Q1 2024 Alta Equipment Group Inc Earnings Call

Participants

Jason Mayer; Director of SEC Reporting; Alta Equipment Group, Inc.

Ryan Greenwalt; Chairman and CEO; Alta Equipment Group, Inc.

Tony Colucci; CFO; Alta Equipment Group, Inc.

Matt Summerville; Analyst; D.A. Davidson & Company

Kathryn Thompson; Analyst; Thompson Research Group

Alex Rygiel; Analyst; B. Riley Securities

Ted Jackson; Analyst; Northland Securities, Inc.

Steve Hansen; Analyst; Raymond James Financial, Inc.

Presentation

Operator

Good afternoon, and thank you for attending the Alta Equipment Group First Quarter 2021 Earnings Conference Call. My name is Bethany, and I will be your moderator for today's call. I will now turn the call over to Jason Mayer, Director of SEC Reporting and technical accounting with Alta equipment group.

Jason Mayer

Thank you, Bethany, and good afternoon, everyone, and thank you for joining us today. A press release detailing Altace First Quarter 2024 financial results was issued this afternoon and is posted on our website along with a presentation designed to assist you in understanding the Company's results. On the call with me today are Ryan Greenwell, our Chairman and CEO, and Tony Khulusi, our Chief Financial Officer. For today's call, management will first provide a review of our first quarter 2024 financial results. We will begin with some prepared remarks before we open the call for your questions.
Please proceed to slide 2 before we get started, I'd like to remind everyone that this conference call may contain certain forward-looking statements, including statements about future financial results, our business strategy and financial outlook, achievements of the Company and other nonhistorical statements as described in our press release. These forward-looking statements are subject to both known and unknown risks, uncertainties and assumptions, including those related to auto growth market opportunities and general economic and business conditions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations.
Although we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call or Descriptions of these and other risks that could cause actual results to differ materially from the forward-looking statements are discussed in our reports filed with the SEC, including our press release that was issued today. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's press release and can be found on our website at investors dot Alta equipment.com. I will now turn the call over to Ryan.

Ryan Greenwalt

Thank you, Jason, and good afternoon, everyone, and thank you for joining us today. I will begin with a quick overview of our first quarter results, then provide a current assessment of the business conditions in our end user markets. Tony collude. She will then walk through a detailed analysis regarding our financial and operating performance for the quarter and our outlook for the balance of 2024. There is an earnings presentation available for today's call that both Tony and I will be referencing our results for the quarter, consistent with historical patterns were impacted by seasonal factors, particularly winter weather affecting our construction equipment segment and northern regions. Despite this, we achieved 441.6 million in revenue, up $20.9 million year over year, driven by continued strength in our markets our combined product support and rental revenues grew organically by $6.3 million, reflecting the sustained high levels of activity and equipment utilization in our regions. Notably, our equipment sales margins were impacted by a shift in revenue mix, which Tony will further explain in his prepared remarks. While new equipment sales and margins may face challenges from market dynamics, we remain focused on leveraging our dealership capabilities and value proposition to capture market share.
Slides 5 through seven of today's investor presentation highlight the strength of the product support and rental businesses within the core dealership platform for both construction and material handling, highlighting the resilience of the business model.
Looking forward, we are optimistic we are optimistic about the construction end markets. The backlog of work and activity levels at our customers indicate continued strength for our product support and rental business lines. Industry indicators are favorable for our end market demand. Nonresidential starts are forecast to increase in 2024 and state transportation budgets are up double digits in our Midwest and Florida markets year over year. Federal infrastructure and mega projects are still accelerating, providing long-term opportunities across our geographic footprint and our material handling business. We have solid visibility based on our current customer backlog. Our diverse end markets offer opportunities across numerous verticals. Full year 2020 for global lift truck market unit volumes are projected to remain strong compared to preprint pandemic levels, but decreased moderately from a year ago. We are very excited about the commitment Hyster-Yale is making to drive driving innovation in the product portfolio and market leadership. With regards to technological innovation, we are working closely with them on initiatives like advancing fuel cell vehicles at major ports and zero-emission battery-powered terminal tractors for use in intermodal, transportation, transportation hubs. We also collaborate collaborating along with the history of dealer network and implementing wide-scale technology enhancements such as operators, systems and vehicle automation for improved safety and efficiency. We believe we are positioned to drive additional market share in our markets, given our strategic footprint and the strength of the Hyster-Yale product portfolio, our M&A activity since our public offering underscores the success of our growth strategy with 16 strategic acquisitions at accretive valuation multiples, we remain committed to pursuing accretive transactions that complement our core business and enhance long-term shareholder value. We continue to expand our geographic reach and product portfolio within existing business segments by leveraging strong OEM relationships and forging partnerships with new OEMs that meet our criteria. Furthermore, we are exploring new business segments and tangential or complementary equipment markets. The opportunity to electrify the medium duty over the road truck fleet over the next decade is substantial, driven by the convergence of market demand and legislative mandates for zero tailpipe emissions. We are actively exploring ways to position ourselves at the forefront of this transformative trend, leveraging our expertise and resources. The transition to electric vehicles for medium duty commercial vehicles draws a compelling parallel to the evolution of the electric forklifts over the last 50 years. Initially, electric forklift faced skepticism and challenges similar to those now encountered by medium duty EVs, such as concerns over performance, runtime and upfront costs. However, advancements in technology and growing environmental awareness gradually transformed the forklift industry overtime. Electric forklifts gained acceptance due to their efficiency, lower operating costs, reduced emissions and improved battery technology as technology continues to advance the infrastructure develops. We anticipate a parallel trajectory for medium duty EVs, ultimately leading to widespread adoption and integration into the transportation ecosystem.
In summary, while the first quarter was challenging we are extremely optimistic that our business is poised for a successful 2024, especially with better visibility into the year.
Thank you for your continued support and confidence in our company's strategy, and I'll turn it over to Tony for a detailed analysis of our financial and operating performance.

Tony Colucci

Thanks, Ryan, and good evening, everyone, and thank you for your interest and Alta equipment group and our first quarter 2024 financial results. I trust that you and your families are looking forward to summer as we all are here at Alta Before I begin, I want to thank my 3,000 teammates for their hard work in the first quarter, which given weather and operating conditions took focus, perseverance and commitment to our customers and to one another to navigate.
Thank you. My remarks today will focus on two primary areas. First, I'll be presenting our first quarter results, which were naturally affected by the seasonal impact of winter weather on the construction business in our northern regions, but nevertheless, saw continued revenue growth and strengthen our product support in our rental offerings. I will also provide details on the equipment revenue mix shift year over year, which impacted our equipment gross margins in Q1 on a consolidated basis.
I'll also discuss specifics of how our core business segments performed well in the quarter and our headwinds experienced at e-commerce and peak Logic's two of our subsidiaries impacted the quarter on a comparative basis.
Second, I'll discuss our outlook for the remainder of the year, including current insights into some of the our activity base, KPI.s as we turn to seasonality corner in April.
Before I get to my talking points that should be noted that I will be referencing slides from our investor presentation throughout the call today. I'd encourage everyone on today's call to review our presentation and our 10 Q, which is available on our Investor Relations website at ALTG. dot com.
Before I get into the first quarter performance, again, as I mentioned, the construction segment in our northern geographies is subject to weather constraints in Q1, which makes the sequential comparison of Q4 2023 difficult to Q1 2024. With that said, for the first portion portion of my prepared remarks and in line with slides 10 through 19.
In the earnings deck, first quarter performance for the quarter, the Company achieved record Q1 revenue of $441.6 million, up $21 million or 5% versus Q1 of last year. Embedded in the $441.6 million of revenue, a $14.7 million or 6% organic sales increase in our core material handling and construction segments making for a comparatively strong quarter in our core business against a record level comparative specifically, rental revenue increased 7.1% organically for the quarter.
In our core business segments, our product support businesses once again, Drew grew $3.2 million organically in the quarter amidst the difficult operating environment to fully understand the quarter, it's necessary to break down the business segment by segment. First, our Material Handling segment, excluding peak logics and more on peak in a minute had strong organic revenue growth of 11.8% in the quarter. Specifically, new and used equipment sales were up an impressive 23% versus last year as new lift truck equipment availability, specifically from Hyster-Yale, was improved year over year. Additionally, rental revenue was up 5%. You're a notable 5% year over year. Our product support businesses. Business lines were relatively flat versus Q1 of 2023 as more preponed delivery of the increased level of new equipment led to more nonbillable time in Q1 2024 when compared to Q1 2023.
From a gross margin perspective in the Material Handling segment, again, ex peak logics equipment parts and service gross margins were all improved or stable versus last year. Notably, when you take peak logic side of the equation, new equipment sales gross margins were stable despite an increase of the equipment supply in the market making for an overall more competitive pricing environment year over year to focus briefly on peak logics. First, recall that peak logics is a subsidiary company in our Material Handling segment. That designs builds and implements automated warehouse solutions for end markets up and down the material handling spectrum.
Strategically peak provides our sales force and our material handling customer base with high end automation solutions that our core lift truck business does not peak, as we've mentioned previously, was incredibly active and highly profitable post pandemic as customers took advantage of financing. What are long larger long-term CapEx projects at attractive interest rates and given employment levels and the work-from-home movement, automation at customer sites became more of a necessity versus that choice as we moved further away from the pandemic. As interest rates rose peaks, customers have been more reluctant to take on large automation projects from a comparative perspective in Q1 of 2020, 23 peak was still working off of 2021 and 2022 backlog related to the aforementioned tailwinds, tailwinds that have dissipated in the current current clients in terms of impact peak was down approximately $9 million of revenue year over year and at roughly 30% gross margins.
One can do the math on the impact to EBITDA for the quarter to summarize the Material Handling segment, our core lift truck business, which makes up 93% of the revenues in our Material Handling segment, is off to a positive start for the year, while peak underperformed impacting the segment overall on a comparative basis, the construction segment from a revenue perspective against a difficult comp, especially as it relates to equipment sales, the segment was up $6.6 million of revenue and experienced organic growth on each revenue line as equipment sales, parts, service and rental all contributed to the growth in the quarter notably, rental revenue was up nearly 8%, and our product support lines increased approximately 6% organically despite a challenging weather impact.
From a gross margin perspective, the construction segment saw a year-over-year reduction in margin as we navigate a competitive new equipment environment, driven by the increased supply in the market compared to last year, nonetheless, and notably, our rental disposal margins held strong at nearly 28% for the quarter on the material head onto the mid master distribution segment, which houses our e-commerce subsidiary to understand e-com versus performance for the quarter. It's important to understand its business model. First, recall that e-commerce has master distribution rights for the United States and Canada through exclusive agreements with several European OEMs that actually manufacture high end environmental process processing equipment as a master distributor, Ecova ourselves equipment purchases from the OEMs to a sub dealer network that it manages through contractual agreements for various designated territories.
Throughout North America. E-comm versus OEMs were no different than equipment OEMs around the world in terms of the supply chain challenges that afflicted the delivery of new equipment to dealers since the pandemic, as I've noted previously. And as it relates to our core business, 2023 was the great replenishment when it comes to equipment, dealers restocking their inventories to normal pre-pandemic levels. In particular, the first quarter of 2023 spoke spoke for a big portion of the great replenishment and equal versus sub dealers were no different as they restock their yards with equal versus equipment in Q1 of 23, leading to us unprecedented level of sales and EBITDA for Ecova. With that Q1 2023 has come with 20 with Q1 of 2023. As context, same restocking dynamic was not apparent in the first quarter of 24 as equal versus sub dealers were sitting at a normalized level of equipment, all told equal versus revenues were down $13.9 million for the quarter.
And given its 25% equipment margin profile, its year-over-year performance led to a headwind for the enterprise of approximately $4 million of EBITDA versus Q1 of '23. More on why we think this quarter is not indicative of the future. The future for e-commerce in a moment with the segment performance in mind, and I would refer participants to the adjusted EBITDA bridge on Slide 13 of our presentation. On a consolidated basis, we realized $34.1 million of adjusted EBITDA for the quarter, which is down $6.7 million from the adjusted level in 2023. As discussed and as presented in slide 13 of our presentation, our core business businesses outperformed Q1 2023, while the aforementioned dynamics around the e-commerce and Pete served as the primary tailwinds headwinds for for our business in the first quarter. That said, we expect each of the impacting factors listed on Slide 13, which challenged Q1 performance to become less impactful on a relative basis for the remainder of the year, which is a good segue into guidance and a discussion on our outlook for the remainder of the year.
First, I would reiterate Slide 7, which is a window into our daily activity, specifically as it relates to rental utilization and labor productivity, as you will see on slide seven, our rental fleet is experiencing its national natural seasonality as we head further into the construction season, and labor productivity has held stable at high levels. Simply put these KPIs proprietary, provide technical support to the anecdotal conversations that we are having with our customers daily, which is that they are busy. This customer activity should bode well for our product support and rental rental revenue lines for the foreseeable future.
When it comes to e-commerce, which was the biggest driver of the EBITDA variance for the quarter. We believe that Q1's performance is isolated and timing related and not a signal for the future. In fact, e-commerce produced almost $7 million of revenue in April versus $12.8 million for the entirety of Q1. We remain excited about e-commerce, its business model and its prospects going forward. Relative to peak logics. We believe that that business unit will remain challenged. The long the current interest rate environment holds, but similar to e-commerce, believe in the long-term synergies between peak and our core lift truck business.
Lastly, investors should keep in mind that the two businesses acquired in Q4 of 2023 for us and Holt are both seasonal businesses housed in our Construction segment and EBITDA from both of those businesses will be heavily weighted to the remainder of the year versus Q1. In summary, we made we remain bullish about our profit prospects for the fiscal year 2024. With that commentary, as context, given Q1 performance and the current competitive new equipment environment, we are adjusting the top end of our adjusted EBITDA EBITDA guidance for the year from $217.5 million to $212.5 million, while keeping the $207.5 million floor of the range in place for 2024.
In closing, I want to once again thank my teammates for again, rising to the operating challenges that Q1 presented our business, your teamwork, dedication, it is infectious and it is the core of what makes Alta equipment group special. Thank you for your time and attention and I will turn it back over to the operator for Q&A.

Question and Answer Session

Operator

(Operator Instructions) Matt Summerville, DA. Davidson.

Matt Summerville

Thanks. A couple of questions. First, if you were to put together a chart similar to chart 13, with respect to the top end locked down on guidance, what would be what would the green bars look like that are maybe doing better? And then I guess, can you kind of bucket where the downside ends up coming from between peak between e-commerce, some of the other items you talked about. Just help us understand or help us understand kind of order of magnitude of the impact puts and takes on the full year EBITDA, Pogo?

Tony Colucci

Hey, Matt. Tony, I think what we were trying to what I was trying to address is that, as I mentioned, e-commerce right which was the biggest of the biggest driver of the variance in the quarter. And we have the we have the impacts for the first quarter on slide 13 for 4.3 million. We think that the comps for e-commerce get easier number one for the rest of the year. And as I mentioned, they did $7 million, give or take in April.So off to a relatively good start here for Q2.
And similarly, peak logics would have the same sort of sentiment, I guess, or dynamics surrounding it as they became they became more impacted by the elements of having a customer base sensitive to interest rates, again, large CapEx projects, et cetera. They would have started to feel that impact in Q2 of last year. So I think one is the comps get easier, which means from the headwind that that impacted Q1 in our mind won't be there in the in the quarters going forward.
Relative to the last thing on slide 13, as you know, we always burdened EBITDA with interest on floor plan, new new showroom ready for plant. Obviously, that became more of an issue for the latter half of 2023 and the comp there gets easier as well, big relative to the core businesses, we feel we feel good about material handling we had a strong quarter, as I mentioned, something 23% year over year equipment sales on an organic basis in the in the core material handling business. So we feel like that's on trend construction. We didn't necessarily the acquisition sort of if you're looking at a pro forma basis, often Burress, their EBITDA will really start to kick in now kind of saying Q2 through Q4, while we were absorbing their fixed cost and kind of the first quarter, what I will say is if there is a headwind, we have our eye on and that impacted Q1 a little bit relative to expectation. It's construction equipment sales.
And I think a lot of the comp set has been out discussing the pricing dynamics in the market of the dealer dealer channels being stocked up and but also while end markets are still strong fundamentally. So if we've got our eye on anything relative to the guidance it's construction equipment sales that provide the variable, but we feel really good about rental parts and service over the remainder of the year in our core businesses.

Matt Summerville

Thank you for that detail. Maybe just a quick follow up on on parts and service growth there organically decelerated a bit. I know you called out maybe a little bit of some weather related challenges but what's your full year expectation for organic growth in parts and service? And then maybe can you comment on what you're seeing in terms of rental rates as well as utilization levels versus a year ago? Thank you.

Tony Colucci

Sure, Matt. I think we what we saw in rental rates is probably low single digits, maybe to mid single digits up in the first quarter here of utilization on a I mean, we provided that by the way on in terms of just equipment on rent and you can you can back into kind of physical utilization or dollar utilization based on the size of our fleet. But I think that held up pretty well year over year. The fleet was bigger, but in terms of dollars on rent, we held up pretty well year-over-year.
Rental revenue just all told was up more than that sort of low single digits rate, which means we just had more dollars on rent because we think the number was 8% in our construction business, rent to rent business was up.
So that's rental. The that in terms of product support, we've messaged that we especially in our construction business that there's so much field population that's a little bit more in its infancy in certain markets than our material handling business. We would be disappointed if we didn't see low low double digit, high singles on that number.
In terms of product support, combined parts and service combined organic growth year over year, material handling will be a little bit more muted than that, just given kind of the just the dynamic and the maturity around that business. So yes, it did up. I think part of what we saw relative to the mild winter was less cold start issues, less repairs around the snow removal kind of activity, right? Somebody maybe impairs a piece of equipment because of snow removal and so some of that impacted Q1, but hopefully that helps, Matt. In terms of just where we expect to be, we'd like to be high single digits kind of on a combined basis here.

Matt Summerville

Understood. Thanks, Tony. Thank you.

Tony Colucci

Sure.

Operator

Kathryn Thompson, Thompson Research Group.

Kathryn Thompson

Hi. Thank you for taking my questions. Today. This is for Al. Just on a broad market and market outlook. Could you give a little bit more color just in terms of mega-project dynamics? And have you seen any notable change in the pace for project on vert going into mega projects? And importantly, any update on pricing on that particular end market? Thank you.

Ryan Greenwalt

This is Ryan. I'll take that I would say that that relative to the mix, what we call mega projects, it's stable. We don't see any any big changes and pricing per se. I think the the projects in general, as we've said, Kathryn is kind of creep it just it creates longer term demand where our contractors might be working on a mega project, if you will. We're always once removed in our equipment's being used by customers, which then of are using the equipment on on a potential mega project site. And we have anecdotal evidence that we know our customers are on some of these projects.

Kathryn Thompson

But what it does is it gives them confidence that they're going to be busy for longer. And we continue to hear that from customers that maybe are on these projects that these are long term, multi-year projects and that kind of create what Ryan is has a term kind of adding innings to the game in terms of any sort of potential construction cycle?

Ryan Greenwalt

You know, what we keep saying is there's only so much resources in the construction supply chain and you come back to the labor element of things. And there's only so much labor that can actually get into some of the equipment that we sell our customers to execute on these projects. So anyway, hopefully, that's helpful commentary.

Kathryn Thompson

Yes, with our visibility and with your construction equipment segment, David has been in a negative mix and but there is margin expansion on opportunity for that segment. With that increased the consistent visibility with mega projects think presumably that would help with better pricing and which would be supportive of margin growth? I mean, is that something you are seeing in the market right now?

Ryan Greenwalt

Well, I think when we think about margin growth in our construction business, it's a mix toward product support, meaning parts and service revenue versus them. You know, selling equipment to contractors that might be working on a on a mega project. So to the extent one of our customers' needs equipment has to be on a mega project, we'd love it obviously, but it's all in the of the end game of driving field population, whether that field population makes its way to a private nonres project or a large megaproject frankly, sometimes we're not sure because contractors are working on both all kinds of things. And again, in the vein of just our Gillette model, where we're putting razors out in the field and we want to sell the blades.

Kathryn Thompson

Yes, exactly. And that was that was that was the point I was getting to exactly. Thank you very much. Great.

Ryan Greenwalt

Thank you, Katherine.

Operator

Alex Rygiel, B. Riley.

Alex Rygiel

Thank you and good evening, gentlemen. A couple of quick questions here. First, on equipment sales in the quarter were stronger than I had expected, and this should be a positive trend kind of confirming the success of building that field population. Just wondering to your core goals, but it doesn't take into consideration price and volume mix or can you talk a bit about volume growth and directionally how you think about volume growth through the remainder of the year eight?

Tony Colucci

Alex, it's Tony, and thanks for the question. I think what you saw in Q1 and this is where I tried to provide as much detail on each segment. But to answer your question appropriately, really got to go segment by segment volume growth in Q1 relative to our core material handling core lift truck business for sure, was up 23%. I think the number was year over year on an organic basis, mainly on the backs of just new equipment and specifically Hyster-Yale.
What we have messaged historically is margins on forklifts historically have been on the lower end. If we look at our entire portfolio in terms of just gross margin selling equipment, does it bode well down the road for additional product support. And we'd like to think we're taking share when our volumes are up in material handling, which again will bode well for the future.
So we expect to deliver more material handling equipment in 2024 than we did in 23. And I think that we're off to a good start. What that does, though, is it does put pressure on gross margin sort of on a relative basis. And then when we have what went on at peak in the quarter, it further sort of impacts things. But that's how I would that's how I would kind of mention. We are answering the question on material handling construction volume.
We still as we see, we have a lot of if we know that equipment's being utilized. Our service call intake is stable or growing as we get into the season here of rental equipment. Remember, Alex, we've kind of got this rent to sell model. And so to the extent that volumes off of our balance sheet and onto a customers maybe wanes a little bit, it could mean that customers are for whatever reason interest rates election choosing to rent versus buy. I think we could see an element of that that might put pressure on new equipment volumes where maybe we're happy to rent or grow our PO. fleet, if you will, rental purchase option.
So the challenge there becomes it really becomes a battle a pricing battle to hold share. And that's when the OEMs are so important in terms of supporting the dealer network. And for us, that's mobile, no surprise. And historically, they've have been supportive in helping us hold margin. But nonetheless, I think we saw some of that pressure in Q1, and we would expect that to continue. But as Ryan mentioned, those remarks, we intend to hold share and sell sell value, which at the end of the day is uptime related to your service depart on the material on the master distribution side, we think it's in it. We believe it it's in a lump anomaly. I think e-commerce with a lot of great things going on with its end markets and recycling and and so forth in terms of their volume, given that the surge that was Q1 of 23.
I think it's difficult to say that they'll they'll match the same level of volume in that segment, but we intend to kind of hold the EBITDA through through pricing gains and things like this up, increased parts sales and hold the EBITDA and master distribution.

Alex Rygiel

Hopefully, when we look back at the end of the year, So long answer, Alex, but three segments that kind of break that up to top of And then any chance you can comment on the P&L impact of the difficult weather and if this is not recoverable in the kind of the second quarter or is it just lost?

Tony Colucci

Yes, I think that's probably that's part of the reason why, Alex, we adjusted our guidance down we felt like the top end of the range probably wasn't achievable given given the Q1 performance, the weather's tough to take to calibrate. I think some of it you could you could see our service margins in construction were down year over year. And some of it, I think, is related to weather. And just as we've had technicians in our construction business, that maybe we're prepared for the snow season and cold starts.
And again, so still removal related damage work that never really happened given the given the mild winter. And then you just have just soft ground that that also impacted. So that would be the first place I would go, but it's really hard for us to kind of put a number on a year-over-year weather sort of.

Alex Rygiel

Thank you.

Tony Colucci

Thanks, Alex.

Operator

Ted Jackson, Northland Securities.

Ted Jackson

Thanks very much. A lot of my stuff has been asked, but I've got a few more I wanted to circle back. If you put into the construction on a new and used equipment demand, yet there's a couple of things I want to unpack here, and one of them is if you listen to say like the Caterpillar call or the CNH call is related to construction, both of those companies essentially look for the North American market or the Americas market North American market to be flat to down in low single digits. And then behind that, there's a number of smaller, more specialty equipment manufacturers that I've had discussions with them. And they've definitely seen a little impact in terms of some of the bookings stuff, interest rates, but the fact of the matter are according to them. And everyone else I talk to is that the demand in terms of, like, you know, projects is there. I mean, the government funding has been put in place. These projects have gotten the go-ahead and the equipment is needed to be purchased. And the pause is just because there's been a rapid change in terms of interest rates and the outlook for I mean, it's created some uncertainty, which you would think if the demand is there regardless at some point that that equipment has to be put into the field. So where I'm going with it is with that as a backdrop and kind of the with regards to the commentary from CAT and CNH in particular, I mean is it fair to assume that when we look at just the new and used equipment volume for Alta, that we should see something similar here, something now essentially flat to down for 24?

Tony Colucci

So Ted, I'll take I'll take that one. And Ryan, if you get any comments, I would say that I'd start off by just saying that we think that the demand, some part of the equation remains pretty stable for the balance of this year. But what we're describing is a basically you've got all the dealer channel is full and we are competing with the OEMs. We're completing with the other dealers, the Cat dealers, the Deere dealers. And today, we're all we're all selling from full full rental fleets, full inventory, and that's going to impact how aggressive the marketplace is. So for us to hold share in this market, even with the demand backdrop, it's going to potentially be hard for us to hold margins at the same time, I would just like I said, but it's not it's not it's not a unit volume.
It's not a unit volume situation on this is you're concerned with regard origin that we may get right now in our delivery and yet the supply chain broke free. And now you've got all the inventories are now normalizing at the same time. Okay. Jumping over to Material Handling, I mean, you kind of got that answered for me anyway, but one of the nuances within Hyster-Yale is that a lot of the backlog that they've been kind of pushing through and starting to deliver has been on the larger end kind of a higher margin product. Is that the case in terms of the stuff that's starting to flow through your P&L. And then when you get into, I guess, the kind of bigger systems versus our units versus smaller units, is there a better margin profile for them for you as a distributor? Or is that not the case?

Ryan Greenwalt

Ted, this is Ryan. Again. The margin profile by product category is going to be more related to how specialized and how the competitive environment for it. So the largest by volume type of machine in our construction equipment businesses, excavators, and it's also the most competitive actuators by unit volume, probably he was missing by serial, but I'm talking about high for the Material Handling yet material material handling to the what I can say about our mix relative to history or came out with a new narrow oil product a couple of years ago, supply chain issues sort of delayed, let's say that the market's ability to kind of have what well there was delayed deliveries of a frankly, on a Mac class of products. What I will say is we're getting we're making headway into that class to narrow our product line. That's becoming a bigger mix of our business. I think in terms of big trucks, you know, Alta has always been a dominant force in our specifically in our Midwest. The Midwest, the geographies with larger high-capacity trucks. The margin profile between the two is relatively relatively the same overall. But of I would say our mix is definitely starting to shift toward the Class two because of some of the innovations and broadening of the product portfolio at Hyster-Yale.
Ted, now that I understand your question via what I was saying holds true for large trucks within the Hyster-Yale world. So it's less there's less competition. We hold higher margin generally speaking than the hard lines products.
Okay. And then my final comment, which was in the question is I'm just going to defend you from yourself. You guys have I came in here looking straight with, you know, really kind of a down the tone and I mean, maybe I talk to you too much, Tony. But when I look at the guidance and I look at at least my model against consensus, I mean, I was kind of below the low end of your range anyway. And the consensus when I look at it is at the low end of your range. So give yourself a little room, you know, don't beat yourself up too much, I guess is all I'm saying I don't know. Your quarter was great, and the outlook doesn't show me.

Ted Jackson

I'll get things you did it certainly that's not where we want to message. We feel we feel good about the remainder of the year. Thanks.

Operator

Steve Hansen, Raymond James.

Steve Hansen

Yes, I think there's lots of questions and answered, but I did want to circle back on the competitive commentary and just the broader channel inventories being relatively full here. I mean, how do you feel about your own inventories, the ability to work that down and through the next couple of quarters in order to free up some cash and how do you think about that in the broader context of the balance sheet? There isn't much discussion on the balance sheet today, but just trying to get a broader sense for how you want to manage through this environment?

Ryan Greenwalt

Yes, I think, Steve, you know, the balance sheet was relatively stable, which is up quarter over quarter, some some some I think immaterial moves to the rental fleet and inventory are in general, which is why we didn't focus on it. Liquidity still in a good position, leverage holding at the midpoint of our guidance. So but on your question relative to inventory, and we think we're trying that we tried to target two turns of inventory, maybe a little bit less than that in our construction business and maybe a turn higher than that in our material handling business on new equipment. Remember, Steve, that material handling it, it's a little bit of you're not buying for stock.
These are large fleets that are going to Fortune 500 companies that are purchased well in advance. So there's a little bit of prep and delivery time in our shops in the material handling side. But then the fleets are gone and delivered an invoice because at the. So the bigger impact to your question is on the construction side, we think we're at a good level inventory-wise. I could see it spiking up maybe a little bit more from where we're at from a year as we as we work through with manufacturers to take delivery. But we think we've got enough equipment on the balance sheet right now to kind of hold steady sight. And I guess what I'm saying is I don't see any large reduction.
I don't see any large kind of increase. We feel like we're in a good spot to keep churning at the levels that I mentioned. And go from here.

Steve Hansen

Okay, that's helpful. Thanks. And then just wanted to go back, I think it might have been Ryan has commented earlier, but the most competitive aspects of the market being in excavators. But I mean, just as a broader sweep, it sounds like the construction side has been more competitive or are there specific lanes or verticals where you're seeing the most competition. Just curious if that's filtering into that rental side. On the same vertical or not?

Ryan Greenwalt

The competition that we're seeing is in the heavy in the heavy construction. So the hard line, Volvo products with large wheel loaders, large excavators articulated 40 ton articulated dump trucks, I think come maybe maybe less so on the the CapEx into the market.

Steve Hansen

Very helpful. Thank you.

Operator

There are no additional questions waiting at this time. I would like to pass the conference back to Ryan Greenwalt of Alta equipment group for any closing remarks.

Ryan Greenwalt

Thank you for joining us tonight.

Operator

That concludes today's conference call. I hope you all enjoy the rest of your day, and you may now disconnect your lines.