Cautionary Statement About Forward-Looking Statements
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Quarterly Report on Form 10-Q contain
statements that Oshkosh Corporation (the "Company") believes to be
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements other than statements of
historical fact included in this Quarterly Report on Form 10-Q, including,
without limitation, statements regarding the Company's future financial
position, business strategy, targets, projected sales, costs, earnings, capital
expenditures, debt levels and cash flows, and plans and objectives of management
for future operations, including those under the caption "Executive Overview"
are forward-looking statements. When used in this Quarterly Report on Form 10-Q,
words such as "may," "will," "expect," "intend," "estimate," "anticipate,"
"believe," "should," "project" or "plan" or the negative thereof or variations
thereon or similar terminology are generally intended to identify
forward-looking statements. These forward-looking statements are not guarantees
of future performance and are subject to risks, uncertainties, assumptions and
other factors, some of which are beyond the Company's control, which could cause
actual results to differ materially from those expressed or implied by such
forward-looking statements. These factors include the overall impact of the
COVID-19 pandemic on the Company's business, results of operations and financial
condition; the duration and severity of the COVID-19 pandemic; actions that may
be taken by governmental authorities and others to address or otherwise mitigate
the impact of the COVID-19 pandemic; the negative impacts of the COVID-19
pandemic on global economies and the Company's customers, suppliers and
employees; the cyclical nature of the Company's access equipment, commercial and
fire & emergency markets, which are particularly impacted by the strength of
U.S. and European economies and construction seasons; the Company's ability to
increase prices or impose surcharges to raise margins or to offset higher input
costs, including increased commodity, raw material, labor and freight costs; the
Company's estimates of access equipment demand which, among other factors, is
influenced by customer historical buying patterns and rental company fleet
replacement strategies; the strength of the U.S. dollar and its impact on
Company exports, translation of foreign sales and the cost of purchased
materials; the expected level and timing of U.S. Department of Defense (DoD) and
international defense customer procurement of products and services and
acceptance of and funding or payments for such products and services; the
Company's ability to predict the level and timing of orders for indefinite
delivery/indefinite quantity contracts with the U.S. federal government; risks
related to reductions in government expenditures in light of U.S. defense budget
pressures and an uncertain DoD tactical wheeled vehicle strategy; the impact of
any DoD solicitation for competition for future contracts to produce military
vehicles; risks related to facilities expansion, consolidation and alignment,
including the amounts of related costs and charges and that anticipated cost
savings may not be achieved; projected adoption rates of work at height
machinery in emerging markets; the impact of severe weather, natural disasters
or pandemics that may affect the Company, its suppliers or its customers;
performance issues with suppliers or subcontractors; risks related to the
collectability of receivables, particularly for those businesses with exposure
to construction markets; the cost of any warranty campaigns related to the
Company's products; risks associated with international operations and sales,
including compliance with the Foreign Corrupt Practices Act; risks that a trade
war and related tariffs could reduce the competitiveness of the Company's
products; the Company's ability to comply with complex laws and regulations
applicable to U.S. government contractors; cybersecurity risks and costs of
defending against, mitigating and responding to data security threats and
breaches; the Company's ability to successfully identify, complete and integrate
acquisitions and to realize the anticipated benefits associated with the same;
and risks related to the Company's ability to successfully execute on its
strategic road map and meet its long-term financial goals. Additional
information concerning these and other factors that could cause actual results
to differ materially from those in the forward-looking statements is contained
from time to time in the Company's U.S. Securities and Exchange Commission (SEC)
filings, including, but not limited to, the Company's Current Report on Form 8-K
filed with the SEC on January 27, 2021 and Item 1A. of Part II of this Quarterly
Report on Form 10-Q.
All forward-looking statements, including those under the caption "Executive
Overview," speak only as of the date the Company files this Quarterly Report on
Form 10-Q with the SEC. The Company assumes no obligation, and disclaims any
obligation, to update information contained in this Quarterly Report on Form
10-Q. Investors should be aware that the Company may not update such information
until the Company's next quarterly earnings conference call, if at all.
All references herein to earnings per share refer to earning per share assuming
dilution.
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General
Major products manufactured and marketed by each of the Company's business
segments are as follows:
Access Equipment - aerial work platforms and telehandlers used in a wide variety
of construction, industrial, institutional and general maintenance applications
to position workers and materials at elevated heights, as well as carriers and
wreckers. Access Equipment customers include equipment rental companies,
construction contractors, manufacturing companies, home improvement centers and
towing companies.
Defense - tactical trucks, trailers, supply parts and services sold to the U.S.
military and to other militaries around the world, as well as snow removal
vehicles for military and civilian airports.
Fire & Emergency - custom and commercial firefighting vehicles and equipment,
Aircraft Rescue and Firefighting (ARFF) vehicles, simulators, mobile command and
control vehicles and other emergency vehicles primarily sold to fire
departments, airports and other governmental units, as well as broadcast
vehicles sold to broadcasters and TV stations.
Commercial -refuse collection vehicles sold to commercial and municipal waste
haulers, concrete mixers sold to ready-mix companies and field service vehicles
and truck-mounted cranes sold to mining, construction and other companies.
Executive Overview
Disciplined execution in the midst of the ongoing COVID-19 pandemic led to the
Company reporting earnings per share of $1.01 in the first quarter of fiscal
2021. Although down from earnings per share of $1.10 in the first quarter of
fiscal 2020, the results reflected solid performance and exceeded the Company's
expectations despite having manufacturing locations in areas with high COVID-19
infection rates that resulted in production challenges in both the Defense and
Fire & Emergency segments during the quarter. The Access Equipment segment
benefited from some orders and deliveries late in the quarter as some customers
deployed more capital in the first quarter of fiscal 2021 than the Company
previously expected. Results for the first quarter of fiscal 2021 included $0.16
per share for cumulative catch-up adjustments in the Defense segment, up from
$0.04 per share in the first quarter of fiscal 2020, and $0.09 per share related
to the resolution of certain tax matters upon conclusion of an audit. Results
for the first quarter of fiscal 2021 also included after-tax charges of
$7.8 million, or $0.11 per share, associated with restructuring actions in the
Access Equipment segment as well as after-tax costs of $0.6 million, or $0.01
per share related to the Pratt Miller acquisition in the Defense segment.
Consolidated net sales in the first quarter of fiscal 2021 decreased
$118.6 million, or 7.0%, to $1.58 billion compared to the first quarter of
fiscal 2020. While the COVID-19 pandemic has impacted demand in the Access
Equipment and Commercial segments, the Defense and Fire & Emergency segments
both provided stability to the Company, with sales increasing in both segments
compared to the first quarter of fiscal 2020. Consolidated operating income was
$95.9 million, or 6.1% of sales, a decrease of 12.1% from the first quarter of
fiscal 2020. The decrease in consolidated operating income was primarily due to
the impact of lower gross margin associated with lower sales volume offset in
part by lower spending as a result of the COVID-19 pandemic.
The Company's balance sheet remains strong, with available liquidity of
$1.7 billion consisting of cash of $897 million and availability under the
Company's revolving line of credit of $832 million at the end of the first
quarter of fiscal 2021. The Company's Board of Directors approved a quarterly
dividend payment for the first quarter of fiscal 2021 of $0.33 per share.
The COVID-19 pandemic has continued to drive variability in the Company's
businesses as infection rates evolve around the country, creating challenges for
its customers, its suppliers and its operations. Further, the Company expects
higher steel costs to introduce additional headwinds for the back half of fiscal
2021. As a result of the dynamic environment and moving variables, the Company
is not providing quantitative expectations for fiscal 2021.
The Company is pleased with the annual negotiations with its key Access
Equipment segment customers over the past few months and the higher demand for
access equipment in the first quarter of fiscal 2021 versus its expectations.
The Company continues to expect that Access Equipment segment sales will be down
in the first half of fiscal 2021 versus the first half of fiscal 2020, and the
Company now believes that Access Equipment segment sales in the second half of
fiscal 2021 will return to year over year growth. The Company expects that the
second half sales growth in the Access Equipment segment will be sufficient to
yield sales growth on a full year basis for the segment. However, the magnitude
of expected full year sales growth is uncertain
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and remains highly dependent on the ongoing evolution of the COVID-19 pandemic
and the trajectory of recovery as the impact of the pandemic wanes. The Access
Equipment segment is implementing one-week shutdowns per month in U.S. factories
during the second quarter of fiscal 2021 to align production with customer
requirements. This represents an increased production rate versus the first
quarter of fiscal 2021 when the Access Equipment segment was shut down for
approximately two weeks per month. The Access Equipment segment expects to be to
normalized production levels by the end of the second quarter of fiscal 2021.
The Commercial segment continues to see softness in demand for refuse collection
vehicles and concrete mixers, while strong backlogs at the Defense and Fire &
Emergency segments provide good visibility for fiscal 2021.
The Company is closely monitoring steel costs, which have increased even more
rapidly over the past several weeks than in the Fall. The Company expects to
start seeing the impact of higher steel prices in the third and fourth quarter
of fiscal 2021. The magnitude and duration of the inflated costs are unknown at
this time.
On January 19, 2021, the Company acquired Pratt Miller, which specializes in
advanced engineering, technology and innovation across the motorsports and
multiple ground vehicle markets, for $115 million. Pratt Miller will be a wholly
owned subsidiary of the Defense segment.
Results of Operations
Analysis of Consolidated Net Sales
The following table presents net sales by business segment (in millions):
First Quarter Fiscal
2021 2020
Net sales:
Access Equipment $ 563.7 $ 717.9
Defense 550.3 500.4
Fire & Emergency 273.9 256.9
Commercial 195.7 224.2
Intersegment eliminations and other (7.1 ) (4.3 )
$ 1,576.5 $ 1,695.1
First Quarter Fiscal 2021 Compared to 2020
Consolidated net sales in the first quarter of fiscal 2021 decreased $118.6
million, or 7.0%, compared to the first quarter of fiscal 2020 as a result of a
decrease in sales in the Access Equipment and Commercial segments, offset in
part by higher Defense and Fire & Emergency segment sales.
Access Equipment segment net sales in the first quarter of fiscal 2021 decreased
$154.2 million, or 21.5%, compared to the first quarter of fiscal 2020. The
decrease in sales was due to lower market demand resulting from the economic
downturn as a result of COVID-19.
Defense segment net sales in the first quarter of fiscal 2021 increased $49.9
million, or 10.0%, compared to the first quarter of fiscal 2020 due to higher
aftermarket parts & service sales.
Fire & Emergency segment net sales in the first quarter of fiscal 2021 increased
$17.0 million, or 6.6%, compared to the first quarter of fiscal 2020 due to
higher ARFF vehicle volume as a number of multi-unit international awards were
recognized in the first quarter of fiscal 2021.
Commercial segment net sales in the first quarter of fiscal 2021 decreased $28.5
million, or 12.7%, compared to the first quarter of fiscal 2020 due to lower
demand caused by the COVID-19 pandemic and the impact of the sale of the
concrete batch plant business in the fourth quarter of fiscal 2020. Concrete
batch plant sales were $10.3 million in the first quarter of fiscal 2020.
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Analysis of Consolidated Cost of Sales
The following table presents cost of sales by business segment (in millions):
First Quarter Fiscal
2021 2020
Cost of sales:
Access Equipment $ 486.5 $ 582.7
Defense 470.8 442.1
Fire & Emergency 218.2 202.2
Commercial 165.2 182.3
Intersegment eliminations and other (6.8 ) (3.7 )
$ 1,333.9 $ 1,405.6
First Quarter Fiscal 2021 Compared to 2020
Consolidated cost of sales in the first quarter of fiscal 2021 was $1.33
billion, or 84.6% of sales, compared to $1.41 billion, or 82.9% of sales, in the
first quarter of fiscal 2020. The 170 basis point increase in cost of sales as a
percentage of sales was primarily due to unfavorable fixed manufacturing
absorption as a result of lower production volume related to temporary plant
shutdowns (130 basis points) and costs associated with restructuring actions in
the Access Equipment segment (50 basis points).
Access Equipment segment cost of sales in the first quarter of fiscal 2021 was
$486.5 million, or 86.3% of sales, compared to $582.7 million, or 81.2% of
sales, in the first quarter of fiscal 2020. The 510 basis point increase in cost
of sales as a percentage of sales was largely due to unfavorable fixed
manufacturing absorption as a result of lower production volume related to
temporary plant shutdowns (270 basis points), costs associated with
restructuring actions (140 basis points) and unfavorable price/cost dynamics
(130 basis points), offset in part by improved product mix (90 basis points).
Defense segment cost of sales in the first quarter of fiscal 2021 was $470.8
million, or 85.6% of sales, compared to $442.1 million, or 88.3% of sales, in
the first quarter of fiscal 2020. The 270 basis point decrease in cost of sales
as a percentage of sales was the result of improved product mix (180 basis
points) and larger cumulative catch-up adjustments on contract margins in the
first quarter of fiscal 2021 (170 basis points), offset in part by higher
engineering and product development costs (60 basis points).
Fire & Emergency segment cost of sales in the first quarter of fiscal 2021 was
$218.2 million, or 79.7% of sales, compared to $202.2 million, or 78.7% of
sales, in the first quarter of fiscal 2020. The 100 basis point increase in cost
of sales as a percentage of sales was primarily attributable to adverse product
mix (90 basis points) and unfavorable fixed manufacturing absorption as a result
of lower production volume (50 basis points).
Commercial segment cost of sales in the first quarter of fiscal 2021 was $165.2
million, or 84.4% of sales, compared to $182.3 million, or 81.3% of sales, in
the first quarter of fiscal 2020. The 310 basis point increase in cost of sales
as a percentage of sales was primarily attributable to unfavorable fixed
manufacturing absorption as a result of lower production volume (200 basis
points) and higher material costs (130 basis points).
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