Oshkosh Corporation (Holding Company)Common Stock

Greetings and welcome to Oshkosh Corporation reports fiscal 2020 second quarter results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I would now like to turn the conference over to your host, Pat Davidson, Senior Vice President of Investor Relations for Oshkosh Corporation. Thank you. You may begin.

Good morning and thanks for joining us. Earlier today we published our second quarter 2020 results. A copy of the release is available on our website at OshkoshCorp.com. Today's call is being webcast and is accompanied by a slide presentation which includes a reconciliation of GAAP and non-GAAP 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. 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. These risks include, among others, matters that we have described in our Form 8-K file 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. All references on this call to a quarter or a year are to our fiscal quarter or fiscal year, unless stated otherwise. Our presenters today include Wilson Jones, President and Chief Executive Officer, John Pfeiffer, Executive Vice President and Chief Operating Officer, and Mike Pack, Executive Vice President and Chief Financial Officer. On our last call, we introduced Mike as our CFO successor. He hit the ground running back in January, and today he'll be reporting on our financial results and discussing some of the actions we are taking. He's not a newcomer to Oshkosh. He's been with us for 14 years in roles of increasing responsibility and will continue to be a strong part of our leadership team going forward. So welcome to you, Mike. Please turn to slide three, everybody, and I'll turn it over to you, Wilson. Thank you, Pat.

Good morning, everyone. Before I share my general comments, I want to take a step back and remind everyone that we are truly a different Integrated Global Industrial Company. We are better positioned to navigate through a crisis like COVID-19 than ever before. We have a strong balance sheet and liquidity. We have strong backlogs in our defense and fire and emergency segments, giving us visibility well into 2021. And we have a strong people first culture driven to persevere through adversity. We responded quickly to the outbreak and have already developed a robust return to work plan that we continue to refine. With that said, we're all facing challenges brought on by the COVID-19 pandemic. Our first priority has been to keep our team members safe and to help reduce the spread of this virus. We're balancing that safety-focused approach with our responsibilities to customers as we supply them with essential products and services that operate in many critical industries. In fact, all of our products and services are considered essential. And we've received communication from the Department of Defense, requesting us to continue manufacturing defense vehicles and fire trucks. It's a tremendous responsibility, and we are proud of the important role we play in keeping our country safe. Our teams moved quickly when the virus came to light in the first part of the quarter. At that time, the business impact was isolated to China and didn't become a major issue in Europe or North America until later in the quarter. But we didn't wait. We began daily action meetings, including all key functional areas to assess risk regarding our people, our customers, our operations, our supply chains, and our communities. We've analyzed many scenarios as we strive to balance team member safety and protection while maintaining operations to serve our customers. Our office team members remain productive and are working remotely. For those team members required to be on site for production, we've implemented Center for Disease Control recommendations to promote social distancing, and to help keep our workplaces safe. We've gone beyond these stringent guidelines with staggered breaks and work schedules and increased access to disinfecting cleaning supplies and sanitizers. And our teams are investing time to extensively clean work areas to minimize the chances of infection among our 15,000 plus team members. I want to give a shout out to all Oshkosh team members for their passion and commitment, especially our manufacturing teams that are answering the call every single day. With near-term demand and supply chain challenges facing our businesses, we are squarely focused on managing our cost structure and preserving liquidity. We've instituted temporary plant shutdowns in our access equipment segment to match production and customer demand and supply chain constraints. And we've implemented salary reductions, furloughs, and other cost reduction actions across the company. We believe these cost reductions are a responsible way to manage the company during these unprecedented times. We have not made permanent staff reductions as we believe the crisis is temporary in nature. We've been through many challenges before and while COVID-19 is different, our business is well positioned to manage through this pandemic. I remain confident in our leaders, our people, and our ability to deliver healthy, detrimental margins for the year. Please turn to slide four for some highlights on the quarter. Revenues were down 9.7% to $1.8 billion leading to operating income of $134 million and adjusted earnings per share of $1.25. I'm proud of all the efforts the Oshkosh team members provided this quarter, and our people-first culture is alive and well to deliver these solid results. Late in our second quarter, we began to hear from customers in our access equipment segment that wanted to push out delivery requirements and cancel some existing orders. There were similar requests, but to a lesser extent, with our commercial segment. While COVID-19 has impacted demand in our access and commercial segments, demand was largely unaffected in both of our fire and emergency and defense segments. And these two segments have strong backlogs extending well into 2021 as we enter the back half of 2020. Again, this illustrates what makes us different from other industrials. John and Mike will talk more about these developments and the actions we are taking to drive our performance during this period. During the quarter, we did refinance our senior notes that were due in 2025, extending the maturity and lowering the interest rate, which will save us several million dollars per year. The market demand was very strong for our investment grade debt. And finally, our board has approved another quarterly dividend payment of 30 cents per share. Please turn to slide five to begin the discussion for each of our business segments. I'll start it off with defense. Our defense segment provides a solid foundation for the company, led by three strong programs of record, and the demand side of this business has been unaffected by the COVID-19 pandemic. You know the programs by their military acronyms, the JLTV, the High Tech Next Generation Light Payload Protected Tactical Wheeled Vehicle. JLTV production is still ramping up and we announced two more international customers for JLTVs in February. We also participated in the U.S. Army's Industry Day in preparation for a potential re-compete of the program in 2022. We are confident in our ability to retain this program. Under the current contract, we maintain strong visibility and expect to deliver JLTVs through 2024. Next up is the FMTV, which is the U.S. Army's medium payload tactical wheeled vehicle. Our production of the current A1P2 version is winding down, we are beginning the transition to the next generation version, the A2. We expect to produce the FMTV A2 through 2026 under the current contract. And finally, the pride of Oshkosh Defense for nearly 40 years, the FHTV. We really kicked off the modern off-road heavy payload tactical wheeled vehicle industry when the U.S. Army selected our entry in their open competition in the early 1980s. We've continued integrating new technologies and upgrading capabilities of these critical units over the past four decades. During the quarter, we received large orders for both the JLTV and FHCV programs that positively impacted our quarterly performance and increased our backlog. In fact, we now have the largest backlog for defense in the last eight years at $3.4 billion, including nearly $2 billion for 2021. Our team at Oshkosh Defense works very hard to deliver strong results, and that was the case again this quarter. While demand remains strong in our defense segment, the team still faces production challenges due to the COVID-19 related supply chain disruptions and workforce availability. They have successfully navigated through numerous supplier shutdowns by resourcing critical components, and they have addressed workforce issues with social distancing and increased cleaning frequency to enable continued production. However, it's possible these factors could cause a slowdown in the coming months. Let's turn to slide six, and I'll pass it to John to discuss our non-defense segments.