Cautionary Statement About Forward-Looking Statements
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Quarterly Report on Form 10-Q contain
statements that Oshkosh Corporation (the "Company") believes to be
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements other than statements of
historical fact included in this Quarterly Report on Form 10-Q, including,
without limitation, statements regarding the Company's future financial
position, business strategy, targets, projected sales, costs, earnings, capital
expenditures, debt levels and cash flows, and plans and objectives of management
for future operations, including those under the caption "Executive Overview"
are forward-looking statements. When used in this Quarterly Report on Form 10-Q,
words such as "may," "will," "expect," "intend," "estimate," "anticipate,"
"believe," "should," "project" or "plan" or the negative thereof or variations
thereon or similar terminology are generally intended to identify
forward-looking statements. These forward-looking statements are not guarantees
of future performance and are subject to risks, uncertainties, assumptions and
other factors, some of which are beyond the Company's control, which could cause
actual results to differ materially from those expressed or implied by such
forward-looking statements. These factors include the cyclical nature of the
Company's access equipment, commercial and fire & emergency markets, which are
particularly impacted by the strength of U.S. and European economies and
construction seasons; the Company's ability to increase prices or impose
surcharges to raise margins or to offset higher input costs, including increased
commodity, raw material, labor and freight costs; the Company's estimates of
access equipment demand which, among other factors, is influenced by customer
historical buying patterns and rental company fleet replacement strategies; the
strength of the U.S. dollar and its impact on Company exports, translation of
foreign sales and the cost of purchased materials; the expected level and timing
of U.S. Department of Defense (DoD) and international defense customer
procurement of products and services and acceptance of and funding or payments
for such products and services; the Company's ability to predict the level and
timing of orders for indefinite delivery/indefinite quantity contracts with the
U.S. federal government; risks related to reductions in government expenditures
in light of U.S. defense budget pressures and an uncertain DoD tactical wheeled
vehicle strategy; the impact of any DoD solicitation for competition for future
contracts to produce military vehicles; risks related to facilities expansion,
consolidation and alignment, including the amounts of related costs and charges
and that anticipated cost savings may not be achieved; projected adoption rates
of work at height machinery in emerging markets; the impact of severe weather or
natural disasters that may affect the Company, its suppliers or its customers;
performance issues with suppliers or subcontractors; risks related to the
collectability of receivables, particularly for those businesses with exposure
to construction markets; the cost of any warranty campaigns related to the
Company's products; risks associated with international operations and sales,
including compliance with the Foreign Corrupt Practices Act; risks that a trade
war and related tariffs could reduce the competitiveness of the Company's
products; the Company's ability to comply with complex laws and regulations
applicable to U.S. government contractors; cybersecurity risks and costs of
defending against, mitigating and responding to data security threats and
breaches; the Company's ability to successfully identify, complete and integrate
acquisitions and to realize the anticipated benefits associated with the same;
and risks related to the Company's ability to successfully execute on its
strategic road map and meet its long-term financial goals. Additional
information concerning these and other factors that could cause actual results
to differ materially from those in the forward-looking statements is contained
from time to time in the Company's U.S. Securities and Exchange Commission (SEC)
filings, including, but not limited to, the Company's Current Report on Form 8-K
filed with the SEC on January 29, 2020 and Item 1A. of Part II of this Quarterly
Report on Form 10-Q.
All forward-looking statements, including those under the caption "Executive
Overview," speak only as of the date the Company files this Quarterly Report on
Form 10-Q with the SEC. The Company assumes no obligation, and disclaims any
obligation, to update information contained in this Quarterly Report on Form
10-Q. Investors should be aware that the Company may not update such information
until the Company's next quarterly earnings conference call, if at all.
All references herein to earnings per share refer to earning per share assuming
dilution.
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General
Major products manufactured and marketed by each of the Company's business
segments are as follows:
Access equipment - aerial work platforms and telehandlers used in a wide variety
of construction, industrial, institutional and general maintenance applications
to position workers and materials at elevated heights, as well as carriers and
wreckers. Access equipment customers include equipment rental companies,
construction contractors, manufacturing companies, home improvement centers and
towing companies in the U.S. and abroad.
Defense - tactical trucks, trailers and supply parts and services sold to the
U.S. military and to other militaries around the world.
Fire & emergency - custom and commercial firefighting vehicles and equipment,
ARFF vehicles, snow removal vehicles, simulators and other emergency vehicles
primarily sold to fire departments, airports and other governmental units, and
broadcast vehicles sold to broadcasters and TV stations in the U.S. and abroad.
Commercial - concrete mixers, refuse collection vehicles, portable and
stationary concrete batch plants and vehicle components sold to ready-mix
companies and commercial and municipal waste haulers in the Americas and other
international markets and field service vehicles and truck-mounted cranes sold
to mining, construction and other companies in the U.S. and abroad.
Executive Overview
The Company reported earnings per share of $1.10 in the first quarter of fiscal
2020, in line with the Company's expectations and down compared to earnings per
share of $1.51 in the first quarter of fiscal 2019. Results for the first
quarter of fiscal 2019 included $7.0 million, or $0.10 per share, of charges
related to adjustments to the repatriation tax on deemed repatriated earnings of
foreign subsidiaries (the "Transition Tax'') required under the U.S. Tax Cuts
and Jobs Act (the "Tax Reform Act") enacted in the United States in December
2017. Positive access equipment performance was not enough to offset lower
defense segment results, primarily as a result of lower cumulative catch-up
adjustments on contract awards and adverse product mix, and the impact of lower
consolidated sales. The first quarter of fiscal 2020 benefited by $0.06 per
share compared to the first quarter of fiscal 2019 as a result of share
repurchases, including $9.4 million of share repurchases in the first quarter of
fiscal 2020.
Consolidated net sales in the first quarter of fiscal 2020 decreased
$108.3 million, or 6.0%, to $1.70 billion compared to the first quarter of
fiscal 2019 primarily due to lower access equipment sales. The lower sales
volume in North America reflected rental company customers in this region
slowing down their capital expenditures for fleet growth.
Consolidated operating income decreased $51.4 million to $109.1 million, or 6.4%
of sales, in the first quarter of fiscal 2020 compared to $160.5 million, or
8.9% of sales, in the first quarter of fiscal 2019. The decrease in consolidated
operating income was primarily due to lower defense segment results and lower
gross margin associated with lower consolidated sales, offset in part by
improved access equipment segment performance.
The decline in defense segment results was due in large part to lower cumulative
catch-up adjustments on contract awards. In the first quarter of fiscal 2019,
the defense segment received a very large order for Joint Light Tactical
Vehicles (JLTV). Upon receipt of that order, the defense segment recorded a
cumulative adjustment to the program margin to reflect a near doubling of the
number of units on contract for that program. The defense segment received a
JLTV order again in the first quarter fiscal 2020, but the quantity of units
ordered was not as large as the first quarter of fiscal 2019. Consequently, the
impact of the cumulative adjustment to the program margin was not as large. For
comparison, the order in first quarter of fiscal 2020 only increased the
quantity of units ordered life to date of the program by slightly more than 25%.
As a result of the Company's first quarter results that were in line with the
Company's expectations; the successful conclusion of negotiations with most of
access equipment segment's key rental company customers in the first quarter;
backlog of over $1 billion in each of the Company's three largest segments and
signs of stabilization of macro-economic data in the United States, the Company
reaffirmed its fiscal 2020 earnings per share estimate range of $7.30 to $8.10.
The Company also continues to expect fiscal 2020 consolidated net sales to be
between $7.9 billion and $8.2 billion and consolidated operating income to be in
the range of $690 million to $765 million.
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The Company slightly reduced the high end of the access equipment segment fiscal
2020 sales estimate range by $50 million to reflect lower expected sales in the
Europe, Africa and Middle East region versus the Company's previous
expectations. The Company now expects access equipment segment fiscal 2020 sales
to be between $3.5 billion and $3.75 billion. The Company also increased the
high end of its fiscal 2020 operating income margin estimate range for the
access equipment segment by 25 basis points as the Company believes the access
equipment segment can deliver the previous implied operating income on the
slightly lower sales levels. The Company now expects access equipment segment
operating income margin in the range of 11.25% to 12.5%.
The Company continues to expect defense segment fiscal 2020 sales to be
approximately $2.2 billion with operating income margin of approximately 9.0%.
The Company's fiscal 2020 sales and operating income margin expectations for the
fire & emergency segment remain unchanged at approximately $1.2 billion and a
range of 14.5% to 15.0%, respectably.
The Company also did not change its commercial segment expectations for fiscal
2020 of approximately $1.05 billion of sales at an operating income margin in
the range of 7.0% to 7.25%.
The Company expects flat sales in the second quarter of fiscal 2020 as compared
to the second quarter of fiscal 2019 as expected defense segment sales growth
should offset expected lower access equipment segment sales. The Company expects
earnings in the second quarter of fiscal 2020 will be modestly lower compared to
the second quarter of fiscal 2019, reflecting the mix impact of higher defense
segment sales and lower access equipment segment sales.
Results of Operations
Analysis of Consolidated Net Sales
The following table presents net sales by business segment (in millions):
First Quarter Fiscal
2020 2019
Net sales:
Access equipment $ 717.9 $ 826.5
Defense 493.1 464.1
Fire & emergency 262.4 295.5
Commercial 224.2 222.2
Intersegment eliminations and other (2.5 ) (4.9 )
$ 1,695.1 $ 1,803.4
First Quarter Fiscal 2020 Compared to 2019
Consolidated net sales in the first quarter of fiscal 2020 decreased $108.3
million, or 6.0%, compared to the first quarter of fiscal 2019 primarily due to
lower access equipment segment sales.
Access equipment segment net sales in the first quarter of fiscal 2020 decreased
$108.6 million, or 13.1%, compared to the first quarter of fiscal 2019. The
decrease in sales, which was expected, was due to lower sales volumes for both
aerial work platforms and telehandlers in North America and the Europe Africa
and Middle East region, offset in part by continued strong sales growth in the
Asia Pacific region. The lower sales volume in North America reflected rental
company customers in this region slowing down their capital expenditures for
fleet growth.
Defense segment net sales in the first quarter of fiscal 2020 increased $29.0
million, or 6.2%, compared to the first quarter of fiscal 2019. The increase in
sales was due to the continued ramp up of JLTV sales to the U.S. government,
offset in part by lower Family of Heavy Tactical Vehicle program sales.
Fire & emergency segment net sales in the first quarter of fiscal 2020 decreased
$33.1 million, or 11.2%, compared to the first quarter of fiscal 2019 due to
favorable sales timing in the prior year quarter.
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Commercial segment net sales in the first quarter of fiscal 2020 increased $2.0
million, or 0.9%, compared to the first quarter of fiscal 2019 due to a higher
mix of package sales, which include third party chassis, offset in part by lower
concrete placement unit volumes.
Analysis of Consolidated Cost of Sales
The following table presents cost of sales by business segment (in millions):
First Quarter Fiscal
2020 2019
Cost of sales:
Access equipment $ 582.7 $ 695.5
Defense 435.4 369.5
Fire & emergency 207.0 234.3
Commercial 182.3 181.3
Intersegment eliminations and other (1.8 ) (5.5 )
$ 1,405.6 $ 1,475.1
First Quarter Fiscal 2020 Compared to 2019
Consolidated cost of sales in the first quarter of fiscal 2020 was $1.41
billion, or 82.9% of sales, compared to $1.48 billion, or 81.8% of sales, in the
first quarter of fiscal 2019. The 110 basis point increase in cost of sales as a
percentage of sales was primarily due to a larger cumulative catch-up
adjustments on contracts in the defense segment in the prior year first quarter,
primarily as a result of the dollar amount of orders received in the quarter
(120 basis points), higher new product development spending (50 basis points),
unfavorable absorption (50 basis points) and a favorable resolution of contract
compliance matters in the defense segment in the prior year quarter (40 basis
points), offset in part by improved price/cost dynamics (180 basis points).
Access equipment segment cost of sales in the first quarter of fiscal 2020 was
$582.7 million, or 81.2% of sales, compared to $695.5 million, or 84.2% of
sales, in the first quarter of fiscal 2019. The 300 basis point decrease in cost
of sales as a percentage of sales was largely due to improved price/cost
dynamics (190 basis points) and favorable product mix (170 basis points).
Defense segment cost of sales in the first quarter of fiscal 2020 was $435.4
million, or 88.3% of sales, compared to $369.5 million, or 79.6% of sales, in
the first quarter of fiscal 2019. The 870 basis point increase in cost of sales
as a percentage of sales was largely attributable to a larger cumulative
catch-up adjustments on contracts in the prior year first quarter, primarily as
a result of the dollar amount of orders received in the quarter (420 basis
points), unfavorable product mix (200 basis points), a favorable resolution of
contract compliance matters in the defense segment in the prior year quarter
(120 basis points) and higher new product development spending (90 basis
points).
Fire & emergency segment cost of sales in the first quarter of fiscal 2020 was
$207.0 million, or 78.9% of sales, compared to $234.3 million, or 79.3% of
sales, in the first quarter of fiscal 2019. The 40 basis point decrease in cost
of sales as a percentage of sales was primarily attributable to improved pricing
(270 basis points) offset in part by adverse product mix (110 basis points) and
product inefficiencies associated with a supplier part shortage (90 basis
points).
Commercial segment cost of sales in the first quarter of fiscal 2020 was $182.3
million, or 81.3% of sales, compared to $181.3 million, or 81.6% of sales, in
the first quarter of fiscal 2019. The 30 basis point decrease in cost of sales
as a percentage of sales was primarily attributable to improved price/cost
dynamics (310 basis points), offset in part by adverse product mix (110 basis
points), higher new product development costs (90 basis points) and the absence
of a favorable warranty reserve adjustment experienced in the first quarter of
fiscal 2019 (60 basis points).
Intersegment eliminations and other includes intercompany profit on
inter-segment sales not yet sold to third party customers.
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