Q1 2025 Oshkosh Corp Earnings Call
Yeah.
Speaker Change: Greetings and welcome to the Oshkosh Corporation first quarter 2025 results conference call.
At this time all participants are in a listen only mode.
Speaker Change: A brief question and answer session will follow the formal presentation.
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Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce your host Patrick Davidson Senior Vice President of Investor Relations. Thank you Sir you may begin.
Speaker Change: Good morning, and thanks for joining US earlier today, we published our first quarter 2025 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 financial measures that we will use during this call.
Speaker Change: It is also available on our website the audio replay and slide presentation will be available on our website for approximately 12 months.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: We disclaim any obligation to update these forward looking statements, which may not be updated until our next quarterly earnings conference if at all.
Speaker Change: Our presenters today are John Pfeifer, President and Chief Executive Officer, and Matt Field, Executive Vice President and Chief Financial Officer before we get started I'd like to highlight our upcoming Investor Day, We are planning for a Morningstar on Thursday June 5th at the New York Stock Exchange in lower Manhattan, We look forward to sharing our plans for the future.
Speaker Change: And you will get to hear from several of our key leaders. In addition to both John and Matt. Please reach out to Victoria economy or myself, if you're interested in attending in person.
Speaker Change: Now please turn to slide three and I'll turn it over to you John.
John Pfeifer: Thank you Pat and good morning, everyone.
John Pfeifer: We are off to a good start in 2025 with strong performance in our vocational segment, good margins and resiliency in our access segment and solid progress as we ramp up N. G. D V production in the defense segment.
John Pfeifer: For the quarter, we delivered revenue of $2 $3 billion in adjusted operating income margin of eight 3% or.
John Pfeifer: Our adjusted EPS of $1 92 was in line with our expectations of approximately $2 for the quarter.
John Pfeifer: We are confident with the underlying trajectory of our operational performance across all our segments, which we believe would keep us on track to deliver our full year adjusted EPS guidance in the range of $11, excluding headwinds caused by the recent tariff announcements.
John Pfeifer: The format provides more details on potential tariff impacts on our results I want to make some key tariff points upfront.
John Pfeifer: First as we've said previously nearly all of what we sell in the United States is built in the United States and we have a broad U S production footprint, which we believe puts us in a strong competitive position in our industries.
John Pfeifer: Second we have a global supply chain and we are proactively working to mitigate potential impacts from tariffs.
John Pfeifer: Third at this time, we are not experiencing significant secondary impacts of tariffs like supply chain disruptions or reductions in demand and fourth we continue to execute on our strategies. Despite near term volatility as we believe the trends that support our industry leading businesses.
John Pfeifer: Aligned with our long term growth initiatives.
John Pfeifer: Please turn to slide four and we'll get started on our segment updates.
John Pfeifer: Access performance was in line with our expectations, we delivered a resilient adjusted operating margin of 11, 3%. Despite lower sales we remain confident in the long term opportunities arising from mega projects and infrastructure spending our backlog remains strong.
John Pfeifer: Ending the quarter at $1 $8 billion equal to the end of last year as we booked orders in the quarter of $930 million and achieved a book to Bill ratio of 1.0, we did not experience any notable order cancellations from customers in the quarter, we continue to see.
John Pfeifer: <unk> close to our customers to respond quickly to any changes in the macroeconomic environment.
John Pfeifer: A good example of our team's ability to respond quickly to tariffs was the localization of booms that our Hino facility in Italy in response to duties that the European Union applied to Chinese imports I'm proud to report that it took our team less than a year to move production from China to Italy and begin shipping our.
John Pfeifer: First units to customers, thus mitigating the tariff impact.
John Pfeifer: On the product front the access team previewed our new micro sized Es 1930 am scissor lift at the Ara rental show in February this category of Scissor lifts is creating excitement in the market growing at a solid clip and being used in places like data centers come.
John Pfeifer: <unk> are particularly eager for our entry into this emerging category as they value <unk> quality service and support.
Jay: Finally, Jay algae hosted international customers at the bomber event in Munich earlier. This month attendees were enthusiastic about our product innovations, including our new line of multi fuel booms and clear skies Smart fleet with its many technological advantages this was another.
Jay: Outstanding opportunity for us to showcase our products and technology that lead the industry toward a connected and productive job site of the future.
Speaker Change: Please turn to slide five and I'll review, our vocational segment.
Speaker Change: We achieved strong year over year revenue growth of 12% in the quarter and a robust adjusted operating income margin of nearly 15%. The higher volume was led by higher refuse and recycling vehicles sales and strong price realization across the segments. The.
Speaker Change: The backlog remains robust at $6 $3 billion, providing excellent visibility to future revenue, we continue investing in people and resources toward our goal of increasing production levels across the segment to support strong demand, which we expect to lead to meaningful revenue and operating income growth.
Speaker Change: A great example of a growth opportunity that I'd like to share is with the city of Calgary and Alberta, Canada.
Speaker Change: Some of you may recall that Calgary was an early adopter of our peers, both Terra electric fire truck.
Speaker Change: Previous to that they purchased limited apparatus from peers.
Speaker Change: But their experience with our Voltaire accustomed pumper EV helped us along with our dealer commercial truck equipment in Canada secure a multi year order for 'twenty two conventional Pierce fire trucks for the city of Calgary.
Speaker Change: Innovations are key to our success and we continue to develop advanced technology, such as our cams, that's collision avoidance mitigation system.
Speaker Change: And clear Sky intelligence fully integrated telematic solutions showcase that FDIC earlier this month.
Speaker Change: These are great examples of our neighborhood of the future technological advances. Additionally.
Speaker Change: Additionally, we announced a new lineup of Oshkosh as IMT cranes at work truck week in March.
Speaker Change: The updated family delivers increased reach lifting capacity and reliability across 16 models, we've incorporated customer feedback into the design and focused on commonality ease of maintenance and exceptional performance finally Oshkosh aerotech.
Speaker Change: Continues to perform very well and lead with innovative technologies like eye Ops fleet management software and investments in autonomous baggage handling vehicles.
Speaker Change: Several of you on this call today experience these products at our CES airport of the future display earlier this year customer demand for our jet bridges ground support equipment and advanced technologies continues to grow as customers seek to improve efficiency of airport operations.
Speaker Change: Let's turn to slide six for a discussion of the defense segment.
Speaker Change: We're confident in the defense outlook for 2025, although first quarter results reflected lower volume and higher cumulative catch up adjustments. We are pleased with our progress on the production ramp up or the <unk> program and deliveries to the United States Postal service we are on.
Speaker Change: Target to increase <unk> volume to full rate production by year end. This should provide strong revenue growth in the back half of 2025 and into 2026, we continue to execute programs for the United States Department of defense during the quarter, we took orders for the F MTV low.
Speaker Change: Velocity aircraft vehicles as well as Pls, a two autonomy ready vehicles for the U S. Army. We are also wrapping up negotiations for a sole source FM TV to contract extension later this year, we expect the extension to include an economic price adjustment mechanism.
Speaker Change: Similar to our agreement for the FH television program, we announced in 2024.
Speaker Change: Just last week, we announced a 150 unit J LTV contract with the Netherlands Ministry of Defense for the Dutch Marine Corps. The contract calls for design modifications to the J LTV that fulfill requirements for the Dutch Expeditionary patrol vehicles.
Speaker Change: This order is an excellent example of the attractive international opportunities for our tactical wheeled vehicles, and we look forward to sharing more of these successes in the future.
Speaker Change: Before I turn it over to Matt.
Matt Field: I want to note that our defense business is going through a leadership transition.
Matt Field: Im overseeing the segment for the time being and we expect to announce a new segment leader later this year.
John Pfeifer: Thanks, John Please turn to slide seven.
Speaker Change: Consolidated sales for the first quarter were $2 3 billion.
Speaker Change: A decrease of $231 million or 9% from the same quarter last year, primarily reflecting the softer market conditions for access equipment in North America, as we expected and highlighted on our previous call primarily offset by improved pricing in the vocational segment.
Speaker Change: Adjusted operating income was $192 million or eight 3% of sales adjusted operating.
Speaker Change: Operating income was down from the prior year as a result of lower sales volume higher operating expenses and higher new product development spending partially offset by improved price cost dynamics adjusted.
Speaker Change: Adjusted earnings per share was $1 92 in the first quarter inline with our expectations of approximately $2 per share.
Speaker Change: Free cash flow for the quarter was also in line with our expectations and reflected a net use of cash of $435 million due to seasonal working capital needs.
Speaker Change: During the quarter, we entered into a new $500 million 24 month term loan to provide additional liquidity.
Speaker Change: We used the proceeds to reduce the balance on our revolving credit facility. The term loan which can be repaid early carries a slightly lower interest rate than our revolver.
Speaker Change: We also continued to repurchase shares steadily throughout the quarter repurchasing nearly 290000 shares of our stock for $29 million.
Speaker Change: Share repurchases during the previous 12 months benefited adjusted EPS by <unk> <unk> compared to the first quarter of 2024.
Speaker Change: Please turn to slide eight.
Speaker Change: At the beginning of our call John mentioned, our confidence in the underlying trajectory of our operational performance, which we believe would keep us on track to deliver our full year adjusted EPS guidance in the range of $11, if not for the impact of announced tariffs.
Speaker Change: Based on current announcements and what we're seeing as of today, we estimate that the direct impact of tariffs net of targeted mitigation actions could be about $1 per share.
Speaker Change: We are monitoring conditions closely and proactively working to mitigate the impact of tariffs through cost actions across the company.
Speaker Change: We believe these efforts may offset the impact of tariffs by up to 50 per share. We do not anticipate these tariffs will have a material impact on our second quarter results as we worked through existing inventories.
Speaker Change: Our estimate of the direct impact of tariffs is based off currently announced rates and excludes potential future indirect impacts which are difficult to predict at this time.
John Pfeifer: We remain committed to execute on our strategies. Despite uncertainty introduced by tariffs and we believe the trends that support our industry, leading businesses will provide long term growth opportunities with that I'll turn it back over to John for some closing comments.
John Pfeifer: We delivered our first quarter in line with expectations and I am confident that we have the right team to execute our priorities regardless of the current macroeconomic environment.
John Pfeifer: We believe our industry, leading brands strong product portfolio and strategic initiatives will serve us well and position us for long term growth.
Pat: I'll now turn it back over to Pat for Q&A. Thanks.
Speaker Change: Thanks, John I'd like to remind everybody. Please limit your questions to one plus a follow up and please stay disciplined on your follow up question. After the follow up we ask that you rejoin the queue. If you have additional questions. Operator, please begin the Q&A session.
Speaker Change: Thank you we will now be conducting a question and answer session again, we ask that all callers limit themselves to one question and one follow up if you have additional questions you may re queue and those questions will be addressed time permitting.
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Speaker Change: One moment, please while we poll for questions.
Speaker Change: Thank you. Our first question comes from the line of Stephen Volkmann with Jefferies. Please proceed with your question.
Speaker Change: Yeah.
Stephen Volkmann: Hi, good morning, guys.
Stephen Volkmann: I'm going to lead off with a question on tariffs and I bet you didn't expect that.
Yeah.
Speaker Change: Yeah, So big picture I'm curious, John how Youre thinking about this last time, we had tariffs you were able to basically offset all of that with price but.
Speaker Change: Let's be clear I mean, this time it seems like the demand environment is not quite as robust so.
Speaker Change: Do you think over time that we should still expect that that you'll be able to recapture whatever tariffs sort of handy here.
Steve: So I'll tell you the way thanks for the question Steve.
I'll tell you our ammo I mean, our ammo right now is we want to minimize impacts that we pass onto our customers. Now you know we have pricing power in all of our end markets because we lead in all the end markets that we serve but our ammo is to try to minimize impact to customers.
Steve: And so so we want to use that as our last lever. We've got a lot of initiatives right. Now. These tariffs are targeted there as we kind of have the top three areas that we have to mitigate tariffs in terms of countries in the world and if we mitigate those top three we mitigate the vast majority of problem that we.
Steve: See ahead of us that's what the tariffs as they are today and so where we are laser focused on doing that I talked on the on my prepared remarks about what we were able to do in in Europe in a very short period of time to deal with European tariffs on China, and we will continue to do that same type of work here, but we.
Steve: Have pricing power, but the M. O is we don't want to pass a whole lot on the customers of weak if we can avoid it because of what you said, there's a there's elasticity of demand in any market and so we want to be prudent about how we go about this.
Speaker Change: Got it and my extremely disciplined follow up as last time, it took quite a while to pass some of this through given long backlogs and various types of pricing.
Steve: So just any comments there.
Steve: What we learned last time as what everyone learned today, we do have pricing power, but b. When we had general inflation and this was not just U S. Inflation was general inflation that was global it did take us a little bit of time and some of our end markets to realize the price because of big backlogs and contractual obligations and so forth. So we've been able to.
Steve: To change the way, we do business to give ourselves more flexibility.
Steve: Now versus what we had a few years ago during the rapid inflation years. So we definitely feel good about that but I'll come back to say in our M. O is to try to minimize disruption for our customers.
Steve: Thank you guys.
Steve: Thanks, Steve.
Speaker Change: Our next question comes from the line of Mig <unk> with Baird. Please proceed with your question.
Speaker Change: Alright, thanks, and good morning.
Speaker Change: Just on this tariff topic.
Speaker Change: I'm curious if you can maybe.
Speaker Change: Give us a little more clarity in terms of where the cost headwinds are here as you said you've manufactured things.
Speaker Change: Things in the U S. So presumably I would imagine this has to do with components.
Speaker Change: Maybe you can highlight.
Speaker Change: Maybe you can highlight some of the key countries that we need to watch for here just in case policy changes so that we get an understanding as to how your cost structure might evolve.
Matt Field: Good morning, Matt.
Matt Field: If you think about our exposures fundamentally you'd think about the three segments access is the most global of the segments.
Matt Field: And so there you know you've got a broader supply chain, obviously with the rate at which tariffs were put in China has the outsized impact just given the overall tariff amount.
Matt Field: Amount there.
Matt Field: And then we do source some from Europe in that global supply chain. The other two segments have a much more U S focused supply chain.
Matt Field: And so really in terms of mitigation, it's about negotiation sourcing and all of those normal toolkit things you'd used for tariffs, which are slightly different than what you would use for general inflation.
Matt Field: Alright understood.
Matt Field: Then my follow up is on the defense segment of course, I guess, thank you for starting to break out the <unk>. So that we see the revenue there.
Matt Field: Can you comment at all in terms of how that revenue should ramp maybe what the exit rate.
Matt Field: Run rate is going to look like in the fourth quarter and then relative to your initial guidance.
Matt Field: For segment margin, how should we think about the cadence of margin.
Matt Field: Now, we're starting the year and breakeven basis. Thank you.
Matt Field:
Matt Field: In defence, we've always talked about how we will exit the year at full year run rate in that 16 to 20000 units of a N. G. D V production, obviously, the first quarter it would be the lowest quarter. When we said that should be about linear across the year. So so that's really how I would how I'd think about the revenue.
Matt Field: <unk>.
Matt Field: In terms of you know margins in defense, you would expect that to ramp up sequentially as well to support.
Matt Field: To support a reasonable rate as we guided earlier in the year.
Matt Field: Net of.
Matt Field: Crude out there thats obviously in.
In the Q1 did not influence our outlook for the year at all.
Matt Field: A little bit of tariff impact.
Matt Field: But mostly the Q1 being breakeven.
Matt Field: That did not influence our confidence that defense was going to do exactly what we expected to do.
Matt Field: Alright, thank you.
Speaker Change: Our next question comes from the line of Jamie Cook with Truest. Please proceed with your question.
Jamie Cook: Hi, good morning.
Matt Field: Two questions.
Speaker Change: Sorry.
Speaker Change: Tariff questions for you there but of the.
Speaker Change: Dollar headwind that you're talking about is there any way you could allocate that sort of across the segment. It sounds like most of that would had access and then I'm just trying to figure out of the 50 <unk> just more go to access as well so any.
Speaker Change: Help there would be.
Speaker Change: Helpful helpful. Thank you.
Jamie Cook: Hi, Jamie Thanks for the question so as I mentioned.
Jamie Cook: Most of the cost elements would be access in terms of how the cost flow through on tariffs.
Jamie Cook: Cost offset so those will be broad based across the company. So it would be difficult for me to allocate that specifically to the segments.
Jamie Cook: But I mean I'm, assuming the bulk like over half you mean like 70 or the majority of that is is all access because I'm just trying to think about the implications for margins I mean, I think before you guys were targeting a 13% margin for the year.
Jamie Cook: So obviously that's off the table, but I'm just trying to think how hello margins go there.
Jamie Cook: We're not going to provide specific guidance on margin by segment relative to the tariff impacts because we see this up to up to a dollar and obviously, it's a dynamic environment. So we're gonna have to adjust as you know has policies evolve.
Jamie Cook: Okay.
Jamie Cook: And then I guess just back.
Jamie Cook: Back to access again.
Jamie Cook: John any color I guess, just broadly across the board any color in terms of as you're talking.
Jamie Cook: To customers.
Speaker Change: With regards to tariffs just theirs.
Jamie Cook: Their sentiment.
Jamie Cook: So far the results I think across the board hasn't been as bad as people would've thought so I'm, just wondering what youre thinking or hearing how customers are.
Thank you, yes sure.
Jamie Cook: Great relationships with our customers.
Jamie Cook: And we've talked to them all the time of course.
Jamie Cook: If you look at our customers I think they've got a pretty balanced view on 2025, I think the best indicator is our backlog coming out of the quarter at $1 8 billion $1 $8 billion backlog for access is a very healthy backlog coming into two of Q2.
Jamie Cook: And as was the order rate throughout the first quarter. So so that's kind of a metric that I always point to.
Jamie Cook: Does it indicates what customers expect but underneath that you know you you hear our customers talk about fleet productivity or are they talk about utilization rates. Those are both you know in a in a healthy range.
Jamie Cook: There is no deep fleeting that's happening in the market.
Jamie Cook: <unk>.
Jamie Cook: So so that the customer sentiment is.
Jamie Cook: <unk> to be what we would expect coming into Q2 and I think in line with with our expectations. When we provided guidance a one quarter ago. So so.
Jamie Cook: It's continuing to stay the course.
Jamie Cook: Thank you.
Speaker Change: Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.
Jerry Revich: Yes, hi, good morning, everyone.
Jerry Revich: So I'm wondering if I if I could ask.
Jerry Revich: In terms of orders that you folks are taking today can you just talk about the terms that you're implementing by business to provide protection just in case tariffs are.
Jerry Revich: At the high end of the expectation range can you just talk about the parameters for fire trucks in particular that are in backlog.
Jerry Revich: John in terms of what kind of protection you folks might have on that book of business given the long lead times.
Jerry Revich: So all I'll tell you a lot of the work that all the work that you're referring to was already done.
Jerry Revich: Quite a while ago because as I mentioned earlier, when we have the ramping inflation a few years ago.
Jerry Revich: We have pricing power, but it took us a little while to realize that because the big backlogs. So we corrected that in our end markets. So some of those end markets.
Jerry Revich: Have different Ts and CS and others. Because you know you have in one end market or bonded order with municipality and another end market is.
Jerry Revich: It is more private.
Jerry Revich: Our customer work, but we have those terms and conditions in and they vary depending on the end market, we feel comfortable with with where those are but I want to go back and reemphasize our ammo.
Jerry Revich: The tariffs are probably going to lead to some price increases, but our M. O is to try to minimize that impact on the customer.
Jerry Revich: Dan because any market has elasticity to demand and we think we know that and we want to minimize the impact I think we have a better chance of minimizing this impact because in the inflationary period of 21 to 'twenty three it was broad based and global.
Jerry Revich: A lot of places you could wrong.
Jerry Revich: When we have the tariff scenario, while its relatively broad based there. There are we know exactly where the impact for us is and where it is not and we know therefore in very targeted ways, where we can where we can focus to be able to mitigate the impact of tariffs over time and that's what we'll be doing.
Speaker Change: Okay Super and then just to shift gears.
Jerry Revich: Capital deployment is.
Speaker Change: Been a big focus for you folks are doing really well.
Speaker Change: Do you see an opportunity in the current environment for meaningful M&A or is the focus here, let's make sure we execute on them.
Speaker Change: Manufacturing transition.
Speaker Change: Well you know at mitigating tariffs is job one right now of course right.
Speaker Change: I mean, I think probably everybody would tell you that but we havent, we havent and we do have an active.
Speaker Change: Corporate development group, we have what we always call an always on approach and our team is looking at opportunities all the time.
Speaker Change: And we you know we still have a strong balance sheet. So we have capacity.
Speaker Change: I'll tell you what we looked at you know when we look at our M&A work to be a little bit more focused on it we look at growth and healthy segments.
Speaker Change: Within our vocational segment and near Adjacencies to that we look at growth and resiliency in our access segments and we look at targets with recurring good recurring revenue streams, but I want to point out I do want to point out that.
Speaker Change: Now, we carefully scrutinize, our capital allocation priorities and will always re and always no matter, what the case reinvest in our businesses organically, but but really right now in this period of time I will say that returning money to shareholders. When our multiple is where it is.
Speaker Change: <unk> becomes a bigger and bigger priority.
Speaker Change: Thank you.
Speaker Change: Thanks Jerry.
Speaker Change: Our next question comes from the line of Angel Castillo with Morgan Stanley. Please proceed with your question.
Speaker Change: Hi, This is brendon on for Angel, if I could just touch on access quickly. So you noted not seeing material impact from tariffs to customer demand yet the volumes there were a bit of a headwind. So just kind of higher level. If you could give more color on what youre seeing in terms of the overall construction market conditions.
Speaker Change: In the U S and Europe, and how that might be impacting the.
Speaker Change: The higher sales discounts that you noted in the quarter. Thanks.
Speaker Change: Yeah, you know I think that when you look at demand in the access equipment segment demand is really still strong and healthy and you hear our customers talk about it those that are public companies are really solid with Mega projects thing you know, whether it's an infrastructure project or it's a data center and those in particular.
Speaker Change: <unk> you know the backlog certainly supports that outlook.
Speaker Change: And.
Speaker Change: I think customers are seeing relatively healthy.
Speaker Change: Hum.
Speaker Change: Demand in non construction environments, you have to remember our equipment goes into a lot of end markets that have nothing to do with construction in those markets are holding up fairly well I think the area that we're seeing weakness in this is this is probably not new it's in the kind of the private nonresidential construction markets Theres a lot of projects out there.
Speaker Change: But theres a lot of projects that are kind of in wait and see mode. We're kind of on hold right now interest rates are still high and I think that that's why we gave the original guide that we did when we came into the year that that you know we guided that it will be down about 15% our access market, we're kind of holding to that right now we still think that that's our outlook.
Speaker Change: And that's driven again by that private non res construction market. That's there's a lot of there's a lot on deck just that you know with with the conditions, where they are you know people have to come up to bat and you know that but that's in line with our guidance. That's all in line with our guidance.
Speaker Change: Okay, great. Thank you for that and then for my follow up if I, if we could talk on vocational.
Speaker Change: Just what's driving the strong performance in refuse and recycling that you've seen and how does that compare I guess to your end.
Speaker Change: <unk> expectations. Thank you.
Speaker Change: Yeah, I think that.
Speaker Change: The refuse and recycling markets one we'd been optimistic about for a long time, we like the market, we like the resiliency of the market we.
Speaker Change: We like the customers, we like the the the need and the desire for us to apply our technological capability, whether it's autonomous functionality, our electrification to lower costs those types of opportunities, but so we've made some investments in this marketplace and in some of the you've seen the product investments. If you went to the CES show.
Speaker Change: So if you if you go.
Speaker Change: To waste Expo, that's coming up shortly you'll see a lot of new technology that we've we've come out come out with to to drive productivity in the end markets. We also made an investment in our manufacturing capability, we really have state of the art manufacturing now and we're getting youre seeing the fruits of that investment right now as that the pre.
Speaker Change: Activity in our plants is up dramatically the output is really healthy and that's what's driving some of these results and we expect that that will continue.
Speaker Change: Got it thank you.
Speaker Change: Thanks Brendan.
Speaker Change: Our next question comes from the line of Tami Zakaria with Jpmorgan. Please proceed with your question.
Tami Zakaria: Hey, good morning. Thank you so much to access margins were quite impressive given the pullback in sales in the first quarter. So just.
Speaker Change: Just wanted to get some color on the second quarter, usually it's a sequential step up but given all the time, how should we think about access margin in <unk> versus what we saw in this quarter.
Speaker Change: Hi, Tammy thanks for pointing out the resilience and access it's good to have a positive question like that we talked on our Q4 call about the work. The access team has done to improve resilience and in a relatively down here and what you're seeing in the first quarter and what we got.
Speaker Change: Two for the year and inherent in the original $11 was that resilience in margin. So you know set aside tariffs I would expect second and third quarter to be stronger than the first we did talk about that on the Q4 call that first quarter will be our lowest quarter you throw in tariffs, we still expect second quarter to be.
Speaker Change: Quite strong just because you don't really see a tariff impact because of inventories in the second quarter, you know beyond that.
Speaker Change: We referenced that the guidance we've provided in terms of the dollars and the offsets, but you know it's.
Speaker Change: It's difficult to say, how the rest of the year shapes up.
Speaker Change: Understood and then just a follow up is the $1 EPS headwind.
Speaker Change: It's essentially a partial year number and I'm not not not an annualized headwind.
Speaker Change: Assuming the tests go ahead.
Speaker Change: Yeah No no. That's that's that's right. So for this year, we see that as a dollar mostly back half loaded obviously, just how tariffs will work obviously over time, we have more levers resourcing is is a bit of a lag you can't do that in day, one and so that one dollar would be the impact on this year.
Speaker Change: And again, we've got levers, we pull over time, depending on on Hum.
Speaker Change: How would the tariffs work and how Theyre instituted yes, Tammy you know a good point the one dollar as a partial year number, but we are not standing still.
You know I talked about how quickly we were able to move to mitigate European tariffs, which is a pretty big number by the way that we were able to mitigate we're doing the exact same thing with these tariffs were not standing still.
Speaker Change: We will continue to drive activity.
Speaker Change: And minimize any you know our intent is to minimize as much as we possibly can for 2026 and beyond in that and that we believe we can minimize or minimize and mitigate a significant portion of those.
Speaker Change: That's wonderful thank you.
Speaker Change: Thanks Tammy.
Speaker Change: Our next question comes from the line of Kyle Mendez with Citi. Please proceed with your question.
Speaker Change: Yeah.
Speaker Change: Alright, Thanks for taking the question I just had a couple on just digging into the segment revenue results a little bit more like starting with access.
Speaker Change: Tell a handler sales were certainly down a little bit more than I anticipated and down actually quite a bit more than that AWP is in the quarter. So if you could just provide some color or help me understand kind of what drove that and I guess, that's not already seen the impact of the loss of the cat contract like is that what that is.
Speaker Change: And if some of the cat impact is in there yet, but I would caution you not to look too much into the first quarter revenue.
Speaker Change: Across the the access.
Speaker Change: Business because the first quarter is.
Speaker Change: Second quarter and third quarter are much more indicative of what the health of the market looks like while tell a handler sales were down in the quarter I'll just point to the fact that our market share continues to climb until a handler business.
Speaker Change: So this has not impacted our decision or our outlook at all in the long term health of the tell a handler market, where it's going where we're going with it why we put in investments into manufacturing. These products that all as we're as confident about that today.
Speaker Change: As we've ever been.
Speaker Change: And just because the sales were down until our handlers in Q1 doesn't change that.
Speaker Change: And again I'll point to the fact that we continue to have the leading share on this market and a growing share in the market.
Speaker Change: Helpful. Thanks, and then just looking at the refuse and recycling side I mean, those revenues were up quite a bit in the quarter.
Speaker Change: Could you just help us understand how much of that is market growth versus you're outgrowing the market.
Speaker Change: And then I guess later in some impact assumes as you stock dealers as you move to a more of a distribution model and I guess could that create a tough comp for next year.
Speaker Change: I do.
Speaker Change: Don't expect it to create a tough comp for next year now you've pointed out two things number one yeah, we have been able to because our production investments are paying off we've been able to catch up a little bit in the backlog that drove some of it but that was not the whole story you mentioned about the dealer network now so we've got a much more comprehensive go to.
Speaker Change: Market strategy that we've executed where we brought on fantastic fantastic dealer network highly professional lot of after sales service centers around the country with our dealer network that allows us to go into the small and mid sized refuse companies and really make sure we're serving them well along with R. R.
Speaker Change: Our big customers that are out there and you know the big customers names, we've been serving for a long time and there they're growing nicely as well. So I think that the that that dealer network that we brought on yes, that's starting to help us grow, but we don't see a scenario, where it's going to create you know.
Speaker Change: A big Spike in a comp problem next year, we do not see that.
Speaker Change: Helpful. Thank you.
Speaker Change: Thanks Kyle.
Speaker Change: Our next question comes from the line of Chad Dillard with Bernstein. Please proceed with your question.
Chad Dillard: Hi, good morning, guys.
Chad Dillard: Okay. So.
Chad Dillard: So my question is on the the one dollar impacts from from tests that you guys are guiding to.
Chad Dillard: It sounds like it's very backend load is it fair to say nearly all of the whole dollar goes into <unk> and <unk> and then secondly on the safety and mitigation efforts.
Chad Dillard: Is that mainly cost are you embedding some price increase.
Chad Dillard: And then secondly is that more like a <unk> or <unk> event.
Speaker Change: And then I guess, Mike what did you think in terms of.
Chad Dillard: When that P&L impact actually it's.
Chad Dillard: Hi, Chad.
Chad Dillard: If you think about the dollar and a 50% offset I would say, they're both Q3 Q4, primarily.
Chad Dillard: Because again.
Chad Dillard: The cost actions are really taking hold on spending restraining growth slowing.
Chad Dillard: Slowing down hiring all of those things.
Chad Dillard: And then the tariff impact obviously that net of mitigation efforts would.
Chad Dillard: It would be mostly Q3 Q4 as well.
Speaker Change: Got it and the breakdown between cost versus price increases.
Speaker Change: It's it's all it's all in there so any of the cost actions and in any pricing associated with tariffs would be in the dollar and the 50 cents really is on you know overall corporate costs belt tightening and so forth.
Speaker Change: Chad.
Chad Dillard: Our plan is kind of.
Chad Dillard: Short term and then longer term. So you know cause to mitigate these tariffs. It takes work it takes engineering work you're doing supply chain reorganization.
Chad Dillard: That type of activity and you can't do that overnight that takes that takes some time.
Chad Dillard: And so in the short term what we do is we really tightened the belt up a few notches and go after any cost that we can go after in the short term period to mitigate the tariffs until we get to the point, where the longer term strategies kick in and that provides benefit in 'twenty, six and beyond but that 25.
Chad Dillard: Is really tightening up the belt to.
Chad Dillard: To make sure we protect the year and protect our customers.
Speaker Change: Okay, that's super helpful color.
Speaker Change: Just shifting gears.
Speaker Change: On the fire side of your business just more broadly I mean, where do you think we are in that replacement cycle and you had a strong couple of years I would just love to get some color on in terms of like what inning, we are in and how you're thinking about that business as we look towards the next one to two years.
Speaker Change: Yeah, I think that the fire markets is gonna be a really healthy market for the foreseeable future and we did see a spike in the market are coming out of Covid. It went way up beyond anybody's forecast and that's why I lead times have gotten along for the industry and the industry will recover from that as we put capacity.
Speaker Change: <unk> in place to be able to to meet the current demand environment. So going forward why why are we confident this is going to continue to be a healthy market for us were competent because theres aged fleets in the market all over the country. There's age fleets. We know what the fleet age is we talk to fire departments, all the time and we know what.
They are their desire is for upgrading their fleets.
Speaker Change: And to that you see a lot of technological upgrades that we're introducing in niche we shut them off at at at.
Speaker Change: At the consumer electronics show in Las Vegas in F. F. D. I C. We had all sorts of technology on display at FDIC in Indianapolis, just recently and this is desired by municipalities. They want these types of technologies that promotes safety and productivity for the most important.
Speaker Change: The vehicles in just about any community that there is and that demand because of the age fleet because of the desire for that technology. We believe is going to when you look at the size of the fleet and where half the fleet age is fairly aged that tells us that this is gonna be a healthy market for the <unk>.
Speaker Change: Seeable future in our forecast now I'm, not saying, it's going to be at.
Speaker Change: Went it spiked up coming out of the pandemic to a to a pretty high level I'm, not saying, it's going to stay up there, but it doesn't need to stay up there just needs to be healthy consistent growth over over a long period of time, and we'll be able to satisfy the industry with the new innovations, we're bringing forward.
Speaker Change: Got it thank you.
Chad Dillard: Thanks, Chad.
Speaker Change: Our next question comes from the line of Steve Barger with Keybanc. Please proceed with your question.
Steve Barger: Hey, good morning.
Speaker Change: For the full year 2024 vocational incremental margin ran at 27% and it was better than that in <unk>. So when you think about planned capacity actions and mix in the upcoming production schedule should we think that segment can keep running at 27% or better for the year.
Speaker Change: So the first quarter was very strong result, and access we were pleased to see that last year was strong we are making.
Speaker Change: Yes.
Speaker Change: Sorry, vocational too many questions on access sorry [laughter].
Speaker Change: So vocational has had strong results we continue to make investments in capacity. So some of those investments will reduce that incrementally as we put down cost to drive volume over time.
Speaker Change: But overall, we do continue to believe as we've talked about before in the strength of vocational and the opportunities we have there whether that's in a fire.
Speaker Change: Talked earlier, but also in refuse where you see continued strength based off the capacity we put in place over the last couple of years.
Speaker Change: [noise] capacity not withstanding you you don't expect a negative mix like Youll still continue to monetize better pricing and that sort of thing in the backlog.
Speaker Change: Yeah, we have a considerable pricing still in the backlog to flush out as we build and so the more capacity we can put in place the more we build a head units that are planning for the future.
Speaker Change: Got it and I know you are agnostic to drive train.
Speaker Change: And it's mostly ice to start but any update on guidance, you're getting in terms of mix for internal combustion versus battery electric for N. G. D V.
Speaker Change: You know we talked parcel service all the time, we had the entire leadership team of the postal service at our plant in Spartanburg, South Carolina. Just recently it was a phenomenal visit they saw the product being produced down down a production line. We were just with them earlier this week at the National Postal Forum.
Speaker Change: It is stay the course, we need vehicles.
Speaker Change: The vehicle is performing exceptionally well and we feel really good about it. So the simple answer to your question is there has not been any mix shifts that are taking both internal combustion and they're taking battery electric.
Speaker Change: Staying in the course that they've been on a we're happy to supply them with whatever mix that they want.
Speaker Change: And we'll let them make that decision, but at this point, where we're continuing we're continuing to stay the course per their direction.
Speaker Change: Alright. Thanks.
Steve Barger: Thanks, Steve.
Speaker Change: Our next question comes from the line of Judah, Iran of it with UBS. Please proceed with your question.
Judah Iran: Hey, good morning, calling in for Steve Fisher on the catch up adjustment in defense, which programs was that tied to and how should we think about risk.
Speaker Change: Going forward.
Speaker Change: Hi, Judah it's Matt so in terms of the CCA really that's a function of continued line rebalancing we're doing in defense and so you had a catch up adjustment on J L. T V. As we were building up those lost units as well as F. M. T V. Those are the two primary programs you shouldn't you can.
Speaker Change: Can't expect future CCA is necessarily because the very nature of the accounting that results in a CCA as you're you're putting forward your projection of what's going to happen in the future into that so I wanted to expect any material CCA going forward.
Speaker Change: Based on what we see today.
Speaker Change: Thanks.
Speaker Change: Our next question comes from the line of David Raso with Evercore. Please proceed with your question.
David Raso: Hi, Thank you just one clear and I apologize its been hopping between calls Theres no change in the segment guidance is from before.
Speaker Change: Sept for allocating the 50 cent drag in the guide.
Speaker Change: And that most of that hit or if he can help me with the mix of the hit that goes to access versus the other businesses I know, it's a large part of it is that correct no change to the to the to the revenue by segments just to change on the net 50 cent cost mostly second half in majority access is that correct.
Speaker Change: Hey, David I think that's a fair characterization I mean this is a dynamic environment. So you know spreading out the exact revenue impacts and how that works exactly by segment is difficult to do you know, we reiterated that without tariffs, we would be comfortable with the $11 and the guidance, we put out including by segments and margin.
Speaker Change: <unk>.
Speaker Change: With the tariff impact the dollar and then the cost offset a 50 cents.
Speaker Change: Right.
Speaker Change: It's more difficult to provide specific guidance to the level. We did it earlier, but I think broad based you you've characterized that correctly.
Speaker Change: But it's fair to say of the net call it 42, and a half million $42 million pretax right. The net not the dollar the 50 cents.
Speaker Change: Is a large majority just to be clear should be access because I'm just trying to think through the margins for the rest of the year ex tariffs, you're implying decrementals at around 30% for access and again. This is keeping our original revenue guide, which seems a pretty impressive result, given the magnitude.
Speaker Change: The revenue decline.
Speaker Change: And then also have to layer in the related tariffs. So that's what we're looking for a little guidance of the 42 ish million of pre tax.
Speaker Change: Hit.
Speaker Change: In the second half net should we apply again, the large majority 30 million plus 35 million plus to access.
Speaker Change: Just if we had to do it.
Speaker Change: I can't do a little bit.
Speaker Change: Yeah, I can't be as explicit and precise is what you're asking but I think you can think of the broad brush of the dollar hitting access of 50 cents will be more spread across the company based off our cost structure Decrementals when we set up our guidance and access was about 33%.
Speaker Change: With the with the allocation of the dollar and tariff impact.
Speaker Change: That'll move around some.
Speaker Change: Or that Theyre not itself I know, it's not easy I'm just we're all in the same boat here trying to model the unknown and when it comes to the cadence of the revenues for the rest of the year right. The rest of the year access revenue growths implied down 12. After the down 23, we just saw.
Speaker Change: Just just curious any from independents and majors too.
Speaker Change: Just curious when we think about that cadence has anything changed from the original view of how we stepped down from the first quarter declined to the rest of the you're only being down 12 has it pushed out a little bit due to uncertainty is it customers, saying, Hey, if you can promise me a price I'll take it a little bit earlier, just curious on the cadence.
David Raso: Well at this point David.
Speaker Change: It has not changed.
Speaker Change: You know in the first quarter, we had a higher mix towards independence than we did to the to the big Nationals and that's primarily because on the first quarter people are positioning fleet for the construction season. So you know some want it in the end of the first quarter. Some want it earlier in the fourth quarter, depending on what their situation is.
Speaker Change: So we expect the mix to shift back more towards the nationals as the year as the year goes on.
Speaker Change: And that's what we're seeing I'd say, that's you know in total that's in line with what we expected at the beginning of the year, we have not seen any any significant moves that would cause us to change that outlook at this time on the revenue side.
Speaker Change: You know and and going back to your first question on the tariffs.
Speaker Change: This does change on a regular basis you know we have had multiple different scenarios that we've been addressing is that as the situation continues continues to evolve.
Speaker Change: And as.
Speaker Change: As things continue to evolve over the next between now and July that'll continue but we have we have a pretty good fairly aggressive plans for what we know now to address those tariffs.
Speaker Change: Which will again short term it is tightening your belt.
Speaker Change: Reduce cost in 2025 longer term the initiatives kick in on Resourcing and negotiations with suppliers and all that kind of stuff you have to do.
Speaker Change: That starts to kick in more you know from 2026 onward.
Speaker Change: Yeah, I mean, you're just in a hard situation of do we go ahead and make the move to mitigate and then we get a tweet and the changes, but I thought it was interesting the AWP Assembly moved to Italy. Following the you know the EU duties on China, Yeah, just curious like what what made that let's just go let's just do it versus maybe some hesitancy around citizens.
Speaker Change: It's out of Mexico, or whatever it may be I mean, I assume the general premises.
Speaker Change: Tariffs on China are going to stay fairly high so maybe it's a little bit easier to say we have to do something is at the other countries, where you're just sort of again tightening the belt, but we're not dying to make some real structural changes to our supply chain. So we really know what's going on.
Speaker Change: So with a European tariff about a year ago. It was because we knew what they were what they were going to do it or it evolved over a over a.
Speaker Change: A relatively reasonable amount of time and what when the when the writing was on the wall. We knew that that was something we could rely on and we had to react to it and we did very very quickly.
Speaker Change: In the in the tariffs that we're dealing with today and what's still going on as you said the rate in China is still in question, but it's a big rate and probably will be so so we'll we'll move forward with mitigation actions on that you've got lots of other countries that a blanket, 10%, but are trying to negotiate down.
Speaker Change: One for much higher tariffs that were that were announced in early April and the outcome of that is as important to US you know the desert country stay at the announced rate in early April up 24% or sometimes in the forties or does it does it get doesn't stay at 10% and.
Speaker Change: So those outcomes will impact some of the things that we do.
Speaker Change: I appreciate that thank you so much for the conversation.
Speaker Change: And I think they didn't have a great day.
Speaker Change: We have reached the end of the question and answer session. Mr. Davidson I'd like to turn the floor back over to you for closing comments alright.
Speaker Change: Alright, Thanks, Christine and thanks, everybody for joining us on this busy earnings day, we look forward to speaking with you at a conference or perhaps during our Investor day scheduled for Thursday morning June 5th in New York, So I have a great rest of the day and week.
Speaker Change: 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.