Hyster-Yale Materials Handling Inc. (HY, Financial) is one of the largest global manufacturers of lift trucks, more commonly known as forklifts. The company offers a broad assortment of solutions aimed at meeting the specific materials handling needs of its customers, including specific attachments and hydrogen fuel cell power products, telematics, automation and fleet management services.
There are currently over 600 models of life trucks offered by the company under five different class categories. The company’s lift trucks and component parts are manufactured around the world, primarily in the U.S., China, Northern Ireland and Mexico. Roughly two-thirds of sales are from North America with the second-largest contributor being the EMEA region.
The company has approximately 6,600 employees globally is expected to generate $3.4 billion in revenues this year according to analysts' estimates. The market capitalization is currently $418 million.
Hyster-Yale is facing unprecedented headwinds this year, which will plunge it into an operating loss for 2022. However, now that it is selling at 52-week lows and should return to profitabilty next year, could this be a value opportunity?
Headwinds
Most businesses today are facing challenges from a variety of sources, but not many companies face all of them at the same time like Hyster-Yale. The company has noted problems with supplier component volume shortages, logistics delays and capacity constraints, commodity cost inflation and container shortage and freight cost inflation. Being a global company, there are also issues with Covid-19 shutdowns, global military conflict in certain regions, economic recessions and a stronger U.S. dollar. The company has also indicated there is a timing mismatch between the period when it can raise prices on its lift trucks and the cost increases it is experiencing.
Financial review
The company reported fiscal second-quarter earnings on Aug. 2, and the results were mixed. Revenues increased 17.0% over the prior-year period primarily due to an 11.5% increase in shipments, with particular strength in EMEA markets. Gross margins improved from historically low levels in the fourth quarter of 2021 but dipped slightly from the first quarter of 2022 due to commodity inflation and the Russia/Ukraine conflict. The company remained unprofitable during the quarter with an operating loss of $15.7 million and a net loss of $19.4 million. This was primarily due to material and freight cost inflation as well as unfavorable manufacturing variances from component shortages.
The lift truck segment is expected to work through its low-margin backlog in the second half of 2022, where margins are expected to improve and lead to a substantially lower operating loss than in the first half of 2022.
For the first six months of 2022, the company was breakeven on an operating cash flow basis and capital expenditures were $15.3 million. Total debt increased to $580.6 million and cash and equivalents was $75.6 million at quarter's end. The company has unused borrowing capacity of $156 million.
Valuation
The company is expected to report a large net loss in 2022 with consensus analyst earnings per share estimates of -$4.65. Next year in 2023, the company is expected to return to profitability with earnings per share estimates coming in around $2.37, which creates two-year forward price-earnings ratio of 10. The company is selling at price-sales ratio of only 12.
The GuruFocus discounted cash flow calculator estimates a fair value of $30.00 for the stock when using the 2023 consensus EPS estimate of $2.37 as the starting point and a 5% long-term growth rate.
The company currently pays an annualized dividend of $1.29 per share, which equates to a 4.74% dividend yield.
Guru trades
Gurus who have purchased Hyster-Yale stock recently include Mario Gabelli (Trades, Portfolio), Ken Fischer and Hotchkis & Wiley.
Conclusion
There doesn’t seem to be any more known headwinds that can be thrown at Hyster-Yale at this time. The problems with supplier component volume shortages, logistics delays, capacity constraints, commodity cost inflation and freight cost inflation should alleviate over time and allow the company to return to normalized margins. This will likely happen sometime in 2023 at the earliest according to analysts' estimates.
The company is selling near 52-week lows and has an above-average dividend yield of 4.74%, which could provide some stability and a good entry point for investors who like the stock.
