Hyster-Yale Materials Handling, Inc.

Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the High Street Yale Second Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Christina Kometko, Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thanks for joining us today. Welcome to our 2023 second quarter earnings call. I'm Christina Kometko, and I'm responsible for Investor Relations at Hyster Yale. Joining me on today's call are Al Rankin, Executive Chairman, Rajiv Prasad, President and Chief Executive Officer, and Scott Minder, our Senior Vice President, Chief Financial Officer, and Treasurer. Yesterday evening, we published our second quarter 2023 results and followed our 10-Q, both of which are available on our website. Today's call is being recorded and webcast. The webcast will be on our website later this afternoon and available for approximately 12 months. Our remarks that follow, including answers to any questions, contain forward-looking statements. These statements are subject to several risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements made here today. These risks include, among others, matters that we've described in our earnings release and in our 10-Q and other SEC filings. We may not update these forward-looking statements until our next quarterly earnings conference call. With the formalities out of the way, I'll turn the call over to Rajiv.

Thanks, Christy, and good morning, everyone. I'll start today by providing the operational perspective and some high-level observations on our robust second quarter results and why they exceeded our expectations. I'll conclude with some color commentary on our markets. Scott will follow with our detailed financial results and outlook, and then Al will conclude our prepared remarks with his strategic perspective and open the call for any questions. Second quarter consolidated revenue increased by 22%, or $195 million year-over-year, while operating profit advanced by almost $75 million from a prior year loss. This large profit improvement was driven by product margin increases above our initial estimates. The better-than-expected product margins had several drivers. we experienced a favorable mixed shift towards higher margin sales channels. Second, material costs were lower than anticipated. And finally, as supply chain conditions in the Americas continued to improve, we eliminated the first week of the planned two-week plant shutdowns at the end of June. The North American plants used this extra time to reduce inventory and backlog units. and ultimately shorten lead times. This extra production week helped America's increased shipment by 14% over the first quarter. These positive factors were more than, these positive factors more than offset the negative impacts from the challenges in sourcing certain critical components. Third party component shortages and related production impacts continued to be a headwind but have moderated significantly compared to the prior year. Globally, our second quarter unit shipments increased nearly 10% year over year and sequentially. This was principally due to America's supply chain improvements, partially offset by production shortfalls in our EMEA factories. While the environment has improved, many of our factories still experienced production complications due to ongoing skilled labor shortages and shortages of critical components. These challenges resulted in several production lines falling below their planned second quarter rate increase target. Looking ahead, we're expecting improving production rates in both Americas and EMEA. but still below potential due to continued labor shortages. In Europe, ongoing component supply constraints are likely to negatively impact production rates in the third quarter. However, we're expecting an improvement in the fourth quarter. Despite these ongoing production challenges, we anticipate improving production and shipment volumes as the labor and supply issues continue to abate in the second half of 2023 compared to 2022 and first half 2023 levels. In the second quarter, labor and certain material costs continue to increase compared to prior year levels, principally in EMEA. But the rate of increase slowed substantially. Forward economic indicators suggest stabilizing inflationary pressures throughout the second half of this year. On past earning calls, we have called out the combination of inflation and our aged lower price backlog as profit margin constraints. At the end of the second quarter, we have essentially worked through all lower margin backlog units booked prior to price increases implemented in 2021 and early 2022. In the second half of 2023, we expect further stabilizing of material costs, improving production rates, and higher price truck production. These benefits should drive increased lift truck growth margins compared to prior year, particularly in Americas and EMEA. We expect this improvement to continue into early 2024. We'll continue to monitor our material and labor costs closely including the potential impact from tariffs and competition, and will adjust pricing as needed to maintain momentum towards our long-term unit margin goals. Shifting to our global market views, the latest available market data shows that the first quarter of 2023, new unit volumes were down in all major geographies. This compares to strong first quarter 2022 levels. Our internal estimates suggest that the market decline accelerated in the second quarter with all major geographies experiencing booking declines compared with prior year. Looking ahead, we expect the full year 2023 lift-track market decline in all regions compared to the prior year. We anticipate this year-over-year decline to accelerate in the second half of 2023 in all markets. Despite this deterioration, markets should remain reasonably strong in most regions when compared to pre-pandemic levels. Lift-track bookings decreased moderately in the second quarter compared to both first quarter and prior year levels. A healthy but declining global market and our continued focus on booking orders with solid margins contributed to the drop. While our bookings decrease, we increase market share in the second quarter compared to the prior year as our strategic programs gain traction. Looking forward, second half 2023 booking levels are projected to be comparable to the prior year. This is due to, as so far, steadier than expected market and further market share gain. We remain focused on booking higher margin orders. We'll work to balance our pricing and booking rates based on production lead times on a line-by-line basis, all to maximize profitable growth and free cash flow over time. With the combination of the increased production and lower booking during the quarter, we reduced our backlog by 6% from the first quarter of 2023 and by 19% from the early 2022 peak. However, it remains well above optimal levels. We're projecting our unit backlog and lead times to trend towards normal levels over time as our production rates increase and booking levels moderate. However, both are likely to remain above preferred levels for some time. Our focus on strong bookings margin and building the older lower margin backlog units have led to higher average unit margins in our remaining backlog. In the second quarter, the average sales price for a backlog unit increased 23% year-over-year and 5% sequentially. We expect these positive year-over-year margin trends to continue for the remainder of the year and into the beginning of 2024 and support continued improvements in our financial results. While the global economic outlook remains uncertain, our current $3.6 billion backlog of higher margin trucks representing almost a full year of revenue will support our remaining 2023 production schedules and those in the first half of 2024. This high backlog levels could also serve as a shock absorber if bookings decline more rapidly than expected. Before I hand the call over to Scott, I'd like to add a few thoughts on our working capital and overall cash performance. We remain focused on mitigating the continuing impact from our supply chain and manufacturing challenges, which have increased our inventory abnormally. We'll diligently work to reduce our inventory levels and improve cash flows by tailoring production to available supply levels. While inventory levels remain elevated, they are now decreasing. We've got a strong team focused on how to make the most units in the shortest amount of time while maximizing the use of on-hand material. We are collaborating with our suppliers to minimize disruptions, ensuring an efficient and consistent flow of materials. Labor and supply constraint remain and can cause isolated production, shortfalls, and inventory increases. However, we expect continued improvement in 2023 and in early 2024. We're also working closely with our dealer partners to balance order and delivery timing with their customers' needs. We're committed to increasing our cash flow and maintaining adequate liquidity. Our teams are laser focused on mitigating the continuing challenges, and we're making progress. Now I'll turn the call over to Scott to update you on our financial results and provide our financial outlook. Scott?