Hyster-Yale Materials Handling, Inc. Class A Stock

Good day, and welcome to the Hyster-Yale Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions] 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 double 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 a $35 million in tariff refunds. However, those benefits were largely offset by unfavorable capitalized material costs and $10 million in higher gross tariff expenses. Bolzoni 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 noncash 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 initiatives 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 been 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 our participation across the market and creating opportunities for future growth. One of the developments we are most encouraged by is the momentum we are 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.

Today, we offer value, standard and premium products across our key markets. As customers' buying patterns have shifted towards a broader mix of applications and price points, we've been well positioned to respond. That has enabled us to broaden market participation, support market share gains and create additional growth opportunities over time.

What is particularly attractive about this strategy 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 customers, 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 efficiencies. 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 order 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 3 years, driven primarily by the Americas. 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 deliveries scheduled for further in the future, including some beyond 6 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 latter part of 2026.

Both 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 initiative to deliver increasing benefits in the second half of the year. Although these actions are not expected to fully offset tariff-related costs, they are helping mitigate the impact, while preserving our competitive position.

Beyond our tariff mitigation actions, we are 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 million 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 Walmart's mass business, new attachment introductions and the expansion of its camera vision systems. Together, these initiatives broaden Bolzoni'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. However, 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 million to $20 million of annualized benefits expected as volumes recover. Over time, these actions are expected to improve efficiency, lower our cost structure and reduce our long-term breakeven point 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.

Thank you, Rajiv. In summary, while the recovery remains gradual and external challenges persist, we are encouraged by the company's progress. Bookings have increased for 4 consecutive quarters. And as a result, production rates and shipments will be increasing. Second quarter operating cash flow has returned to a positive and many of the strategic actions we have been implementing are beginning to gain traction. Importantly, we are not simply waiting for the market to recover. We are actively strengthening the business through disciplined actions in portfolio expansion, manufacturing footprint optimization, restructuring initiatives, tariff mitigation actions and responding appropriately to competitors' activities.

Together, these efforts are lowering our structural cost base, including resilience across the cycle and positioning us to have greater value as market conditions continue to improve. Overall, we remain fully committed to serving our customers exceptionally well, as well as to creating sustainable long-term shareholder value through growth, stronger profitability over the cycle and strong cash generation.

That concludes our prepared remarks. We will now open the line for questions.

[Operator Instructions] And today's first question comes from Ted Jackson at Northland Securities.

Congratulations on the quarter, guys. So, I wanted to start out just a simple thing. I mean it's good to see all the bookings growth. The business is turning around, the market is turning around. Is it fair to assume, given the commentary, Rajiv, that you continue to see a pickup -- the pickup in bookings continue at least to date with regards to in the third quarter?

Yes, we're seeing the same trend. Obviously, as we have said multiple times before, third quarter is when we have our July and August kind of holidays everywhere around the world. So, that does affect our bookings, but the trend has definitely continued.

Okay. And so, when I listen to your commentary, I mean, you're clearly signaling that you feel that the strength that you've seen in bookings is going to really start to kick in, and we're going to see it more on the top line as we get into the second half of '26. But I perceive from the press release and the commentary you provided that perhaps some of the revenue that you thought you might recognize in the third quarter will shift out into the fourth quarter. And is that a correct read of your commentary? Or am I parsing too?

Yes. I think that would be the case. Maybe I can give you some solid example of what's happening. So, our original plan was to build some of the trucks, for instance, for North America in Europe. And with the change in April to the 232 tariffs, which was quite dramatic for us, we changed those plans. And those trucks have now been rescheduled to produce in North America with -- of course, our customer are aware of this with some changes in delivery timing. So that's one example of something that happened because, as you know, initially, that tariff was 25% on like on the cost of imported trucks, which was then reduced to 15% from Europe.

So -- but still, that is a significant cost impact. So, we've reacted to that and changed production plans. So, that's one example. I guess the other thing we talked about is some customers as they start to get trucks and their own operations are -- the utilization rate is generally lower out there. So, they're trying to make decisions on where to put the truck and at times are asking for change in delivery dates. So that's -- but that's a minor part. The bigger part has been more the -- our own production change due to tariffs.

Well, it sounds like a smart strategic move on your part to make that change. Obviously, you wouldn't have done it if you didn't think so. But like -- so we're seeing bookings or everything else. Is it -- and you're commenting that your production rates are going to be continuing to run behind your bookings. So then implicit in that is that as we think about I mean not maybe on a quarter-to-quarter, but for the remainder of the year and quite possibly into 2027, we should continue to see backlog.

I mean I think we'll see it flatten out in '27. But you're right about this ramp-up. As you know, Ted, this has been a significant ramp-up and still in progress. We're in the early stages and -- but that will continue throughout this year. And I would say it will -- based on our expectation for the 2027 market, I think we'll be at a good rate by the first quarter of '27.

Shifting over into production rates. Maybe to give a little color, when you look at the capacity that you have in place, I mean, maybe think about it from what is the utilization rate and where do you think you can get it to? How far under, for lack of a better term, kind of retail demand do you think you might be producing this year I'm kind of getting a sense in terms of how is that -- how are you going to fill that capacity and kind of what's driving this one along with that?

Yes. So, I think it's best to give you a bit of resolution. In terms of our plant capacity, we have more capacity than we need right now. So, what it requires is hiring more people and getting the supply chain to fire. And we've checked with our suppliers given enough lead time, they can respond to it. So, we don't think there is any infrastructural issue. It's just a question of hiring, training and the people for our plants and then putting the supply chain with enough lead time so they can respond. And as you know, if we don't have one part, we don't build a truck. So, we are being very careful with that ramp-up. All the lessons learned we've had during COVID, we're using to ensure our ramp-up is very disciplined.

Okay. Well, I'm going to let other people ask some questions and I have a few more. Again, congrats on the quarter and looking forward to seeing the back half of this year '27.

[Operator Instructions] And it looks like we do have another follow-up from Ted Jackson of Northland Securities.

I like it. You guys, I own you right now. I wanted to shift over because we spent a lot of time kind of talking about backlog and bookings from a revenue perspective. When we think about it from a unit perspective, how has the turn in bookings been? I mean you've got 4 quarters of growth. How has it looked from a units perspective? I mean, does it align similarly with the dollar amounts you put out? Or as you're having more and more success with the modular product offering, is the unit view different? And if so how?

The way I would characterize it is that the ramp-up in volume is pretty even across our product lines. Now within the product lines, the way we define the product lines, there is a trend towards the simpler trucks. And we think that's the right thing. Those customers, we're always very focused on making sure the customer gets the right truck for their application. And as we have done a better job of understanding their application, we feel that these -- some of the simpler, what we call our standard and value trucks are the right trucks for those applications. And again, I'll give you an example, Ted.

One is retail. So, if you imagine a big box store, they typically have our 5,000-pound counterbalance truck in some form. And 3 years ago, we were selling them a premium truck. And that truck does about 700 hours a year. There's no need for that. Those trucks are designed for 3,000, 4,000 hours a year. So, now we've had the value and standard product. We've shared it with those customers. They have had them in their applications. They like the simplicity of it, the ease of operation for casual drivers. And so that's the right solution for them and the right price and the right value. So, we feel good about that.

So, I think there is that kind of -- so the width of the -- of our offering has widened and customers are appreciating that. And so there is a little bit more bend towards the standard and value. But again, we're in the early stages of this.

And then my next question, and it might be my last one is you've talked about a strategy to where you want to grow your kind of parts and kind of an aftermarket business. And I know it's early innings with regards to kind of laying out that strategy. But can you maybe provide some color around where you are in terms of progress with that initiative and provide an example or 2 there as well?

Sure. So we're, again, early. We're launching some new part solutions as we speak, but I'll give you one. Probably the most important aftermarket part, which is tires. In the past, we weren't actively marketing tires. We were making our OEM tires available to the market, mostly through kind of drop ship arrangements. As we have discussed this more with our dealers and customers, customers want to see some scalability in tires. So, there's 2 ways tires end their life, either they can wear out or they can age out. And if I go back to my example of the retail truck, just imagine that you put a premium tire on those trucks, those tires will age out. After 4 years, they have to be replaced because the rubber is starting to deteriorate through chemical reactions and gassing.

So, it's a better solution on that particular case to put a tire which has more of a wear characteristic. So, in 4 years, not only will it age out, but wear out. And upfront, there will be a lower-cost tires. And because we're matching those better to our trucks, we are now labeling them. We're developing them with our suppliers jointly, and then we're labeling them as high source tires. So that's one example of business. We were in through drop ship, which is not really focused on serving the customers more availability and margin associated with it are limited to creating the right tire solution for the right customer. And then obviously, those are -- the margins are appropriate for that type of solution. So hopefully, that gives you a sense for what we're doing, Ted.

We're doing similar things on the battery side. We're also making -- we've had one line of product go out of production, our 2 to 3 -- 1 to 3.5 ton previous model of trucks. There are 300,000 to 400,000 of trucks of those trucks out in the marketplace and customers who are starting to ask for the primary components to be refurbished and remanufactured because with a 5-year-old truck, it's tough to put a brand-new transmission in there. And so, we've just done that. And now some of those axles and transmissions are being rebuilt by Bolzoni in the plant they originally built them and made available to the market as remanufactured with warranty that supports it. So that's, again, another example of what we're doing.

And then just final kind of follow-up to this discussion, and then I am going to head up in my queues. What percentage of Hyster-Yale's revenue comes from kind of the parts business and where do you want it to go? And then what's the margin differential between parts and kind of the core?

Those are things that we don't talk about outside -- in public. So, I think that's going to be tough. Maybe outside the meeting, Andrea can help you a little bit with that. But yes, I would like to keep that out from the public answering.

And that does conclude our question-and-answer session. I'd like to turn the conference back over to Andrea Sejba so for any closing remarks.

Well, we thank you for your questions today. A replay of our call will be available online later today, and the transcript will be posted on the Hyster-Yale website. If you have any follow-up questions, please feel free to reach out to me directly. My contact information is included in the earnings release. Thank you again for joining us today. I'll now turn the call over to Rocco to provide the replay information.

Thank you. To access the audio replay of today's event, please dial 1 (855) 669-9658 or 1 (412) 317-0088 and enter access code 4850489. The replay will be available until August 12, 2026. Today's conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Good day, and welcome to the Hyster-Yale, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Andrea Sejba, Director, Investor Relations and Treasury. Please go ahead.

Good morning and thank you for joining us for Hyster-Yale's First Quarter 2026 Earnings Call. I'm Andrea Sejba, 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 first quarter 2026 earnings release, which provides a detailed overview of our financial results and performance. Today's discussion is intended to supplement that release by offering additional insights and context. The earnings release, along with a replay of this webcast is available on the Hyster-Yale website, where the replay will remain accessible for approximately 12 months.

Before we begin, I would like to remind you that today's call includes forward-looking statements that are subject to risks and uncertainties, which could cause actual results to differ materially from those expressed or implied. These risks are described in our earnings release and SEC filings.

We will also reference adjusted financial measures, which we believe provide useful supplemental information to GAAP results. Reconciliations to the most directly comparable GAAP measures are included in our earnings release and investor presentation. I will start with a brief overview of our first quarter performance and outlook, then turn the call over to Rajiv to discuss the operations with a strategic update for the business.

During the first quarter, bookings improved sequentially, increasing 7% from the fourth quarter as we moved from the cyclical low reached in the third quarter of 2025. Backlog increased modestly, although shipments have not yet reflected this improvement.

From a cash perspective, operating cash flow followed typical seasonal patterns with $33 million of cash used in operations, representing a slight improvement compared to the same period of last year.

Inventory management continued to improve with meaningful year-over-year reductions from better alignment of production with demand. Finished goods inventory declined compared to last year, improving efficiency and positioning us for higher production later in 2026.

Revenue declined to $795 million, driven primarily by the normalization of excess backlog and a shift towards lighter-duty, lower-priced trucks. This shift reflects a broader and more persistent change in purchasing behavior. Customers increasingly select the right truck for their specific application, prioritizing standard configurations, near-term affordability and fit-for-purpose solutions.

In response, we have introduced new core counterbalance models built on our modular and scalable platform to address growing demand for standard and value offerings. While these actions strengthen our competitive position, the transition reduced shipments of higher-priced traditional models and contribute to the year-over-year revenue decline in the quarter.

Tariffs also remained a significant headwind affecting profitability. In the first quarter, we reported an adjusted operating loss of $26 million, which included approximately $30 million of gross tariff costs. While pricing and cost actions provided partial offsets, tariffs and the shift to lighter-duty, lower-priced trucks more than impacted results.

Looking ahead, we expect 2026 to improve compared to 2025 with profitability in the second half of the year. We anticipate the second quarter to represent the low point for both operating profit and net income. Tariff costs are expected to increase in the second quarter before mitigation actions take effect. At the same time, stronger bookings, backlog growth and ongoing cost reductions are expected to drive meaningful improvement in the second half of the year. Based on this progression, we expect to deliver a modest consolidated operating profit for the full year despite a loss in the first half.

With that overview, I will now turn the call over to Rajiv.

Thank you, Andrea, and good morning, everyone. With that context on our first quarter performance and near-term outlook, I would like to step back and focus on how we are positioning the business and the progress we are making on our transformation as we navigate this phase of the cycle. I'll begin with tariffs.

Given recent legal and policy developments, tariffs have already had a significant impact on our cost structure. Since Liberation Day in 2025, we have incurred approximately $130 million of direct tariff-related costs, excluding indirect effects such as supplier price increases and higher steel costs. With a predominantly built-to-order manufacturing model, there is an inherent lag between tariff implementation and corresponding price realization. As a result, cost recovery occurs over the orders and delivery cycle, not immediately.

In February 2026, the U.S. Supreme Court invalidated tariffs imposed under the IEEPA tariff regime. While that decision created a pathway to pursue refunds, it did not reduce the overall tariff burden on our business. Subsequent action by the administration introduced new higher tariffs, including a 10% global tariff under Section 122 and expanded tariffs under Section 232 that now apply to the full import value of certain steel derivative products and including finished forklifts and components.

Based on current conditions, we expect our effective tariff rate in 2026 to increase by approximately 6% compared with 2025. With respect to refunds, we have applied for approximately $40 million related to previously paid IEEPA tariffs through the U.S. Customs and Border Protection tape process.

We also plan to seek approximately $15 million to $20 million in reimbursements from suppliers. These potential refunds were not included in our first quarter results or reflected in our outlook. The timing and ultimate amount of any recovery remains uncertain. Even if we recovered in full, these refunds would represent only a portion of the tariff costs we have incurred. Consistent with our prior communication, we expect any refunds ultimately received would be used to mitigate ongoing and future tariff impacts.

Turning to the broader operating environment. The lift truck market continues to favor lighter duty, lower-priced equipment. This shift has been both more pronounced and longer lasting than in prior cycles. Rather than viewing this solely as a near-term headwind, we see it as a clear signal of how the market is evolving. Our transformation is intentionally designed to strengthen our position in these value-oriented segments while preserving the ability to scale margins and earnings as volume recover.

Against that backdrop, our focus remains on executing our transformation initiatives to lower our cost base, improve flexibility and reduce earnings volatility across the cycle. These are not short-term responses to current conditions but structural changes intended to improve performance as market conditions normalize.

Our transformation is centered on 4 priorities: First, product evolution. As customer preferences continue to shift towards standard and value configurations, we have begun introducing these offerings within our core 1- to 3.5-ton counterbalance product line, where demand for lighter-duty application is increasing. These products are built on our modular scalable platforms, enabling common architecture, shared components and flexible manufacturing. This improves cost efficiency, supports competitive price points and allows us to respond more quickly as demand continues to evolve. While this transition has reduced shipments of higher-priced traditional models in the near term, our new products are gaining traction. We expect to continue moving in this direction with additional product introductions planned as we align our portfolio to customer needs and support future volume growth.

Second, operational and cost structure transformation. Operating costs declined year-over-year in the first quarter, reflecting restructuring actions initiated in 2025, including Nuvera strategic realignment and broader workforce reductions. We began to see early benefits in the quarter with meaningful margin improvements expected as volumes recover. In parallel, our longer-term manufacturing footprint optimization continues with the largest financial benefits expected in later periods.

Third, end-to-end digital enablement. We continue to better align product development, manufacturing and commercial execution through more integrated systems and processes. This is improving decision-making, execution speed and life cycle management across the organization.

Fourth, commercial and go-to-market execution. We remain focused on discipline, pricing, dealer execution and improving aftermarket attachments and service penetration over time to strengthen mix, lower tariff and life cycle economics.

A key enabler across all 4 priorities is our integrated individual product line management model, which brings together product, engineering, operations and commercial teams with clear accountability. This model is designed to sharpen decision-making and translate strategy into measurable financial outcomes as market conditions normalize.

With that foundation in place, I want to outline how these efforts are translating into early customer traction and acceptance of our strategy. One example comes from a new conquest opportunity with a large warehouse club customer that has concerns about pedestrian safety during after hour stocking. We demonstrated our proximity detection and related safety technologies, highlighting their effectiveness in blind corners and high-traffic environments. Following those discussions, the customer engaged directly with our innovation team and elected to move forward with an initial purchase for a greenfield site as a test deployment.

Beyond safety, we're also seeing acceptance of our new product platforms designed to improve productivity and address labor constraints. In warehouse trucks, we introduced a new 3-wheel standard counterbalance truck featuring technology-driven ergonomic and productivity enhancements that are resonating with customers.

In direct store delivery, customer evaluation of the Hyster and Yale Route Runner and nested pallet truck with a detachable motorized sled demonstrated operational efficiency gains, including delivery efficiency, reduced labor reliance and improved route times. We view this as a differentiated solution addressing an underserved market.

Commercially launched in April, the Route Runner has already secured orders from several large beverage distributors. Taken together, these examples reinforce the direction of our strategy, delivering high-value differentiated solutions that address real customer needs and support growth opportunities, reduce cyclicality and improved operating margins over time.

With that perspective, I will turn the call over to Al for closing remarks.

Thank you, Rajiv. As you have heard today, the industry remains in a difficult phase of the cycle. Demand has been constrained by macroeconomic uncertainty, including the impact associated with the Iran conflict, the changing mix of trucks which customers want and need, tariffs which continue to be a material headwind and customers who have remained cautious as they work through receipt of equipment ordered in prior time periods. At the same time, we are beginning to see early signs of improved demand led by enhanced customer engagement and increased focus on fleet replacement.

Against that backdrop, the actions our Hyster-Yale team has taken and continues to take to transform Hyster-Yale have the capability of repositioning Hyster-Yale's profit structure and growth prospects. Over the past year, we have focused on strengthening the fundamentals of the business by expanding our product lines, lowering our structural cost base, improving operational flexibility, sharpening our focus on cash generation and investing in marketing the products and capabilities that matter most to our customers.

These actions are not short-term responses to a difficult environment. They are deliberate structural changes designed to improve how the company performs as volumes recover and market conditions improve. Importantly, they are consistent with the transformation Rajiv described.

We are optimistic that 2026 represents a turning point. We expect bookings to improve backlog to rebuild a bit and cost reduction actions to take hold, and we expect all of this to strengthen financial performance significantly in the second half. We remain disciplined in our execution activities and prudent in our capital allocation.

Hyster-Yale has navigated many cycles over its history, and that experience gives us the confidence of experience, not complacency. The actions underway today are designed to transform Hyster-Yale to build a higher growth, higher margin and less cyclical business. As a result, we believe the company will then be well positioned for significant shareholder returns over time.

That concludes our prepared remarks, and we'll now open the call for questions.

[Operator Instructions] And the first question will be from Ted Jackson from Northland Securities.

So I'm going to start first question. I want to kind of go into unit mix with regards to the modular equipment and the more -- I mean, this is the strategy you guys have been going for. But could you maybe unpack for me the sort of the mix in the Lift Truck business between older legacy units and the newer more modular product?

And then maybe talk a bit about where that trend has come from, kind of where was it, say, as you rolled through last year to where it is now and where you see it's going? And then kind of behind that, maybe some discussion with regards to on a like-for-like basis, what would be the difference in terms of price point and maybe a discussion on the difference if there is any in margin? I have one big, huge multi-point question. I have a couple.

For some data that we don't typically publish. We certainly don't talk about volume. So let me just -- firstly, the majority of the trucks that are now modular scalable are the 1- to 3.5-ton trucks, especially the internal combustion engine trucks, although we're in the process of launching our electric version of the 1- to 3.5-ton trucks. Now with a couple of -- the two most important series have been launched already, what we call our 2- to 3-ton DBB and 2- to 3-ton CBB. The start of production for the DBB has already started in Europe and the CBB will start soon.

But the internal combustion engine trucks in that range are fully -- now the only thing we're shipping are the modular scalable trucks. That shipment has started this year, especially into our kind of EMEA -- the territories with emission control. So that's North America and Western and Eastern Europe. Now we've been shipping those trucks for quite a while into Asia Pacific and Middle East and Africa and South Africa, for instance, but now fully implemented globally. And the legacy version of that truck is now out of production apart from one model that's going into some of the emerging markets.

And the 1- to 3.5-ton truck is the largest part of the market, especially if you take out the small pallet trucks. And for us, typically, it's around 1/3 of our kind of volume, 1/3 of the market, 1/3 of our volume. So that kind of gives an idea of -- now for some of the other product lines, what we're introducing are not trucks on the same platform, but trucks that fill that gap.

So I'll give you an example. We're going through and introducing for our 4- to 9-ton truck range, a low-intensity product. And then later in the year, we'll be introducing a more standard version of the truck probably in the early -- in the fourth quarter in North America. Now in some markets, those are available. So that's how we're covering it.

Now ultimately, we'll have a modular scalable version in the 4- to 9-ton, but that's still a few years away. That's in development, just initiated development right now. But that's how we are covering the market. So I would say that currently somewhere around 40% of the market we've got covered with some level of scalability.

To just discuss a little bit the lag between the introduction of the models and the full uptake, both with our national accounts and with our dealers and because that really hasn't occurred yet. And so I think that's the other part of your question is where are the shipments today. And I think the bottom line is we're getting ready to really ship lots of these, but they're in the market and they're just getting started as far as looking backwards are concerned. I think that's correct, Rajiv.

That's right. So yes, the bookings have been there for since early part of this year. The shipments are basically happening now, now onwards. So it's going to -- dealers will receive those trucks. Customers will get to have demonstrations and try it out in their application and then more orders will come in. So there is that cycle, which seems to take us somewhere around 4 to 6 months to do, although the seed orders are already there.

That's a really important point to me because we have really good dealers, especially in North America and parts of core Europe, and we have a sound structure in other parts of the world.

When they get the product, they will sell it. And so it's unrealistic to think that we could get us the share we traditionally get before those products really get out there in the marketplace. And so we feel that the strength of our dealership and our own efforts with the national -- with our national accounts and large accounts as we have these trucks more fully in the pipeline and available for customer application are going to really start to move, especially in the second half.

Yes. And in terms of margin, we feel -- we've designed each of these trucks to hit their target margin requirements. And so we expect that this will have a positive impact on our margin.

So if I recall, so I'm going to kind of just regurgitate just to make sure I understand the whole thing with the modular trucks, is that the goal with -- a key part of the strategy behind this is to be able to produce trucks that you can be more competitive with because like some of the Asian stuff is coming in, it's just very, very inexpensive that you can be price competitive with them and be able to produce them at a comparable margin that you've had in the past, so at a solid margin.

And the combination of those two things should enable you to take share because you've been having some competitive issues with regards to pricing. You're going to have at worst, an equivalent product, probably a better one with an architecture that allows you to keep your margins and be better competitive -- be more competitive within the marketplace. Is that kind of where we're at?

I would encourage you to think of the market as having 3 segments in it, if you will, to oversimplify it, a value, a standard and a premium. We've historically had great strength in the premium. We continue to do that. We've had some entries in the standard. And now we are introducing a full line of standard and value trucks which are growing segments in the marketplace because customers are looking because of high prices in general for more cost-effective solutions. So it's not so much a matter of being directly competitive with our old trucks with the competition as it is a matter of filling gaps in the product line that have become much more important than they were.

And I think the customers' application always really required them to have -- if you -- I think we've given these examples before. For instance, in retail, these trucks do 500 to 750 hours a year. You don't need a very sophisticated truck for that application. And our low-intensity truck is more than capable of handling those applications or in light manufacturing, you have more of a standard truck, and that's a pretty big market.

In the past, we would -- we sold our premium truck into that market, had lower margins because the customers didn't really need all the capability of -- And so that's what gets rectified. And we weren't really participating in any significant way in the value part of the market. So that's how that gets fixed. And now we can participate across the board and have good margins at each of those segments.

Well, the timing is nice because you're hitting it when the market is coming -- going to be coming out of a cycle. And I mean it's a good timing.

Shifting to next question. You talked with regards to tariffs and you had a $30 million impact in the quarter. Second quarter is going to be something greater than that. And then it will start to tail off because of mitigation strategies. How do you mitigate the tariffs? Just what are the strategies? How are you going about that? Just pricing.

So there's 2 primary strategies. The first one is pricing, either embedded in our core price, some of the tariffs, which have been there for a long time, such as the 301 and now even some of the 232 is in the core price. And then for the others, like the 122 and the IEEPA, which we thought was more temporary, we put a surcharge in place.

Now also, we have to be conscious of the market price. So we have a pretty sophisticated pricing program where we determine how much pricing we can put in. And then whatever is remaining, then we have to take action on the cost side, start to go back to our suppliers, work with them to get the components located in regions where the tariff is more manageable and focus on cost reduction. The way I would split it is about 2/3 is going to be pricing, and about 1/3 is going to be cost. So that's how we're managing it, Ed.

Now the cost adjustment takes a little longer. That's why we've got -- and so does the pricing because, as you know, we build to order. So we have a backlog. Backlog has been somewhere around 4 to 6 months depending on the truck. And that's why we had a -- we've got the first quarter that was -- from a revenue point of view, there was a reduction because we had a low point in our bookings in the third quarter of 2025, and that flowed through. And now it's going to start building back up.

Okay. That was great. My last question is pretty simple, just maybe an update on where you are in the CFO search.

Yes. So we're talking to our Board about the type of person we're going to look for, and then we'll launch it immediately after our Board meeting in a couple of weeks.

Okay. So you haven't even begun that process yet.

We make a full evaluation of our finance team, and we've kind of -- we're rearranging a few things, and that's given us a better idea of the type of capability we need in our new CFO.

Well, don't rearrange Andrea too much because I like working with her.

And our next question will be from Chip Moore from ROTH.

Maybe for me, maybe you could just expand a bit on some of the dynamics you're seeing around this pent-up demand out there with aging fleets and need to replace. Just talk about the conversations you're having. It sounds like you've got a fair degree of confidence that things improve here in the back half. And of course, you've got some new products coming out that align with some of the inflationary pressures out there, but maybe just dive in there.

Yes. Maybe at a high level, Chip, I can give you -- and then we will dig in. But at a high level, if you look at the profile, like we talked -- I just said we had a low point in bookings in the third quarter. Let's say that was $380 million of -- that was very low for us. It was a really tough quarter for us and everyone else. Then we grew -- kind of rose to $540 million in the fourth quarter of 2025. First quarter was around $585 million, something like that, close to that. I'm just talking units, not parts, not other sales, not our technology stuff, just units because that is the driver for our business. All the other stuff comes from that. And then we expect that to continue going up. And that's been in conversation with our customers. So a few dynamics are going on.

I think as we've talked over the last couple of years, we did a lot of deliveries in 2023 and 2024 to our customers who've been waiting. Some of these orders were put in 2022 that we delivered in '23 and some orders that were put in '23 that we delivered in '24. So that's kind of stabilized.

Now as we talk to customers, their average age of the fleet is a little higher than we would like or they would like. And -- but utilization is also down a little bit because manufacturing is in North America and in Europe is down because of the -- just the economy for things is down. But we expect that to build back up.

The conversations we are having with customers, there is no -- we've seen increasing RFQs going out to the field. Quoting activities are going up. Engagement with our customers are going up, which are leading indicators. We're seeing the same thing from our dealers. Dealer inventories are back into -- in normal conditions. So those are all good indicators for what's coming.

We're seeing more stock orders coming from our dealers. So for our high flow business, these are ready to kind of stock units, ready to sell units. We're seeing our dealers more confident. And Alta, who is one of our dealers, who's public company, if you look at their reports, they are talking that as well. So it's not just one of our dealers who publishes things kind of earnings is also essentially compatible with the story I'm talking about. So that's -- so we are seeing all of that.

As we look at some of our large customers and their plans, we are seeing that they have plans for third and fourth quarter that are significant. That's what gives us the confidence to say that we do expect both shipments and bookings to continue rising into the second half of the year.

Very helpful color, Rajiv. And maybe for my follow-up, talk a bit around automation. I think you highlighted a few things already, but are you gaining share in warehouse and the role there? And then lastly, just an update on the battery strategy.

Yes, sure. So actually, we are doing well in the warehouse, especially with our Reach Truck, and we've just launched the new product that I talked about, the three-wheel stand, which is getting excellent feedback from, especially our large customers.

And then we continue to demonstrate our automation solution. As you know, since April, we've been out there selling the -- and really, we're ranking it. It's more a material handling as a service model for our automated trucks. And we've had a couple of really good wins with that. But in MODEX, we introduced the -- an early version of our kind of stacker. So this tow tractor obviously pulls trailers, but this is a version of the truck that lifts products to typically second level and first level, can also pull things off production lines or set things on distribution lines. And we had very, very positive response to that at MODEX. We'll start demoing that with what we call friendly, our core customer base in the third quarter. And then release it for sale in the fourth quarter.

And then in the background, there's work going on and automating some of the other warehouse products, especially the Reach Truck and also our counterbalance trucks, which will come in '27 and '28. So we're building up our automation product line, but also, we're seeing success -- early success with key customers that we have targeted initially.

In terms of the batteries, we're starting to ship now our own lithium-ion batteries to customers, especially in Europe, and we'll initiate that in North America in the third quarter, right at the beginning of the third quarter. And we have pretty large growth plans for it in the second half of the year, and then it will be a significant part of our business in 2027. And we'll talk more about that at our Investor Day that we are planning for the fourth quarter, get into a lot more detail and probably bring along some of the things we're doing on the energy side and the technology side as well.

Great. I look forward to that in November, I think, right?

And ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Andrea Sejba for any closing remarks.

Thank you, Chad. Thank you for your questions. A replay of our call will be available online later today, and the transcript will be posted on the Hyster-Yale website. If you have any follow-up questions, please feel free to reach out to me directly. My contact information is included in the press release. Thank you again for joining us today.

To access the digital replay of this conference, you may dial 1 (855) 669-9658 or 1 (412) 317-0088. Replay beginning at 2:00 p.m. Eastern Time today. You will be prompted to enter a conference number, which will be 9387098. Please record your name and company when joining.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Hyster-Yale Inc. Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Ms. Andrea Sejba. 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 Sejba, Director of Investor Relations and Treasury. Joining us 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 filings. We will be discussing adjusted results, which we believe are useful supplement to GAAP financial measures. Reconciliations of adjusted results to the most directly comparable GAAP 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 2 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 remained 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 remain a significant headwind, reducing both quarterly and full year revenue and operating profit. 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 broad pressure, we began to see an important divergence emerge late in the year.

North America showed meaningful sequential improvement relative to quarter 3. This uptick translated into stronger bookings and a noticeable improvement in customer engagement as encouraging contrast to EMEA and JAPIC 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.

This has suppressed ordering activity outside of North America. Against this difficult backdrop, of quarter 4 booking performance stood out as a meaningful positive development. Booking increased to $540 million, up significantly from $380 million in quarter 3 and $400 million in the prior year quarter. The Americas drove most of this increase, with particular strong traction in core counterbalance Class 5 trucks in the 1 to 3.5 ton range. Looking at the first 2 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 extended backlog delivery is now complete. Greater clarity around their operational needs, rising urgency and early signs are replacement cycles, which have been deferred are starting to reengage. 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 2 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 totaled $1.28 billion, reflecting shipments outpacing new orders especially within EMEA, where recovery will have 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 are seeing in early 2020. Earlier bookings have been strong across all regions. Even though shipments began the year at lower levels in quarter 4. If this trend continues, and we expect it will, bookings should begin to outpace shipments, allowing backlog to rebuild towards a more normalized 3- to 4-month level. This, in turn, supports more efficient production planning. Pulling these pieces together, we expect quarter 12026 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 is why the market continues shifting to a 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, accelerated technology and product development and continuous data-driven monitoring of leading indicators across customers and suppliers.

We have been through many market cycles, and that experiences reinforces an important point resilience and readiness matter, while we cannot control external sources, 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, we are executing transformation programs across several fronts. -- 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 supplying supply chain disruptions, customer engagement, we're strengthening our relationship with dealers and end customers by listening plus fleet and codeveloping solutions, we're aligning our product road map with the real challenges customers are facing today. Product innovation. We're accelerating new product launches and introducing technologies that improved 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 are realigning our manufacturing footprint and supply chain to improve cost competitiveness and responsiveness to class region. These actions are helping us manage the current environment with agility and discipline. They're also strengthening our long-term structure, lowering our breakeven point and improving product margins so earnings becomes more resilient over time.

Our overreaching goal is clear: Hyster-Yale is the first mover when demand accelerates, and able to scale quickly and capture profitable growth, further support our long-term position. We have taken decisive action to lower our cost structure and strengthen resilience across market cycles, which include Nuvera's 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 4 of 2025 target $40 million to $45 million of annualized savings beginning in 2020 sales Manufacturing footprint optimization initiatives began in 2024, are expected to deliver $20 million to $30 million in benefit in 2027 with full annualized savings of $30 million to $40 million by 2028. In total, we expect recurring annualized savings of $85 million 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 AE per decision. With these assumptions, forecasted tariff costs are expected to remain broadly consistent with quarter 42025 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 unfavorable early in the year. We're also monitoring recent legal developments related to tariffs. The Supreme Court's ruling was limited to, i.e., per 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 core, 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. So 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 revenue and profit improvement in the second half as volumes rise and 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 discipline 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 remain central to the company's ongoing transformation. Enabling advances in new product development, manufacturing efficiency and information technology capabilities.

Capital expenditure for 2026 are expected to range from $55 million to $75 million with the final level dependent on the pace of production improvements. Management will closely monitor spending throughout the year and may accelerate investment as production levels and market share improved as anticipated. As the company continues to generate cash, it will maintain its disciplined capital allocation framework, prioritizing de 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.

Thank you, Rajiv. As you have heard today, 2025 was a challenging year for our industry. Demand softened tariffs were a significant headwind and customers were understandably cautious. Especially since they were still receiving trucks ordered in earlier years. But it was also a year in which we took decisive actions to strengthen Hyster-Yale for the next phase of the cycle. We've used this period to improve the business fundamentally, lowering our cost structure, increasing operational flexibility, sharpening our focus on cash generation and investing in the products and capabilities that matter most to our customers. These actions are not short-term fixes.

There are structural improvements that position us to perform better across cycles. Importantly, we are beginning to see early signs that the market is stabilizing. Teams have improved. Customer engagement is increasing and aging fleets are driving renewed focus on replacement. While we remain realistic about the near-term environment, we are cautiously optimistic that 2026 represents a turning point with stronger performance expected as the year progresses. Our priorities remain clear and unchanged: disciplined execution, proven capital allocation and a relentless focus on the long-term value creation of our company. We are committed to maintaining financial flexibility, investing where we see durable returns and positioning Hyster-Yale to be a first mover as demand recovers.

We have managed through many cycles over the years, and that experience gives us confidence not complacency. We know success comes from preparation, discipline and focus. Actions underway today are transforming our company by building more resiliency, higher profit, higher margin growth and a more competitive company. We believe this will all translate into improved earnings power and stronger returns over time. That concludes our prepared remarks. We'll now open the call for questions.

[Operator Instructions]. And our first question for today will come from Chip Moore with ROTH MKM.

Wondering if you could perhaps expand on the pent-up demand dynamic and potential for fleets to get replaced. Just the conversations you're having, it sounds like things have continued to trend in the right direction here in 2026 so far? And any thoughts around mix and when we might see a bit of a shift to the more profitable lifts.

Yes, Chip, I think as we talk to our customers, they are transitioning from, I think, conserving to really ensuring that they will have what they need for their operations. I wouldn't say it's particularly euphoric. It's -- it's still about what must they do. And we're talking about predominantly industrial customers. So certainly, as I look at our bookings, it is heavy on counterbalanced trucks. So I think that's the nature of it. I would say people are doing it despite their concerns because of the need. And it's mostly industrial customers who are coming back to us. We're also -- I mean, we are promoting that by launching some programs that will help them do it. So that's been a bit of a catalyst to further engage our customers.

I think I'd add just one thought to what Rajiv said, and that is that the context here is that, we basically now delivered all of the long high backlog, early order trucks. So the customers are now no longer receiving trucks, which they were, I think, Rajiv just as recently as a month or 2 ago. So that dynamic changes in a sense, the backdrop again switch they're executing their own plans and thinking through what to do. So I think that's an important consideration.

Yes, definitely. Thanks, Al and Rajiv. That's helpful. If I could ask one more. Maybe can you just update us on new product launches and the pipeline there and particularly anything around automation as well?

Sure. So I think from a new product launch point of view. In fact, just this week, we are launching some new products to our customers is really part of our modular and scalable kind of spreading of that platform into our electric counterbalance trucks and also starting to be implemented in some of our warehouse products. So these launches are being introduced to our dealers in the early part of the month, and they will be available for sale by the end of the month, so they can go out and take orders.

In terms of the automation solution, we've been working with what we would call friendly customers to install the automation as part of a pilot. Those have gone very well. We've started to get orders for the automated trucks. And then we're also now engaging some of our dealers into that -- into the selling process of these automated trucks. So I would say that will accelerate throughout the year. The actual official launch of the automated IDA truck is in April. So it's coming.

Next question will come from Ted Jackson with Northland Securities.

So first, I just kind of want to summarize what I'm hearing from you all just to make sure I'm getting the mess a little slower today. So in the fourth quarter, bookings picked up driven by North America industrial counterbalance outside of North America, bookings did not pick up. They were somewhat stable, but what you're seeing there is a shift towards smaller more price-competitive product.

Going into 2026, bookings continue to strengthen, not just in North America but also seem to be spreading to the rest of the world, although the rest of the world is still seeing smaller, more price-competitive product in terms of what's being booked. You expect your bookings to continue to strengthen as you roll through '26 as you go through really a replacement cycle. But the mix of your bookings will be towards the smaller price competitive products. which means that although I would expect to see a margin recovery, we won't see a full blown margin recovery. So is that what I'm hearing from all of the dialogue in the press release. And then behind that, if it is correct, then does it mean that as we exit 2026 that we would see your margins more to the mid meaning gross margin more to the mid-teens into the high teens, is kind of my first question.

Yes. So I think that's directionally very correct, Ted. In terms of the margin levels, we are just the '23, '24 margin levels were out of out of the ordinary for us. We saw something in the kind of low 20s. I don't think we'll see that. we will see, depending on the product line in that range between mid-teens to high teens, which is where our targets are. So, yes. So I think basically everything is normalizing. Our backlog is normalizing. Our margins are normalizing. The one thing that's happening in the market place. And we kind of predicted it that there is a trend towards lower capability trucks because that's what the customer needs. And so those are going to be the primary path forward.

Well, that was the whole point behind the effort to put the margin products out anyway. So you might be more positioned

Absolutely.

So then it's fair to expect if this scenario plays out that by the time we get out of '26 your gross margins should be somewhere in the mid- to high teens, if indeed, like we are seeing -- we are at the bottom of the cycle.

I think that would be a fair estimate.

Okay. Okay. And then my question -- I have a question just on CapEx. I thought that the CapEx guide was -- I mean at least the midpoint of it would have been a little higher than expected. Can you talk a bit about what the thought process is within your spend and kind of where you're going with it and why you're ramping it up that much?

Yes. The vast majority of the CapEx is going into really three areas, continues to be towards product. We continue to scale out the modular scalable and our technology solutions, now including automation and lithium-ion kind of batteries and charges that go with it. The second area is around really upgrading our IT infrastructure, especially over the coming year, we're going to launch a new CRM system. We're going to really upgrade our product life cycle management system and our parts business will move to a new ERP system.

So that's quite a lot of kind of IT type programs that we're implementing in 2026 and in 2027. And then the last area is optimizing our manufacturing footprint. What that means is we're moving some production globally and putting additional capabilities in geographies that didn't have it. So it gives us a full ability to source any type of truck from anywhere to anywhere. And I think as we discussed in the past, the modular scalable platform was designed to be able to do that. But it does take some capital to spread that capability. The other thing we're doing in our operations is adding more automation. So much more automation in the way we manufacture our lift trucks.

Okay. Those are all worthy investments. And then my last question, just a little more in terms of markets and stuff. How about a little update on the efforts in the progress for the company in terms of penetrating the warehouse segment. The goal of taking some market share there. Can give us some kind of color on what's going on in [indiscernible]. That's my last one.

Yes. No, we've made some progress in that area, especially in North America. Our share has improved in the warehouse market. We think the big enablers and accelerators will continue to be some of the new trucks we are launching. We've just launched -- we're in the middle of launching a new 3-wheel fan. Which is going to come with a lot of scalability and address parts of the market we haven't been successful in, in the past. We'll continue to add our safety systems such as our AI camera and our DSS system. So this is to make sure to avoid pedestrian incidents and keep the operator operating in the right range, stability range.

And then our automation solution and the energy solutions are all very targeted towards the warehouse segment to the market. So we think those will help customers and provide us an opportunity to discuss the solutions with customers. We haven't had a close relationship with in the past. And in fact, a lot of that is going on as we speak.

Your next question will come from Kurt Latin with Imperial Capital.

Hello, everyone. Thank you for the call. With respect to the order rates in the Americas, the pickup is very encouraging. Can you give us a sense for how orders trended by end market directionally positive or negative autos, e-commerce, that type of thing.

Typically, we don't break it down to industries, but I would say that a lot of the recovery has been in what I would term as industrials. And more on the heavy side. So generally, people who are manufacturing things, either equipment or capital goods like metals and paper and lumber, things like that. So hopefully, that gives you a feel. And obviously, that portion of the market has -- were the ones most concerned about in some of the things we got into in 2025, whether that was tariffs.

And along with tariffs, the confidence in what's going to happen globally in these industrial materials and solutions. So I think that's been the in the warehouse side of the business pretty much stayed -- maybe a little bit of a dip, but nothing like the industrial side.

That's helpful. You mentioned automation a couple of times. It sounds like maybe it's still early days, but can you give us a sense for how the shift toward autonomous and lithium-ion will impact the margins and to what extent?

Yes. I think both the revenue will be higher because typically, in the past, we've generally sold trucks without even electric trucks without batteries and lead acid batteries. And certainly, when we sell internal combustion engine trucks, they have an engine, but no fuel. We don't provide that, whereas when we implement the lithium-ion solution, we provide a smart energy system. Now you need to put electricity in it to make it work, but the battery comes from us. And then the charger because it's an intelligent charger, it comes from us as well.

So it's quite a bump in revenue. Now for automation, there's quite a much larger bump in revenue because there are very high capability sensors, software and actuation systems in those trucks to automate them. So they are significantly higher, both from a revenue point of view and margin point of view.

Interesting. Is it -- any -- is it 2x in terms of revenue per unit? Is it that...

Depends on the solution, but in that range.

Got it. And what kind of margin are the margins higher as well?

Yes. Yes.

And what percentage of your -- what percentage of your sales in the Americas, would you say are or autonomous?

Yes. I mean we're still in the pilot phase. It's tiny. And -- but we expect that to grow over the next 2 or 3 years to become an important part of our business.

Got it. Excellent. And then lastly, a follow-up on tariffs. I know you have some flexibility as to where you assemble product. Have all those moves been made?

It's a constant juggle. As you saw, the Supreme Court in really turned down the IPA tariff that was having a big impact on where those products should be coming from. Now the 122 tariffs that have gone on. So that's had a bit of an impact on where we source from. But the key thing for us is that we have now the ability to do that. We have a forum where we -- within the company where we decide those, in fact, one of those meetings is straight after this call. So we're basically meeting monthly to make those calls. And the plants are being very responsive.

And this will conclude our question-and-answer session. I would like to turn the conference back over to Ms. Andrea Sajba for any closing remarks.

Thanks to participants for your questions. We'll now conclude our Q&A session. A replay of our call will be available online later today, and the transcript will be posted on the Hyster-Yale website. If you have any follow-up questions, please feel free to reach out to me directly. My contact information is included in the press release. Thank you again for joining us today. And now I'll turn the call back over to Chuck.

Thank you. The conference has now concluded. Thank you for attending today's presentation. A replay of today's event will be available shortly after the call by dialing 1 (877) 344-7529 or 1 (412) 317-0088 and using replay access code 102-05863. Thank you for your participation. You may now disconnect.

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" ROTH Capital Partners, LLC, Research Division

" Northland Capital Markets, Research Division

" Imperial Capital.

" Prudentials

" CVC Credit Partners, LLC

Good day, everyone, and welcome to the Hyster-Yale Inc. Third Quarter 2025 Earnings Call.

[Operator Instructions]. 

Please note that today's event is being recorded. I'd now like to turn the floor over to Andrea Sejba. Ma'am, please go ahead.

Good morning, and thank you for joining us for Hyster-Yale's Third Quarter 2025 Earnings Call. I'm Andrea Sejba, Director of Investor Relations and Treasury.

Joining me today are Al Rankin, Executive Chairman; Rajiv Prasad, President and Chief Executive Officer; and Scott Minder, Senior Vice President, Chief Financial Officer, and Treasurer.

We'll be discussing our Q3 2025 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 from those expressed or implied. These risks are outlined in our earnings release and SEC filings.

We'll be discussing adjusted results, which we believe are useful to supplement our GAAP financial measures. Reconciliations of adjusted operating profit, net income, and earnings per share to the most directly comparable GAAP measures are available in our earnings release and investor presentation.

With that, I'll turn the call over to Rajiv.

Thanks, Andrea, and good morning, everyone. I'll begin with our view of the current economic environment, how we're shaping customer behavior, and how Hyster-Yale is responding.

Scott will follow with our financial results and outlook, and I will wrap up before we open the calls for questions. Throughout the first half of 2025, we maintained a cautiously optimistic outlook, predicting an improvement in market demand in the second half of the year. 

However, since our last update in August, that optimism has faded largely due to the impact of tariffs on the market demand and on our costs. This shift in sentiment is not unique to our industry. It's a broad trend across the capital goods sectors.

Customers are navigating volatile interest rates, tariff pressures, and geopolitical developments, all of which are influencing long-term investment decisions. 

This is reflected in our own experience during the third quarter. These were overall lift truck market demand declined across all regions and most product categories compared to Q2.

Many customers are postponing capital expenditures and taking a more conservative approach to balance sheet management, citing uncertainty about the trajectory of interest rates, inflation, and broader economic stability. 

Despite the broader market contracting, Hyster-Yale's booking activity ticked higher compared to both the prior year and the previous quarter. This dollar value booking increase is partly due to higher prices on our trucks, driven by higher tariff-related material costs. 

Bookings rose to $380 million in Q3, up from $330 million in quarter 2. Gains were led by the EMEA and APAC regions, while the Americas remained stable.

Bookings improved across all product classes, with Class 1 trucks showing solid growth, improving our positioning in the warehouse segment. Notably, in October, we saw a strong bookings rate in the Americas for Class 5 trucks and, to a lesser extent, Class 2.

While it's still early, this uptick may signal that the market is beginning to stabilize and that customers are recognizing the need to invest in new equipment. 

We view this as an encouraging indicator amidst an otherwise cautious environment. While quoting activities remain solid, ongoing macroeconomic uncertainty, largely due to tariff and interest rate discussions, is causing delays in customer order conversions.

To safeguard our competitive position, we're implementing targeted initiatives aimed at increasing bookings through enhanced market participation and quote closure rates. 

These actions support our dual commitment to deliver optimal solutions and outstanding customer service. For example, we've announced our product offerings by expanding to our full range of modular and scalable lift truck models that support customer applications from basic to complex.

This allows customers to select configurations that best fit their operational requirements and budget constraints. 

The flexibility of our solution helps customers increase productivity at the lowest cost of ownership. In addition, our advanced warehouse truck technologies provide improved safety, efficiency, and automation options, helping customers optimize their material handling processes and reduce operational costs. 

On the customer care front, we're strengthening our connections with dealers and end customers by offering comprehensive support throughout the buying cycle.

Our dedicated account teams work closely with customers to analyze fleet performance, identify opportunities for upgrade, and ensure recommendations are tailored to each customer's specific challenges.

We also provide responsive after-sales support, including rapid maintenance services and proactive parts availability to minimize downtime and keep operations running smoothly. 

Regular training sessions for dealer personnel ensure that our partners are equipped to deliver prompt, knowledgeable service to end users. By engaging closely with our customers, we can better understand their changing priorities and collaborate to solve their most critical needs.

We back these efforts with robust support services, continuing to deliver value beyond the product. We strive to help our customers maintain efficient, reliable fleets across all business conditions. 

We have a deep understanding of our market and our customers' buying cycles. We recognize that many customers are choosing to postpone investment in new lift trucks due to the current environment.

However, we're confident in the market's long-term growth drivers and demand for existing fleet upgrades over time. Our experience shows that although customers may defer purchases for a period, the rising cost and operational efficiency issues associated with maintaining aging equipment make new fleet acquisitions inevitable.

As maintenance expenses and downtime increase, the financial and productivity advantages from new truck investments become more apparent. 

This cycle reinforces our confidence in the long-term stability and vitality of the market. We're committed to supporting our customers through every life cycle phase with flexible solutions tailored to their evolving needs.

Globally, the competitive landscape is changing rapidly. We are facing increasing pressure from low-cost foreign competitors, especially in South America and Europe. 

This competition is most pronounced in the Class 5 market for standard and value configurations, compressing margins in those markets. To address these challenges, we are expanding our lineup of modular, scalable models to more fully meet the requirements of all potential customers. 

These products, including those from our own China operations, will make us more competitive across all capability and price points in this critical product class while also protecting our margins.

In addition, our new warehouse products and advanced truck technologies are helping us to stand out in global markets and are receiving strong customer feedback. 

At the end of Q3, our backlog stood at $1.35 billion, down from $1.65 billion in Q2. Shipments outpaced new bookings in the quarter, particularly in the Americas.

This reduction was driven by fewer trucks, partially offset by higher value trucks due to increased product costs and favorable currency further diminished the real value of our backlog, intensifying the effect of lower truck volume. 

Maintaining a backlog that supports multi-month production is increasingly difficult in the current environment. The pace of market recovery remains below expectations despite underlying demand as a result of persistent uncertainty.

As a result, we are managing our production schedule and inventory levels with caution, ensuring alignment with real-time market signals. 

Our expectation is for demand to remain soft in the near term, with production rates adjusted to reflect actual booking and cancellation trends, as well as backlog held.

We are moderating near-term production expectations to preserve manufacturing efficiency, optimize inventory, and maintain appropriate backlog levels. 

As a result, we anticipate further backlog degradation in the near term. If shipments continue to outpace bookings, we may need to take additional actions to better align our cost structure with evolving market conditions.

We've seen many market cycles, and our experience tells us that resilience and readiness are key. Regardless of external factors, we remain focused on what we can control: efficiency, productivity, innovation, and responsible cash management. 

To ensure this commitment, we're executing on several fronts to position Hyster-Yale for long-term success. These are operational efficiency.

We continue to streamline operations, optimizing inventory levels and improving working capital efficiency to generate cash in a lower revenue and profit environment. 

Manufacturing flexibility. Our module vehicle designs allow us to produce the same model in multiple regions, giving us the flexibility to shift production in response to tariff changes or supply chain disruptions.

Customer engagement. We're deepening our relationship with our dealers and end customers. We're listening closely to their evolving needs and co-developing solutions that address their most pressing challenges. 

Product innovation. We're accelerating the rollout of new products and technologies that enhance performance, reduce total cost of ownership, and differentiate us in the marketplace. Market readiness, we are watching leading indicators closely and preparing to scale quickly.

Our goal is to be a first mover, ready to capture growth as soon as customer confidence returns. 

Global optimization. We're realigning our manufacturing footprint and supply chain to ensure cost competitiveness and responsiveness across all regions. These actions are enabling us to navigate the current environment with agility and discipline so that when the market recovers, we're prepared to emerge stronger. 

Over the longer term, we're reducing earnings volatility through a lower breakeven point and more resilient product margins. We remain committed to our strategy.

By maintaining operational discipline and investing in the right areas, we're confident in our ability to deliver sustainable growth and profitability over time. Now I'll turn it over to Scott Minder to walk you through our financial results and outlook for the remainder of 2025.

Thanks, Rajiv Prasad. Let's take a closer look at our Q3 results, starting with the Lift Truck business.

Lift Trucks Q3 revenues were $929 million, reflecting a 4% decline compared to the prior year. This decrease was primarily due to lower truck volumes across all product lines. 

Lower volumes were a direct result of ongoing economic uncertainty, which has led to a slowdown in customer bookings over the past several quarters.

In response to the softer demand and lower backlog, we adjusted our production rates to better align with current market conditions. 

Looking at the results by region. In the Americas, truck volumes fell with a significant drop in our higher-value Class 4 and 5 trucks in the 1 to 3.5 ton range.

Many industrial customers deferred lift truck purchases due to lower equipment utilization rates within their existing fleet. These were largely caused by reduced manufacturing output amid demand uncertainty. 

Looking at EMEA, revenues increased year-over-year, primarily due to higher truck sales and favorable currency translation. Sequentially, overall lift truck revenues improved, supported by stronger sales of higher-value 4- to 9-ton electric and internal combustion trucks.

Q3's operating results fell short of our expectations, primarily due to higher tariff costs, including new tariffs on steel imports during the quarter. 

Operating profit declined by $27 million year-over-year, mainly driven by lower truck volumes. Some of these negative impacts were offset by our strategic pricing actions and a favorable sales mix shift toward higher-value 4- to 9-ton trucks in the Americas.

Additionally, Q3's operating costs decreased compared to the prior year, mainly because of lower employee-related expenses, including reduced incentive compensation and savings from Nuvera's previously announced strategic realignment.

Breaking down regional performance, operating profit in the Americas declined primarily due to higher tariff costs and lower truck volumes. These negative factors were partially offset by increased selling prices and reduced freight expenses.

In EMEA, the operating loss was mainly a result of pricing and margin pressures as lower-priced foreign trucks increased their market share in a variety of European markets.

Additionally, material costs were elevated due to inflation. Sequentially, adjusted operating profit decreased largely due to lower product margins from increased tariff costs.

Moving to Bolzoni. Q3 revenues were $87 million, dropping 11% year-over-year. This decrease was primarily driven by our planned phaseout of lower-margin legacy transmission components and softer lift truck demand in the U.S.

Gross profit declined moderately, but a favorable product mix offset the impact from lower volumes and reduced manufacturing overhead absorption.

Q3 operating profit was $2.1 million, down from $6.2 million in the prior year, with higher employee-related costs negatively impacting profitability. On a sequential basis, Bolzoni sales decreased mainly due to lower specialized attachment sales in the Americas.

Gross profit remained stable, supported by a favorable product mix in EMEA. However, operating profit declined due to increased employee-related expenses.

Next, I'll cover the company's tax position. We recorded an income tax benefit of $2.9 million in Q3, reflecting the positive impact of recent U.S. tax reform. This legislation allows us to immediately expense research and development costs versus deferring a significant portion over the next several years.

Looking at cash flow and our balance sheet. Q3 operating cash flow of $37 million improved by nearly 25% from Q2's level. This favorable move was largely driven by improved inventory performance.

Excluding foreign currency and tariff-related impacts of $40 million, Q3 inventory decreased by $155 million year-over-year and by $35 million sequentially. Q3 working capital stood at 20% of sales, down from Q2 levels, but above our long-term target.

The company continues to make progress on its initiatives to align production schedules with available materials and expects further inventory improvements in the coming quarters.

Q3's net debt of $397 million remains in a solid position, improving modestly from the prior year and prior quarter. While our debt levels did not reduce significantly, stability in a volatile demand and cost environment highlights our focus on cash generation and disciplined capital allocation.

The company's unused borrowing capacity of $275 million increased by 6% from Q2. Q3's financial leverage, as measured by net debt to adjusted EBITDA, increased to 2.9x due to lower earnings. We remain committed to managing our debt and leverage ratios across market cycles.

We're focusing on the things that we can control, optimizing working capital and maintaining operating and capital expense discipline. These actions help to ensure that our leverage level remains supportive of our strengthened credit ratings.

With that, I'll move on to our fourth quarter outlook. First, I'll outline some key tariff-related assumptions in our guidance. Chinese tariffs in aggregate of 79% Section 232 tariffs included for steel and steel derivatives.

Our Section 301 tariff exemption for lift truck parts ends on November 29, 2025. There are no lift truck-specific tariffs put into place. Our demand projections lose bookings, backlog, and market trends. We assume no demand drop due to a U.S. or global economic recession.

Finally, our proactive sourcing, costing, and pricing initiatives are expected to reduce but not fully offset negative tariff impacts. Recent informal announcements suggest that Chinese tariff levels will be reduced and that our Section 301 tariff exemption will be extended by 1 year to November 2026.

These changes, if finalized, will benefit our Q4 financial results by $2 million to $3 million compared to our current assumptions.

Evolving tariff policies continue to shape our financial outlook. Despite our mitigation strategies, tariffs remain a major challenge for the company. In Q3, direct tariff costs totaled $40 million, while also dampening demand levels across a variety of end markets and customers.

These negative impacts are expected to persist for the foreseeable future. The business is working diligently to limit these negative impacts. Our sourcing teams proactively seek alternative suppliers and regional solutions to reduce our exposure to high-tariff countries.

At the same time, we're driving operational efficiencies and maintaining cost discipline to enhance our margin resilience. In addition to these actions, pricing has been a critical lever in our mitigation strategy. As the tariff landscape has shifted in value and focus, we've seen a variety of competitor approaches in the market.

As an American company with a significant domestic manufacturing base and global supply chain, we felt the tariff impact more quickly and often more robustly than others in our market.

As a result, we led with pricing actions that have delivered a strong year-to-date benefit. However, they've not fully offset the negative tariff impact, largely due to the rapid changes in tariff rates applied to different countries.

Competitive intensity has increased in our core markets as industry volumes have contracted. As a result, we're focused on a range of tactical and strategic actions to support long-term growth and profitability. The ongoing tariff policy uncertainty makes it increasingly challenging to predict future financial impacts.

In this environment, we remain committed to cost discipline and to driving revenue through higher truck volumes, increased penetration of new technologies, and enhanced market adoption of our new products, including additional modular truck configurations and lithium-ion batteries.

With the foundation laid, I'll cover our Q4 outlook, starting with the lift truck business. We expect Q4 revenue to decline compared to Q3 due to lower production rates caused by reduced bookings over the past few quarters.

We're projecting a moderate operating loss mainly due to lower production rates and persistent tariff headwinds. We anticipate that elevated tariff levels and softer market demand will remain negative factors into early 2026.

Our outlook assumes positive impacts from cost control and prior pricing actions to service partial offsets. We'll watch market demand and tariff rates closely, and we will take additional cost actions as needed to maintain profitability.

Longer-term, we continue to make progress on the project announced in late 2024 to streamline our U.S. manufacturing footprint. So far this year, we've invested $2.4 million with another $3 million planned for Q4.

This project is expected to deliver between $30 million and $40 million in annualized savings by 2027, lowering our financial breakeven point and enhancing our margin resilience.

Turning to Bolzoni's Q4 outlook. Revenues are projected to decrease slightly compared to Q3, reflecting weaker demand in U.S. operations.

Operating profit is expected to be modestly above Q3 as product mix improvements compensate for lower sales volumes.

I'll close with a few comments on financial discipline and capital allocation and how they position us for the future. Over the past several years, we've increased our business's resiliency, improving product margins with pricing discipline and lowering costs, ultimately enabling us to better navigate challenging market cycles.

While we continue to target a 7% operating profit margin across the business cycle, it's important to recognize that tariffs have significantly and unexpectedly increased our costs and created substantial market uncertainty.

They've negatively affected industry demand, our bookings, our backlog, and ultimately, our revenue.

While we've taken meaningful actions to offset these impacts, we expect our near-term financial results to fall well below targeted levels.

Looking ahead, our focus remains on taking actions that further strengthen our financial performance during an economic downturn. We're driving significant fixed cost reductions, building greater revenue resiliency, and investing in innovative new products that we believe will allow us to capture profitable market share over time.

Generating solid operating cash flow and deploying capital accretively remain top priorities throughout the business cycle.

For the full year 2025, we anticipate cash flow from operations to be solid but well below strong 2024 levels, reflecting significantly lower net income, partially offset by working capital improvements and cost-saving benefits.

Strategic investments are core to our ongoing business strategy. In 2025, we expect capital expenditures to be between $50 million and $60 million, with investments focused on developing new products, manufacturing efficiencies, and IT infrastructure upgrades.

These investments will help to streamline our operations, lower our financial breakeven point, and position the company for long-term profitable growth.

As we generate cash, we're committed to our capital allocation framework, reducing debt, making strategic investments to support long-term profitable growth, and delivering sustainable shareholder returns.

Now I'll turn the call over to Al for his closing remarks.

Thank you, Scott. We are operating in a period of extraordinary transition, facing both significant challenges and new opportunities.

Today's environment is particularly shaped by the effects of elevated tariffs, which have raised our operating costs and made supply chain planning and pricing more complex.

While these tariffs are short-term obstacles, we expect their impact to gradually stabilize as prices and tariffs come into equilibrium.

This transitional phase is further complicated by a cyclical low in industry booking demand following an unprecedented surge in bookings during the COVID-19 pandemic.

However, shipment levels have remained significantly higher than factory booking levels, which suggests to us that the time for new factory booking orders is now being reached.

As booking demand returns to more typical levels, we will also need to navigate the shift in the competitive environment to increase value and standard applications with discipline and strategic foresight.

Broader economic factors also influence our outlook. The manufacturing sector is showing shipment resilience, yet ongoing volatility and fluctuating interest rates continue to affect both investment decisions and customer purchasing behavior.

These conditions highlight the need for a flexible and highly responsive forward-looking strategy, which allows us to adjust quickly to protect and build a long-term market position.

In response to these near-term pressures, our strategic focus remains on transformation and sustainable growth.

As Rajiv and Scott have described, we are both strengthening our core counterbalance business and investing in warehouse lift trucks, technology solutions, energy solutions, and attachments.

These initiatives are helping us address current challenges and position our company to capture future opportunities. Our goal is to ensure both competitive advantage and market responsiveness in the next market upturn.

We remain committed to providing optimal solutions and exceptional care for our customers. We are confident that the actions we are taking today will deliver lasting benefits to our customers, shareholders, and stakeholders.

As we continue navigating this complex environment, we look forward to keeping you up to date on our progress and achievements.

This concludes our prepared remarks. We will now open the call for questions.

[Operator Instructions]

Our first question today comes from Chip Moore from ROTH.

I just wanted to ask about the current environment of demand uncertainty. Obviously, every cycle is unique. But just how would you compare this, I guess, with some of the prior ebbs and flows you've been through over the years?

And how long do you think these deferrals could last? It sounds like you're thinking maybe you see some improvement perhaps early next year, but what are your thoughts?

Yes. Maybe I'll get started, and others can make the comments, Chip. So I think the way that we see the market, the market is still pretty active. And what I mean by that is there are still requests for quote processes running.

People are reaching out to our salespeople and our dealers. What is slow is decision-making. I think that's really driven by the volatility of the environment people find themselves in, whether they're worried about tariffs because, for instance, we have surcharges and some of our competition do, or our competition has adjusted their prices.

So those things are difficult for our customers. And then the other piece is they're worried about interest rates and what dynamics that's going to have with that whole environment.

There's a cutting environment, but there are other things going on. So I think one last thing I would say, Chip, is that a large number of our customers have still also been digesting trucks that they ordered in the past, which we're towards the end of it, but we've still got probably another quarter of production to go, which were ordered a while back.

So if you look at it from a customer's point of view, they've been getting a series of trucks. They haven't been ordering anything because they've been digesting it. And I think that's coming to an end.

So we expect slowly the market will start to recover. People will start to make those decisions because there is no avoiding it ultimately. But I think the next 2 to 3 months, maybe a little longer, are going to be that stop-start where processes are being implemented, but decisions are not being made.

We've seen that open up a little bit over the last few weeks, but I think that's still got a ways to go. One last element is that our dealers were in a similar situation with their inventory, and those inventories have mostly worked their way down.

So we're starting to get orders from our dealers now as well to restock.

And I guess maybe a follow-up would be, if you do see more degradation, if we get some macro downturn, what actions could you take if needed? And what would really trigger that?

Yes, Chip, I mean, we're pretty much looking at everything right now. All of our cost structures, how we're utilizing our plants, is there a better way to run the plants?

We haven't come to conclusions. We will come to conclusions, I would say, in the next few weeks. So we are actually -- I mean, if you look at it from a production point of view, we're going to prepare for something that you're talking about, but still stay vigilant and ready to ramp up if we start to see bookings and backlogs grow.

So we are going to take a bit of a conservative posture for the next quarter or two.

Maybe just more long-term, as things do normalize, just strategically around some of the investments you're making, just more of an update on the new modular scalable platform, how that's progressing, any challenges? And then lithium ion, some strategy there. Just maybe speak to that.

Yes. I think for the modular scalable product, if you look at our most important markets, North America and Europe, those products, the full scale has just got to those markets. Now we've had it in APAC, Asia Pacific, for a while, and Latin America for a while. And we've had very, very positive feedback from those markets.

Now, as our dealers and some customers start to see this as a full-scale, we're getting similar responses from them. Based on some advice from our dealers, we have updated some of our nomenclature for them to better position the products in this new way.

So we feel really good. We're still due to land and distribute significant numbers of these trucks, which will happen over the next 3 months or so.

And then we'll start to get a better feel for how the customers are feeling about the more, what we're calling the prime match and the core match, which are, I would call the standard and the prime solutions in the field.

And very similar to lithium-ion. We have one customer in North America, where we've put lithium-ion batteries in a large number of their operations. It's been very successful. And then we're launching our integrated lithium-ion solution, which we call the XT/LG or MX/LG.

LG is lithium-ion, and the XT/MX is the name of the model. These will be rolled out both in North America and Europe. They're already in the Asia Pacific and are being very successful.

So we feel really good about where lithium-ion is going. Early next year, we'll introduce a new set of electric trucks, which will come ready to -- ready with lithium-ion batteries.

Our next question comes from Ted Jackson from Northland Securities.

So the first question would be with regard to the weakness that you're seeing, I know you talked about it from more of a macro level with uncertainty and tariffs, and whatever.

What about from a vertical level? So the Americas are the key ones. I mean, I've understood from people I've talked to that, in particular, like, for instance, the auto market has been a little soft because you have a few things and headwinds.

One is the redeployment of assets around EVs that weren't necessarily needed. So there was some excess there. And then I'm also curious about what you've had with this aluminum issue and the impact on the auto markets, because there's a bunch of news with regard to Ford trucks and such.

So I guess what I'm asking is, is there any kind of vertical for you that stands out in terms of some of the headwinds? And then is it auto? And if it's not, can you talk a little bit about how your auto exposure is and what's going on in there?

I think in terms of material availability, I don't think we have any specific issues. I mean, we obviously have our normal, I would say, back to 2018, 2019 type of things where we get stock out because of some reason or suppliers are late with delivery, but no foundational issue with our materials or components. 

The other piece, though, is the cost of it. I mean, certainly, we're not so aluminum-intensive, but we are definitely steel and iron-intensive. And those are those have been a significant issue for cost, but also for transition.

We were using global steel in North America, and we are transitioning to mostly U.S. steel as much as we can, especially in our Mexico operations. So that's good. 

I mean, from a customer's point of view, in terms of how they're being impacted, we've certainly seen a slowdown on the manufacturing side. You've touched on auto.

We would also put most heavy manufacturing in that environment. I think retail has been fine. I think I would say even light manufacturing and distribution has been fine.

Food and beverages have been okay. So I think a majority of it has been the heavy side. And obviously, that's very important to us when we're talking about the paper industry, the metals, and large equipment. 

So that's been the big customer issue. We're starting to see that ease a little bit. But as I said, it's very new. We haven't seen that spread yet.

So what you're telling me then is so more larger equipment, more industrial. Then moving over to pricing pressure. You're seeing a lot of pricing pressure, you said, with EMEA and APAC.

And does that mean you're not seeing as much pricing pressure in the Americas? And if so, why? I mean, is this maybe a sideline that you're actually benefiting from tariffs on that front because it's keeping cheaper Chinese stuff out?

I think pricing pressure is everywhere. And normally, that happens when we are not fully utilizing our capacity. Everybody wants the extra capacity, extra share to drive it.

What I was saying is that we didn't have all the right solutions in place, the scalable solutions. They were going through their validation process. We need to meet some very specific requirements, for instance, UL in North America, and we need to meet all the CE requirements in Europe. 

So that's taken a while, and now we are ready to deliver trucks. So it was more an availability issue, not so much that we didn't see the competitive pressure.

Now I would say that certainly if I look at how the Chinese competitors are behaving in EMEA and APAC versus North America, there's definitely some inhibition in the U.S.A. because of the tariffs. 

Now we're also being -- some of these trucks that we compete with them on do also come from China for us. So it's not as if we have an advantage, but it's at least until recently, we didn't have the availability because of completing our validation processes.

So when I listen to some of the things that same to the pricing pressure and your response to pricing pressure, the biggest response to pricing pressure for you, I mean, it's not that you're getting more aggressive in discounting.

It's that you're going to have the new modular products going to allow you to be able to offer a lower-priced product.

Absolutely. So the idea behind this whole scalability was to give the customer the product that works in their application. And if we can do that, they will get the productivity they need at the lowest cost of ownership.

So that is the mission behind this whole scalability, and it's going to take a little bit of time to get that through to our network and our customers. But we've been working on that, getting everybody ready. 

We had some feedback. We've adapted to that feedback. And so I think now it's just a case of getting the products out in the hands of our customers so they can see how good these are and feel that it's the right option for them. 

But you're absolutely right. We expect our margins to be around our target margins because we're putting the right truck at the right customer, whereas in the past, we would have taken what we had and tried to put it into segments where it didn't work, compromising margin.

My last question is, you referenced in the press release that you're going to be taking actions to increase your closure rates. The quoting activity is fine.

Our participation is fine. What we are starting to do is work closely with customers to understand what their actual fleet position is.

Customers focus on what their core value proposition is, and material handling for a number of them isn't. So we're going to do some extra work with them to show them that if they have older vehicles in their range, that could lead to being on the wrong side of the cost of ownership. 

Working with our partners, create some very specific solutions for them in terms of what's in the truck, but also how we finance it, et cetera.

So there are a number of steps with really going customer by customer and looking at what it would take for the customer to get over the hurdle of not wanting to make this decision when there is all this volatility around them.

So, just really more of a sharpening of the pencil, if you would.

And making that whatever we're doing, much more focused on that customer rather than a general hey, look, let's do this, let's reduce price, or let's offer extended warranty, or let's do something else.

I mean, if the customer is concerned about something, we want to be able to solve their problem.

Our next question comes from Kirk Ludtke from Imperial Capital.

I just had a follow-up on the automation topic. Amazon's efforts to automate its facilities have been in the press recently. And I was hoping maybe you could expand on the pace of automation. Is it accelerating? And what impact does that have on your mix?

Let's say, the interest in automation is enormous because some of the basic trends that we are seeing, availability of people, and if you do get people, what is their expertise like in driving trucks.

The implementation has been slower than we would expect. And part of that is, as you automate, you have to redesign some work, you have to redesign some of the material flow.

And so the approach we've taken is we are working with customers in a very partnered approach so that they can experience what automation can do for them. Once they realize that, then they're able to identify how they could reconfigure their operation to better suit.

At the moment, we're working with some of the largest companies. I won't go into those. But all the ones that are talking and writing about automation, we are working with at the moment.

I think it's one of those things that's going to take some time for people to really understand how best to deploy these technologies, how to implement them, and integrate them into their operations, and then it will take off. So I expect a buildup, but then a fast acceleration after that.

And Kirk, I would add that as that trend takes hold, those trucks, whether they be with our hybrid automation or our full automation, come with higher prices and higher margins generally.

So the benefit will accrue to the customer and their total cost of ownership, but will come back to us as well from the sale of the unit and the ongoing revenue of the technology.

So you would consider this automation to be a positive for your business?

Yes, absolutely. I mean, we have automated trucks. We have about 600 or 700 of them running around today. And we're building that up slowly.

We have a primary product released now and in the marketplace, and then every 6 to 9 months, we'll be releasing another automated product.

And then a follow-up on the excess equipment that you see out there. And when do you expect that excess equipment to be depleted and orders to pick up in a quarter? Any guess as to timing?

Yes. I think we're working with our network to get their excess inventory in the right place by the end of the year.

So we expect our dealers, and they're showing signs of it, as I said, to start ordering from the factory rather than fulfilling from their inventory at their retail. And then customers, similarly, we understand our backlog.

We also understand the industry backlog, and the majority of what customers were waiting for has already been delivered. But it takes a little bit of time to cut and some help from the customers to switch stands.

They haven't been running RFQs, some of them, especially the heavy side of the business, and really making decisions. And that's where I talked to Ted about that we're putting some special activities in place to help customers get through that process efficiently.

And then lastly, if some of your customers' hesitancy on placing orders, are they waiting for interest rates to come down? Is that part of what is going on here? I'm sure there are a lot of things, but is that a meaningful factor?

I think if I just think about ourselves, we're like them. We're looking at the ISM numbers.

We're looking at what is going to happen to interest rates. We're looking at tariffs and the dynamics of tariffs and what this means to us. We're also looking at, in the worst conditions, what capital requirements do we have? And then once you've evaluated all of that, you go all right, what should I do now?

The one thing that gets left out because it's not obvious to the customer is that their fleet has aged as well. And the downside of that is that their cost of operation is going to go up.

And so we just want them to put that into the mix of their analysis and help them with it. So that's the way we feel we can move them off center because we can absolutely understand why those elements could create a bit of a freeze moment for making capital, at least capital expenditures that you feel that you have some flexibility with.

And then, if I could just sneak one last one in. On the tariff front, I think I heard you say you're not at an advantage.

I mean, everyone is sourcing the same components from the same countries. You're not at an advantage, you're not at a disadvantage with your competitors with respect to your competitors?

I think that's generally true, but there are definitely exceptions. I mean, I think if I just take South Korea as an example, so if you are a South Korean manufacturer, you can pretty much import parts from anywhere, mostly tax-free.

You can build with Korean steel. And when you bring it in, you'll have to pay the duty on steel. And then on top of that, 15% duty on the truck. And I think the same thing from Japan. So I think those end up being -- whereas we're buying U.S. steel, which is because of the duty, those just I need to look at the price of steel and see what's happened.

Then we're paying duty depending on where it comes, if a lot of our components come from globally, so China, India, other Far East and Eastern European countries, and you could be paying significant tariffs on those, especially from China and India.

And then you build trucks with those in North America, I think under those conditions, we feel that's a bit of an unfair situation.

Our next question comes from Jack Fitzsimmons from Prudential.

I think you mentioned cancellations in the prepared remarks. So I was just wondering if you saw a pickup in cancellations in 3Q? And if so, you could just quantify that number?

Yes. I mean, I think the majority of our cancellations are behind us. They were particularly difficult during, I would say, the first and second quarters. I think as our backlog has come down, those have really whittled out.

So we wouldn't expect many cancellations looking -- there weren't many during this quarter, and we wouldn't expect many moving forward.

And these cancellations were from orders that were made in late 2023 or 2024, so there weren't recent cancellations or recent orders.

And then just one more for me. I guess in the release, you mentioned $40 million tariff impact in 3Q. Just a clarification, is that net of price increases and other actions? And if not, kind of how much of that cost were you able to mitigate?

Maybe I can say a few words and then Scott can -- so don't forget, we build trucks in backlog. And as I already said, the market is pretty intense because of us not all fully utilizing our capacity.

So we felt that there wasn't an easy way for us to go back. We tried to go back to the marketplace. Customers pretty much said, "Hey, we'll just go back to the market." So on these backlog trucks, we weren't able to get in any extensive way, any pricing on it.

So we took the cost, and the majority of that $40 million was the tariff, and it mostly hit our P&L. And I think that still be somewhat the case next quarter because we're still in that situation.

And then the things we are booking now are better from incorporating the tariffs in them, either as surcharges or price increases. So, Scott?

Well, I think you covered it pretty well. I would say, yes, the $40 million was the gross tariff cost, and we were able to offset less than half of that with the price in the quarter for the factors that Rajiv laid out.

And our next question comes from Eric Ballanntine from CVC.

Just a follow-up on that question on the backlog and pricing. I know in the past, you've talked about that you want a profitable backlog and so forth. Now it sounds like there's still some unprofitable or lower-profitable new units in the backlog.

Of the overall backlog, what kind of percent is related to those unprofitable, lower-profitable units? And so, when do we think that when you start showing the value of the backlog, $1 billion, $1.2 billion, whatever that number is, that's really 100% profitable backlog or pretty close to it?

Yes. I think we'll get there in January, February. And I wouldn't say that these were bad margins when taken. Those were actually very good margins.

But then we've had, as you heard, $40 million worth of tariffs, which went around when we took those bookings. So really, the untariffed covered backlog will be out of mostly by early first quarter next year in terms of what we're building. And of course, we are booking those right now.

And then on your comments about the kind of the fourth quarter and the profitability falling off there, I know you've talked about that you didn't want to go back to the days of EBITDA negative and so forth.

I mean, obviously, EBITDA is falling off pretty significantly this year. I mean, are we looking at a situation where we could potentially be back into the EBITDA negative sometime next year until the industry flips around? Or are you pretty confident that you're going to stay at least positive?

I think it's really difficult to tell at the moment. You saw us, we're pretty close to breakeven this quarter. I think as we've guided, we're going down, so going a little lower for the next couple of periods.

So I think that's the best I can do right now.

And then just on the AI issue, I mean, your comments around you're working with the customers.

Is it really the customers or the issue in the sense that you have the product that you can deliver to them that's functional, AI-automated, and so forth?

It's really the customers that need to kind of figure out their plans and figure out how they want to operate. Or is there something else that's limiting you guys?

Yes. The way we've designed our automated solution is really more from a material handling point of view. We are not software guys.

We use software, but we're really material handling people. And we know to most effectively use -- again, we're using our own solutions in our own plants. So we know what it takes to optimally use it. And we think we have a role to play in that with our customers.

We've always felt that with the solutions we put in place. That's part of our value proposition. That's how we can differentiate ourselves and give the customer a solution that is better value for them.

So we're getting all of our salespeople, dealers, ready as well as customers to be able to do the same thing. And we have a pilot going on right now with a number of key customers working with our internal automation implementation team to pilot these concepts.

And so far, we've had very, very positive feedback from those customers in what we're doing, and it is seen as very differentiated.

With that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Andrea Sejba for closing remarks.

Thank you for your questions. A replay of our call will be available online later today, and the transcript will be posted on the Hyster-Yale website.

If you have any follow-up questions, please feel free to reach out to me directly. My contact information is included in the press release. Thank you again for joining us today, and I'll turn the call over to Jamie to provide the replay information.

And we would like you to note that to access the replay of today's event, you may dial (855) 669-9658 or (412) 317-0088 and use the access code of 479-9887.

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