Hyster-Yale Materials Handling, Inc.

Good day and welcome to the Hyster Yale Inc. Second Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad, and to withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Andrea Sabah, Director of Investor Relations and Treasury. Please go ahead.

Good morning, and thank you for joining us for Hyster Yale's second quarter 2025 earnings call. I'm Andrea Sabah, Director of Investor Relations and Treasury. Joining me today are Al Rankin, Executive Chairman, Rajiv Prasad, President and Chief Executive Officer, and Scott Minder, Senior Vice President, Chief Financial Officer, and Treasurer. During our call, we'll discuss our second quarter 2025 earnings release issued yesterday. You can find the earnings release and replay of this webcast on the Heister Yale website. The replay will remain available for approximately 12 months. Today's conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied. These risks are described in greater detail in the earnings release and in our reports filed with the SEC. On this call, we discuss our adjusted results. We believe that these are useful as a supplement to our GAAP financial measures in evaluating the company's operating performance. Reconciliations of adjusted operating profit, net income, and earnings per share to the most directly comparable GAAP financial measure can be found in the company's earnings release and investor presentation filed with the SEC. With the formalities out of the way, let me turn the call over to Rajiv to begin.

Thanks, Andrea, and good morning, everyone. I'll start by sharing our view on the current economic environment, how it impacts ISDL, and how we plan to address these challenges in our business. Scott will follow with our detailed financial results, the assumptions built into our 2025 forecast, and our outlook for the third quarter and full year. Al will provide his perspective to wrap up our remarks, and then we'll open up the call for questions. Since our last update in May, Economic uncertainty continued to influence our business in significant ways. Fluctuating tariff levels impacting demand and cost structures require us to maintain nimble and responsive. We're keeping a close eye on these changes, assessing how they might affect our business and responding proactively. This keeps us well positioned in the market and ensures that we can consistently deliver on our key promises. Transparency is critical to our efforts. We're maintaining regular dealer communication, adjusting unit prices monthly based on actual product costs, raising prices as tariffs increase, lowering prices when tariff levels decrease to ensure that our unit economics reflect the current environment. This ongoing dialogue strengthens our relationship and shows our commitment to win-win partnerships. In the near term, we're taking clear steps to protect our financial health, drawing on what we learned during the pandemic. We're monitoring input costs closely, adjusting sales prices based on input cost changes, and diligently controlling our overhead costs. To support our dealer partners and other customers and protecting the order backlog, we chose not to retroactively raise prices on orders placed before recent tariff-related cost escalation. This built trust within our customer base and dealer network while also creating a temporary lag in cost recovery efforts. For the medium to long term, we're building on a strategic initiatives that strengthen our business across all economic conditions. Our strategy emphasizes manufacturing and selling products within the same region, helping to lower shipping costs and speed delivery. At the same time, global component sourcing exposes us to tariffs. While we work to limit purchases from the highest rate countries, the some materials alternative sources aren't yet available at the scale required. As we continue to seek out new cost-effective supply partners, our modular vehicle design allows us to produce the same models at different locations around the world. This flexibility ultimately helps us control costs, balance production, and react quickly as market conditions change. As tariff levels stabilize, we'll optimize production globally to ensure the most competitive product costs for each region. Despite these challenges, our dedication to providing the best customer solutions remains strong. We are increasing our ability to achieve steady long-term growth and profitability through innovation and efficiency as we adapt to global economic complexities. Our long-term focus ensures that every decision we make supports the company's ongoing health and success. Recent announcements, such as optimizing our manufacturing footprint and realigning our Nuvera business, demonstrates our ability to adapt swiftly to changing economic conditions. Our resilience built through the pandemic-related difficulties, along with our clear sense of direction, ensures that we are prepared to handle uncertainty and make progress on our goals. We'll continue to keep you updated as our plans develop. Scott will discuss our full year 2025 financial outlook in a moment. This projection is based on several important assumptions, especially those regarding tariffs and the steps we're taking to reduce their impact. Our proactive measures, including price adjustments, global sourcing, and supply chain management, and cost optimization are designed to help offset the expected tariff-related expense increases. Next, I would like to provide some context on the global lift truck bookings market. During the second quarter, lift truck market bookings contracted compared to the strong first quarter levels. This softening is a natural market reaction to the widespread economic uncertainty, causing many customers to defer capital expenditures. The hesitancy to commit to large purchases, especially in our customer base in the current climate, led to a temporary lift truck order slowdown, which was exasperated by COVID booking boom. This trend is not unique to our industry, but is reflective of the broader capital goods sector. These industries often require long-term investment decisions that are sensitive to tariff volatility, interest rates, and geopolitical developments. Despite current challenges, our second quarter quoting activity remains solid and comparable to the first quarter's improved levels. This sustained volume for new business proposals and price quotes is a positive business indicator. It demonstrates resilient underlying demand for our products despite customer postponing their purchase decisions. This trend should position us favorably for production and sales rebound once macroeconomic conditions stabilize. Specific to Heister Yale, in the second quarter, our bookings declined to 330 million, down from 590 million in the first quarter of 2025. The majority of this decrease was driven by softer demand in both Europe and the Americas, while bookings in Asia Pacific remained steady. First quarter bookings benefited from accelerated customer purchases ahead of tariff-related price increases. In contrast, second quarter bookings reflected heightened tariff-related uncertainty, which negatively impacted buying activity. Compared to the same quarter last year, Second quarter bookings decreased by 50 million, largely due to weaker demand in Europe, partially offset by an improvement in the Americas. These regional fluctuations highlight how quickly demand can shift. We continue to closely monitor market trends at a granular level, staying close to our dealers and our customers, remaining agile to capture additional market share with our new products and technologies. At the end of the second quarter, our order backlog was $1.7 billion, down from $1.9 billion in the previous quarter. This decrease was primarily due to shipments outpacing new bookings, particularly in the Americas. The current low and variable demand environment is challenging our ability to maintain a solid production backlog while also optimizing inventory levels. We are balancing factory output and material supply with evolving demand signals across a global supply chain. Ultimately, our goal is a healthy multi-month production backlog with reduced working capital levels. To further strengthen our market position, management is prioritizing proactive customer engagement. We're communicating with our customers to better understand their evolving needs, partnering to create product and purchasing solutions that help solve their most pressing challenges while navigating the ongoing economic uncertainty. These efforts are designed to build loyalty and ensure that when our customers' investment confidence returns, we're their preferred partners. At the same time, we're keeping a close watch on key markets and macroeconomic indicators. We are positioning our operations to flexibly scale production while aligning inventories. Longer term, we're optimizing our global manufacturing footprint as new products create opportunities to increase facility utilization. This agility is essential, enabling us to respond quickly to shifting demand patterns and ultimately reducing our break-even point to be more sustainably profitable. Looking ahead to the second half of 2025, we're planning to increase production rates to meet the expected demand uptick. However, while the ongoing economic uncertainty and tariff environment will remain cautious, if bookings do not materialize as anticipated, we're prepared to adjust production accordingly. As global economic conditions stabilize, we believe Hyster Yale's growth strategies positioned the company to accelerate bookings and capture additional market share. Our continued investments in product innovation, customer-facing sales and technology resources, supply chain resilience, and regional manufacturing flexibility are crucial to our success. By maintaining an operational excellence focus and by putting customers at the center of all we do, we're confident in our ability to navigate near-term challenges and deliver sustainable long-term growth for our stakeholders over time. Now I'll turn it over to Scott to provide more detailed financial results and our financial outlook.

Thank you, Rajiv, and good morning. I'll start by covering Q2's results. For LiftTruck, Q2 revenues declined 19% year-over-year, reflecting lower volumes across all product lines. This compares to exceptionally strong prior year results that were driven by record market demand levels. Revenue decline was primarily due to weaker industry booking rates since early 2024, and more recently, tariff-related economic uncertainty and its impact on end customer order patterns. Additionally, our sales mix shifted toward lower revenue Class III products. By region, America's sales volumes decreased. particularly for higher-value Class IV and V internal combustion engine trucks. And in EMEA, product revenues declined year over year, primarily due to lower Class I electric product sales. Globally, revenues improved 5% sequentially, indicating modest positive momentum as we move through the year. In particular, sales of higher-value Class IV and V internal combustion engine trucks grew. Q2 adjusted operating profit was $5 million, marking a significant decrease from prior year. Adjusted Q2 results exclude $15 million in severance and asset impairment costs related to Nuvera's strategic realignment. Lift trucks adjusted Q2 operating profit declined year-over-year, largely due to lower volumes and reduced manufacturing overhead absorption. Q2 product margins were negatively impacted by $10 million worth of tariff-driven material and freight increases. To counter these headwinds, we implemented price increases starting in Q1. Benefits from these measures have a time lag due to our production backlog and various customer-specific programs. Looking at our cost structure, operating expenses decreased year over year, mainly due to lower employee costs from the early completion of Nuvera's strategic realignment actions and reduced incentive compensation. These benefits were partially offset by continued investments in information technology systems and customer support programs. Turning to regional earnings performance, America's operating profit decreased as a result of lower volumes. This was partially offset by reduced warranty costs as recently launched products matured in the field. EMEA's operating loss was driven by decreased volumes, elevated material and freight costs, and lower pricing due to increased market competitiveness. Compared to Q1, lift truck profit declined, reflecting lower product margins from increased costs, largely due to tariffs. At Bolzoni, year-over-year revenue declined, as expected, due to the ongoing phase-out of lower margin legacy products. While this strategic decision reduces near-term volumes, it's fundamental to our longer-term focus on higher value products with enhanced profitability. Q2 adjusted operating profit was below prior year levels, primarily due to lower production volumes, decreased manufacturing absorption, and higher employee-related costs stemming from wage inflation in Europe. Improved material costs and a favorable product mix served as partial gross margin offsets. On a sequential basis, Balzoni's revenue grew due to higher volumes. This improvement was led by increased attachment and fork sales in the Americas as targeted commercial initiatives gained traction. Adjusted operating profit improved as a result of a continued favorable product mix shift in diligent operating expense controls. Next, I'll cover the company's tax position. In Q2, the company reported $200,000 of the income tax expense compared to $26 million in the prior year, primarily due to lower current year pre-tax earnings. 2025 year-to-date income tax expense includes the capitalization of research and development costs for U.S. tax purposes, as well as the company's inability to recognize deferred tax assets due to its U.S. valuation allowance position. Moving to the balance sheet and cash flow statement. In Q2, we successfully renewed our $300 million revolving credit facility, bringing several benefits to the company, including lower borrowing margins, greater covenant flexibility, and a maturity extension to June 2030. During the quarter, we continued to reduce outstanding debt compared to prior year and prior quarter using excess cash generation. As a result, our net debt position improved year over year. Sequentially, net debt remained steady as we balanced lower debt with reduced but healthy cash levels. The company maintained its strong liquidity position, increasing unused borrowing capacity by 3%, to nearly $260 million at the end of Q2 compared to Q1. Financial leverage, as measured by net debt to adjusted EBITDA, increased versus both prior periods due to lower earnings. We remain focused on liquidity management as we navigate reduced production volumes in the trough of the current industry cycle. These actions underscore our financial adaptability to dynamic market conditions. Moving to cash flow, we generated approximately $30 million in operating cash in Q2, improving versus the previous quarter and prior year. These gains reflect strong working capital management, including enhanced receivables collections and lower manufacturing inventory. Q2 working capital was 21% of sales, down from prior quarter, but well above desired levels. Working capital optimization remains a top priority for the organization. Inventory remains the company's largest cash improvement opportunity. Our Q2 results were hampered by geopolitical headwinds as tariffs increased material costs and a weaker U.S. dollar increased foreign inventory values. As of June 30th, the combined unfavorable impact of foreign currency and tariffs on reported inventory was approximately $40 million. Excluding these effects, our Q2 inventory decreased by more than $60 million year-over-year and approximately $30 million sequentially. These reductions reflect our ongoing efforts to optimize inventory and align production schedules with material availability. With that, I'll move to our Q3 and full-year 2025 outlooks. First, I'll outline key assumptions included in our guidance. We use U.S. tariffs in place as of July 9, 2025, as our baseline. Our Section 301 tariff exemption for lift truck parts ends on August 31, 2025. No additional product tariffs are put into place. Our demand projections are grounded in bookings, backlog, and market trends. We assume no demand decline due to a U.S. or global economic recession. And finally, our proactive initiatives, including price adjustments, global product sourcing changes, and cost cutting are expected to reduce negative tariff impacts. Based on these assumptions, Tariffs are anticipated to negatively affect our financial results in the second half of 2025 net of our mitigation actions. We're pursuing strategies to further reduce this impact. The tariff rate volatility creates uncertainty and makes it difficult to provide a precise impact estimate at this time. The company will continue to maintain pricing strategies aligned with material cost changes and enforce cost discipline across the organization regardless of tariff developments. With that as a foundation, I'll provide our outlook for the coming quarters, starting with the lift truck business. As Rajiv discussed, we saw a sequential bookings decline in Q2, and as a result, reduced our revenue, production, and shipment expectations for the remainder of the year. Second half revenue and production are still anticipated to outpace the first half 2025 results. Our revenue outlook reflects continued market uncertainties, along with our proactive measures to adapt, striking a careful balance between recovering tariff-related costs and positioning ourselves to seize new opportunities as market conditions improve. In this difficult environment, we remain committed to selling units with healthy margins. By launching innovative, flexible products and maintaining pricing and cost disciplines, we expect product margins to remain above targeted levels but decline year over year due to heightened competitive intensity in a softer market. As the global tariff landscape evolved, we initiated a monthly price adjustment process that better reflects actual material costs in our inventory. This approach helps protect our profit margins during unstable times. We'll maintain this process as changing tariff rates continue to impact our product costs. We're also investing in projects to streamline manufacturing, making our operations more efficient to capitalize on our modular and scalable design philosophy. Year to date, we've spent $1.4 million on these efforts. We plan to spend an additional $4 to $7 million in 2025 and $10 to $23 million in 2026. Overall, total project spending aligns with earlier estimates, with some costs moving from 2025 to 2026. In line with prior expectations, benefits realized in late 2025 and into 2026 are likely to be offset by reduced production volumes year over year. Once fully implemented in 2027, generate annualized savings of $30 to $40 million, which will help to further insulate the business from future market downturns. Operating expenses should decrease modestly in 2025 versus prior year, mainly due to Newvera's restructuring actions. We expect annualized run rate savings of $15 to $20 million in the second half of 2025 from this effort. Additionally, $10 to $15 million of Nubera's costs are being absorbed by the lift truck business as we fill open roles and accelerate battery and charger product development. We expect Q3 operating profit to improve sequentially as a result of stronger sales and better manufacturing efficiency as lift truck consumer demand improves. For full year 2025, we anticipate operating profit to decline significantly compared to prior year, be slightly below our previous guidance. This is mainly due to lower bookings in production as well as the timing of our tariff mitigation efforts. Turning to Bolzoni's outlook, Bolzoni's Q3 revenues are projected to improve modestly compared to Q2 as higher attachment sales are mostly offset by reduced legacy component sales. Q3 operating profit is expected to increase moderately versus Q2 as a result of lower manufacturing costs and improved factory utilization. Full-year 2025 revenues are anticipated to decline year-over-year, reflecting weaker demand across Balzoni's customer base. Product mix and cost control improvements are not likely to fully offset the impact of lower sales. As a result, 2025 operating profit is projected to be below 2024's adjusted operating profit level. Summing up our consolidated outlook, we expect modest sequential improvements in Q3's revenue and operating profit. The consolidated revenue increase relates to stronger performance in both the lift truck and Bolzoni segments. Q3's adjusted operating profit improvement reflects the positive impact of higher sales and increased production volumes. Looking ahead, our full year 2025 expectations remain below 2024 levels. Revenues, production output, and profits are expected to fall short of the prior year's robust results. Our recent outlook has deteriorated somewhat, primarily due to the effects of higher tariffs on material costs and a greater than expected year-over-year demand decline in the second half of 2025. Global trade dynamics and geopolitical uncertainties remain significant variables in our outlook. Actual results may differ materially from our current projections as a result. Our commitment to resiliency, built over several years, is driving improved liquidity and stronger, more consistent profitability across market cycles. We're focused on achieving a 7% operating profit across the business cycle. During periods of robust, backlog-driven production, like we saw in early 2024, we expect to outperform that target Conversely, when markets decline, we're determined to limit profit degradation through financial and operational discipline, aiming to perform better than in previous downturns. Our progress on strategic product and manufacturing initiatives is encouraging. We expect these efforts to deliver increasing benefits over time, creating strong growth opportunities while reducing our financial break-even point, ultimately increasing long-term shareholder value. I'll round out our profit outlook with taxes. Tax legislation signed into law on July 4th contains various provisions that could benefit the company, particularly through the immediate expensing of research and development costs. While we're currently evaluating the impact of the recent legislation, we anticipate lower tax expense and related cash outflows as we leverage these new provisions. These benefits should favorably impact 2025's financial results, becoming increasingly visible through the second half of the year. They were not reflected in our Q2 results as the law was enacted at Q3. Turning to cash flow, the company continues to prioritize strong operating cash flow generation and strategic capital deployment. As our 2025 lift truck demand outlook continues to evolve with global economic uncertainty, We're focused on aligning production schedules while optimizing working capital levels. We expect these actions to yield strong cash flow generation despite the projected significant net income decline. Strategic and effective capital allocation is central to our ongoing transformation, including capital investments in advanced products, manufacturing efficiency initiatives, and critical upgrades to information technology systems. For 2025, we expect capital expenditures to range between $50 and $60 million, reflecting continued project prioritization as we navigate this dynamic market environment. We'll adjust investment levels and project timing as our visibility improves. As we generate cash, our capital allocation approach remains disciplined. We plan to reduce leverage and make targeted investments to support profitable growth, delivering sustained long-term value and strong returns to our shareholders. Now, I'll turn the call over to Al for his comments.

The updates provided by Rajiv and Scott today are particularly important. Tariffs remain a large and important concern and a key focus of our attention. At High Street Yale, our long-term vision is to revolutionize the way materials move. from port to home. This vision is built on a mission with two core promises, delivering optimal solutions to our customers and providing exceptional customer care. To achieve this, our focus remains on executing key strategic projects that will transform our core lift truck business while expanding complementary high growth opportunities. We believe warehouse lift trucks, vehicle automation, energy solutions, and attachments will supplement growth in the core counterbalance forklift truck business and propel significant additional growth in revenue opportunities. These complementary growth and profit improvement efforts are designed to strengthen our competitive position, drive long-term revenue growth and operating profit, and position Hyster Yale ahead of handling market trends. Over time, we believe these key projects will create a sustainable competitive advantage for High Street Yale businesses to benefit both our customers and shareholders. And now I'll turn over the discussion for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If your question has already been addressed and you'd like to remove yourself from queue, please press star then two. Once again, that's star then one if you have a question. And today's first question comes from Ted Jackson at Northland Securities. Please go ahead.

Wow, I never get to be first.

That's so exciting. Good morning, everyone. Good morning, Ted.

So my first question, I wanted to start in... on the lift truck. So you're expecting to see second half revenue and production on top of first half. Typically, with regards to the Americas, your third quarter is down and you get a big rebound in the fourth quarter. So we expect that same seasonality in North America. And then shifting over to EMEA, you had a good rebound after a weaker first quarter. I mean, when we think about EMEA in the second half, should we be thinking about EMEA following, you know, kind of typical seasonal trends based off that second quarter? Or was the strength in the second quarter a result of stuff that might have been in the first quarter shifting to the second quarter? So that's my first question or a couple of questions.

Yeah, I'll take it and then others can input. So for Americas, we do expect, it's difficult to, the way our customers are operating right now is huge amount of market activity. So RFQs and quoting activities are all very good. really to kind of our expected levels. What's happening is with the tariff volatility, decision-making has slowed down. So we expect that to stabilize as the tariff kind of rules stabilize and that we have more steady pricing because I think that's the big element that's concerning our customers is, They can't predict what the pricing is going to be because of the volatility. So we do expect those to stabilize. We're seeing a little bit more stability on the regions that are important to us, probably the main exception being India. That seems to be pretty volatile. So we think on the basis of that, some of the... backlog on quotes and RFQs, decisions will be made because our customers are indicating they need the trucks. So that's what we expect to happen in America. Obviously, that's conditional to if there is increased volatility due to tariff or any other kind of economic condition reasons, then again, they may continue delaying decision making. But our expectation right now is that we'll see more decisions being made by our customers. In Europe, we had a pretty strong booking in the first quarter. Second quarter booking was down, but shipments were up from the booking that came in on the first quarter. There's still a fair bit of weakness in Europe, again, predominantly driven by, you know, kind of expectations on tariffs. focus on building up military capability as you've seen Europe as a whole has committed to a higher spending on military. So we do expect there to be some impact on spending patterns due to that. So we expect And obviously seasonally there is a slower quarter because of the shutdowns in Europe for the holidays. So I think the behavior is going to be pretty similar to what we normally see in Europe with probably third quarter being the weakest quarter from a shipment point of view.

Yeah.

My next question, going into tariffs, so two things. One is, you know, having gone through, at this point, dozens of quarterly calls with, you know, various equipment OEMs, a lot of the OEMs have seen the view with tariffs as being probably better than it was with the last quarterly call, but maybe So the aggregate for the year is better, but maybe some shift to more of it being in the second half. So I guess I'm curious with regards to your view on tariffs and their impact on highest yield. How has that changed relative to the first quarter? And then have there been any changes in how you view the timing of that impact on your business? And then following up on that, I find it interesting and actually smart that with regards to your pricing that you're You're putting in regular adjustments based around tariffs on a monthly basis. But you've held steady with regards to how you've priced things that were already sold. So when I think about your backlog and your orders on kind of a simple math basis, would I be thinking about the bookings of 330 and having had that price adjustment? And then, you know, let's say none of that stuff is going out the door and it's in second half. And then that would mean that, you know, from a conversational perspective, that the remaining, call it, you know, ability in three or backward is priced at pre-tariff flexibility, if that makes sense to you, to my questions on tariffs.

Yeah. I think we've gotten used to the idea of it, right? So I think that we kind of got over the shock of the numbers and got used to the numbers, still very impactful to our business. And yes, compared to what came out, you know, as the initial kind of April tariffs, obviously they've changed quite a bit from that. And those numbers were just unsustainable, I think. And I think they were, from our perspective, they were used for negotiation purposes. I think we're seeing a settle down now in around this 10 to 15% with the exception being for the countries that are important to us, China and India. That's still high. And we are adjusting... For those, the issue for the bookings in the second quarter is we not only protected what was in our backlog, but also some of the key deals that were in the quote process. So in the second quarter, we'll have a mix of, you know, kind of pricing pre-tariff But it's going to be mostly post-tariff pricing. So I think that's the way that will pan out. We've accounted for the tariffs in our look forward for the rest of the year. We are also planning to make some production, where we're going to make truck adjustments based on some of this. So I think it's still going to be quite a bit of moving pieces to adjust to the tariffs. I think that's probably the best way to reflect your question. I know it's a moving story. It is for us as well and how we are reacting to it.

Well, at least you have a lot of flexibility built into your footprint. I do have two more questions, but I'm going to step out of line and then I'll reenter and ask and follow up. That's okay.

Give other people a chance. Thanks. Thank you.

And our next question today comes from Brian Sponheimer with Cabelli Funds. Please go ahead.

Hi. Good morning, everyone. I'm just curious as to any thoughts or comments on Toyota taking Toyota Industries private, obviously a significant competitor to yours, and what that does from a competitive environment and a pricing, anything that you're seeing out there yet or any expectations going forward?

You know, I was in Japan a couple of months ago. You know, this is more a Japan effort. You know, if you look at Toyota has certainly done it. One of our partners, NTT, has done it or is in the process of doing it. We expect others to do it too. And I think it's so that they can have a little bit more flexibility in the way they really align their internal capabilities I don't think we expect there to be a market dynamic in the short to medium term. I think a lot of the strategies they're following in automotive will be similar to what will happen in lift trucks. Good examples are electrification, continuing to put technology, transition technology from automotive to lift trucks. So I think Those are important ones. Supply chains are also converging. So I think there are some of those elements. But at the end of the day, there seems to be a trend in the way Japan wants to structure its companies.

Regarding autonomous lift trucks, clearly seems to be a labor productivity benefit. With your profitability obviously hampered by externalities right now, any concerns as to your own ability to invest to keep up from a technological standpoint?

No. I think we launched our automated solutions at the ProMatch show. We demonstrated our horizontal mover. That will be going into production very soon. And, yeah, so there's a huge amount of activity going on on all of our technology solutions where we're talking about automation or communication through telemetry or our operator assist systems.

Yeah, Brian, this is Scott. I would say, you know, if you look at our CapEx, it's north of depreciation and amortization. So that shows that we're continuing to invest in our future, both technologies and efficiencies.

Appreciate that, and good luck for the back half.

Thank you.

Thank you. And our next question today comes from Eric Ballantyne with CBC. Please go ahead.

Hey, guys. Thanks for taking the time. Just maybe we could drill down on a couple things within the backlog. You know, what is kind of the mix there, you know, in the profitability? I know that you guys did a pretty good job coming out of COVID and making sure that within the backlog there would be, you know, all trucks would be profitable, if you will. And obviously that was kind of prior to coming in. But maybe you can just give some color on how we should think about that. I mean, is there a chance that some of the backlog trucks are going to be negative like in the past? You know, maybe just a little more color on that would be great. Thanks.

Yeah, I think there's a couple of things that are going on. Firstly, our discipline on pricing has been very good and continues to be good. Obviously, the market is a little bit more aggressive as the overall size of the markets come down. But we still feel good about... our margin due to our pricing discipline. The other thing that is helping us and will further improve is the scalability in our product line so that we can match, especially for our one to three and a half ton internal combustion engine trucks, we can better match the application with the solution. And that will also help you know, the margin profile of our backlog. What has been difficult has been the tariff dynamic. And we do see that as a pulse that will go through our profitability because it's really a bit of an overlay because it'll take, you know, I would imagine that in the third and fourth quarter, we'll be back to pricing, you know, the... The tariff, as things stabilize, we'll put it back into our normal pricing process. So I think that will provide us with stability. But we're very committed to maintaining our pricing discipline.

Yeah, Eric, average selling prices booked in the quarter were actually up year over year, nearly 10%. So I think that reflects the discipline Rajiv was talking about. So it really comes down to the volume. And in this lower volume environment, our challenges are around manufacturing efficiency. But we've announced projects to take a significant cut to our manufacturing overhead costs in the next couple of years. So I think, as Rajiv said, we're committed to pricing discipline and reducing costs to meet our demand in the future.

Okay.

And then I just have a couple of quick more questions just on the components that you're sourcing from China and India. I mean, you're saying that you're doing in-region, for-region, if you will, but you still have to source some components which are being impacted. What are the major components that are being impacted for you that you can't necessarily get, you know, in region for region, which I guess basically mean you can't get it in America?

Yeah, I don't think we'll get into specific components, but maybe I can talk about a category of components. So, you know, the way we categorize components are highly engineered components, you know, high investment components, you know, kind of components such as our castings. And then there are the low, you know, low investment, low engineered components such as our fabrications. So the most difficult for us to move quickly are the highly engineered components. But for majority of those, we have suppliers that can produce those in multiple regions. Obviously, given a no-tariff environment, we had the vast majority of the volume in low-cost countries such as India and China. One of the new platforms is predominantly in India, but they can be transitioned. Now, it takes some time to make that happen, and we're in discussions with those suppliers to transition those to either the country of assembly or the next best country from a cost point of view based on the tariffs that are already in place. So those discussions with those suppliers are going on as we speak. Then for some of the highly tooled but simpler components like castings, Part of the issue is the capacity. By far, the biggest capacity for castings in the world is in China right now. Both India, other Southeast Asian countries, Eastern Europe are developing casting capacity, but it's going to take us some time. So those are going to be a little slower to move just to, you know, match up with capacity that opens up in other regions. So hopefully that gives you a sense for what we're going, how we're, you know, progressing, looking at our sourcing.

Yeah, great. Thanks. I'll jump back in queue. Thank you.

Thank you. And as a reminder, it starts in one if you have a question. Our next question is a follow-up from Ted Jackson at Northland Securities. Please go ahead.

Thanks. So I wanted to jump over to Balzoni. I mean, the quarter, at least relative to my expectations, was better than I expected. You know, you're clearly seeing it in the margins, you know, the shift in business in Balzoni, you know, where your legacy low margin products fading away. So I was curious, within Balzoni, what was the mix in the quarter between, you know, You know, like the new core Polzoni, you know, those old legacy products. And then what was it in the same period of last year? Does it ever go to zero or it's just, you know, the newest higher margin product?

That's my first question. The legacy will ultimately go to zero. So those are the transmissions, axles. And in fact, our plan was to make that happen sometime during 2026. But again, with the tariffs, that slowed things down a bit because, again, we knew where we wanted to move it. It's one of our joint venture plants in one of the countries that was heavily hit with tariffs. That one's not settled down yet, but our objective is one way or another we'll move that volume to... one of our other facilities. So Bolzoni will essentially, I think by 2027, will be down to close to zero for legacy. Now, I just want to remind us, legacy does not include cylinders because cylinders will continue to be a core business for Bolzoni. So those are Well, we're really talking about transmissions, axles, and steer axles, drive axles and steer axles.

Okay. And then my next question and my last question is, when I think back to, you know, kind of the outlook you've had for 2025, you know, a part of that was a taking of market share within the warehouse market as you, you know, you've rebranded, you've refocused, you have a bunch of, you know, stellar new products within that area. There's been a clear slowdown, if you would, in terms of warehouse openings within North America. And so I guess the question is, has there been a change with regards to your view on the warehouse macro of DCV at the beginning of the year? I mean, has it deteriorated? And then how has that impacted your efforts to take market share within the vertical? That's my final question.

Yeah, so although the market size is smaller and the competition is pretty stiff, we have made some progress in market share this year. I think, you know, there's some key customers that are going to make decisions over the next, you know, in the second half of the year. And that will really map out, you know, how much gain we're going to end up making during 2025. But we're pleased with the traction that team is making in the marketplace, especially in North America at the moment.

Okay. Thanks very much. Thank you. Thanks, Ted.

Thank you. And our next question is a follow-up from Eric Valentine of CBC. Please go ahead.

Hey, guys. Maybe you could give a little color. I know someone earlier asked about Toyota, but maybe you could give some color on kind of the competitive landscape out there if you're seeing, you know, are all the players being rational and key on and so forth out there? And, you know, do you see any players that are, trying to take advantage of this time on you guys. That'd be great. Thanks.

I think generally, the key thing that's changed in the landscape has been the participation of the Chinese competitors. And to some extent, they're driving really a recalibration within our customer base of what is the right truck for them. And I think we were kind of aware that this would happen and part of our launching our scalable platforms and having value trucks was getting ahead of some of that. As far as our traditional competitors are concerned, we do see some pricing action being taken from time to time. to get specific deals, but nothing across the board. I think they're being pretty disciplined like they are. They have been in the past to adjust the production volume and participate in the market.

One other comment that I'd add to that is the Chinese economy is weak. And they've been encouraged and stimulated by government resources to continue to manufacture and export and to a level which has meant that they've been accumulating inventory in other countries around the world. That's a disruptive factor in the short term, for sure. So I think it just reinforces Rajiv's comment that the Chinese are being the most disruptive with a lot of government support for doing it right now.

Thank you so much. Thank you.

Thank you. And this concludes the question and answer session. I'd like to turn the conference back over to the management team for any closing remarks.

Do you have any closing remarks?

No.

I might just make one closing remark.

This is, in my mind, a period of extraordinary transition. First and foremost are the tariffs. When they do stabilize, and I think they will eventually stabilize, it's hard to say at what level, but they will stabilize and the prices will go up to recover the costs because pretty much everybody is being affected one way or another directly or indirectly by the tariffs, both importers and domestic producers. So that will settle down. It's hard to estimate exactly when that'll happen, but certainly not before the end of this year. They'll continue to be the lagging effects that Scott mentioned in his material. Second is the overall demand situation. And there are two aspects to the demand transition that we're in. One is that in a sense we're the A cyclical low we had in the industry. We had the very large booking period, extraordinary volumes at bookings that occurred during COVID. And so we have an exacerbated low cyclically in the marketplace. That's beginning to work its way through, but it certainly hasn't recovered. at this point, and adding to the transitional impact is the tariff issue that I mentioned before, because it's not just a question of costs and prices, it's also a question of demand in the context of uncertainty before the tariff situation settles down. And finally, there's a transitional aspect in terms of the strength of the economy and the general manufacturing sector. There's a lot of discussion, as I'm sure that all the people on this call are well aware, about the Fed's stance on interest rates. And of course, they're thinking about the economy in total, with consumer purchases being by far the largest portion The manufacturing orders and more broadly are not putting the low order rates in the lift truck business as a separate matter. They're part of the same sort of problem. So we've got the potential for some cyclical weakness in the economy as well as the tariff transition, as well as the demand, the normal cycle, and the industry. So all those factors, I think, mean there's a lot of short-term pressure, but the company's really positioned to take advantage of the upturn when that comes along. And it should be, given the number of projects that we've undertaken, a very dramatic upturn in the company's revenues and profitabilities. And when I say revenues, it's really absolute unit volumes because we've had such an inflationary impact due to the tariffs. So all those factors make this a transition period. And I think that's a core thing to think about when you're thinking about Hyster Yale, it's not a short-term story of the next couple of quarters. This has got to be put in a broader and longer-term context.

Thank you, Al, for your closing comments. And for the participants, we appreciate your questions in the second quarter earnings call. A replay will be available online later today. We'll also post a transcript on the Hyster Yale website when it becomes available. If you have any questions, please reach out to me. My contact information is available for press release. I hope you enjoy the rest of your day, and now I'll turn it back to Rocco to conclude the call.

Thank you, ma'am. This does conclude today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful rest of the day.