Q3 2024 Oshkosh Corp Earnings Call
[inaudible]
The National Security Council has been a part of the National Security Council.
Speaker Change: Good morning, and thanks for joining US earlier today, we published our third quarter 2024 results a copy of that release is available on our website at Oshkosh Corp. Dot Com today's call is being webcast and is accompanied by a slide presentation, which includes a reconciliation of GAAP to non-GAAP.
Speaker Change: Financial measures that we will use during this call and is also available on our website. The audio replay and slide presentation will be available on our website for approximately 12 months. Please refer now to slide two of that presentation.
Speaker Change: 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 results to be materially different from those expressed or implied by such forward looking statements.
Speaker Change: 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 our presenters today include.
Speaker Change: John Pfeifer, President and Chief Executive Officer, and Mike Pack Executive Vice President and Chief Financial Officer, and President of our funded our vocational segment.
Speaker Change: Please turn to slide three and I'll turn it over to you John.
John Pfeifer: Thank you Pat and good morning, everyone I am pleased to announce another solid quarter with revenue growth of 9% and an adjusted operating margin of 10, 3%.
John Pfeifer: Our adjusted EPS of $2 and 93 was in line with our third quarter expectations, we shared during our second quarter earnings call.
John Pfeifer: We continue to see improving performance and growth across our vocational business portfolio and proving.
John Pfeifer: Improving defense segment outlook with New contract award pricing.
John Pfeifer: While our access segment is experiencing softer market conditions in North America in the near term. We expect we will continue to deliver resilient healthy margins in light of somewhat softer access equipment markets. We are updating our full year 2020 for outlook for adjusted EPS to be approximately.
John Pfeifer: <unk> $11 35 per share versus our prior estimate of approximately $11 75 per share.
John Pfeifer: During the quarter, we achieved a significant milestone as the United States Postal service began placing our next generation delivery vehicles or N. G. D vs. In service for last mile delivery, the <unk> leverage our market, leading innovation and technological capabilities to provide the U S postal service.
John Pfeifer: With the industry's most state of the art purpose built delivery vehicles that modernize and decarbonize their fleet, while enhancing driver safety.
John Pfeifer: We are pleased with early positive feedback on N. G. D V performance in the field and we remain focused on executing our production ramp up which is progressing well.
John Pfeifer: Last month, the science based targets initiative notified us that they approved our greenhouse gas emission reduction targets S. E. T is validation of our targets reflects another important step in our journey of reducing our carbon footprint, while consistently delivering groundbreaking.
John Pfeifer: <unk> that shape, a more sustainable future.
John Pfeifer: Please turn to slide four and we'll get started on our segment updates.
John Pfeifer: The access team delivered year over year third quarter sales growth, while we believe mega projects in fleet ages remain tail winds pockets of slowing nonresidential construction activity and persistently higher interest rates have.
John Pfeifer: <unk> been putting pressure on the market. Furthermore, as mentioned on our last call. We have seen customer demand revert back to more typical seasonality, we remain confident in our ability to deliver solid margins even during a period of softer market conditions, we are working with our customers on their 2020.
John Pfeifer: Five requirements and we continue to expect meaningful orders during the fourth quarter of 2024 and first quarter of 2025 overall, we believe the access market will remain healthy over our long term planning horizon.
John Pfeifer: Our access team continues to advance its products with state of the art technology are clear skies Smart fleet connected solutions platform is an example of this capability customers are enthusiastic about the two way communications and other technology enhancements, including over the air <unk>.
Fair updates digital access control and integration into our online Express e-commerce platform that are improving productivity.
John Pfeifer: In early September we completed our previously announced acquisition of <unk>, a leading European manufacturer of specialty equipment, including wheeled dumpers rough terrain forklifts and tele handlers were pleased to bring <unk> into the Oshkosh family.
John Pfeifer: This is a market leader in Spain, and serves adjacent new markets for us including vegetation management.
John Pfeifer: And it expands our agricultural presence and complements our traditional access equipment markets. We also believe that leveraging our north American sales channel for our Sop products will support growth moving forward. For example, our slide deck shows J Lg's, New E 313 electric propel.
John Pfeifer: Handler manufactured by <unk>. The battery powered <unk> 313 offer zero emission and low noise operation for moving materials around and critical Workspaces.
John Pfeifer: Please turn to slide five and I'll review, our vocational segment.
John Pfeifer: Our vocational segment achieved strong year over year revenue growth of 17, 6% in the third quarter, leading to another solid adjusted operating margin of 13, 7% demand for vocational products remains very strong and our backlog continues to grow providing long.
John Pfeifer: Term visibility, we remain focused on achieving increased throughput in our existing facilities to support growth.
John Pfeifer: Concurrently we are reviewing our manufacturing footprint as we evaluate additional investments to increase production capacity over the next few years. Furthermore, we have continued to lead in technology insertions across our range of products from autonomous functionality to electrification and two intelligent product.
John Pfeifer: Teachers, we expect this technological advancement to provide substantial benefits to our customers and drive growth for our company.
John Pfeifer: In September Republic services issued another significant order for 100 of our new purpose built zero emission electric bolt Tara Z S. L refuse and recycling collection vehicles as Republic strives to improve productivity, while reinforcing its commitment towards to a reduced carbon footprint.
John Pfeifer: Customer interest.
John Pfeifer: Interest in these revolutionary fully integrated electric vehicles remains very high we have more than 100 customer demonstrations scheduled that began in the third quarter and will continue over the next several months, allowing current and future customers to experience firsthand the significant benefits of our vote both terra.
John Pfeifer: Z S L I D.
John Pfeifer: To highlight two smaller but important vocational businesses on today's call both our IMT service vehicle and.
John Pfeifer: Front discharge concrete mixer businesses have been performing well delivering strong margins and contributing to the success of the vocational segment.
John Pfeifer: We celebrated the one year anniversary of the Aerotech acquisition on August 1st and we are pleased with the integration and results to date.
John Pfeifer: By combining our strengths, we expect to drive innovations in electrification autonomous functionality and intelligent product features the team at Aerotech showcased several innovative products at the ground support equipment Expo last month in Lisbon, Portugal.
John Pfeifer: The show was well attended and featured our market leading airport ground support equipment, our electric our volt terror as well as J L. G equipment, which is also used extensively at airports.
John Pfeifer: Display demonstrated the broad capabilities Oshkosh provides to the air transportation industry as well as the strong commercial synergies between our businesses.
John Pfeifer: Global Air passenger metrics continued to strengthen with international Air Transport Association August figures showing growth of eight 6% year over year.
John Pfeifer: Let's turn to slide six for a discussion of the defense segment.
John Pfeifer: Sales were up 14% as a result of N. G. D V production higher tactical wheeled vehicle deliveries in aftermarket parts sales as a reminder, we expect to ramp up and J D.
John Pfeifer: <unk> throughout 2025, and exit 2025 at full rate production, leading to strong revenue expectations for these vehicles in 2026.
John Pfeifer: We completed a five year contract extension for the F. H television program in early August which includes a combination of better pricing and a robust economic price adjustment provision. We also expect to complete a three year contract extension for F. M. TV <unk> in the <unk>.
John Pfeifer: Half of 2025, with both better pricing and similar E. P. A.
John Pfeifer: We expect to begin delivering units under both of these contract extensions in early 2026, we believe these contract extensions provide solid visibility to customer demand and will support stronger more resilient margins over the next several years, we continue to wind down domestic J L TV production and <unk>.
John Pfeifer: Expect to ship the final domestic units in early 2025.
John Pfeifer: On the technology front during the quarter, we submitted our prototype proposal for phase two of the robotic combat vehicle RCB program.
John Pfeifer: Our offering Leverages engineering expertise across all cash, including Pratt Miller to provide the U S Army with innovative adaptable technologies to enhance soldier performance and mission success.
John Pfeifer: Cash cash RCV is purpose built and brings capabilities necessary for increased performance improved maintain ability and flexibility in multi domain operations.
Speaker Change: With that I'll turn it over to Mike to discuss our results in more detail and our updated expectations for 2024.
Mike Pack: Thanks, John Please turn to slide seven.
Mike Pack: Consolidated sales for the third quarter were $2 $74 billion, an increase of $232 million or 9% over the prior year quarter. Our topline growth was driven by the benefit of increased organic volume in all segments, an additional month of aerotech sales in the current year as the business was.
Mike Pack: <unk> acquired on August one 2023, and the benefit of improved pricing primarily intervals locational segment.
Mike Pack: Adjusted operating income increased $6 $2 million over the prior year quarter to $283 million or 10, 3% of sales the improvement in adjusted operating income was largely driven by higher sales volumes and improved price cost dynamics offset in part by higher SG&A and engineering costs.
Mike Pack: Adjusted earnings per share was $2.93 in the third quarter versus $3.04 in the prior year.
Mike Pack: <unk> lower adjusted earnings per share on higher operating income was driven by higher interest expense on our revolving credit facilities.
Mike Pack: Please turn to slide eight for review of our updated expectations for 2024.
Mike Pack: We are reducing our full year adjusted earnings outlook on a consolidated basis. We now estimate 2024 sales to be approximately $10 $6 billion versus our prior expectation of $10 $7 billion. We are estimating adjusted operating income to be approximately $1 one.
Mike Pack: Billion dollars down from our prior estimate of $114 billion and we are now estimating that adjusted earnings per share will be approximately $11.35 versus our most recent estimate of approximately $11.75.
Mike Pack: At a segment level, we are estimating access sales to be approximately $5 $1 billion with an adjusted operating margin of 16% compared to our prior expectations of approximately $5 $3 billion and 16, 5% respectively.
Mike Pack: The reduced revenue and slightly lower margin expectations reflect the softer market conditions in North America previously highlighted.
Mike Pack: We expect vocational sales will be approximately $3 billion to $5 billion and we are increasing our expectations for adjusted operating margin to be approximately $13 two 5% up from our prior expectation of $12 seven 5% we.
Mike Pack: We expect stronger price cost dynamics, and lower spending to drive our improved margin outlook.
Mike Pack: For defense. We are now we now expect sales to be approximately $2, one $5 billion and we are maintaining our expectations for adjusted operating margin of approximately 2.25%.
Mike Pack: Our estimate for corporate and other costs is $190 million.
Mike Pack: Our expectation for tax rate remains 24% our expectation for share count is also unchanged at $65 8 million shares we are reducing our capex target by $25 million to $275 million. We are also reducing our estimate for free cash flow by 'twenty five.
Mike Pack: $5 million to $350 million I'll turn it back over to John now for some closing comments.
John Pfeifer: We reported another solid quarter and while we are reducing our expectations for 2020 for adjusted EPS. We continue to expect meaningful growth in revenue adjusted operating income and adjusted EPS compared to 2023, we continue to benefit from strong long term growth.
John Pfeifer: Drivers and we believe the strength of our people innovative products and our businesses will continue to drive long term shareholder value.
John Pfeifer: I'll turn it back to you Pat for the Q&A. Thanks, Jan I'll remind everyone to please limit your questions to one plus a follow up and please stay disciplined on your follow up question. After that follow up we ask that you rejoin the queue. If you have additional questions. Operator, please begin the Q&A session.
Speaker Change: Great. Thank you.
Speaker Change: We will be conducting a question and answer session.
Speaker Change: If you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is in the question queue. You May press star two to remove yourself from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star.
Speaker Change: One moment, please while we poll for questions.
Our first question is from makes O'brien from R. R. W. Baird. Please go ahead.
Speaker Change: When you are finished.
Okay.
Speaker Change: And we'll go on to our next question here from Angel Castillo from Morgan Stanley. Please go ahead.
Speaker Change: Hello. This is actually 70 is sitting in for Angel. Thanks for taking my question.
Speaker Change: So I guess regarding your lowered sales outlook you indicated this is due to a softer outlook and access however, if I'm not mistaken I recall your access backlog give you full coverage for 2024. So maybe if you could give us some more color on the exact puts and takes on what drove the revenue decline and.
Speaker Change: You know, whether there were any order cancellations or delays if you could help US bridge you know 'twenty 'twenty four to your more optimistic outlook for 2025, that'd be great as well thanks.
Speaker Change: Yeah, Thanks, Angel, Oh, I'm, sorry, Stephane. Thank you for the question and thanks for sitting in for Angel today.
Speaker Change:
Speaker Change: Talking about our backlog, we talk about our backlog and how it stretches into 2025, but in any given quarter. You know we entered the quarter, mostly booked there is timing to use is the thing that's important to remember theres timing to backlog some of our backlog scheduled to ship next year. Some scheduled to ship in the fourth quarter. So in the fourth quarter, where we have a lot of our.
Speaker Change: Backlog.
Speaker Change: Oh, that's already booked with customers, but theres still some orders to come in to fill out the quarter.
Speaker Change: And so that's some of the change that you saw I think it's really important though to pay attention to backlog versus just order intake. I mean orders are really important of course, but I think backlog is a little bit more telling and we have a very healthy even with the low orders in the third quarter.
Speaker Change: Which we expected we have a very healthy backlog and I think that that's indicative of a still relatively healthy access equipment market. Yes, we have had some push outs in our backlog pushing things out to 25, and we have had some cancellation sanctions and the cancellations make the orders look a.
Bit lower in Q3, but overall, we still have a healthy backlog and over $2 billion. You know typically in the access equipment world. If we have a three to six month backlog, that's considered healthy and normal and you know we're up kind of the high end of that right now.
So we feel pretty good about the backlog that we've got.
Speaker Change: Great. Thanks for the color and then for my follow up within vocational can you talk about the degree of incremental price upside that's embedded in your backlog and maybe if you could remind us how we should expect that to flow through the P&L within the next couple of years and then I'll turn it over thank you.
Speaker Change: Yeah. This is Mike we still have a strong double digit price increases in our backlog that.
Speaker Change: That will continue to re read through over the next the.
Speaker Change: The next few years really were started for fire trucks, we start getting out into about a three year backlog. So that that will continue to read through so what that means is we expect to continue to see not only growth on the top line of the business from from volume, we continue to expect to see the benefit of Christ.
Speaker Change: Price cost.
Speaker Change: The next question is from Jeremy.
Speaker Change: Our next question is from Jerry Revich from Goldman Sachs. Please go ahead.
Jerry Revich: Yes, hi, good morning, everyone.
Speaker Change: Good morning.
Speaker Change: John.
Hi, John and nice to hear the update on the improved economics.
Speaker Change: Defense.
Speaker Change: Can you update us on how you're thinking about the path towards the 9% to 10% margin targets.
Speaker Change: Do you have for the business how big of a step forward do you expect in 2025 and any updated thoughts on the cadence plays.
Speaker Change: Yeah, I think you'll see a step forward and the short answer is you see a step forward in 'twenty five and you'll see a bigger step forward in 2026 and a lot of this comes from our core defense business and the new contracts that we're getting you know we've gone through 40 years with relatively low inflation until 2021.
Speaker Change: And with fixed price.
Speaker Change: Tracks when you have unexpected inflation that kind of disrupt your business as we've seen so the good news is that there is this business is going to improve dramatically over the next couple of years, because we're getting new fixed price contracts that are priced to the realities of today's input costs. So you think about the big heavies the medium vehicles that we do.
Speaker Change: As well as then bring in some other combat programs.
Speaker Change: That we have in some international business that we have that's all really healthy margin for us and we fully expect this business will recover to.
Speaker Change: Two it's normal kind of near 10% margins.
Speaker Change: It's going to be a little of the core defense business will be a little bit smaller.
Because we won't have Jay out of the core Jay LTV business for the D O D going forward, but it'll be a profitable core.
Speaker Change: Core defense business of our over $1 billion in revenue and then you layer on top of that the postal contract.
The N G D V. That's a gigantic program that's what drives growth.
Speaker Change: Business into the foreseeable future and that's also a good margin business for us so going forward that business is going to improve materially over the next couple of years.
Speaker Change: Super.
Speaker Change: And then excess equipment.
Speaker Change: You folks have made a lot of operational and process improvements over the past couple of years, when we do see demand cycle weaker how should we be thinking about.
Speaker Change: Incremental margins looks like in the fourth quarter, the implied guidance was about 35% decrementals.
Speaker Change: Wondering if you just talk about if we do see demand surprise to the downside how should we think about any potential for improvement.
Speaker Change: Versus history, given the process improvements.
Speaker Change: First of all I'd say is I think from a decremental incremental margin perspective, I would it's a little bit easier to look at it on a full year basis, and we're expecting very strong incrementals for access on a full year basis of around 60% based on her and applied guidance.
Speaker Change: When you look specifically on a quarter to quarter basis, you can have some nuances. So looking specifically to this quarter. We did have we had a particularly favorable freight material environment. In Q3 last year. We saw Q3 was more favorable than Q2 last year, and and Q4 of last year or so.
Speaker Change: A bit of a tough comp.
Speaker Change: I think we're not going to get into Decrementals.
Speaker Change: For next year, yet because it's still early in our negotiation process, but the bottom line is we expect to continue to deliver solid margins as we've talked about even if we see some market softness next year.
Speaker Change: Thank you.
Jerry Revich: Thanks Jerry.
Our next question is from Tami Zakaria from Jpmorgan. Please go ahead.
Tami Zakaria: Hi, good morning, Thank you summarized.
Tami Zakaria: So my question first question is on the vocational segment.
Speaker Change: Really strong performance.
Tami Zakaria: I'm wondering are you considering raising capacity for this segment because it.
Tami Zakaria: There's a high backlog do you have visibility into demand. So have you considered raising capacity.
Speaker Change: Yeah Tammi, that's a it's a great question and it's a huge focus area for us. So I think what youre going to see in our existing facilities, particularly on.
Speaker Change: On the fire and refuse and recycle. Besides we are in the process of adding capacity, we have our new Murphy's borough, Tennessee facility, we're ramping up the electric.
Speaker Change: <unk> use and recycling vehicles, we're also using that for some fabrication activities for the broader segment. My expectation is is that we're going to continue in our existing facilities to continue.
Speaker Change: Continue to increase that capacity through some some capital investments and so on and we'll continue to look at additional capacity through additional facilities over time, but that is clearly going to be a focused area. We expect that we're going to see topline growth from that over the next several years.
Speaker Change: Got it that's helpful and then one more question on Aerotech.
Speaker Change: It's been one year, what are some of the things that pleasantly surprised you.
Speaker Change: Versus your expectations when you bought it about a year ago.
Tammy: Tammy I.
Speaker Change: There's a lot to like about aerotech.
We certainly acquired it because of the close Adjacencies.
Particularly from a technology standpoint, when you look at electrification autonomy connected intelligent products a lot of overlap with our other companywide.
Speaker Change: Innovation initiatives, so great synergies on that front and I think that can allow us to expedite across the company and some of those efforts I.
Speaker Change: I would say the synergies between our between from a commercial standpoint between our businesses has been.
Speaker Change: Very positive as well as John mentioned in the prepared remarks, we had J L G products.
Speaker Change: <unk> support products as well as as well as our art vehicles at the at the Lisburn ground support equipment show a lot of overlap in our customers.
And so it's just been and of course the industry dynamics are very strong. So we continue to expect to see profitable growth in that business. Yeah, I'll just make one further comment Tammy.
You know when we after we acquired the business, we really got to know the customers better and the relationship that aerotech in aerotech people have with the customers and it's really strong. These are household names delta United Federal Express and others.
Speaker Change: And they really are our.
Speaker Change: Positive about our ability to continue to innovate the product with Mike talked about electrification and autonomous functionality because that drives better performance for them and that's exactly what our business model.
Speaker Change: Innovation around technology to improve productivity and improved safety for our customers and for the people that are doing the tough work. So it just continues to be a really strong fit for what we do.
Speaker Change: Wonderful. Thank you so much.
Speaker Change: Thanks Tammy.
Speaker Change: The next question is from Karl mentioned from Citigroup. Please go ahead.
Speaker Change: Thank you. Good morning, guys I was hoping if you could just talk a little bit more on what you're seeing in the access market and maybe if you could kind of bifurcate the market between some of the larger rental customers versus smaller more local players and just.
Speaker Change: Really what which customers you're seeing the most I guess demand softness and any push outs into 2025 or is it just that it's more from the big Big rental guys are some of the smaller players.
Speaker Change: Yeah. Thanks for the question. So you know try to frame. This we've just come through a period.
The last you know few years of really really strong demand and we're all aware of that you're aware of that and I think we're experiencing right now a market that's kind of normalizing and we've talked about our customers going back to a more normal seasonal pattern, where they're planning in Q4 and Q1.
Speaker Change: What's going to happen in 2025, and they know that lead times are back to normal I talk about our backlog being three to six months, which is kind of where it sits right now and that's a healthy backlog, but I want to stress, we really believe that and our customers believe you hear the public customers that we serve talk about this.
Speaker Change: Are they both we believe the long term drivers remain intact. You know we talk about these significant infrastructure investments Mega projects data centers, we can't build enough data centers, we can't build enough building a power generation. There is also still aged fleets in many categories that we provide of that all those are good things now.
Speaker Change: <unk>.
Speaker Change: We do realize that there is some pressure.
Pressure right now with regard nonresidential and residential construction and that's kind of private construction, mainly is what we're talking about high interest rates I think had been the main driver of some concern there so.
Speaker Change: That's what's caused a little bit of a pressure. We don't think that 25 is going to be a any kind of significant downturn. We just think the market is going to be a bit soft we will see healthy conditions and in the Mega projects, we'll see some softness probably in private construction.
Speaker Change: And then we expect after a short term period, so it'll continue to to grow again.
Speaker Change: So our AR and our outlook through that calls for us to be able to deliver a strong resilient margins. So I'm talking about the big nationals versus the independents.
Speaker Change: I don't know if it's a national versus independent I think when you have an independent that is exposed to a lot of private construction they might be feeling it a little bit more than an independent independents also participate in these big Mega projects that are independent that is exposed to mega projects, where they operate so I think the difference.
Speaker Change: Is it private non res versus kind of these big trends we're seeing.
Speaker Change: That's helpful. Thanks, and then I was curious I guess I was hoping you could talk a little bit more about just how the N. G. D V ramp up is going more so in the near term I did notice it seemed like a G. D V deliveries actually went down a bit sequentially in the quarter, So I understand that.
Speaker Change: Just be a seasonality thing probably you shouldn't read into that too much but would love to hear just how it's going so far you shouldn't read into those deliveries at all actually deliveries went up not down. It's just a cost to cost accounting method that drove that that's all it was deliveries are going up did.
Speaker Change: The Gee you know this but I'll start with you know this is a we're really happy with where we are we work really closely with the postal service. The carriers are delighted with the vehicles that they're using today to deliver ecommerce in mail.
Speaker Change: Or on the streets and.
Speaker Change: With the deliveries that we've made this is a revolutionary vehicle incredible performance safety vehicles, he's abuse superior ergonomics, it's really unlike any delivery vehicle that's out there. So we're today ramping up production you know when you go through you know you take a brand new.
Speaker Change: Nicole to market, we believe together with the postal service that a prudent production schedule is better than trying to start by sprinting. So we're ramping up today, we will be at full production throughout 2025 as we go through 2025, we again this will more than offset.
Speaker Change: In 2025 anything we lose from the J L. T V contract going away. It's a great program long term program good for a lot of reasons.
Kyle: Thanks Kyle.
Speaker Change: Our next question is from Jamie Cook from <unk> Securities. Please go ahead.
Jamie Cook: Hey, Hey, good morning, I guess two questions one Mike on the free cash flow.
Jamie Cook: Lowering your free cash flow guide throughout the year I'm understanding some of its the guidance cut.
Jamie Cook: But it still implies a pretty big ramp to achieve your free cash flow guidance for 2024 in the fourth quarter. So if you could just help us understand what's going on there and then.
Jamie Cook: Understanding you don't want to talk about that.
Jamie Cook: Decrementals for 2025 on accuracy sort of sad.
Jamie Cook: Yeah.
Jamie Cook: The answer implied.
Speaker Change: We will have Decrementals in 2025 based on an earlier question, which means you are saying now that sales are going to be down for access equipment.
Speaker Change: I guess one of the concerns that are out there. It's just pricing that pricing starts to go negative. So can you give.
Speaker Change: Any color on how you're thinking about pricing war.
Speaker Change: You know can be seen.
Speaker Change: Yeah normalized 25% decremental margin like what would be the reason why we wouldn't be able to achieve that if sales are down.
Speaker Change: Sure starting with cash flow a big.
Speaker Change: There's a number of big items, obviously, we had a another big shipping quarter Q4 is typically implied the run news lower so you get a natural bleed off of working capital certainly some inventory timing specifically in our defense segment, there can be big timing impacts of of win.
Speaker Change: But the acceptance process of vehicles kept takes place and that really shifts from the unbilled receivables to the billed receivables. So we see a big impact and benefit of those unbilled receivables coming down in the fourth quarter. Those are really the biggest items.
Speaker Change: That's we're not calling next year kind of shifting to the other your other question. So.
Speaker Change: So I you know I think ultimately you know obviously the market's a little bit softer right now that could continue so but again, we're going to I think the key is is we want to get in a little bit further into the negotiations with customers to know the mix and the volume and all of those elements, but I think importantly, we think it's going to be.
Speaker Change: Gonna be a solid year next year with with solid margins.
Speaker Change: Yeah.
Speaker Change: Customers. Thank you.
Speaker Change: Thanks, Jamie.
Speaker Change: Our next question is from Steven Fisher from UBS. Please go ahead.
Steven Fisher: Thanks, Good morning, so the vocational bookings and book to Bill was.
Steven Fisher: Certainly a bright spot wondering how to think about the order trajectory in vocational over the next few quarters is there any visibility you have on that and how lumpy do you think it might be on an ongoing basis.
Speaker Change: Yeah, I'd say from a backlog perspective, the backlog continues to grow on the business side kind of revert back to my earlier comments to Tammy that we're highly focused on on throughput or.
Speaker Change: Are the market dynamics in each of our business remains strong I think if you look on vocational, particularly when you look at at Aerotech and Mcneil us.
Speaker Change: You can have some lumpiness in the orders as we're booking large national account orders and sort of in blocks at times, but we expect demand to remain very strong going forward and I think that quarter to quarter, there can be some quarter to quarter Lumpiness.
Speaker Change: Thanks, Steve one thing to note about these vocational markets that we're in.
Speaker Change:
Speaker Change: They are resilient markets. The airport market for example, where aerotech is in some of our other business now that's.
Speaker Change: We will continue and as projected.
Speaker Change: By pretty much every third party that measures and to continue to grow into the future because of shortage of capacity in the airport work.
And fire truck would be the same these are resilient markets not very cyclical.
Speaker Change: And that's one of the reasons that we think this is a great place for us to be in.
Speaker Change: In this segment.
Speaker Change: Great and just a follow up so obviously it sounds like vocational doing very well you've already talked a bit about access.
Speaker Change: In 25 still a.
Having a relatively healthy backlog in.
Speaker Change: Overall reasonable market in defense you have engine Dv ramping so I guess.
Speaker Change: As we think about your prior expectation skins on earnings per share for.
Speaker Change: 2025 that range that you had I mean should we be assuming that you're still thinking at the moment that that that range is still broadly appropriate.
Speaker Change: Well, we're already in that range today, so I'll start there.
Speaker Change: I can't guide for 2020 five at this point in time, we will be able to you know it was where it was we'd go through a lot of work this quarter, particularly with our access customers will be able to give much better guidance in January as to where we think 25 is actually going to be but remember we're already in.
Speaker Change: For where we said we'd be in 'twenty five.
Makes sense thanks, Steve Thank you.
Speaker Change: Our next question is from Tim <unk> from Raymond James. Please go ahead.
Speaker Change: Yes. Thank you.
Good morning, maybe just.
Speaker Change: Well first of all Mike Congrats on your new role.
Speaker Change: Sure sure Youre going to Miss hosting these calls so [laughter] films that will get it done.
Mike Pack: Like Tim don't worry about it.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Just on access.
Speaker Change: <unk>.
Speaker Change: Yes, just kind of the market.
Speaker Change: It will we will see what what it what it gives you for next year, but just as you think about.
Speaker Change: Obviously customer and geographic and product mix can.
Speaker Change: Can play them.
Speaker Change: Horton role in terms of the.
Speaker Change: The makeup of the margins at this point today do you envision kind of thing.
Speaker Change: But between <unk> and Tele handlers do you anticipate again, not making a market call, but just from a product standpoint.
Speaker Change: Much of a.
Speaker Change: A change in terms of our debt.
Speaker Change: Shifting the complexion.
Speaker Change: Of whatever those that revenue base may look like I guess I'll start with that one.
Speaker Change: I would say in general tell our handlers have been strong, but I think it's early still that I think that the mix will continue to evolve as we get into <unk> into next year. So I think it's a little bit too early to call exactly what the dynamics of each one of those buckets is gonna be.
Speaker Change: Yeah, Mike I was going to emphasize the same thing Sam Zell handlers has been particularly strong although booms.
Speaker Change: [noise] as well, but sell out has been particularly strong I mentioned that because we're building new capacity. If you tell a handlers and we're already in production will continue to improve that or increase that production in 2025.
Speaker Change: And we we are not slowing down on that by any stretch we see.
Speaker Change: Lots of demand there are we don't have enough capacity today to meet the demand of the teller handler market and we see new you know, we talk about new and markets opening up like AG and that's real and that just.
Speaker Change: News to give us the confidence that that's a good place to be.
Speaker Change: It's hard to pinpoint today, if theres going to be any kind of material mix shift, though between one product and another in 2025.
Okay.
Speaker Change: My follow up because I know I know paths counting but.
Speaker Change: [laughter].
I'll ask the same question John I think I asked you that the quarter when you announce that dad, telling him there capacity expansion is there an update and you have a big.
Speaker Change: One specific customer that you called out in your filings for years in terms of a contract that is due to expire in June any update on that in terms of to the extent. There is there is a potential revenue loss associated with that or.
Speaker Change: Just maybe an update on that thank you yeah, I mean, I mean I'll comment on and we've got a we've got we're talking about cat.
Speaker Change: Tim didn't mention it but I'll mention it I mean cats, a great partner of ours and they have been for many years there'll be a good partner of ours going forward as well we've got a good relationship with them I'm sure. The structure of our partnership with Cat is changing but I guess, what I can say is that we will continue to support cat and cat dealers.
Speaker Change: With J L G equipment going forward it's.
Speaker Change: Great recognition and acceptance in the market and that's that I think you'll continue to see it there.
Speaker Change: Thank you. Thank you.
Speaker Change: Our next question is from Mig <unk> from RW Baird. Please go ahead.
Yeah. Good morning, Thanks for coming back to me.
Speaker Change: Just to sort of follow up here on the active discussion I guess understanding that youre not guiding for 25, but you have added capacity in this segment and things seem to be turning softer so I guess.
Speaker Change: John how do you how do you approach them.
Speaker Change: Next year, what are some of the things that you can do to manage the cost basis.
Speaker Change: Should we maybe get ready for some restructuring here or do you have enough levers to kind of deal with potentially lower volumes.
Speaker Change: Not not meeting such action.
Speaker Change: Yeah, So mig.
Speaker Change: So this question sorry, sorry, you got cut off somehow when when we started the call I apologize for that.
Speaker Change: It was my fault.
Speaker Change: Okay. So thanks for the question. So we've been working on our resilience for a while it's not like Oh My God, We got to start working on resilience. This has been going on for a while and really it starts in our manufacturing plant and how it how flexible we can be under different demand environments with regard to our <unk>.
Speaker Change: Fixed cost so there's a lot that goes into that and we've done a lot of work on that we also as we go into these.
Speaker Change: These are continuing to improve the resilience of the business, we do a lot of work with our aftermarket our recurring revenue streams. So we've made investments in the past few years on our ability to distribute and expand our aftermarket parts business and we think that that will continue to help us.
Speaker Change: As we continue to manage that and grow that going forward. The other thing that we'll do you know what.
Speaker Change: As I've talked about 2025, we look at the outlook over the over a five year horizon. Our plans go out five years and these are detailed plans and we feel great about the next five years. We think 25 is a bit of a soft period as we continue on that growth curve.
Speaker Change: So we may see some some some sales decline, although we don't think it's going to be big but we think there'll be some sales decline we have some other levers of course with regard to cost reduction work that we do I wouldnt call. It significant restructuring, but we have material cost reduction initiatives.
Speaker Change: And that that will.
Continue to work on to mitigate anything that that might be.
Speaker Change: The unfavorable in 2025, so you know there's a lot there's a lot of work that we've been doing for a while on the resiliency of this business.
Speaker Change: Understood and my follow up.
Speaker Change: Back to refuse collection.
Speaker Change: You talked about the success you are having with Volte Tara.
Speaker Change: And I guess two questions I'm curious as to whether or not you having this proprietary chassis represents a differentiator and competitive advantage.
Speaker Change: That's the case, maybe you can tell.
Speaker Change: US understand why and then you know where's the market trending here.
Speaker Change: Side loaders versus front loaders.
Speaker Change: So you have both both of those products.
Speaker Change: But I'm curious as to kind of how you see demand evolving in that space.
Speaker Change: Sure first of all with the the Bowl parents so I.
Speaker Change: But we do believe that the the chassis gives us a strategic advantage and that's what that is or a competitive advantage and what that is is because it's fully integrated. So if you think about traditionally a refuse collection vehicle, it's sort of a separate body and chassis. So you're limited in the level that you can integrate great.
Those two pieces of chassis together with our fully integrated unit very much like our peers fire truck.
Speaker Change: You really have more advantages that you can add safety features to the to the vehicle that are all fully connected.
Speaker Change: Ultimately, so safety productivity benefits ease of entry into the cabin.
Speaker Change: It it just makes the entire driver experience more positive of course, you know ultimately what the electrification benefits saw that where our customers are seeing that they how about it advantage from a total cost of ownership perspective as well so that that's what we see so we believe that this is gonna be a decade long trend.
Speaker Change: That as as fleets continue to electrify.
Speaker Change: In terms of where the market demand is frankly, the market is pretty strong across the board as we're looking at capacity, we see capacity opportunities bolt on size and fronts.
So that both are going to be a focus and we see strength in both of them right now.
Speaker Change: Thank you.
Thanks Meg.
Speaker Change: Our next question is question is from Chad Dillard from Bernstein. Please go ahead.
Chad Dillard: Hey, good morning, guys.
Speaker Change: Hi, Chad.
Chad Dillard: So my first question is on pricing.
Excess <unk>.
Chad Dillard: So first of all what was price realization in the third quarter and then secondly, I recognize that you guys are going through negotiations opera 25, but it looks like in terms of what's in backlog right now.
Chad Dillard: How do you expect.
Chad Dillard: And I guess price costs stable at least through the first half of 'twenty five based on what's in backlog.
Speaker Change: Yeah. So ultimately from a from a price cost perspective again, we I think ultimately we had a more challenging year over year comp that we expect to be quite price cost positive on an on a year you see that that's really what's driving that Oh, that's 60% incremental on a on a poll.
Speaker Change: Your basis again, I think the as we look to to next year again, it's gonna come there's some backlog there obviously, that's going to carry into next year, but we're very early in our negotiations and so on so that mix really matters, both product and regional as well as customers.
Speaker Change: So I think it's again, we're not going to we're not going to speculate at this point on on an incremental.
Speaker Change: <unk> or Decrementals for next year again going back to we expect that the market softer will continue to deliver solid margins and that does not.
Speaker Change: Okay, that's fair.
Speaker Change: And then second on capacity additions.
Speaker Change: So just trying to think like the cadence of the ramp up.
Speaker Change: As we go into 2025.
Speaker Change: And then is there any absorption to consider.
Speaker Change: Given that you know they take a little time for us.
Speaker Change: In fact with the co op.
Speaker Change: Finally, I just wanted to confirm I think Pat talked about like 25% increase in.
Speaker Change: Capacity just want make sure that that's still about the Gwen.
Speaker Change: So you're talking about Jefferson City, where we're expanding our tell a handler capacity, there's a little bit of cost in the first part of 'twenty five on Starz.
Speaker Change: Startup costs, so not <unk>.
Speaker Change: <unk>, but as we get to the second half of the year, you know you'll start seeing some absorption benefits and things and it'll it'll be at full production.
Speaker Change: Vivus.
Speaker Change: At some point in the second half of next year.
Speaker Change: So this is a it's a good driver of both our sales and.
Our margin improvement for the company as it gets to its full production level.
Great. Thank you.
Speaker Change: Thanks, Chad.
Speaker Change: Our last question is from Steve Burger from Keybanc capital markets. Please go ahead.
Hey, Thanks, guys.
Steve Burger: Another Volterra question, you got a nice call out on the Republic call yesterday. My question is as you introduce more electric offerings are those supply chain is fully built out from a capacity standpoint or are there potential challenges you'll face if the uptake rate is better than you expected.
Speaker Change:
Speaker Change: I think ultimately from a ramp up perspective supply chain is one of the top focus areas and I think as with many of our large programs. We have a very we have a very regimented approach as we as we increase the capacity and the throughput in our facilities and so we're very much in lockstep with ours.
Speaker Change: Hi chain on the product a lot of overlap and a lot of the the components with other suppliers we have throughout the company. So so we at this point, we feel good about it and again this is going to be something Steve that we're gonna be ramping this up or we're gonna can change the growth in demand on us really over the next five to 10 years that this is gonna be.
Speaker Change: This is gonna be a long term play as fleets are replaced yeah, but also just to mention in general you know, it's still a relatively new market electrification of vehicles, whether they are big commercial vehicles like ours or their or their passenger cars still a relatively new industry. So we're constantly.
Speaker Change: Working with the supply chain, because it's still it's still new in terms of weather.
Speaker Change: Battery cells battery modules battery packaging, and then you've got E drives and lots of other components and where we're in constant work with our supply base to as it continues to grow and develop.
Speaker Change: And we feel very optimistic about it because in our commercial markets. We are able to provide an economic benefit for the most part for our customers. They can see total cost of ownership improvement because their productivity is better the functionality of the vehicle is better the waste.
Speaker Change: We can integrate it with autonomous functionality and its responsiveness is better that's all really good economic improvement in commercial markets different from passenger cars versus the commercial market space that we're in so so we feel this is gonna be a you know we don't feel like someone's going to flip the switch and all of us.
Speaker Change: Sudden everything we're gonna be building as electric we don't see that happening, we just see nice steady growth in electrified products in several of our end markets over the next 10, maybe even 20 years I remember electric propulsion.
Speaker Change: <unk> is a more efficient form of propulsion.
Speaker Change: Then diesel propulsion is so it's not going to shift overnight, but because it's economically viable now it'll shift over a long period of time and will help the supply chain develop together with us as we go through that period, but a very positive story for sure.
Speaker Change: Thanks for that John.
Speaker Change: And just for my follow up Mike you noted that the three year backlog and fire being really long and you've talked about how strong prices in backlog if input costs were to come down for some reason is that pricing locked in or is there potential for adjustment.
Mike Pack: The pricing is locked in.
Speaker Change: Got it thank you.
Speaker Change: Thank you who is the question.
Speaker Change: Sorry. This concludes the question and answer session I would like to turn the floor back to Pat Davidson for any closing comments.
Pat Davidson: Thanks, and thanks, everybody for joining us today, we look forward to speaking with you at upcoming conferences and trade shows.
Speaker Change: We will be showcasing our technology in particular, we're displaying at the CES show in Las Vegas in early January we are proud of the innovation and technology, we bring to the market at Oshkosh, and we will be showing these capabilities at the Las Vegas Convention Center, We hope you will consider making that trip and visiting us.
Speaker Change: Please reach out if you have any follow up questions and have a great day.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time, thank you again.
Speaker Change: As a patient.
Speaker Change: Hmm.
Speaker Change:
Speaker Change: Hum.
Speaker Change: [music].