Hyster-Yale Materials Handling, Inc.

Good day and welcome to the Hyster Yale Inc. fourth quarter and full year 2025 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists 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 touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ms. Andrea Saba. Please go ahead, ma'am.

Good morning, and thank you for joining us for Hyster Yale's fourth quarter and full year 2025 earnings call. I am Andrea Saba, Director of Investor Relations and Treasury. Joining me today are Al Rankin, Executive Chairman, and Rajiv Prasad, President and Chief Executive Officer. Yesterday, we filed our fourth quarter 2025 earnings release, which provides a comprehensive overview of our financial results and performance. The discussion in this script serves as a supplement to the earnings release, offering additional insights and context for our results. You can find the release and a replay of this webcast on the Hyster Yale website. The replay will remain available for approximately 12 months. Today's call contains forward-looking statements subject to risks that could cause actual results to differ from those expressed or implied. These risks are outlined in our earnings release and SEC filing. We will be discussing adjusted results, which we believe are useful supplements to gap financial measures, reconciliation, of adjusted results to the most directly comparable gap measures are available in our earnings release and investor presentation. First, I will start with a brief overview of our fourth quarter and full year results before turning the call over to Rajiv to discuss the business environment and strategic outlook. During the fourth quarter, we saw several encouraging signs Bookings in the fourth quarter strengthened significantly, increasing 42% sequentially and 35% year-over-year, which may signal the early stages of a demand recovery following an extended period of customer caution. Also, the first two months of 2026 continued this trend. Fourth quarter operating cash flow increased to $57 million, driven by meaningful improvements in inventory efficiency. We continue to make progress aligning production with demand, improving finished goods management, and reducing inventory levels, all of which support stronger cash generation. That said, market conditions remain challenging during the quarter. Fourth quarter revenues declined to $923 million reflecting weaker shipment volumes across the business as customers continue to delay purchases until they have a clear need for new trucks. Tariffs remained a significant headwind, reducing both quarterly and full-year revenue and operating profits. In the fourth quarter, the impact of tariffs, combined with lower volumes, resulted in an adjusted operating loss of $16 million. This includes $40 million in gross tariff costs. Looking at full year 2025, revenue declined to $3.8 billion, and we reported full year adjusted operating profit of $16 million. This result includes approximately $100 million in gross tariff costs, underscoring the magnitude of the ongoing external pressure on our results. While 2025 reflected a difficult operating environment, our improved bookings, strong cash flow performance, and disciplined cost and inventory management position us well as demand begins to recover. With that foundation in place, I'll turn the call over to Rajiv.

All right. Thanks, Andrea, and good morning, everyone. I will start by sharing how we see the current economic landscape unfolding. how those dynamics are shaping customer behavior, and how we are positioning the company in response. After that, I'll walk through our expectations for 2026 before turning over the call to Al for his closing remarks. The global lift truck market remained challenged in the fourth quarter, with year-over-year declines across all regions and truck classes. However, despite that brought pressure, we began to see an important divergence emerge late in the year. North America showed meaningful sequential improvement relative to quarter three. This uptick translated into stronger bookings and a noticeable improvement in customer engagement. As encouraging contrast to EMEA and JPEG, where demand contracted sequentially as customers remain cautious amid macro uncertainty. This brings me to the underlying customer mindset. Across all regions, customers are still heavily focused on cash preservation, higher financing costs, and fleet utilization. As a result, many continue to defer capital spending, especially for higher duty equipment. suppressed ordering activity outside of North America. Against this difficult backdrop of quarter four, booking performance stood out as a meaningful positive development. Booking increased to $540 million, up significantly from $380 million in quarter three and $400 million in the prior year quarter. The Americas drove most of this increase, particular strong traction in core counterbalance class five trucks in the one to three and a half ton range. Looking at the first two months of 2026, we've seen the positive booking momentum persist. North America industry demand recovery is continuing, outperforming our expectations. The company's own bookings are ahead of prior year driven primarily by continued strength in our core counterbalance trucks and solid performance in the Americas. This reinforces our view that the underlying recovery is gaining traction as we enter 2026. But the more notable shift is why bookings are improved. Customers began converting quotes into firm orders at a materially higher rate, suggesting is now complete, greater clarity around their operational needs, rising urgency, and early signs that replacement cycles, which have been deferred, are starting to re-engage. This shift, combined with the increasingly aged fleet and rising maintenance costs, supports our view that replacement-driven demand may be gaining momentum as we enter 2026. Stepping back, it's important to underscore that 2025 was a difficult year after two very good years. One marked by high tariff costs, softer industry demand, and heightened customer caution. Many customers were still taking delivery of equipment ordered during long lead time windows, stretching fleet lives, and delaying normal replacement cycles. We now believe many are nearing natural replacement timing. This is a key element behind our cautious optimism going into 2026. As we exited the year, backlog total $1.28 billion, reflecting shipments outpacing new orders, especially within EMEA, where recovery has lagged due to delayed orders and industry shifting towards lighter duty lower-priced products. Sequential backlog decline was driven primarily by lower unit volumes, partially offset by higher average selling prices tied to material and component costs. Currency movement further reduced the translated value of backlogs. Now let me bridge that to what we're seeing in early 2026. Early year bookings have been strong across all regions. Even though shipments began the year at lower levels than quarter four, if this trend continues, and we expect it will, bookings should begin to outpace shipments, allowing backlog to rebuild towards a more normalized three to four month level. This in turn supports more efficient production planning. Pulling these pieces together, we expect quarter one 2026 to mark the trough of the current cycle, primarily reflecting the lower order intake levels from earlier in 2025. As we move through the year, improving customer confidence, stronger bookings, and backlog building should allow production and shipment to expand gradually, with the meaningfully stronger volumes expected in the second half of 2026. Even as volumes trend upwards, near-term margin pressure is likely to persist. Here's why. The market continues shifting towards lighter-duty, lower-priced models. Competitive pricing, particularly from foreign manufacturers in Europe and South America, remains aggressive, and this has reduced shipment in traditionally higher-margin categories. Despite the challenging backdrop, our approach remains consistent. Focus on what we can control and make disciplined, forward-looking investments that position the company for a transformation which will accelerate when the market turns. Our priorities remain the same. Rigorous working capital management, tight operational discipline, lives. We have been through many market cycles and that experience reinforces an important point. Resilience and readiness matter. While we cannot control external forces, we can control how we operate. That is why we are concentrating on efficiency, productivity, innovation and responsible cash management. To deliver on these priorities, Product strategy. We have introduced new modular and scalable platforms to address these evolving segments. While these offerings strengthen our long-term competitive position, margins will remain pressured until they gain full market traction. Operational efficiency. We are streamlining operations, managing inventory more tightly and improving working capital efficiency. These actions help generate cash even when revenues and profits are under pressure. Manufacturing flexibility. Our modular vehicle platforms allow us to build the same models in multiple regions. This flexibility helps us adapt quickly to tariff changes, logistic challenges, or supply chain disruptions. Customer engagement. We're strengthening our relationship with dealers and end customers. By listening closely and co-developing solutions, we're aligning our product roadmap with the real challenges customers are facing today. Product innovation. We're accelerating new product launches and introducing technologies that improve performance, lower total cost of ownership, and help us stand out in the market. Market readiness. We're watching leading indicators closely so we can scale quickly when conditions improve. Our goal is to be a first mover as soon as demand begins to recover. Global optimization. We're realigning our manufacturing footprint and supply chain to improve cost, competitiveness, and responsiveness across all regions. These actions are helping us manage the current environment with agility and discipline. They're also strengthening our long-term structure, lowering our break-even point, and improving product margins so earning becomes more resilient over time. Our overreaching goal is clear. Heister Yale is a first mover when demand XRAs enable to scale quickly and capture revenue. To further support our long-term position, we've taken decisive action to lower our cost structure and strengthen resilience across market cycles, which include New Era strategic realignment, executed in the second quarter of 2025, delivered $15 million of cost savings in 2025, and redeployed resources to higher growth opportunities. A company-wide restructuring program launched in quarter four of 2025 targets $40 to $45 million of annualized savings beginning in 2026. Manufacturing footprint optimization initiatives began in 2024 are expected to deliver $20 to $30 million in benefit in 2027 with full annualized savings of $30 to $40 million by 2028. In total, we expect recurring analyzed savings of $85 to $100 million by 2028, compared to the beginning of 2025 before inflationary cost increases. I will now move to discuss tariffs, which remain a major external factor. We have outlined our assumptions regarding tariff costs in the earnings release, which were prior to the IEPA decision. With these assumptions, forecasted tariff costs are expected to remain broadly consistent with Quarter 4 2025 levels throughout 2026. While we have implemented pricing, sourcing, and cost initiatives, we do not expect to fully offset tariff impacts. Benefits from mitigation actions are expected to increase beginning in Quarter 2 2026, so year-over-year comparisons will remain and favorable early in the year. We're also monitoring recent legal developments related to tariffs. The Supreme Court's ruling was limited to IEPA tariffs and did not invalidate other tariffs or address potential refunds, which, if required, would likely take years to resolve. Broader implications for trade policy remains uncertain, and additional tariff-related decisions will likely continue to be challenged in court, which could affect how certain tariffs are applied and how related costs or potential recoveries are recognized. These mitigation efforts should begin contributing more meaningfully in Quarter 2, 2026, though early-year comparisons will remain unfavorable. Bringing everything together, we remain cautiously optimistic. Market conditions are still challenging, but improving bookings and aging fleets provide constructive signals, and volume recovery is expected in the back half of 2026. Based on these factors for the full year, we expect moderate full-year operating profit, a small loss in the first half, followed by stronger returns cost actions take hold. As we move into 2026, the company remains committed to generating strong operating cash flow and allocating capital in ways that enhance long-term value. Management is executing targeted initiatives to improve working capital efficiency with particular emphasis on aligning production and working capital practices with periods of reduced output. We expect meaningful progress on these initiatives during the first half of 2026. As production levels increase later in the year, the focus will shift from conserving working capital to supporting growth, while maintaining the inventory and production disciplines established during the current downturn. Together with continued cost optimization, these actions are expected to drive solid cash flow from operations supported by improving net income. Investment in modular development and critical capital equipment and IT capabilities remained central to the company's ongoing transformation, enabling advances in new product development, manufacturing efficiency, and information technology capabilities. Capital expenditure for 2023 Management will closely monitor spending throughout the year and may accelerate investment as production levels and market share improve as anticipated. As the company continues to generate cash, it will maintain its disciplined capital allocation framework, prioritizing debt reduction, pursuing strategic investments to support profitable long-term growth, and delivering sustainable, shareholder returns. We have managed through cycles before, and we are confident in our ability to do so again by staying disciplined, strategic, and focused on long-term value creation. Now I'll hand the call over to Al for his closing remarks.

Thank you, Rajiv. As you have heard today, 2025 was a challenging year for our industry. Demand softened, tariffs were a significant headwind, and customers were understandably cautious, especially since they were still receiving trucks ordered in earlier years. But it was also a year in which we took decisive actions to strengthen Hyster Yale for the next phase of the cycle. We've used this period to improve the business fundamentally, lowering our cost structure, increasing operational flexibility, sharpening our focus on cash generation, and investing in the products and capabilities that matter most to our customers. These actions are not short-term fixes. They are structural improvements that position us to perform better across cycles. Importantly, we are beginning to see early signs that the market is stabilizing. Things have improved, customer engagement is increasing, and aging fleets are driving renewed focus on replacement. While we remain Realistic about the near-term environment, we are cautiously optimistic that 2026 represents a turning point with stronger performance expected as the year progresses. Our priorities remain clear and unchanged. Disciplined execution, proven capital allocation, and a relentless focus on the long-term value creation of our company. We're committed to maintaining financial flexibility investing where we see durable returns, and positioning High Street Yale to be a first mover as demand recovers. We have managed through many cycles over the years, and that experience gives us confidence, not complacency. We know success comes from preparation, discipline, and focus. The actions underway today are transforming our company by building more resiliency, higher profit, higher margin growth, and a more competitive company. We believe this will all translate into improved earnings power and stronger returns over time. That concludes our prepared remarks. We'll now open the call 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 touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. And at this time, we'll pause momentarily to assemble our roster. And our first question for today will come from Chip Moore with Rock MKM. Please go ahead.

Hey, good morning. Thanks for taking the question, everybody. Good morning, Tim. Wondering if you could perhaps uh expand on you know the pent-up demand dynamic and and potential for fleets to get replaced uh just the conversations you're having it sounds like things have continued to trend in the right direction here uh in 2026 so far and any thoughts around mix and when we might see uh you know a bit of a shift to the more uh profitable uh lips thanks

Yeah, Chip, I think, you know, as we talk to our customers, they are transitioning from, I think, conserving to really ensuring that they will have what they need for their operations. I wouldn't say it's, you know, particularly euphoric. It's, you know, still about what must they do. And we're talking about predominantly industrial customers. Certainly, as I look at our bookings, it is heavy on counterbalance trucks. So I think that's the nature of it. I would say people are doing it despite their concerns because of the need. And it's mostly industrial customers who are coming back to us. We're also, I mean, we are promoting that by launching some programs that will help them do it. So, you know, that's been a bit of a catalyst to further engage our customers.

I think I'd add just one thought to what Rajiv said, and that is that the context here is that we've basically now delivered all of the long, high backlog, early order trucks. The customers are now no longer receiving trucks, which they were, I think, Rajiv, just as recently as a month or two ago. So that dynamic changes, in a sense, the backdrop against which they're executing their own plans and thinking through what to do. So I think that's an important consideration.

Yeah, definitely. Thanks, Al and Rajiv. That's helpful. If I could ask one more, maybe, you know, can you just update us on new product launches and the pipeline there and particularly anything around automation as well? Thanks.

Sure. So I think from a new product launch point of view, in fact, just this week, we are launching some new products to our customers. It's really part of our modular and scalable you know, kind of spreading of that platform into our electric counterbalance trucks and also starting to be implemented in some of our warehouse products. So these launches are being introduced to our dealers in the early part of the month and they'll be available for sale by the end of the month so they can go out and take orders. In terms of the automation solution, We've been working with what we would call friendly customers to install the automation as part of a pilot. Those have gone very well. We've started to get orders for the automated trucks. And then we're also now engaging some of our dealers into the selling process of these automated trucks. So I would say that will accelerate throughout the year. The actual official launch of the automated IDA truck is in April, so it's coming very soon.

Great. Thanks very much.

I'll hop back to Q. The next question will come from Ted Jackson with Northland Securities. Please go ahead. Thanks. Good morning.

Good morning, Ted.

So, first, I just kind of want to summarize what I'm hearing from you all just to make sure I'm getting the message. I'm a little slow today. So, in the fourth quarter, bookings picked up, driven by North America, industrial counterbalance. Outside of North America, bookings did not pick up. They were somewhat stable. But what you're seeing there is a shift towards smaller, more price competitive products. Going into 2026, bookings continue to strengthen, not just in North America, but also seem to be spreading to the rest of the world, although the rest of the world is still seeing smaller, more price competitive product in terms of what's being booked. You expect your bookings to continue to strengthen as you roll through 2026, as you go through really a replacement cycle. but the mix of your bookings will be towards these smaller, more price-competitive products, which means that although I would expect to see a margin recovery, we won't see a full-blown margin recovery. So is that what I'm hearing from all of the dialogue and the press release? And then behind that, if it is correct, then does it mean that as we exit 2026 that we would see your margins more to the mid, mean farm gross margin, more to the mid-teens than to the high-teens? That's kind of my first question.

Yeah, so I think that's directionally very correct, Ted. In terms of the margin levels, just the 23, 24 margin levels were out of the ordinary for us. We saw something in the kind of low 20s. I don't think we'll see that. We will see, depending on the product line, in that range between mid-teens to high-teens, which is where our targets are. So I think basically everything is normalizing. Our backlog is normalizing. Our margins are normalizing. The one thing that's happening in the markets And we kind of predicted it that there's a trend towards lower capability trucks because that's what the customer needs. And so, you know, those are going to be the primary path forward.

Well, that was the whole point behind the effort to put the modular products out anyway. So you are positioned for it. But so then it's fair to expect if this scenario plays out that by the time we get out of 26, your gross margins should be somewhere in the mid to high teens. If indeed like we are, you know, seeing we are at the bottom of the cycle.

I think that would be a fair estimate.

Okay. Okay. And then my question, I have a question just on CapEx. I thought that the CapEx guide was, you know, I mean, at least the midpoint of it would have been a little higher than I expected. Can you talk a bit about, you know, what the thought process is within, you know, your spend and kind of where you're going with it and why you're ramping it up that much?

Yeah. The vast majority of the CapEx is going into really three areas. Continues to be towards product. You know, we continue to scale out the modular scalable and our technology solutions, now including automation and lithium ion kind of batteries and charges that go with it. The second area is around really upgrading our IT infrastructure, especially, you know, over the coming year, we're going to launch a new CRM system. We're going to really upgrade our product lifecycle management system, and our parts business will move to a new ERP system. So that's quite a lot of IT-type programs that we're implementing in 2026 and in 2027. And then the last area is optimizing our manufacturing footprint, what that means is we're moving some production globally, putting additional capabilities in in geographies that didn't have it. So it gives us a full ability to source any type of truck from anywhere to anywhere. And I think as we discussed in the past, the modular scalable platform was designed to be able to do that, but it does take some you know, capital to, you know, spread that capability. The other thing we're doing in our operations is adding more automation. So, you know, much more automation in the way we manufacture our lift trucks.

Okay. Those are all worthy investments. And then my last question, just a little more, you know, in terms of markets and stuff. How about a little update on, you know, the efforts in the, you know, progress for the company in terms of penetrating the warehouse segment and the goal of taking some market share there? Can you give us some kind of color of what's going on in the front? That's my last one, thanks.

Yeah, we've made some progress in that area, especially in North America. Our share has improved in the warehouse market. We think the big enablers and accelerators will continue to be Some of the new trucks we're launching, we're in the middle of launching a new three-wheel stand, which is going to come with a lot of scalability and address parts of the market we haven't been successful in in the past. We'll continue to add our safety systems, such as our AI camera and our DSS system. So this is to make sure to avoid pedestrian incidents and accidents. and keep the operator operating in the right, you know, range, stability range. And then our automation solution and the energy solutions are all very targeted towards the warehouse segments of the market. So we think those will help customers and, you know, provide us an opportunity to discuss these solutions with customers we haven't had a close relationship within the past.

And in fact, a lot of that is going on as we speak.

Okay. Well, thanks very much for the questions. And we'll talk to you soon.

Thank you, guys. The next question will come from Kurt Lutke with Imperial Capital. Please go ahead.

Hello, everyone. Thank you for the call. With respect to the order rates, in the Americas, you know, the pickup's very encouraging. Can you give us a sense for how orders trended by end market directionally, positive or negative, you know, autos, e-commerce, that type of thing?

Typically, we don't break it down to industries, but I would say that a lot of the recovery has been in what I would term as industrials. And more on the heavy side. So generally people who are manufacturing things, either equipment or capital goods like metals and paper and lumber, things like that. So hopefully that gives you a feel. And obviously that portion of the market were the ones most concerned about in some of the things we got into in 2025, whether that was tariffs, and along with tariffs, the confidence in what's going to happen globally in these industrial materials and solutions. I think that's been the warehouse side of the business pretty much stayed.

Maybe a little bit of a dip, but nothing like the industrial side.

That's helpful. Thank you. You've mentioned automation a couple times. Sounds like maybe it's still early days, but can you give us a sense for how the shift toward autonomous and lithium-ion will impact the margins and to what extent?

Yeah, I think both the revenue will be higher because typically in the past we've generally sold trucks without even electric trucks without batteries and in the lead acid batteries and certainly when we sell internal combustion engine trucks to have an engine but no fuel we don't provide that whereas when you we implement a lithium-ion solution we provide you know a smart energy system now you need to put electricity in it to make it work but the battery comes from us and then the charger because it's an intelligent charger, it comes from us as well. So it's quite a bump in revenue. Now for automation, there's quite a much larger bump in revenue because there are very high capability sensors, software, and actuation systems in those trucks to automate them. So they are significantly higher, both from a revenue point of view and margin point of view.

Interesting. Is it 2x in terms of revenue per unit? Is it that much?

It depends on the solution, but in that range, yeah.

Got it. And what kind of margin? Are the margins higher as well? Yeah, yeah. And what percentage of your sales in the Americas would you say are autonomous?

Yeah, I mean, we're still in the pilot phase. It's tiny. But we expect that to grow over the next two or three years to become an important part of our business.

Got it. Excellent. And then lastly, a follow-up on tariffs. I know you have some flexibility as to where you assemble product. Have all those moves been made?

It's a constant juggle. As you saw, the Supreme Court really turned down the IEPA tariff. That was having a big impact on where those products should be coming from. Now, the 122 tariffs have gone on, so that's had a bit of an impact on where we source from. But the key thing for us is that we have now the ability to do that. We have a forum within the company where we decide those. In fact, one of those meetings is straight after this call. So we're basically meeting monthly to make those calls. And the plants are being very responsive there.

Got it. I appreciate it. Thank you very much.

And this will conclude our question and answer session. I would like to turn the conference back over to Ms. Andrea Sabah for any closing remarks. Please go ahead.

Thanks to participants for your questions. We'll now conclude our Q&A session. A replay of our call will be available online later today, and the transcript will be posted on the Hyster Yale website. If you have any follow-up questions, please feel free to reach out to me directly. My contact information is included in the press release. Thank you again for joining us today. And now I'll turn the call back over to Chuck.

Thank you. The conference is now concluded. Thank you for attending today's presentation. A replay of today's event will be available shortly after the call by dialing 1-877-344-7529 or 1-412-317-0088 using replay access code 102-05863. Thank you for your participation. You may now disconnect.