Lift truck and material handling solutions manufacturer Hyster-Yale Materials Handling (NYSE:HY) missed Wall Street’s revenue expectations in Q3 CY2024 as sales only rose 1.5% year on year to $1.02 billion. Its GAAP profit of $0.97 per share was also 50.8% below analysts’ consensus estimates.
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Hyster-Yale Materials Handling (HY) Q3 CY2024 Highlights:
- Revenue: $1.02 billion vs analyst estimates of $1.06 billion (3.8% miss)
- EPS: $0.97 vs analyst estimates of $1.97 (50.8% miss)
- EBITDA: $47.7 million vs analyst estimates of $70.75 million (32.6% miss)
- Gross Margin (GAAP): 19%, down from 20.3% in the same quarter last year
- Operating Margin: 3.3%, down from 5.8% in the same quarter last year
- EBITDA Margin: 4.7%, down from 6.9% in the same quarter last year
- Market Capitalization: $1.10 billion
Company Overview
Playing a significant role in the development of the hydraulic lift truck, Hyster-Yale (NYSE:HY) designs, manufactures, and sells materials handling equipment to various sectors.
Professional Tools and Equipment
Automation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand. Some professional tools and equipment companies also provide software to accompany measurement or automated machinery, adding a stream of recurring revenues to their businesses. On the other hand, professional tools and equipment companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.
Sales Growth
A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Hyster-Yale Materials Handling grew its sales at a tepid 5.3% compounded annual growth rate. This shows it failed to expand in any major way, a rough starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Hyster-Yale Materials Handling’s annualized revenue growth of 12.2% over the last two years is above its five-year trend, suggesting its demand recently accelerated. 
This quarter, Hyster-Yale Materials Handling’s revenue grew 1.5% year on year to $1.02 billion, falling short of Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 1.1% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and indicates the market believes its products and services will see some demand headwinds.
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Operating Margin
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling them, and, most importantly, keeping them relevant through research and development.
Hyster-Yale Materials Handling was profitable over the last five years but held back by its large cost base. Its average operating margin of 1.8% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.
On the plus side, Hyster-Yale Materials Handling’s annual operating margin rose by 4.6 percentage points over the last five years.
In Q3, Hyster-Yale Materials Handling generated an operating profit margin of 3.3%, down 2.5 percentage points year on year. Since Hyster-Yale Materials Handling’s operating margin decreased more than its gross margin, we can assume it was recently less efficient because expenses such as marketing, R&D, and administrative overhead increased.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth was profitable.
Hyster-Yale Materials Handling’s EPS grew at an astounding 36.8% compounded annual growth rate over the last five years, higher than its 5.3% annualized revenue growth. This tells us the company became more profitable as it expanded.
We can take a deeper look into Hyster-Yale Materials Handling’s earnings to better understand the drivers of its performance. As we mentioned earlier, Hyster-Yale Materials Handling’s operating margin declined this quarter but expanded by 4.6 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.
Like with revenue, we analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business.
For Hyster-Yale Materials Handling, its two-year annual EPS growth of 67.7% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.In Q3, Hyster-Yale Materials Handling reported EPS at $0.97, down from $2.06 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Hyster-Yale Materials Handling’s full-year EPS of $8.91 to shrink by 22.5%.
Key Takeaways from Hyster-Yale Materials Handling’s Q3 Results
We struggled to find many strong positives in these results. Its revenue missed and its EBITDA fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock remained flat at $62.68 immediately after reporting.
So should you invest in Hyster-Yale Materials Handling right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
