Q1 2021 Oshkosh Corp Earnings Call
Yeah.
Alright.
Thanks.
[music].
Greetings and welcome to the Oshkosh Corporation fiscal 2021 first quarter results conference call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Pat Davidson Senior Vice President of Investor Relations for Oshkosh Corporation. Thank you Sir you may begin.
Good morning, and thanks for joining US earlier today, we published our first quarter 2021 results a copy of the release is available on our website Oshkosh Corp Dot com.
This 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 call and is also available on our website.
The audio replay and slide presentation will be available on our website for approximately 12 months. So please refer now to slide two of that presentation.
I will remark should follow including answers to your questions contain statements that we believe 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. We have described in our form 8-K filed with the SEC. This morning, and other filings and other filings we make with the SEC.
We disclaim any obligation to update those 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 are to our fiscal quarter or fiscal year unless stated otherwise our presenters today include Wilson Jones Chief Executive.
Officer, John Pfeifer, President and Chief operating Officer, and Mike Pack Executive Vice President and Chief Financial Officer, Please turn to slide three and I'll turn it over to you Wilson. Thank you Patrick Good morning, everyone. Our performance in the first quarter demonstrated the perseverance and disciplined execution of our team.
Just like everyone listening today Oshkosh team members, who are navigating the challenges brought on by COVID-19, and once again I am proud of the hard work and efforts of our people.
As I did last quarter I wanted to give a shout out to all 14000, plus team members and our dedicated suppliers.
<unk> stepped up during this difficult period to continue serving our customers.
For the first quarter, we delivered sales of nearly $1 6 billion.
And adjusted earnings per share of $1 13.
Both of which exceeded our expectations.
Much like I said on our last call we've controlled what we can control while responding quickly to challenges outside of our control.
It's no secret that our operations in Wisconsin, So as challenges related to significant COVID-19 spread earlier this fall, particularly in the counties, where our primary defense and fire truck facilities are located.
This drove elevated levels of absenteeism for us and similar challenges for our suppliers.
Our people have done an exceptional job of adapting to changing situations, where flexibility and resiliency have helped keep us moving in the right direction.
Going forward, we may face further challenges with absenteeism in our facilities or those of our suppliers.
It may also face broader supply chain execution risk as the economy rebounds, So daily focus remains critical in the weeks and months ahead.
During the quarter, we announced our intent to acquire <unk> Miller, which closed on January 19.
<unk> technology and capabilities are a great fit with our company and John is going to share more about this in his remarks.
Revenue was softer than prior year, and our access equipment and commercial segments consistent with our comments last quarter.
As expected we are seeing improvement in our access equipment segment on a sequential basis as the decline in sales is moderating.
Compared with last quarter, we are more confident in a second half recovery.
Though our precise timing and magnitude are still uncertain.
And of course, our overall outlook is bolstered by the visibility we have with our defense and fire <unk> emergency segments, which both had backlogs that extend into 2022.
Please turn to slide four and I'll pass it over to John.
Thanks, Wilson and good morning, everybody before I get started I want to take a moment to thank Wilson for his unwavering leadership and commitment to this company over the course of his 16 years with us a little over five years ago. He became our CEO and has been an outstanding leader and motivator for.
Our entire company around the globe.
He has been responsible for driving dramatic improvement in our culture and he is a true leader in all aspects.
Wilson has been a great mentor for me and the entire leadership team at Oshkosh, We have a strong leadership team as well as a highly engaged and motivated workforce. So I'm confident in our future and wish him all the best while Wilson will be with us through the end of the quarter. This will be his last earnings call. So.
I wanted to recognize his outstanding contributions and thank him for his service. Thank you John Let's get started with our segment updates with access equipment.
Since our last earnings call, we've seen improvements in our major markets versus expectations led by North America, where we've had favorable negotiations with key customers for calendar 2021 equipment needs.
Given the current environment for the access equipment market. We're pleased with the orders our team at <unk> booked in the first quarter and are very encouraged with a strengthening backlog. We also benefited from some late first quarter orders and deliveries as some customers had available capital day deployed late in the calendar.
Year.
We remain confident that this segment will return to year over year growth beginning in our third quarter as rental companies begin to refresh their aging fleets.
<unk> ran its production facilities at reduced rates during the first quarter as we discussed on the last call. We are gradually ramping up our manufacturing rates and expect to exit the second quarter at more typical production levels.
Our operations and supply chain teams that manage this difficult process very effectively and it shows in our strong adjusted decremental margins, we've been delivering throughout the pandemic.
We've kept expenses low during a time of lower demand and lower production and I am confident in our ability to perform in a difficult environment.
Going forward, we're closely monitoring steel prices that have continued to rise and will be a cost headwind later in the year, our global supply chain team is working diligently to manage this important raw material.
We are also very excited about our recent formal launch of the revolutionary New all electric da Vinci Scissor lift.
With zero hydraulics and zero emissions the da Vinci AE $19 32, scissor lift represents the next generation of electrification and elevates our position in the access industry once again.
Da Vinci's innovative design reduces energy consumption by up to 70% compared to a traditional scissor lift as Jay LG continues to push the innovation envelope. We are very encouraged by the strong customer response, we've had for this outstanding new product.
Please turn to slide five and I'll discuss our defense segment.
Our defense segment kicked off 2021 by overcoming significant operational challenges caused by the pandemic.
Early in the fall, Wisconsin, and more specifically our local area and then we're in the national spotlight for high levels of Corona virus spread.
The intensity of the spread in this region drove high absenteeism in our workforce and with many of our suppliers, which made it very difficult to plan and execute operations for much of the quarter.
I am proud of our team as they responded effectively to these issues to delivered solid results during the quarter, including a 10% increase in sales.
And continued to be a reliable source of vehicles and aftermarket support for our U S government customer.
In recent weeks, we have seen improvement in absenteeism.
During the quarter, we received another large J LTV order valued at more than $900 million that included units per several international customers. We continue to believe that the international portion of our J LTV business will be meaningful over the next several years.
This J LTV order also contributed to our large quarter end backlog that provides outstanding visibility in 2021 and beyond.
As Wilson mentioned in defense in mid December we announced plans to acquire <unk> Miller, a well respected technology and innovation company that provides outstanding capabilities with robotics autonomous and connected systems and electrification among other strengths, including a rich.
<unk> Sports Heritage, we've worked with the team at Pratt Miller for many years. So we already have a great partnership.
Leveraging their speed and agility. In addition to their functional strength will help us in our new product development Roadmaps going forward.
It will be part of our defense segment, but other Oshkosh segments will also benefit from their expertise, we believe that Pat Miller will have an important impact on our company going forward.
Yeah.
The U S defense budget was recently signed and contains funding for our F. MTV FH television and Jay LTV programs that supports our goals and objectives.
It is important to note that the budget action appropriated an additional $86 million in funding for FM Tvs and $55 million per FH Tvs that we supply for the U S armed forces.
Let's turn to slide six for a discussion of the fire and emergency segment.
Fire and emergency performed well during the quarter and has continued to make the right investments in innovative technologies and dealer development that have supported their consistent success.
Additionally, you have heard us talk about the benefits F&D has generated in recent years with its focus on simplification, which is reflected in the solid operating margin performance.
Similar to our defense segment, Anthony experienced high absenteeism and supplier challenges during the quarter as a result of COVID-19.
They worked hard to deliver strong results from the face of some significant challenges as they improved operating margins to 12, 8% in the current year quarter.
The segment finished the quarter with a robust backlog of $1 2 billion up over 9% from the prior year.
Orders in the quarter were lower year over year as we expected largely due to the pandemic of course, we continue to monitor tight municipal budgets and spending that we've discussed in the past is we believe that the north American fire truck market may experience, some pandemic related softness.
Finally fire and emergency made a big announcement, a little over a week ago as they introduced the all new redesigned global Stryker, the world's most capable or unit.
The airport products team has taken the market, leading striker and made it even better by upgrading the cockpit with improved ergonomics updated safety systems and intuitive vision systems. We've also increased CAD visibility while modernizing the styling.
We encourage you to check out our website to learn more about this exciting new truck.
Please turn to slide seven and we'll talk about our commercial segment.
Our commercial segment continues to make progress on simplification initiatives and driving improvement throughout its business from design to manufacturing to sales to product delivery.
You may recall that we implemented a focused factory strategy last year that included relocating our rear discharge concrete mixer business to London, Ontario, as well as divestment of our non core business. We are pleased with our progress to date and the relocation project remains on track, but it's been more.
<unk> due to the due to the pandemic, particularly with regard to travel.
I am proud of our team's ability to adjust and achieved solid results during the move.
As expected volume was impacted in the quarter due to the pandemic as some customers delayed purchases and OEM chassis availability was constrained.
However, customer demand is starting to normalize for our Cvs and mixers from this recent volatility we expect some continued choppiness as these markets rebound, but backlog is consistent with prior year levels and trending up as.
As I've mentioned in prior earnings calls, we're pleased with customer customer demand for our all new F series to point out front discharge concrete mixer. The ramp up is continuing and we expect revenue growth for the business in 2021.
We continue to integrate innovations and technology into our products and remain on track to deliver several electric RCV units working with our OEM partner for our key U S customer in 2021, we will talk more about this opportunity later in the year when we plan to ship these groundbreaking electric.
Our Cvs.
This wraps it up for our business segments I'm going to turn it over to Mike to discuss our first quarter results and some additional comments on current business conditions.
John and good morning, everyone. Please turn to slide eight we.
We delivered a solid start to 2021 with sales and adjusted operating income higher than our expectations consolidated net sales for the quarter were $1 $6 billion down 7% from the prior year quarter. The decline was driven by decreases of 22% and access equipment sales and 13% in commercial.
Sales, partially offset by increased sales in both the defense and fire <unk> emergency segments.
Access equipment sales continued to be impacted by lower customer demand as a result of COVID-19. However, the year over year rate of decline has moderated compared to Q3 and Q4 of 2020.
As John mentioned, we did achieve higher sales in the quarter versus our expectations as several customers deployed more capital than previously expected near the end of December.
Defense sales increased in the quarter as a result of higher aftermarket parts and service sales fire and emergency sales increased due to higher aircraft rescue and fire fighting truck shipments and commercial segment sales were down on lower RCV sales as customers have remained cautious in deploying capex during the pandemic.
Due to the absence of concrete batch plant sales this year as the business was divested in the fourth quarter of 2020.
Consolidated adjusted operating income for the first quarter was $104 6 million or six 6% of sales compared to $109 1 million or six 4% of sales in the prior year quarter.
Access equipment adjusted operating income declined on lower sales unfavorable manufacturing absorption due to planned facility shutdowns during the quarter and unfavorable price cost dynamics as a result of the prior year benefit of price protected sales. This was offset in part by the benefit of favorable spending as a result of the ongoing.
<unk> global pandemic, lower intangible asset amortization and favorable product mix.
Defense adjusted operating income increased as a result of more favorable cumulative catch up adjustments favorable mix and higher sales volume, partially offset by increased new product development spending.
Fire and emergency operating income increase from the current year quarter, primarily as a result of increased sales volume and the benefit of lower spending as a result of the COVID-19 pandemic and commercial segment operating income decreased due to lower sales volume and unfavorable material costs offset in part by lower spending.
Adjusted EPS for the quarter was $1 13, compared to EPS from $1 10 in the prior year.
First quarter 2021 results benefited from a discrete tax benefit of nine <unk> per share related to a favorable resolution of tax audits.
Please turn to slide nine for a discussion on the remainder of 2021.
We're pleased with our solid start to the year, including strong consolidated adjusted decremental margins of 4% from first quarter, while we face significant workforce availability challenges in Wisconsin affecting both our defense and fire <unk> emergency segments. Our teams were resilient and persevered through the challenges we face to deliver higher sales.
And both segments compared to the prior year quarter. The pandemic has and will likely continue to drive variability in our businesses as the infection rates evolve around the country, creating challenges for our customers our suppliers and our operations further we expect higher steel cost to introduce additional headwinds for the back half of our year.
As a result of the dynamic environment and moving variables, we are not providing quantitative expectations for 2021 at this time.
As John discussed we are pleased with our annual negotiations with our key access equipment customers over the past several months. We're also we also experienced higher demand for access equipment in the first quarter versus our expectations. We expect that the second quarter of 2021 will be down versus 2020, and the third and fourth quarters will reach.
Turn to year over year growth, we now expect that the second half growth will be sufficient to yield growth on a full year basis for the segment. However, the maintenance due to the expected full year sales growth in access equipment is uncertain and remains highly dependent on the ongoing evolution of the COVID-19 pandemic and their trajectory of.
Recovery is vaccines increase in availability.
In this segment were planning one week.
<unk> per month in U S factories to start the second quarter as we align production with customer requirements. This represents an increased production rate versus the first quarter. When we were shut down for approximately two weeks per month. We expect this segment to be back to normalized production levels as we exit the quarter.
In our commercial segment demand is improving for our Cds in concrete mixers, while our strong backlog for defense and fire <unk> emergency provides good visibility for the year during.
During our last earnings call, we discussed an $85 million pre tax cost headwind, we expect to face in 2021, consisting of a $120 million of temporary cost reductions in 2020, returning in 2021 offset by approximately $35 million are permanent cost reduction benefits.
Looking at the second quarter, we will face year over year headwinds of about $25 million from a combination of.
Last year's temporary cost reductions.
On a sort of permanent cost reductions, we previously announced.
We are also forecasting higher second quarter spending levels, particularly in access equipment as we ramp up for the expected second half recovery.
As we look to the back half of the year, we are closely watching steel prices, which have increased EBIT more rapidly over the past several weeks and earlier in the fall we expect to start seeing the impact of higher steel prices in the third and fourth quarters, however that magnitude and duration of the inflated costs are unknown at this time.
Our balance sheet remains strong was further strengthened during the past quarter with solid working capital improvements yielding available liquidity at the end of the quarter of approximately $1 7 billion consisting.
Consisting of cash of approximately $900 million and availability under our revolving line of credit of over $800 million.
We believe our strong liquidity will continue to provide flexibility as demonstrated by our recent cash acquisition of Pat Miller.
While we're not providing quantitative financial expectations today, we strive to provide more detail later in the year, we have better visibility to the trajectory of the pandemic the timing of deliveries in the access equipment segment and the evolution of steel prices I will turn it back over to Wilson now for some closing comments. Thanks, Mike We just announced.
Solid quarter to kick off 2021, and once again control costs and manage our operations, allowing us to deliver higher adjusted earnings per share on lower sales compared to the prior year quarter.
Challenges remain including rising steel prices and the potential for further challenges as a result of the pandemic.
With us much longer than anyone wants we believe we're in a great position to take advantage of opportunities to deliver sales and earnings growth as our markets recover.
As John mentioned this will be my last earnings call and I just wanted to say that I've appreciated working with all of you who have participated with our company I am proud of the engaging dialogue that we've had over the years, whether it's on one of these calls conference tradeshow or even during the visit here at Oshkosh from one of our investor events.
More proud of our people and the leadership team we have in place at Oshkosh, and I want them to know it's been an honor to work with all of them. These past 16 years.
I'll be working closely with John and the team to ensure a smooth transition over the next couple of months and I am confident that the company is in good hands with John Pfeifer, leading the way backed by a very strong leadership team.
I'll turn it back over to Pat to get the Q&A started.
Thanks, Wilson and thanks for your leadership over the years and thanks for making these calls a little more enjoyable and you. All know there are a lot of work.
Anyway, let's get share and everybody I'd like to remind you. Please limit your questions to one plus a follow up and after that follow up we ask that you get back in queue, if you'd like to ask additional questions.
Operator, please begin the question and answer period of this call.
Thank you we will now be conducting a question and answer session again, we ask that all callers limit themselves to one question and one follow up could you have additional questions you may re queue and those questions will be addressed time permitting.
I would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Thank you and you would like to remove your question Tim Mchugh.
All participants using speaker equipment, it may be necessary PW handset before pressing the star keys.
Please while we poll for questions.
Thank you first question comes from the line of David Raso with Evercore. Please proceed with your question.
Hi, Good morning, and Wilson and best of luck and congratulations John My.
My question's about the access margins trying to think through the impact of steel can you give us some sense of how much steel do you have contracted out for the second half based on whatever internal estimates you have for your access revenues do there you'd heavily some somewhat understandable inflation adjusters, but your comment about uncertainty around that.
The impact how much is this deal for the revenue we're expecting we will have to be purchase on the spot market just trying to get a sense of how much exposure you have to rising steel prices from the back half.
Sure David This is Mike.
I'll just start with on steel the team's managing it well.
Obviously, we are seeing in inflated prices right now while we're not it's early to be able to specifically identify it to a specific segment.
What we believe at this time is that that $10 million headwind.
If if if.
It continues to increase obviously, it could be higher than that.
We're continuing to manage it, though and where we're going to see the impact is really in the later third quarter into the fourth quarter.
And the $10 million was the total company for the full year, but its concentrated in <unk> and <unk> that the correct right and I assume it's mostly in access but that again, that's total company. So if we think of what we would.
I assume to be normal Incrementals, and then say per access they get 70% to 80% of the steel hit is that a fair assumption because when I look at the mix.
Thank you have a tug of war.
Better mix of AWP over tele.
But then you have a little bit of that natural when the cycle starts the negative customer mix range more of the big rental companies not the mom and Pops.
But again is that a fair way from the street to think about it normal Incrementals and then at this stage.
$8 million or so kind of still hit 7 million still hit the access in the back half.
I guess first of all maybe you could just level set on Incrementals and Decrementals.
Very strong decrementals in the first quarter and while we're always striving in that 20% to 25% range offer access on AR and on a consolidated basis, we've been talking about.
In my prepared remarks, as well as last quarter, we do have the cost headwinds in the $85 million and Thats Theres, obviously a.
A meaningful piece of that not really hits.
Q2 through Q4, so that's certainly a meaningful impact.
Factoring the Incrementals or Decrementals, and then you add steel into that equation as well. So I think there's more moving pieces there than just the steel factor that's helpful and my follow up John Your vision for the company the portfolio. How do you think of the strong cash flow and balance sheet.
Take the range.
In the next quarter.
Yes, So let me first just kind of wrap up the question about access.
The mix side of it I think youre right, we do expect to see favorable mix on the product side with more booms just looking at the age of the fleet that's out there in the booms or more aged than other products. So that's certainly something I'll confirm I think on the customer mix, though.
It's been pretty consistent between the NRC and the Irc's recently in terms of demand.
I'm not so sure that that it won't stay consistent because we're kind of seeing the.
The activity across both the small independents as well as the big customers that we have now.
Back then our to your main question on our go forward vision or strategy.
I will tell you that.
We've got a great balance sheet.
And we've got a disciplined capital allocation strategy and that's going to that's going to include both returning money to shareholders, but it's also going to include growth and we're in a great position right now because of the balance sheet that affords us to do both.
You've seen us make one acquisition just recently.
Yes, I think youll see us do more.
To use the strength of our balance sheet to drive growth I think youre going to see us put a lot of investment continuously in innovation and new programs and new technologies to leverage new technologies to continue to accelerate our business.
And you'll also see US continue to as I said do some acquisitions that are really growth oriented acquisitions, they're either going to be in acquiring businesses because they have capability in technology that we need or it could be an adjacent near adjacent cash.
Categories that we think enhance our our core business.
So.
We feel pretty good about our capital plan, we feel pretty good about our balance sheet and our ability to responsibly.
Execute going forward.
Thank you very much I appreciate the time.
Thanks.
Our next question comes from the line of Jamie Cook with Credit Suisse. Please proceed with your question.
Hi, good morning, Congrats on a good quarter and congrats Wilson and John.
So I guess just my first question, if we could just shift back to the access equipment business.
Just understanding what you said about steel cost headwinds in the $10 million sort of.
The total company will face, but with an axe access specifically I'm just wondering how you're approaching pricing this year.
Can you give any color and then you said it well when you were talking to growth I think you were talking specifically to sort of the U S markets. If you could give some color on what youre seeing in Europe, and China and then my follow up question any update on the postal service bid that's out there just if the timing has changed and I think under by day, and there's a view that to be closer to <unk>.
No more EV.
Is that and does that change your opportunity set.
Great. Thanks, Jamie This is Mike I'll start.
Just talking about first of all with access.
John mentioned in his prepared remarks, we're pleased with how the annual negotiations have gone from an access equipment perspective, and as always you know us while we've remained disciplined from a cost price perspective, but we talked about the headwinds that we're facing related to steel.
It's early so we're going to continue to manage that.
So I think overall, that's what we're seeing from a from a pricing perspective.
I guess in terms of postal service John While also let me talk about access first I think you asked a question about our global business and access.
I'll start and let me just start by talking about the U S to put that in perspective.
We're really pleased first of all the way exceeded expectations in Q1.
I'll start by saying that attribute to the people that we have at access managing through an incredibly difficult period of time.
But we've wrapped up most of our annual contract negotiations with our customers. We're really pleased with the outcome of those negotiations.
I would say that in.
In essence, what what.
The outcome of that has been as we've seen a shift in the U I am talking about the U S market and sentiment towards more recovery discussion and certainly a shift towards more attention to fleet replacement.
And so that's all we think that Thats all positive direction for the U S market, our backlog is healthy and it's strengthening in the U S. When we feel we feel pretty good about it.
<unk>.
So you've seen actually through the pandemic, but the downturn moderate from from third quarter down 60% to fourth quarter down 40, now were down just over 20.
And we think that the conditions are right Thats supports as we get into the back half growth again in the industry going more to the international markets I'll first say Europe is a bit behind the U S. We don't see quite.
The momentum we think it's bottomed in Europe, but we don't see quite the momentum right now in terms of.
Building.
Growth in.
In the near term in the European market.
The other part of the World in Asia Asia is very positive.
China market recovered quickly as we've said in the past that continues to be a significant growth opportunity for us we are expanding our Tianjin China facility.
<unk> have been doing that for the past few quarters.
We are the leader in the high end AWP market in China, and we expect to continue building a strong and profitable long term position in China now of course, there's a lot of local competition in China.
And there is margin pressure at the low end, but we really don't try to compete there and we certainly don't expect to have the same high market share in China that we do here, but we will continue to to grow profitably.
And we will stay disciplined there as we do it.
So going over to your other question with regard to the postal service.
We were really hoping that we're going to hear and we expect to hear the outcome of this at the end of this quarter March is what we're what we're hearing.
We've submitted our bid as you know we've got a very strong very comprehensive bid that meets all of the needs of the U S. Postal service. So I may repeat that we do meet all the needs of the U S postal service, meaning if they want.
Under the by the administration more weight towards one type of propulsion than another.
We are ready for that.
Now we've got our fingers crossed.
We believe we've got high reliability solutions in.
Hope to have good news at the next earnings call.
Okay, great. Thank you very much.
Thanks Amy.
Our next question comes from the line of Steven Fisher with UBS. Please proceed with your question.
Thanks, Good morning, and Wilson best wishes.
How broad is the second half revenue growth that you guys expect.
Across all segments and what would you say are the most important things that need to happen in order to.
To deliver that second half expectation of growth.
Sure.
One of the reasons, we're not providing guidance as we obviously we are dealing with a range and there is a number of variables. So I think what we've seen over the course of the first quarter.
<unk>.
John's comments, we are seeing stronger indicators of that second half recovery and access, but we now know that that recovery appears to be robust enough that it kind of yield full year growth beyond that it's difficult to predict and I think a lot of it has to do with how quickly do vaccines.
Get out there how quickly does the economy start ramping up so.
Those are the things that we're watching closely.
There is a range as we as we look at as.
As we look at the other businesses I look at defense and fire <unk> emergency both have real strong backlogs.
Both would be supportive of our full year growth I think the variable there thats difficult to predict is really a couple of variables number one.
We worked through some pretty challenging absenteeism challenges in defense and fire <unk> emergency in the first quarter. They get enough. The teams did an outstanding job managing through that we could see more of that as the pandemic continues to evolve as.
As well as the impact it can have on our suppliers again, our supply chain partners have done an outstanding job.
But certainly there could be headwinds as we.
Get into the back half of the year. The other larger area that we're watching as well is just with the general economic recovery.
How supply chain is able to ramp up to execute against that so that could be a variable as we look to the back half of the year as well. So think of those two segments are supportive I think commercial very similar to our access to you at this point.
Okay, Great and then just wanted to pick up on the comments about M&A. Just curious if there is any particular segment that that is weighted towards.
How would you frame sort of the size of the deals that you're considering.
Aligning.
Yes, so we.
We have a <unk>.
Structured process, we call it an always on pipeline, we are regularly reviewing potential targets.
And they really are.
All segments when we look at the targets, we like our four core segments of law, we see opportunity to grow each of our four core segments.
And so we look at targets that will enhance that growth across the board when we look at size of targets.
We're looking more at bolt on tuck in type acquisitions that will help us drive growth either into a new adjacent category of products or technology or an aftermarket enhancer.
We.
I would never say never on anything, but we're not out there looking for these big huge transformative deals.
Deals, that's not where we see the big opportunities and our M&A plan.
But I think youll see us do consistent.
<unk>.
Executions.
As we go forward.
Okay. Thanks very much.
Yeah.
Our next question comes from the line of Chad Dillard with Bernstein. Please proceed with your question.
Hi, good morning, guys good.
Good morning, Good morning, Ed.
So I just want to understand some of the puts and takes from the cost side in the first quarter I think you called out.
Yes.
Collection issues.
Just hoping you can quantify.
What impact it had on a quarter income.
So it looks like your SG&A Wilson.
Bob.
Thanks, Dan.
Some of the total comp tailwind.
And why is that what we're seeing and I know you talked about volume models all volume.
Funds from the balance of the all over to Pall Mall model second quarter book logical that consumer will kind of bounce along the bottom of the year.
Sure, Yes, we're very pleased with with the first quarter results. The teams did an outstanding job executing so first of all just on the execution side.
We did see.
There are challenges with absenteeism as I've mentioned, a few minutes ago, and our fire <unk> Emergency defense segment. They did an outstanding job managing through it probably negatively impacted their volume a bit in the quarter, but we really didn't see it.
From a.
Our labor performance standpoint reading through in fact, Ive call on our fire <unk> emergency team did an outstanding job and actually delivered the best labor efficiency in our Appleton facility.
In the last decade, plus so great job by the team.
Looking at some of the other drivers we did see favorable spending in the quarter.
Some of it was was really environment related.
Tied to Covid.
So I think if you look at it.
Think of that as was expected because of our permanent reductions about $8 million growth that $35 million permanent reductions in our first quarter.
As a favorable item the remainder of the cost spending benefits.
I'd say about half of them that we saw in the quarter.
Our sort of remain.
The other half are really more timing related that we'll see.
Spent later in the year, so I think thats.
An important point, we did see.
The favorable killed contract adjustment in our defense segment.
The large <unk> order. So that was that was great news to see see that order come in further strengthening our backlog and of course, we had the tax benefit in the quarter. So as we as we look forward to the second quarter.
A few important items I think number one we do expect.
That debt.
Spending is going to be up, particularly as we talk about ramping up for the second half of the year.
That's going to drive higher spend levels.
We did see also a positive cumulative contract adjustment in the second quarter of last year, so that will be a headwind as well.
So those are a few of the things that we're monitoring just as we.
As we move forward like defense from prior year in Q2.
CCA, yes, I didn't mention that path that we had that we had accumulated so we had a favorable cumulative contract adjusted net in Q1 of this year, so that comp wise that will be.
A headwind going into the second quarter. We also had one in the second quarter of last year, so that will be a year over year comp challenge.
That's helpful.
Just second question in access can you talk about your expectations for growth.
In 2021, do you expect positive growth.
And net price realization and access.
We really look at it on a net cost basis, and what will what I would say at this point is in its early in the year.
We've remained price disciplined in.
Looking at price cost scenarios, we've gone through our negotiations.
And we talked about a couple of things that we're watching more specifically as we look to the back half of the year again, it's that $85 million net cost headwind and then what happens with which we're continuing to manage through so that's those are the items that I would point to as.
Really drivers of ink.
Incremental decremental margins as we go through growth of the year.
Okay.
Okay.
Yes.
Our next question comes from the line of Ann Duignan with Jpmorgan. Please proceed with your question.
Yes, hi, good morning in similar congrats to both of you Wilson best of wishes.
I think.
The price cost could.
Could you talk about your background.
Each of your segments and how much of that backlog includes constantly <unk> clauses are those locked in fixed prices that business or.
Is there are a day or inflation clauses in any or all of those and that especially.
<unk> versus commercial.
Our commercial businesses.
And certainly if you go through the businesses that you look at our defense segment. We tend to have we have long term contracts both on the supply side and.
So that side.
They're not.
So that's sort of the defense segment. If you look at really our other segments that it varies by contract, but again I'll just go back to my.
My previous comments that we've looked at all of the input costs.
Labor all of the materials.
Non steel and we remain cost disciplined from a price cost dynamic again, it comes down to what happens with steel and a little bit of it right. Now is unknowable, we're doing a good job managing it we're not going to see because of a lot of the management work. We've done we're not going to see it until much later in the year.
So we're going to continue to see how it evolves.
But that is not price cost is not the biggest driver beyond the aforementioned items.
For the rest of the year, but I think we've always had inflationary clauses in our defense programs. They are built in and we bid them over.
Period of time, so the defense backlog does have those clauses in there.
Okay, I was just going to asking for a clarification on that thank you I appreciate that.
And then.
Perhaps again on.
Defense on the 900 million contract can you just give us some more color on that was that already in your $2 billion expectation for revenue from this year or is it incremental.
And when would you expect to see those.
Being shipped and how much is international versus domestic.
Just some general color on that contract and whether it's incremental to what you guided to at the beginning of the year.
We'll have to remind you about one plus a follow up though too and so but.
But I appreciate your interest for color here, Yes, I think and a lot of those.
A lot of those orders will be delivered.
In future years in 'twenty.
It's all about.
'twenty two and beyond.
So thats.
So I guess, that's the first point.
We certainly appreciate the ongoing confidence in this order was aligned with our expectations and further supports just that ongoing view that defense that two plus billion dollar business.
The future, yes, we haven't really broken out and.
Exactly international numbers, but we're up to eight different countries now that have Fms cases that we've taken orders on so we're.
We're lacking how the international business is starting to develop with LTV that we have had those in.
Yes so.
A bigger perspective.
Kind of looking at the whole scope of the JL television program.
So the acquisition objective U S Army at about 50000 units in the U S. Marines at about 15000 units now that's over multiple years.
Most of that still has yet to come of course, we are going to they're going to recompete that in 2022, we know that we've been preparing for it for a long time, we've actually been preparing for the Recompete. Since we won the original contract.
They've got what I'd call commitments to us and that Big acquisition objective to date of about <unk>.
<unk> 3200 units.
And when they place orders on that that's typically.
On those commitments is where where theyre being placed on.
But theres a long way to run with this program and more orders to come.
Great.
The only real quick follow up on the steel are you more concerned about steel prices or the potential there just isn't the availability of steel which is the biggest concern.
I would say at this point and we do have.
We have good visibility and we're working closely with our suppliers. There. So it's more a pricing equation at this point that's been availability.
Okay. Appreciate that thank you and I'll get back in line. Thanks, Dan.
Sure.
Our next question comes from the line of Stephen Volkmann with Jefferies. Please proceed with your question.
Hey, good morning, everybody and Wilson, thanks for putting up with us over the years much appreciated.
Got it.
My question is about the defense margin cadence.
My assumption is that this first quarter was probably the high point for the year Mike.
Mike I think you mentioned bolt to catch up.
Contract, but also some positive mix on service and parts.
Any color on what we should be thinking relative to defense margin as the year progresses.
Yes, I think consistent with what we've talked about in the past you really need to look at it over the course of the year and we're still confident in what we've talked about in the past that it's a high single digit business.
We'll see variation quarter to quarter I think the piece that we're obviously watching us.
Just what happens if you from a supply chain perspective, and thats, depending on the volume that we've seen a particular quarter that certainly could.
Have a bit of an impact, but yes. They did a really nice job, we saw nice aftermarket mix in the quarter and that certainly was was nice to see and great work by the team.
Okay and a quick follow up when you get an order like you did this quarter I think you get to spread your fixed costs over a longer production run does that mean that the margin that you book going forward will be 10, 2030 basis points higher than it was before you got that order or is that the way the accounting works.
<unk>.
We're constantly looking at at what we.
What we're seeing out there and certainly we did we did see a benefit for what we might see a modest improvement there.
It's not.
But I would say it's modest it's at.
We're getting more and more units out there. So obviously earlier in the contract when Youre getting up nearly a $1 billion order. It has a bigger impact versus once you have many more units under contract. It certainly does help and without additional cost for US Yes, I was going to say essentially what you said is correct.
Great. Okay, that's one and a follow ups.
Thank you.
Yeah.
Our next question comes from the line of Kim <unk> with Citi. Please proceed with your question.
Great. Thank you and Wilson and John Congrats again keep growth.
By the way Pat non cellular.
Sure. Thank you.
Can you call it enjoyable.
Okay.
Yes.
<unk> is.
Just on SMA, obviously grown a lot of it in terms of its importance to.
The bottom line here for Oshkosh So.
And I think appropriate to get some airplanes, maybe just.
Wilson or others, maybe just a bit more color in terms of.
What youre hearing from from SME dealers as well as their customers.
Obviously some some.
From a headline perspective, some pretty big headwinds it appears the muni and state budgets.
But obviously that doesn't all directly impact.
Spending on your equipment and Theres a lag in all of that so maybe if you just add some more color in terms of obviously, we're working from.
Our high backlog, but just potentially how that unfolds in terms of.
Just given that.
Potential budgetary pressures thank you.
I'll talk about it.
Yes, I'll start by saying that.
The culture that we have at <unk> is phenomenal and to US culture is everything.
<unk> got great people, we got great innovation that happens in the segment that drives it we got really good operations, we had talked about our simplification all the time, it's a model for the whole company on how to deploy simplification and we've got the best dealer network by far in North America, and all of those things when you combine them.
Together, they create a really potent business.
And we think that.
We're going to continue to drive performance as we go forward, let me put it into a longer term perspective. If you go back to the great recession, which is a long time ago now the the market for our products and fire and emergency which was much bigger it was over 5000 units and we hit the great recession, and the market stumbled quite a bit.
<unk> down 40%, so maybe 3000 units.
And since then it's never recovered to 5000 units, it's actually recovered low 4000, 4100 ish something like that.
But we've been growing throughout that period of time, and we're bigger now even in a smaller market and we've been growing very very profitably.
So.
Sure.
Growing and thriving I guess is what I would call it and we've taken market share. We continue we expect to continue to execute I was talking about the market today sure we think theres going to be some municipal spending constraints.
Watching it closely it's not we do not expect it to be anything like the great recession, because theres not a real estate prices and that's really what has a big the biggest impact on municipalities as real estate prices again, which there's not but some some budgetary constraints what makes us feel good of course for us.
And foremost what I've talked about how powerful our businesses today, coupled with the fact that fire trucks are high priority equipment. The fleet has aged.
<unk>.
And.
As we look at our backlog our backlog is really strong take this.
Well through 2021 and.
And we did see some softening in orders in our first quarter, we expected a softening of orders primarily because of the the impact of the pandemic, but overall.
Fully intend on.
Continuing to execute this business in a very healthy way, that's great color, John that Tim, but I would add just one other tidbit.
I think I started out in fire and emergency so I know all the dealers very well and I've had a lot of fun.
<unk> calls for the last few weeks ago wishing me, well and my retirement and talking to a lot of them. One thing that really jumped out at me is the majority of them that I talk to they are investing in their business, they're either through adding building service capabilities lifecycle services addition to they're just watch them really.
Mature over the years and there are sophisticated businesses. These days.
It's been it's been fun to watch and Theyre not wavering on those investments day to Johns point, they don't see from from their conversations with fire departments.
Because it is such a priority in the community and the fleet ages is to our favor there theyre not hearing a lot of negative about municipal spending we're still holding the priority in majority of municipalities with fire truck budgets.
Alright, very good well leave it there thanks a lot.
Okay.
Our next question comes from the line of Mike Smith Haywood Securities. Please proceed with your question.
Hey, good morning, guys.
Wilson best wishes to you.
Thank you I wanted to maybe ask a quick question on price.
<unk>.
And that company.
Our planning and a few adjacent spaces beyond just defense and industrial cleaning and.
Other areas that I don't think Oshkosh currently plays in.
Do you have any plans to maybe organically grow what <unk> already does.
There anything larger or do you plan to exit anything that they're doing it's not related to your force segments, and perhaps more broadly I guess Wi Fi them and the first question can you just keep on paying them through a contractor has an external provider.
So I'll.
I'll take that question.
We really liked this acquisition Pat Miller as I said in my prepared remarks, we've had a longstanding relationship with them and when you have a long standing relationship with a potential.
Company to acquire it makes you feel a lot better about acquiring it because you know there's a cultural fit and there is a strong cultural fit of innovation between what we do at Oshkosh, and what Pat Miller to us so.
We're really pleased with US now there's two I'm going to give you two primary reasons why we made the acquisition number one we believe that Pat Miller gives us.
A higher probability of defense program wins going forward in adjacent spaces that we want to grow and with the department of defense. So that's number one.
And number two is there an enhancer to our technology development one of the most incredible things about Oshkosh Corporation as our capability to develop technology, whether it's electrification or autonomy. We've been working on autonomy for a long time, we've been working on electrification for a long time, we really like what.
Miller does in those spaces and it allows us to enhance our ability to apply it to specific use cases is the best way I can describe it you mentioned industrial cleaning so that sounds like a strange thing in that industrial cleaning is interesting, but it's not the industrial cleaning that interested us.
The automation behind the industrial cleaning that was so interesting and their ability to take automation and apply it to a specific use case. That's the that's why this is such an interesting application. So it's non industrial cleaning, it's the automation that's behind the industrial cleaning.
And by the way they are big into motor sports.
We intend to continue to grow and develop all aspects of their business as it is today, including motor Sports. We think Motorsports gives it a great culture of speed and agility and there is a lot of.
Technology that they develop per motorsports in mobility and safety systems that are very directly transferable to lots of our different segments. So lot of good that comes with with our acquisition of Pat Miller.
Got it thanks, that's great color.
I also wanted to ask a quick follow up on another question about the USPS contract.
European is based on.
The four trends that I believe and we've gotten since this last quarter. We just announced we just heard the announcement of the new 40 transit coming out here in 2021.
So your comment that you can address whenever the usps's needs are as far as the powertrain isn't.
Isn't as simple as just substituting the transit for the transit over there you have to have a special reopening on the contract in new approvals to kind of make that.
Switch.
So there's limited things that I can say about this program not because I don't want to but because we're under a pretty tight confidentiality with the USPS.
We don't have to reopen anything to address the needs that.
As they evolve with the contract I really can't comment on.
On the transit van.
Because of the confidentiality, but I can say that we don't need to go back and have some arduous task of reopening and agreement if the contract goes one way or another we will not have to do that I think the foundational statement there is weak.
We furnished.
Our program.
Vehicles that meet their current and future unique I think that's the best way to leave that volume.
Okay I'll leave it there. Thanks, so much guys. Thanks.
Thanks, Mike.
Our next question comes from the line of Nicole <unk> with Deutsche Bank. Please proceed with your question.
Yeah. Thanks, guys I appreciate you squeezing me in and go back from.
In retirement.
So I guess, maybe starting with <unk>.
Ethanol just average.
About moving into some true at a time, where revenues could be at that my challenge I'm trying to tie that back to what you guys have done with respect to simplification.
And how like the margin performance can be different can you share downturn versus what we've seen in the past I guess.
About cross cycle relative to last time, Anthony face difficult revenue environment do you think there's room for decremental margins to look much better because of what you've done from a margin perspective.
Yes, Nicole Youre spot on I guess, if you go back to the great recession, where we struggled from a margin perspective.
The simplification plan.
US that we've gone through it's really transformed that business, where we're a different business and being able to weather through lower volume that we believe this was solidly double digit business throughout the cycle and so so that's.
And again, it's all efforts of simplification and managing really from stem to stern managing that simplification stem to stern through the business.
Got it thanks, and then just from my follow up and hearing infrastructural things about the medium term impact of the new administration on defense spending.
With that caveat with the.
The payout television program is I guess over the next several years, if you guys see any risks to that.
Yeah.
We do not see any specific risks when you consider the previous administration to the New administration, we really do not.
Tactical wheeled vehicles are a fundamental part of how the department of defense.
<unk> operates and how it.
How it executes.
And they will continue to be a fundamental part of how the department of defense operates and execute.
We've had a relationship for a long time that was very successful when president Biden was vice President Biden and so we don't see this as being a big change for us.
As we go forward.
That's correct.
Thanks Nicole.
Our next question comes from the line of Courtney <unk> with Morgan Stanley. Please proceed with your question.
Hi, Congrats again Wilson and John.
Thank you.
Just wanted to go back to the comments on.
The sales the quality of sales outlook I think you can look at karnes and access defense naphtha and ethane.
Full year growth, but can.
Can you just help us think about commercial I think you said the backlog.
It looks fairly similar to last year, you mentioned that it's starting to trend up can you just help us think qualitatively about what we should be thinking about for the commercial.
That's true.
Per the year.
Yes, I'll take that.
We're seeing some of the backlog is consistent with last year and I remember last year at this time in commercial we're still pre pandemic, so saying that the backlog is consistent with last year as there is a positive statement.
We sequentially have seen orders improve and when you look at orders.
Year over year, it looks like there was a slight degradation, but when you take out the divestment of conoco.
There is actually.
A little bit of order growth that we've seen in the first quarter year over year in the business I remember last year's first quarter was pre pandemic for us. So that's also a positive state so we see.
Markets improving in the commercial segment I'm, primarily talking about refuse collection markets and talking about.
Mixer markets and when you look at residential construction residential construction is very different from non res and residential construction drives more of the commercial business.
Residential construction is very favorable right now and projected to be favorable throughout 2021 and into 2022. So that's also a positive macroeconomic indicator that that supports our view of what's happening with.
More favorable outlook than we had maybe a quarter ago.
Okay, great. Thanks, that's helpful and then just.
Two quick follow up on that deal $10 million headwind.
That growth or not.
Pricing and I think previously you guys have taken surcharges when you've seen outsized.
Outside.
Steel inflation is that being contemplated at this point and then on the defense side with the with the contract.
$100 million can you just comment at all about the margin on that I think it's right on.
Contract.
I imagine, it's similar to the TMT market.
Good day.
Sure first of all.
On the steel that.
Right now we're talking about that as a net headwind at this point. It is very early yet and we're going to continue to watch what steel evolve.
We're going to manage it in a disciplined manner. The team all over it already and is quite frankly have done a great job in mitigating the risk through a number of tools, we have and are really in our toolbox that we've mapped we manage through this a few years ago, while and we'll do that again, we're not.
We're not making a call today on surcharges, where can it we're continuing to manage it in a disciplined manner.
And I think again, what it is going to come down to over the course of the year just watching what that cadence.
I think once we start getting a bit more of a.
It's supply and demand equally equilibrium, we do believe that steel because they are coming down.
The margin on defense.
<unk>.
Margin on defense.
Sorry, which program was that again $900 million recall day 900.
Again.
Under the broader contract.
It's pricing that's consistent.
We had a question earlier.
Get the natural benefit of expanding the total number of units out there. So you get a you'll get a small margin improvement over over the remainder of the contract because of that and that is reflective in that cumulative catch up adjustment as well, but that we recognized in the quarter.
Thank you Courtney.
Our next question comes from the line of Mig <unk> with Robert W. Baird. Please proceed with your question.
Yes, good morning, thanks for going over here.
Ian and Wilson best of luck.
I guess.
Im going to E book.
Doug the horse to death with price cost in access equipment I'm, just trying to understand kind of what the setup is here is it that you have the net $10 million headwind because the old sort of forward buying and other tools that you've deployed on a cost side.
Is it that you're going to be applying more dynamic pricing as the year progresses to gradually offset the headwind so.
If im looking at deliveries day into the fourth quarter of 'twenty one.
You know what I mean.
Yeah, I guess so the bottom line is I guess, we're looking at at night.
So as we are still not able to fully call. It. The top line is so I guess foundational we're not we don't know exactly where it's kind of gone. So we're trying to we're trying to get an indication that hey, we think there is a headwind here we think.
That's $10 million plus.
We're still early we're not going to see an impacted us until really the second half of Q3 and Q4 and we've managed through.
Elevated fuel price in the past.
We're managing it well that's why we're not seeing an impact until the back half of the year and it doesn't mean that we don't have further opportunities to mitigate it through our through the various tools that we deployed so I guess just know that we believe today there is a headwind.
We're managing it and.
We're going to continue to leverage our toolbox to execute in a disciplined manner I think what I'd add there Mig as you know as per the access team has great relationships with their customers and they are very transparent in their discussions so theres nobody that theyre working with today.
That doesn't understand that there could be some steel headwinds coming we don't like to talk about our pricing strategies for competitive issues.
On this call but.
As Mike says the toolkit workforce last time, we learned a lot.
No. The access team will stay disciplined as we work through this one.
I appreciate that and maybe lastly here just thought.
Seasonality and how that might play through in access equipment typically third quarter is usually our strongest revenue quarter, but.
We're coming off the bottom here.
Do you expect the business to grow sequentially from different seasonality.
Yeah.
So just going back to.
Our prepared remarks, I think what we're what we know at this time is that we still expect.
The first half of the year to be down you saw it in Q1 and you can imply what that Q2 will be down.
It is we are seeing that moderating now I guess once we start to looking at Q3 and Q4, we believe between the two quarters that that growth is going to be enough to yield full year growth exactly how that shakes out, though Mig I think has a lot to do with just what we see for infection rates around the country.
And then the ability for our customers to take on the equipment. So I think that you could see a timing aspect that that's a little challenging day called sitting here today between Q3 and Q4 and then of course, the total magnitude of that second half recovery. So I think thats.
We're still working through that with our customers and again there is out there as inputs into those namely the pandemic.
That can ultimately input the timing and the ultimate magnitude.
Meg it's John I think.
It was really in 2020, the pandemic hit us in the end of Q1, most fully in Q2.
Q3, and Q4, we expect this to start to go back to maybe a more of a normal seasonality now thats dependent upon continuing to get positive news on vaccines and vaccine distribution, because it's really interesting how how the vaccine news is has impacted the access equipment market.
<unk>.
But if we continue to get favorable rollout of vaccines and there has been choppiness from that as we've all seen but we're all still expecting to get the vaccines rolled out then I think we're going to see more normal seasonality really kind of resume in 2021 and spring summer periods of time.
Got it thank you thank.
Thanks, Nick.
Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.
Good morning.
Wilson Jones.
We just hope my congratulations.
Well.
Alright.
I'm wondering if you flow.
We could expand the discussion around GE LTV international opportunity.
Meaningful.
The conversations that you're having relative to the size of the domestic GL TV business today.
And obviously the customers will ultimately decide how much of that or Humvee fleet will want to replenish but I'm wondering if you could just help us get a sense from the pipeline is building their confidence from that $2 billion.
Defense number that you spoke about.
Earlier in the call and obviously consistently at the time.
Yeah.
Jerry we're working with a lot of different countries on Jal TV orders.
The we have the Belgium order for 130, some odd million that we took that we announced a quarter ago.
And we've had other orders from Montenegro in Lithuania, and Slovenia in Brazil in Macedonia et cetera.
There is probably about 40 different countries that make up the <unk>.
Bulk of the international.
Market for Jay Ltvs were working with.
Several of those countries and continue to have new interest come in all the time, usually it starts out with a smaller order and then as the vehicles get get put into the fleet then subsequent orders come after that but.
Remembering that the market in total when you look at the fleet size of Humvees that are out there. There are 60000 armored humvees in these international markets.
With our allies and over time.
Many of those will get replaced with a J LTV. So we really believe that we're in the early innings of addressing the international opportunity on Jay LTV and that this is a long term.
<unk> that will probably go to 2030 and beyond.
Okay. Thank you and then a follow up on <unk>.
Add some equipment I'm wondering if you could just talk about what youre seeing in the telematics data that you're tracking in Europe, and North America, I guess I'm a bit surprised at the second quarter outlook for access implies sales growth, 10% weaker than normal seasonality. Despite the positive developments off the bottom that were discussed earlier on the call.
So maybe you could just expand on.
What youre seeing there thanks.
Ill talk in general, but also about those utilization rates so.
The big.
Concern that everybody talks about.
As the nonresidential construction was unfavorable in in 2020 and is projected to continue to be down in 2021.
So nonresidential construction is a big metric for us.
<unk> access world now offsetting that and why do we feel confident about returning to growth later in the year.
Number one is equipment utilization that you just referred to equipment utilization based on our telematics data is back to where it was a year ago. So that's a very.
Positive point the other one the couple others are.
Proving our rental rates with our customers improving rental rates with good utilization.
Our.
Coupled with this.
As we always talk about the fleet age.
That all bodes well to be a nice backstop or counter measure nonresidential construction being down so we're really confident in the recovery, what we don't really have great.
Clarity on is the exact timing and the exact speed of the recovery.
That's probably still a little bit dependent upon the trajectory of the pandemic.
<unk>.
We've talked about.
But equipment utilization.
Back to where it was pre pandemic.
That's adjusted for seasonality Im talking year over year.
Thanks, Jeremy.
In Europe, as well sorry, John just to clarify on Europe, as well as North America.
I don't have the European utilization data in front of me I'm, sorry, Gerry path pad, our IL I will try to follow up later thanks.
Thanks.
Thanks Jerry.
Our next question comes from the line of Ross Gilardi with Bank of America Merrill Lynch. Please proceed with your question.
Thanks, guys for squeezing me in let me just add my congratulations Bill Wilson.
And John as well.
All my questions have been answered, but inventory position I was curious about that and your inventories are flat.
Quarter on quarter, despite taking.
Production downtime and now you are stepping up your production in the second quarter.
Are your customer discussions, giving you more confidence that you can take down that inventory number meaningfully as customers start ordering again without having a significant underproduction.
And I know youre not guiding consensus for about $7 billion in revenue for fiscal 'twenty. One can you give us any sense as to where you'd like to see that inventory number exiting the year, if thats broadly in the right.
Ballpark.
Sure Ross I think just based on your question I think it's maybe implying that that's access equipment.
That stayed flat access equipment is actually down in the quarter. So we saw some nice improvement with the higher revenue than our expectations and that.
In that segment, where inventory is up a bit.
In our segments, we had a bit more absenteeism and it during the quarter, which created some some production interruption, but also.
Those segments, we invested a bit more in safety stock.
To protect against that line stoppages and so on so that's really what you're seeing.
The access team has done a great job managing their inventory.
We're positioned very well coming into.
The production cycle and they are doing outstanding job managing it we expect to exit the year at.
A very solid with a solid decrease in inventory and so again, we'll continue to manage through it.
Yes.
Thanks very much.
Rob.
Our next question comes from the line of Helix portion with Raymond James. Please proceed with your question.
Hey, good morning, everybody and thanks for squeezing me in here at the end.
I just have a quick one.
Really wanted to touch on the electric RCD as you talked about.
I know you've been testing dose with an OEM partner and it sounds like they're delivering the first real bad here sometime this year already.
Just wondering broadly if you could expand on how you've seen customer reactions to electric offerings really changed in the past year. How quickly you could see more broad based adoption here.
Maybe just maybe better asked what's the biggest hurdle to adoption you guys still see.
So it's a great question I'm going to first start by saying that we have incredible engineering capability at Oshkosh, and a lot of work that's happening in electrification.
So and we are working hard on electrification across all of our segments.
And in doing that we partner with really the best in class suppliers.
To develop the technology that we need to develop so we talk about some examples the access.
All electric da Vinci Scissor lift.
That's a the demand for that product.
Which is on sale now has been much better than we had anticipated. It is an incredible product theres no hydraulics on it of any kind.
And.
It gives a lot of benefits to the user.
We've also talked we've also created a commercial in our commercial segment.
Fully electrified prototype of our concrete mixer and thats with customers doing kind of beta testing work to get customer feedback.
And that to that front discharge concrete mixer thats in the same segment as refuse collection, whereas you mentioned, we're working with an OE partner on electrified vehicles that will go to market now. So so there are certain use cases that are that are closer to adoption than others.
And it's really dependent upon total cost of ownership equations, when we electrify our product there's benefits and maneuverability theres benefits in drivability theirs instant torque versus an ice engine a lot more synergy with autonomy and connectivity and op.
Operating expense as a lot lower.
But it really depends upon the use case that you put it in the recharging infrastructure. That's there do they go back to the same base every day or do they have to be away from our recharge station for long periods of time. So there's a lot of factors that go into it but ultimately when the total cost of ownership equation fits that.
When you start to see nice adoption rates we.
We think that.
Theres clearly an opportunity in refuse and that's why we're partnering with an OE to put electrified units in the market this year.
But.
Lots of opportunity in specific use cases that we address and this will all continue to evolve.
Over a long period of time, but in the very very near future, you'll hear us come out with announcements on other products that we're electrifying, they're coming to market. So exciting time for electrification.
Very helpful. Thank you.
Thank you Felix.
Thank you we have no further questions at this time, Mr. Jones, I would now like to turn the floor back over to you for closing comments.
Thank you operator, and thanks to everyone for joining US today, we really appreciate your interest in the Oshkosh Corporation.
Can speak for John Mike and Pat that they'll look forward to speaking with you in the near future to virtual conference or another earnings call.
Everybody stay healthy out there, let's work together to get through this take care.
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.
Yeah.