Hyster-Yale, Inc. Q2 FY2025 Earnings Call

Good day, and welcome to the Hyster-Yale Inc. Second Quarter 2025 Earnings Conference Call. Please note, 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 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. During our call, we'll discuss our second quarter 2025 earnings release issued yesterday. You can find the earnings release and replay of this webcast on the Hyster-Yale website. The replay will remain available for approximately 12 months. Today's conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied. These risks are described in greater detail in the earnings release and in our reports filed with the SEC. On this call, we discuss our adjusted results. We believe that these are useful as a supplement to our GAAP financial measures in evaluating the company's operating performance. Reconciliations of adjusted operating profit, net income and earnings per share to the most directly comparable GAAP financial measures can be found in the company's earnings release and investor presentation filed with the SEC. With the formalities out of the way, let me turn the call over to Rajiv to begin.

Thanks, Andrea, and good morning, everyone. I'll start by sharing our view on the current economic environment, how it impacts Hyster-Yale and how we plan to address these challenges in our business. Scott will follow with our detailed financial results. The assumptions built into our 2025 forecast and our outlook for the third quarter and full year. I will provide his perspective to wrap up our remarks, and then we'll open up the call for questions. Since our last update in May, economic uncertainty continues to influence our business in significant ways. Fluctuating tariff levels impacting demand and cost structures require us to maintain a nimble and responsive approach. We're keeping a close eye on these changes, assessing how they might affect our business and responding proactively. This keeps us well positioned in the market and ensures that we can consistently deliver on our key promises. Transparency is critical to our efforts. We are maintaining regular dealer communication, adjusting unit prices monthly based on actual product costs, raising prices as tariffs increase, and lowering prices when tariff levels decrease to ensure that our unit economics reflect the current environment. This ongoing dialogue strengthens our relationship and shows our commitment to win-win partnerships. In the near term, we are taking clear steps to protect our financial health, drawing on what we learned during the pandemic. We're monitoring input costs closely, adjusting sales prices based on input cost changes, and diligently controlling our overhead costs. To support our dealer partners and other customers and protect the order backlog, we chose not to retroactively raise prices on orders placed before recent tariff-related cost escalation. This builds trust within our customer base and dealer network while also creating a temporary lag in cost recovery efforts. For the medium to long term, we're building on strategic initiatives that strengthen our business across all economic conditions. Our strategy emphasizes manufacturing and selling products within the same region, helping to lower shipping costs and speed delivery. At the same time, global component sourcing exposes us to tariffs. While we work to limit purchases from the highest rate countries, for some materials, alternative sources aren't yet available at the scale required. As we continue to seek out new cost-effective supply partners, our modular vehicle design allows us to produce the same models at different locations around the world. This flexibility ultimately helps us control costs, balance production, and react quickly as market conditions change. As tariff levels stabilize, we'll optimize production globally to ensure the most competitive product cost for each region. Despite these challenges, our dedication to providing the best customer solutions remains strong. We are increasing our ability to achieve steady long-term growth and profitability through innovation and efficiency as we adapt to global economic complexities. Our long-term focus ensures that every decision we make supports the company's ongoing health and success. Recent announcements such as optimizing our manufacturing footprint and realigning our Nuvera business demonstrate our ability to adapt swiftly to changing economic conditions. Our resilience built through the pandemic-related difficulties, along with our clear sense of direction, ensures that we are prepared to handle uncertainty and make progress on our goals. We'll continue to keep you updated as our plans develop. Scott will discuss our full year 2025 financial outlook in a moment. This question is based on several important assumptions, especially those regarding tariffs and the steps we are taking to reduce their impact. Our proactive measures, including price adjustments, global sourcing and supply chain management, and cost optimization are designed to help offset the expected tariff-related expense increases. Next, I'd like to provide some context on the global Lift Truck bookings market. During the second quarter, Lift Truck market bookings contracted compared to the strong first quarter levels. This softening is a natural market reaction to the widespread economic uncertainty prompting many customers to defer capital expenditures. The hesitancy to commit to large purchases, especially in our customer base in the current climate, led to a temporary Lift Truck order slowdown, which was exacerbated by the COVID booking boom. This trend is not unique to our industry, but is reflective of the broader capital goods sector. These industries often require long-term investment decisions that are sensitive to tariff volatility, interest rates, and geopolitical developments. Despite current challenges, our second quarter quoting activity remains solid and comparable to the first quarter's improved levels. This sustained volume for new business proposals and price quotes is a positive business indicator. It demonstrates resilient underlying demand for our products despite customer postponing their purchase decisions. This trend should position us favorably for production and sales rebound once macroeconomic conditions stabilize. Specific to Hyster-Yale, in the second quarter, our bookings declined to $330 million, down from $590 million in the first quarter of 2025. The majority of this decrease was driven by softer demand in both Europe and the Americas, while bookings in Asia Pacific remained steady. First quarter bookings benefited from accelerated customer purchases ahead of tariff-related price increases. In contrast, second quarter bookings reflected heightened tariff-related uncertainty, which negatively impacted buying activity. Compared to the same quarter last year, second quarter bookings decreased by $50 million, largely due to weaker demand in Europe, partially offset by an improvement in the Americas. These regional fluctuations highlight how quickly demand can shift. We continue to closely monitor market trends at a granular level, staying close to our dealers and our customers, and remaining agile to capture additional market share with our new products and technologies. At the end of the second quarter, our order backlog was $1.7 billion, down from $1.9 billion in the previous quarter. This decrease was primarily due to shipments outpacing new bookings, particularly in the Americas. The current low and variable demand environment is challenging our ability to maintain a solid production backlog while also optimizing inventory levels. We are balancing factory output and material supply with evolving demand signals across a global supply chain. Ultimately, our goal is a healthy multi-month production backlog with reduced working capital levels. To further strengthen our market position, management is prioritizing proactive customer engagement. We are communicating with our customers to better understand their evolving needs, partnering to create product and purchasing solutions that help solve their most pressing challenges while navigating the ongoing economic uncertainty. These efforts are designed to build loyalty, ensuring that when our customers' investment confidence returns, we are their preferred partners. At the same time, we're keeping a close watch on key markets and macroeconomic indicators. We are positioning our operations to flexibly scale production while aligning inventories. Longer term, we are optimizing our global manufacturing footprint as new products create opportunities to increase facility utilization. This agility is essential, enabling us to respond quickly to shifting demand patterns and ultimately, reducing our breakeven point to be more sustainably profitable. Looking ahead to the second half of 2025, we are planning to increase production rates to meet the expected demand uptick. However, we will remain cautious while the ongoing economic uncertainty and tariff environment persist. If bookings do not materialize as anticipated, we are prepared to adjust production accordingly. As global economic conditions stabilize, we believe Hyster-Yale's growth strategies position the company to accelerate bookings and capture additional market share. Our continued investments in product innovation, customer-facing sales and technology resources, supply chain resilience, and regional manufacturing flexibility are crucial to our success. By maintaining an operational excellence focus and by putting customers at the center of all we do, we are confident in our ability to navigate near-term challenges and deliver sustainable long-term growth for our stakeholders over time. Now, I'll turn it over to Scott to provide more detailed financial results and our financial outlook.

Thank you, Rajiv, and good morning. I'll start by covering Q2's results. For Lift Truck, Q2 revenues declined 19% year-over-year, reflecting lower volumes across all product lines. This compares to exceptionally strong prior year results that were driven by record market demand levels. Revenue decline was primarily due to weaker industry booking rates since early 2024 and more recently, tariff-related economic uncertainty and its impact on end customer order patterns. Additionally, our sales mix shifted toward lower revenue Class 3 products. By region, Americas sales volumes decreased, particularly for higher-value Class 4 and 5 internal combustion engine trucks. And in EMEA, product revenues declined year-over-year, primarily due to lower Class 1 electric product sales. Globally, revenues improved 5% sequentially, indicating modest positive momentum as we move through the year. In particular, sales of higher-value Class 4 and 5 internal combustion engine trucks grew. Q2 adjusted operating profit was $5 million, marking a significant decrease from the prior year. Adjusted Q2 results exclude $15 million in severance and asset impairment costs related to Nuvera's strategic realignment. Lift Trucks adjusted Q2 operating profit declined year-over-year, largely due to lower volumes and reduced manufacturing overhead absorption. Q2 product margins were negatively impacted by $10 million worth of tariff-driven material and freight increases. To counter these headwinds, we implemented price increases starting in Q1. Benefits from these measures have a time lag due to our production backlog in various customer-specific programs. Looking at our cost structure, operating expenses decreased year-over-year mainly due to lower employee costs from the early completion of Nuvera's strategic realignment actions and reduced incentive compensation. These benefits were partially offset by continued investments in the information technology systems and customer support programs. Turning to regional earnings performance. Americas operating profit decreased as a result of lower volumes, which was partially offset by reduced warranty costs as recently launched products matured in the field. EMEA's operating loss was driven by decreased volumes, elevated material and freight costs, and lower pricing due to increased market competitiveness. Compared to Q1, Lift Truck profit declined, reflecting lower product margins from increased costs largely due to tariffs. At Bolzoni, year-over-year revenue declined as expected due to the ongoing phaseout of lower-margin legacy products. While this strategic decision reduces near-term volumes, it's fundamental to our longer-term focus on higher-value products with enhanced profitability. Q2 adjusted operating profit was below prior year levels primarily due to lower production volumes, decreased manufacturing absorption, and higher employee-related costs stemming from wage inflation in Europe. Improved material costs and a favorable product mix served as partial gross margin offsets. On a sequential basis, Bolzoni's revenue grew due to higher volumes. This improvement was led by increased attachment and fork sales in the Americas as targeted commercial initiatives gained traction. Adjusted operating profit improved as a result of a favorable product mix shift and diligent operating expense control. Next, I'll cover the company's tax position. In Q2, the company reported $200,000 of income tax expense compared to $26 million in the prior year, primarily due to lower current year pretax earnings. 2025 year-to-date income tax expense includes the capitalization of research and development costs for U.S. tax purposes as well as the company's inability to recognize deferred tax assets due to its U.S. valuation allowance position. Moving to the balance sheet and cash flow statement. In Q2, we successfully renewed our $300 million revolving credit facility, bringing several benefits to the company, including lower borrowing margins, greater covenant flexibility, and a maturity extension to June 2030. During the quarter, we continued to reduce outstanding debt compared to prior year and prior quarter using excess cash generation. As a result, our net debt position improved year-over-year. Sequentially, net debt remained steady as we balanced lower debt with reduced but healthy cash levels. The company maintained its strong liquidity position, increasing unused borrowing capacity by 3% to nearly $260 million at the end of Q2 compared to Q1. Financial leverage, as measured by net debt to adjusted EBITDA, increased versus both prior periods due to lower earnings. We remain focused on liquidity management as we navigate reduced production volumes in the trough of the current industry cycle. These actions underscore our financial adaptability to dynamic market conditions. Moving to cash flow, we generated approximately $30 million in operating cash in Q2, improving versus the previous quarter and prior year. These gains reflect strong working capital management, including enhanced receivables collections and lower manufacturing inventory. Q2 working capital was 21% of sales, down from the prior quarter but well above desired levels. Working capital optimization remains a top priority for the organization. Inventory remains the company's largest cash improvement opportunity. Our Q2 results were hampered by geopolitical headwinds as tariffs increased material costs and a weaker U.S. dollar increased foreign inventory values. As of June 30, the combined unfavorable impact of foreign currency and tariffs on reported inventory was approximately $40 million. Excluding these effects, our Q2 inventory decreased by more than $60 million year-over-year and approximately $30 million sequentially. These reductions reflect our ongoing efforts to optimize inventory and align production schedules with material availability. With that, I'll move to our Q3 and full year 2025 outlook. First, I'll outline key assumptions included in our guidance. We use U.S. tariffs in place as of July 9, 2025, as our baseline. Our Section 301 tariff exemption for Lift Truck parts ends on August 31, 2025. No additional product tariffs are put into place. Our demand projections are grounded in bookings, backlog, and market trends. We assume no demand decline due to a U.S. or global economic recession. Finally, our proactive initiatives, including price adjustments, global product sourcing changes, and cost-cutting are expected to reduce negative tariff impacts. Based on these assumptions, tariffs are anticipated to negatively affect our financial results in the second half of 2025, net of our mitigation actions. We're pursuing strategies to further reduce this impact. The tariff rate volatility creates uncertainty and makes it difficult to provide a precise impact estimate at this time. The company will continue to maintain pricing strategies aligned with material cost changes and enforce cost discipline across the organization regardless of tariff developments. With that as a foundation, I'll provide our outlook for the coming quarters, starting with the Lift Truck business. As Rajiv discussed, we saw sequential bookings decline in Q2, and as a result, we reduced our revenue, production, and shipment expectations for the remainder of the year. Second half revenue and production are still anticipated to outpace the first half 2025 results. Our revenue outlook reflects continued market uncertainties and, along with our proactive measures to adapt, strikes a careful balance between recovering tariff-related costs and positioning ourselves to seize new opportunities as market conditions improve. In this difficult environment, we remain committed to selling units with healthy margins by launching innovative, flexible products and maintaining pricing and cost discipline. We expect product margins to remain above targeted levels, but they will decline year-over-year due to heightened competitive intensity in a softer market. As the global tariff landscape evolved, we initiated a monthly price adjustment process that better reflects actual material costs in our inventory. This approach helps protect our profit margins during unstable times. We'll maintain this process as changing tariff rates continue to impact our product costs. We're also investing in projects to streamline manufacturing, making our operations more efficient to capitalize on our modular and scalable design philosophy. Year-to-date, we spent $1.4 million on these efforts. We plan to spend an additional $4 million to $7 million in 2025 and $10 million to $23 million in 2026. Overall, total project spending aligns with earlier estimates, with some costs moving from 2025 to 2026. In line with prior expectations, benefits realized in late 2025 and into 2026 are likely to be offset by reduced production volumes year-over-year. Once fully implemented in 2027, these programs should generate annualized savings of $30 million to $40 million, which will help to further insulate the business from future market downturns. Operating expenses should decrease modestly in 2025 versus prior year, mainly due to Nuvera's restructuring actions. We expect annualized run rate savings of $15 million to $20 million in the second half of 2025 from this effort. Additionally, $10 million to $15 million of Nuvera's costs are being absorbed by the Lift Truck business as we fill open roles and accelerate battery and charger product development. We expect Q3 operating profit to improve sequentially as a result of stronger sales and better manufacturing efficiency as less truck consumer demand improves. For full year 2025, we anticipate operating profit to decline significantly compared to prior year and be slightly below our previous guidance. This is mainly due to lower bookings and production as well as the timing of our tariff mitigation efforts. Turning to Bolzoni's outlook, Bolzoni's Q3 revenues are projected to improve modestly compared to Q2 as higher attachment sales are mostly offset by reduced legacy component sales. Q3 operating profit is expected to increase moderately versus Q2 as a result of lower manufacturing costs and improved factory utilization. Full year 2025 revenues are anticipated to decline year-over-year, reflecting weaker demand across Bolzoni's customer base. Product mix and cost control improvements are not likely to fully offset the impact of lower sales. As a result, 2025 operating profit is projected to be below 2024's adjusted operating profit level. Summing up our consolidated outlook, we expect modest sequential improvements in Q3's revenue and operating profit. The consolidated revenue increase relates to stronger performance in both the Lift Truck and Bolzoni segments. Q3 adjusted operating profit improvement reflects the positive impact of higher sales and increased production volumes. Looking ahead, our full year 2025 expectations remain below 2024 levels. Revenues, production output, and profits are expected to fall short of the prior year's robust results. Our recent outlook has deteriorated somewhat, primarily due to the effects of higher tariffs on material costs and a greater-than-expected year-over-year demand decline in the second half of 2025. Global trade dynamics and geopolitical uncertainties remain significant variables in our outlook. Actual results may differ materially from our current projections as a result. Our commitment to resiliency built over several years is driving improved liquidity and stronger, more consistent profitability across market cycles. We're focused on achieving a 7% operating profit across the business cycle. During periods of robust backlog-driven production like we saw in early 2024, we expect to outperform that target. Conversely, when markets decline, we're determined to limit profit degradation through financial and operational discipline, aiming to perform better than in previous downturns. Our progress on strategic product and manufacturing initiatives is encouraging. We expect these efforts to deliver increasing benefits over time, creating strong growth opportunities while reducing our financial breakeven point, ultimately, increasing long-term shareholder value. I'll round out our profit outlook with taxes. Tax legislation signed into law on July 4 contains various provisions that could benefit the company, particularly through the immediate expensing of research and development costs. While we're currently evaluating the impact of the recent legislation, we anticipate lower tax expense and related cash outflows as we leverage these new provisions. These benefits should favorably impact 2025's financial results, becoming increasingly visible through the second half of the year. They were not reflected in our Q2 results as the law was enacted in Q3. Turning to cash flow, the company continues to prioritize strong operating cash flow generation and strategic capital deployment. As our 2025 Lift Truck demand outlook continues to evolve with global economic uncertainty, we're focused on aligning production schedules while optimizing working capital levels. We expect these actions to yield strong cash flow generation despite the projected significant net income decline. Strategic and effective capital allocation is central to our ongoing transformation, including capital investments in advanced products, manufacturing efficiency initiatives, and critical upgrades to information technology systems. For 2025, we expect capital expenditures to range between $50 million and $60 million, reflecting continued project prioritization as we navigate this dynamic market environment. We'll adjust investment levels and project timing as our visibility improves. As we generate cash, our capital allocation approach remains disciplined. We plan to reduce leverage and make targeted investments to support profitable growth, delivering sustained long-term value and strong returns to our shareholders. Now I'll turn the call over to Al for his comments.

The updates provided by Rajiv and Scott today are particularly important. Tariffs remain a large and important concern and a key focus of our intention. At Hyster-Yale, our long-term vision is to revolutionize the way materials move from port to home. This vision is built on a mission with two core promises: delivering optimal solutions to our customers and providing exceptional customer care. To achieve this, our focus remains on executing key strategic projects that will transform our core Lift Truck business while expanding complementary high-growth opportunities. We believe warehouse Lift Trucks, vehicle automation, energy solutions, and attachments will supplement growth in the core counterbalance forklift truck business and propel significant additional growth and revenue opportunities. These complementary growth and profit improvement efforts are designed to strengthen our competitive position, drive long-term revenue growth and operating profit, and position Hyster-Yale ahead of materials handling market trends. Over time, we believe these key projects will create a sustainable competitive advantage for Hyster-Yale businesses to benefit both our customers and shareholders. And now I'll turn over the discussion for questions.

And today's first question comes from Ted Jackson at Northland Securities.

So my first question, I wanted to start in on Lift Truck. So you're expecting to see second half revenue production on top of its first half. Typically, with regards to the Americas, your third quarter is down and you get a big rebound in the fourth quarter. Could we expect that same seasonality in North America? And then shifting over to EMEA. You had a good rebound after a weaker first quarter. I mean when we think about EMEA in the second half, should we be thinking about EMEA following kind of typical seasonal trends based off that second quarter? Or was the strength in the second quarter a result of stuff that might have been in the first quarter shifting to the second quarter? So that's my first question out of a couple of questions.

I will address that and then others can contribute. In the Americas, we anticipate some challenges as our customers are currently very active in the market. The request for quotes and quoting activities are performing well, aligning with our expectations. However, decision-making has become slower due to tariff volatility. We anticipate this will stabilize as the rules surrounding tariffs become clearer and pricing becomes more consistent. Customers are particularly concerned about unpredictable pricing because of this volatility. We expect these aspects to settle down. We're noticing slightly more stability in the key regions except for India, which continues to show considerable volatility. That said, we believe that some of the backlog concerning quotes and RFQ decisions will be cleared, as our customers are expressing a need for trucks. This is our current outlook for the Americas, but it depends on whether there is further volatility related to tariffs or other economic factors, which could lead to more delays in decision-making. In Europe, we had strong bookings in the first quarter, though bookings in the second quarter were lower, even as shipments increased from those first-quarter bookings. There is continued weakness in Europe, largely due to tariff expectations and a push for increased military spending. As you have noted, Europe is collectively increasing its military expenditure, which we expect will influence spending patterns. Additionally, seasonally, this quarter tends to be slower because of holiday shutdowns in Europe. I think the trends will likely mirror what we usually see in Europe, with the third quarter being the weakest in terms of shipments.

My next question is about tariffs. Having participated in many quarterly calls with various equipment OEMs, I've noticed that many of them believe the outlook on tariffs has improved compared to the last call. While the overall annual view is more positive, there may be a shift towards more impacts being felt in the second half of the year. I'm interested in your perspective on tariffs and their effects on Hyster-Yale, particularly in terms of how your viewpoint has changed since the first quarter. Additionally, I find it noteworthy that you’re implementing regular monthly pricing adjustments based on tariffs, while maintaining the same prices for products already sold. Regarding your backlog, would it be accurate to think of the $330 million in bookings as a result of a price adjustment, and if none of that is being shipped in the second half, does that imply that the remaining backlog is priced under pre-tariff conditions? Those are my questions on tariffs.

I think we've gotten used to the idea of it, right? So I think that we've kind of got over the shock of the numbers and got used to the numbers, still very impactful to our business. And yes, compared to what came out as the initial kind of April tariffs, obviously, they have changed quite a bit from that. And those numbers were just unsustainable, I think. And I think they were from our perspective, that we use for negotiation purposes. I think we're seeing a settle down now around this 10% to 15% with the exception being for the countries that are important to us, China and India. That's still high, and we are adjusting for those. The issue for the bookings in the second quarter is we're not only protected what was in our backlog, but also some of the key deals that were in the quote process. So in the second quarter, we'll have a mix of kind of pricing pre-tariff, but it's going to be mostly post-tariff pricing. So I think that's the way that will pan out. We've accounted for the tariffs in our look forward for the rest of the year. We are also planning to make some production adjustments based on some of this. So I think it's still going to be quite a bit of moving pieces to adjust to the tariffs. I think that's probably the best way to reflect your question. I know it's a moving story; it is for us as well and how we are reacting to it.

Well, at least you have a lot of flexibility built into your footprint. I do have two more questions, but I'm going to step out of line, and then I'll reenter then ask and follow-up, if that's okay.

And our next question today comes from Brian Sponheimer with Gabelli Funds.

Just curious as to any thoughts or comments on Toyota taking Toyota Industries private. Obviously, a significant competitor to yours. And what that does from a competitive environment and pricing? Anything that you're seeing out there yet or any expectations going forward?

I visited Japan a couple of months ago, and this initiative is primarily focused on Japan. Toyota has certainly made strides in this area, as has our partner NTT, which is either currently working on it or planning to do so. We anticipate that other companies will follow suit as well. This movement aims to provide these companies with greater flexibility in aligning their internal capabilities. We do not expect any market dynamics to change in the short to medium term. Many of the strategies being pursued in the automotive sector will likely mirror those in Lift Trucks, with key examples being electrification and the continued integration of technology from automotive into Lift Trucks. These elements are significant, and supply chains are also becoming more integrated. Overall, there appears to be a trend regarding how companies in Japan wish to structure themselves.

Regarding autonomous Lift Trucks, clearly seems to be a labor productivity benefit. With your profitability, obviously hampered by externalities right now, any concerns as to your own ability to invest to keep up from a technological standpoint?

No. I think we launched our automated solutions at the ProMat show. We demonstrated our horizontal mover that will be going into production very soon. And yes, there's a huge amount of activity going on all of our technology solutions where we are talking about automation or communication through telemetry or our operator-assist systems.

Brian, this is Scott. I would say if you look at our CapEx, it's north of depreciation and amortization. So that shows that we're continuing to invest in our future, both technology and efficiency.

And our next question today comes from Eric Ballantine with CVC.

Just maybe we could drill down on a couple of things on in the backlog. What is the kind of the mix there and the profitability? I know that you guys did a pretty good job coming out of COVID and making sure that within the backlog, all trucks would be profitable, if you will. And obviously, that was prior to coming in. But maybe you could just give us some color on how we should think about that. I mean, is there a chance that some of the backlog trucks are going to be negative like in the past? Maybe just a little more color on that would be great.

I believe there are a few factors at play. First, our pricing discipline has been strong and continues to be effective. The market has become a bit more competitive as its overall size decreases, but we remain confident in our margins due to this discipline. Additionally, the scalability of our product line is beneficial and will enhance our ability to align the right solutions with applications, particularly for our 1- to 3.5 ton internal combustion engine trucks. This alignment will also benefit the margin profile of our backlog. One challenge we’re facing is the impact of tariffs, which we anticipate will affect our profitability. However, as we move into the third and fourth quarters, we expect to return to normal pricing practices as these issues stabilize, which should provide more stability. We are committed to upholding our pricing discipline.

Eric, average selling prices booked in the quarter were actually up year-over-year, nearly 10%. So I think that reflects the discipline Rajiv was talking about. So it really comes down to the volume. And in this lower volume environment, our challenges are around manufacturing efficiency, but we've announced projects to take a significant cut to our manufacturing overhead costs in the next couple of years. So I think, as Rajiv said, we're committed to pricing discipline and reducing cost to meet our demand in the future.

I have a couple more questions. Regarding the components sourced from China and India, you mentioned that you're sourcing regionally, but there are still some components that are affected by sourcing issues. What are the key components that are being impacted and are not available regionally, meaning they can't be sourced in America?

I don't think we'll get into specific components, but I can discuss the categories of components. We categorize components into highly engineered components, which require significant investment, like our castings, and those that require low investment and are less engineered, such as our fabrications. The highly engineered components are the most challenging for us to transition quickly. However, we have suppliers that can produce these in multiple regions. In a tariff-free environment, most of the volume comes from low-cost countries, particularly India and China. One of our new platforms is mainly based in India, but it can be transitioned over time. We are currently in talks with suppliers to move production to either the assembly country or another cost-effective country considering existing tariffs. These discussions are ongoing. For highly tooled but simpler components, like castings, the capacity issue is significant, as the largest capacity for castings currently resides in China. Although India and other Southeast Asian nations and Eastern Europe are developing their casting capacities, it will take time. Therefore, transitioning these components will be slower until capacity in other regions becomes available. I hope this provides some insight into our progress and our plans for outsourcing.

Next question is the follow-up from Ted Jackson at Northland Securities.

I wanted to discuss Bolzoni. The quarter exceeded my expectations. You can see the shift in business within Bolzoni reflected in the margins, as the legacy low-margin products decline. I'm curious about the mix within Bolzoni for the quarter—how much of it came from the new core Bolzoni products versus the old legacy products? Additionally, how does this compare to the same period last year? Does the legacy product ever drop to zero, or is it always alongside the new higher-margin product? That's my first question.

The legacy products will eventually reach zero, specifically the transmissions and axles. Our goal was to achieve this by 2026, but the tariffs have delayed our progress since we were aware of our intended direction. One of our joint venture plants in a country significantly affected by tariffs has not stabilized yet. However, we plan to shift that production volume to one of our other facilities. By 2027, we expect Bolzoni's legacy products to be nearly non-existent. It’s important to note that legacy does not include cylinders, as they will remain a core part of Bolzoni's business. Our focus is primarily on the transmissions, axles, and steer axles.

Okay. And then my next question and my last question is when I think back kind of the outlook you've had for 2025, a part of that was a taking of market share within the warehouse market as you've rebranded, you've refocused, you have a bunch of stellar new products within that area. There's been a clear slowdown, if you would, in terms of warehouse openings within North America. And so I guess the question is, has there been a change with regards to your view on the warehouse macro vis-a-vis the beginning of the year? I mean, has it deteriorated? And then how has that impacted your efforts to take market share within that vertical? That's my follow-up question.

Though the market size is smaller and competition is intense, we have made some progress in gaining market share this year. I believe some key customers will make decisions in the second half of the year, which will significantly determine our gains for 2025. However, we are optimistic about the progress our team is making in the marketplace, particularly in North America.

And our next question is a follow-up from Eric Ballantine from CVC.

Maybe you could give a little color on someone earlier asked about Toyota, but maybe if you could give some color on kind of the competitive landscape out there if you're seeing all the players being rational, kinwin and so forth out there, and do you see any players that are trying to take advantage of this time on you guys? That would be great.

I think generally, the key thing that's changed in the landscape has been the participation of the Chinese competitors and to some extent, they're driving really a recalibration within our customer base of what is the right truck for them. I think we were kind of aware that this would happen and part of our launching our scalable platforms and having value trucks was getting ahead of some of that. As far as our traditional competitors are concerned, we do see some pricing action being taken from time to time to get specific deals, but nothing across the board. I think that they're being pretty disciplined like they have been in the past to adjust the production volume and participate in the market.

One other comment that I'd add to that is the Chinese economy is weak, and they've been encouraged and stimulated by government resources to continue to manufacture and export and to a level that they've been accumulating inventory in other countries around the world. That's a disruptive factor in the short term, for sure. So I think it just reinforces Rajiv's comment that the Chinese are being the most disruptive with a lot of government support for doing it right now.

Thank you. And this concludes the question-and-answer session. I'd like to turn the conference back over to the management team for any closing remarks.

This is, in my mind, a period of extraordinary transition. First and foremost are the tariffs. When they do stabilize, and I think they will eventually stabilize, it's hard to say at what level but they will stabilize and the prices will go up to recover the costs because pretty much everybody is being affected one way or another directly or indirectly by the tariffs, both importers and domestic producers. So that will settle down. It's hard to estimate exactly when that will happen, but certainly not before the end of this year. There will continue to be the lagging effects that Scott mentioned in his material. Second is the overall demand situation. And there are 2 aspects to the demand transition that we're in. One is that, in a sense, we're in a cyclical low in the industry. We had a very large booking period, extraordinary volumes bookings that occurred during COVID. And so we have an exacerbated low cyclically in the marketplace. That's beginning to work its way through, but it certainly hasn't recovered at this point. Adding to the transitional impact is the tariff issue that I mentioned before because it's not just a question of the costs and prices. It's also a question of demand in the context of uncertainty before the tariff situation settles down. Finally, there is a transitional aspect in terms of the strength of the economy and the general manufacturing sector. There's a lot of discussion, as I'm sure that all the people on this call are well aware, about the Fed's stance on interest rates. And of course, they're thinking about the economy in total, with consumer purchases being, by far, the largest portion. The manufacturing orders and more broadly are not putting the low order rate in the Lift Truck business; it's a separate matter, they're part of the same sort of problem. So we've got the potential for some cyclical weakness in the economy as well as the tariff transition and the demand, the normal cycle in the industry. All those factors, I think, mean there's a lot of short-term pressure, but the company is really positioned to take advantage of the upturn when that comes along, and it should be, given the number of projects that we've undertaken, a very dramatic upturn in the company's revenues and profitability. When I say revenues, it's really absolute unit volumes because we've had such an inflationary impact due to the tariffs. So all those factors make this a transition period and one I think that's the core thing to think about when you're thinking about Hyster-Yale. It's not a short-term story over the next couple of quarters. This has got to be put in a broader and longer-term context.

Thank you, Al, for your closing comments. For the participants, we appreciate your questions in the second quarter earnings call. A replay will be available online later today. We'll also post a transcript on the Hyster-Yale website when it becomes available. If you have any questions, please reach out to me. My contact information is available in the press release. I hope you enjoy the rest of your day. And now I'll turn it back to Rocco to conclude the call.

Thank you, ma'am. This does conclude today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful rest of the day.