volumes and inflation. This is important because it allows us to grow volumes while keeping our cost structure under control. The target is measured against 2026 results and is in addition to the benefits from our earlier program. These savings will build over time rather than arrive all at once. We expect some benefits to start in 2027 and the full run rate to be reached in 2029. The pace will depend on the timing of implementation, so we are sequencing the projects to capture benefits as quickly and as responsibly as we can. Achieving these savings requires investment upfront. Implementation costs are currently estimated at no less than $50 million over the duration of the program. These costs may include severance, impairment charges, contract terminations and other exit-related costs. Some costs will come ahead of savings while others will be recognized as incurred. We continue to pursue opportunities to mitigate these costs. The first set of action to sharpen our focus on strengthening our core Lift Truck business, improving execution and directing resources to the areas where we see the greatest opportunity to create long-term strategic and financial value are the following difficult but necessary decisions. We are pausing the electric terminal tractor program globally and discontinuing our effort to establish big truck production in Greenville, North Carolina, in the United States. We'll continue to serve the U.S. market through our existing big truck manufacturing operations. Effective immediately, we're also discontinuing the development and production of hydrogen-related solutions, including the hybrid electric charging platform and associated fuel cell technology and engines. At the same time, we will continue to invest in and accelerate our lithium-ion battery and charger solutions where we believe we can deliver greater value to our customers, dealers and business. We'll implement the remaining projects in stages through 2029. Some are underway. Others remain subject to final planning, legal and regulatory requirements, consultation obligations and customary approvals. As a result, the scope, timing and financial effect of individual actions may change. We will update you as material plans, savings and implementation costs are finalized. Beyond cost saving and cost mitigations, these programs are designed to strengthen cash generation to preserve cash amid a slower-than-anticipated recovery. We expect 2026 capital expenditures of $50 million to $60 million. We plan to limit 2027 capital expenditure to $40 million to $50 million. Over time, a simpler portfolio, less manufacturing complexity and lower capital intensity should also reduce working capital requirements. This supports our continued target of working capital at approximately 15% of revenue. Importantly, the cost programs are just one part of our broader company strategy. Our focus is on strengthening the core business, serving customers more effectively and expanding our market reach. We are concentrating resources on product platforms, market segments and commercial capabilities with the strongest strategic and financial potential. This includes modular scalable lift truck solutions for lighter intensity and standard applications together with broader sales coverage across the addressable market. The cost programs support that strategy by reducing complexity and creating a more efficient operating model. Alongside disciplined capital allocation and working capital management, these actions should support strong financial performance and business growth. Our objective is not simply to operate at a lower cost. It is to emerge as a stronger, more focused company, better positioned to pursue the opportunities with the greatest long-term impact. Our long-term priorities remain consistent. We are focused on converting bookings momentum into shipment so that stronger demand translates into revenue growth. As production increases, improved manufacturing efficiency should help us earn more from that growth. Our modular product platforms and broader market coverage expand the opportunities we can serve, while simpler operations and our cost reduction initiatives should strengthen profitability. We will support this progress by managing tariff exposure and maintaining discipline in working capital and capital allocation. That discipline is important to improve cash generation while preserving flexibility to support future growth. Together, these efforts support our objectives of 7% operating profit over the business cycle. With that, I'll pass the call over to Al for closing remarks before we open the lines for questions.

Thank you, Rajiv. Having covered Hyster-Yale's earnings release details, I will step back and put the quarter in context. The third quarter showed meaningful sequential progress. We entered the fourth quarter with elevated bookings and a healthy backlog and customers are responding well to our broader product portfolio. The recovery is advancing. At the same time, the pace of improvement remains affected by shipment timing, product mix, tariffs and a competitive pricing environment. We are managing those factors carefully with a clear focus on turning market momentum into results. A cyclical recovery is not sufficient. The market has changed, and our operating model is changing with it. Customers are asking for different products at different price points with different availability and flexibility. The actions we announced today respond directly to those shifts. They have clear focus on the products, markets and capabilities with the greatest potential. They are also designed to build a simpler, more efficient and more resilient business, one that can perform more effectively at all points in the cycle. We recognize that some of these decisions are hard to make since they affect our employees and other stakeholders. We will carry them out with discipline while meeting our obligations to our employees, customers and suppliers. Our objective is to strengthen Hyster-Yale for the long term in order to serve our customers well and create lasting value for our shareholders. Implementation costs, which we are working to minimize, will affect reported results as the work progresses. We will provide additional information as material plans are finalized. Our long-term vision of transforming the way the world moves materials from port to home remains. We intend to do that through our 2 promises to our customers. The first is to provide optimal customer solutions. The second is to provide exceptional customer care. The actions we are taking should strengthen our ability to keep both promises consistently. For our shareholders, the objective is clear. We expect Hyster-Yale to emerge from these actions stronger, more cost efficient and more focused on our core business. Booking momentum and broader market coverage should reinforce this. Overall, we expect stronger profitable growth. Manufacturing and organizational improvements should help us earn more from that growth. Disciplined cash management and focused capital allocation should help turn those earnings into greater returns on capital employed. Together, we believe these drivers will support improved financial results in 2027 and 2028, and over time, our objective of 7% operating profit over the business cycle as well as sustainable long-term shareholder value. That concludes our prepared remarks. We'll now open the line for questions.

[Operator Instructions] Today's first question comes from Chip Moore of ROTH Capital Partners.

Can you hear me now?

We can hear you now, yes, sir.

Awesome. I'm sorry about that. I wanted to ask on the demand environment, particularly around some of these deferrals of fleet replacement. Can you expand on sort of the pent-up demand you're seeing out there and some of the implications on trajectory next year?

Yes, Chip, this is Rajiv. So as I think we discussed last time, we see continued growth with certain customers of their fleet age as they have retained trucks longer than you would normally expect them to retain mainly because I think our customers were unsure of the utilization and also kind of trying to manage their internal budgets. We are seeing -- we're coming to the end of that. We've had good bookings in the third quarter. Now as you know, our third quarter is normally weaker in bookings because of July and August when there's a slowdown in the industries that we serve, but it came back pretty well in September, and then October has been also good. So I think we still feel good about the market and the market potential going into the rest of this year, and looking ahead into next year, our pipelines look pretty strong.

And you also talked a little bit about just sort of managing the timing of deliveries and some of the puts and takes there. Maybe talk about that a little bit more about what you're watching closely?

Yes. I think there's been a little bit more dynamics on that, that customers have asked for us especially through that third quarter, to delay some deliveries as they've kind of made some changes into their own kind of infrastructure. And we've had that. We continue to see some of that. So that's been one factor. The other factor has been, as we said in our discussion that we are sourcing trucks from different locations, and we're transitioning production. What the modular scalable product allows us to do is build this product in multiple locations. And based on some tariff changes, we've changed the location of where they're built, and therefore, some of the product require increased logistics, particularly across the ocean. And so again, timing that -- timing of that has been a little difficult, especially when the -- there's quite a bit of, again, I'll call it dynamics in the ocean freight market in availability, particularly, you can imagine the Middle East has been very difficult, and we still have a lot of deliveries to make to the Middle East to our dealers and customers. But also, for instance, from kind of some of the China to North America routes are still very busy. We're coming to the end of that because it's really driven by the Christmas season. And so we should see that ease off, but we have seen more difficult kind of availability on some of these lines.

Yes. And maybe if I could sneak one more in. Simplifying the portfolio makes a lot of sense and never easy actions, but those savings are substantial. Maybe flipping the other way, I think you talked about -- you called out investing or accelerating on the lithium and charging side. Just talk about that opportunity a little bit?

Yes. I mean we continue to see growth of electric trucks pretty much globally as a share of the market, especially, I would say, the counterbalance trucks, and we're starting to see also the big trucks electrify. We -- in the early stages of these, we didn't have our own battery and charger solutions. And what we've seen is customers struggle with the integration of these systems. So when you have a truck which has quite a lot of software these days, then you have the battery with the battery management system, which also has a lot of controls. And then you have the chargers, smart chargers these days, which also has a lot of software. You've got to keep these systems synchronized. And when you have 2 or 3 different suppliers providing these things, we've certainly seen customers struggle to keep them fully integrated and synchronized. And when they're not, then you get truck downtimes because the trucks won't charge. We've seen an increasing case of that. And towards the end of last year, we decided that we needed to solve these issues for our customers and the best way for us to do that is bring it to a central point. So we're doing -- of course, we do all the electronics and software on our trucks. Now we're developing batteries systems, and especially all the control systems around it ourselves. And again, we have partners for the charging system. And so the plan is to be able to offer integrated solutions moving forward with a single point of service and management of that infrastructure. And we think customers are very happy about that. Our dealers are feeling good about that as they have struggled to maintain these type of systems in the field. So we think it's a very positive move, and we expect this to be a good growth part of the business over the next few years.

[Operator Instructions] Our next question comes from Ted Jackson at Northland Securities.