Q4 2019 Earnings Call
Greetings and welcome to the Oshkosh Corporation reports fiscal 2019 fourth quarter full year results.
All participants are in listen only mode. A question answer session will follow the formal presentation. If any what's your acquire operators. This is during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded it is now my pleasure to introduce your host Pet Davidson Senior Vice President Investor Relations for Oshkosh Corporation.
Thank you Mr., David said you may begin.
Good morning, Thanks for joining us earlier today, we publish our fourth quarter and full year 2019 results a copy of the release is available on our website at <unk> Dot Com today's call is being webcast and as a company by a slide presentation, which includes a reconciliation of GAAP to non-GAAP .
Financial measures that we will use during this call is also available on our website.
The audio replay in slide presentation will be available on our website for approximately 12 months. Please refer now to slide two up that presentation.
Our remarks, it follow including answers to your question contain statements that we believed to be forward looking statements within the meaning of the private Securities Litigation Reform Act.
These forward looking statements are subject to risks that could cause actual results to be materially different from those expressed or implied by such forward. Looking statements. These risks include among others matters that we have described in our form 8-K filed with the FCC. This morning, and other filings we make with the FCC.
We disclaim any obligation to update these forward looking statements, which may not be updated until our next quarterly earnings conference call. If at all all references on this call to a quarter or year, our to our fiscal quarter or fiscal year unless stated otherwise.
Our presenters today include Wilson Jones, President and Chief Executive Officer, Dave See chart Executive Vice President and Chief Financial Officer, both of whom you have come to expect from US also joining us for the first time on a quarterly earnings call is John Pfeiffer, Our recently hired Chief operating officer. Please.
Turning to slide three an alternate or do you Wilson. Thank you Pat and good morning, everyone and a follow up on Pat's comments I'm happy to welcome John fiber to the call.
John brings a lot of expertise to the table and you'll hear from him in a few minutes.
Today, we're pleased to announce strong fourth quarter and full year results fourth quarter earnings per share of $2.17 was up 20.6% compared to the prior years adjusted earnings per share and full year adjusted earnings per share of $8.31, well, the 30.7% versus 2000.
They team we've delivered 38% adjusted earnings per share Cagar since 2016, I'll say that again, we've delivered 38% adjusted earnings per share Cagar. Since 2016, that's pretty good performances and I'm proud of the efforts of all the Oshkosh team members and our people first culture and posting.
Such strong results.
I'm also very proud to announce that last month, we were named to the Dow Jones sustainability World Index, recognizing Oshkosh is ongoing commitment to sustainable business practices. We've been recognized by many different organizations for strong corporate governance and sustainability over the last several years, the Dow Jones sustainability and.
Next is the gold standard and we're proud to be listed among this group of global leaders.
Last quarter, we talked about mixed economic signals that trend has continued and is reflected in our initial outlook for 2020 today, we're announcing our 2020 earnings per share estimates with a range of $7.30 to $8 intensive which would be the third highest earnings year and our company's history.
They will discuss our 2020 expectations in more detail.
As I mentioned earlier, our team has been performing at a high level and our execution and operations are performing better than ever as a result of our moves strategy and simplification efforts, which should allow us to deliver strong results in 2020, well also continuing to invest in the business.
Additionally, the benefits of being a different integrated global industrial provide us with a stable foundation based on solid outlooks for our foreign emergency defense and commercial segments.
Please turn to slide four let's talk about full year.
I would characterize our performance in 2019, this strong execution and results in an uncertain environment, we successfully navigated the impacts of volatile trade policy anteros, along with talk of an impending recession.
We posted double digit percentage sales increases in our fire and emergency and defense segments and record sales more than $4 billion that access equipment I.
Additionally, all through the segments I, just mentioned delivered full year operating income margins of 10% or more.
That's outstanding performance.
The commercial team was on track for saw an improvement in 2019 as well until production was disrupted by a partial roof collapse in February .
We continued our track record of disciplined capital allocation, returning more than $425 million the cash to shareholders through the repurchase of 4.9 million shares and ongoing quarterly dividends.
We announced this morning that we're raising our quarterly cash dividend by 11% to 30 cents per share. This will be the six consecutive year that we've raised the dividend rate by double digit percentage.
Please turn to slide five to begin to discussion for each of our business segments. All started off with defense and then turn it over to John who will discuss our nondefense segments.
Last quarter, our defense team receive worth the JLTV was moving to full rate production status and we've been building off that success over the past several months. The team is working through operational excellence programs as they ramp JLTV production, including incorporating the configuration changes we discussed earlier this year the.
Program is in great shape and the team is being recognized for it in fact, we just hosted senior Navy officials, including Secretary of the Navy Richard Spencer, who presented Oshkosh defense with a Bravo Zulu award for delivering Jltvs to the Navy and Marine Corps ahead of schedule and on budget.
On time on budget and exceeding performance are all hallmarks of our defense programs and we're going to keep performing to those standards.
The JLTV continues to drive strong interest from international Defense community with multiple countries playing to purchase this amazing vehicle.
We participated recently and two important defense trade shows DSC and Europe , and the USA just two weeks ago in Washington DC.
Defense team reported strong activity engagement at the shows.
Our USA, we displayed to new JLTV variant concepts showcased our strength as a tactical wheeled vehicle leader.
We continue to be confident we will book JLTV International orders in 2020 for shipment foreign allies beginning in 2021.
We previously talked about a two year U.S. government budget deal that was hot off the presses in July .
We also mentioned that the continuing resolution could still happen and that is in fact, what did happen as president Trump signed the CR and late September keeping the government funded until November 21.
The timing of finalizing the government's 2020 budget will not repeat will not have a significant impact on our 2020 outlook due to extensive backlog we already have in place.
Let's turn to slide six and I'll pass to John to discuss our nondefense segments.
Thanks, Wilson and good morning, everybody I'm proud to be part of the Oshkosh team and happy to be speaking with all of you today on the call.
Our access equipment team delivered strong results this quarter with sales of just over $1 billion contributing to the annual record sales that Wilson just mentioned.
Full year sales were powered by North America, and Asia Pacific, which were both up double digit percentages over the prior year.
The catalyst for increased demand for access equipment in the Asia Pacific region is product adoption, which is driven by safety and productivity improvements on the job site versus previous work methods.
The strong growth we've experienced in this region over the last several years and positive outlook for continued growth have led us to expand our operations in China.
The team is expanding production capacity on its current campus, which we expect to be completed in the next year.
Last quarter, we talked about a moderation access equipment demand in North America and Europe .
That's slowing continued this quarter and we expected to continue into 2020.
Orders and backlog for the quarter were down significantly due to the lower market demand and timing of order placement.
We are generally hearing that customers plan to place their orders this year more closely to when they expect to need be equipment.
This means we will likely experienced timing differences throughout the year, when comparing orders and backlog to 2019.
The annual negotiations with the national rental companies are underway, but it's early and we'll have more insight into demand levels and order patterns for 2020 on our next earnings call.
We continue to believe the long term prospects for our rental customers and the access equipment market remain healthy.
With that said, we expect lower but still historically high sales in the segment in 2020.
And as the industry leader, we also expect to deliver solid financial results.
Looking out beyond 2020, we know there's a lot of equipment that is coming up on seven eight and nine years of age that will need to be replaced.
We believe this fleet demographic will translate into strong replacement demand in North America, putting us on a solid path for 2021.
We also believe will we will continue to benefit from a rapidly growing Asian market through 2021 and beyond.
Please turn to slide seven for a discussion of the fire and emergency segment.
Once again fire and emergency lead by example, as they delivered sales and operating income growth for both for both the quarter and the full year.
In fact, they set new full year records for sales operating income and operating income margin.
We've talked a lot over the past several several years about the hard working fire and emergency team and their dedication to simplifying operations sales order management and the entire business process. The results are impressive and provide a great roadmap across the company for yielding positive results.
Yes.
Under Jim Johnson's leadership, the fire and emergency team has been able to increase their operating income margins by nearly 1100 basis points since 2013.
In addition to the domestic municipal fire truck customer base. The segment benefited from increased use air force activity as well as international shipment timing in 2019.
We expect the air force business to be a driver of strong performance again in 2020.
Orders were up solidly in the quarter rebounding from a slight decline in the third quarter.
For the full year orders were up 10% keeping the backlog at a high level in fact pierced booked more orders in 2019 and they have in any of the last 10 years.
Fire and emergency as experienced a slowdown in international orders recently due to the impact of uncertain trade policy. Fortunately higher domestic activity has helped offset the lower international order volume.
Looking ahead to 2020, we expect flat to slight growth in the fire truck market in North America.
We maintain a very positive long term outlook for this business.
Please turn to slide eight and we'll talk about our commercial segment.
Our commercial team showed their resiliency as they continue to bounce back from some weather related adversity that impacted production earlier in the year and finished 2019 on a high note with sales up nearly 5% in the quarter led by our refuse collection vehicle business.
Operations are back to normal in the segment continues to focus on driving improvements through simplification initiatives.
It takes time per cent for the simplification benefits to be visible and they've had to overcome some unexpected challenges that we've previously discussed but I'm confident that they are regaining the momentum they built from 2018 into early 2019.
We expect 2020 and 2021 to be key years in the further transformation of this business.
We expect the refuse collection vehicle and concrete mixer markets in 2020 to be similar to 2019 at levels, even with or slightly above long term average for refuse collection vehicles and below long term average for concrete mixers.
We expect some choppiness within the year, however, as customers continue to monitor macroeconomic indicators looking for clues to where the economy maybe headed.
That wraps it up for our business segments I'm going to turn it over to Dave to discuss our 2019 results and outlook for 2020 in greater detail.
Thanks, John and good morning, everyone. Please turn to page nine we're pleased with the team's strong finish in 2019.
Consolidated net sales for the fourth quarter were $2.2 billion, 6.7% increase over the prior year.
Led by greater than 20% increases that defense as the JLTV production ramp continued and fire and emergency with both higher airport products in fire truck sales.
Access equipment sales were down low single digit percent as expected and commercial sales were up modestly driven by higher RCB sales.
We've included an updated Rev. Rec standard chart in the slide deck again this quarter. This will be last quarter that we include this slide though as next year, we'll be reporting year over year results on a comparable FC six so six basis.
Consolidated operating income for the fourth quarter was $203.1 million or 9.2% of sales compared to adjusted operating income of $180.6 million or 8.8% of sales in the prior year.
We're pleased that the excess equipment team was able to offset almost all the impact of the lower volume to deliver operating income at nearly the level of last year and higher operating income margin.
Favorable regional mix and lower freight costs offset in part by higher marketing spending were the primary drivers of the positive margin performance.
Defense operating income in the quarter benefited from the higher sales noted earlier.
And while operating income margin was down compared to the prior year due largely to the continued shift to a higher waiting of JLTV sales fourth quarter operating margin was stronger than we expected leading to a 10% full year operating margin.
Fire and emergency delivered another quarter of operating income and operating margin growth overcoming headwinds compared to the prior year quarter.
In the commercial segment continue to rebound nicely from the partial rough collapse earlier in the year delivering a second consecutive quarter of operating income margin above 7%.
Favorable mix with a higher percentage of our Cvs was the primary contributor to higher operating income margin versus the prior year.
Earnings per share for the quarter was $2 in 17 cents compared to adjusted earnings per share of $1.80 cents in the prior year at 20.6% increase.
Higher operating income in the defense fire and emergency and commercial segments, along with lower corporate expenses and lower share count accounted for the higher earnings per share.
The fourth quarter benefited 15 cents per share as a result to share repurchases completed in the last 12 months and we repurchased $66 million of Oshkosh shares in the quarter, achieving our full year target of $350 million a share repurchases and we generated more than $400 million of free cash flow during the year over.
Overall, we're pleased with our fourth quarter and full year performance.
Turning to slide 10 for a review of our initial expectations for 2020.
We expect to deliver solid results again in 2020, even with the market for our largest segment excess equipment projected to be down compared to 2019.
The benefits of our end market diversity and operational leverage are reflected in this outlook.
Our expectations for 2020 assume that we continue to execute our move strategy, including increasing our investment in new product development, we're NPD and expanding excess equipment production capacity in China, which has been that segments fastest growing market.
On a consolidated basis, we are estimating sales of $7.9 billion to $8.2 billion compared to 8.38 billion in 2019.
We're also estimating operating income of $690 million to $765 million compared to 797 million and earnings per share of $7.30 to $8 in 10 cents compared to adjusted earnings per share of $8.31.
At the segment level, we're estimating excess equipment sales of $3.5 billion to $3.8 billion, a 7% to 14% decline compared to 2019.
This range assumes sales declines in North America.
And by a pause in fleet growth by rental companies compared to the last two years and EMEA region, partially offset by continued strong sales growth in the Pac rim, reflecting expected continued product adoption in that region.
We are estimating operating margin in this segment will be 11.25% to 12.25%.
We expect lower amortization expense in the positive impact of operational initiatives, partially offset the impact of lower volume less favorable regional mix and higher new product development investment.
Turning to defense, we're estimating 2020 sales of approximately $2.2 billion, an 8.25% increase compared to 2019.
The estimate reflects additional JLTV production and modestly lower FH TV and FMTV sales.
Declawed for 2020 was nearly $2.1 billion at September 30, So defense is largely booked for the year.
We estimate the contracts for international JLTV sales that are currently in the works with other countries will not be signed in time to recognize sales in 2020, providing opportunities for 2021.
We are estimating operating margin in this segment will be approximately 9% consistent with our comments over the past several years of high single digit percent margins.
Compared to 2019, the expected margin in this segment reflects the continued mix shift to a higher percentage of Jltvs and increased NPD spending.
We expect fire and emergency segment sales will be approximately $1.2 billion roughly $65 million lower than 2019.
The lower expected sales are mostly a reflection of what happened in 2019, there were $40 million. The sales that moved from the fourth quarter of 2018 ended the first quarter of 2019, and we did not see a similar shift at the end of 2019.
We expect to continued flat to slow growth fire truck market in North America in 2020, and slower international activity, especially in Asia, the trade where drags on.
We expect operating margin in the fire and emergency segment to increased to 14.5% to 15% offsetting the negative impact of lower sales and operating income.
The fired emergency team has continued to effectively executed simplification strategy and expects to realize additional benefits that will allow them to achieve the targeted margin range for 2020.
We are estimating sales of approximately $1.5 billion in the commercial segment up slightly from 2019 and consistent with what John described.
And we're expecting a rebound in operating margin for this segment to a range of seven to seven in the quarter percent. After 2019 margins were negatively impacted by the partial rough collapsed last winter.
We estimate corporate expenses will be $150 million to $155 million roughly equivalent to 2019.
Below the operating income line, we estimate the tax rate for 2020 will be 21.25% to 21.5% similar to 2019, and we are estimating an average share count of 69 million, which reflects the full year impact of 2019 share repurchases in an expectation that will we will return 50%.
Free cash flow shareholders in the form of dividends and share repurchases consistent with our long term target.
For the full year, we are estimating free cash flow of approximately $450 million, reflecting another year of strong cash generation.
We also estimate capital expenditures will be approximately $150 million. This level of Capex reflects continued investment in initiatives designed to drive long term earnings growth and shareholder returns.
Looking at the first quarter, we expect sales to be down mid single digit percent compared to 2019 with lower access equipment and fire and emergency sales more than offsetting higher defense segment sales.
We expect commercial sales to be down modestly, reflecting some of the choppiness, we expect on a quarter to quarter basis. This year in this segment.
We expect earnings to be down meaningfully more than sales on a percentage basis due in large part to the impact in the prior year quarter of the receipt of a large JLTV order in the defense segment, which essentially doubled the units under contract, resulting in a large cumulative adjustment to margins on that program under AOCI six so six and second.
An operating margin of more than 15%.
The defense segment expects another large JLTV order in the first quarter 2020, but they don't expect the cumulative adjustment impact to be as large as last year.
Defense is also expecting higher R&D spend in the quarter. We expect commercial operating income margin will also be down a larger percent their sales decline due to several favorable adjustments in the first quarter of 2019 that we don't expect to repeat again in 2020.
Im going to turn it back over to Wilson now for some closing comments. Thanks, Dave another strong quarter, an outstanding year, driven by our team's execution. We've initiated our outlook for 2020, which includes expectations for solid results as I mentioned earlier would be the third highest earnings year in the company's history, we have the right strategy with move.
And believe we can manage these businesses to delivered impressive sales and earnings performance and we believe we are investing in the right places to best position the Oshkosh Corporation for the future.
I'll turn it back over to Pat you and I started thanks Wilson I'd like to remind everybody. Please limit your questions to one plus a follow up after the follow up we ask that you get back in queue, if you'd like to ask additional questions.
Operator, please begin the question and answer period of this call.
Thank you at this time will be conducting a question and answer session. If you like does question. Please press star one on your telephone keypad a confirmation. So indicate your line is in the question Q. You May proceed start to if you will lead to remove your question from the Q.
Participants using speaker equipment, it may be necessary to pick up your had said before person the start keys one moment, please while we pull for questions.
Our first question comes on line of Neil Frohnapple with Buckingham Research Group. Please proceed with your question.
Hi, Thanks, good morning, Congrats on the nice quarter. Thanks.
Starting with the access equipment segment. It appears the implied decremental margin for offline 20 at the midpoint of mid to high teens is considerably better than how you performed in the last downturn. So could you walk through some of the drivers underpinning the margin outlook customer mix regional mix I think Dave mentioned product mix would be negative price.
Conflicts that are just so we can get comfortable with the profit outlook for 20.
Sure Neil and good morning so.
Overall, I would say not only in access, but really as a whole company overall I think we're not a much better place than we were in 2016. When you referenced that you look at the strength.
Really in the non excess segments versus and an cuts.
Very apparent that were different uneven even access we're coming off of a much higher base, but overall as you think about the.
The anchor Decrementals for access in fiscal 20, as we said in the prepared remarks, we got a number of positive things there one being lower amortization expense. So some of the purchase accounting amortization from the GLG acquisition is rolling off.
That's a that's about a 25 million dollar favorable items year over year, we've got operational initiatives, which really fall under the whole simplification.
Category, there we've talked a lot about some of the improvement year over year working with the supply base.
We think we still have opportunities there as well as things internally that we're working on that that will help us.
Offsetting knows as we mentioned regional mix is going to be a little bit of a headwind for us and then higher NPD as we continue to invest in the business, but I would say that our view really is there is nothing heroic in here a lot of things that.
We do have within our control that we think we can execute on to deliver the decremental margins that we've put out there.
Okay. That's helpful. Dave and then just wanted to ask about the margin outlook for the commercial segment profit by 20.
7% I think you may as that seven to seven in a quarter.
So I think excluding the roof collapse and offline 19, you would have been north of 7% I believe so could you talk about sort of why the margin outlook wouldn't be higher for next year. When also considering the simplification initiatives and the low single digit sales growth sure. The biggest driver. There is continued investment in the business.
We talked about.
Higher NPD and we're really seeing that across all of our segments and then there is some other initiatives that they are undertaking to better position themselves for the future. So.
Overall, we view this is a very good thing that we're investing for long term future. The businesses I think if you go back Neal to when foreign currency started their journey. The first couple of years were slower improvement from a margin standpoint, because of the investments that they made and and that's what you're seeing with commercial during the early stages of continued investment.
Okay. Thanks, so much I'll pass it on.
Our next question comes on line of Jerry Revich with Goldman Sachs. Please proceed with your question.
Yes, hi, good morning, everyone, you had really strong share gains.
Access equipment, and then fire and emergency can you just talked about are there any specific product lines or distribution initiatives that are.
Driving the share gains can you just expand a bit more on your really strong performance and momentum in the market. Thanks.
Yeah, Jerry I think.
From a share gain standpoint, we've been focused target segments that we see where we can grow profitably and we're putting more resources.
Through those areas.
I think the.
Refuse collection has been a good area for us foreign currency with with some of their continue introductions of the ascendant than some variance off that where we have a clear competitive advantage.
Just continued innovation products that we're introducing that.
To give us that sustainable long term competitive advantage so.
I can't point to just one really big thing, but the.
The telehandler share of was probably the one that maybe jumps out at the most and that was because we didnt have a capacity in 18, and we had it in 19. So we gained our share back, but I guess, if you're asking what is the biggest share gain it would be in back until after signing 19.
Okay.
And then in terms of.
The outlook in 24 it back so segment are there any share gains embedded in the topline outlook because it looks like the order run rate.
So during the years bit tougher and obviously, we had backlog come down over the over the course of 19 as you delivered strong pellet handler.
Backlog. So I'm wondering if you could just touch on any tailwinds that we should be keeping in mind relative to market demand that's embedded within the topline outlook considering what we're seeing appear to be more significant capex cuts out of the rental industry.
That's a lot Gerry.
I think the quick answer for you is that theres not any significant market share gains into our forecast I think if it's a we'd have some targeted conquest accounts that we are that you would see on our sales plan on a year and based on annual basis, but there is not in a really large targeted market share gain.
It's it's really working through.
Our normal customer contacts and and working through the markets like we do year in your out.
John If you have anything you wanted or with clauses.
This is John just talking in general about the outlook for access in 2020.
We've got a pretty robust forecasting process with the business and we think we've got the right outlook for for the year, we've modeled in a 15% 20% decline in North America and access based upon.
What we're seeing in the marketplace still still high.
Neighborhood that were and we like the neighborhood that were as just not going be us frothy as 18 and 19, we've got double digit declines were forecasting in Europe , but we've also got double digit improvement or increases in Asia Pacific and we think that this is right now the right outlook for 2020 for the business and.
That leads us to.
To the access forecast that you see.
Okay I appreciate the discussion. Thank you thanks Gerry.
Our next question comes the line of David Raso with Evercore ISI. Please proceed with your question.
Hi, good morning.
First can you clarify that gel G amortization roll off of 25 million for 2020, Yes, Yes. If you go back and look at the 10-K last year. David It was we put the next five years amortization.
Numbers in there and it was indicated that there'd be a significant roll off.
I, sometimes in the roll off is it just simply to spend about 13 year since the deal or is there something unique to that step down no. If we had some of the intangible assets. It had the lives of 12 to 13 years, and they're becoming fully amortized.
Okay and regarding the.
The common 50% of free cash flow to be returned to shareholders just trying to figure out there. Some messaging there. The last couple of years, you've essentially use most all the free cash flow for dividend in repo.
And even with the new repo I mean, the new dividend rate of 30 cents a quarter I mean dividends only about $80 million. So I'm just trying to square up a wise it only 50% and then b the share count is assumed flat for the whole year. When all is that you should be able to take out two and half percent on the shares before creep so is that.
Not much creep and again, why so low as a percent of free cash flow given the net debt to caps, 11% that net debt to EBITDA is only 0.4.
If I Miss any of your questions that were all embedded in there David Please just remind me but.
So the 50% you've heard us talk over time about our capital allocation strategy. We we tried to take a disciplined approach with that that targets returning 50% of our free cash flow to shareholders quote over the course of this cycle and you're going to see that ebb and flow from year to year.
The last couple of years have been significantly higher you go back a few years and it was significantly lower than that this is the initial guide for fiscal 20, it's it's early and in the 50% is right in line with.
What we said is part of that.
Capital allocation strategy and approach so.
We think that that makes sense at this time, we'll continue to monitor that as we go through the year and we can adjust as we deem.
For appropriate with that and then in terms of the share count.
On a full year basis or average for 19, we are at 70.6 were guiding due to 69.
There will be some creep and depending on the timing of when we repurchased shares in the year.
Right now the assumption going in is that that we will.
Purchase those shares evenly throughout the year.
Again that may change, depending on on how we see things play out here during the year, but those are kind of apone components that came into the whole.
Calculation of share count for the year.
I appreciate that so again the messaging here isn't only 50% of free cash flow less than the last two years going a dividend the repo because were more acquisitive and our thought process for 20, it's just simply the mechanical we've said, 50% that's the baseline and we will sit market you are more for the baseline there yes.
We were not intending to message one way or the other we're going to continue to be opportunistic.
And that May mean, more or less share repurchases of that May mean, we do look at external opportunities if they present themselves.
All right. Thank you very much I appreciate it thanks.
Our next question comes the line of Tim theme with Citigroup. Please proceed with your question.
Yes, great. Thanks, Good morning, just.
One question on defense, maybe you can you walk through.
Some of that the programs in terms of how they are expected to.
To play out here in in 28.
Thinking that JLTV would be up the order of magnitude three to 400 million.
Based on based on what's been announced that maybe you can just.
Help us with some of the other puts and takes I think.
I thought that the F. HDD had demod within the recent budgets it should be helping you, but maybe you can just give us some.
More color in terms of medium and heavy and how those are expected to land here in 20. Thank you sure Tim.
As we said on the prepared remarks, we do expect continued sales growth and JLTV thats going to become a bigger percentage of this segment sales overall.
And then along with that we expect some modest declines in both the heavies and the mediums in terms of sales.
And Thats really in line with what we've seen out of the presidents are the deal the budgets. The last several years. So I think it's really kind of consistent with what we've been saying for.
A while now that.
JLTV continuing to grow and moderation in the two other major domestic programs and that backlog is pretty well in place, yes, yes, $2.1 billion backlog for fiscal 2008, so that we feel real good about.
Our defense is setting up for the year.
And again I know, it's difficult if not impossible to forecast, but what what does the team hearing from an international landscape in terms of of.
TV prospects.
Yes, and we continue to here good things from International standpoint, I think you've probably heard us talk about Slovenia.
We have a letter agreement with them Lithuania has a state department approval and just recently Montenegro got state Department approval, so starting to see more activity from some of our European Allies, we've talked before about our UK customer that has to variants that they're testing right now we expect them to come with an.
Peter.
Not sure about the timing of that or at this point because they are testing, but several other countries in Europe and the middle East. We had we've had a couple of good trade shows and I would say the interest level is continuing to grow for our international JLTV, Tim I would just add that I think were overall confident that we are going to actually get some.
International JLTV orders into backlog this year.
For sales starting in fiscal 2001, so it's taken a little while we're dealing with international customers and that's probably not unexpected, but I think we're on the cost of seeing some of the this activity translate into actual purchase orders and I think the full rate production decision has helped push some of that along too.
Got it thanks for the time. Thank you. Thanks. Thanks.
Our next question comes the line up and the men with JP Morgan. Please proceed with your question.
Yes, hi, good morning.
My first question is on the access as best you had in Poland.
Surcharge is not list price increases when steel prices rose and I'm wondering how our customers now in looking at.
Requiring you to lift both surcharges that steel prices are down or.
Are those now embedded in the prices to if you could just talk a little bit about the price cost environment. A bunch of customers are asking how are you sure at first I would say I think you saw our our pattern in 19, our teams, we're very disciplined with their pricing.
Important to cover our costs some of those costs were significant.
So we're in discussions now with the NRC is actually in discussions with all of our customers and nondefense segments. I think the thing that that you would hear us talk a lot about and I'm not going to be too specific today from a competitive standpoint, but there are other factors and from an inflationary standpoint than than just steel. If you look today in access they have.
ANSI safety standard costs that are coming into play Weve, but I think all manufacturers are going to increase in labor cost with access to skilled labor being very scarce other non steel material issues that we're working through I think you probably know we try to buy the majority of our steel in the us but there are some components that we have to buy outside.
And those are subject to some of the three one tariffs and we're working through those from a exclusion standpoint, and those are on an annual approval. So there's a lot.
Involved and going into two exciting pricing and because we are in the middle negotiations right now we're going to pull back on.
Some of the specifics of what we're going into the market with and probably talk more about those as we get farther into this year, but I would say the discussions are going well most of our customers. They understand that these cost a real even though steel has moved down there is some significant movement and other costs that we're dealing with.
Okay I appreciate the color and then on the backlog our access heading into fiscal 20.
Does that do orders have.
We accelerate before the end of this quarter for you to make your forecast or.
And we wait until we get into the spring is that kind of your expectation and that we may not see large rental companies order until we get into sometime around Comex board.
Just help me with that the risks to the outlook on the X. I find.
Yeah, and this is John I'll I'll start by answering that question first of all we've seen a big shift in timing with regard to orders and probably the shift was really an 18 and 19 when things really change and we're seeing it go back to normal so some of the big orders that we would've gotten last year in the fourth call.
And our worse, we're expecting those orders at a later point in time, but if you really look at our backlog or the past few years. The our backlog is very consistent with where it was say on the 16 17 period. So it's not an abnormal backlog right now it's only abnormal when you look at it against the gigantic backlog.
But we had a year ago and maybe it's a day just add a little color on that so.
If you look at headline numbers in terms of fourth quarter orders and backlog.
There are it's very easy to see when we when we look into that there were several larger customers last year that placed sizable orders in the fourth quarter that are now placing those orders in the first quarter of this year and so on the magnitude of a couple of hundred million dollars. So if we look at the orders in the fourth quarter and try to do more of an Apple.
It's apples and kind of remove some of this timing issue, we think on a on a more pure basis orders instead of being down Thirtyish percent were down like 7.5% in the quarter. So I think that just kind of supports a little bit of what what John was saying about some of the timing shift back to a more historical typically.
No pattern that we've seen in in the past the other thing I would say is we've got to remember last year.
The first quarter, we had a.
Also a very strong order quarter. It was like over 1 billion and a half dollars still the last two years again kind of talking about how those two years kind of stood out.
From what we had typically seen in the past so as we as we go through this quarter, we are going to see some timing benefits from some of those quarter or customers that shifted from Q4 into Q1, but it wouldn't surprise us to see some of the larger customers move some of their orders out of out of Q1 and into Q2. So.
It's going to be a different year. This year in terms of the order cadence in access and I think we should all expect that.
That's very helpful color and then if I could squeeze the no real quick follow up on that how big is Asia and access as a percentage of total sales bank.
It's.
It's nowhere near where in North America, and Europe is but it is our fastest growing region. We've seen strong double digit growth there and what I would say as it is quickly becoming more relevant and we expect that's going to continue.
Into the coming years.
How does that 10%.
Good day.
Today, it's less than 10% okay. Thank you.
Yes.
Our next question comes the line of Seth Weber with RBC capital markets. Please proceed with your question.
Hey, good morning, guys is that.
Actually following up on the Asia access question can you just frame.
The size of the investment that you are making there and kind of what that E. What kind of capacity level, you'll be at for that market.
And then I guess it sounds like I think in your remarks, or how you answered a question David sounds like the margin profile from some of these faster growing markets maybe lower.
Then the more established market. So is that the right way to think about going forward that Asia Asia Pac margins are going to be dilutive to access going forward. Thanks.
Sure and so let's start with the expansion.
Not going to get into the specifics, but from a production capacity standpoint. This is a significant increase from a percentage.
Of production so.
It's a meaningful expansion in the region and we think it's warranted given the growth we've seen there the last couple of years and given the outlook that we expect in the coming years.
We're excited about the opportunities there and then just overall on the on the regional mix, Yes, So north North America is probably not surprising is our best margin.
Region in the World If you think about some of the.
Smaller international regions, one we're still building infrastructure in Asia. So.
We're scaling that for growth that we expect there so thats a little bit of going to be a drag on margins. We do produce a lot in country, but there are certain things that we are still shipping over there from North America, and you've got logistics cost associated with that you don't see in in North America. So I think overall.
Time, youre going to see those the margins in in those regions.
Moderate or increase in get closer to what we're seeing in North America, Yes, just to have a little bit Sienna is either because we're investing it. So as you know a big country, So up and we're trying to to work it theres five or six what I would call very sophisticated rental companies that operate a lot like the nrcs in us and we feel good relationships with them.
And working closely with them and one thing we realize about this market is it's a heavy boom market.
They don't have palletized loads and in China. So a lot of bombs that use tower cranes to move materials around jobs side. So.
Potential down the road to develop Telehandlers is still in front of us. So it's a we've started with booms.
We expect that down the road that we'll have some options with telehandlers. So.
The dynamics of this market if it stays on the pace, it's been it won't be that many years until the boom market is as big as Europe's boom market. So we like we like China would like Asia Pacific.
Okay. Thanks, Thanks for that color and then just a clarification.
JLTV is still.
4040, 500 units is that still a good number to use for for 2020, yes, yes.
Okay. Thanks, very much guys. Thanks. Thanks.
Our next question comes in light of Middleburg with Baird. Please proceed with your question.
Good morning, everyone, Hey, maybe.
Hello.
I want to go back to access equipment and.
I guess I'm, just looking to understand your thinking and how you kind of assemble youre revenue outlook for fiscal 2000.
I guess.
The framework that I'm using what I'm looking at is in fiscal 19, you had three and a half billion dollars' worth of orders.
You've got call. It 400, 400 million worth a backlog, but backlog, obviously down about call. It 600 million would thereabouts from the prior year.
So when you're looking at fiscal 20, and you're talking about three and a half to 3.8 billion of revenue.
What are sort of the puts and takes your that get us to 3.8 and.
Is it that we have to assume a.
Flat market from an order standpoint versus fiscal 19.
Are you, assuming some kind of re acceleration and if so where would that happen.
Because it strikes me and correct me if I'm wrong that when you when you talked about your outlook embedding declines in North America and in Europe that really predominantly a factor of existing backlog rather than than future demand. So maybe.
Correct me, if I'm misunderstanding something were shed some light here if you would.
I will take off Mig and let John and Dave jump in.
So broad question, you're asking but but a good question in terms of okay. How do we build up.
Our outlook for 2020, and John touched on some of it it's a very robust process and we we review it.
On a regular basis to make sure that we are looking at the right assumptions I think the first thing that we had to come to understand is that 18 to 19 were anomalies.
Those order years, we haven't seen or years like that that type of expansion and then talking with our customers I think you're hearing the same commentary we are they see 20 as a good business year for them, but our categories of equipment.
They expanded quite a bit and.
We believe theyre going to take a little bit of a pause with the level of buying there were making so if you go back to 16, and 17, where we came into those years you'd see a very similar backlog number that we have today. So.
The buying patterns and 16 17 are very similar to what we've seen our customers to go to today. There was capacity manufactures we're performing on time and so lead times have come down and our customers are comfortable now ordering within that quarter and taking delivery of product in the same quarter. So it.
There's a lot of a lot more science to it than what I'm going to share with you on the call today, but I can tell you from assumption standpoint, we don't look at this forecast is a big heroic forecast them obviously.
On the high end of the guidance or lowering the guidance north North Mercury down 20% double digits in Europe .
But we do see.
Construction needs, we see construction spending and a lot of good commentary with our customers on what what they are thinking about and looking for in this coming year. So.
Theres a lot more build up to it than what I'm on go through on the call, but I can tell you. We've we've worked through this long and hard and im comfortable today with with the assumptions we have.
The guidance we've introduced.
Okay.
Recognizing that that obviously this is a backlog business and.
We're all kind of trying to figure out.
Occasions, where Q1 as well.
How would you advise us to think about revenue here on a on a year over year basis and margin for Q1.
I think we commented during the prepared remarks make that we do expect lower sales in the first quarter.
I think we're probably going to see sales down year over year.
Pretty consistently throughout the quarters based on the early view that we have here and obviously, we'll from that up as we go but this is going to be as.
John talked about Wilsons talked about.
Orders are going to be becoming closer and closer to actually wanting the equipment and.
19, and 18 were a little different.
From that.
Respect, we're back to where we were prior to.
Those two years.
Okay, but I guess, what I'm trying to figure out here is if we're starting with backlog that's down call. It 60% should we be thinking that revenue in Q1 is going to be down 30, 40% on a year out your baby doll no.
Okay, and I do not believe that we believe it will be down.
In line.
With our overall guide.
For the last question. Okay last question for me is on the segment margin.
The low end of of margin of 11 in a quarter.
I think somebody or already asked about the decrementals that that they're relatively low in the low twentys.
Let's just assume that there.
Downside versus the low end of your revenue guidance, how do we think about any decremental.
On on that additional revenue decline, meaning should decrementals accelerate if for instance, we are talking an extra.
200 to 300 million of revenue downside, how would you advise us to think on that I would I wouldn't say well I would say.
I would start with a typical decremental, which is depending on the margin mix. The region mixed whatever is going to be in on the low twentys to mid 20%.
And then if things.
Get worse in the magnitude that you're talking about I guess, what I would say first off is the magnitude that you're talking about as we would look at as a full blown recession.
Based on what we've seen historically in this in this market absent Oh wait no nine and I don't think Anybodys thinking we're headed there again, but I would start with that exhibit low to mid 20% and then if we get into a full blown recession will take a look at what actions we can.
Gate that and and pull that decremental margin down.
We'll be responsible this is something that would be timing, we aren't going to sacrifice the long term health and opportunity for this business overall, but we would work to mitigate that.
Just a this is John Meg just one additional comment on that we do not see right now we're not forecasting we're not seeing with any of our customers a quote unquote downturn scenario, it's more of a leveling before we start to grow again.
21 and beyond.
No.
On the market.
I understand I just wanted to make sure that we stress test you assumptions here and everybody can kind of have something to work with if you want to think about the world differently than you. So I appreciate it. Thank you got good question managing thanks. Thanks.
Our next question comes the line of Jamie Cook with Credit Suisse. Please proceed with your question I guess it just a couple of follow ups that access.
The 15th the down 15% to 20% in North America is that what your customers are telling you in North America or do you have a different view then them.
And then my other question is is there are.
You talked about regional mix I guess is there a mix relative to booms versus telehandlers implied in your guidance and then third just color on the any margins, what you're going to hold that very well again in 2020. Despite sales, which are you now off modestly or flattish I'm just what your assumption is on sort of self help simplification efforts.
Thanks.
I'll start Jamie and then.
I'll, let Dave and John jump in here too but on the.
Access North America down 15% this is our view.
Obviously, our customers are part of our view, but we've taken a lot of other factors there that.
You know roll up our assumption so I wouldn't say, it's in most of our customers. During the same commentary we are they look at the next year is a good year for that business standpoint, we just believe our category is going to be a little less than what it has been the last couple of years.
On the regional mix all that Dave.
Ben on on booms and.
Yeah, well, yeah, I understand a regional makes I'm just trying to understand if if theres a favorable boom versus Telehandler Max Yes, I think overall, Jamie we don't expect.
A significant shift Telehandlers, we do believe we're going to be down, but then you have movement within the product categories. So for example, within the Telehandler family or within the boom family. So overall as the numbers have rolled together.
We don't see a significant.
Tailwind or headwind from a product mix standpoint, and Anthony Okay.
And then if any margins.
The continuation of the simplification activities that they've been successfully executing over the past number of years. The team continues to be energized and engaged and it's it's fun to watch them in action.
I think they find new opportunities everyday and challenge themselves every day and.
They they have high confidence in their ability to meet the outlook that we're providing for them for fiscal 2000, and what's needed. Our commercial team is running with that same playbook now I think we're excited about what they're going to do with the same type of.
The product placement things are going on with foreign emergency.
Okay I appreciate the color. Thank you thanks Amy.
Our next question comes on line of Mike Shlisky with Dougherty and company. Please proceed with your question.
Good morning, guys. Thanks, Mike.
Yeah. Thanks, guys.
So with them on the last conference call that fiscal 2020 in assets could be down modestly.
Now looking at guidance here in the at the midpoint, you're probably down about 10%. So is that what you're thinking last quarter or has your outlook for access improved or soften since August .
Yes, Mike I think.
Our our outlook has evolved the more conversations we have the more data points, we get as we work to roll up our our guidance for the year, you get a little bit better with every meeting in every data point that's added so.
We weren't calling a specific number back in the last quarter other than we felt like it would be down modestly and this is what we rolled up to now is what you're seeing today.
Okay.
Then secondly, I wanted to follow up on your last comment earlier Jamie's question about commercial margins I mean, clearly you've done great on on on fire 10, plus points of margin over the last a couple of years. It's a different business of course, but can you give us an update on to.
What do you think you can get commercial margins as far as a number and a timeframe.
Well.
Our goal is always to be double digit Oh on margins with all of our business as Mike on this one is a a little bit tougher in that they're dealing with a commercial chassis fueling foreign currency. The majority of their products were custom chassis, where they have a much more value add available to them than say a commercial concrete mixer refuse collection vehicle.
Thats on a freightliner or Mac chassis, so little more challenging to get to that margin level with commercial but we believe they can do it and what you're seeing now is continued investment as their carving their way and simplifying our business really around the 80 20 principles. We believe that they will start to gain momentum. Unfortunately, we.
The event last February that slowed them down a little bit, but the last two quarters were good quarters for them. Good good execution by their team and we expect that to continue its just going to we haven't called the actual year, when we'll get there, but that will be the goal for them going forward.
Okay. Thanks, guys appreciate it.
Our final question comes on line of Ross Gilardi with Bank of America. Please proceed with your question.
Thanks, guys. Thanks for squeezing me in.
Corner office.
And just wanted to know.
These California power outages and the wildfires, obviously last year was the huge wildfire issue is that become has that become a any type of like structural demand driver for your fire and emergency business for any parts of your access business for any parts of the refuse business I mean as it has it move the needle.
At all.
You know Ross, it's moved it a little bit I would say anything significant.
The Fire example, we bill wildland vehicles, but it's not one of our primary product lines.
And there has been clean up with refuse collection.
There has been pouring of concrete because of unfortunately, the far devastation, but I wouldn't say, it's anything that.
Has been a big needle mover for us.
Okay got it and then just on access and inventories.
Curious to hear your view on how you're managing production how your your inventories.
How they looked at year end relative to history going into a softer demand year like this and just what are you seeing competitive lead as it does it feel like there is just a lot of equipment out there from your.
Competitors that needs to find a home.
This is John all Ross I'll answer. The question you know we were to put a very directly we really don't need to take any extraordinary steps to manage inventory, we didnt make any big bets in the last year. So we're comfortable with the level of inventory that we have and certainly production in 22.
20 for us is going to be lower than it was in in 2019, because we get production in line with demand, but that lower absorption is factored into the forecast and guidance that we've got.
I'd just add there Ross that.
You've watched us over the years.
We manage our production levels on a weekly basis and so we've been adjusting production since orders were slowing this past year I think.
I think that our teams are really good AD is letting a head count go down with attrition we looked at managing overtime. We look at you know.
All the different factors that that go into a product line that may be slowing down we try to stay way ahead of that with our weekly management of ourselves and inventory operations planning process and as John said, we've got that all factored into our guidance for 2020.
Thanks, very much guys. Thank you Ross.
Our next question comes on line of Courtney Dugan Lewis with Morgan Stanley . Please proceed with your question.
Hi, Thanks.
Squeezing me and I just wanted a quick question to follow up.
On the comments about the robust growth in Asia Pac on access and yet.
Our emergency you guys called out.
Some of the trade policy impacting your international orders there. So I guess I just wanted to understand why isn't that.
Different dynamic between the two segments.
And if we can also kind of get a sense of where do you think the international orders and ask me or kind of being from top and we'll come back when we have some resolutions or if there was or kind of going elsewhere and also how big international was as a percent of that to me.
In 2018 thanks.
Yes, it's a great question.
First of all it RF any business our businesses a highly weighted to the north American market first of all.
Having said that our international growth is is.
Material to our business and.
China. For example is one of the largest export markets that we have in the funny business. When you look at it and international basis, and because we're a primary exported to China, that's why they the.
Trade War has has hurt our business in China I do believe there is a little bit of pent up demand there that were not able to Phil.
And we we hope for an easing of the trade complex so that we can resume.
Normal normal business and get back growth back.
But thats, primarily what's going on our access business producers in China. So there are a lot less impacted by the by the trade conflict, but we were seeing the other thing I would add Courtney on that as you just look at the end customers. So the fired emergency customers typically a governmental entity and access equipment customers or commercial entities.
Okay, Great. That's helpful. And then just from a new product development costs that you called out at about 25 million how does that split between the divisions. I think you said you know that it's kind of higher across all the segments and how does that growth year over year compared to your growth and MPD over the past couple of years.
As we said, it's all four segments that are going to be sending more from an absolute dollar standpoint, the segment with the highest dollar growth is going to be defense.
Within that and then.
In terms of the growth year over year. This is a it's a it's a more meaningful growth than we have seen year over year in the new product development spend.
Okay, great. Thank you. Thanks.
Our final question comes from the line of STEMI, along with Stifel. Please proceed with your question.
Hey, Thank you guys for fit man.
Quick question on the North American fire market. It sounds like it's kind of flat maybe up modestly if I'm not mistaken I feel like we're still fairly well off from kind of prior peak or kind of a higher level normal I mean is this the new normal that we're thinking about.
I'm, just trying to get a kind of a framework to work with as we move even beyond this this this coming year.
We believe so Stanley at 4500, or so unit market.
We will see a little bit of growth here in there but.
Back.
10, 10 years, or so maybe a little farther than that.
Market was 5500, that's when there was a lot of.
Export going on out of us into the middle East and that really has has slowed and most cases stop with us fire trucks going that way. So we believe the new normal is about where it is now with some growth opportunities.
Great guys, thanks very much.
Stanley take care.
This concludes our question answer session and I would like to turn the call back over to management for any closing remarks.
I just want to thank everyone for joining us today. We appreciate your interest in the Oscars Corporation and look forward to speaking with you at a conference or on our next earnings call take care everyone.
This concludes today's teleconference. You may now disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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