Q1 2020 Earnings Call
Greetings and welcome to the Oshkosh Corporation fiscal 2021st quarter results Conference call.
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Brief question answer session will follow the formal presentation.
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It is now my pleasure to introduce your host Pet Davidson Senior Vice President of Investor Relations for Oshkosh Corporation. Thank you Sir you may begin.
Good morning, Thanks for joining us earlier today, we published our first quarter 2020 result, a.
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.
A replay of slide presentation will be available on our website for approximately 12 month. Please refer now to slide two of that presentation.
Our remarks, following putting answers to your questions contains 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 their 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, John <unk> Executive Vice President and Chief Operating Officer, Indeed, see chart Executive Vice President and Chief Financial Officer.
Please turn to slide three an alternate re Wilson like Pat and good morning, everyone.
To start by welcoming Mike who will be joining our executive leadership team.
Sure, where they say toward our long standing CFO my partner on earnings calls Investor meetings will be retiring this spring.
We're fortunate to have somebody mikes caliber stepping into this important position.
As Bill Nascars since 2006 for the last eight years had been the vice President finance ore body Murky segment, where it's been a major contributor to the success.
Record operating income margins the segment has achieved.
We all look forward to micro some the bigger leadership role in the coming month.
Oh sure some comments on my friend, Dave later in this call.
We are pleased to announce a solid first quarter and a good start to the here as we kicked off 2020.
First quarter earnings per share with the old since well the lumbar expectations and supportive of our full year outlook, but down compared to last year's first quarter.
Our team members were focused on executing and delivering on our commitment and why the tough comps in the defense segment.
Expected moderation of demand in our access equipment segment.
Probably efforts all lost crush team members and our people horticulture and helping deliver these results.
It's still early in the year, but there are a number of positive items that give us confidence in reaffirming our full year earnings per share, that's what range, but $7 in 30 $730 intensive, but they will talk about in more detail in a few minutes.
Some of those items include the first quarter results. There were lot workstations as I noted this provides a stable start to the year.
Or actually the permitting successfully concluded negotiations with most of their cheap no company customers, Joe will talk more about that.
Three of our segments had backlog levels or at least $1 billion as we exited the quarter, providing good visibility into the upcoming quarters.
And finally, we've seen signs of stabilization and macroeconomic data and it appears that many economists are lowering their odds of a recession happening in the U.S. in 2020.
These examples illustrate why we consider oshkosh should be a different integrated global industrial.
Oh, when we're pleased with how the Euro started they continue to believe the 2020 will be another good year well the Oshkosh Corporation.
Please turn to slide before we get a discussion for each of our business.
I'll start off with them.
[laughter] segment highlights for the quarter led by the continued ramp up of JLTV production.
We deliberately tried to next generation since the goes to our U.S. government customer.
We're on track to produce 4000 4500 JLTV in 2020 as both the U.S. Army and Marine Corps continued integrating these units into the forces.
During the quarter, we're seeking JLTV order for just over $800 million that includes a small number of units for the country Montenegro.
This is important because it represents the first order we proceed for international JLTV.
There are number of other potential JLTV international worse in various stages, a progress that we expect will be finalized in the coming quarters.
It's a very exciting time for the JLTV team and they're working hard to successfully execute this important program.
Yeah, what does he continues on its MTV eight two program and we're pleased with improvements at the vehicles demonstrating.
We're still producing the current eight one p. to version.
I could do so into 2021 before we begin to transition to the next generation version eight too.
In December President Trump side of the fiscal 2020 budget, which included favorable funding brush defense programs, both the FMTV and ethics TV programs were funded at higher levels than the original if what 20 President's budget request.
These additional funds approximately 66 million and 100 million, respectively will benefit our defense business, primarily in 2021 and beyond.
Let's turn to sweat spot and I'll pass it to John discussed or nonsense.
Thanks, Wilson and good morning, everyone.
Access equipment team delivered an impressive results for the quarter. Despite lower sales the team did a great job effectively managing the lower demand level, achieving higher operating income and higher operating income margin.
Sales were lower year over year in North America, Europe Africa, and Middle East regions.
Inline with expectations.
We're seeing more moderation of orders than we originally expected in Europe , and we'll continue to monitor that region.
The Asia Pacific region led by China continued to be a bright spot with strong sales growth again this quarter.
Catalyst in China remains product adoption, which was driven by safety and productivity improvements provided by these products.
We are expanding our production capacity in China, which we expect to be completed in the next year to support this vibrant and growing market.
We concluded annual negotiations with most of our key rental company customers. During the quarter negotiations went largely as expected with demand requirements supportive of our outlook for the year, we booked orders up more than 1.3 billion. This quarter, the third highest order quarter and.
Segments history, and exited the quarter with backlog of slightly more than $1 billion.
Well, both Q1 orders an ending backlog are down from last year. There has been moderation in the rate of decline.
Additionally, we continue to believe the market is reverting to a more normal order pattern. After several years of unusually large orders early in the fiscal year.
The team at Jay LG is busy building new machines that are and see 92 20 compliant. Although the effective date of the new requirements is now March instead of the previously planned December 2019, there've been several pushouts, where the safety standards and we remain hopeful that the compliance date will not.
Move again.
Another key event takes place in March.
Once every three years construction equipment trade show Conexpo.
We'll be introducing new innovative products and services that they show as we host customers and other visitors from around the world.
We look forward to seeing you in Las Vegas, If you plan to travel to the show you will be a very special and worthwhile about.
Please turn to slide six for a discussion of the fire and emergency segment.
Our fire and emergency team posted a solid quarter characterized by strong order growth and an all time high backlog.
But they also dealt with some challenges caused by a supplier issue during the quarter. One appears to suppliers was not able to meet its delivery commitments, which led peers to modify its production schedules. The team was able to adjust production to best serve our fire department customers, but this led to lower than expected sales as well as.
Auction inefficiencies Fortunately this supplier challenges now behind us and we do not expect it to impact full year results.
As I just mentioned both orders and backlog were very strong this quarter year over year orders were higher by more than 70% leading to a record backlog of just over $1.1 billion at the end of the quarter.
These figures are even more impressive when taken in context against the current sluggish international order environment, particularly in countries, where trade dynamics it slowed demand for U.S. fire trucks.
When these trade issues get sorted out we expect improved international order rates as well.
Looking to the remainder of 2020, we continue to expect flattish to slight growth in the fire truck market in North America, and maintain our positive long term outlook for the business.
Please turn to slide seven and we'll talk about our commercial segment.
Our commercial team is off to a good start in 2020 as they continue their simplification journey to strengthen operating income margins.
Concrete mixer team launched a new flagship front discharge mixer R. F series 2.0 in 2019 and is ramping up production from the pilot phase the new model builds on the rich legacy of the product, but also brings measurable improvements and visibility maneuverability payload and so.
Service ability to name just a few of the key features.
Orders have been strong and the team will be displaying the vehicle the customers at the upcoming world of concrete and Con Expo shows in Las Vegas.
Our CV orders were up in the quarter Evidencing a continued solid RCB market.
Concrete mixer orders were down, but we attribute that to our simplification strategy and timing as several large customers placed orders for the upcoming construction season in January this year versus December in fiscal 2019.
We continue to expect the RCB in concrete mixer markets in 2020 to be similar to 2019 at level, even with or slightly above the long term average for RCB.
And below the long term average for concrete mixers accompanied by some continued choppiness.
This wraps it up for our business segments I'm going to turn it over to Dave to discuss our first quarter results and outlook for 2020 in greater detail.
Thanks, John and good morning, everyone. Please turn to slide eight.
As Wilson noted first quarter results were in line with their expectations. We commented on her last earnings call that we expected first quarter results to be meaningfully lower than last year. Importantly, however, these results support are unchanged earnings per share outlook for the full year that will discuss in a few minutes.
Consolidated net sales for the quarter were $1.7 billion down 6% from the prior year quarter.
Lower access equipment sales were the primary driver of the lower consolidated sales excess equipment sales reflected rental company customers in North America slowing down their capital expenditures for fleet.
Sales in the region were also down from the prior year well the segment experienced continued strong sales growth in the Asia Pacific region.
Since sales growth in the quarter reflected the continued JLTV production ramp partially offset by lower FH TV sales.
In an emergency sales were lower due to favorable sales timing in the prior year and commercial segment sales were slightly higher than the prior year driven by a higher mix of package sales, partially offset by lower concrete mixer sales.
Consolidated operating income for the first quarter was $109.1 million were 6.4% of sales compared to $160.5 million, 3.9% of sales in the prior year quarter.
Excess equipment with the stand out from an earnings perspective, as they delivered $2.6 million higher operating income and 160 basis points higher operating income margin on a 13% decline in sales.
Favorable price cost favorable product mix and improved operational efficiencies more than offset the negative impact of lower sales.
As we expected defense operating income declined significantly compared to the prior year.
The decline was more about last year when defense received a very large order for jltvs upon receipt of that order. The defense team recorded the cumulative catch up adjustment to the program margin to reflect the near doubling of the number of units on contract.
The defense team received the JLTV order again in the first quarter. This year, but the quantity of units ordered was not as large as last year and the impact of the cumulative adjustment to the program margin was not as large.
For comparison the orders orders this year increased the quantity of units ordered life to date of the program by slightly more than 25% compared to a doubling of the quantity ordered life to date when the order was received last year.
Additional drivers of the lower year over year results for this segment include a higher mix of Jltvs as that program continues to ramp production.
The favorable resolution of contract compliance matters in the prior year, they didn't repeat this year and higher new product development spending.
Well there were quite a few drivers for the year over year change in defense results this quarter, but.
Important thing to keep in mind. However is our full year outlook for this segment has not changed.
Well in emergency first quarter operating income declined compared to last year due to the lower sales volume along with higher SGN, a cost and adverse sales mix and inefficiencies related to the previously discussed supplier issue.
These were partially offset by positive pricing.
Commercial segment first quarter operating income compared to the prior year reflects an adverse product mix higher new product development spend in a prior year favorable warranty reserve adjustment that did not repeat partially offset by improved price cost.
Earnings per share for the quarter was $1.10 cents compared to adjusted earnings per share of $1.61 cents. The first quarter of 2019.
Lower earnings per share was driven largely by the lower sales in the impact of the large JLTV order received in the prior year.
First quarter results benefited by six cents per share from share repurchases completing and completed in the prior 12 months.
Please turn to slide nine for a review of our updated expectations for fiscal 2020.
As noted earlier, we're maintaining our full year earnings per share estimate range $7.30 to $8 intense.
First quarter results that were in line with their expectations and support the unchanged full year earnings per share estimate range.
Additionally, excess equipment orders in the quarter were also in line with what we're expecting.
However, we are slightly reducing the high end of the excess equipment estimate sales estimate range by $50 million to $3.75 billion to reflect lower expected sales in the Amy region versus our previous expectations.
At the same time, we're increasing the high end of the operating income margin estimate range by 25 basis points to 12.5% as we believe the segment can deliver the previous implied operating income on slightly lower sales.
We believe backlogs in our other segments also support our full year outlook for the individual segments and overall.
We are reaffirming the estimated tax rate of 21 in order to 21.5%.
Although we currently believe the rate will be near the high end of the range.
Our estimated capital expenditures of $150 million remain unchanged as does our free cash flow estimate of $450 million.
We repurchased a small amount of shares in the first quarter and continue to expect that we will return half of our free cash flow. This year shareholders in the form of dividends and opportunistic share repurchases.
Turning to the outlook for the second quarter, we expect flatter sales compared to the prior year as defense sales growth should offset lower access equipment segment sales.
We expect earnings will be modestly lower compared to the prior year, reflecting the mix impact of higher defense sales and lower access equipment sales.
I'll turn it back over to Wilson now for some closing comments, thanks, Dave another solid quarter driven by our team's execution, we reaffirmed our outlook for 2020, which includes expectations for solid earnings per share in the year when demand in our largest segment will be down.
We have the right strategy with move believe we can manage our businesses to deliver solid sales and earnings performance, despite the lower demand or access equipment segment.
And we believe we are investing in the right places to best position Oshkosh take advantage when conditions improve in that market.
Also will take this opportunity. Thank day this will be as last quarterly earnings call, we're going to Miss it.
I have helped lead our company through numerous economic and industry challenges and the partnered with all of our leadership Oshkosh to make Oshkosh, the great company. This today.
We appreciate all of his many contributions in the support he will provide even after he begins his next chapter we're truly grateful for their hard work dedication to task and commitment to integrity and teamwork that Dave has demonstrated its 20 years with our company.
Thank you Dave.
Ill turn it back over to Pat you get the Q and I started.
Thanks, Wilson I'd like to remind everyone. Please limit your questions to one plus a follow up after the follow up perhaps 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 we will now be conducted a question and answer session. If he would like to ask your question. Please press star one on your telephone keypad.
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Participants do you think speaker equipment, it may be necessary to pick up your hands up before Christmas Darkie, one moment, please while we pull for questions.
Okay.
Thank you. Our first question comes from the line of Stephen Volkmann with Jefferies. Please proceed with your question.
Stephen Volkmann your line is lives.
Are you guys can you hear me sorry about that I was on me that 14 stealing Steve Good morning, and Dave Congrats all the best and Mike Welcome.
Thanks, Steve appreciate it and Dave before you go maybe I can get you to explain something to me.
[laughter] I'm trying to figure out.
How this defense accounting works.
Because I guess I was assuming that having an order this quarter would have bumped to your margin slightly above sort of full year guidance, because you'd have that catch up, albeit lower than last year, but obviously your guidance kind of assumes that the defense margin increases going forward sequentially. So I guess I'm just trying to figure out.
How that works a and B is it stable from here over the next three quarters or does it continue to bounce around assuming no more orders.
Yeah.
Unfortunately, as we've talked about previously the whole revenue recognition standard assay six so six has introduced a new level above volatility into the defense segment for us.
And what we've been very consistent about.
When talking about this segment since that new standard was implemented as you think about the full year guidance.
There's going to be things from quarter to quarter that we've seen in the past we've seen this quarter and you're likely going to see in future quarters that just on the surface may make you scratch your head a little bit but in the context of the full year.
Everything still holds together we've got agreed backlog, we're about 90, I think 98% booked for the year. So we know what's coming at us. The wildcard typically are the timing of orders when we got the JLTV order in the first quarter. We did note in that release that we're expecting additional JLTV orders later in the quarter.
That's still the case.
The president's or that fiscal 20 budget was finalized in the first quarter. So we'll expect additional orders from our other programs as well.
Some of the things we talked about in the prepared remarks, the higher NPD in the quarter. So that certainly was a drag I know last year, we had the.
Favorable resolution of a contract compliance matter, there's a number of just a number of moving pieces in there, but as we look at the remainder of the year given the visibility that we have.
We feel really good about the year. It is going to be continued to be lumpy from quarter to quarter basis because.
We know the orders are going to come in we don't necessarily know or they're going to be the second quarter the third quarter.
But on a full year basis, we feel good.
Okay, and again I guess, assuming we get an order all things being equal that will bump the margin up relative to not getting an order.
All things being pulled that that is the case, but if you think about going forward to Steve another thing that.
Is going to help us from a margin standpoint. This was the lowest sales quarter in the year for defense went when you look at the implied guidance for the remainder of the year that would say just if you spread it out equally that on average remaining quarters are going to be up about 15% above what are the first quarter was from the sales standpoint.
So we'll benefit from improved absorption in those quarters as well and then the MPD impact probably shouldn't be as pronounced as we saw on margins in the first quarter in the upcoming quarters.
Okay. So in Q2 is there anything we should keep in mind relative to defense margin.
Well, what we will look at timing of orders and again, we're not in control of when the government leases. Those orders were confident that we will get those during the year.
What we can't say definitively is whether they're going to start coming in in the second quarter or the third quarter.
Okay I appreciate it I think the thanks.
Our next question comes from the line of Stanley Elliott with Stifel. Please proceed with your question.
Hi, Good morning, guys. Thank you for taking that take the question.
Dave first off best wishes and and Mike welcome aboard.
Thanks, Dan.
Well if you guys can start nice performance here on the.
The margin side within the access business.
Is there way to parse out how much of that was mixed versus maybe favorable steel and then within a lot of the restructuring that you've done over the past several years could you remind us again on what sort of a detrimental margin would look like kind of ought to go forward basis under under kind of the current framework.
Oh, Okay, if I if I missed some of those Stanley. Please just remind me so first quarter performance.
As we called out on the prepared materials price cost a favorable mix operational efficiencies all.
Helped us offset the impact of the lower sales.
From a price cost standpoint last year at this time, we were still in the first quarter still working through the remainder of some of that price protected backlog that that we had in place when the when the surcharges were implemented so that was a little bit of.
Tailwind for us in the quarter, we won't benefit from that going forward, obviously as as we will have a work through all of that year over year change.
But the big thing that I think kind of sticks out versus what we've seen the last couple quarters is really that mix. It was it was certainly a more favorable mix weighting towards aerial work platforms. If you recall last year, we were very strong in telehandlers and part of that was due to.
Kind of a recovery after we made the movement in production of Telehandlers. The prior year. So when I look at versus the fourth quarter or the third quarter fiscal 19 that one kind of really sticks out at any is there is something that was a nice contributor for us.
In terms of the decremental margins going forward.
Part of that's going to depend on product customer region mix, which you would expect but kind of a rule of thumb that we've we've talked about is a a good place to start is maybe that low to mid 20%.
Decremental margin and then we adjusted from what we're seeing in the other areas around that and then any impact of.
Operational issues or I'm, sorry initiatives that we that weve.
Then working on when I look at.
The upcoming quarters, the decremental margins I would say are still pretty good in the remainder of the year. So.
I think the excess equipment team is doing a good job really managing the overall business be it from the price cost standpoint, they're continuing to execute on a lot of those initiatives, we're going to continue to see benefits from those going forward, we will lap.
Later this fiscal year, it's some of the.
Operational or benefits from the operational initiatives that we put in place for.
In fiscal 19, so thats why you.
The implied decrementals aren't going to look quite as good as.
We saw in the first quarter or that's one of the reasons why they won't look quite as good but there's still I would say on a relative scale.
Implied healthy Detrimentals in Q2 through Q4, yes, no doubt.
A lot and their side and the interest of time I'm sure. There's let other people Q. I will pass along but congratulations and best of luck guys. Thanks. Thanks.
Our next question comes from the line of Jamie Cook with Credit Suisse. Please proceed with your question.
Hi, Good morning, Oh, and congratulations Dave I wish you the best of luck.
Greetings and welcome and welcome Mike, but I guess my my My question just in terms of you know the commentary you guys talked about on the access equipment side in North America in particular, telling you get a pretty good feel for how your customers are thinking about.
The year I mean is all of that number sort of reflected in backlog or are they sort of can you talk more broadly how they're thinking about you know capex in 2020 in particular with what Canexel coming up I would assume that'd be a favorable event for you guys in terms of potential orders and then just the weakness that you sort of noted.
In Europe can you just talk to sort of the order trends that you saw in Europe in the quarter I'm and then last on fire and emergency you noted you had the inefficiencies associated with that supply or if you could just provide any color on how much that impacted the quarter and do we catch up for that and the second quarter. Thanks.
Okay. So good morning. This is John Pfeiffer I will attempt to answer that so.
I missed something I'll try to come back to it so let me start on access.
We look at the outlook for access Q2 s or Q4, we think we have a very responsible outlook and Dave just talked about the.
Favorable decrementals in this business. So let me let me tell you know our customer negotiations are largely complete we booked 1.3 billion in orders in our backlogs over $1 billion. We feel good about that let me kind of give you the underlying.
What's under what's underneath that first of all economically.
We feel that economic indicators have shifted a little bit in our favor economic forecast is pretty good.
Forecast for nonresidential construction has moved favorable we saw the really good residential construction.
That's come out just recently the Dodge momentum index has improved so all that's good from a customer perspective.
Rental rate, we have very strong relationships with our customers. They are positive rental rates are healthy utilization is healthy. So we're pleased with the annual negotiations when you talk about capex for this year Capex.
Probably a little bit focus more rattled replacement capex than it is around growth capex, but we knew that that's not a surprise to us. That's a that's what we had expected and then again another thing that we look at a lot as used pricing, we know the U.S market well because we participate in it and we feel that use market pricing is fine.
Right now so that all underpins why we believe we've got a.
Strong or a responsible outlook I should say for the access market now we took our the top end of our sales guidance down by 50 million because of Europe . Just a couple of comments about Europe , we have a very robust psi up process, which is underpinned by our forecasting capability in Europe , great relationships.
With our customers, we got a lot of data points and we felt some weakness in Q1 on the order rates going forward.
That caused us to take down the top end of the guidance a little bit you see what's happening in Europe , probably the reasons for the uncertainty with our customers is up Brexit causes uncertainties socio political challenges in the region cause a little bit of uncertainty and I think that's that's probably the main factor there that's that's causing.
A little bit of that weakness in our expected order rates for the rest of year.
Thank you final point was about any.
Anthony is doing just fine all year as just fine we had a supplier issue in Q1, which caused us to shift our mix around a little bit so our mix became less healthy than than we normally would expect it caused our sales to be a little bit lower than we expected it caused some operational.
Inefficiencies are those have been worked through.
We are buying for the full year that's behind us.
So we feel a very very good about the funny business Mark.
Thank you I'll get back in Q.
Thanks.
Our next question comes from the line of David Raso with Evercore. Please proceed with your question.
Hi, good morning.
What about the access revenue guide I mean, the last two years, the backlog was sort of abnormally high.
After the fiscal first quarter.
But outside of those last two years to the current backlog you have as a percent of your sales guide. It's the highest you've had in 10 to 12 years. So it was little bit higher backlog than I would've thought.
But then the still take the top end of the revenue guide down and you just explained that was Europe centric, but is it also because were orders pull forward a little bit maybe due to the ANSI pushed back just trying to understand the strength of the backlog to the revenue guide, but you still chose to take it down was there a pull forward and orders and some degree.
They did no not not from what we.
We're expecting it's as we said in his prepared remarks.
We're pleased with the orders things played out largely as we expected.
Yes, I, if anything probably attributing it a little bit too it's still early.
We did see as John mentioned, some things and heard some things in the quarter out of Europe that let us to think things might be a little weaker there but overall.
Overall, knowing the quarter played out as we said largely as expected.
Okay, just the backlogs pretty healthy rate relative to the guide.
On the first quarter access margins, you mentioned, all the issues price cost mix, but for the full year.
Aerials or sell supposed to grow or be down last I should say then telehandlers is that does that still correctly. The mix will stay positive for the full year.
Yeah, a little positive.
Not at night was positive as we saw in the first right right yeah, the down nine versus the down 25, it won't be that wide again, but for the full year it should still be slightly positive.
Okay Alright. Thank you very much that's really all I had I'll follow up with with patent again congratulations Dave.
Thanks, David.
Our next question comes from the line of and diagnosed with JP Morgan. Please proceed with your question.
Yeah, Hi, just following up on David's question.
The order so strong corcoran access.
Can you talk a little bit above what your lead times are today versus what they might have been air volume and when would you have to see Andres Reaccelerate in order to make your full year revenue guide.
Hi, This is John and I'll take that question. So lead times, you know generally lead times have come down from there highs of nine to 12 months ago.
Most machines today of lead times from two weeks to a few months, but you could probably say average of about 30 days, which again is better than it was a year ago.
So that that really supports our view that order rates of return to a more normal pattern.
Versus recently when we've had these is gigantic orders coming in in the very first part of the year. So we think the order timing has shifted out a little bit I'm, partly because our of our lead time situation.
Can you tell me, what the lead times, where a year ago roughly more like 60, 90 days or is it that extreme.
It depends on the product category and in some cases, yes. It was that extreme if you recall and we have shifted our till enter production consolidated and filling out our lead times and pushed out quite a bit for us which is all normalize now.
Okay.
Secondly, just a follow up on the commercial side can you just expand on some of your comments on the mix in that business in the quarter.
Im sorry can you repeat that.
I can you just expand a little bit on then mix of products that you called that out in the quarter, if our commercial bank it Oh sure.
As we said.
So a little bit of an adverse mix there was the higher mix of what we call package sales and that's where we sell both our body as well as a third party chassis and.
We make our money largely on our bodies.
So much on the third party chassis. So that's that's a little bit of a drag our Cvs were up year over year, a and then concrete mixers were down year over year and that's largely due to timing we had a couple when you look at the.
The order pattern in mix or is there a couple customers that were conspicuously not in with their orders in the first quarter. They have since come in in January and we're off to a good start for orders here in the second quarter for mix or so a lot of we attribute a lot of that too I just the timing you know I on another.
Actor and commercial in Q1, which is a which I think it's a positive thing as we were we had higher new product development spending in the quarter, we're launching a new F series 2.0 front discharge mixer, which is going to be a great product that will be at conexpo.
And we as we ramp that we had higher R&D costs in the quarter. We think those are good cost because there really an investment.
In the future of that.
Okay I look at Darden interested in time. Thank you appreciate that thanks, and thanks again.
Our next question comes from the line of Chad Dillard with Deutsche Bank. Please proceed with your question.
Hi, Good morning, everyone, Hi, David Good luck, Mike welcome aboard.
Okay.
So just wanted to dig in on.
Just the cash flow, which came in a little bit lighter than typically normal for season.
For the season.
He just talk about the drivers of that and more specifically just talk about a quarter over quarter inventory build in.
What segments drove that.
Sure.
So if you look at the the fiscal year typically a absent any large defense international contracts and cash flows associated with those the first fiscal quarter is going to be our weakest a cash flow quarter as a year.
And this year was with no different inventories are up year over year and that's largely.
In excess and defense.
A couple of things going on there one.
We are defense or excess is carrying a modest amount of what we call pre ANSI inventory as they go into that transition to the new ANSI models coming up because we know.
In terms of response to customer feedback in terms of interest in that product yet.
So that's one thing there they're also as you can imagine given the labor environment today, there are carefully managing their production.
Cadence along with their workforce levels, we are going to see production down in that segment, we've known that we talked about that.
So we think overall, we're in good shape their defense, it's really more about what's to come yet this fiscal year. If you look at.
The upcoming quarters, we are going to see a sales increase as they talked about a in response to an earlier question. So that's largely just a inventory build to support the sales levels that we expect in coming quarters.
That's helpful and second question just on some of the puts and takes during the quarter.
For example, and access.
How much of the GLG amortization was it was a tailwind there and then on fire and emergency or just some of the supplier issues.
You talked about some some revenue pushouts margin impact can you quantify that and to what extent well that's actually a tailwind into Q.
So in jail G. the amortization it was a small benefit in the first quarter.
We'll see a larger benefit in each of the subsequent quarters and the remainder of the year.
In a fire and emergency.
John talked about the adverse mix, we aren't going to quantify what the impact is but it will be a favorable mix impact to us going forward in the quarter, because we did as they had move things around in the first quarter. It didn't end up being a little bit about adverse mix versus what we were expecting.
And then as John also mentioned just the the efficiencies are inefficiencies associated with that supplier issue.
Those will be behind us.
And we'll be relative to the first quarter, a tailwind in the coming quarters.
Great. Thanks, Alright, Thanks, Chad.
Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.
Yes, hi, good morning, everyone and David My congratulations.
Thanks.
And just a quick note Dave I think the earnings power business was about $3 or less went when you take on the CFO role. So it's a big congratulations to what the team's done over.
Your tenure been CFO it takes a village Jerry [laughter].
Can we talk about actually equipment I was pleasantly surprised by the bookings this quarter as you heard from others on the call. There do you think you're gaining share can you give us a bit more context also looks like you had really good performance out of.
Looks like your Dan products based on disclosures in the quarter can you just expand on those two items.
If you in mind.
Yeah, Jerry that first of all appreciate your comments about Dave that said, we're going to mistake, if he's been a kind of Iraq, but as also mentioned we got another good rock coming in and Mike and he has been under under Dave's mentoring for several years. So I think the transition has been well played out and planned and so.
And again, Dave is gonna be behind this churn fourth and still have the some too so but again, thanks for that comment they well deserved retirement.
As far as sure market. We we don't as you know we don't get into the details about that what I would tell you is we like where like the way the GLG team is performing in the marketplace.
Can see they've been very discipline in pricing.
Really just taking care of all the things that they can control.
We talked last year that we we lost a little share and Telehandlers.
Due to that consolidation moves we made we believe we were back in good shape retailer banners now and this off the Con Expo, which I hope all he will come and see what's out there. We got some exciting new things to introduce which you know innovation has been one way that jailed he has grown share over the years. So oh, we like our share position, there's there's always.
From a bill that we don't get but sometimes those deals or not the right deals to get from a price cost standpoint.
And your Dan is a good story there that's a if you go back Oh for five years I was one of our business unit really struggling to make money and through good leadership are good inside.
Operational excellence, it's been again guided by by jail Gee, that's part of GLG.
They are back on track now performing like most of our the business units. So good story there.
There are in a tough marketplace, but we do believe they have gained some share share over the last couple of years.
And in terms of staying with an access the outlook for heading into the second quarter here normal seasonality is for your sales and production to be up about 30% from first quarter levels can you just talked about any puts and takes we should keep in mind given the flows in the backlog compared to that normal seasonality and.
If you could comment specifically on what you're seeing in you're trying to business given the unfortunate situation there.
That'd be helpful.
I'll start Jerry and maybe John Wilson.
And as well.
We do expect to see a seasonal uptick like like we normally would I think we are start or hearing a few things about a Q3 may actually be a little bit stronger than Q2.
And that's that's normal again from a seasonality standpoint, but it almost sounds like we're starting to hear.
That it might be a little bit.
More stronger than in Q2 than we've seen the past few years, but overall I am not aware of any.
Significant gives and takes I don't know John Wilson, if you want any anything about the China.
Virus.
So you know we're on the Chinese situation.
We're paying attention to it day by day, maybe even hour by hour all of our all of our people are fine our manufacturing.
Plants are fine their plan to come back from Chinese new year as schedule.
So we will probably have some people working at home in Shanghai until they reopen Shanghai.
Let me just go back to our thoughts are with everybody theyre dealing with this situation, we actually think they're dealing with it appropriately.
But let me just go back to China is a great long term story for us it's a big market, it's going to continue to get bigger we love the adoption rate trends in China towards our product away from the old methods of of construction and working at height. So so long term we feel.
Great about China short term, it's a day by day situation, but at this point in time, we have not been impact and not and not to be insensitive to the issue going on there but.
Total consolidated its less than 5% of our revenue. So if it if it does become a more significant issue.
Just so you have the scale, it's less than 5% of our revenue.
Today.
Thank you very much.
Thanks Jerry.
Our next question comes from the line, it's Tim Dine with Citigroup. Please proceed with your question.
Thanks, Good morning, Bhavan drug return.
Thank you.
Yeah. That's the first question just to follow back up on access margins terms or that the [noise].
That's for the full year guidance and based on what you have been in backlog today, what is the expectation or for price cost.
I think from memory and that's why 19 that the pricing was was fully offset by material costs. So just curious what what that full your expectation is currently.
Overall, I would say, there's an alignment between price cost expectations for the year. We did I did mentioned earlier in Q1 about last year some of the working through the remainder of the price protected.
Backlog, so that's probably a little bit of a benefit but we tried to look at this holistically from a standpoint of where all of our costs are going not just steel.
There's a lot of other components that go into that we've got labor costs.
And where we are and so.
It's.
We tried to be responsible with that pricing and I think we are and I think that responsible outlook is.
Baked into the.
Forecast guidance that we've provided for the year.
Okay, Alright, and then just on defense it may be but a bit longer term, but you gave some some help some good color earlier in terms of it the implications are they apply 20 DRD.
Budget any any early read in terms of what the team is expecting around the 21 budget request to be released a I guess in it and a few weeks from now.
No I I wish we had that much insight, but they will that pretty close to the best until they drop that on to Congress or I think that's targeted for sometime in February .
Thanks, Yeah keep in mind mine too that we have a page TV contract deliveries into 2022, we have contracted JLTV deliveries into 2024, and then the FMTV contracted into 2026 so.
We're positioned well with our programs, but the Gregs point.
We don't know until that informations release for next year.
Right. Okay. Appreciate it thanks a lot thanks.
Our next question comes from the line as Seth Weber with RBC. Please proceed with your question.
Hey, guys good morning, and congrats Dave Congrats again.
Thank you.
Enjoy it well deserved so maybe just on the defense business.
You got to 30, the order for the 30 I'm Jltvs internationally can you just well so maybe handicap your confidence level that 2021 could see some additional.
Additional JLTV awards internationally, you know how are you I know you're not guiding to 21, yet, but if youre trying to handicap. This do you think it's more likely than not the you'll have something in addition to the 30. Thanks.
Yes so.
We expect to actually have some international orders later this year some more we know Slovenia, Lithuania are both working through the SMS process.
That process takes some time, but we know they are and I think we've talked before about the UK Modi that is approved for roughly 2700 vehicles. They have to that they're testing right now expect they may make some adjustments to the variant.
But we would expect them to come in at some point.
Probably even better news as our JLTV defense thing with just over in London at an armored vehicle conference and other had 16 different ministries of defense 16 different ministries of defense all doing trials endemic demonstrations on JLTV. So.
Obviously, we're very excited about the opportunities in Europe , and the middle East from JLTV. So to answer your questions. Yes, we expect.
Orders in 20, and 21 from international standpoint.
Excellent. Thank you and then.
Maybe just on the on the fire business. You know you talked about you called out the international being affected by the trade policy and such I mean, how big of a tailwind do you think that could be if we get some resolution can you just remind us how big the international is as portion of that business and.
You know where could that go I guess from here it could it be a significant tailwind and say 21.
Fight 21 thanks.
Well this is John so.
So keep in mind that most of our businesses North American business and most of whats U.S. business.
Having said that our business internationally as a material contributor to our business performance we have been.
Feel really good about our business and that we've been able to keep a really really strong order booking pack a record backlog because the business in the U.S. is so strong.
So when we see international business pick up again sure it's going to be an added benefit, but it's not impacting this year whatsoever due to the healthy level of our us market.
Okay, just just maybe to be a little bit more specific John's well along with what he said, but in the past its been roughly about 10% of the Anthony revenue as far as much revenue. So that helps you said.
These buttons together, that's what I was what fourth okay. I appreciate it guys. Thanks very much. Thanks.
Our next question comes from the line of make Delray with Robert W. Baird. Please proceed with your question.
Thank you good morning, everyone. Dave Thanks for all to help all over the years best of luck to you going forward. Thanks Mick.
So I too want to go back to access equipment and you know you you mentioned that the seasonality of orders is looking a little bit different and I think like everybody else I do agree that the orders in Q1, more or better than what I expect that but given.
Let me comment and the way your comparisons on orders work for the rest of the or is it fair for all of us to expect year over year growth in orders in access.
When you look at the.
Implied sales for the full year.
That would say that Q2 through Q4 cumulative orders will be up year over year.
Let me add a little context to that last year in 2019, we did see orders start to moderate and I think you pointed that out to us last year.
And if you go back and just actually run the numbers cumulative Q2 through Q4 orders in fiscal 19 compared to fiscal 18 were down I think around 23% to 25% somewhere in that range. So.
What we're looking at it did it does imply this year that orders will be higher but if you go back even farther to fiscal 18.
Sales in fiscal 18 were right about the high end of our.
A full year guide for fiscal 20.
And the implied orders that we need yet for this year to hit the high end of the range.
Which is what we all those target.
I wouldn't say that we need a little less.
Orders over that cumulative three quarter period than we experienced in 18. So we've looked at it a couple of different ways on the surface. Yes, you can say they need to be up but I think in the context of a multiyear buda that.
It makes sense and we believe there achievable.
Right, because I know that that that was going to be my question. Given the fact that you've done your negotiations with your your main customers I'm presuming that theres a level of visibility that you have now that you might not have had three months ago. When we are having this discussion. So you know given that that's embedded in the outlook.
How confident are you in that.
Assuming pretty confident I know what do you wouldn't have issued the outflows but still.
Yeah, Yeah, you're absolutely correct, we have better confidence now and and we think that our outlook is very responsible and theres a lot of data points that go into it and we feel we feel good about.
Last last question for me is if I if I'm looking at the low end of the guidance the three and a half billion recognizing your common that that youre seeing less fleet growth and more replacement demand.
How much of that three and a half billion would you guess his replacement demand.
But it's hard to pin down Mig I mean, when we get an order in from a customer it's not here's a growth order here as a replacement order I think we've been pretty consistent.
Steve.
Our customers.
Under growth Capex. This year, so we'd certainly expect that.
Meaningful.
Portion of that will be replacement, but for us to get any more specific than that it it's really hard.
Fair enough, thanks, and good luck again.
Thanks, Mike Thanks Meg.
Our next question comes from the line of Courtney OCA bonus with more and with Morgan Stanley . Please proceed with your question.
Hi, Thanks to the question and congrats again Dan.
Thank you everyone mentioned.
Not to belabor access, but just wanted to to make sure fully understood. The guidance change versus what you had previously guided to last quarter. I think you suggested that North America would be down 15% to 20% and that Europe would be down double digits on so with most of this decline coming from Europe I just wanted to.
And you know your orders told me down about 14% year over year is it safe to say that you are trending towards the low end of your North America expectations are isn't depending on what better than not and then how should we think about the magnitude of European down relative to what you had previously expected.
Yeah, you know the.
It's too early for us to really change.
Our expectation on the U.S. market, we feel fine about where we are U.S. market. So I wouldn't say that we feel like we're trending to the low and I would not say that at all we just felt a little bit more weakness than we had expected in EMEA, which is why we took it down by 50 million and we feel like it's too early to say we [noise].
But to be offset by stronger orders in North America. So.
Really.
Okay, and I think you'd also suggested that impact would be up double digits and I. Appreciate some of the comments about how small China as a percentage of here I have your sales, but it is that still the expectation in the Packers dot shift at all yeah, that's still the expectation and when we say that it's up by double digits or not.
Talking 10, or 20% managed in a strong strong growth market and we expect it to be for several years to come.
And I think you said it was up over 40% last quarter. It. It's it's similar this quarter.
Yes.
Okay got you and then just on inventory levels. I think you also suggests it does for in a relatively good shape exiting the or is that a safe comment at this point an aerosol, yes, yep, we <unk>.
I'm sorry go ahead.
Go ahead.
We did.
Good question earlier on the call about inventory level. So they are up little bit, but we think there. The reason why they are up little bit are.
Very a valid and for the right reasons.
Okay, and then just lastly on price cost I think you know a couple of people mentioned this is all earlier, but I. Just you. Obviously said it was positive this quarter, but just wanted to understand for the remaining three quarters, you still expect price cost see positive even with several often in the surcharge from the backlog.
In in overall I would say the our price cost is fairly.
In alignment when we look at Q2 through Q4, it's not going to be as favorable as we saw in Q1.
Okay, they won't be negative for them into the air offsetting positive not expected to be on a full year basis to be negative no.
Okay, great. Thanks, such thanks Courtney.
Our next question comes online, it's Steven Fisher with CBS . Please proceed with your question.
Hi, Thanks, Good morning, and best wishes guys I've, just starting off on the a defensive margins coming back to a follow up on Steve Volkmann. Its questions. I know you said it was.
Going to be lumpy, but he is the margin base case that say.
Q2 is gonna be something like the full year overall margin guide of 9% or is there some of the reason why.
Yes, the margin might be more backend weighted or the other than just the <unk> yeah, the timing of orders.
Timing of orders are going to be the big driver or Steven <unk>.
Not trying to be a evasive here. It's just we don't control the timing of Windows are released a as we as we sit here today, we think we're going to see a a continued improvement in margins as we go through the year.
Again as I talked about Q1 is the lowest sales quarter. The year. So certainly a we expect to see some absorption benefits everything that the production side and the NPD spend side all of that isn't alignment with supporting.
Higher margins as we go through the year, it's just the the.
Volatility from quarter to quarter is really to be dependent upon the timing of the receipt of those orders that were confident that we will get in the fiscal year.
Okay. That's helpful. And then just on access Hi, you mentioned that your order discussions with the key customers are largely complete and maybe this is really just my being too picky on the wording.
But.
You know how how unusual is it for those two not all be resolved at this point and maybe what's unique about customers that haven't.
Fully finalized yet.
It it's a job it's not really unusual at all.
I'd say largely complete its because we still have some or negotiations wrap up in some orders to come in and in Q2.
Our most negotiations, but but let's say it 90 Tonight.
Yeah.
Okay terrific. Thank you.
Thanks.
Our next question comes from a line of Mike Shlisky with Dougherty and company. Please proceed with your question.
Good morning, guys and again, Dave Best Best wishes. Thank you.
So god.
Nothing may have been clear thus far in the call on and that's equipment.
At this point you still feel good about 2021 being.
Possibly I had been a year than this year due to ongoing replacement and just give more color. There can you give us any kind of feel for how I look to the mix between telehandlers and aerials.
I will jump in on the 21 question, Mike and then I'll, let the they talk talk mix, but.
You know it's January of 2000 twinning.
And we're just getting into the first quarter of or most of our customers. I think you know we're on a October through September year. So we always coming to the are working hard to get the mix forecast in place but.
But what we would say about 21, what we know today. If you think about the normal replacement on aerial work platform. There were some really big ears back there in 13, and 14, which would add up that 21 should be a fairly large replacement year weve hurt her commentary from some of the rental companies that that's consistent with.
Thinking so we look at 21 is as a as a good year I'm coming up from what we know, but you know as we're not going to call a 21 and as we're just getting started and our customers fiscal.
2020.
Mike This is Dave I would echo Wilsons comments, you look back historically and that's a pretty good indicator new start looking at the fleet ages of.
When they needed to be.
We need to be replaced and ideally when they when they should be replacing them that seven to nine years seems to be the sweet spot you see a unions cost tick up you see a used equipment values its kind of the sweet spot as well in terms of mix for 2021, Yeah, It's still way too early to be a thinking about what that.
Might look like a that's going to be largely dependent on what each of those customers see and the timing of a.
Sequencing of how they want to think about replacing that used equipment.
Okay, Great. Tom I also want to ask secondly, about the large defense or that came in.
In December and you've been talking here on the call about.
Perhaps on looking at this too much but in your past orders from the government in the past a written comments, there's always been in order that has been for the army and the Marines and working on this order and then the Navy in the Air Force No of course, those folks they flatware airplanes by both but they do definitely.
People around as well is there opportunity for those two branches over time or or or fiscal heavier have you or is already included all four of those branches.
No they haven't and there are opportunities there Mike. So we're continuing to work that our JLTV team is really domestically and as I mentioned earlier, they're very busy on international front too.
And Mike If you look at go back to that press release, we didn't make a comment in there that we expected additional JLTV orders yet this fiscal year.
And once those come in will get a better idea of what branches of the service those incremental volumes are for.
So just kinda classify at this point than what you are until this order all you want to over and we're just for two branches on the inaugural core.
Largely there there may have been a smattering in there for the year worse in the Navy.
Mike that army as there's these guys are saying the army in the Marines or the prime users. There are some air force and maybe a requirements though.
Sure of course exactly okay. Thanks, guys appreciate it thanks, Mike.
Our next question comes from the line as Steve Barger with Keybanc. Please proceed with your question.
Hey, thanks.
Solutions day I'm sure Charlie chefs is excited to have a new fishing Buddy.
[laughter] screen your calls.
[laughter]. This is going to be the first revenue declined four or five years, but it looks pretty modest and obviously the balance sheets in great shape should be a good free cash flow year are you using this time to get more aggressive out about trying to source deals or look at pitches.
I see we we've always talked about are always almost.
The thing for US is opportunistic we're generating good cash will generate more cash this year.
No.
What we want to do is if we do make a move make sure. It's the right move a move that you would say oh that makes sense. So we're not gonna go just buy something to buy it. So we look at that up to this point a cap allocation I think has been display well from our company the balance sheet. As you mentioned the is in good shape and so.
When you to review the share repurchase opportunity the possible raising the dividend and then looking its not just you know a deal there could be some partnerships potential jvs, there's a lot of a conversation going on in the markets today with companies working more together than in the past so.
So we're certainly a eyes wide open in looking at.
It's about everything out there that could possibly able to grow add value to our shareholders.
Got it thanks I'll add today.
Thanks, Steve.
Thank you our final question will come from the line of Ross Gilardi with Bank of America Merrill Lynch. Please proceed with your question.
Oh, great. Thanks for squeezing me in and congrats David as well about.
I can't think of any other questions, possibly the only thing I was curious about what is your implied commercial in fire and emergency orders, if I'm doing the math right and I think your commercial orders are up like 13% year on year, and and fires up like 50, and I'm trying to understand that.
In the context of you know the class eight truck orders that we get in the six seven truck orders that we get that are all you know still squarely down are these just.
The only few end markets and the whole market that are still growing or are there any like unique.
Share issues or timing issues that are influencing your your implied order growth and I'm just trying to understand that.
Dan ability really of out of that.
Ross I think one thing if you're if you're looking at kind of the a classic AIDS and comparing to that.
We're vocational.
Dropped builders here and what you know as I as I and we looked at some of the can carry out of the the truck Oems I think they've all been pretty consistent that they're vocational markets continued to remain quite healthy and their outlook for that book in markets continue to remain quite healthy that's it's a little bit different than.
Then over the more the road outlook.
We know that but I think I think what we're seeing is fairly consistent what we're hearing from the truck guys. I think just add to that the two big markets.
You are seeing move there the refuse collection vehicles and fire municipal spending.
Municipal spending is still pretty well and you've got some pretty old.
Fleets that are in need of replacement, so that's where you're seeing some pick up in fire and and rapid.
Yeah, no saving.
I'll, even add to that Ross, but then the and the F in any market.
We have.
Really really good dealers and they're getting better. We've also got new products that have been helping us lot in area wholesome and other other parts of our product line. So.
As far as saying, we're gaining share in the and the happening environment.
Yeah. Thanks, guys I I agree that the truck Oems have been a bit more upbeat and I realize you're you're not included in the you know the all over the road order numbers, but even the you know the class eight straight.
Straight vocational numbers seem to be down. So it does seem like you guys are really up you know outperform in that respect which is great.
So much.
Well thanks.
Thank you I would now like to turn the floor back over to management for closing comments.
Well I want to start off and again, thank Dave They stay tuned for 20 years of just great work here in our company and helping us get to levels that.
But honestly I don't know, we ever thought would get too and obviously, he's telling us to keep going and Michael carrier. That's worked for fourth I want to thank everyone on the call today for your interest in the Oshkosh Corporation. We started to look forward to speaking with you at a conference or our next earnings call have a good day everyone.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.