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.