Q2 2020 Earnings Call
[music].
Greetings and welcome to Oshkosh Corporation reports fiscal 2022nd quarter results Conference call.
I'm, just really starting to listen only mode. A question answer session will follow the formal presentation.
<unk> operator citrus during the conference. Please press star zero on your telephone keypad.
Please note. This conference is being recorded I would now like turn the call which are what's your host Pet Davis Senior Vice President Investor Relations for Oshkosh Corporation. Thank you you may begin.
Good morning, and thanks for joining US earlier today, we published our second quarter 2020 result copy of the release is available on our website at Ash cash Corp. Dotcom today's call is being webcast and is accompanied by a slide presentation, which includes a reconciliation of GAAP to non-GAAP financial measures that we will use during this.
This call and is also available on our website.
The audio replay in slide presentation will be available on our website for approximately 12 month.
Please refer now to slide two of that presentation.
Our remarks to 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 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 a year our to our fiscal quarter fiscal year unless stated otherwise.
Our presenters today include Wilson Jones, President and Chief Executive Officer, John Pfeiffer Executive Vice President and Chief Operating Officer, and Mike Pack Executive Vice President and Chief Financial Officer.
Last call, we introduced Mike as our CFO successor hit the ground running back in January and today, we'll be reporting on our financial results in discussing some of the actions. We're taking you have a newcomer to arash gosh, he's been with US for 14 years in roles of increasing responsibility and we'll continue to be a strong part of our leadership team going.
Forward So welcome to you Mike.
Please turn to slide three everybody and I'll turn it over to you Wilson.
Good morning, everyone.
Sure sure My General comments I want to take a step back and remind everyone. We are truly a different integrated global industrial.
We're better positioned to navigate through a crisis like cobas 19 than ever before.
We have a strong balance sheet and liquidity, we have strong backlogs in our defense and fire <unk> emergency segments, giving us visibility well into 2021.
I have a strong people first culture driven to persevere through adversity.
We responded quickly to the outbreak and have already developed a robust returned to work plan, we continue to refine.
Well that's it.
Facing challenges brought on by the Cobot 19 pandemic.
Our first priority has been to keep our team ever safe and to help reduce spread this virus.
One thing that safety focused approach with our responsibility responsibilities customers as we supplied them with a central products and services that operate in many critical industries in fact over products and services are considered essential.
And we were six communication from the department of defense requesting us to continue manufacturing defense vehicles and fire trucks.
It's a tremendous responsibility and we were proud of the important role, we play and keeping our country safe.
Our teams move quickly the virus came to light in the first part of the quarter.
That time, the business impact was isolated to China and didn't become a major issue in Europe or North America until later in the quarter well, we didn't wait we began daily action meetings, including all key functional areas to assess risk regarding our people our customers operations our supply chains in our communities.
We've analyzed many scenarios as we strive to bounce team member safety <unk> protection, well maintaining operations to serve our customers.
Office team members remain productive and are working remotely.
For those team members required to be on site for production, we've implemented center for day disease control recommendations.
Social dispensing and helped keep our workplaces safe.
I'll be on these stringent guidelines with staggered breaks and work schedules.
And increased access to disinfecting quitting supplies and Sanitizers and our teams are investing time to extensively clean work areas to minimize the chances of infection. Among our 15000 plus team members.
Want to give a shout out to all Oshkosh team members for their passionate commitment, especially our manufacturing teams that are entering the call every single day.
But near term demand and supply chain challenges facing our businesses. We are squarely focused on managing our cost structure and preserving liquidity.
We've instituted temporary plant shutdowns and our access equipment segment to match production and customer demand and supply chain constraints.
And we've implemented salary reductions furloughs and other cost reduction actions across the company.
We believe these cost reductions are responsible way demands the company. During these unprecedented times, we've not made permanent staff reductions as we believe the crisis is temporary in nature.
We've been through many challenges before now cobot 19 is different our business is well positioned to match. The this pandemic.
I remain confident in our leaders our people and our ability to deliver healthy detrimental margins for the year.
Let's turn to slide four for some highlights on the core.
Revenues were down 9.7% to $1.8 billion, leading to operating income of $134 million adjusted earnings per share of $1.25 cents.
Proud of all the efforts the Oshkosh team members provided this quarter and our people first culture is alive and well to deliver these solid results.
Right and our second quarter, we've begun to hear from customers and our access equipment segment.
I wanted to push out delivery requirements and cancel some existing orders.
There were similar request, but to a lesser extent with our commercial segment.
Well covert 19 has impacted demand in our access commercial segments demand was largely unaffected and our and both of our foreign emergency and defense segments at least two segments as strong backlog extending well into 2021 as we enter the back half of 2020.
Well again this illustrates what makes us different from other industrials Jarden might we'll talk more about these developments in the actions, we're taking to drive our performance during this period.
During the quarter, we didnt refinance our senior notes that were due in 2025, extending the maturity lowered the interest rate, which will save us several million dollars per year.
The market demand was very strong for our investment grade debt.
And finally, our board has approved another quarterly dividend payment of 30 cents per share.
Please turn to slide five to begin discussion for each of our business segments, all started off with defense.
Our defense segment provides a solid foundation for the company led by three strong programs of record and demand side of this business has been unaffected by the covert 19 pandemic.
No the programs rather not military acronyms, the JLTV Hi Tech next generation lot payload protected tactical wheeled vehicle.
LTV production is still ramping up and went out to more international customers for Jltvs in February.
We also participate in the U.S. armies industry day, and preparation for a potential recompete of the program in 2022.
We are confident in our ability to retain this program.
The current contract, we maintain strong visibility and expect to deliver jltvs through 2024.
Next up is the FMTV, which is U.S. armies medium payload tactical wheeled vehicle.
Production of the current a 1.2 versions winding down we are beginning to transition to the next generation version the too.
We expect to produce FMTV eight two through 2026 under the current contract.
And finally, the pride of Oshkosh, the feds for nearly 40 years ethics TV.
We really kicked off the modern off road heavy payload tactical wheeled vehicle industry when the U.S. Army selected our entry and their open competition in the early 19 eighties.
We have continued integrating new technologies and upgrading capabilities are these critical units over the past for decades.
During the quarter, we received large orders for both the JLTV and ethics TV programs that positively impacted our quarterly performance increased our backlog.
In fact, we now have the largest backlog for defense in the last eight years $3.4 billion, including nearly $2 billion for 2021.
Our team in Oshkosh, that's worked very hard to deliver strong results and that was the case again this quarter.
Well demand remains strong in our defense segment the team still faces production challenges due to the covert 19 related supply chain disruptions and workforce availability.
If successfully navigated through numerous suppliers shut down, but resourcing critical components and they address workforce issues with social doesn't thing an increase cleaning frequency to enable continued production.
Oh, it's possible these factors could cause a slowdown in the coming months.
Let's turn to slide six and I'll pass it to John discuss our nondefense segments.
Thanks, Wilson and good morning, everybody.
Coming into the year, we expected lower access equipment sales in North America, and Europe, but we did not expect the effects of the cobot 19 pandemic the shock to the business landscape as being felt most intensively in this segment.
But in spite of the cobot, 19, disruption, which drove significantly lower sales as well as supply chain disruption our access equipment team delivered another solid quarter with strong decremental margin performance.
Led by our simplification drive we have created a more nimble organization, resulting in healthy operating margins at lower sales levels.
The impact of Cobot 19 was first felt in China as our business was part of the government's mandated shut down to stop the spread of the virus. The shutdown extended three weeks beyond the Chinese new year and with the entire country largely closed sales in China basically stopped.
The shutdown eventually ended and I'm pleased to report that our 10 gene facility is back up and currently running at pre Cobot 19 levels. All of our team members have returned to work and demand has begun to come back rapidly. We expect a strong second half of 2020 for Jay LG sales in China are.
Long term outlook in China remains positive as a result of product adoption driven by safety and productivity improvements provided by these products.
However, as cobot 19 began to spread globally in the back half of the quarter and many countries in states issued shelter in place restrictions many customers began to push out and even cancel some orders our north American customers had been reviewing their operational requirements and market metric.
They have kept us well informed of their product demand requirements.
The situation is fluid and we are adjusting based upon our frequent communications and daily review process.
Further our north American operations and supply chains are experiencing disruptions as some suppliers have temporarily ceased production.
As a result of slowing customer demand as well as production and supply chain constraints, our plants in North America instituted shutdowns from March Thirtyth through April 13th and subsequently extended those shutdowns until April 27.
In addition to weak shutdowns are planned monthly through July to further align production levels with customer demand.
We expect Europe's demand decreased to be more pronounced in North America as already slower construction activity is expected to decline further due to covert 19 related government mandates. We also expect that major disruptions to first and second tier suppliers will persist as the market reacts to cold.
19 operating restrictions.
I'd like to finish my comments on jail G by sharing some of the game changing new products and future technologies displayed to our customers at Conexpo. They highlight our continued positive long term outlook for this market and and the segment.
These included all electric scissor lifts, which completely eliminate hydraulic fluid a self leveling 67 foot boom that provides unparalleled versatility on rough terrain job sites as well as augmented and virtual reality tools simplified training and job site awareness.
Isn't innovations drive significant productivity improvements for fleet operators and users of the machines.
Our team at access equipment has experienced and highly capable we're working closely with customers and suppliers to position the business for success when the current situation improves.
Please turn to slide seven for a discussion of the fire and emergency segment.
PFS is the market leader in custom fire trucks with its broad offering a pumpers aerials and heavy duty rescues.
Fire trucks remain critical assets to first responders battling the cobot 19 pandemic on the front lines and our commitment to these heroes never waivers.
Pierce just completed its largest quarter of fire truck orders in the company's history, leading to a record backlog up more than $1.3 billion for the segment.
New order intake may slow in future quarters, because of cobot 19, but it puts us in a strong position and provides visibility well into 2021.
Despite strong demand covert 19 is impacting the fire and emergency segment in several ways supply chain disruptions workforce availability and modified customer delivery inspections, much like our defense business, our team and fire and emergency continues to drive strong performance, but their faith.
Having challenges that are broadly in line with all truck and automakers in North America.
We did not achieve our revenue target for the second quarter due to the combined effects of cobot 19 related customer travel restrictions.
And a supplier quality issue that impacted our truck delivery schedule.
The supplier quality issue arose when one of our raw material suppliers delivered product that was out of specification the issue surface during the quarter and we quickly identified all products that required replacement materials.
This necessitated changes in both our production and delivery schedules driving labor inefficiencies and shipment delays conforming product has been received and we expect to catch up by the end of the year.
Customer travel restrictions sparked our team to launch an innovative new virtual inspection process for firefighters two approved our fire trucks. The process was launched very recently so the benefits were minimal in the second quarter, but we expect fire departments to utilize this approach more frequently in the coming months.
Looking to the remainder of 2020 were expecting North American vehicle manufacturers ourselves included to be impacted by cobot 19 supplier shortages.
Please turn to slide eight and we'll talk about our commercial segment.
Like our other segments operations in commercial ever remained open since these products are considered essential Corbett 19, however is impacting mixer product demand as construction sites in some states based temporary shutdowns and customers look to push out deliveries of our units.
Our some order push outs and they are CV and I M T product lines as well.
Similar to our other segments, we have supply chain challenges as many suppliers limit their production or shut down due to shelter in place requirements. We have generally been successful mitigating these challenges to date, but it is possible that apart or component shortage could limit production temporarily in the coming months.
Even with those challenges we continue on our simplification journey. We're also active with the ramp up of our new front discharge concrete mixer. The S series 2.0, complete with connectivity and productivity technology not previously seen in the concrete placement industry.
Formally launched the vehicle at Conexpo in early March attendees of the show we're excited about the new vehicle and we are all and we already have a solid backlog of orders.
That wraps it up for our business segments I'm going to turn it over to Mike to discuss our second quarter results and some additional comments on current business conditions and the actions were taking.
Thanks, John and good morning, everyone. Please turn to slide nine.
We commented on our last earnings call that we expected second quarter sales to be roughly flat to the prior year with earnings modestly lower however, the situation changed with the Cobot 19 outbreak consolidated net sales for the quarter were $1.8 billion down 9.7% from the prior year quarter.
Lower access equipment and fire and emergency sales were the primary drivers of the lower consolidated sales offset in part by higher defense sales.
Access equipment sales were negatively impacted by Pushouts and customer delivery requirements. As a result of cobot 19 prior to the emergence of Colgate 19, we expected a modest decrease in access equipment sales as a result of rental company customers in North America slowing down their capital expenditures for.
Mansion after two strong years of girl.
Defense sales growth in the quarter reflected the continued JLTV production ramp partially offset by lower at HGTV volumes.
Fire and emergency sales were lower due to the previously mentioned supplier quality issue that impacted the shipment of units and cobot 19 related travel restrictions impacting customers abilities to inspect and except completed units. These shipment delays also contributed to an unfavorable product mix.
Commercial segment sales were approximately flat to the prior year quarter, reflecting an increase in refuse collection vehicle sales offset by a decrease in concrete mixer sales as the commercial team was ramping up production of the new S series 2.0 front discharge mix or in the current year quarter.
Refuse collection vehicle sales were negatively impacted in the prior year quarter by a partial rip collapse at the segments main production facility.
Consolidated operating income for the second quarter was $133.6 million or 7.4% of sales compared to $175.6 million or 8.8% of sales in the prior year quarter.
Access equipment operating income declined on lower sales and unfavorable manufacturing absorption as a result of the plan slowdown in production offset in part by lower management incentive compensation expense lower amortization expense and favorable product mix.
Defense operating income increased as a result of higher sales volumes offset in part by adverse mix higher warranty costs and higher new product development investment.
Fire and emergency second quarter operating income declined due to unfavorable product mix lower sales volume and manufacturing inefficiencies. These items were partially offset by improved pricing commercial segment second quarter operating income increased compared to the prior year as a result of improved manufacturing absorption.
And as absorption was negatively impacted by the partial rough collapse in the prior year quarter offset by higher litigation and manufacturing startup costs.
Adjusted EPS for the second quarter was one dollar and 25 cents compared to EPS of one dollar and 82 cents in the second quarter of 2019 second quarter results benefited by three cents per share from share repurchases completed in the prior 12 months.
As well as Wilson mentioned, we successfully refinanced our 250 million dollar 5.375% senior notes due 2025 with 300 million dollar 3.10% senior notes due 2013, we use the additional proceeds to pay down the company's senior secure.
Our term loan by $50 million, we expect the refinancing to reduce interest expense by approximately $5.5 million per year.
Please turn to slide 10 for a discussion on the remainder of fiscal 2020.
As a result of the evolving impact of cobot 19, including the impact on our core customers suppliers and our team members and production facilities. We withdrew our 2020 financial expectations on March 20, Threerd. Many of these uncertainties remain so we're not in a position to provide updated guidance for two.
2020 at this time.
In light of these uncertainties, we took decisive action to reduce pretax costs by $80 million to $100 million for the remainder of the year. These cost reduction actions include salary reductions furloughs temporary plant shutdowns limiting travel and reducing project costs and other discretionary.
Finding.
Our balance sheet remains strong with available liquidity of approximately $1.2 billion, consisting of cash of approximately $400 million and availability under our revolving line of credit of approximately $800 million.
During the quarter, we paused or share repurchases and we will reevaluate them as we gain further clarity on the year.
We're also reducing planned capex by approximately $40 million.
We believe the third quarter will be our most challenging quarter for all segments, which will impact sales operating income and decremental margins are access equipment segment faced is uncertain customer demand and a risk of supplier shortages of critical components. As a result of cobot 19 as discussed earlier, we have implemented temp.
Gary plant closures to help balanced production and supply chain constraints with revised customer demand.
Our defense and fire and emergency segments, both have strong backlogs in both segments are essential. So production continues however, both segments face a risk of supply chain shortages and workforce availability, which may interrupt production and drive inefficiencies.
In addition customer travel for final infections could remain a challenge in fire and emergency.
Similar to access equipment, our commercial segment is facing more uncertainty in customer demand combined with a risk of supplier shortages and production interruptions. Our operations team members across the company are working diligently to stay safe and flexible so that we can manage production as effectively as possible. During this dynamic period.
Yeah.
Please turn to slide 11, and I'll turn it back over to Wilson now for some closing comments. Thanks, Mike entire world is going through a challenging time. However, we believe Oshkosh is well positioned to whether these challenges we have a strong balance sheet and liquidity our defense environments, you backlogs provide visibility well into 2021.
We have quickly taking the right actions to manage our cost structure.
Well, we may face further production in supply chain disruptions in the coming months, we are resilient and we'll adapt to continue to leverage our different integrated global industrial model.
I am reassured by the strength and resource resourcefulness of our team we are better together and we'll take the right actions to ensure the safety of our team members as we do business the right way.
We are communicating frequently and transparently as we manage the company through the current landscape and believe we can deliver solid sales and earnings performance over the long term.
I'll turn it back over to Pat to get the Q and I started.
Thanks, Wilson I'd like to remind everyone. Please limit your questions one plus a follow up after the follow up we ask that you get back in queue, if you'd like to ask an additional question.
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 come from engines will indicate your line is in the question Q you me Prestart. So if you will that your move your question from Q.
For participants using speaker equipment, and maybe this year to think about ansible for questions Sarkies.
Our first question comes on line of Jerry Revich with Goldman Sachs.
Good question.
Yes, hi, good morning, everyone on and I'm glad you're you're all doing well.
Thanks, Good morning could target.
Morning.
Can we talk about that really strong decremental margins performance that you folks deliberative.
Equipment, given the deterioration the March but really stood out as we think about plant shutdowns in April I'm wondering how would you pounds less to think about sustainability to gross margin performance that you folks just delivered given.
More challenging environment in the business in April and hopefully a pick up activity in may.
It can you just maybe step us through the moving pieces directional that'd be helpful.
Okay.
Morning.
As we look at it we're certainly very pleased with the performance of access equipment in a quarter for my decremental standpoint, It's really a testament base as we saw the situation unfolds I jumped on those cost reductions very quickly.
As we look to the rest of your I'd really point to a particularly at access look at at on a full year basis.
We're looking at a variety of scenarios of course really looking at it anywhere from a.
Stop to be opt to elongated view, we have a playbook really to manage each one of those those various scenarios and we're going to continue to watch.
Certainly as it unfolds, we're comfortable with that.
Our range of reasonable scenarios that were going to maintain sort of mid twentys decrementals and access, but again I would I would really look at at on a full year basis.
Okay. Thank you for the color and then in terms of.
The defense segment, you mentioned weak you would be challenging across businesses can you just update us on contract. We're piloting in defaults and can you just confirm that the challenging quarter comments does apply it to defense.
So just caution around parts availability, if you wouldnt mind pushing back on that please.
Yeah, you're spot on from a demand perspective it.
Man there our plants are operating it's really a function of managing through the supply chain and workforce availability.
I think the overall comment of Q3 being are challenging quarter juries really for all four segments saw just defense.
Yes, so it sounds like Justin qualification sounds like we haven't seen any big supply disruptions, yet, but obviously given the environment its corporate deposits, but we haven't seen anything yet.
That says.
You will be challenging quarter for defense, it's just prudent at this point.
Well I know, we've had supplier constraint issues it all segments and in defense again, our global procurement supply chain team has been all over this weve managing.
Suppliers as is there are the yen business or they are they are are they.
Even from a liquidity standpoint, how are they doing and we've been able to resource to some other suppliers. So it's there's still no I kind of a slippery slope ahead of us as we work through this quarter, but the team has done a nice job navigating at this point, we have had a few disruptions that we've been working around animal currently work.
Continue to work around.
And we've had.
Just to give you a little bit more color. We've had literally hundreds of suppliers that have ceased production for anywhere from two to six weeks. So you can count I understand the amount of.
Work, we have to go through to make sure we keep our operations running one we're in that environment.
Appreciate the discussion thank you.
Thanks Jerry.
Our next question comes along and Dignan JP Morgan. Please proceed with the question.
Hi, good morning.
Good morning glow.
Hi, just on.
Depends again are you, saying that you will not be able to deliver the 4000 to 4500 units JLTV that you had anticipate this earlier.
No, we're not saying that and we're just saying that there's going to be some.
Choppiness in this next and this quarter as we continue to work with our supply chain on on some shortages.
The other.
As you can imagine different states are under different.
Operating procedure so.
It's just going to going to be a little choppy as we go through the rest of year, but our expectation is that we'll continue to navigate we may have some slowdowns, but the team is prepared to continue to work and Theres always in our scenarios opportunities to catch up the good news, we have the backlog and and the team is disciplined and executing well with that and working around.
These issues.
Okay I appreciate the color so maybe some.
Some overtime there something in the fourth quarter will help make catch up is that kind of what you're thinking at this point.
Well I will have to see and I mean right now.
We haven't had any slowdowns in defense Theres been some inefficiencies with with your workplace absenteeism.
And some of the supplier constraints, but they're running pretty close to their their initial production levels.
Okay. Thanks, and then just a follow up on the access signed.
You said that shutdowns will continue to be two weeks.
Our another couple of months can you just expand on that and does that mean and be operating two weeks permanent or just just a little bit more color and your comments they won't be helpful. Thanks.
Yes, and this is John Pfeiffer, so to give you a little bit of understanding. So first of all today all of our access plants are running today with the exception of Mehdi us in Romania, So essentially were up and running today.
We were were met we're doing a very good very careful job of matching our production rates with demand rates and demand rates right now very low because there are hundreds of job sites that are Dow construction sites that are down more job sites that are down 44 states our end shelter in place.
Just not much activity going on and therefore, there is very low demand for our equipment going into our rental customers right. Now so where we took four weeks of production out of the month of of April were expecting will take more weeks out as we go through the third quarter, we're expecting that to be the worst quarter.
The toughest quarter as we start to turn the light gradually back on in the economy. So we're just doing a very careful job of.
Prudent production and not not not over producing during this period of time I think just to add to that too.
And you know May June those are the big normally the big construction months and so that there is lot things we know in that we're executing well from a team standpoint, but the unknown is what's may and June going to look like as John mentioned more states are starting to open up again, we heard a couple. This morning that are that are reopener.
From a construction standpoint, so we'll measure that stay close to it as we go but may and June are going to tell us a lot.
About the back half of this year.
Okay. So just to be clear and I will turn another part fiscal Q3 deal has.
An expectation.
The percentage of days available that you'll be done in excess.
We talked about two weeks time per month.
Got it gives you an indication.
Two weeks per month for April May engine correct.
Okay, I just want to make sure I guess the number of April April April as for and that's it.
For the remaining two months.
For me.
Half and will be will be down basically of the quarter. So.
Perfect that's exactly what I was looking all right. Thank you I appreciate it.
Thanks, Dan Thanks.
Our next question comes on line of Stephen Volkmann.
Jefferies. Please proceed with your question.
Hi, Good morning, guys, if I could do one.
Finally WP question.
How should we think about so sort of the revenue run rate in China in that business since that seems to be sort of back up and running.
Yes so.
China is.
Where we saw this.
Well that 19 impacted us first so kind of gave US an early view of what was going to happen.
We were down for three weeks in China following the.
Chinese new year.
And everything was was basically shutdown in China.
Hard stop three weeks.
We came back up gradually when you as employees could start to return to work depending on where the restrictions in their local communities were.
And we're now back at full production in China and demand has rapidly return. So we have seen a b type of a shutdown in China, that's a very positive scenario.
We would love it if we see a b in the us how however, we're not counting on TV in the U.S., we have a playbook of actions and as we can predict more closely and more carefully as this unfolds, what's going to happen, we'll execute that playbook.
But we think that the economy is gonna start to come back to life, but it's going to be a little bit of a dimmer switch.
And we don't know the rate of speed with which that dimmer switch is going to get dial up and so we have to be very careful as to.
Using that playbook appropriately.
Okay, and just any order magnitude about how big that business is very these days.
China today.
Single digit percent of our revenue, but it's getting bigger every year, because then strong growth mode, I mean strong double digit.
Growth mode. So it becomes more material every year the goes by and we feel really good about future that.
We still expect in the next four to five years, if it stays on this pace, Steve the boom market in China will be as big as what it is in Europe.
Great. Okay. Thank you guys.
Thanks, Steve.
Our next question comes along the line of Mike Shlisky with Dougherty and company. Please state your question.
Hey, good morning, guys Remixing.
So and access I noticed that you telehandlers were down a bit less than any of your peas, and your other which I guess might be jerre, Dan was actually almost flat for the quarter.
Is the Telehandlers outperformance relatively due to some of their usage and.
No.
Right.
Just first on deliveries during the quarter.
And maybe some color about.
As to why the other stuff was actually flat during the.
The quarter.
Certainly there is there's a lot of timing aspects. If you look at epic quarter. Our our revenue was for access was down about 200 million versus our expectations. So you certainly had.
Some some movement in terms of what we had planned I guess just generally we don't expect to see any notable mix shift over the course of the year first half the second second half.
Really being a big driver.
Okay.
Just a quick one on defense.
Great to see you guys have some more countries looking to buy the JLTV.
Please to motors year have other countries since the covenant.
Issue, who have the at all.
Change the quantities, but looking at that they might order Hyundai changed how often they look mr. products et cetera has that changed for the back half of a year or the first part of 21.
No Mike I would say that hasn't changed we know there are numerous countries at various stages in the Fms process.
Roughly over 10 countries of Gen showing interest in and again various stages of that Fms process, but we've heard no negative responses coming out in the due to the covert 19 crisis at their their stopping or changing their their quantities going forward.
Okay excellent pestillo. Thank you thanks, Mike.
[noise]. Our next question comes from the line of mix over something please do differently.
Yes. Thank you good morning, everyone and Mike welcome to the calls.
Hi, maybe maybe.
No excuse me a little clarification on.
Announced saving can you can you talk a little bit about the cadence.
You know in Q3 Q4.
I'm also curious as to how these savings get allocated segments versus the unallocated corporate expense line item, which which was down quite a bit in quarter, obviously, you're managing that number pretty aggressively.
And then my interpretation of your discussion on these savings is that.
There there are temporary in nature, So I guess, what I'm, what I'm wondering here is.
Do we sort of CD cost come back into the Pn now.
Wrapping up with volume or is this more of a kind of a calendar year sort of let a fiscal year situation, where as we go into fiscal 2001.
We see a more normalized expense base.
Maybe we can cyber.
Okay.
Well I'll I'll start off with the first part of your question just in terms of of the cadence.
We did see see some benefit already in Q2, we took action right away in March.
We really see at fairly evenly spread through that through the back half of the year.
Those savings the.
I guess from a segment standpoint, you can you can imagine just that it's a portion at Q.
The level of activity and change that we're seeing from a customer demand perspective. So.
Again heavily weighted more heavily weighted towards hard to access but it really.
Hats off to the team.
Everyone really stepped up in a hurry.
And even those segments.
Access or excuse me I defense and.
And if any that have the bigger backlogs.
Our participating at so we see that in the back half half a year.
Fairly even.
Maybe I'll tell what on the on the Im sorry, you up, especially on the cadence back to Mike.
No no I was just looking for clarification on a corporate expense line item to but maybe you're going to address that.
Oh <unk> corporate is while we are.
Similar to the other segments, we we took aggressive.
Cost action here as while at the at the corporate offices so.
Again, all all segments and corporate participated in aggressive manner on it.
Yeah and on the as far as temporary in nature Mig what I would say is.
We're still working through.
Our view and the landscape of access going forwards.
I think we've said temporary.
Customers.
Commentary has been consistent that they think this is this is more temporary then then long term so.
You see the range of the 80 to 100 million. There. We we can fluctuate in that range. We also have scenarios. The go deeper in that range and levers prepared to pull if we need to.
But what we're working.
Yes, Im curious on his may and June what's that going to look like and what does that mean to the rest of this year and then into 21 in regards to your question. So.
We're anxious to get through these next couple of months I think the next call. We'll have much more clarity on just what is the shape of this recovery. We are starting to see some better songs I think a already came out yesterday with the rental market stabilizing theres. Some positive of states opening up so we're going to just micromanage.
This like Crazy and then as we work through May and June I think we'll have a better view, if we need to to to full some of those levers and go above 100 million, we can still do that and have some effect in this year. So.
Thank you know us we plan a lot of different scenarios through the cycles, we've been through it unfortunately over.
Over 60% of our team members and leadership roles here I went through the great recession.
And then obviously the experience we just went through in China, We learned a lot of lessons and I think thats why.
Our record and knock on wood here I don't want to Jinx us, but out of our 15000 team members. We've only had five positive cases at separate locations with no residual effects of those cases, and they're all healthy and actually back in the workforce today. So.
We are using a lot of those lessons learned and navigating through this.
May and June or are the key that I think thats going to really reveal what what this looks like risks this year indefinitely into 21.
Hi.
Thats great color. Thank you for that.
Then my follow up.
Question on on your inventories, which.
Which have picked up and it really the highest that I've seen them in.
In a while so I guess, what I am wondering here is how much of this uptick is.
You sort of having some some challenges delivering product like what will be heard in fire and emergency with customers struggling to take delivery versus maybe you'd have been built up some.
Some stock of parts and so on two to kind of deal with some of these supply chain challenges and related to this as we look into fiscal year end here, where do you see or would you hope this inventory figure to be going into 21.
From an inventory perspective, it inventories definitely higher than than we expected at the ended the quarter and it was really due to the rapid decline of demand, particularly in access equipment. So that's where you see the biggest impact I think I'd mentioned earlier in one of Meyer responses to a question that our revenue.
In access was down by about 200 million versus what our expectations work due to that rapid decline and you really see inventory reading through at a.
At at at the corresponding value so.
We adjusted quickly and that's really why you saw take those those days out of out of April and we're managing at the next several months and we'll continue to watch that but that are our plan is really to get that back into line by the end of the year I bet, a god, we're going to continue to watch the signal.
We're seeing in the marketplace mall will continue to manage it accordingly, yes part of Mega John part of this is that were Ron on pretty well.
Coming out of February outside of China anyway, coming out of February and March and then pandemic hit and it was like a lot has like somebody turn it off the lytswitch everything just stop basically customers. So just push my orders out.
To Q3 in Q4, because I don't know, what's going to happen and so.
When that happens in March the of last month of a quarter.
You can't adjust fast enough for your inventory just naturally builds up and as Mike said, Therefore, we took production out in April I.
I think just one more piece of color Big we're giving you a good nurture this morning, but.
The inventory.
I would say you probably heard us so as a four is a good inventory it's that inventory that's kind of in the middle of fairway.
Usage high utilization in our old customer company. So we're not we're not.
Overly concerned about that it's it's a matter when the markets do get going again, and I would add too.
Access is focused on maintaining that discipline pricing approach that you've seen them deliver over the last couple of years.
And so if if there is some issue out there were someone else is shedding inventory at low prices.
We're going to maintain our discipline and we do carry a little bit more inventory.
That's okay.
As long as as long as those markets NUKEM come back as we expect they will.
What do you say short or medium term will know that more in may and June.
Sounds great. Thank you guys. Good luck.
Thanks Mig thanks.
Our next question comes the line of Seth Weber RBC capital.
The question.
Hey, guys good morning.
Okay, well I guess, maybe for Mike just just a follow up on that question have you seen any.
You know any issues with collections from from any of your customers anything getting pushed out.
Cross that I assume not on the defense side, but across any other segments anything to call out there. Thanks.
Thanks to the question no we're out from a collection standpoint, it's largely Ben Ben businesses, usually style we add.
We had a positive cash flow in the quarter work, we are taking extra measures to look at at really our entire customer base.
Looking at credit limits, and so on and we're really watching it on a daily basis.
But really no no unusual changes from a collection standpoint.
Super Thanks, and then maybe Wilson just back on the on the defense side.
Revenue and margin was actually was a lot better than what we're looking for was there anything that.
Got good kind of pulled forward or is there any any color as to.
The unusual strength there both on the topline in the margin for the quarter that Youd call out.
The best it was the orders we received FH TV and FMTV orders that came in.
In the quarter and.
I think thats. The main reason, yeah, and then we had a full.
I obviously.
Well the demand was there so we were production producing pretty pretty a pretty solidly in the entire corridor. So.
It definitely aligned with what we were what our expectations were in that in that segment there when it big JLTV order as well, yes, as I mentioned earlier too.
Defenses has continued to operate on a pretty normal production schedule they've had a few.
You know Mrs with was supplier constraints, but for most part they they're staying pretty well on track.
Right. So I mean, I think your guide.
The year originally it was around I think at 9% margin.
So it kind of in a normal operating environment, where your supply chain is good and all I mean is there any reason to think that.
Nine the half you guys just it wouldnt be.
Sure the good news the new run rate then.
So we're trying to stay away from the into definitive on our margins because as John mentioned, we've had hundreds of supplier issues again, our team is really doing well working through all those so.
It's just too early for us to know if we are going to have any slowdowns do some supplier constraints or any kind of the employee absenteeism.
I'd say so far so good but we've got to get through these next couple of months before we could really be more definitive about that.
I understand it's just taking a more of a kind of a normalized business environment.
You know understanding the near term, there's going to have some hiccups, but.
Seems like you're at a pretty good level here for the second quarter.
JLTV is not going down you have this big backlog in underserved looking at trying to trying to understand what the normalized margin should be for this business, but I. Appreciate you don't you don't know what the near term is going to be but.
That was the spirit of the question.
Okay, all right I mean long term, we have not changed our viewpoint right.
They normalize Seth if we say long term you'll high single digit has been our target and I think we've got a pega track record I think our commentary also than we see the next couple of years Thats being leased a $2 billion run rate business right. So.
Long term when you say normalize we really look forward to being able to talk about normalized.
I hope it sooner than later, but thats kind of work that I think we're going to use for at least a month or two.
Understood. Okay. Good good luck and take care guys. Thank you. Thanks. Thanks.
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Our next question comes on line will come.
Please proceed with your question.
Hi, Good morning. Thank you just on the defense Martin one more time was the.
Was there a.
I know you didnt, even call it out but in terms of that second quarter margin was there any impact from the.
Thanks, TVN was I came in towards the end of the quarter.
And contract catch up adjustment that we that.
Sure.
Well no meaningful impact in the quarter.
There was a benefit for the quarter op, Ed if you look at year over year as pretty benefits of of contract awards was pretty similar year over year.
Okay, All right and then maybe Wilson look looking out a bit further maybe just talk about I mean, obviously Anthony has got a good runway here from a quarter and better from a backlog perspective, but.
As you look again, a little bit further out.
What do you think in terms of the potential impact from obviously a lot of state and local governments, taking it on the Chen here pretty good what do you think and how do you see that playing out.
In terms of procurement cycle, and maybe contrast that versus what history would have.
And suggested on peers. Thank you, yes, I'm going to let John jumped on the seats been knee deep in the foreign currency as we've been evaluating municipal spending for both buyer and refuse collection. So John why don't you wrap Tim's question, yes. So the short sorry, as we feel really really good about our position in fire and emergency as we said.
Okay, all time record order intake in the in the quarter and our backlog at 1.3 billion. It extends well into 2021, So let me do a little bit more ex explaining as to those municipal tax receipts and how they might impact us we of course know that they do impact.
The segment to some extent.
They tell you know that municipal tax receipts tend to follow recessions 18 months later or so.
You know that said the Shaka cobot 19, and expectation of a downturn at this whole shock could cause some near term.
New order intake the slow a little bit thats possible, but I'll take you back to the reference point a pre great recession. The market then was close to 5500 units and it fell 40% to around 42 to 4600 units.
In the great recession. It it never really came back to that 5500 unit.
A number or even at that smaller market size, we're hitting new records in any we also know that.
The fleet is aged and municipalities really need their trucks and they tend to prioritize their trucks.
And with the way that our business in the greatly incredible people on the great management team. We've gotten this business is performing the position. We've got we feel good about the long term outlook.
Okay.
Got it thanks a lot.
Thanks, Tim.
Our next question comes a lot of David Raso with Evercore ISI. Please state your question.
Hi, good morning.
The access margins.
I think about the amount of shutdown days in the coming quarter.
The decremental margin commentary with some implications and savings program.
It does appear do you think you'll be able to stay at.
At least close if not still profitable close to breakeven for access am I reading that correctly I mean, just given back you know nine.
This business lost a significant amount of money I think it'd be pretty impressive if you can avoid even one quarter.
Losing money I, just want to me from capturing those those metrics correctly.
I will bottom line as we look at we don't expect to lose money on for any quarter for the entire corporation.
We don't expect money and any individual business for the year weren't you get into the quarters. It really depends that there's a lot of uncertainty with Q threes. So it's just difficult then really for the rest of year. So we just need to see how.
Construction activity starts picking up before before we're going to call a quarter I think one thing that helps us Dave.
We're going into the back half a lot different than than the great recession backup for us in that we've got $844 million and access backlog today and that backlog as current through last Friday April 24th We went ahead and and net of cancellations. We wanted to have a.
Correct up to date backlog number for you today, and that's 844 million today, I think and the great recession, there was less than 100 million that we had in backlog going in that second half so.
That that should it should.
Plus a little more in the second half and what you can recall in the right recession.
Yes, I'm just trying to think if theres the risk of we get some may June a lot of the rental companies don't see reopening quickly enough money go look, let's just push this out a bit and that backlog comes down.
Even if you did have a 60% revenue declined for the quarter. The way you're speaking about Decrementals you still I mean, its closer you stay profitable and there's no doubt with that kind of decline versus what we showed a nine it'd be obviously terribly impressive. If you if you could do it sounds I just wanted to.
Set the parameters there on that so that's helpful and the follow up the conversations you are having with.
Some of the bigger rental companies.
If there is some decisions will be made in the next six eight weeks are they going to take the machines. This year.
Or is it sort of a push outs situation because obviously, there's some seasonality so when they want to take the iron.
Are you having conversations that are ready coloring. Your view on this would just push out what's their replacement demand for 21, just curious how holistic conversations are of things getting cut at a 20 and what does that help for 21 hour placement.
Well.
Oh this is John I'll I'll try to give you some color on what we are seeing so uncovered 19 hit.
Oh.
We essentially saw things come due to a screeching halt in terms of activity in other words.
Orders started to get pushed out are all of our customers across the board said, Hey, we need to push this order out wasn't a cancellation. It was push out we'd have had some cancellations been more push outs and cancellations.
We have we we are in conversation with our customers. All the time every single day to understand what we're seeing in the marketplace of course utilization rates of the equipment has come down we believe today that as of about mid April.
Realization rates have bottomed, maybe they're improving a little bit.
Still still too early to say, but we think they may have bottomed. We also know that theres not much de fleeting going on.
In the marketplace. So that means that our customers are really kind of still in a wait and see mode and that makes a lot of sense that they're in a wait and see mode. Because 44 states still have shelter in place or hundreds of construction sites that are down and hundreds more job sites, where they use our equipment that are down.
And we need the economy to get moving again in the dimmer switch start to dial up before we'll really know what what the demand in in Q3 in Q4 is going to look like and really that's the essence of.
Why we can't provide guidance at this point in time, we've got the we've got a CD economies open up I was just said the.
Relationships.
GLG has great relationships with their customers.
I was there for a few years as you probably recall in and I've maintained all the relationships with the leaders of sort of a big companies and the conversation I have with one last week was aligned with what we're thinking that it's it seems to be temporary and our commentary back and forth with what how temporary as temporary is it a couple of months is it for a month.
Six months, so I think.
The general thesis with our big customers or even the our independent our own costs are all were customers is.
The John's point wait and see Whats may and June going to look like states are starting to open up.
I think everybody is still leaning toward the more temporary.
Thesis, but may and June will tell us and I do the more in the morning.
Ferrari I'm sorry go ahead.
I will say one final comment we know the markets are going to come back. That's one thing that we do know we feel highly confident in that it's really a question of what rate are they going to come back at and that's what we're trying to figure out over the next short period of time.
Okay and that's the issue if they think it's temporary that backlog. We can you said, it's a lot higher than going into the great recession.
We can embrace that backlog if they decide to say it's loads, it's not really temporary or we're going to pushes out to next year. That's when we lose the support or the the the 844 and backlog.
Yeah, and even the numbers I was running you still think you're going to be breakeven or even above which.
The business lost a significant amount of money no nine so that'd be a pretty dramatic change. So okay. I really appreciate it. Thank you so much.
Just a disappointing showed I can tell you all of our segments.
So Mike pack and his team on finance side really focused on managing those decrementals. We know how important that is and again the team is responding well and and we feel like we're in a pretty good position to deliver those mid twentys from a company standpoint for the whole year.
Thank you.
Thanks.
Our next question comes a lot of still Neely Stifel. Please proceed with your question.
Hey, good morning, everyone nice to hear your voices.
[laughter] quick question on on some of the like the fire business I guess in particular, if we think back kind of post 911, your post financial crisis in the Obama stimulus.
What degree where some of those businesses beneficiaries of of some form of stimulus or grant money and I think about that impart theres earlier question about municipal budgets and just on the off chance. It that's the kind of the next round of stimulus, which.
It could be I was curious does it get your thoughts on that from historical context.
Yes, certainly if you go back to 911, we had the what was called the Fire Act grants that allowed.
Cities.
Local townships to apply for federal money for fire trucks and on it.
It helps I think.
Some parts of the market I think the primary products that were being purchased through that barack ramp or more commercial and nature not a lot of custom products, but again it was a boost to help help the market.
Coming out of a great recession, there really wasn't.
Any kind of stimulus around fire departments for fire apparatus. That's why I think John mentioned earlier, we've got a pretty aged fleet out there from fire apparatus standpoint, and with the priority of a.
Municipality.
And able to modify or react to an emergency and that that will keep that as a priority for up from a replacement standpoint. The stimulus that that's currently in play there's not much for fire apparatus from a municipal side, but there is.
10 billion.
Stimulus affected for airports and so we believe our airport rescue firefighting business could benefit by some of that just with all the airports, having a having that type of money.
To upgrade their their products or services around the airport.
Perfect. That's it for me thank you.
Thanks, there thanks.
Our final our final question comes from the line of questioning docket bonus with Morgan Stanley. Please state your question.
Great. Thanks for squeezing me in guys yes.
Comment.
Or just elaborate a little bit more on your comments about the JLTV.
Pencil recompete in 2022, how long are youre.
And for at this point and you know.
Does that have any implications for your international right you know going forward and then also if you can just highlight any differences and the cost structure today versus when you originally thing for the program.
Back in that 14, 15 time period.
Okay 40, thank you.
The JLTV program first and foremost is performing very well, we know our department defense customers.
I appreciate the product and.
Really value its effectiveness and what it can do it from a mission profile standpoint.
But has stated that 2022 is their plan year for Recompetes.
To be determined if that holds but that's what has been stated.
Obviously, our plan would be to retain it.
We think.
Going forward building the way we are the efficiencies we gained and building the product we know we know which we've got a good supply chain around so again, we we like our our chances to continue to win it from a.
International standpoint.
Obviously, we have the opportunity in front of us today, but going forward.
I don't like to say it this way, but if we work to lose on the Recompete, we still have a JLTV product that we could sell internationally that doesn't prohibit us from selling internationally with with that product, even though we might not be the winner of the program for the department of defense.
I have to say it though we don't plan to lose that we plan retainage.
From a cost structure standpoint, we're not again I think we're in good shape on supply chain, we've got to a good supply chain really majority of the supply chain for defense is about 100 mile radius around their facility and so thats certainly helps.
Hey from a relationship connectivity, but then logistics built to so.
Cost structure going forward I think we're going to be in shape. What you would expect on the program. Like this is there'll be some changes you know we saw that on MTV. The 81 went to the two there was some some some changes that the government feed to the product going forward. So that may come into play here going forward, but to be determined that again. Its 2022, we can take.
Orders for JLTV on the current.
2023 with deliveries in 2024, so when good shape on the programming and outlook going forward is good too.
Great. Thanks, guys.
Thanks, Good morning.
We have reached the end of our question and answer session and I will turn the call back over to Mr. Wilson Jones for closing remarks.
Alright, Thank all of you for joining US today. We appreciate your interest in the Corporation and wish you all of you good health and safety will sign off now thanks again for joining today.
This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation have a wonderful.
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