Hyster-Yale Materials Handling, Inc.

Good morning, everyone. This is the conference operator. Today's call will begin in just a moment. We ask that you please stay on the line. And once again, today's call will begin in just a moment. Thank you. © BF-WATCH TV 2021 Music by Kevin MacLeod Produced and Directed by Music by Kevin MacLeod Good day and welcome to the Heister-Yale, Inc., second quarter of 2026 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 1 on your telephone keypad, and to withdraw your question, please press star then 2. Please note that today's event is being recorded. I would now like to turn the conference over to Andrea Sejba, Director of Investor Relations and Treasury. Please go ahead.

Good morning, and thank you for joining us for Hyster Yale's second quarter 2026 earnings call. I am Andrea Sejba, Director of Investor Relations and Treasury. Joining me today are Al Rankin, Executive Chairman, and Rajiv Prasad, President and Chief Executive Officer. We will be discussing our Q2 2026 earnings release issued yesterday. 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 materially from those expressed or implied. These risks are outlined in our earnings release and SEC filings. We will also discuss adjusted results, which we believe are useful supplements to GAAP financial measures. Reconciliations of adjusted results to the most directly comparable GAAP measures are available in our earnings release and Investor Presentation. Before turning the call over to Rajiv, I will briefly highlight our second quarter results. The second quarter of 2026 represented another step forward in what we continue to view as a gradual market recovery. Compared with the first quarter of 2026, we improved in several key metrics, including bookings, revenue, operating performance and cash flow. While volumes remain below optimal levels and profitability is still under pressure, the trends during the second quarter provide evidence that demand and business activity are moving in the right direction. Bookings for the quarter were $680 million, up 17% sequentially, and more than doubled the level of the second quarter of 2025. This marks our fourth consecutive quarter of bookings growth. Revenue was $813 million, up 2% compared to the first quarter of 2026, as stronger bookings began translating into higher shipments. Consolidated operating loss improved to $18 million, approximately $10 million better than the first quarter of 2026. Most of that improvement came from the lift truck business, where higher shipments, favorable pricing, and lower employee-related expenses helped offset ongoing market challenges. The quarter also included $35 million in tariff refunds. However, those benefits were largely offset by unfavorable capitalized material costs and $10 million in higher gross tariff expenses. Balzoni also improved sequentially during the second quarter of 2026, returning to profitability as favorable product mix, lower freight costs, and disciplined cost management, more than offset slightly lower revenue. In the second quarter of 2026, net loss was $32 million and includes the establishment of a $3 million non-cash valuation allowance related to Brazilian deferred tax assets. Second quarter operating cash flow was a source of 17 million, improving approximately 50 million from the first quarter of 2026, despite continuing losses. The improvement was driven primarily by lower inventory levels and favorable changes in accrued liabilities following first quarter annual incentive compensation payments. The positive operating cash flow reflects the disciplined working capital actions the company executed during a challenging operating environment. With the second quarter results outlined, I'll now turn the call over to Rajiv to discuss the market environment, progress we are making on our strategic initiative, and our consolidated outlook.

Thanks, Andrea, and good morning, everyone. As Andrea highlighted, We saw encouraging signs of improvement during the quarter. I will start with our perspective on the current market cycle and demand environment, then discuss the actions we are taking to strengthen our competitive position before reviewing our consolidated outlook. We believe the first half of 2026 marked the financial low point of the current lift truck cycle. While we are still in the early stages of recovery, demand improved during the second quarter and several important operating indicators moved in a positive direction. We are beginning to gain financial traction from the stronger booking trends we have since the low point in the second and third quarters of 2025. What is particularly encouraging is sequential improvement across several key operating indicators. Bookings increased, revenue improved, operating results moved in the right direction, and quarterly cash flow turned positive compared to the first quarter of 2026. That shift to positive cash flow is especially important because it reflects the working capital discipline we have in maintaining even while profitability remains under pressure. While we are far from full recovery, the business is beginning to move in the right direction. At the same time, we are seeing encouraging results from strategic initiatives that are expanding participation across the market and creating opportunities for future growth. One of the developments We're most encouraged by is the momentum we're seeing in our value product offerings. These products are opening opportunities in areas of the market where our competitiveness has historically been more limited, helping us reach broader range of customers and applications. Importantly, this is the result of a deliberate strategy that began several years ago. We invested in modular, scalable product platforms Designed to expand our portfolio and improve our ability to compete across multiple price points and customer requirements. As those products have become more broadly available, customer adoption has been strong and demand continues to build. More broadly, these investments reflect our commitment to expanding our addressable market and strengthening our competitive position. Thank you very much. is the modular architecture behind it. We leverage common platforms, components, and manufacturing processes across multiple product categories. That allows us to serve more customers while maintaining scale efficiency and attractive margin opportunities. Simply put, it enables us to offer the right truck at the right price for a broad range of customer while supporting stronger margins, improved manufacturing efficiency, and better long-term return on our product investments. As volumes grow, we expect these platforms to provide additional benefits through improved manufacturing scale, product cost management, and operating efficiency. They also increase our flexibility as we continue adopting sourcing and Production Activities in Response to Tariff and Other External Factors. The benefits of these portfolio investments are increasingly showing up in our ordered activity. During the quarter, customers engaged with a broader portion of our product offering, contributing to stronger bookings across multiple categories. Bookings reached their highest quarterly levels in three years. The improvement reflects both strengthening customer activity and the benefit of actions we have taken to broaden our participation across customer segments. Greater demand visibility supports the production rate increases we are implementing across the business, which we expect will drive higher shipments over time. While bookings have strengthened, shipments have not increased at the same pace. Customer order patterns continue to include a mix of near-term demand and delivery schedules for further in the future, including some beyond six months. In addition, increases in production require time to move through the supply chain and supply network. As a result, there remains a lag between booking growth and shipment realization. Some customer delivery schedules have shifted later into the year, including orders where customers modified requested delivery times after the original booking was placed. At the same time, certain sourcing and production transitions associated with tariff mitigation initiatives are affecting shipment timing. As a result, production growth is expected to temporarily lag booking growth. and we expect improvements to be weighted more heavily towards the later part of 2026. Those sourcing and production changes reflect the actions we are taking to manage a challenging cost environment while positioning the business for stronger long-term performance. More broadly, we remain focused on improving operating efficiency and aligning our cost structure with current market conditions. Turning to tariffs, they remain a headwind and continue to influence both cost and production decisions across the business. Our focus is not only on managing today's impact, but also on positioning the company with a more resilient and flexible supply chain over the long term. To reduce future exposure, we are implementing sourcing and production changes. including relocating certain activities to the United States and other lower tariff regions. While these actions are creating some temporary disruption to production schedules and shipment timing, they're expected to strengthen our cost position over time and provide greater flexibility across our business. We expect pricing, sourcing, and product cost initiatives to deliver increasing benefits in the second half of the year. Although these actions are not expected to fully offset tariff-related costs, they're helping mitigate the impact while preserving our competitive position. Beyond our tariff mitigation actions, we're continuing to focus on improving our cost structure. Our 2025 restructuring program captured approximately half of the expected annualized savings in the first half of this year. These actions are establishing a lower ongoing cost structure for the business rather than simply delivering near-term savings. As demand recovers and production volumes increase, we expect that lower cost base to contribute meaningfully to earnings growth and improved operating performance. We continue to expect the program to deliver approximately $40 to $45 million of annualized savings. More importantly, these actions are lowering the underlying cost structure of the business and should provide increased profitability as demand and production volumes recover. We're also seeing encouraging progress at Bolzoni as it continues to expand its growth opportunities through the integration of Valmar's mass business, new attachment introductions, and the expansion of its camera vision systems. Together, these initiatives broaden Balzoni's addressable market, enhance its product offerings, and support long-term profitable growth. Let me now turn to our consolidated outlook. Our overall view of the recovery remains unchanged. Demand has improved, bookings have strengthened, and we are raising production rates to meet the increased demand. Customer delivery schedules and sourcing transitions associated with our tariff mitigation initiatives have shifted some of that recovery later into the year. As a result, we expect a moderate operating loss for full year 2026, with the most significant improvement occurring in the second half as production levels increase. As we move through the second half, we expect performance to improve as production levels rise and Shipments Increase. Higher volume pricing actions, manufacturing efficiency improvements and cost reduction initiatives are expected to support earnings growth. At the same time, tariff-related costs and competitive pricing pressures are expected to moderate the pace of recovery. Our priorities remain unchanged. We are focused on converting stronger bookings into shipments Improving manufacturing efficiencies, managing tariff exposure through pricing and sourcing actions, and maintaining working capital discipline, and generating cash. We believe these actions position us to improve performance through the balance of 2026 while continuing to advance our long-term objective of achieving 7% operating profit over the business cycle. Looking beyond 2026, we continue to believe the building blocks for a stronger earnings profile are in place. As production volumes recover, we expect profitability and cash generation to improve. Based on our current outlook, we expect trailing 12-month EBITDA to be above pre-COVID levels in the second half of 2027. Importantly, This expectation is supported not only by a cyclical recovery in demand, but also by structural improvements we have made to the business, including portfolio expansion, cost reduction initiatives, modular product platforms, and manufacturing footprint optimization. Our manufacturing footprint optimization projects remain on track and are expected to provide further benefits to earnings as implementation activities are completed. We currently expect these initiatives to begin contributing meaningfully in the second half of 2027 with approximately $15 to $20 million of analyzed benefits expected as volumes recover. Over time, these actions are expected to improve efficiency, lower our cost structure, and reduce our long-term break-even points and support stronger operating results. The manufacturing footprint optimization in addition with the 2025 restructuring program position us to enter the next phase of the cycle with more efficient manufacturing footprint and a lower structural cost base. Combined with our expanded product portfolio and modular platform strategy, we believe these initiatives will strengthen our competitive position and support sustainable, profitable growth over the long term. With that, I'll turn the call over to Al for a few closing remarks before we open the line for questions.