Q4 2023 Hyster-Yale Materials Handling Inc Earnings Call
Participants
Christina Kmetko; Hyster-Yale Investor Relations Consultant; Hyster-Yale Materials Handling Inc
Rajiv Prasad; President, Chief Executive Officer & Director; Hyster-Yale Materials Handling Inc
Scott Minder; Senior Vice President, Chief Financial Officer & Treasurer; Hyster-Yale Materials Handling Inc
Alfred Rankin; Executive Chairman; Hyster-Yale Materials Handling Inc
Ted Jackson; Analyst; Northland Securities Inc
Chip Moore; Analyst; ROTH Capital Partners LLC
Brian Sponheimer; Analyst; Gabelli
Presentation
Operator
Good morning, ladies and gentlemen, and welcome to the Hyster-Yale Materials Handling Q4 and Full Year 2023 earnings analyst conference call.
(Operator Instructions) This call is being recorded on Wednesday, February 28, 2024. I would now like to turn the conference over to Ms. Christina Kmetko. Thank you, please go ahead.
Christina Kmetko
Thank you. Good morning, everyone, and thank you for joining us for Hyster-Yale 2023 fourth quarter earnings call. I'm Christina Kmetko, and I'm responsible for Investor Relations yesterday evening, we published our fourth quarter and full year 2023 results and filed our 10-K. These documents are available on the Hyster-Yale website. We are recording this webcast and a replay will be on our website later this afternoon.
The replay will remain available for approximately 12 months. I'd like to remind you that our remarks today, including answers to any questions will include comments related to expected future results of the Company and are therefore forward-looking statements. Our actual results may differ materially from our forward-looking statements due to a wide range of risks and uncertainties that are described in our earnings release, 10-K and other SEC filings. We may not update these forward-looking statements until our next quarterly earnings conference call.
We will also be referencing numbers that may be considered non-GAAP. Those reconciliations are available in our earnings release on our website. Our presenters today are Al Rankin, Executive Chairman; Rajiv Prasad, President and Chief Executive Officer; and Scott Minder, our Senior Vice President, Chief Financial Officer and Treasurer. With the formalities out of the way, let me turn the call over to Rajiv to begin.
Rajiv Prasad
Thanks Christin and good morning, everyone. We had an excellent fourth quarter for the third consecutive quarter. We reported revenue growth of $1 billion fourth quarter operating profit improved 146% year over year, leading to a consolidated operating profit margin of 4.7%, discontinued quarterly earnings, some growth to lead to full year of 2023 net income of $126 million, which is a $200 million increase over prior year, and that was after an additional expense of $9.6 million or $0.47 per share related to the equity component of the Company's fourth quarter stock price appreciation.
And if we add that to our published performance, that would have been $1.90 a share for the quarter.
Our revenues grew modestly over both the previous quarter and the prior quarter, despite fourth quarter shipments decreasing compared to 2022 and Q3 2023. The year-over-year decline was mainly due to large decreases in EMEA and JPF shipments, while few Americas shipments drove the sequential decrease, the lower shipments, but primarily due to the impact of product launch challenges and component supply issues, mainly in EMEA, lower 2023 JPF shipments were largely due to strong prior year deliveries to selected regional dealer over stocking levels in Q4 of 2022.
Despite some specific production challenges, we still shipped approximately 102,200 units in the full year of 2022. This represents the highest number of units shipped in a given year and compares with approximately 128 hundred units in 2022. Ongoing skilled labor challenges in many of our factories, impeded progress on planned production rate increases and shipments during both the quarter and the full year. Our 2024 production and shipment rates are expected to improve in all regions compared to 2023.
We anticipate an increased production cadence on new products and lingering component and labor constraints to dissipate. We remain focused on maintaining a full production pipeline across our facilities. In general 2023, the global economy outpaced market estimate from early last year. Our core lift truck market remained strong and above pre-pandemic levels in most regions. However, external factors continue to create uncertainty in the global economic outlook.
This includes ongoing geopolitical instability, most recently evidenced by tensions in the Middle East. These factors, coupled with robust industry volumes between 2020 and 2022, created the decline in global market activity across full year 2023, particularly in EMEA, the latest publicly available lift truck market data shows that global Third Quarter 2023 booking activity decreased compared with strong 2022 levels. Declines occurred in all major geographies except China and India.
Our internal estimates suggest that Q4 2023 global lift truck market bookings also decreased compared with prior year. We estimate that the rate of decline slowed in EMEA, but accelerated somewhat in Americas, the fourth percent decline. Full year 2023 market estimates show a double digit decrease from robust 2022 levels in 2024 the global lift truck market is expected to stabilize and be comparable to 2022 levels within 2020. For market volume should remain strong for the first half of bookings for first half bookings decline offset by a second half increase.
Looking at high steel, we continue to prioritize orders with strong margin given our extended backlog position. This focus combined with the broader decline in market demand resulted in a 8% decrease in lift truck Fourth Quarter 2020 through bookings. Compared with the third quarter, bookings declined 20% from stronger prior-year levels.
These decreases were largely seen in the Americas market. For 2024, we expect full year bookings to increase versus 2023 anticipated market share gains in each 2024 quarter by driving this improvement within a flat global market. Overall, market share gains are expected largely because of our emerging technology solutions for warehouse related markets. Our Technology Solutions business had very strong 2023 growth rates. We expect to build on that momentum in 2024.
As we head into 2024, we expect to be price competitive in the marketplace. We'll look to maintain targeted bookings margins as our backlog levels are reduced. Reduced bookings contributed to lower backlog levels in the fourth quarter from year end 2022, our extended backlog has decreased by 23% to its local lowest level since 20 early 2021, planned 2024 production increases, combined with an anticipated market decline in the first half of the year should allow us to further reduce extended lead times and backlog levels. This will help us bring our backlog closer to pre-pandemic levels in 2024.
Given current expectations, our lead times and backlogs are likely to remain above optimal levels on certain product lines for an extended period. Some areas such as our warehouse trucks are expected during the return to normal lead times and backlog levels within 2024. At the end of the fourth quarter, our backlog value was approximately 3.3 billion.
This represents represents approximately 10 months of revenue and should serve as a cushion for the business. If bookings declined more than declined more than anticipated, it's worth noting that global industry cancellations, which can impact backlog levels trended to modest, trended up modestly in 2023 from prior year rates.
However, our cancellation rate remains substantially below the industry average, but trickle-down of higher average unit prices and margins in our backlog continued in the fourth quarter. This was largely due to our focus on booking orders, strong margins and benefits from prior year pricing initiatives to offset inflation. Our average sales price per backlog unit increased 16% over the prior year and 2% over the third quarter.
As for 2023 average booking prices on the other hand decreased compared with Q3 2023 and prior year. As expected, we've continued to make progress on expanding our market share in the warehouse market. Warehouse trucks have generally lower price and have shorter lead times. Additional sales in this market segment increased the opportunity to sell advanced technology solutions.
It can greatly enhance the value of the truck for the customer and to host the year, we continued to balance our pricing and booking rates with production lead times on a line-by-line basis, maximizing profitable growth and free free cash flow. While we continued to make progress on our strategic objectives, material and freight cost projections are a significant factor for setting our backlog, pricing pricing in 2023 material cost decreased modestly in 2024.
Material costs are generally expected to stabilize and labor costs are projected to increase moderately as a result of geopolitical unrest we expect elevated freight costs throughout 2024, particularly in the first half of the year. In this context, our strong price to cost ratio is expected to continue in the first half of 2024 as we ship higher price backlog units.
This combined with an anticipated increase in unit volumes is expected to lead to higher gross margins and improved operating profit in the first half of the year compared with 2023 tariff exemptions are set to expire in late May 2020. For this, combined with shipment of trucks ordered in 2024 is more competitive pricing environment and the mix effect of increased warehouse product shipments are likely to 10 per unit margins in the second half of the year.
For the full year, gross profit margins should be comparable to 2023 levels. We'll work to reduce the impact from externally driven factors through improved manufacturing productivity and ongoing expense control. We'll continue to monitor labor and material costs closely as well as the impacts from power and competition, and we'll adjust forward pricing accordingly.
Before I turn the call over to Scott, I'll comment on our working capital levels and cash flow. We continued to improve our cash flow throughout the year. We've made progress on reducing working capital, specifically our inventory levels. However, our inventory levels remain higher than we would like largely due to lingering production challenges I mentioned earlier. We'll continue to focus on an efficient and consistent cloth material building more units with on-hand inventory. These actions should significantly reduce excess inventory levels across 2024.
I'm pleased to report that we've already seen some additional progress in January 2024, we have made significant progress, reducing potential supply chain and labor constraints. Second fill cause isolated production shortfalls and increased inventory. Our efforts to extend to our dealer partners who carefully balanced order and delivery timing with their customers' needs. Together, we expect significant improved demand throughout 2024. We're committed to further cash flow improvements. This is a key deliverable for me and for all of our business leaders, it is also an area closely monitored by our Board.
Now I'll turn the call over to Scott to cover our quarterly financials and 2024 outlook in more detail.
Scott Minder
Thanks, Rajiv, good morning, everyone. I'll start by echoing received positive comments around our strong fourth quarter and full year results as well as the pace of improvement in our business. Once again, our quarterly revenues topped $1 billion, increasing by 4% or $42 million versus the prior year.
Consolidated revenue growth was mainly due to a 5% increase in lift truck sales due to the favorable effect of previously implemented price increases in all regions, a favorable sales mix shift toward higher priced higher-capacity trucks increased part sales used to service our growing installed unit base and a favorable currency effect of $18 million, primarily in Europe.
These benefits were partly offset by lower shipments in all three regions. In Q4, we shipped 23,600 units, down 8% sequentially and 16% versus the prior year. Q4 unit bookings were 16,700 and were lower than both prior periods. These declines were within healthy but lower markets in our major geographies as a result of solid production output and lower booking levels.
Our backlog decreased to 78,400 units with a value of roughly $3.3 billion. This decrease helps improve lead times and overall customer satisfaction for the full year, we reported revenue of $4.1 billion, marking a 16% improvement over 2020 to all three businesses contributed to this increase. Overall, our year-over-year growth significantly outpaced global GDP growth.
Moving to earnings, our consolidated fourth quarter operating profit increased by 146% to nearly $49 million. This resulted in a 4.7% operating profit margin and a nearly 70% incremental margin as our year-over-year operating profit improvement outpaced our quarterly revenue growth rate.
Full year operating profit was $209 million, improving nearly $250 million versus the prior year. Operating profit margin for the full year was 5.1%. Q4 net income was $25 million or $1.43 per share. This compares to prior year net income of roughly $8 million and $0.44 per share.
Fourth quarter results included a $10 million or approximately $8 million after-tax of an additional incentive compensation expense related to the equity component of the Company's fourth quarter stock price appreciation. This reduced our fourth quarter earnings per share by $0.47. For the full year, the Company generated $7.24 of earnings per share compared to a loss in 2022 for some additional perspective, I'll discuss our results by business.
The lift truck business generated $982 million of revenue in Q4, growing by $44 million year over year. Operating profit of $54 million, expanded by $27 million over the same time period. The 62% incremental margin led to a 5.5% percent operating profit margin demonstrating growth with discipline, disciplined execution. Significant product margin increases in the Americas and EMEA were the principal drivers.
Product margins benefited from a favorable price to cost ratio, largely due to prior price increases implemented to offset inflation, along with more recently moderated material costs as well as a favorable mix shift toward higher margin products, mainly in the Americas and the shift to higher-margin sales channels lift trucks.
Q4 profit growth was tempered by higher employee related expenses, including elevated incentive compensation attributable to strong 2023 results and stock price appreciation. We remain vigilant over our day-to-day expenses and continue to seek more efficient ways to leverage our assets as the business grows.
Turning to Bolzoni, the business reported revenues of $87 million, $5 million lower than prior year. Operating profit increased to $2.6 million from $2.0 million in the prior year 2020. Two's operating profit included a $2.4 million loss on sale of the business. Excluding the effect of that sale, operating profit decreased year over year due to higher operating expenses, including incentive compensation as the business continues to position itself for growth.
Bolzoni's product margins improved over the prior year, while gross profit dollars were comparable. Price increases implemented in prior years, along with favorable currency movements were offset by a mix shift to lower margin products and reduced sales volumes at Nuvera, Q4 2020 three's operating loss was less than prior year, primarily due to lower product development costs as a result of receiving a new US government funding to support fuel cell R&D expenses, fourth quarter revenue declined versus prior year due to fewer engine shipments.
Looking ahead to 2024, we expect lift truck revenue and operating profit to increase over 2023 levels. First half 2020 for operating profit is projected to improve significantly over prior year, largely due to anticipated higher unit volumes and an ongoing favorable unfavorable price to cost ratio.
Despite anticipated higher freight costs, second half 2024 operating profit rates are expected to moderate compared to the first half due to the anticipated expiration of Section three oh one tariff exemptions and the mix effect from increased warehouse product volumes. The latter aligns with our strategy to increase market share in this important sales channel.
I'll take a moment to recap the tariff situation for context on how it applies to Hyster-Yale today in 2018, the U.S. government enacted tariffs on certain products imported from China. Subsequently, exemptions were applied for and provided for on some of these tariffs.
These exemptions have been extended multiple times. It is expected that in May 2024, these exemptions will expire. If that occurs, the company will be required to pay the full tariff immediately increasing our material cost. We continue to argue that these exemptions are warranted and should remain in place while we work to reduce their impact on our product margins over time.
Moving to Bolzoni 2024 revenues are anticipated to increase modestly compared to 2023. Higher attachment volumes will be partially offset by lower legacy product sales to the Lift Truck business as they begin to phase out production of these components.
Operating profit is expected to improve year over year as higher product margins and anticipated manufacturing efficiency gains should more than offset higher material and operating costs at Nuvera are focused on increasing customer product demonstrations in bookings in 2024, as well as expanding our presence in Europe in China.
Orders from current customers are booked and are expected to result in higher year over year's sales in 2024. These increased sales coupled with higher development costs related largely to Nuvera's new, more powerful 125 kilowatt engine should produce operating results comparable to 2023. Longer term, increasing engine demonstrations should significantly strengthen the foundation for continued fuel cell engine technology adoption and improved financial returns.
At the consolidated level, we expect 2024 operating profit to increase. We anticipate net income to be comparable to strong 2023 levels due to a higher projected income tax rate in 2024. The expected higher tax rate results from fully utilizing our US net operating losses in 2023, combined with the impact from ongoing capitalization of R&D costs for tax purposes in 2024, the US Congress is currently debating an important tax law change that could reverse the ruling to capitalize R&D costs thus treating them as a period expense.
If this occurs, the company's tax outlook would likely change materially. Overall, we anticipate continued strong MA product margins to drive year-over-year profit growth in the first half of the year. This is due to shipments of fixed price backlog units, partially reduced by the impact from higher freight costs.
The anticipated expiration of tariff exemptions and shipments of orders placed in 2020 for a more competitive pricing environment will likely temper second half results. We'll continue to focus on ways to efficiently manage our production levels along with ongoing component, labor and overhead costs will adjust as needed during the year.
In 2023, we made substantial progress toward our long-term goals. Our 16% year over year revenue growth rate, significantly outpace global GDP growth rates, and we achieved a greater than 20% Rossi or return on total capital employed.
We also made significant progress toward our 7% operating profit margin goal. At our November 2023 Investor Day, we established a working capital target of 15% of sales. We improved our performance on this metric in 2023, but more work is required to achieve our learning long-term objective. We expect further progress on our financial goals in 2024, and we're working to make these results more sustainable over time.
We also made progress on another critical metric cash generation. The company generated cash flow from operations of almost $46 million in Q4, and we used that cash to reduce net debt by $17 million or 4% compared to third quarter levels. This increased cash comes from higher profits in our ongoing efforts to improve working capital efficiency.
For the full year, we generated cash from operations of $151 million. This compares to $41 million in full year 2022. We ended 2023 with $79 million of cash on hand and approximately $270 million of unused borrowing capacity as a result of our significant profitability and lower debt balances our financial leverage as measured by debt to total capital was 56%.
This marks a 500 basis point improvement versus Q3. As we generate additional cash, we expect further leverage reductions and opportunities for accretive capital deployment. We continue to push for working capital reductions, specifically through lower inventories due for 2023 days inventory outstanding or DPO decreased by one day versus third quarter levels.
We remain focused on improving inventory efficiency as production rates increase for deploying technology tools to help us maximize the use of on-hand inventory, ultimately reducing excess inventory levels. While supply and labor constraints can cause intermittent challenges, we anticipate significant inventory improvements in 2024 2023.
Capital expenditures were $35 million compared to an initial projection of $65 million. We maintained strict capital discipline in 2023 due to ongoing economic uncertainty. Capital expenditures are anticipated to rise to $87 million in 2024. This significant increase compares to restrained 2023 levels and includes a return to investing for business growth and network efficiency. Similar to 2023, we'll keep a close eye on economic conditions and adjust our spending accordingly.
In summary, we're making solid progress in our objectives. Our financial results clearly show it will continue to focus on things we can control and leverage our process discipline to effectively work through the things that are beyond our control.
Now I'll turn the call back to Rajiv to discuss the progress we've made on our core strategies and programs. Rajiv?
Rajiv Prasad
Thank Scott. We've held our Investor Day in Paris this past November, where I explained our vision is to transform the way material moves from Port of home. We plan to do this through to customer promises first by providing optimized product solutions, and second, by providing exceptional customer care, our strategic initiatives and supporting key projects will drive success on these two promises.
In 2024, we'll invest in and execute on our core strategies that support long-term profitable growth and sustainable cash generation. I'll provide a few updates on these key projects at each business. The lift truck business, primary strategic focus remains on launching new modular and scalable products globally. This business is also working on several other key projects to increase and enhance lift truck electrification, increased the adoption rate for our advanced lift truck technology and expand global sourcing options for our container handlers using both in Nijmegen in the Netherlands and for young China production facilities. We are making solid progress on these programs.
Over the last two years, we launched our modular scalable two to three ton internal combustion engine lift trucks in EMEA and Americas markets. Production of these key products is accelerating, and we expect to launch these products in the JPF market during the first quarter of 2024. We're making similar enhancements to the two to three ton electric truck platform and expect these products to launch global globally.
Our '24 and '25 the modular scalable product platform is expected to enhance the business and suffered several ways first by reducing costs and working capital levels as our supply chain shrink and move closer to our core factories, second, by helping to optimize our worldwide manufacturing footprint. And finally, by increasing sales volume by providing customers with a more customizable product that they can spend on electrification.
We now have two big truck electric pickup truck in third party testing, a fuel-cell container handler currently operating at the Port of Los Angeles in a field that will reach stacker in the port of Valencia, Spain, we anticipate delivering two new electrified fuel cell products of terminal tractor and an empty container handler to a customer in Hamburg, Germany in 2020 for our big truck group is also actively exploring additional electrification projects within the European Union and the United States and lift truck business. The lift truck business as key projects focused on increasing demand for our on truck technologies by applying next-generation model advancements to operator assist system and automated lift truck solutions.
During the third quarter, we entered into a joint development agreement with a leading technology service provider to enhance our robotic software technology for vehicle automation.
Finally, dual sourced production and supply chain for our container handlers will help the Company better meet the needs of the global market. This should provide customers with timely efficient delivery for economically viable trucks. Bolzoni continues to work on streamlining and strengthening its operation as a single integrated operating entity.
The company focused on increasing its Americas attachment business while also strengthening its ability to serve key industries and customers across global markets. As part of this effort, Bolzoni is working to expand its broad industry sales coverage breaking into new markets and regions.
They're currently expanding that product offering and support capabilities for the recycling and port related areas Nuvera continues to focus on placing 45 and 60 kilowatt fuel cell production engine for demonstrations into niche heavy-duty vehicle applications where battery only electrification does not fully meet the market need because these applications are more likely to have near term fuel cell adoption potential.
Nuvera is also developing a new larger 125 kilowatt fuel cell engine for even heavier duty applications, which is projected to be available in 2025. We've announced several projects with various third parties to test some of our engines in targeted applications beyond the high support equipment I covered earlier in January in Nevada, announced a joint project with Alamo energy for maritime. Zero-emission energy solutions were also expects to have additional products in test application in China, India and in Germany by mid 2024.
Additionally, Nuvera is working with customers to launch modular fuel cell power generators for stationary and mobile applications over the next two years. These niche initiatives, our top priority, and I'm pleased with the progress we are seeing so far.
Now I'll turn the call over to Al for closing remarks.
Alfred Rankin
Thanks, Rajiv. In closing, I'd like to note that the Company's significantly improved 2023 results are due not only to our global team's ongoing execution of its strategic initiatives, but also the actions taken to offset external headwinds and improve business resiliency. Our results continue to reflect a healthy backlog and demand for our products and solutions.
These actions should better position our company for substantial profitable growth over the longer term. Our mature lift truck and Bolzoni businesses are the foundation for a strong, profitable business. While we believe that the Nuvera fuel cell business has substantial growth prospects in the years and future years. I want to emphasize a point that Richard made earlier, our 2023 full year net income is 200 million higher than a year ago.
The team has done an outstanding job moving the business forward and laying the foundation for sustainable profitability over the long term as customer demand and supply chain return to pre pandemic norms, we are likely to experience short-term cyclicality in our markets favor. I'm confident that we have a sound plan for long-term growth, profitability and cash generation in our core businesses.
In addition, we expect that the Nuvera fuel cell business in the longer term will be a major growth contributor for Hyster-Yale. I firmly believe we have the right team and business structure in place to execute our strategic programs to deliver a strong 2024 performance to achieve our long-term financial goals and to provide differentiated total shareholder returns over time.
So we covered all of this in detail during our November 2023 Investor Day. If you haven't had an opportunity to do those materials, I'd encourage you to listen to the replay or review the Event transcript, both of which are available on our website. We'll now turn to any questions you may have.
Question and Answer Session
Operator
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session.(Operator Instructions)
Ted Jackson, Northland
Ted Jackson
Good morning and congratulations on a fabulous fiscal 2023. I have a real had a really long list of questions. So I'll just ask a few of them. But before I get into my questions, one thing just clarity, what did you say your CapEx forecast was for 2024?
Scott Minder
(multiple speakers) That we said that would be $87 million.
Ted Jackson
That's a tremendous jump. I mean, can you kind of walk through what's pushing that to be up so much? And is that like the normal level on a longer-term basis?
Rajiv Prasad
Yes, I'll take that. So if you look at our typically, if you look at our average expense and capital projects, if you go back a few years, it's running around between $40 million and $50 million. But over the last two or three years, while we had this spike in working capital and we needed to moderate our expenditures and we also moderated both our CapEx and OpEx and that continued through 2023.
But there are projects significant project as part of our part of our growth strategy that have been held back a little bit. And so over the next two years, we want to catch up on that. So that is the main driver for the additional CapEx is around product development and also improving our operational footprint.
Alfred Rankin
So let me pick up on the last and just say that Jim and there are some things that are not at all backward looking very forward looking in terms of improving the performance of the business. And there are some programs that we think can have a major impact on our future profitability, which are going to be, we think probably timely to really undertake Additionally at some point during 2024. So there are some special things in there that are likely to evolve and we'll move to that number at this point.
Ted Jackson
So I'm so that you said this, you call it, yes, $80 million to $90 million that will go forward, at least through 2025?
Alfred Rankin
Yeah, I think it will be in that sort of neighborhood for two years and then will come down to more normal kind of run rate. And it's really making up for the deficits over the last three years.
Ted Jackson
Okay. And then with all the changes with regards to taxes and stuff, given the current guidance, what do you see as your kind of pro forma normalized tax rate for 2024 and beyond?
Scott Minder
So Ted, I can take that. I think looking ahead, we expect our tax rate to be higher in 2024, primarily because we use up our net operating losses in 2023. And if the current R&D capitalization tax law remains in effect, we're going to see a negative impact from that. So we haven't quantified that yet. It's really going to depend on our R&D spend, but we do expect it to be higher.
And what I would call normalized. And given the countries that we operate in, we would expect somewhere between a 25% to 27% tax rate, but that's going to be negatively impacted at least in 2024 due to R&D capitalization expand your normal MBR point, I want to make sure that everybody understands what's really happening there on, you know, Scott indicated we use of tax loss carryforwards of about was a product of the past.
Alfred Rankin
This program is one that was put in place and tax changes that were made in relatively recent times and the capitalization of research and development expenditures, which has never really been part of taxation of corporations ever until this time began. And what happens is instead of expensing it as we would normally do and four or five years, you keep putting it on the books and you get a very large amount and then you can start depreciating it.
So there's a five year period under this on tax law, which was probably put in not because it was the right thing to do, but as a so called pay for in the in order to get others spending for programs through Congress. So our hope is and there is a bill that is currently circulating and our hope is that this is going to go back to the way, it's always been.
I think that's pretty much an accurate way to put it into the stock. I would agree with that out, but if it doesn't so if they don't demand the hearing arguments that they are included in a lot of cases for a capital-intensive, all capital intensive industries in the country. This is a unique situation for us heavy heavy industry?
Ted Jackson
Well, I can't believe they did this because you mean Congress is such a thoughtful and well run organizations.
Alfred Rankin
I'm absolutely I'm (inaudible) .
Ted Jackson
But so but so just to make sure I understand if the laws corrected fees that weren't the tax rate would be 25% to 27%. But if it's not, you know, it's going to be higher than that, but you can't give any kind of guidance to how high.
Rajiv Prasad
Well, yes. What I would point you to is if you look at our R&D spend over the last couple of years and divide that into your forecast of pretax earnings. I mean you can kind of back into what that would do to increase our tax rate then. So I would just point you to that those disclosures and that would help inform your estimates.
Ted Jackson
Okay. Can I just ask one more question then? I have many more, but I'll step out of line and let other people get in just kind of going back into the quarter and kind of thinking about 2024. If I look at your unit shipments in the fourth quarter, they were down sequentially. It's the first time you've seen units down in the fourth quarter since 2015 until late night, it would be only the second time I've ever seen it happen, at least in the data that was available on your site, which is extensive and very, very helpful because it was driven by Americas Neonet EVA.
And I guess what I'm asking is, you know, kind of given some kind of seasonal nature, if you would, of your business with Q4 typically being stronger as well as the strength in your backlog and what drove the unit decline in Q4? And given that first quarter is typically a pretty weak quarter for you on a unit perspective, do we expect to see seasonal weakness on a unit shipment level in the first quarter? That is normal?
Alfred Rankin
No. I think what happened was as we stated in our release, we were in the middle of a number of product launches and the keynote some labor issues happen, particularly related to software on on some of those launches.
So trucks are on wheels, but we couldn't ship them because we have to correct these issues are also below that. It happened towards the second half of the quarter. And as we sit here today, we have now mostly cleared all those trucks. So those were shipped instead of in December, there was shipped in January and early February.
So let me just elaborate on the point that underlies it Rajiv's comment. We had a mighty good from our point of view, mighty good fourth quarter by every ship those units in the fourth quarter. It only would have made them better. I suppose that would have been nice, but it's certainly and extends our backlog out.
And if there is any kind of downturn in the market, we just got that much more coverage in the backlog to cover the very last couple of months of 2024. We don't have bookings and to build further out our backlog for 2025 so there is a sort of a silver lining in all that and it is more of a timing issue from our point of view --
Rajiv Prasad
So that actually, as we have guided we expect strong. It's been a first half of the year.
Ted Jackson
Okay. And I missed sneak in one more than I'm going to get out of line because it's very similar to this because that's the similar question. With regards to aftermarket sales, again, kind of down in Q4, typically a stronger quarter still. Was that, you know, what kind of made that happen and how do we think about that as it relates to first quarter and FY 24?
Rajiv Prasad
So maybe I'll have a dinner keynote, I'll answer part of it. And then maybe Scott can step in. But we are as we've said, we started to see a bit of a slowdown in the market and this is what this is a trend. We see that as the market slows down a little bit. And again, it's coming from pretty high levels on then we see that reflected in the run times of the trucks or the hours we think the trucks are being used. And then that is not proportionately impact the amount of servicing that need to be in and that needs to be done.
And therefore, the power consumption. I think we expect to see, as we've said, a little bit of a slower first half from energy economic, somewhat some economic slowdown around the world. And then we expect that to return in the second half of the year.
Okay, thanks.
Ted Jackson
I had a bad line in Italy (multiple speakers) --
Alfred Rankin
I'm not sure that was a hugely significant drop, (inaudible)
Scott Minder
The only thing I would add to it is we've really done well on parts sales the last couple of years. So it's a drop versus pretty significant volumes. (multiple speakers)
Rajiv Prasad
And in a good one thing to look at it and how much Germany it slows down and that they are a big part consumer (inaudible)
Operator
Chip Moore, ROTH MKM.
Chip Moore
Morning, everybody. Thanks for taking the question. Hey, Scott, you talked about being more competitive on pricing as backlogs start to come down. And now you talked about some potential for short-term cyclicality. Maybe maybe to pick them up, maybe expand on that, any implications for margins into next year? And how should we think about the potential for some of these new modular and scalable platforms to help there.
And then back to the CapEx increase, how should we think about those benefits rolling through?
Alfred Rankin
Yes, Sameer, on June 30th and on the on the euro price-cost relationships should come.
Scott Minder
So I think if you look at our business and we are very strong on the counterbalance side of the business and big truck and in our product range still needs to fill out on the arm using the scalable modular on the warehouse side. So we do expect so some of the warehouse where the airlines are lead times now are the shortest.
And so we are being more competitive in the marketplace. So some margin compression on our warehouse business. But one thing we are seeing is the modular scalable four in, I'm thinking about more 2025, 2026. And going forward is a mechanism for us to I've elevated margins because we are able to really tune the trucks and with the right cost at the right price for the customer and therefore make our target margins or better. So we think longer term, that strategy is really starting to work we do.
Our warehouse trucks will, with the same modular design with scalability will come out more in 2025 and 2026. And so we'll see the same impact then. But in the meantime, we have to get through the period with the current set of products --
Alfred Rankin
A couple of things that I think are worth keeping in mind too on. We are seeing improvements on the cost side. It's hard to say how much they may go up and where, but we've had some from some fairly substantial cost reductions from the time in the last few months.
And we're hopeful that some of those will continue as the second thing is that our customers, our competitors, in many cases didn't move as rapidly to address increasing costs as we did. But increasingly they've caught up.
So a lot's going to depend on what they decide to do in the marketplace as well and on, I think we just want to be careful and thoughtful, but we're going to work very hard to keep our margins at very healthy levels, particularly in some ways been above our targets in recent times until we're talking about coming down to our target margins in certifications rather than than than having our margin to decrease below what we think they ought to be in the long-term --
Rajiv Prasad
But the key thing to take take-away from this discussion is that we feel that the modular scalable design and our focus on our customers, giving them the right solution has the potential to for us to perform consistently above our target margin as the program matures over the next few years.
Chip Moore
Got it. That's I that's helpful color. And maybe follow-up on on mix shift and ASPs. I think maybe there's been some unique dynamics, but I'm post pandemic volumes for rental and heavy duty. For example, it looks like warehouse is increasing in the in mix as you take some share in any way to think about 2025 mix, should should that be more normalized or just how to think about that a more normalized mix?
Alfred Rankin
I think one thing you we feel we're likely to see is an enhanced a big truck volumes have been supplier difficulties in some ways were more significant in our big truck business. And then some of the other businesses on Dan, that bookings have really been pretty pretty strong recently. And the big truck area so among that's a positive sign for Ford mix as we look forward?
Yes, I mean, we have a mixture of things.
Rajiv Prasad
We haven't talked about 2025 yet, but in a way. If we think about it, we expect some of that the second half of 2024 to continue, but then start to rise as we get into the rest of the year. But again, we're in the middle of modeling our financials for 2025, and I think we'll have a better idea of that at the end quarter.
Chip Moore
Understood. That's very helpful. And if I could ask another cancellations, you had some commentary there. I think you have some protective measures in place on the dealer side, maybe just and on what you're seeing there and can touch on that?
Rajiv Prasad
A majority of the cancellations that you're seeing out from our major accounts and really what it is is in those very bullish infrastructure buildout by a number of our suppliers and that things have slowed down. They've also slowed down some of the opening of new facilities or expansion of facilities. And so that's what's been driving our cancellations. And it's really a mixture of small amount of cancellation, mostly deferrals to future timers. They delayed some of their projects.
Chip Moore
Very helpful. Appreciate it. If I could just sneak one last one in on the Section three and one tariffs. Is there a way to think about how big that impact is if if we get another exemption what kind of benefit you could see there? Thanks.
Rajiv Prasad
Yes, I mean, our own Just think about it as about $2 million a month.
Chip Moore
Perfect. Okay. I'll hop back in queue. Thanks.
Operator
Thank you.
[Brian Sponheimer, Gabelli]
Brian Sponheimer
Good morning, everyone. On just to I don't know if I heard that correctly did you say $10 million per month or 2 million per month on the Section 301? (multiple speakers)
Okay. From two companies, if I'm thinking about the backlog and your ability to price. I mean, clearly it would appear that what you have flowing through to sales in the first half of the year is good news is priced differently. Than what's going to be coming through in the back.
Can you maybe talk about what you add to what you're anticipating there just from a pricing dynamic? And does this take into account Section three oh one where you're going to potentially have to have some some more negative pricing there.
Alfred Rankin
And I think we should be careful how you phrased it and how you talk about it. When we're talking about pricing, we're talking about the bookings that we booked this year. Many of those would be the majority, but it should be for 2025.
Rajiv Prasad
Yes. (multiple speakers) 10 months of orders already for 2024 in our backlog is in that $3.3 billion. And if you look at what we did in 2023 was $4.1 billion. So on so really is the way I would characterize it is that both for our big trucks and our counterbalance will continue. Trucks will continue to have good pricing because we have long lead times still on those products and on the warehouse side will be more and more around our target margin on to ensure that those lines those production lines have the orders to support their production rates.
Brian Sponheimer
If I'm thinking about this just from a competitive standpoint where what is Section 301 impact more? Is that the warehouse side or is that on the big trucks?
Rajiv Prasad
It's actually mostly counterbalanced, so really.
Brian Sponheimer
Okay, perfect. Just one last one for me on Nuvera. Obviously, you did a good job in your Analyst Day or Investor Day talking about the potential for that business since then any changes to on the excitement from the marketplace? Any changes to how maybe the market is thinking about conventional electrification as it relates to shipping of some of your end markets?
Rajiv Prasad
Yes. So we are obviously very focused on what market dynamics are taking place. The first thing I would say is hydrogen continues to be an issue. The availability of hydrogen as the fuel on the trucks, we are running at the ports, for instance, the intermittent outage of hydrogen and the team's working very closely with hydrogen producers to find the right solutions.
But then we've also seen a general increase in interest, both by end users and also by integrators of both stationary and mobile chargers as our electricity network and I can have certainly at times is headed capacity. And as you've seen, there's been some outages on those most search for what the green backup power solution looks like.
And actually in some of the generator solutions that have been developed is actually for charging battery electric trucks, so which is strange, but also for backup power for some kind of remote work, but also backup power for, for instance, data centers, et cetera. So that's been increasing and we're seeing much more interest on the marine side.
And then we continue in a port equipment is going to be very important because the ports are under a lot of pressure to decarbonize. And then I think we'll see slower progress on the on-road solutions.
I think initially their focus with medium duty trucks than batteries. I mean, we feel for at least a third of the boat solutions, which are power hungry, which are auxiliary, you know, kind of devices that need to be powered while attractive stationary like a garbage disposal truck, they'll probably factory won't be good enough retained longer term, they're going to need fuel cells so I think but those markets probably are a little slower than we expected. But on the other hand, the generator, market and the marine market and port are still very very active --
Alfred Rankin
So we have very active programs in all of those areas to have marketable product, and we'll be have the same quite a bit more of those above those very soon.
Brian Sponheimer
Okay. Thank you very much.
Operator
Thank you. We have time for only one more question annual from the line of Ted Jackson, Northland.
Christina Kmetko
Are you there, Ted? (multiple speakers)
Ted Jackson
I was on mute. Bill, can we talk a little bit more about bookings and backlog? I mean, so the company and understandably, so given supply constraints and everything else under the sun has had this huge backlog and it's working down to the book-to-bill has been below one for a long time. But when I listen to you and I talk about guidance, is it fair to assume that we'll be moving back towards, say, a book-to-bill at, call it one in the second half of '24? Is that something that you see at this point.
Rajiv Prasad
And we didn't see a decrease in volume. We just see a bit of market margin compression on the warehouse products for Stanley that we're looking at greater volume of bookings in '24 and '23? Yes, right.
Ted Jackson
With that strength being in the back half, correct?
Scott Minder
That's right.
Ted Jackson
(multiple speakers) And so and I drag it into the code anymore. So you're kind of cutting in and cutting through those tea leaves would be in this in the second half of the year, then we would be able to see kind of a book to bill number that would be or at least get back to one to where you're essentially interim saying, like you're not eating through EPO sort of tonnage it on a general holistic level you're in you won't be needing to backlog anymore. Your backlog would be trending deal at the behind R&D to say --
Rajiv Prasad
Yes, I think if we achieve our bookings target in 2024 on our backlog ending 2024 will still be well above our desired level on the we don't bid on some of our most important lines like the big trucks and the larger counterbalanced trucks and even our smaller counterbalanced trucks, we don't see normalization of backlog until early 2026. So they'll still be in an over optimal backlog until then. Does that help?
Ted Jackson
Okay. Yes, that does. And then a final question, because I know we're out of time, I hope I had written down and I lost what it was? I was going to ask you --
(multiple speakers) I can pick it up at another time. So anyway, thanks again. (multiple speakers)
Christina Kmetko
Okay. With that, we'll conclude our Q&A session. We thank you for participating and a replay of the call will be available later this morning. We'll also post a transcript on our website when it becomes available. If you have any questions, please feel free to reach out to me. The information is on the press release, and I hope you enjoy the rest of the day. I'll now turn it back to our operator to conclude the call. Thank you.
Operator
Thank you. Ladies and gentlemen. That's (inaudible)
