Q3 2021 Oshkosh Corp Earnings Call
David.
[music].
Greetings and welcome to.
The Oshkosh Corporation fiscal year, 'twenty, 1 third quarter earnings call.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
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A reminder, this call.
Conference is being recorded.
It is now my pleasure to introduce the warehouse Pat Davidson Senior Vice President of Investor Relations for Oshkosh Corporation. Thank.
Thank you Mr. Davidson you may begin.
Good morning, and thanks for joining US earlier today, we published our third quarter 2021 results copy.
It is available on our website at Oshkosh Corp, <unk> com.
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 call and is also available on our website. The audio replay and slide presentation will be available on.
The replay for approximately 12 months. Please refer now to slide 2 of that presentation.
Our remarks that 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.
On our watch 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 SEC. This morning, and other filings we make with the SEC, 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 are to our fiscal quarter or fiscal year unless stated otherwise our presenters today include John Pfeifer, President and Chief Executive Officer, and Mike <unk> Executive.
<unk> and Chief Financial Officer, Please turn to slide 3 and I'll turn it over to you John.
Thank you Pat and good morning, everyone I'm proud to share that Oshkosh has delivered another quarter of strong performance experiencing strong orders sales growth and robust backlogs across all.
Vice Pres segments.
Third our strong third quarter results include sales of $2.2 billion and adjusted earnings per share of $2.09 an increase.
Kris on more than 60% over prior year adjusted EPS, we are pleased with the strong performance and.
I am proud of our team's perseverance to deliver growth and solid results in the face.
<unk> of 1 of the most challenging global supply chain environments in recent memory.
Our third quarter was highlighted by several exciting announcements on the heels of the USPS next generation delivery vehicle or in GDP.
DB when in the second quarter.
In early June we were notified that we won the U S Army Stryker medium caliber weapons system or <unk> program, which represents an important new adjacency for our defense business.
Less than a week later, we held a joint news conference.
Since with the city of Madison, Wisconsin to announce our revolutionary New Electric fire truck appears Voltaire on Madison is the first city in North America to be operating on electric fire truck as part of its fleet and we're pleased to report that the truck has been performing extremely well. This is a big step.
Colored bar Evs and is another milestone in our 2 decade, plus history of electrifying products as we've been discussing over the past year, we have significant electrification projects in all of our business segments.
And then last and in late June we announced.
Net Wattenberg South Carolina is our newest manufacturing facility. The Spartanburg factory will be the home of our U S. P. S. <unk> production, we are proud to be creating over 1000 manufacturing jobs in South Carolina for this exciting new program.
As we look at the current.
Current landscape many industries, including our own are seeing a rapid increase in demand with market recoveries, causing significant stress on global supply chains and that has only intensified over the past quarter at Oshkosh, we are witnessing the effect of these supply chain disruptions primarily within the access.
Equipment.
Business impacting sales by approximately $100 million during the quarter.
Importantly, we believe these supply chain issues will eventually subside and we are well positioned to capitalize on the market recovery as.
As we address these disruptions we are updating our expectations.
For 2021, adjusted EPS and now expect $6.35 to.
To $6.50, tightening the range a bit heading into our fourth quarter, reducing the top end of the range reflects the ongoing supply chain issue, but I mentioned, Mike will share more details in his set.
Now, let's turn to slide 4 and get started on our segment updates with access equipment.
The.
<unk> momentum we discussed on our last call continued and demand for our industry, leading access equipment strengthened while we expected some supply chain disruptions in the.
<unk> half of the year the magnitude of the impact has been more significant than we previously expected.
Our access team did an outstanding job minimizing the volume impact during the quarter, which allowed us to deliver nearly 90% revenue growth versus the prior year.
We are seeing.
Strong demand led by North America elevated fleet ages, combined with strong equipment utilization and a healthy rental market are fueling this demand.
We expect a multi year opportunity for robust replacement demand as rental companies look to lower the overall age of their fleets, which were at historically.
Back to high levels entering 2021.
We expect further opportunities when nonresidential construction rebounds, as a result of these market fundamentals our customers are already beginning to plan for their 2022 capital requirements.
Orders were strong during the quarter leading.
To a backlog of $1.75 billion up more than 200% versus last year and an all time record for access for the third quarter. We continue to be pleased with customer interest in orders for our electric booms and sooner lifts the move towards electric is still in its early.
Early stages on gaining traction with customers that are looking for improved performance benefits total cost of ownership benefits and carbon footprint reduction.
Bottom line from this segment, but we are still in the beginning of what we believe is a multiyear growth cycle as the economies recover and customers use our safety.
Productivity enhancing equipment in more applications.
Let's turn to slide 5 and I'll review, our defense segment.
Our defense team delivered solid third quarter results with double digit sales and operating income growth and continues its success entering new adjacent.
Safety markets supplement on our market, leading position with tactical wheeled vehicles as I mentioned in my opening remarks, we announced the decision to build the U S. PFS as next generation delivery vehicles in Spartanburg, South Carolina in late June Spartanburg is an outstanding location with.
<unk> automotive manufacturing roots, and we look forward to bringing new team members on board to help build these game changing zero emissions and low emission last mile delivery vehicles for our nation's postal carriers. Our team has already begun preparing the facility for the planned production launch of the <unk> and 'twenty.
<unk> 3 <unk>.
Call. This is a 10 year contract that calls for between 50000.
And 165000 vehicles with a mix of both zero emission beds and fuel efficient ice vehicles, we are.
<unk> engaged with a broad cross section of USPS.
Representatives, including postal carriers procurement and technology professional professionals and are very encouraged by the positive feedback we received on the great technology. We are building into the Mg DB, we look forward to sharing our progress during our analyst day. This September in Wisconsin.
<unk> early June we were notified that we won the Stryker Mcw S competition, which will result in our team integrating the Ncw S. On the Stryker vehicles that are used by U S. Army Brigade combat teams SBC Ts the 6 year contract includes.
In all spectrum of system technical support interim contractor logistics support and integrated product support.
To achieve this when our team brought together the best in class capabilities for system design manufacturing and integration to provide a highly capable solution that meets current stryker.
Our pharmacy Gws program requirements, while offering the flexibility to upgrade in the future. The 6 year contract is worth up to $943 million. This is a great example of our team's ability to successfully compete for and win programs in adjacent markets that are.
Reicher there'll be armies priorities. Our January acquisition of Miller was instrumental in our ability to win this important program.
Before I leave defense I wanted to mention some late breaking news that our bid for the OEM FB or optionally manned fighting.
Our party nickel was selected as 1 of 5 proposals to participate in the concept design phase of the program. We are working with some outstanding partners and this is a significant win for US cash. It's also another example of our ability to compete and adjacencies outside of technical.
<unk> be wheeled vehicles, the <unk> plan to replace the Bradley fighting vehicle and the program involves several milestones over the next several years.
Let's turn to slide 6 for a discussion of the fire and emergency segment.
Fire and emergency segment delivered excellent performance in the quarter was saw.
Solid sales on an operating income margin of 14, 7%. Despite the challenging supply chain environment as we've shared over the past year, we had some concerns with municipal budgets as we emerge from the pandemic that could lead the downward pressure on fire truck demand or expect.
Our expectations.
Technical changing as communities that have been more resilient through the pandemic buoyed by strong residential construction and increasing property values. We now expect 2022 to be a solid year as evidenced by our better than expected order rates.
Anthony finished the quarter with another solid.
Solid backlog of $1.2 billion, an increase of 8.5% over last year orders in the quarter were impressive at $247 million, an increase of 69% over last year.
As the industry leader in municipal fire trucks and that leadership was punctuated.
<unk> our June announcement of North America's first electric fire truck a milestone for both Oshkosh in the industry.
City of Madison is piloting our new volt Tara pumper as part of its frontline fleet and as it has successfully responded hundreds of emergency calls the volt Terre.
<unk> highlights our expertise with electric vehicles and provides all of the operational functional and safety benefits our customers have come to expect from peers, while not sacrificing performance our customers saving over 100 gallons of diesel fuel per week with the pumper and they are also inviting the.
Would it be another fire departments to see the unit up-close throughout the summer. We also launched the volt Terra electric vehicles, which will be visiting airports around the United States.
Please turn to slide 7 and we'll talk about our commercial segment.
Our commercial segment returned.
Growth this quarter with a revenue increase of over 12% our efforts to drive margin improvement through simplification and innovation. In this segment are working as evidenced by our 10, 6% operating margin performance in the quarter, surpassing last year's 10, 2% adjusted operating margin.
<unk> third quarter results were particularly impressive given the challenging supply chain environment. As most of you are aware our commercial segment is more reliance on third party chassis than our other segments commercial has been working diligently to address reduced chassis availability that has been prevalent across the industry during the recovery.
Our team is maximize production in the face of these headwinds by adjusting our schedules, thus, allowing our production lines to remain operational and effective. Despite these hurdles. Our outlook is supported by strong orders in the quarter for both our Cds and mixers as the U S and Canada moved beyond.
And benecke. These orders led to an all time high backlog of just under $500 million providing.
Providing solid visibility into 2022.
We're pleased to report that rear discharge concrete mixer production in our focused factory in London, Ontario, Canada is proceeding very well.
<unk> and the transition is complete we are also focused on optimizing our CV production in our Dodge Center, Minnesota facility in the coming quarters.
We also delivered the first unit of 5 electric Rcv's for Boise, Idaho, working closely with 1 of our OEM partners, we look forward to working.
Working with our customers and partners as they establish an implement electrification and emission reduction strategies for the long term.
<unk>, we are participating in the advanced clean transportation Expo in long Beach, California in late August we plan to showcase our fully electric cobalt concrete mixer truck concept.
I encourage all of you to check it out if you plan to attend the Expo I'm going to turn it over to Mike to discuss our third quarter results and expectations for the remainder of 2021.
Thanks, John and good morning, everyone. Please turn to slide 8.
We delivered strong third quarter results despite significant support.
Apply chain disruptions, which impacted our ability to complete and deliver units consolidated revenues were approximately $100 million lower than our prior expectations. As a result of these disruptions largely at access equipment.
<unk> sales for the third quarter were $2.2 billion or 628.
Dollars higher on the prior year, representing a 40% increase the sales increase was driven by an 89% increase at access equipment of 27% increase that defense on a 12% increase on commercial.
Access equipment sales increased due to improved market demand as we exit the pandemic.
Milligan a strong replacement demand last year demand was negatively impacted as COVID-19 shelter in place restrictions peaked around much of the globe and our third quarter defense sales increased net quarter due to higher <unk> volume and the benefit of Pat Miller sales, which we acquired in the second quarter of this year.
From an emergency sales.
Driven approximately flat on a quarter and commercial segment sales were up due to increased RCV demand as we emerge from the pandemic offset in part by the lack of concrete batch plant sales as a reminder, the concrete batch plant business was divested in the fourth quarter of the prior year.
Consolidated adjusted operating income for the third quarter.
With $205.1 million or 9.3% of sales compared to $128.8 million or $8..1 of sales 8.1% of sales from the prior year quarter.
As a reminder, we benefited from approximately $60 million.
Temporary cost reduction actions.
As a result of the pandemic during last year's third quarter as we shared on prior calls the return of the majority of these expenses to our run rate was a headwind to year over year incremental margins in the quarter.
Access equipment adjusted operating income increased as a result of higher sales volume offset in part by.
Incentive compensation expense higher material costs, and unfavorable customer and product mix.
Defense operating income increased as a result of higher sales volume and lower new product development spending offset in part by unfavorable price cost dynamics.
On an emergency operating income decreased in the.
By higher quarter as a result of higher incentive compensation expense offset in part by favorable product mix at.
In commercial segment operating income increased largely due to higher sales volume and favorable product mix offset in part by higher material costs.
Corporate costs increased $16.8 million.
Current payer incentive compensation expense and the return of other spending subject temporary cost reductions in the prior year.
During the quarter, we repurchased approximately 107000 shares of common stock for a total cost of $13 million adjusted EPS for the quarter was $2.9 compared to.
EPS of $1.29.
In the prior year.
Our GAAP EPS of $3.07 for the quarter includes a tax benefit of $1 per share related to <unk>.
Net operating loss carry back to previous years with higher federal statutory rates this tax benefit.
It is excluded from adjusted EPS.
Please turn to slide 9 for a discussion of our updated expectations for 2021.
During our last earnings call, we shared that our expectations assume no major supply chain disruptions as we discussed today, we are facing significant.
We can supply chain challenges, which are impacting a broad range of parts and components across all of our businesses much like many industries across the globe. Despite these challenges our teams have delivered solid results aside from supply chain challenges our business is healthy as order rates and backlogs are strong in all of our segments, which provides.
<unk> solid visibility for the fourth quarter and into next year, our updated expectations reflect our belief that supply chain challenges will neither improve nor deteriorate meaningfully for the remainder of 2021, our updated expectations to fall within the range of our prior expectations. Despite these headwinds.
Yes.
We expect consolidated revenues of approximately $7.8 billion and adjusted consolidated operating income range of approximately $610 million to $630 million and an adjusted EPS range of $6.35 to $6.50.
Compared.
Third to our prior range of $6.35 to.
To $6.85.
At the segment level, we are estimating access equipment sales of approximately $3.2 billion of.
28% increase compared to 2020 and adjusted operating income margin of approximately 10, 5%.
Our revised expectations reflect production constraints manufacturing inefficiencies and increased freight costs due to the current supply chain environment.
We are reaffirming our full year expectations for defense and fire <unk> emergency.
We expect sales and on operating income margin of approximately $2.5 billion.
8%, respectively at defense and sales and an operating income margin of $1.2 billion and 14% respectively at fire <unk> emergency.
Within the defense segment, we have analyzed the accounting treatment for the USPS <unk> contract award and have determined that we will begin.
And igniting revenue upon production of units, which is planned to begin in 2023.
Such we expect to see very limited USPS revenue over the next 18 to 24 months.
We are estimating commercial segment sales will be up modestly versus our prior expectations to approximately 950 million.
<unk> <unk> and we expect operating income margins of approximately 8%.
We estimate corporate expenses will be approximately $155 million, we estimate our adjusted tax rate for 2021 will be approximately 22, 5% and we estimate an average share count of $69.3 million.
For the full year, we are estimating free cash flow of approximately $750 million, an increase of approximately $100 million versus our prior expectations. We also estimate capital expenditures will be approximately $140 million.
Looking at the fourth quarter, we expect consolidated.
Holidayed sales to be up approximately 18% over the prior year with access equipment largely driving the increase we expect that material and freight cost increases will be a $35 million headwind to consolidated margins in the quarter and we expect a $30 million year over year headwind as a result of temporary cost reductions.
<unk> share in the prior year quarter.
I'll turn it back over to John now for some closing comments.
We announced another solid quarter and our outlook for the remainder of the year continues to be positive we've made adjustments to our expectations as we work through supply chain.
Challenges importantly, we believe the supply chain challenges will subside over time.
1 some big programs recently, and we're taking actions to drive profitable growth as we innovate serve and advance the company. Our long term outlook is strong as we leverage technology and innovation to generate.
<unk> industry, leading performance and further distance ourselves from the competition.
I Hope you will consider attending our Investor day in September we have a full agenda that will provide an excellent overview of our company a chance to speak with our leadership team and experience our industry, leading innovative products firsthand while portions.
<unk> on the meeting will be live streamed you will need to be here in person to get the full experience. We hope to see you. There. Please reach out to Pat do you have any questions I'll turn it back over to Pat to get the Q&A started.
Thanks, John I'd like to remind everybody. Please limit your questions to 1 plus a follow up.
Generate we need to be disciplined on that follow up question.
After the follow up we ask you get back in queue, if you'd like to ask any additional questions. Operator. Please begin the question and answer period of this call.
Thank you.
To ask a question. Please press star 1 on your telephone keypad, a confirmation tone will.
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1 moment, please while we poll for questions.
Thank you. Our first question comes from Stephen Volkmann with Jefferies. Please proceed with your question.
Hi, Good morning, guys. Thanks for taking my question.
<unk> is really on sort of price versus cost and I think you talked about $35 million of headwinds from material on trade in the fourth quarter.
I assume that's net of any price increases you're putting through but if you could just kind of describe what's happening with price and when does that kind of normalizes, maybe it even gets better in 'twenty 2 whatever commentary you could have around that I'd appreciate it.
Sure. Steve This is Mike I can I can take.
Yes, so really from a price cost perspective, what we're what we're seeing for next quarter. The $35 million that references is in line with what our expectations were last quarter, when we said about $45 million.
On that we did see about 10 to 12 in the site in the third quarter, we just wrapped up.
Take that expect that will continue to have some cost price headwinds in our first quarter of next year, but by the time, we get to the January quarter or second quarter that will start moderating.
Certainly from the last call. We have continued to see commodity escalation in some cases, we've taken further pricing action.
We do have quarter. So we're going to continue to manage it in a disciplined manner thats again by the time, we get to the second quarter, we should start seeing moderation to get back to us.
An equilibrium there.
Again, if you go back to 2018, when we saw that steel escalation, we did see a.
The benefit on the back on to that so we.
We don't have reason to believe we won't see something similar.
This go around.
Great. Thank you.
Thanks.
Yes.
Thank you. Our next question comes from Nicole to Blossom.
During the day Bank. Please proceed with your question.
Yes, thanks, good morning, guys.
Good morning, good morning.
Can you talk a little bit about what's going on with the supply chain on I guess.
Did you actually have to shut down production as a result with that all in the third quarter and then when we think about fourth quarter and access is the anticipation.
You guys anticipating shutting down production at certain points during the quarter.
Yeah.
Yes, Thanks Nicole.
On the.
Supply chain was definitely the headline for us this quarter.
As the markets have rebounded really sharply.
Supply chain has had a.
Tough time catching up on when we talk about supply chain disruption. We're talking about is beyond just say that chip challenge suppliers are really facing challenges in hiring employees across industries shipping itself has been a major challenge we.
We have global supply chains, so theres a lot of freight imbalance. That's added 2 weeks, sometimes up to 4 weeks of lead time, just in freight from Asia or Europe.
That's caused problems. So we'd have a lot of I'll call. It disruption slowdown in manufacturing a couple of times, where we've had to.
On the supplies or temporary periods of time.
And that has.
Had a bigger impact at the access equipment segment, where we have a lot of high volume manufacturing.
And then the other segments, but it's a challenge across our entire business, we expect that.
Established subside, we don't think this is going to last.
For a long period of time, where we believe we are in it for another couple of quarters and as we get into 'twenty..2 we believe we'll start to see much more normalization.
And the suppliers have caught up with this quick recovery that.
This all Ben.
We've all been.
Struggling to 2.
To keep up with.
Understood. Thanks, and maybe from my follow up just on <unk>.
The free cash flow guidance increase is that all working capital driven just curious.
Earnings at the top end has come down a bit.
Yes.
It didn't need us.
Free cash flow from customer advances.
Modestly lower inventory levels.
Got it thanks I'll pass it on.
Thank you. Our next question comes from Chad Dillard with Bernstein. Please.
Please proceed with it.
Hi, good morning, guys.
Got it.
So can you talk a little bit about your conversations with rental companies.
So as it pertains to 'twenty 2.
Our net happening earlier.
And Paul you can give on just initial thoughts on how you're thinking.
Pricing.
Yes so.
It's John I'll kind of give you maybe an overview of the.
Access customer environment and demand environment I'll try to answer your question about 2022.
Needless to say the curve.
About <unk> is really really strong.
And thats it.
You see that in our backlog $1.75 billion in backlog and when I talk to Nicole's question about the supply chain, Hey, we're not losing business. We've got lots of orders are strong our backlog is good.
This is.
All business, but we will continue to.
Our orders that we will continue to fulfill.
Right now when you look at the rental market. We believe that the demand is largely driven by replacement demand. We've got we've been talking for several quarters about our fleets are aged and our customers.
Now there are more on more confident in the recovery.
They are more willing to spend capital to upgrade those fleets and Thats, what theyre doing now Theres also fleet growth that's happening and we're trying to grow the fleet because they are finding new opportunities to apply the equipment.
That's also of course very good this lease this all means that there.
Really strong utilization rates.
Even with.
Not such great nonresidential construction metrics.
These demand rates have been strong and again again, it's that replacement demand that's really that's really been fueling it we believe that as nonresidential starts.
<unk> to improve.
In the future Thats, just going to continue to help our our demand which is why we believe we're on a multi year recovery period. So if you look at 2022 of the 1 thing that I'll say about it is we are having.
Already speaking with our customers regarding their plans on their purchases.
For 2022.
And we know and we've always said that hey, we've got some cost inflation on our business with material cost.
On some of the freight rates and we.
We intend to make sure that we recover that sometimes theres a little bit of a lag.
Lag effect, because we've got back backlogs.
But we will fully expect to stay ahead of it over time.
So that's what I can tell you about it.
That's helpful.
And then maybe a little bit longer term question on.
Sure.
<unk> electric products.
Versus internal combustion.
Can you just talk about just.
What's the margin difference would be potentially is there any margin difference.
Can you talk about just your philosophy on R&D and the level of intensity that you think is appropriate.
And just lastly, just manufacturing footprint.
Thinking about having.
Having dedicated lines or is it going to be integrated with.
The legacy products.
And the last the last final there'd be some about some of the integrated some will be.
Independent lines it really depends on the segment depends on the product what I can tell you about the electrification business, Hey, I'll I'll tell you in general.
We're an innovation company and we innovate all the time, whether it's electrification or autonomy or with data on how we use data to provide better performance of our product and better insights to our customers.
When you look at electrification I think the most important thing to understand with electrification.
Electrification the fact that it provides.
Zero emission.
Is good.
But that's not that that's the only 1 benefit that we all get out of electrification on the other benefits that are that are big are theres big total cost of ownership.
Benefits, because it's more efficient to run off of electricity than it is off of diesel or gasoline for that matter.
Number 2 there is a lot of performance benefits that we provide.
For the product for our customers for productivity with electrification that you don't necessary.
Necessarily get with an internal combustion engine. So to answer your question is absolutely that leads to our ability to to improve our margins because we're able to solve customer problems better.
And the economics are there. So that's 1 of the great compelling things about electrifying a lot.
Lot of our product lines and this will go on for years, we're not going to see entire end markets electrify overnight, it's going to be.
It's going to take several years for the adoption by our customer base, some will adopt faster than others. But this is this is a positive trend on many different levels.
Thanks, I'll pass it on.
Yeah.
Thank you. Our next question comes from Jamie Cook with Credit Suisse. Please proceed with your question.
Hi, Good morning, I guess, just 2 questions John obviously 2000.
On a challenging year, but as you think about 2022 is there any way you could outline for us which markets you think have the opportunity.
For growth if anything it's if sales that were.
We couldn't get in 2021, because the supply chain, if that sort of additive to your 2020 outlook and then I guess just a longer.
On the 20th question I think you've done a good job sort of talking about how oshkosh can growth sort of in adjacent markets, whether it's the option on land vehicle market. Our last mile delivery can you talk about sort of when we think you know.
Cash can start to do we start to see those benefits in 2022 or 2 those.
As the visit growth from adjacent markets is it should we expect that further out.
So.
Thanks.
From our for the most part they look at all of our commercial segments non defense segments, let's call them, we expect.
Really healthy markets in 2022.
We had and I'll give you. An example, we had previously been very concerned about the municipal spending and municipal budgets and we've talked about that in past quarters, because you know.
Usually at her recession municipal budgets get squeezed and sometimes that can have a downward pressure on.
Fire truck demand, we're not seeing that we're seeing municipal spending that is better than we anticipated where we see the market for our fire trucks to be better than maybe we thought it would be several quarters ago. So that's that's positive we see multi year growth.
In the access segment.
For a lot of factors that also include global in China on and so forth. The Defence segment, you know the tactical wheeled vehicle budgets are going to be under a little bit of pressure in 2022 and 2023.
Growth in so there'll be some pressure there but defense is.
As a great growth story for us because of our what you mentioned on the second half of your question on.
Our ability to win adjacent programs has been.
Validated the last 6 months you know USPS is a big Big program.
Graham for US <unk> is a near $1 billion program for US. These are adjacencies that are much more in line with funding priorities.
We were just down selected on the MSP Thats optionally manned.
Fighting vehicle that are that will replace the gigantic.
Infantry fighting vehicle or the Bradley that's in the market.
So to get to get down selected to participate on that is a big deal. So I'll give you some color on the timing. So on Mcw asked they'll actually be a little bit of revenue in 2022 from EMS Gws.
Annick.
And we will get but.
Material revenue will come from 2023 and that will last about 6 this years for that program to run and on postal we go into production in postal in the second half of 2023.
So we will see some revenue in 'twenty 3 we will see material revenue in 2004 and up to full rate revenue in 'twenty 5 and that's a long term program and a big program.
So that's a little bit of color I can provide you.
Thanks, Jamie.
Thank you.
Yeah.
Thank you. Our next question comes from David Bilby with Baird. Please proceed with your growth.
Yes, good morning, everyone.
Mike maybe this question for you on.
I'm just trying to understand the moving pieces to your update.
David outlook here on the cost side.
I do remember you spelling out for us.
On the raw material headwind in terms of the.
Dollar headwind that you had in fiscal 'twenty, 1 as well as the.
Cost reversal of temporary cost reversals, so can we get on it.
Update as to how are you.
We're thinking about these figures.
Again in your updated fiscal 'twenty on outlook and then how much in terms of dollars.
All these supply chain issues.
Hum.
Our dragging your full year outlook.
So I think first of all really the cost price is fairly similar to what we expected. This past quarter. So we talked about the $45 million in the back half of the year, we had about cash.
10 ish million dollars in the third quarter.
<unk> to about $35 million in the fourth quarter.
<unk>.
Other August headwind year over year with those temporary costs reversing was about $60 million on a lot of those came back this past quarter.
Third quarter is about $30 million in the fourth quarter. So those are sort of the foundational number if you really look at it.
From a from a margin standpoint.
We were geared up.
Yes, and John and Mike and I also said in my prepared remarks that job.
We missed probably about $100 million revenue ever had an opportunity for about another $100 million of revenue largely on access.
And obviously, we are geared up and from a staffing perspective to really build that revenue and deliver.
Up in products in.
And realize that revenue so.
That would've been obviously you think about it.
About 25 cents of EPS and net in the quarters. So I think when you factor in a bit more volume and so on.
No that the cost price dynamic is as really any different than what.
Those were talking about.
Freights may be modestly higher than what we thought but I would say materials versus my last assumption that our lastest sponsors we share probably a small, albeit less than in the fourth quarter.
Okay. Okay. That's helpful.
And then.
What we have been and you talked about things starting to normalize in the second quarter.
'twenty 2.
And I'm sort of curious here as to what your visibility is on that and people already asked about pricing practices in 'twenty 2 but.
Do you feel like the market is.
Again, it enough to where you actually do have the need of pricing power in order to offset the multiple headwinds we're talking about here yes.
Yes.
We're watching the cost dynamics very closely and.
Back in the second quarter, we implemented.
Price increases on our in our.
Our non defense businesses on in some cases.
Implemented additional price increases we're watching the commodities and we're going to continue to adjust as necessary.
We talked about where we are going to have the headwind from that.
The first.
The first quarter next year, when we get to the second quarter.
We.
It moderates in <unk>.
And again, we're watching it closely and we're going to be responsible as we're heading into.
Into those pricing discussions with our with our customers.
Yes Mega on this.
John I'll, just add to that you know we have all time record backlogs in the company right now.
I mean, all time and the company never had backlog this strong.
And we feel really good about where we're headed.
We feel really good about what we're doing right now we've had really tough supply chain challenges as everyone tries to ramp up quickly I don't think that's.
Overly unusual but when you couple that with the freight challenges it becomes a little bit more unusual when we say that it's going to norm. We believe we don't have perfect visibility, but when we believe it will normalize in second quarter, which means the first quarter of calendar year 2022, that's coming from our very.
Sure supply chain management team that have a lot of insight not just into our vast supply chain, but our tier 2 and our tier 3 supply chain, that's where that information coming up to us from and we've got really really good supply chain people.
Who are able.
To manage a complex.
Situations like this fairly well.
In terms of the demand I mean demand is good we provide a lot of value to our customers from number 1 on our segments. We will absolutely price responsibly, that's all I can say.
Very helpful. Thank you.
Mitch.
Thank you. Our next question comes from David Raso Evercore ISI. Please proceed with your question.
Hi, Thank you for the time.
I appreciate the fourth quarter comments about year over year cost right the materials and freight cost in.
The term cost reductions.
But then the comment you made earlier in the call about the supply chain won't deteriorate or improve for that matter the rest of 'twenty 1.
I'm, just trying to square that up with for access.
Sequentially you saw this most recent quarter revenue was up about $185 million and EBIT still went up 32.
<unk> million dollars right not great incrementals, but still EBITDA on up revenue.
The fourth quarter's implying revenue go up another $50 million, but now EBIT drops sequentially $8 million.
I'm just trying to script that comment yeah.
No deterioration from here because that that'll be suggests it does get more challenging sequentially.
And then I can have a quick follow up after that if you don't mind.
Yes, David.
This is Mike I'll take it I think my comments in my prepared remarks really responding to the challenge we had in the quarter that was sort of new was the availability of parts and the ability.
Italy, then to produce and deliver the products. So it's really commenting on the availability of parts and so we're assuming that doesn't end in the fourth quarter. We believe it's still going to be a challenge just.
More challenge than it was in our second quarter similar to what we thought the back half of the third quarter.
From a.
<unk> you are correct from a supply chain perspective.
Our assumption was always that the <unk>.
<unk> cost dynamic was can be more challenged in the fourth quarter and that's why as we've talked about it and even on the last earnings call. We saw about a $10 million headwind in the third.
Her from a price cost from a material escalation.
And that growth to about 35 million next quarter, but that that's really in alignment with what we saw last quarter. Okay. So.
Sales of ability of components. It doesn't it's correct price correct on Felipe deteriorate.
Yep.
The increased visibility that you have the size of your backlog across all the businesses, but I'm, specifically asking about access.
Given that feedback from your mature supply chain management, suggesting looking into second tier suppliers, maybe things loosen up a little bit when we get into calendar <unk> I'm curious.
Operationally how is that impacting your strategy when it comes to locking in costs for next year.
Trying to think about that increased visibility might give you confidence that it will be a little stronger in your negotiations for price, but how are you managing your cost that you're lining up your supply with that increased visibility of demand.
Yeah, David we always have a.
Just as we manage through the pandemic we have.
On a robust playbook, because we manage.
It's really a combination in some cases, we we have locks were talking to our suppliers.
So there is there are certain certainly visibility that we're gaining over time obviously.
Underlying commodities have continued to alkylate, even over the course of the last quarter and so we'll continue to watch that but.
When we do have larger backlogs it does provide an opportunity for us too.
Choose to work with our supply chain partners and in some cases lock on our material costs.
Okay. So fair to say the increased visibility on the top line you have taken some of that visibility and locked in more of your cost side of the equation as well.
And then normal.
Yeah, that's fair that's fair Okay.
Thank you very much for the time appreciate it.
Yeah.
Thank you. Our next question comes from Jerry revenue with Goldman Sachs. Please proceed with your question.
Yes, hi, good morning, everyone.
Morning, Jerry good morning.
I'm wondering if you could just talk about your thoughts around pricing mechanism heading into 'twenty 2 on longer term over the past couple of years.
We've had a lot of supply chain volatility steel volatility.
And any views on potentially setting up inflation.
Inflation index pricing mechanism. So we're not looking at these types of price cost headwinds that we're talking about here with the with Escalations. This year how are you thinking.
That as we head into this coming cycle.
Well Yeah. This is Mike I can start and maybe John will have a couple of comments too.
I think the bottom line is.
We saw a significant material inflation back in 2018.
And what we typically see is we're going to be disciplined and continue to adjust our prices, but it's very difficult. When you have a backlog to go back and reprice that and Theres always debate around there is theres always a lag when you see the core raw material increase and when that reads through the supply chain. So it's.
Really the double from that detail. So what we've done is we watch it closely we adjusted price when.
When we see changes and as we saw in 2018.
You have a bit of a headwind coming into an inflationary environment normalize and then as things moderate overtime you tend.
Benefit and we saw exactly that happened back in the first quarter of 2019 as we came out of really the elevated steel environment. In 2018. So we don't have reason to believe that that's different and we think that again that it works.
That's how it that's how we work with our customers.
To get us on and over time, that's been effective.
Yeah on iron yet.
Our customers for the most part on ever saving absolutely and unlike the index thing because they have to forecast what their costs are going to be.
So theyre trying to rely on us to forecast what the costs are going to be as opposed to doing index type.
Commercial price.
<unk>.
Okay, and then separately the silver lining was really strong performance in fire <unk> emergency on commercial margins this quarter.
Folks left the full year margin more or less on change, though I'm wondering is that a function of now the supply chain headwinds on access.
Youre starting to see those same issues hitting your suppliers in those areas or is that just a healthy respect for them.
All of them.
Water supply base moving pieces.
So from a first of all on the commercial front.
Recall, we do have more price cost headwinds in that segment because they are higher users of steel.
Hi, Paul.
So about there's about $10 million of headwind.
Q3 to Q4 for commercial from a commodity perspective again that will normalize as we've talked about with access equipment with fire <unk> emergency I would just say as you look at the implied incrementals to the fourth quarter.
We have a bit of a we have a higher mix of commercial or third party chassis fire apparatus that happen to be delivering in the fourth quarter versus aerials theres, a little bit of a year over year mix shift and a little bit of a mix shift from Q3 to Q4 really a timing factor and that will normalize over time.
Okay. Thanks.
Yeah.
Thank you. Our next question comes from Ross Gilardi with Bank of America. Please proceed with your question.
Thank you good morning, guys.
Good morning.
So how much demand are you seeing from a rental companies for electrify.
Applied product.
Merrily for.
Smaller compact equipment.
Vs cures.
Curious what's happening with your larger.
And then just what's the likelihood of.
Yes, maybe even the second leg to this replacement cycle in 3 to 5 years, if the rental companies propelled by a couple of customers.
To be more electrified fleet and therefore replace a lot of the ice fleet that they're taking on now prior to the end of its useful life.
So we're.
Ross, we're seeing of the products that we've introduced as electric to date, we are seeing strong demand stronger than we had expected.
The kit into our or our business plans.
Which of course is a <unk>.
<unk> signed I think what we're going to see going forward is that continued.
Increase step by step of demand for electric products and of course, we're working on a lot as we speak on electrification.
<unk> not just in access on every single segment that we have and you'll see it like the Peirce full terra first ever.
Electric fire truck and it's actually been on hundreds and hundreds of live runs and performing extremely well I mean, this was going on all over our company.
In the access segment.
Mt.
We think that it will increase in demand at faster rates in certain regions of the world than others, but it's going to increase in demand in all regions. So in Europe. For example, it tends to be increasing faster the demand for electrified product tends to be increasing.
Faster than it is in the U S. But we are doing it and very happy with what we're seeing in the U S as well so.
What I can tell you is that the demand for these products is real.
Alright, and then just on.
Fire and emergency when you've got the severe drought.
Increasing.
You got heightened forest fire risk.
All over the country.
Is this contributing to the order growth youre seeing and if not why not but I I would think that would be up.
Pretty material driver of your business.
Well.
Recall that we do wildland firefighting vehicles, but recall that most of our product is municipal.
Fire apparatus aerials bumpers that type of product.
So I would suggest that for the most part it is not.
The driving factor of market improvement and fire and emergency for us, but there are some ancillary benefits because we have a small product line that does address wildlife fires and there's maybe certain.
Traditional aerials and pumper that are close to regions that are impacted by wildlife.
<unk> fires that are that is pushing up some demand but for the most part that's not the demand driver for our product our demand drivers the aged fleet.
New.
Thats, probably finding new technology on their trucks that kind of thing is what's pushing demand up.
Got it thanks for clarifying that.
Thank you. Our next question comes from Felix O'shea with Raymond James. Please proceed with your question.
Hey, good morning, everybody.
Morning.
Hey, I have a bit of a longer term question, but John I know you've mentioned aftermarket.
A key driver for you over over call it a multi year period.
Hoping you could maybe expand on that commentary a little bit maybe which segments you see the most opportunity going forward and whether or not we should think about that growth as being more organic or inorganically, Germany given your.
Virtually debt free balance sheet.
Yes, I will tell you that it's a focus across the entire enterprise number 1 in all of our businesses I think you'll see the biggest areas of focus and are more commercial oriented segments, particularly our access segment, our commercial specialty vehicles segment.
We have.
Plans, both organically to serve the market.
And grow the grow the market for our products, but we also have inorganic opportunities that we're looking at to drive an increased participation in parts of the aftermarket we don't participate in today so it.
Really it's on both fronts, we want to increase the.
Percentage of sales that are aftermarket driven because we believe this is an area that's really fundamentally important to our customers the fleet owners and important to the end user of the product and we want to continue to make investments.
That's where it's ultimately going to support them better and it is healthy for our company.
Very less cyclical revenue streams and a lot of positives that come from it.
What I can tell you on.
Got it and then just a quick follow up on the Voltaire on fire truck curious if you could maybe expand.
Little bit on on the feedback you've gotten so far or maybe what other customers have set after after the rollout or the announcement.
Yes, the feedback has been phenomenal, but truck has performed incredibly well as I mentioned in my opening comments.
Hundreds of gallons of diesel fuel savings on 1.
And you can imagine as we continue to roll this out how much environmental benefit there isn't there is a huge cost benefit for the for the fire departments as well.
The fire truck itself functions, we've spent decades perfecting the performance of an aerial or a pumper where if.
On trucks the needs of the firefighter, where they can be really really productive on our site and they can be really safe on our site. So what we did was when we when we designed this product our people at <unk>, where we're brilliant with paying attention to the yen to the fire fighter themselves we.
Didn't want to change the function.
<unk> on the product because they like the functionality of the product we wanted to change the propulsion, which improves the performance of the vehicle improves the total cost of ownership of the vehicle and improves the environmental sustainability of the vehicle and Thats, what we did but the.
The early returns are.
Our fantastic on this product.
Really a great step forward for our for our peers business.
Thank you I appreciate it.
Thank you. Our next question comes from Andrew <unk> with JP.
J P. Morgan. Please proceed with your question.
Thank you I appreciate you sneaking me in on that on top of the hour.
Most of my questions have been answered, but I just wanted to take a step back on fire <unk> emergency and App whenever they are in their questions slightly differently.
As Lee.
That transition.
Population from urban locations to more locations and we read about it every day I wonder if this fits into the bigger driver of demand for fire trucks as some of these smaller communities all around the country are expanding and growing and not have to support larger populations.
In that context could you just remind us what would the sales.
Fire trucks at the pickup the last cycle.
And is there a possibility that we could reach a higher peak next cycle just given the expansion we're seeing around the country.
Scott just.
Our sizing perspective.
We were caught on the segment in total is about $1 billion billion 2 segments. So we're not vastly off of what our peak revenue was from the segment now if you look at prior peak total market size of fire apparatus.
It really goes back before that.
The great recession. It was a market that was in the low 5000 units per year, it's really not never recovered from that level.
Sort of hovered around the mid 4500 unit range. So just as we look.
Going forward I think 1 of the big drivers number 1 is aged.
<unk> is aged fleets, we need to continue.
To replace those are our customers need to continue to upgrade their fleets for that average fleet age is up on.
$14.15 years, right now, which is getting up there. So that's going to continue to be a tailwind.
Of course, the other piece of it is.
You have expansion.
Action into other communities Thats going to drive property tax base more properties that really is going to drive demand as well so.
Ultimately there is some there are some tailwind obviously.
It's great that.
Municipalities spend more resilient through the through the pandemic. So we'll continue to watch as that <unk>.
Continues to evolve of course municipalities throughout from some headwinds on the pension front and so on so there is some gibson pace. So that overall, we like the outlook for that market, but and this is John I will just say your initial comment about migration to suburban.
<unk>.
<unk> rural areas.
That that if that continues that trend that will certainly be beneficial to the F&B to the fire and emergency market I think right now it's a little too early to tell whether that has any impact at all on the current really healthy rates of orders and backlog I think it's probably.
<unk>.
It does not yet, but if it continues I think youre absolutely right I think it's probably very positive, but we need to wait another year or so to really kind of see what's happening with that.
Okay I'll leave it there thank you.
Yeah.
Yeah.
There are no further.
Thank you there are no further questions at this time I would like to turn the floor back over to John <unk> for any closing comments.
Hey, thanks, everyone for joining us.
We are delighted with the.
Business performance on the trajectory.
The trajectory of our business, we welcome you to join Us.
This September when we have our analyst day, we're going to give you more detail on a little bit more clarity on what we see a little bit longer term in our business, we will give you.
Close view with some exciting new products, some of which we've talked about today.
Today, and so hope to see you in September thanks, everyone.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
Paul are we done.
Okay.
Yes, Laurel scent.