Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Oshkosh Corp (OSK, Financial) reported a strong quarter with an 18% year-over-year revenue growth and a 36% increase in adjusted operating income.
- The company achieved an adjusted operating margin of 11.5% and an adjusted EPS of $3.34.
- Oshkosh Corp (OSK) began delivering next-generation delivery vehicles (NGDVs) to the United States Postal Service, marking a significant milestone.
- The company raised its full-year outlook for adjusted EPS to $11.75 per share.
- The vocational segment achieved strong year-over-year organic revenue growth of 11%, with an impressive adjusted operating margin of 14.1%.
Negative Points
- Orders in the access segment were lower than last year, as expected, due to being largely booked for new equipment for the year.
- The company recognized intangible asset impairments of $51.6 million during the quarter due to market conditions at Pratt Miller.
- The defense segment is winding down domestic JLTV production, which will impact revenue in early 2025.
- The company expects higher working capital at year-end, leading to a reduction in the free cash flow estimate by $50 million to $375 million.
- There are anticipated higher material costs, higher new product development investments, and plant start-up costs expected in the third quarter.
Q & A Highlights
Q: Can you provide more color on the access outlook for the second half of the year, particularly regarding customer mix and market dynamics?
A: Michael Pack, Executive Vice President and Chief Financial Officer: The mix is slightly less favorable in the second half, partly due to customer and product mix. This is a timing issue rather than a demand issue. We also expect higher new product development (NPD) and plant start-up costs in the second half.
Q: How should we think about the margin trajectory for the vocational segment in the back half of the year?
A: Michael Pack, Executive Vice President and Chief Financial Officer: We expect solid margins, driven by strong backlog and pricing. However, higher start-up costs and NPD investments, along with fewer production days in Q4, will impact margins.
Q: What is the outlook for access equipment demand in 2025, and how will the ramp-up of telehandlers production impact this?
A: John Pfeifer, President, Chief Executive Officer, Director: We expect 2025 sales to be in the range of 2024, driven by healthy market dynamics and customer discussions. The ramp-up of telehandlers production will primarily impact 2024, with no significant carryover into 2025.
Q: Can you elaborate on the impact of tariffs on your European business and how you plan to mitigate this?
A: John Pfeifer, President, Chief Executive Officer, Director: Tariffs on Chinese-made goods entering Europe will impact us, but we have strategies to mitigate this, including recent acquisitions in Europe that provide localization options. Our European business represents about 10% of total revenue.
Q: How should we think about the margin cadence for the defense segment, particularly with the NGDV ramp-up and JLTV ramp-down?
A: Michael Pack, Executive Vice President and Chief Financial Officer: NGDV revenue will ramp up through 2025, offsetting the decline in JLTV revenue. We expect defense margins to improve as we secure fixed sole-source contracts and ramp up NGDV production.
Q: What are the key drivers behind the strong performance in the vocational segment, particularly in Pierce and AeroTech?
A: Michael Pack, Executive Vice President and Chief Financial Officer: Strong demand and backlog in Pierce fire trucks and AeroTech equipment, supported by robust market conditions and strategic investments, are driving performance. We expect continued growth and margin improvement.
Q: Can you provide more details on the transition to a dealer network for the Refuse and Recycling vehicle business?
A: Michael Pack, Executive Vice President and Chief Financial Officer: The transition to a dealer network will enhance penetration for new sales and aftermarket services, particularly for non-fleet customers. We expect this to drive growth and improve lifecycle business.
Q: How do you view the order timing and demand for access equipment in Q4 compared to previous years?
A: John Pfeifer, President, Chief Executive Officer, Director: We expect Q4 orders to be significant, driven by customers planning for 2025. The current $3.3 billion backlog already includes some 2025 orders, indicating strong demand.
Q: Can you elaborate on the impact of higher working capital on the free cash flow guidance?
A: Michael Pack, Executive Vice President and Chief Financial Officer: Higher working capital is due to new product development programs and facility start-ups. This is a temporary phenomenon, and we expect it to unwind quickly in 2025.
Q: How does the acquisition of AUSA impact your business and backlog?
A: Michael Pack, Executive Vice President and Chief Financial Officer: The acquisition of AUSA, with 2023 revenue of about $140 million, will not significantly impact backlog but provides strong margins and growth opportunities, particularly in Europe.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
