Image Source: PixabayRecent Quarter Earnings AnalysisHyster-Yale Materials (HY) recently reported better-than-expected third-quarter FY23 financial results. Revenue in the quarter increased by 19% year over year to $1.00 billion (vs. the consensus estimate of $932.6 million) due to higher sales volumes, favorable pricing, and FX translation. The diluted EPS in the quarter was $2.06 (vs. the consensus estimate of $0.50) due to increased operating profit. Notably, the operating margin has experienced a remarkable turnaround, climbing to 5.9% compared to a concerning -3% in the same quarter of the previous fiscal year.Analysis and OutlookIn the third quarter of FY23, shipments increased by 5% year over year, driven by a 23% increase in the Americas, where regional supply chains have significantly improved. Shipments declined in the EMEA region as production rates were impacted by new product launch issues and critical component shortages, particularly at HY’s Nijmegen lift truck facility. Shipments were lower in the JAPIC region as a portion of the products coming from EMEA were negatively impacted by production challenges. The company is continuing to experience skill labor shortages at many of its factories, which contributed to production and shipment rate constraints in the quarter. In the fourth quarter of 2023, the company plans to increase production rates and expects shipment rates in the Americas region to increase moderately. These high shipments would likely be more than offset by fewer shipments in the EMEA region, while HY continues to resolve new product launch issues during the quarter. As a result, I believe shipments in the fourth quarter should modestly decrease. However, in 2024, production and shipment rates should improve in all regions compared with 2023 as component constraints further dissipate.In the third quarter of 2023, global lift truck market bookings decreased compared with the prior year. The rate of decline slowed in Europe but increased in the Americas. The year-over-year decline in order bookings should continue into the fourth quarter of 2023. With this fourth-quarter decline, the full-year 2023 market should experience a double-digit decrease from robust 2022 levels. I believe in 2024, the global lift truck market should be comparable to 2023 levels. Despite the year-over-year unit decline, 2024 market volume should compare favorably to pre-pandemic levels in most regions.On the margins front, material costs have been decreasing over the last few quarters, given the moderating demand and declining inflation. I believe this should continue to benefit the company’s margins in the coming quarters. Additionally, the increased sale of higher-margin aftermarket products should benefit margins.Valuation & ConclusionHY’s stock is currently trading at 8.48x FY24 consensus EPS estimate of $7.31, which is at a significant discount to its five-year average forward P/E of 33.26. In summary, I believe despite the declining order bookings, the ease of shipping constraints and healthy order backlog should continue to support revenue growth in FY24. Additionally, the margins should improve due to higher-margin product sales and declining material costs.More By This Author:The Azek Company: Still A Good Buy Despite The Recent Bull Run
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