Q2 2023 Oshkosh Corp Earnings Call
Over our longer term planning horizon, we expect further growth in both sales and margins driven by numerous positive factors, which include improving supply chains benefits from price cost, especially in the vocational segment, bringing new capacity online introducing new products.
And innovations ramping up production of the United States Postal services next generation delivery vehicles, and realizing benefits from acquisitions. Please.
Please turn to slide four and we'll get started on our segment updates.
Our access team delivered breakthrough performance in the quarter as a result of improving supply chain conditions and the benefits of our many operational initiatives over the past several quarters to improve production throughput.
Supplier on time delivery exceeded 75% for the first time in more than 18 months, representing continued improvement from the first quarter that said, we still have some ground to cover to reach our normalized level of greater than 90%.
The improved production throughput combined with stronger price realization drove a 36% year over year revenue increase and an operating margin of nearly 16% in the quarter.
Demand for access equipment remains healthy and we expect it to continue as we have discussed over the past several quarters Mega projects infrastructure spending strong nonresidential construction metrics expanding use cases, our innovative products and aged fleets are all contributing to this demand order.
In the quarter were $1 $3 billion, representing a seasonally strong book to bill ratio of approximately one to one with quarter end backlog of nearly $4 $4 billion. Currently we have approximately 50% of our 2024 in.
In backlog and we are working closely with our customers to slot units for the balance of 2024 production our visibility to strong demand for 2024 extends well beyond our current backlog and we continue to expect healthy demand dynamics and access for the foreseeable future.
Work has also begun on the conversion of our 500000 square foot facility in Jefferson City, Tennessee to expand access equipment production over the next 12 to 18 months, we will be investing approximately $120 million in this modern facility to expand tele handler capacity the.
<unk> previously produced Weldment and fabrications for our defense segment.
This expansion and our factory of the future modernization activities in Shippensburg, Pennsylvania provide us with meaningful capacity additions to meet strong demand for our equipment and support our market entry into the agricultural sector with purpose built AG teller handlers.
Please turn to slide five and I'll review, our defense segment.
As expected defense quarterly revenues were down versus prior year in line with customer requirements. We expect operating income improvement in the second half of the year with anticipated contract awards and a richer aftermarket mix.
In June we learned that our J L. TV follow on contract protest was denied by the government Accountability office as a reminder, we're still building J Ltvs and we'll continue to do so through the end of 2024 under the current contract beyond 2024, we will continue to build.
Jay Ltvs for international customers as well as Jay Ltvs specialty applications. These of course are smaller quantities.
From 2025 onward, we will continue to deliver on many solid programs of record in the defense segment, including F. MTV F. H T V Stryker Mcw S and multiple trailer programs as well as international contracts that extend well into the future long term we are.
Expect that these programs will provide a $1 billion plus revenue base at mid to high single digit operating margin.
The U S. P. S. As next generation delivery vehicle program is progressing and our Spartanburg facility is nearing completion. We are currently building and testing design certification vehicles and are on track for a production ramp up in the second half of 2020 for this key program will support a return to.
Growth for defense in 2025, let's turn to slide six for a discussion of the vocational segment.
I'm pleased to highlight that our that our vocational segment delivered year over year revenue growth and exceeded 10% adjusted operating income margin for the quarter much like our access segment. We are seeing improved supply chain metrics, but conditions have not yet returned to typical levels. So production output remains.
<unk> constrained as a reminder, we have notably higher pricing in our backlog for fire trucks to be delivered in 2024, and beyond which will enhance margins as we enter next year, we continue to execute on both product and manufacturing innovations to drive continuous improvement in refuse and service vehicles as well.
Demand for Pierce fire trucks continues to outpace supply, resulting in elevated backlog and we're working diligently to increase our capacity. We believe our facility expansions in both Appleton, Wisconsin, and Murphy's Borough, Tennessee will help us increase output over the next year.
Customer response to our new fully integrated zero emission Mcneil us both Terra Z S. L. Electric refuse collection vehicle is very high we expect to deliver two units for customer evaluation before the end of the year and low rate production vehicle deliveries will <unk>.
Start in 2024, we expect to begin ramping up from there over the next several years.
Moving to slide seven the biggest news in vocational is our is our acquisition of Jbt's Aerotech business, which closed today, we already serve the airport market with Arf vehicles and Awp's, we look forward to welcoming the great team at aerotech into the Oshkosh family.
And capitalizing on opportunities for new attractive revenue streams as we expand our participation in this market.
Aerotech is a leading provider of aviation ground support products gate equipment and airport services with some of the most trusted brands in the industry. They serve approximately 75% of air travelers at U S airports and load approximately 70% of the world's overnight express packages.
In short <unk> equipment is found at airports all over the world.
They also operate a strong aftermarket parts and service business with recurring revenues comprising approximately 40% of total revenues on an annual basis.
Our combination unites aerotech highly engineered product offerings with the strength of Oshkosh is portfolio and technology ecosystem, we share similar innovation priorities across several key areas electrification autonomy in active safety as well as connectivity and intelligent products.
Together, we believe we can leverage best practices technology in R&D to advance our shared objectives, while capitalizing on opportunities from increased scale.
We believe aerotech is poised to benefit from numerous secular tailwind for air transportation, which is in the early stages of an investment cycle.
Global passenger traffic is expected to grow in the high single digits over the next several years and infrastructure spending is expected to accelerate with legislation and aging infrastructure in fact, approximately <unk> $25 billion of the government's infrastructure investment and jobs Act has been off.
Arise to fund airport growth and maintenance.
With that I'm going to turn it over to Mike to discuss our results in more detail and our updated expectations for 2023.
Thanks, John Please turn to slide eight.
<unk> sales for the second quarter were $2 $4 billion, an increase of $347 million or 17% over the prior year quarter. The increase was primarily driven by a $351 million or 36% increase in sales at access as well as a result of higher sales.
<unk> and improved pricing.
Sales meaningfully exceeded our expectations as a result of higher production output, particularly I'd ask us driven by improved supply chain conditions as well as the benefit of operational actions, we have implemented over the past several quarters.
<unk> operating income increased $161 million over the prior year quarter to $237 million or nine 8% of sales of 610 basis point improvement versus the prior year. The improvement in adjusted operating income was largely driven by higher sales volume and favorable price cost dynamics.
Particularly at access offset in part by higher incentive compensation costs.
Access delivered very strong results in the quarter with a 15, 9% operating margin.
Adjusted operating income significantly exceeded our prior expectations as a result of higher sales volume stronger price realization and favorable mix.
Adjusted earnings per share was $2 69 in the second quarter versus 49 in the prior year. This strong result is particularly noteworthy given we are still facing a constrained supply chain environment, we have not yet begun delivering the substantially higher priced orders and vocational backlog, which we expect.
You drive notable margin improvement in 2024 and beyond.
Let's turn to our outlook for 2023, please turn to slide nine.
Over the past few quarters, we have reiterated that demand is strong and our financial results were limited by supply chain conditions, while our prior guidance assume modest improvements during 2023, we shared that if supply chain conditions and production throughput improve at a faster pace, we could deliver meaningfully higher financial performance.
This is exactly what occurred in the second quarter, we expect a strong second quarter sales and earnings momentum to continue into the second half of the year and beyond yielding a substantially better outlook for 2023 than our prior expectations.
On a consolidated basis, we are estimating 2023 sales and adjusted operating income to be in the range of $9 $5 billion and $750 million, respectively up from our prior expectations.
Approximately $8 $65 billion and $570 million respectively.
We are estimating adjusted earnings per share will be in the range of $8 up from our prior estimate of adjusted EPS in the range of $6 in prior year adjusted EPS of $3 46 sentence.
The segment level, we are estimating access sales and operating margin to be in the range of $4 $9 billion and 14% respectively up from our prior estimate of sales and operating margin of $4 4 billion and 11, 5%.
Turning to defense, we expect sales and adjusted operating margin to be in the range of $2 1 billion and 3% respectively for the year, we expect vehicle orders to drive improved results in the second half of the year.
We expect 2023 vocational sales and adjusted operating margin will be in the range of $2 5 billion and 725% respectively versus our prior expectations of sales and adjusted operating margin of approximately $2 2 billion, an 8% to be clear the reduction in operating.
Margin expectation as a result of the initial purchase accounting and deal amortization related to the Aerotech acquisition.
This updated guidance includes the aerotech business for five months, including sales of approximately $300 million and an immaterial amount of operating income again because of initial purchase accounting and deal amortization. We continue to expect that aerotech will be accretive to operating income and EPS in 2024.
Our vocational expectations also reflect higher new product development spending and facility ramp up costs for the both here at E. RCV program in the second half of the year versus the first half of the year.
Our estimates for corporate expenses tax rate Capex and average share count remained generally in line with our prior expectations.
Our expectation for free cash flow is now approximately $200 million down from our prior estimate of $300 million.
The change is driven by a combination of anticipated higher receivables at year end, resulting from higher sales as well as the timing and amount of any <unk> related startup investments compared to prior expectations.
Looking to the third quarter, we expect consolidated sales to be up modestly versus the second quarter, primarily as a result of aerotech sales, we expect earnings per share to be in the range of $2 15, which is lower than the second quarter. As a result of increased interest expense on a revolving line of credit facility associated with <unk>.
Aerotech acquisition and lower interest income as a result of lower cash balances as well as product mix and both HERA E RCV facilities spending in the vocational segment.
I'll turn it back over to John now for some closing comments.
We delivered a strong second quarter as a result of better than expected supply chain and production throughput we're.
We're executing well and our increasing capacity in our access and vocational segments. Our backlogs are robust and demand continues to be strong and we just closed on the company's most significant acquisition in more than 15 years. Finally, we raised our expectations for 2023 significantly and expect that our strong momentum.
<unk> will carry into 2024. This is a very exciting time for our company and we're confident we're taking the right steps to build on this momentum to drive growth and enhance shareholder value. Okay path, let's get started with Q&A.
Thanks, John .
I'd like to remind everyone to please limit your questions to one plus a follow up and please stay disciplined on the follow up question. 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.
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One moment, please while we poll for questions.
Okay.
Thank you. Our first question comes from the line of Jimmy <unk> with Jpmorgan. Please proceed with your questions.
Hi, good morning. Thank you so much excellent results.
I have two quick questions. The first one is on the backlog which continues to decline.
So can you give us some color on what price versus volume impact was on the growth of that backlog number.
Tammy you mean on new bookings during the order or during the correct. Okay great.
What I would say is in general again.
<unk>, we've talked a lot about on the vocational segment that we have that strong pricing in backlog that were still not.
Realizing the full benefit of expect to realize that.
And in 2020 for you guys as we look at the rest of the company again continue to expect solid pricing in there and again, we expect to continue to deliver strong margins going forward and the pricings commensurate with that.
Got it and second question on Aerotech can you remind us of the cadence of the 20 million synergy savings.
Do you expect by 2025, and how much that should accrue to let's say the gross margin line versus the SG&A line.
We haven't really it's really going to be sort of a steady flow over the next couple of years I think.
Some impact I think the way to think about aerotech is.
This year, we'll have we'll get through the initial purchase accounting will have to go through a step up.
And basis of inventory, but we look to next year, we think it's going to be about a 700 plus million revenue business would expect around 40 cents of EPS accretion understanding that there's going to be some interest income or expense impacting embedded in that 40.
And solid solid double digit EBITDA margins is what we're thinking about for next year and we would expect improvement beyond that as we get more synergy benefits Tammy is John .
I'll just add a little bit more color. So we said that we're going to get about $20 million in synergies.
As we go forward and that comes from G&A synergies of course, Thats with any anytime you make an acquisition you are getting those types of synergies that will come sooner than later, then we got supply chain synergies, we've got channel related synergies.
I will take just a little bit longer so I think you'll see this unfold over.
Two or three years.
Got it thank you so much.
Thanks.
Our next question comes from the line of Mig <unk> with Baird. Please proceed with your question.
Yes.
Yes. Good morning, Thanks for taking the questions and congrats on a very good quarter.
My.
My question is on vocational.
On the fire business specifically.
Commented on on demand exceeding supply for fire trucks, maybe you can give us a little more context as to how you see that progressing if you looked at 2024 and for fire. Specifically this is where I know you had quite a bit of a supply chain challenges.
How are you seeing that progressing.
So.
I'll talk a little bit about that mix. So we see the demand for our fire trucks continuing.
For the foreseeable future and that is primarily due to a couple of things. It's due to the fact that municipal budgets are healthy and they're prioritizing things like critical.
Fire trucks in their fleets, they're also prioritizing fire trucks, because they want new technology. So we've got a lot of municipalities that are lining up for things like our electric volt Terra.
Your trucks.
So.
The second thing Thats driving it though is aged fleet, we've talked about this for a little while but there is there is a significantly aged fleet of fire trucks across the country. So that's another reason, we expect demand to be strong for the foreseeable future. So we continue to see a really strong backlog that gives us the comp.
Evidence to continue to put more capacity in place we're doing that right now we've been doing it in Appleton, Wisconsin and doing a lot of.
Industry 4.0 things with automation in our facilities that we haven't had in the past of improved throughput and we're doing it in Murphy's Borough, Tennessee, and a brand new state of the art plant, where we're going to do some production for fire trucks, as well, which should allow us to deliver fire trucks faster and thats. Good for us it drives a really good healthy growth.
Understood and then my follow up on defense I.
We shared at the comment that.
The remaining programs give you some visibility and $1 billion worth of worth of revenue.
Sort of curious as to how youre thinking about any restructuring or.
The adjustments that you need to make to your existing footprint and our cost base in order to be able to deliver that mid single digit to high single digit margin range on that Ravi.
Yeah, So I'll kind of give you the main context of what's going on in defense. So I'll take you back a few years.
And some.
We've talked about this a little bit we've known for a while that tactical wheeled vehicles are under pressure from a department of defense budgetary standpoint, So we've said hey, we've got to.
Move into some adjacencies like combat vehicles, and like last mile delivery vehicles for the government and and.
Uh huh.
Well combat may not be as big as last mile delivery.
These are really important programs for the future of our defense business.
If you go to the.
So the current business the FMT V. The FH TV Stryker Mcw us Oh, that's <unk>.
As we said that's all going to provide over $1 billion of base business and will deliver mid to high single digits on that business. So as I talked about in my prepared remarks, we've already converted one defense operation to access equipment will be producing J ltvs in the current PAH.
<unk> through the end of 2024, so it remains to be seen exactly what the outcome of that operation is where a healthy growing company, we have a need for more capacity.
And we'll we'll let you know how we're going to.
Change the business as we go forward when the time comes.
Thanks, Matt Good luck.
Our next question comes from the line of Steve Volkmann with Jefferies. Please proceed with your question.
Hi, Good morning, guys I wanted to ask about the access margin, which is obviously very impressive.
It sounds like Theres still John I think you mentioned something like 75% on time deliveries from suppliers normal is more like 90 days. So I'm guessing there's still some kind of productivity inefficiencies in that 16% is there any way to think about what that would look like if supply chain was normal.
Hey, Steve I'll start with that and if if if.
John has anything to add and you certainly can so bottom line. It was a it was a very good quarter I think couple of things I think to understand the quarter first of all obviously we are.
From a volume throughput perspective, we saw improvement we had a very very strong mix in the quarter or two and that's certainly benefited.
Our margin in the quarter the mix. The next two quarters, while very solid is not quite the same level. We did have a lot of large booms in it I would say while on time delivery metrics are still not back to historic norms. A lot of activities. We've we've done are are really having a big impact including carrying a little.
More inventory.
And that is helping so we're starting to see that that manufacturing labor efficiency.
Back. So I think there is there is certainly continued opportunity, but I think great great mix, great results for the quarter and.
We're excited to continue the momentum so Steve.
I'll, just add a little bit to that a little bit of a shout out to the access team you know we've been we've been in a really constrained environment for us.
Quite some time now and we have had enormous amount of effort to to deter.
Determine how we can operate more efficiently in a constrained supply chain environment, a lot of engineering hours have gone into this working with our supply base to figure it out we've gotten a lot of improvement in efficiency because of that work.
I think that that access team would be the first ones to tell you that as the supply chain continues to open up and go from say, 75% to 90, they will definitely benefit even more from from that improvement.
Great. Okay, that's what I thought and then the related follow up I think you said, 50% of access in 'twenty. Four is in backlog already just any commentary on sort of price cost expectations on that part that's already in backlog.
Yes, I'd say overall.
We're sort of back in that price cost balance we were behind obviously for this past year and had challenges. So that's that's in balance we you see the strong margin this quarter side really I would really focus on the margin next year and the comments that John and I. Just made we expect strong margins to continue.
In the future for access.
Super Thank you guys.
Our next question comes from the line of Ken.
Please proceed with your questions.
Thank you good morning, just to continue on that thought just on <unk>.
Pricing in the first quarter I believe it was up kind of low teens.
It is the revised guidance for this year does that and the expectation like most.
Others that.
That that year over year change moderates as we go through the year does that does that changes or <unk>.
In tandem with that.
The revised full year revenue guidance for access.
No I think to the extent, where we got some more.
Price was a bit of a driver. This part is because our volume was higher so with with more volume comes more price, but yes. We were still I think ultimately we're largely there from what we've what we've implemented from a pricing perspective, there was an access so there is still some lag even in the in the first quarter. So I think.
Really this is.
The pricing that we see right now is what we expect for the balance of the year.
Okay, Okay, and then Mike maybe just yet.
It's a bit more big picture, you just sound vocational and they do a lot of talk about.
The pricing you have in the backlog, but and you layer in there are a lot of moving pieces as we go into 'twenty for us is aerotech ramps up.
Yes, the full year with the mixture is out of the portfolio.
It's a lot of these these factory inefficiencies that had been a headwind presumably.
Less of a headwind any kind of handholding you'd give I know, it's early but just kind of a guidepost to think about.
Okay.
Margins in 'twenty four.
Not going to provide guidance as you said yet at this point, but I think the things to look at.
So you have the sort of the base or not.
Legacy vocational business. If you will we've talked about the strong margin profile, we expect next year in that business.
With the pricing coming on line, so and certainly supply chain improves we would expect volume to increase so that's.
Similar to what we talked about last quarter, we see some strong dynamics and then you bring on the great Aerotech business that we're very excited about.
That's going to be a business that we expect again is going to be.
So solid solid.
Mid.
Mid double digit type EBITDA margins, we will have a burden of some amortization that plays into it.
The margin profile.
In the segment, but that's really.
Some data on how we view next year.
I think it was and what's really exciting about this vocational business with some of the investments we've made in the products.
You look at the electric volt Tara fire trucks, the airport rescue firefighting vehicles, which are electrified you look at the a new electric refuse collection and recycling collection vehicles. There's innovations on IMT product. This this is going to drive really strong growth for years.
And to the future.
And we're just.
We're in inning zero.
These new products, it's really exciting.
And Steph thank you.
Thanks, Tim.
Our next question comes from the line of David Raso with Evercore. Please proceed with your question.
Hi, Thank you sorry for illumination modeling question here, but just trying to figure out the vocational margins the second half of the year right there down to five six.
After nine two in the first quarter.
I understand the acquisitions weighing on that including maybe some amortization from the deal.
But.
Assuming and I'm trying to figure out why the third quarter EPS declines as much as it does sequentially. So theres a embedded.
What interest expense are you assuming in the model here. So we can get there and then the fourth quarter. The implied EPS is similar to the first quarter on similar sales and.
And base case, you would think the margins will be better on similar similar sales fourth quarter versus first quarter right given all the supply chain and so forth, but again vocational weighing you down so there's a lot there, but I guess a can you help us with the interest expense.
And B am I looking at the vocational margins correctly in the second half and then see the third thing is access.
The fourth quarter is when a lot of the rental companies have the big decline in their capex year over year. So maybe if you can help us a little bit with the cadence of access maybe better help us understand the fourth quarter with access there's a lot there I apologize, okay I'll try to remember everything but all the.
Simon if I forgot something let me know so I guess number one from an interest expense.
Think about the the borrowings on our revolver in that $5 50 to $5 75 range will carry interest on that I would expect some pay down over the course of the year. So that's essentially what we would expect then.
They closed today, so I think that as we look that is I think that really the two biggest bridging items are two bigger bridging items from from Q2 to Q3 is looking at interest expense, but Conversely, we've been carrying cash balances. So the result of interest income that we're not going to see at the same level.
That's going to carry into the fourth quarter as well, so I would say that that's sort of the.
The background there as we look to vocational I think certainly we're going to be picking up amortization. It and we just closed today, so we need to get through the evaluation and the purchase price allocation, but the key things that we know is we're going to have some we're going to have some depreciation and amortization.
On that volume, we also know the nuance of the purchase accounting is that you're typically going to have a step up in basis of inventory that's on hand, I'm, particularly finished goods.
We believe that that fits.
Finished inventory levels, our inventory levels in general are going to be a bit higher than our previous expectations. So there's a step up in basis that just sort of a temporary phenomenon that plays into the margin. We also side and really finally, we're making as John said some some significant investments in this segment for electrification efforts.
So we.
We do see a higher spending sequentially.
In the back half of the year and the.
Jim Mcniel <unk> product, both for the new product development effort as well as for getting that facility ready for production. So those are really the big moving pieces in terms of the volume in the fourth quarter. It literally and we've signaled this on previous calls it completely comes down to and there's very strong demand environment. The.
Number of production days, you have in the quarter and with the holidays, there's fewer production days and that's what drives that.
Is it fewer production days and then as well as the other items that we've talked about.
And was that an access comment this is essentially your backlog. So large you would argue we don't need much by way of orders to ship well in access in the fourth quarter, but obviously some of the rental companies are saying look we don't want to take as much in the fourth quarter as we did last year. So I'm just trying to level set everybody. The cadence that doesn't have anything to do that it doesn't.
That doesn't have anything to do with it it's purely everything that we produce right now we're shipping with the exception of stuff. That's in transit an on the water between our facilities essentially so it's really a function of fewer production days yields lower revenue. It has nothing to do with demand or delivery cadence to our customers.
Thank you very much by the way that comment all the comments apply both to access. It also applies to vocational and defense are just simply fewer days.
With fewer production days, you'll have less manufacturing absorption. So there's there's all the implications of just and that's typical that we typically see that.
Our fourth quarter.
Thank you thanks.
Thanks, David.
Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.
Yes, hi, good morning, everyone.
Good morning, Jerry.
I'm wondering if you could just.
Talk about the margin opportunity in fiery.
Fire and emergency Sue pre Covid, you folks were running mid teens margins on the way to high teens and I'm just wondering with the price increases that you have in backlog are we back at that passed in 2020 for Mike.
How are we thinking about getting back to the levels of outstanding performance that you folks were at pre Covid.
As we look at that and we're not I guess for core fire trucks, we've talked about it.
And the margin there is no reason why our products don't get back to pre pandemic levels with the pricing we have we.
We need to get to that higher price backlog and as supply chain continues to improve we'll get the throughput. So and then we've talked a lot about the aerotech.
Impacts and so again those strong EBITDA margins will have lots of DNA that will be our depreciation and amortization.
That will be present.
But again work, where we're very confident as we've said in our analyst day targets and so on that this is a business that over time as a solid double digit segment.
So we're excited about the growth prospects.
Super.
You folks have some great analytics with your telematics installed base I am wondering if you could just tell us for access equipment.
It seems like they used equipment inventories are tighter than for other equipment categories can you tell us what the utilization numbers looked like year over year in terms of operating hours per unit in North America, and Europe are we at a point where that's.
Flat to up year over year or can you just give us context, what you're seeing in the data.
Well, what I can tell you is that the metrics are still healthy in terms of utilization metrics.
Pay very very close attention to it and one thing that I think you may notice as last year. At this time, we were under the industry I'm talking about the whole industry, but certainly us J L. G. We were under a constrained environment. So we were really.
Not able to ship as many products to our customers as they wanted this year. The industry is doing a better job of getting products into the hands of customers those customers need the product so.
You would see a little bit of normalization happening and Thats a really good thing it's a good thing because it means that.
Our customers can continue to grow their fleets because they need to grow their fleets, but it's also a good thing because youll start to see a gradual replacement of older fleet and I think youre starting to hear some some customers talk about that but even with the more fleet coming into the market right now this.
Year versus a year ago, the utilization metrics are still very healthy and I think you hear that in remarks from our customers as well.
Thanks Jerry.
As a reminder, if you would like to ask a question press star one on your telephone keypad.
Our next question comes from the line of Nicole <unk> with Deutsche Bank. Please proceed with your question.
Yes, thanks, good morning, guys.
Good morning, Nicole.
Maybe just with the supply chain.
That was obviously a source of upside for you guys. This quarter from a volume perspective, what have you embedded in the second half like have you embedded continued progress on supply chain constraints, where do you think or have you kind of like Flatlined I guess, what <unk> seen in the second quarter.
At this point Nicole it's similar to what we've done in.
In our previous call our expectation is that it's largely similar to how we exited this quarter and then it really comes down to the number of production days that we have in the subsequent quarters to the extent that we're following we're.
Varying volume.
Okay that makes sense and then on price cost can you just talk about like is this quarter are you seeing kind of the pinnacle of price cost challenge from a margin perspective or is.
Is it price cost tailwind that you expect in the second half of the year comparable to what Youre seeing or what you saw in the second quarter.
The one thing I would say first of all just to caution it's a price cost year over year as favorable, but it's really in balance again, so it's not.
So the extent that we were behind last year now we're towards neutral I would say.
Similar in most of our businesses that we should see similar price cost dynamics, the remainder of the year with the exception.
A portion of our vocational what the fire trucks that there is still that there is still more pricing to come more meaningfully next year that there to get them back in into full balance.
Thanks, I'll pass it on.
Our next question comes from the line of Seth Weber with Wells Fargo. Please proceed with your question.
Hey, guys good morning.
I wanted to ask about defence margin a couple of questions.
I guess your second your full year guide implies second half.
Ramps back to that.
Digit range I think.
And then I guess I'm, just trying to understand whether you changed your kind of.
Yeah.
Kind of medium term margin guidance now it seems like now you're kind of mid to high single digits is that a moderation from before.
It's just purely a reflection of the LTV going away.
And does that include the USPS ramp thanks.
Sure first of all just from a from an expectations perspective, as we said in prepared remarks. Our expectation is we do have we do expect some orders in the back half of the year.
That will that will help that will generally produce positive.
Our estimates at completion or EAC or CCA adjustments. So that's that's a bit of the improvement. We also are in a stronger aftermarket mix in the back half of the year. So there was some mix and an order or is that play there.
In terms of just that the mid to high single digit that is just what you would consider the tactical wheeled vehicle or sort of our core defense business excluding.
And GDP and GDP is obviously, a big multibillion dollar program, that's additive, but just isolating that that just the defense piece of it. It's a 1 billion plus that's not we're not saying that that's really post.
Jay Ltvs, so think sort of 2025 and beyond is how you should think about that billion plus.
At at mid to high single digits.
Okay. That's helpful. Mike Thanks, and then just.
On the access strength can you just give us any regional color as to what's going on.
North America, we assumed was strong but any trends that you'd call out in Europe or China.
Sure I mean, we've seen actually pretty healthy growth rate globally.
I think maybe domestic China is one area that we haven't seen.
Growth, we've seen a little bit of contraction.
But everywhere else in Asia has been really strong euro.
Europe .
It has been really really strong for us surprisingly perhaps.
But.
We see continued strength across the access markets going forward.
I can't stress that enough, we pay attention to to a lot of metrics and we work really closely with our customers and our customers are much are really good at forecasting what's happening.
In the markets. So if you look at the aggregate of nonresidential construction metrics and we don't just look at it for this year and next year, we look at it over five years, and it's really really healthy.
The Dodge momentum index is still up at a at a high level and the Abi is above 50 still those are all very positive indicators and we all know about the.
The chipset and the Iras and.
Some of these other bills that have been passed that are spawning. These mega Mega projects. It's all pointing to continued healthy growth in the access equipment markets for the foreseeable future.
Got it thank you.
Our next question comes from the line of Steven Fisher with UBS. Please proceed with your question.
Thanks, Good morning, just to follow up on that maybe can you just talk about how broadly the orders and the access business.
Spread around the customer base in North America, I think there's some concern that some of the larger customers are perhaps a bit more cautious based on some of their capex messages for later this year.
And maybe the rest of the industry.
He's going to add too much fleet. So I guess I'm curious what was the breadth of the orders and the.
In the quarter and kind of your reaction to the concern about the rest of the industry, adding too much fleet.
You know what.
We're continuing to see is very strong demand and thats without the large or larger customers as well as independent independent rental companies. So.
Solid solid mix of orders.
Across the board in the quarter, but I think it's even beyond just the orders we have in the in the quarter. Steve. We have we have really good visibility to requirements, even beyond our what's actually booked and we will continue to book those orders through the back half of the year. So our.
Our our visibility to demand is very very solid for next year is what I can say, yeah, and I'll just add to that I don't think you'll see too much fleet in the market.
It's just the opposite I think the reason you see.
The used market and the condition that it's in it's because.
There's so much demand for equipment that our customers who have aged fleets.
Can't really replace that fleet. So they are not selling off any of their old fleet because they need it.
So they haven't even started.
<unk> barely maybe just barely started fleet replacement.
So I don't think that there's too much fleet in the marketplace.
Okay.
You may have addressed this in some of your earlier.
Comments about pricing, but there's obviously some messaging.
From some bigger customers last week about.
Reversing surcharges and discounting pricing for next year, I guess I'm curious what's your reaction.
The suggestion that the pricing will come down next year and maybe if we're starting at a margin percentage of close to 16%. It doesn't matter. So much at this point, but just kind of curious what your reaction to that is.
Yes, so first of all I will tell you that we've got really really strong demand for our products I mean, we're booking orders for the second half of 'twenty 'twenty four right now we've never had this kind of really good visibility and access in the past. So the market is very strong and the demand is very strong now with regard to pricing. We're always open and we are always fair with our customers on how.
We price our products, but I want to make.
Make sure to make a specific point as that input costs are still very very elevated when you look at it in aggregate input costs are very elevated you see inflation moderating recently, but we havent seen PPI and other metrics deflating, we havent seen deflation now you can.
Pick at one thing here one thing over here that you may have seen some relief on but overall input costs are very elevated we've got good demand, but we'll always be open and fair with our customers, how we price we price our product.
Very good thank you.
Thanks, Steve.
Our next question comes from the line of Steve Barger with Keybanc. Please proceed with your question.
Hey, Thanks, good morning.
Good morning, John .
You sound great on visibility right now and you just took this year's guidance above where consensus is for next year and not far below 2025.
And you've alluded to a lot of this but without getting into numbers can you talk about how youre thinking about the multiyear growth path from this updated guide or should we be thinking about a flattening out at some point from a high level you know as we think out five or six quarters, just trying to gauge your ability to grow from here.
Yes, so well first thing I'll mentioned, Steve is.
As we look at the quarter, we just reported.
We're very very pleased with it but we are not surprised with it I mean, what's happening in this quarter, we knew what's going to happen, it's just happening a little bit faster than we had previously forecasted would happen, but we always knew this performance was there and that's why we never ever came off our 25 Anil.
A list day guidance, we always maintained that yes. This is what we see achieving in 2025 and we still see that today. So we still see a lot of tailwind in our business. We've talked about demand in the access segment not just in North America, It's really nice global demand, but then we've got the vocational.
<unk>, which is really just starting to pick up momentum.
And we see the opportunities to drive big margin improvements in 2024 with that business a lot of new product, we've got new acquisitions from Hino ought to to aerotech, which youre going to provide benefits for us the postal contract comes online next year. So.
These are all reasons why we never came off 25, we believe the 2025 guidance is appropriate for our business.
Understood. That's that's great color, Thanks, and then.
When you get to run rate production on the volt Tara how will that margin compared to a traditional RCV and where do you think the mix of electric versus ice goes over time, not just for bolt terra, but but for any product where you have an electric option.
Well I think it's going to be different depending on the end market.
So for.
For example, I'll give you an example, with the postal service because thats been relatively public the postal service started with only 10%.
Their orders.
Bev units versus ice units now a very short time later, they're at 75% Bev units versus ice units right from the beginning so so they've accelerated it dramatically before we've even produced and delivered unit one.
But some markets will be a little bit slower the fire in <unk>, there's a lot of customers extremely interested in our fire and emergency fire trucks that are both terra.
But you know the average fire trucks stays in the market close to 20 years. So so that'll run the growth that that will drive will run for a long time.
There's also a lot of interest in our E. R RCV products.
And so that's going to run for a long time, it's kind of hard to predict just how fast.
Fleets will electrify.
But I will tell you that every time, we put an electric unit into the market. It's high it's a higher price point, there's good total cost of ownership for our customers.
And there is really healthy margins on these products.
Steve one other.
What other exciting thing I think if you start thinking about the E. R. C. D's, you really need to almost think of them more like our peers custom fire trucks, where you know in a lot of cases, we're not actually buying the chassis, but now we're going to be participating as we as volume ramps knows.
And really the entire truck, including our our our purpose built chassis. So that you see the margin profile and the opportunity that we see on fire trucks, historically and that we view it very much in a similar vein.
Understood and just a follow up to my first question to confirm the EPS range for 2025 was 11% to $13 is that right.
Right right.
Got it okay. Thanks, so much.
Steve.
Mr. Davidson, we have no further questions at this time I would now like to turn the floor back over to you for closing comments.
Alright, Thanks, Christine Thank you for joining us today, everybody. We're pleased with a very strong first half of 2023, and then our operations and supply chain metrics are continuing to improve before we end the call I'd like to highlight our plans for a field trip to meet with access segment management and tour, our <unk> factory in Shippensburg, Pennsylvania on <unk>.
23rd four investment professionals, who are interested in seeing our world class manufacturing operations up close and have not yet made plans to attend.
Please reach out to Victoria or myself, and we'll be happy to get you. The information thanks, everybody and have a great day.
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.