Hyster-Yale Materials Handling, Inc. (HY) Q1 2016 Earnings Report, Transcript and Summary

Good morning. My name is Laurel, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2016 Hyster-Yale Materials Handling Inc. Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I’ll now turn the call over to Christy Kmetko. Please go ahead.

Thank you. Good morning, everyone, and welcome to our 2016 first quarter earnings call. I am Christina Kmetko, and I’m responsible for Investor Relations at Hyster-Yale. Joining me on today’s call are Al Rankin, Chairman and President and Chief Executive Officer of Hyster-Yale Materials Handling; Colin Wilson, President and Chief Executive Officer of Hyster-Yale Group; and Ken Schilling, our Senior Vice President and Chief Financial Officer. Yesterday we published our first quarter 2016 results and filed our 2016 first quarter 10-Q. Copies of the earnings release and 10-Q are available on our website. For anyone who is not able to listen to today’s entire call, an archived version of this webcast will be on our website later this afternoon and available for approximately 12 months. I would also like to remind participants that this conference call may contain certain forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements made here today in either our prepared remarks or during the following question-and-answer session. We disclaim any obligation to update these forward-looking statements which may not be updated until our next quarterly conference call if at all. Additional information regarding these risks and uncertainties were set forth in our earnings release and in our 10-Q. Also, certain amounts discussed during this call are considered non-GAAP. The non-GAAP reconciliations of these amounts are included in our earnings release and available on our website. Before I discuss our first quarter results, let me provide an update on the Bolzoni acquisition. We are still in a period where our comments on this transaction are limited by regulations. However, I can tell you what has transpired today. As we announced on April 1, we completed the first step in acquiring Bolzoni to the completion of our acquisition of Penta Holding, which had a 50.4% stake of 13.1 million shares in Bolzoni. The purchase price for Penta was €53.5 million or approximately $60.9 million, which was paid in cash on April 1. This past Tuesday, we completed the purchase of an additional 3.1 million shares or approximately 11.96% of Bolzoni’s outstanding stock for a total cash price of €13.4 million or approximately $15.1 million, bringing our total ownership in Bolzoni to approximately 62.4%. Also, after the Penta transaction closed, our new Italian subsidiary, Hyster-Yale Italy, commenced a step to launch a mandatory tender offer in Italy for all of the remaining outstanding shares of Bolzoni, now approximately 9.8 million shares remaining after Tuesday’s transaction for a cash price per share of €4.30. Our intension continues to be to achieve the delisting of Bolzoni following completion of the mandatory tender offer and the processes related thereto. The maximum amount we will pay pursuant to the agreement in the event that the remaining outstanding shares are tendered in Italy pursuant to the mandatory tender offer will be €41.9 million. We expect to fund the mandatory tender offer with cash on hand, and as needed borrowings into our credit facility. That concludes my stated update for Bolzoni. Now, let me move to our first quarter results. Our consolidated first quarter 2016 revenues were down 2.9% to $604.2 million from $622.3 million in the prior year quarter. And our net income decreased to $10 million or $0.61 per diluted share from $13.9 million or $0.85 per diluted share. To decline we’re primarily in our lift truck business, which continues to be unfavorably affected by the strong U.S. dollar and the weak Brazil market. For the first quarter of 2016, the lift truck businesses revenues were $603.9 million and net income was $13.7 million. This compared to revenues of $62.1 million (sic) [$621.1 million] and net income $17.5 million in last year’s first quarter. The over 20% decline in net income was the result of the substantial decrease in operating profit partially offset by a large tax benefit that we realized this quarter as a result of the Bolzoni transaction, which required us to determine that $4 million of deferred taxes on foreign earnings is no longer needed. Despite the decline in our results, we are seeing benefits from the implementation of our strategic initiatives. We are making headway with certain targeted accounts. We increased our shipments of warehouse trucks and overall shipments were up 600 units to approximately 20,500 units compared with 19,900 units last year. However, as we continue to experience a moderating Americas market, specifically weakness in Brazil and due to a very large customer order secured in late 2014 that did not begin shipping until the second quarter of 2015. We saw a 2,000 unit decrease in our backlog, which decline from 31,900 units last year to 29,900 units this quarter. Our bookings were down only a bit from last year. Consolidated revenues were also down compared with the prior year, driven primarily by $15.9 million unfavorable currency effect as a result of the strong U.S. dollar. Looking at the individual geographic segments, Americas was the driver of the unit shipment increase with an 800 unit improvement over the prior year. However, these strong shipments which were generated in North America and Latin America were partially offset by a decrease in shipments in Brazil driven by the continued weakness in that economy. Although unit shipments were up, the benefits received from these increased unit volumes were mostly offset by a shift in trucks sold from higher price, higher margin Class 5 trucks, including Big Trucks, to lower-priced, lower margin Class 3 warehouse trucks and the Class 4 internal combustion engine trucks, unfavorable currency movements and lower deal-specific pricing. Gross profit also improved in the Americas in part from the increase in volumes, but primarily from continued material cost deflation and favorable foreign currency movements of $4.5 million. Unfavorable manufacturing variances, a shift in sales to lower-margin lift trucks and lower product pricing in 2016 partly offset the improvement in gross profit. Despite the improvement in revenues and gross profit, our operating profit declined in the Americas as a result of higher selling, general and administrative expenses. However, this increase included acquisition-related cost of $2.8 million from our Bolzoni and [indiscernible] transaction and a $2.8 million estimated loss on recovery of assets, as well as higher employee-related cost – employee-related expenses, which included higher incentive compensation estimates and increased U.S. health care costs. Europe realized benefits on higher shipments in the first quarter but these benefits were completely offset by unfavorable currency effect, as well as the shift in sales to lower capacity lift trucks and the unfavorable effect of lower pricing of trucks. In our JAPIC segment, first quarter 2016 revenues and operating results declined on a 400 unit decrease and a shift in mix to lower-margin lift trucks, as well as unfavorable currency movements. Similar to what we told you last quarter, we continue to expect currency and the slowdown in several key markets to negatively affect our 2016 segment results. Along with an anticipated shift in sales and lower price units, we expect these market conditions to result in an overall modest decline in the Americas unit shipment and revenues in 2016 compared with 2015. However, we expect this decline in unit shipments to be partially offset by an increase in North America and Latin America shipment from market share gain. Revenues in the first half of the year and particularly the second quarter are expected to decrease compared with last year, primarily as a result of strong North America sales in the first half of 2015 due to a very large customer order secured in late 2014 that was shipped primarily in the second and third quarter. We expect the Americas full year 2016 operating profit to decrease compared with 2015 as expected benefits from favorable currency relationships based on current currency rates and anticipated improvements in Brazil’s operating results are expected to be offset by higher employee-related operating expenses, increased professional fees related to the Bolzoni transaction and lower pricing of product. Specifically, we expect operating profit in the first half of the year to be substantially lower than the first half of 2015. But this decline is expected to be partially offset by operating profit improvements compared to last year in the second half of the year, driven by increased unit volumes particularly in the fourth quarter. We expect the overall Europe, Middle East and Africa market to grow modestly in 2016 as moderate increases in Western Europe are expected to be partially offset by decline in the Middle East and Africa market. We expect unit and parts revenues to increase this year. However, as a result of the anticipated market share gains, we expect this growth to be more favorable than the market growth. Nevertheless, despite these improvements, operating profit in the EMEA segment is expected to decrease substantially in 2016 compared with 2015. As I noted previously, EMEA had currency hedges in place that mitigated the unfavorable effect of the strengthening U.S. dollar during 2015. As these hedges expire, increased U.S. dollar-based costs will be incurred. As a result, the strong U.S. dollar is expected to have a larger, unfavorable impact on results in 2016. These unfavorable net currency movements and anticipated shift in sales mix to lower-margin products and lower pricing of product are expected to drive the decline in EMEA’s operating profit. Finally, in 2016, we expect the JAPIC segment market overall to continue to weaken predominantly due to lower demand in China and Japan, partially offset by modest growth in certain other markets. However, as a result of the continued execution of our strategic initiatives, we expect full-year shipments as well as unit and parts revenues to increase compared with 2015. Overall then we expect JAPIC shipments and operating results in the first half of 2016 to be lower than the comparable prior-year period, but to be more than offset by expected improvements in the second half of the year. To summarize our overall lift truck business outlook, we are expecting global markets to decline modestly in 2016. Market growth in EMEA is expected to be more than offset by declines in the Americas and JAPIC markets. However, despite these market conditions and because of our success in winning new business at larger customer accounts, we expect overall revenues, unit shipments and parts sales to increase in the remainder of 2016 compared with 2015. However, as a result of the lower first quarter 2016 revenues, which are not expected to be recouped in future quarters, revenues for full-year 2016 are expected to be down modestly compared with full-year 2015. We also expect 2016’s operating profit and net income to be lower than in 2015, because we expect the increases in unit and parts volumes to be offset by higher operating expenses, lower pricing of products and an anticipated shift in sales mix to lift trucks with lower average profit margin. More specifically, we are expecting substantially lower operating profit in the first half of the year with improvements coming during the second half. Finally, excluding the effect of the Bolzoni transaction, we expect cash flow before financing activities in the lift truck business to be positive in 2016 but decline significantly compared with 2015. Turning to Nuvera, Nuvera reported revenues of $300,000 and operating loss of $6.1 million and a net loss of $3.7 million for the first quarter compared with revenues of $1.2 million and operating loss of $6 million and a net loss of $3.6 million last year. Nuvera’s results were comparable year-over-year and continue to be in line with our expectation. We continue to believe fuel cell market for lift truck has significant growth potential and excellent prospects and we continue to see strong interest from our customers, dealers and potential partners regarding Nuvera’s products. Substantial progress toward commercialization in Nuvera’s PowerEdge units was made in 2015 and early stages of PowerEdge unit production begin in late 2015. Progress toward commercialization is continuing this year. We are now spending more time with customers and potential customers and interest in our products is increasing. Nuvera expect to begin shipping PowerEdge units in the first half of 2016 and production is expected to ramp up throughout the year as additional sales of PowerEdge units are made. As a result, we expect Nuvera to generate modest PowerEdge unit revenues in the first half of 2016. Revenues are then expected to grow gradually over the course of the year as production accelerates and new units are sold. We expect Nuvera to continue to focus on commercializing the fuel cell technology, integrating this technology into the Hyster and Yale lift truck product ranges and expanding our product line will also increase in its focus on reducing manufacturing cost per unit as production increases. As a result of the costs to implement these programs, we expect Nuvera to generate an operating loss in 2016 of approximately $24 million to $27 million. Nuvera has an objective of reaching a quarterly breakeven operating profit by the end of 2017 or early 2018 on a run rate of approximately 700 PowerEdge, and 10 PowerTap units per quarter at target margins. Nuvera is also exploiting a number of partnership opportunities, which would be complementary to its core operating plan and which could potentially accelerate achievement of breakeven results. That concludes our prepared remarks. I will now open up the call for your questions. Question-and-Answer Session

Thank you. [Operator Instructions] Your first question comes from the line of Mig Dobre with Baird. Your line is open.

Good morning, everyone. Thank you for taking my question.

Good morning.

Maybe we can start with a little clarification surrounding Bolzoni. You’ve got better than 62% of the company now. How do you plan on reporting this going forward as part as your financials?

Yes, I think we plan to call out Bolzoni as we move forward, but we purchased all of the shares in the second quarter. So, none of that is included in the first quarter results other than the acquisition cost being occurred up until March 31. I think this question is related to when we complete the acquisition 100%.

Right. Well, no, not really. I mean, you have 62% of the company. How should we expect it to flow through your P&L come the second quarter and beyond?

We’ll consolidate Bolzoni into our results starting with the point in time we got to the greater than 50% threshold. And we would show the full amount of Bolzoni’s results in our income statement and then a minority interest representing during which period – during each period of time, the portion of Bolzoni that was not owned by us, but owned by minority shareholders.

Understood. Will this be as part of your EMEA segment or is this going to be flowing through proportionally to each segment based on Bolzoni’s geography?

Mig, I think at this point, our thinking as we haven’t developed our management reporting that. We would finalize and – which is the support under the SEC rules for indentifying segments for public reporting. But our expectation is Bolzoni will be like Nuvera that we would show it separately.

So, your guidance does not include Bolzoni at this point?

That is correct. We – at this point in time, Bolzoni is a separate public company in under the rules, we’re not – even though, we – today’s sit is the majority owner of the shares, we are not allowed to have any information beyond what everyday shareholders allowed to have. So, we do not have their internal – we don’t have that internal access to their forecast of information at this time.

So, the answer is that prospectively until we own 100% or some appropriate number that’s a little bit less than that, we will be reporting the historical numbers proportionally as Ken described. We will not be commenting on forecast until we’re in a position to – under the Italian laws to do that, the information in order to do that properly.

Mig, yes, we’re going to have to get their disclosures to ours, so that their public disclosures are out there, at the same time or just immediately prior to ours.

Keep in mind me, that Bolzoni is a public company. They make periodic public disclosures. What frequency, I forgot now.

They’ve report quarterly, European trend is that there’s a very strong mid-year report which would be there second quarter – we will be the second quarter.

So, you’ll see the historical numbers for Bolzoni because they’ve been published. You’ll see quarterly numbers going forward and I think you can look at those. And if you choose to do so, you can interpret those numbers as you see fit, but we will not be making forecast until we have more information and are positioned to do so properly.

I appreciate all of that. I guess my question specifically is really around the mechanics of how this is going to flow through your P&L going forward? And importantly Bolzoni is got roughly, I’m going to rough it here, let’s call it $150 million of revenue annually. So, I’m trying to understand in your updated revenue guidance which was lowered slightly, if that included the impact of Bolzoni or not and you’re telling me that it did not, that this is just at Bolzoni.

We have no function Bolzoni in any forward-looking comment anywhere in the news release.

Yeah.

Understood. Thank you. Then, turning out to maybe the America segment, you had favorable impact in your operating income from currency by about $4.5 million. Maybe a little more color as to how this occurred? And if currency rates were to be flat going forward, what should we be expecting in terms of contribution for the rest of the year?

Ken, maybe you can comment on that. I’ll just make a generalized introductory comment, which is that to some degree, the trends that hurt us in Europe benefit us in the Americas. And so, with that perspective, Ken, maybe you want to comment more on that because I think looking at this completely in terms of segment-by-segment, the numbers are quite accurate, but the story is really more of the global impact story on us.

Thank you, Al – you know our operating profit in the Americas segment was down $1.8 million. The acquisition cost of $2.8 million in that segment as we keep corporate in that segment as well, as well as, we’ve had a write-down related to assets with regard to a dealer of $2.8 million. When you take all that out, maybe end up at $3.8 million, I think that’s probably the $4 million that you’re talking about in terms of the swing. While Brazil has headed south on us, the economy has, we have done a very good job of tightening our belts, and our operating results in Brazil have actually improved with a lower loss in this period than what we saw in the prior period. So, Brazil is one of the contributors to that $4 million improvement. The rest of it, of course, is the Americas as we described. We had stronger North America and Latin America results. Again, the Brazil economy is in a very difficult position, but I think we made very strong steps to reduce our cost profile to the point where we actually had better results this quarter than a year ago.

Just in a generic way about our hedging strategy. When the dollar was at its peak, we hedge very aggressively on behalf of the Americas because we view the overvaluation of Americas or of the U.S. dollar, or putting it the other way, the undervaluation of certain other currencies relative to the dollar and as being in a position where we have very – we can hedge and get very, very favorable supply of components, and in some cases, trucks from abroad. And so, we’ve been pretty aggressive about that and dollars weakened a little bit, so some of that comes through and it’s a benefit. On the other hand, hedging in Europe on dollar purchases would be very unwise because you’d be locking in a very unfavorable rate, one that we don’t believe will endure over a significant period of time. We don’t know when that change will occur but we are confident that this undervaluation will not go on over a long period of time. So, I think that what you’re seeing is the unwinding of the favorable currency in Europe, which means that the effect of the weak euro and strong dollar is more pronounced there and you’re seeing some ability to buy at more favorable rates with the strong dollar and we’ve hedged in some of the benefit of that and we’ve been pretty aggressive in terms of both quantity of hedges for various periods and the forward period that recovering with our hedges. So, we feel that we’re doing our best in the currency to avoid locking in bad situations and actively locking in highly favorable situations, especially when you take into account, where our competitor – what our competitors’ cost structures are. So, if a competitor has – is a U.S. based cost structure, that’s one thing. If the competitor is a euro-based cost structure that’s another thing and we take into account who we’re competing against and where they’re producing their trucks and in terms of our potential for competitive advantage relative to our competitors here.

Thank you for all of that. I mean, I don’t know – I took the $4.5 million out of the press release, that’s the number that you guys put out there in terms of having contributed for currency. And I was just wondering if there is a number that you’re willing to put out in terms of the rest of the year with flat FX, but maybe that’s not something that you can do...

We’re not under forecast that.

I do want to ask a little bit about pricing...

Let me say this that, when we formulate or I’m going to say this carefully, Mig. When we formulate our comments on the future, we do not speculate about how currencies might change.

I’m not – but I’m not asking for that, in all that we make, obviously, forecast for the remainder of the year and for, in some detail, for 2017. Those are all based on the lock-up of currencies as of the end of the first quarter. And that’s our – what do you call it? Our convention...

Planning convention, right?

That’s our planning convention. So, as we comment, that’s the backdrop. We don’t get specific, but that’s the backdrop. So, whatever happens at the lockup of the currencies at March 31 is what we’re making our generalized comments against. Does that help?

Thank you. I think I’m just going to move on. If we can talk a little bit about pricing, and I’m trying to understand a little bit the difference and it might be semantics. In the Americas, you are talking about lower deals specific pricing whereas in EMEA, you just called out lower pricing period. And I’m trying to understand the difference, if there is a difference between the two?

I’m going to ask Colin to comment on that, but let me give you a little bit of a background. I really think that when Colin makes his comments on prices. That is important to understand that in our minds, pricing is not totally decoupled from what’s happening to our material costs. And as we call out, material costs are favorable that we’ve had deflation and it’s rolling through and continuing to roll through and the comments we’ve made about material costs should be taken into account to the extent it. What you’re really focusing on here is margins as opposed to the price itself. Against that backdrop, let me ask Colin to address this specific question you asked.

The language in the release was chosen very deliberately. So, in Europe, it is pricing on specific models best upon where they are in the product life cycle. And that competitiveness in the market, clearly we always have plans of introducing new products to market. And so, if you think about it as a water level of pricing generally, on certain models, at certain times, we lower it in order to maintain volume and maintain competitiveness in the market. So, that really is what’s happening in Europe. Again, the markets in Europe and the Americas are different. And the relative competitiveness a different, the trucks were selling or the competitive [indiscernible] competing against, we really don’t see the erosion in general pricing in the Americas, but we – as we think about really going after certain customers on a conquest basis, quite often, we have to just be that – all things being equal, why should the competitor switch? And so, sometimes, it requires lower pricing in order to start a relationship with a new customer. And so, we did – we’ve had some significant successes in conquest business. And that has required us to go in with sharper pricing and then we hope, over time, as we work with that customer and value engineer of the trucks in order to provide win-win solutions, we can improve our margins because, again, a lot of the trucks we’re selling to these major customers will have what we call spared or special content on them. So, we may go in it’s the first time we’ve done that it cost us a little bit more in order to provide that specification. And so, we do it and then we better source and redesign and increase the margins over time. So, there is a little bit of a difference made between the two theatres and that’s why we chose a language we did.

I understand. Thank you for that. That’s helpful. I will have to say that this is something that let me scratching, I had a little bit because one of my concerns with your strategy to gain market share has been that it would eventually lead to price erosion and at this point in the cycle, it seems like that’s exactly what’s happening and I’m trying to square this away, you’re attempt to gain share with your longer term margin goals 7% and then higher in terms of overall operating margin. How do you think about that there something have to give here?

Let me make one other comment. You’re suggesting that the prices for these incremental accounts that we’ve never done business with before affects the general level of pricing in the accounts that we have, that’s not an accurate conclusion to draw. These are on the margin. Secondly, they tend to be on the margin in the warehouse business, not exclusively but to a significant degree, which is where we have some strong competitors and we’re committed to improving our position and the warehouse business is one of our key strategy. So, I think that you have to look at this not in a general, overall term, but in terms of the incremental addition of this volume and our point of view is that this equation still works in terms of moving us on an incremental basis to the kinds of numbers that we have been talking with you about. So, we don’t see our equation in any way fundamentally disruptive. In fact, we have always contemplated having to do this as part of our thinking. Now, to the extent that we bring out a new product like TX, TMX, which is about to come in to the market or has begun to come in to the market as an internal combustion engine product that is priced at a lower price than our premium one and as a standard product. We expect our margins to improve not to decrease because we’re bringing in a product that has – that allows us to discontinue pricing down in the premium product to a standard truck price. So, there are many moving pieces in this whole equation, some of them positive and some of them positive in a sense that we’re improving our margins and some of them that erode margins a little bit. But all of this is on the margin and in our view, does not disrupt our commitment to the numbers that we’ve given you.

And also, a lot of these complex accounts, again, we’re building special truck for the customer. And it requires a lot of, I use the term spread a lot of spread content. And when we provide the first one is our margins are quite compressed because, again, there’s a lot of special content, we’ve designed it, we’ve had the investment in our design, we’ve had the go out and procure other parts. Then when you get into volume amongst the 500,000 trucks, some of these accounts that’s the volumes we’re talking about.

500 trucks.

500,000 trucks. Then, as I said, that’s when you do your value engineering and when you bring your cost down. The price may not change for the customer but the margin structure for us becomes significantly better. So, those are the types of tradeoffs, Mig that we look at.

Thank you. That was very helpful. I appreciate it.

Your next question comes from the line of Mike Shlisky with Seaport Global. Your line is open.

Hey, guys good morning.

Good morning, Mike.

I am also scratching my head and I do have to ask a question also about the FX as well. Let me just for a little bit more clarification here. So if you look at what’s out there in the euro for this year, it looks like it’s going to be somewhat flat versus the dollar, it was down only 2% versus the previous year in the first quarter and basically down 1% or even flat for the rest of the year, and yes, you’re still seeing an FX headwind. So, are you saying that last year when the euro was down 15%, really, you didn’t see quite as much of an impact, but now you’re not as hedged, and so you’re going to be seeing – so while everyone else is seeing a more flatter trend this year on the euro, you’re going to try seeing headwinds now this year because you didn’t see headwinds last year. Is that way to say it?

I would say it’s getting bigger currency cover has changed. And last year’s first quarter, we probably had contracts in place that were $1.22 contracts that we were able to release against the purchases of U.S. dollar components in Europe. And today we don’t have those contracts. We don’t have $1.22 contracts against the euro. Today, we have contracts in place and they’re lower, and we have not hedged as far out as we would because of the current weakness of the euro today compared to the U.S. dollar. So, you’re seeing a more kind of direct pass-through of the cost of the U.S. dollar components in those trucks than you would have, had we had more full currency cover. But the currency, again, you couldn’t buy the contracts. We couldn’t buy $1.22 contracts today. Nobody will sell you one.

Right. I’ll talk to you guys on that one offline - back that but we can move on. I just want to make sure I get the confidence you have in the back half improvement here. So, you have okay orders, your backlogs were down a bit, but you still see improvement in the second half. I think, Ken, you had mentioned there was some conquest accounts and some share gains. Are those conquests signed deals right now or are you still in the process of trying to acquire some share gains for the back half of the year?

Both. And I want to make comment on the backlog. I mean, we took a huge order in light at the end of 2014. I think it was the biggest/largest order in our history. It was a one-off. It was well over 3,000 trucks. We look at that is a one-off. And so, that was in our backlog at the end of first quarter of last year, and we shipped it in the second and third quarters of last year. So, when you’re looking at the backlog on a period-over-period basis, when we look at it, we exclude that. And so, if you like our normalized backlog is healthier than it was last year. We have secured contracts with customers. Some of those contracts we haven’t shipped a single truck yet, but we will be shipping them in the second, third and fourth quarters of this year and, in some cases, over the next five years. So, we feel very good about what we’ve done from a conquest point of view. I wouldn’t say much about volume shipped in the first quarter. Some did start to ship, but we feel good about what’s happening and the traction we’re getting on our key initiatives.

Okay. I will just move quickly to Nuvera as well I did see that perhaps the costs have increased a tiny figure in 2015 versus the previous press release for what you’re going to have to spend this year. Have you forward anything from 2017 to 2016? Or are there some other kinds of increases in cost that you needed to keep that product developed here in 2016 [indiscernible].

Yeah. These numbers are – haven’t change within the realm of forecast ability and my judgment. And we’re just not – we’re not that precise. It’s in the range that we’ve been talking about. Nothing is fundamentally changed and has to – more small changes. It’s just that’s not something we can forecast that we’re giving you. We gave you a range, I believe, in any event. And so, that’s what we’re working with at this time. If we have a change in our strategy and decide to do something different in a sense that – I mean, we’re committed to developing the sales in the standard margin contribution that we’ve outlined to you in the press release. And I would just say if anything changes in the types of projects we’re caring on in the GS&A element, we’ll tell you at that point that things have changed because and generally the impact. So, that’s the way I would think about it at this point.

Okay.

I mean, to the acquisition of Nuvera, I mean, and basically, we’re pleased with where we’re at. And we’re really just entering into first rollout of the PowerEdge units. And that’s going to be increasing as we go through 2016. And so, I think, I agree with Al. It really is – our outlook really hasn’t changed.

And that’s the next question, actually, your initial PowerEdge and PowerTap that you had here planned for the first half, is that delivery days still on the statement which you had shared with us a few months ago for that first unit? And then, secondly, you had mentioned you’re going to have this ramp in late 2015 year, do you have orders in hand today for that ramp?

We’re expecting our first shipment by the end of the second quarter. We actually launched this to our sales teams to make it commercially available for sale last week. We’ve got commitments from customer for orders based upon successful demos. Those demos will be going in later in the second quarter, but actually mid second quarter. And we’re fully anticipating seeing results from those based upon successful demos.

Okay. And if I could just ask one last here on that. It’s obviously that they’re lot of use to buy a fuel-cell-powered lift truck and a system. Now that you had it with some customers for a demo, what push-backs are you getting from some people saying, yeah, nice product, but I just don’t want to take it, or I guess, kind of what’s everyone – if they’re not buying and why, and we see a awareness here.

I think the best answer is that our sales efforts are essentially 100% focused on the kinds of people who are interested and we know that from the list of customers, potential customers who actually have – already have installations and they’re very interested in talking with us. So, that’s one component. Secondly, there are certain kinds of companies in certain businesses for whom this is very desirable. And just as an example, when we have discussions that come out of the recent gathering that was in Atlanta, industry gathering, customers come to us and they are indicating their interest. Now, we, of course, have to persuade them that we have a good solution, that we have the right product. We are the right person – the company to sell to them. But we are not out in the market at this point trying to sell this concept broadly to everyone who buys forklift trucks. This is very specialized selling. We think there’s a huge amount of opportunity in the specialized area and it only makes sense for us to go forward focused rather than spread too thin at this stage.

And what’s attractive to the customers we’re talking to, first of all, the technology of our stock and the design of our units that’s receiving very positive feedback, our technology road map, what we can do, owning a fuel-cell company and being a manufacturer of lift trucks and the integration of those two technologies, that’s very attractive. The other thing is distribution network and the ability for distribution network to provide 100% coverage with consistent standards across the country. And finally, the financial stability of the parent company and the fact that we’ve made this long-term commitment to be in this business, and we have very solid balance sheet, and customers know that if that they with us compared to maybe some other people that allows there that are dealing with the company that has a very, very strong balance sheet and is committed to the future.

And I think that’s why we can win against the competition on just perhaps to say a bit more about which segments of the market generically have a particular interest in this type of product and why those are the ones we’re concentrating on.

I mean, anybody is interested in green, which was only using fuel cell the only bio-product in operation is water, which we capture and disposed off, very attractive in a lot of the distribution centers around the country. That’s where most of the fuel cell – existing fuel cell uses – and that obviously for us is very attractive because that’s one of our core strategy is to do much better in the warehousing and distribution arena. There’s also a lot of interest on the automotive companies and actually putting this into their facilities because all of the automotive companies are developing fuel cells for use in cars. But it’s not limited to those industries and customers. We’re seeing wide spread interest among a broad suite of customers.

For example, there are customers that are looking at the option of electric trucks versus internal combustion engine trucks or customers who have electric trucks and are building new facilities and don’t want to have battery charging stations and the problems associated with lead-acid batteries and battery handling generally. They often come to us and say this is the environment which we’ve been led to believe that a fuel cell could be highly applicable and that then leads us to be able to tell our story to those kinds of customers who are thinking about electric trucks of various types.

I want to emphasize, though, it’s part of our power strategy. I mean, we believe we have a great range of IC engine products, diesel, LP gas, dual fuel, CNG. We believe we’ve got a great range of battery electric trucks we’re not cloud, we’ll sell all of our trucks to any customers. We just believe that there will be a significantly larger market for fuel-cell powered lift trucks in the future and we want to believe it’s in that segment.

Expand on that work we’re doing in batteries to develop the range.

We’re working on lithium-ion. We’ve got trucks in the market with lithium-ion batteries. We’re working on next-generation product for lead-acid batteries that will also – obviously fitted with fuel cells as an alternative. And again, in the future, we envision having integrated lift trucks that will integrate fuel cells without having the battery box design in the first place, but those are all concepts that we’re working on for the future. So, we’re really, we see ourselves as being a supplier of lift trucks with all types of power source to meet the customer’s needs and whatever they maybe. And then, remember that we’ve really been focusing on our ability to be an expert in solutions. And so, we have the full range of power sources. We also have ways of conveying to the customer the optimum configuration to have that customer have the lowest cost of operations for the particular application that we’re talking about. Fuel cells don’t go and 100% of applications at this time, given their cost structure, they’re not the right answer. And the simplest way – the simplest cut is that in low-usage applications of fuel cell is not likely to pay off at this time. So, we – we’re covering all applications and then we bring a sharp solutions orientation to the customer-selling process. And in that regard, we have been implementing quite a new method of selling into the market which is designed to focus on the customers’ needs as opposed to the products that we have available and to engage the customer in a dialogue. And I think Colin is fair to say that we are planning many situations where the customer has been purchasing trucks because that’s what the customer has been using and they haven’t been analyzing options for different types of trucks and different approaches to truck configurations for that particular application, and we’re able to deploy resources both from a selling point of view and an analytical point of view are very helpful to our customer base.

Great, guys. That’s well said. I appreciate it. I’ll pass the line by now. Thank you.

Your next question comes from the line of Joe Mondillo with Sidoti & Company. Please go ahead.

So, just quickly, in regard to the Europe segment, was there any currency hedge benefit in this quarter?

Yes. I would imagine it was small. But, that’s netted into the number that we disclosed though.

Okay. Okay. So, is it was just – it was small.

Yes. So, in the Europe segment, 6.7 is their variance, $8 million of it is related to currency. So, we were actually 1.3 without the currency impact favorable in the quarter.

So about a $1 million of favorability?

Yes. Once you takeout the currency effect.

And that’s on a comparable basis for the whole business, right?

No. No, that’s just – I’m sorry, that’s the European segment.

Well, why don’t you give him a numbers on a global basis, Ken, if you can?

Yes. We – I think that in the Americas, we did not call out of currency number for the profit number, we called out $8 million in the EMEA and we called out $1.2 million in operating profit in JAPIC. So, I guess we’re saying $9.2 million total.

Okay. Is there any – regarding Europe and JAPIC, is there anything regarding the cost structure that you can do or you are doing to try to boost the margins? Operating margins there?

Say again? What was the question?

At Europe and JAPIC where you’re both relatively close. JAPIC, you’re under breakeven, Europe, you’re close to breakeven. Is there anything that either of those two segments or businesses where you can do anything? Or you are doing anything currently with the cost structure to try to boost the margins and combat the negative volumes that you’re seeing?

Well, let me just say as an overview comment that our product margins are not, generally speaking, not too bad. There’s pressure on different times and different areas, as Colin has described. I think, the bigger issue in JAPIC and, to some degree, in Europe is that there is nothing that more volume wouldn’t cure. Because we have the SG&A in place, as you know, we’ve added considerable SG&A in the last three years or so in connection with our strategic initiatives in order to have the resources to drive the additional volume that will cover – that will drive us to the 7% operating profit at the peak of this cycle and 7% at the midpoint of the next. And so, without – the issue here is volume. Now, having said that, are we attentive to cost reduction? You bet. And particularly, in Europe, we have a very responsive team. They don’t like the impact of currency on them. It’s not their fault, but it assures that kind of impact. So, we look at everything from our supply sourcing. Obviously, dollar purchases are a lot less attractive than Eastern Europe purchases given where the euro. There are opportunities to change the sourcing pattern that are sensible and that can be implemented at any kind of reasonable time. So, that’s probably the biggest potential hitter. There are efforts to special task forces that are being put in – that have been place in Europe to focus on specialized cost reduction efforts and to get things to market that can be more cost-effective more quickly. So, there are a variety of efforts underway, but the big hitter as a practical matter is to get the volume that we’re striving for. And to recognize it, the strong dollar probably leads to greater period profitability in the U.S. than is appropriate and weaker profitability in Europe than is appropriate. And as the dollar moderates, there’ll be a reversal of that as we look forward. So, as far as JAPIC is concerned, again same comment. It’s basically a question of getting more volume to cover the cost that we have. If we get the volume we do, okay. The problem is not so much in standard margins, although we do feel that we’ve got some new products coming to the market that are very cost-effective and more cost-effective in certain cases than we have today. I described earlier the ex-TMX IC engine, a product which will be produced, and I’m going to do this. Colin will correct me if I get it wrong. It will be produced in [indiscernible] for EMEA. It will be produced in Korea for the United States. It will be produced in Japan for the Asia Pacific market. Eventually, it will be produced in China and also in Brazil. So, that product is going to get proliferated through our entire system and dramatically enhance our standard truck offering position from a cost and performance point of view. It’s been very favorably perceived so far. Now, there are other examples, which I’m not going to go into but the same sort of thing. So, we’re trying to keep our eye very much on the cost reduction side, but I don’t want to think – want you to think that there’s a magic bullet there. The real answer is volume and which is what we’re focused on.

Okay. Thanks.

Joe, to clarify your FX comment. I didn’t pick up the $4.5 million of sale on the Americas segment in the numbers I added together. So, you need to include that as well. Sorry about that.

Okay. No problem. Thank you. In regard to the Americas segment, the outlook sounds optimistic that we’ll see some improvement in the profits, in the back half of the year. Just wondering – it seems like you’re going up against a tough comp year-over-year on the back half of the year. So wondering how you feel about the year-over-year comp versus I guess maybe a sequential improvement.

We always do better in the back half of the year. But again, it’s – for all the reasons we said, we feel optimistic about – but again, this is not – I mean, this is based off our bottoms-up forecast that’s been put together, looking at the auto pattern and the backlog and everything else. But, a big part of that is driven by the volumes forecast and we already have some of that volume in the books today and have a clear line of sight as to where the vessel is coming from.

I mean that’s the key point. This is a volume issue in terms of profitability, not anything else.

Great. So, in terms of my original question, what do you say improvement in the back half of the year. Are you talking about higher than the 7.5% operating margins that you saw on the back half of the year in 2015?

No. I don’t think we were 7.5% at profit margins in fourth quarter. I think we had a 5% up profit percent globally in the...

Please talk about the Americas, I think.

I was talking about Americas overall.

I think you should just read it the way we said it.

I guess what I’m asking is the improvement sequential or is the improvement year-over-year in the back half of the year?

Yes. An improvement year-over-year, we will got the improvement in operating profit year-over-year.

Okay. So, you’re anticipating that the operating margins in the back half will be higher than around 7.5%, 7.6%?

Whatever the numbers were last year. I don’t have them at hand.

Okay. Okay. And then just lastly, just to clarify on the Bolzoni. Can you just clarify what your expectations are – I’m not very familiar with the mandatory tender offer. Are you expecting to get to the 100% or maybe not necessarily?

Let me just put it this way. We have every expectation of getting to 100% is the answer. And if we don’t, it’s probably because somebody is simply not aware and hasn’t been advised. And so, what we are doing is the Italian version of a U.S. squeeze out. And it happens – there are certain thresholds in Italy. With 50%, it gave us a majority ownership. 90% allows us to do significantly more and 95% is sort of like the squeeze-out positions in the U.S.

90% is a delist.

And 90% is delisting and who’s going to want to be delisted. So, this is the normal procedure to get us to 100%. We have every expectation that will get there. What we can’t tell you is it’ll happen on this day or that day because it’s up to the shareholder to tender the stock certificates to us. Now, we have employed people in Italy to go and remind the stockholders that they need to do this. And so, for the stockholders, smaller stockholders that we don’t know about, that process is underway.

I mean, the – Cambodia was the largest we’ve – and the shares that we’ve purchased this week to take us up to the 62%. There are some other institutional holders that we are very confident going to be submitting their shares. So, then, we’re dealing with a relatively small, like, general public holding. We’re identifying the pockets, where those are. We expect to get the 90%, as Al said, which allows us to delist 95% we can squeeze out. But, once you delist of it’s to all intensive purposes...

But, nobody that is knowledgeable of the transaction would ever want to stay because we can – we would be stopping dividends from Bolzoni immediately. So, they’re left with a stock that’s not tradable, that’s not got any dividend in comparison to the dividend that’s being paid now. I mean, there’s nothing but downside for someone. And in fact, there are instances in the U.S. where people get stranded with a nominal ownership. And there’s the price in the trading market to the extent there is one, is way below the offer price that was put on the transaction and nobody’s data, and so that the owners of the shares have only to lose in this transaction. So, that’s just a little bit of Color on your question, I think.

Okay. Yeah. That, no, that definitely helps me understand the process. Thanks for taking my questions. I appreciate it.

Okay. Thanks.

There are no further questions. I turn the call back to the presenters.

Al, do you have anything to add?

I have nothing to add. No.

Okay. Thank you for joining us today. We do appreciate your interest. And if you do have any additional questions, you are welcome to call me. My phone is 440-229-5168.

Ladies and gentlemen, thank you for joining us today. Today’s conference call will be available for replay at 1-800-585-8367 or 1-855-859-2056 with today’s conference ID of 87345894. This concludes today’s conference call. You may now disconnect.