Oshkosh Corporation (Holding Company)Common Stock

Greetings and welcome to the Oshkosh Corporation Fiscal 2021 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Pat Davidson. Senior Vice President of Investor Relations for Oshkosh Corporation. Thank you, sir. You may begin.

Good morning, and thanks for joining us. Earlier today, we published our first quarter 2021 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 to 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, so 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 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 those 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, Chief Executive Officer, John Pfeiffer, President and Chief Operating Officer, and Mike Pack, Executive Vice President and Chief Financial Officer. Please turn to slide three, and I'll turn it over to you, Wilson.

Thank you, Pat. Good morning, everyone. Our performance in the first quarter demonstrated the perseverance and disciplined execution of our team. Just like everyone listening today, Oshkosh team members are navigating the challenges brought on by COVID-19. And once again, I'm proud of the hard work and efforts of our people. As I did last quarter, I want to give a shout out to all 14,000 plus team members and our dedicated suppliers that have consistently stepped up during this difficult period to continue serving our customers. For the first quarter, We delivered sales of nearly $1.6 billion and adjusted earnings per share of $1.13, both of which exceeded our expectations. Much like I said on our last call, we've controlled what we can control while responding quickly to challenges outside of our control. It's no secret that our operations in Wisconsin face challenges related to significant COVID-19 spread earlier this fall. particularly in the counties where our primary defense and fire truck facilities are located. This drove elevated levels of absenteeism for us and similar challenges for our suppliers. Our people have done an exceptional job of adapting to changing situations where flexibility and resiliency have helped keep us moving in the right direction. Going forward, we may face further challenges with absenteeism in our facilities or those of our suppliers. We may also face broader supply chain execution risk as the economy rebounds, so daily focus remains critical in the weeks and months ahead. During the quarter, we announced our intent to acquire Pratt & Miller, which closed on January 19. Pratt & Miller's technology and capabilities are a great fit with our company, and John's going to share more about this in his remarks. Revenue was softer than prior year in our access equipment and commercial segments, consistent with our comments last quarter. As expected, we are seeing improvement in our access equipment segment on a sequential basis, as the decline in sales is moderating. Compared with last quarter, we are more confident in a second half recovery, although our precise timing and magnitude are still uncertain. And of course, our overall outlook is bolstered by the visibility we have with our defense and fire and emergency segments, which both have backlogs that extend into 2022. Please turn to slide four, and I'll pass it over to John.

Thanks, Wilson, and good morning, everybody. Before I get started, I want to take a moment to thank Wilson for his unwavering leadership and commitment to this company over the course of his 16 years with us. A little over five years ago, he became our CEO and has been an outstanding leader and motivator for our entire company around the globe. He's been responsible for driving dramatic improvement in our culture and he's a true leader in all aspects. Wilson has been a great mentor for me and the entire leadership team at Oshkosh. We have a strong leadership team as well as a highly engaged and motivated workforce. So I'm confident in our future and wish him all the best. While Wilson will be with us through the end of the quarter, this will be his last earnings call. So I wanted to recognize his outstanding contributions and thank him for his service. Thank you, John. Let's get started with our segment updates with Access Equipment. Since our last earnings call, we've seen improvements in our major markets versus expectations led by North America, where we've had favorable negotiations with key customers for calendar 2021 equipment needs. Given the current environment for the access equipment market, we're pleased with the orders our team at JLG booked in the first quarter and are very encouraged with a strengthening backlog. We also benefited from some late first quarter orders and deliveries as some customers had available capital they deployed late in the calendar year. We remain confident that this segment will return to year-over-year growth beginning in our third quarter as rental companies begin to refresh their aging fleets. JLG ran its production facilities at reduced rates during the first quarter as we discussed on the last call. We are gradually ramping up our manufacturing rates and expect to exit the second quarter at more typical production levels. Our operations and supply chain teams have managed this difficult process very effectively, and it shows in the strong adjusted decremental margins we've been delivering throughout the pandemic. We've kept expenses low during a time of lower demand and lower production, and I am confident in our ability to perform in a difficult environment. Going forward, we're closely monitoring steel prices that have continued to rise, and will be a cost headwind later in the year. Our global supply chain team is working diligently to manage this important raw material. We are also very excited about our recent formal launch of the revolutionary new all-electric DaVinci scissor lift. With zero hydraulics and zero emissions, the DaVinci AE1932 scissor lift represents the next generation of electrification and elevates our position in the access industry once again. DaVinci's innovative design reduces energy consumption by up to 70% compared to a traditional scissor lift as JLG continues to push the innovation envelope. We are very encouraged by the strong customer response we've had for this outstanding new product. Please turn to slide five and I'll discuss our defense segment. Our defense segment kicked off 2021 by overcoming significant operational challenges caused by the pandemic. Early in the fall, Wisconsin and more specifically our local area were in the national spotlight for high levels of coronavirus spread. The intensity of the spread in this region drove high absenteeism in our workforce and with many of our suppliers. which made it very difficult to plan and execute operations for much of the quarter. I'm proud of our team as they responded effectively to these issues to deliver solid results during the quarter, including a 10% increase in sales and continued to be a reliable source of vehicles and aftermarket support for our U.S. government customer. In recent weeks, we have seen improvement in absenteeism. During the quarter, we received another large JLTV order valued at more than $900 million that included units for several international customers. We continue to believe that the international portion of our JLTV business will be meaningful over the next several years. This JLTV order also contributed to our large quarter-end backlog that provides outstanding visibility in 2021 and beyond. As Wilson mentioned, in mid-December, we announced plans to acquire Pratt Miller, a well-respected technology and innovation company that provides outstanding capabilities with robotics, autonomous and connected systems, and electrification, among other strengths, including a rich motorsports heritage. We've worked with the team at Pratt Miller for many years, so we already have a great partnership. Leveraging their speed and agility in addition to their functional strengths will help us in our new product development roadmaps going forward. They will be part of our defense segment, but other Oshkosh segments will also benefit from their expertise. We believe that Pratt & Miller will have an important impact on our company going forward. The U.S. defense budget was recently signed and contains funding for our FMTV FHTV, and JLTV programs that supports our goals and objectives. It's important to note that the budget action appropriated an additional $86 million in funding for FMTVs and $55 million for FHTVs that we supply for the U.S. Armed Forces. Let's turn to slide six for a discussion of the fire and emergency segments. Fire and Emergency performed well during the quarter and has continued to make the right investments in innovative technologies and dealer development that have supported their consistent success. Additionally, you've heard us talk about the benefits F&E has generated in recent years with its focus on simplification, which is reflected in a solid operating margin performance. Similar to our defense segment, F&E experienced high absenteeism and supplier challenges during the quarter as a result of COVID-19. They worked hard to deliver strong results in the face of some significant challenges as they improved operating margins to 12.8% in the current year quarter. The segment finished the quarter with a robust backlog of $1.2 billion, up over 9% from the prior year. Orders in the quarter were lower year over year, as we expected, largely due to the pandemic. Of course, we continue to monitor tight municipal budgets and spending that we've discussed in the past, as we believe that the North American fire truck market may experience some pandemic-related softness. Finally, Fire and Emergency made a big announcement a little over a week ago as they introduced the all-new, redesigned Global Striker. the world's most capable ARF unit. The airport products team has taken the market leading striker and made it even better by upgrading the cockpit with improved ergonomics, updated safety systems, and intuitive vision systems. We've also increased cab visibility while modernizing the styling. We encourage you to check out our website to learn more about this exciting new truck. Please turn to slide seven and we'll talk about our commercial segment. Our commercial segment continues to make progress on simplification initiatives and driving improvement throughout its business from design to manufacturing to sales to product delivery. You may recall that we implemented a focused factory strategy last year that included relocating our rear discharge concrete mixer business to London, Ontario as well as divestment of a non-core business. We are pleased with our progress to date, and the relocation project remains on track, but it's been more challenging due to the pandemic, particularly with regard to travel. I'm proud of our team's ability to adjust and achieve solid results during the move. As expected, volume was impacted in the quarter due to the pandemic as some customers delayed purchases and OEM chassis availability was constrained. However, customer demand is starting to normalize for RCVs and mixers from this recent volatility. We expect some continued choppiness as these markets rebound, but backlog is consistent with prior year levels and trending up. As I've mentioned in prior earnings calls, we're pleased with customer demand for our all-new S-Series 2.0 front discharge concrete mixer. The ramp-up is continuing, and we expect revenue growth for the business in 2021. We continue to integrate innovations and technology into our products and remain on track to deliver several electric RCV units working with our OEM partner for a key U.S. customer in 2021. We will talk more about this opportunity later in the year when we plan to ship these groundbreaking electric RCVs. This wraps it up for our business segments. I'm going to turn it over to Mike to discuss our first quarter results and some additional comments on current business conditions.

Thanks, John, and good morning, everyone. Please turn to slide eight. We delivered a solid start to 2021 with sales and adjusted operating income higher than our expectations. Consolidated net sales for the quarter were $1.6 billion, down 7% from the prior year quarter. The decline was driven by decreases of 22% in access equipment sales and 13% in commercial sales, partially offset by increased sales in both the defense and fire and emergency segments. Access equipment sales continued to be impacted by lower customer demand as a result of COVID-19. However, the year-over-year rate of decline is moderated compared to Q3 and Q4 of 2020. As John mentioned, we did achieve higher sales in the quarter versus our expectations as several customers deployed more capital than previously expected near the end of December. Defense sales increased in the quarter as a result of higher aftermarket parts and service sales. Fire and emergency sales increased due to higher aircraft rescue and firefighting truck shipments, and commercial segment sales were down on lower RCV sales as customers have remained cautious in deploying CapEx during the pandemic and due to the absence of concrete batch plant sales this year as the business was divested in the fourth quarter of 2020. Consolidated adjusted operating income for the first quarter was $104.6 million or 6.6% of sales compared to $109.1 million or 6.4% of sales in the prior year quarter. Access equipment adjusted operating income declined on lower sales unfavorable manufacturing absorption due to planned facility shutdowns during the quarter, and unfavorable price-cost dynamics as a result of the prior year benefit of price-protected sales. This was offset in part by the benefit of favorable spending as a result of the ongoing global pandemic, lower intangible asset amortization, and favorable product mix. Defense suggested operating income increased as a result of more favorable cumulative catch-up adjustments, favorable mix, and higher sales volume partially offset by increased new product development spending. Fire and emergency operating income increased in the current year quarter primarily as a result of increased sales volume and the benefit of lower spending as a result of the COVID-19 pandemic. And commercial segment operating income decreased due to lower sales volume and unfavorable material costs offset in part by lower spending. Adjusted EPS for the quarter was $1.13 compared to EPS of $1.10 in the prior year. First quarter 2021 results benefited from a discrete tax benefit of $0.09 per share related to a favorable resolution of a tax audit. Please turn to slide 9 for discussion on the remainder of 2021. We're pleased with our solid start to the year, including strong consolidated adjusted decremental margins of 4% in the first quarter. While we faced significant workforce availability challenges in Wisconsin affecting both our defense and fire and emergency segments, our teams were resilient and persevered through the challenges we faced to deliver higher sales in both segments compared to the prior year quarter. The pandemic has and will likely continue to drive variability in our businesses as infection rates evolve around the country, creating challenges for our customers, our suppliers, and our operations. Further, we expect higher steel costs to introduce additional headwinds for the back half of our year. As a result of the dynamic environment and moving variables, we are not providing quantitative expectations for 2021 at this time. As John discussed, we're pleased with our annual negotiations with our key access equipment customers over the past several months. We also experienced higher demand for access equipment in the first quarter versus our expectations. We expect that the second quarter of 2021 will be down versus 2020 and the third and fourth quarters will return to year-over-year growth. We now expect that the second half growth will be sufficient to yield growth on a full year basis for the segment. However, the magnitude of the expected full-year sales growth in access equipment is uncertain and remains highly dependent on the ongoing evolution of the COVID-19 pandemic and the trajectory of recovery as vaccines increase in availability. In this segment, we are planning one-week shutdowns per month in U.S. factories to start the second quarter as we align production with customer requirements. This represents an increased production rate versus the first quarter, when we were shut down for approximately two weeks per month. We expect the segment to be back to normalized production levels as we exit the quarter. In our commercial segment, demand is improving for RCVs and concrete mixers, while our strong backlogs at defense and fire and emergency provide good visibility for the year. During our last earnings call, we discussed an $85 million pre-tax cost headwind we expect to face in 2021 consisting of $120 million of temporary cost reductions in 2020 returning in 2021, offset by approximately $35 million of permanent cost reduction benefits. Looking at the second quarter, we will face year-over-year headwinds of about $25 million from a combination of last year's temporary cost reductions offset by the benefit of permanent cost reductions we previously announced. We are also forecasting higher second quarter spending levels, particularly at access equipment as we ramp up for the expected second half recovery. As we look to the back half of the year, we are closely watching steel prices, which have increased even more rapidly over the past several weeks than earlier in the fall. We expect to start seeing the impact of higher steel prices in the third and fourth quarters. However, the magnitude and duration of the inflated costs are unknown at this time. Our balance sheet remains strong and was further strengthened during the past quarter with solid working capital improvements yielding available liquidity at the end of the quarter of approximately $1.7 billion consisting of cash of approximately $900 million and availability under revolving line of credit of over $800 million. We believe our strong liquidity will continue to provide flexibility as demonstrated by our recent cash acquisition of Pratt Miller. While we are not providing quantitative financial expectations today, we strive to provide more detail later in the year when we have better visibility to the trajectory of the pandemic, the timing of deliveries in the excess equipment segment, and the evolution of steel prices. I'll turn it back over to Wilson now for some closing comments.

Thanks, Mike. We just announced a solid quarter to kick off 2021. And once again, controlled costs and managed our operations, allowing us to deliver higher adjusted earnings per share on lower sales compared to the prior year quarter. Challenges remain, including rising steel prices and the potential for further challenges as a result of the pandemic that has stayed with us much longer than anyone wants. We believe we're in a great position to take advantage of opportunities to deliver sales and earnings growth as our markets recover. As John mentioned, this will be my last earnings call, and I just wanted to say that I've appreciated working with all of you who have participated with our company. I'm proud of the engaging dialogue that we've had over the years, whether it's on one of these calls, a conference, a trade show, or even during a visit here at Oshkosh for one of our investor events. I'm even more proud of our people and the leadership team we have in place at Oshkosh, and I want them to know it's been an honor to work with all of them these past 16 years. I'll be working closely with John and the team to ensure a smooth transition over the next couple of months And I'm confident that the company is in good hands with John Pfeiffer leading the way, backed by a very strong leadership team. I'll turn it back over to Pat to get the Q&A started.

Thanks, Wilson, and thanks for your leadership over the years, and thanks for making these calls a little more enjoyable. We all know they're a lot of work. Anyway, let's get started, everybody. I'd like to remind you, please limit your questions to one plus a follow-up, and after that follow-up, we ask that you get back in queue if you'd like to ask additional questions. Operator, please begin the question and answer period of this call.

Thank you. We will now be conducting the 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. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of David Rasso with Evercore. Please proceed with your question.

Hi. Good morning, and, Wilson, best of luck, and congratulations, John. My question is about the access margins, trying to think through the impact of steel. Can you give us some sense of how much steel do you have contracted out for the second half based on whatever internal estimates you have for your access revenues? There you'd have at least some somewhat understandable inflation adjusters, but your comment about uncertainty around that impact, how much is the steel for the revenue you're expecting will have to be purchased on the spot market? Just trying to get a sense of how much exposure you have to rising steel prices for the back half.

Sure, David. Maureen, this is Mike. I'll just start with on steel. The team's managing it well. Obviously, we are seeing inflated prices right now. While we're not, it's early to be able to specifically identify it to a specific segment. What we believe at this time is it's a $10-plus million headwind. If it continues to increase, obviously, it could be higher than that. We're continuing to manage it, though. And where we're going to see the impact is really in the later third quarter into the fourth quarter.

And the $10 million was a total company for the full year, but it's concentrated 3Q and 4Q? Correct. And I assume it's mostly in access, but, again, that's a total company. So if we think of what we would at least assume to be normal incrementals and then, say, for access they get 70%, 80% of the steel hit, Is that a fair assumption? Because when I look at the mix, you would think you have a tug-of-war of better mix of AWP over tellies, but then you have a little bit of that natural when the cycle starts, the negative customer mix, right? It's more the big rental companies, not the mom and pops. But again, is that a fair way for the street to think about it? Normal incrementals, and then at this stage, $8 million or so kind of still hit, $7 million still hit to access in the back half.

I guess first of all, maybe we should just level set on the incrementals and decrementals. We had very strong decrementals in the first quarter. And while we're always striving in that 20% to 25% range for access and on a consolidated basis, we've been talking about, in my prepared remarks as well as last quarter, we do have the cost PEDWINS of $85 million. And there's obviously a a meaningful piece of that. And that really hits Q2 through Q4. So that's certainly a meaningful impact to factor into the incrementals or decrementals. And then you add steel into that equation as well. So I think there's more moving pieces there than just the steel factor.

That's helpful. And my follow-up, John, your vision for the company, the portfolio, how do you think of the strong cash flow and balance sheet as you take the reins?

Starting next quarter Yeah, so let me first just kind of wrap up the question about access, you know the mix side of it I think you're right the we do expect to see favorable mix on the product side with more booms Just looking at the age of the fleet that's out there and the booms are more aged than other products So that so that's certainly something I'll confirm. I think on the customer mix though is You know, it's been pretty consistent between the NRCs and the IRCs recently in terms of demand. I'm not so sure that it won't stay consistent because we're kind of seeing the activity across both the small independents as well as the big customers that we have. Now, back now over to your main question on our go-forward vision, our strategy. I will tell you that... We've got a great balance sheet and we've got a disciplined capital allocation strategy. And that's going to include both returning money to shareholders, but it's also going to include growth. And we're in a great position right now because of the balance sheet and it affords us to do both. You've seen us make one acquisition just recently. Yes, I think you'll see us do more. to use the strength of our balance sheet to drive growth. I think you're going to see us put a lot of investment continuously in innovation and new programs and new technologies, to leverage new technologies to continue to accelerate our business. And you'll also see us continue to, as I said, do some acquisitions that are really growth-oriented acquisitions. They're either going to be in acquiring businesses because they have capability and technology that we need, or it could be in adjacent, near adjacent categories that we think enhance our core business. So we feel pretty good about our capital plan. We feel pretty good about our balance sheet and our ability to responsibly execute it going forward.

Thank you very much. I appreciate the time.

Our next question comes from the line of Jamie Cook with Credit Suisse. Pleased to see you with your question.

Hi, good morning. Congrats on a good quarter, and congrats, Wilson and John. So I guess just my first question, if we could just shift back to the access equipment business. Just understanding what you said about steel costs, headwinds, and the $10 million sort of that the whole company will face, but with an access specifically, I'm just wondering if how you're approaching pricing this year, if you could give any color. And then you sort of, when you were talking to growth, I think you were talking specifically to sort of the U.S. markets, if you could give some color on what you're seeing in Europe and China. And then my follow-up question, any update on the postal service bid that's out there, or just if the timing has changed? And I think under Biden, there's a view that the vehicles would go more easy. Does that change your opportunity set? Thanks.

Great. Thanks, Jamie. This is Mike. I'll start just talking about, first of all, with access. As John mentioned in his prepared remarks, we're pleased with how the annual negotiations have gone. from an access equipment perspective. As always, you know us well. We remain disciplined from a cost price perspective. We talked about the headwinds that we're facing related to steel. It's early, so we're going to continue to manage that. I think overall, that's what we're seeing from a pricing perspective. I guess in terms of postal service, John?

Well, let me talk about access first. I think you asked a question about our global business and access. Let me just start by talking about the U.S. to put that in perspective. You know, we're really pleased, first of all, that we exceeded expectations in Q1. I want to start by saying that's a tribute to the people that we have at Access, managing through an incredibly difficult period of time. But we've wrapped up most of our annual contract negotiations with our customers. We're really pleased with the outcome of those negotiations. I would say that in essence what the outcome of that has been is we've seen a shift in the U.S. I'm talking about the U.S. market in sentiment towards more recovery discussion. and certainly a shift towards more attention to fleet replacement. And so that's all, we think that that's all positive direction for the U.S. market. Our backlog is healthy and it's strengthening in the U.S. and we feel pretty good about it. So you've seen actually through the pandemic the downturn moderate from from third quarter down 60 to fourth quarter down 40. Now we're down just over 20. And we think that the conditions are right that supports as we get into the back half growth again in the industry. Going more to the international markets, I'll first say Europe's a bit behind the U.S. We don't see quite the momentum. We think it's bottomed in Europe, but we don't see quite the momentum right now in terms of building growth. in the near term in the European market. On the other part of the world, in Asia, Asia is very positive. The China market recovered quickly, as we've said in the past. It continues to be a significant growth opportunity for us. We're expanding our Tianjin China facility, have been doing that for the past few quarters. We are the leader in the high-end AWP market in China, and we expect to continue building a strong and profitable long-term position in China. Now, of course, there's a lot of local competition in China, and there's margin pressure at the low end, but we really don't try to compete there. And we certainly don't expect to have the same high market share in China that we do here, but we will continue to grow profitably, and we'll stay disciplined there as we do it. So going over to your other question with regard to the Postal Service, we were really hoping that we're going to hear and we expect to hear the outcome of this at the end of this quarter. March is what we're hearing. We've submitted our bid, as you know. We've got a very strong, very comprehensive bid that meets all of the needs of the U.S. Postal Service. We do meet all the needs of the U.S. Postal Service, meaning if they want, under the Biden administration, more weight towards one type of propulsion than another, we're ready for that. Now, we've got our fingers crossed. We believe we've got high-reliability solutions and hope to have good news at the next earnings call.

Okay, great. Thank you very much.

Thanks, Jamie.

Our next question comes from the line of Stephen Fisher with UBS. Please proceed with your question.

Thanks. Good morning, and Wilson, best wishes. Just curious, how broad is the second half revenue growth that you guys expect? Is it across all segments, and what would you say are the most important things that need to happen in order to deliver that second half expectation of growth?

Sure. One of the reasons we're not providing guidance is obviously we are dealing with a range and there's a number of variables. I think what we've seen over the course of the first quarter in line with John's comments, we're seeing stronger indicators of that second half recovery at access. We now know that that recovery appears to be robust enough that it's going to yield full year growth. Beyond that, it's difficult to predict, and I think a lot of it has to do with how quickly do vaccines get out there? How quickly does the economy start ramping up? So those are the things that we're watching closely, but there's a range. As we look at the other businesses and look at defense and fire and emergency, both have real strong backlogs. Both would be supportive of full-year growth. I think the variable there that's difficult to predict is really a couple of variables. Number one, we've worked through some pretty challenging absenteeism challenges in defense and fire and emergency in the first quarter. The teams did an outstanding job managing through that. We could see more of that as the pandemic continues to evolve, as well as the impact it can have on our suppliers. Again, our supply chain partners have done an outstanding job But certainly there could be headwinds as we get into the back half of the year. The other larger area that we're watching as well is just what the general economic recovery, how supply chain is able to ramp up to execute against that. So that could be a variable as we look to the back half of the year as well. So I think in those two segments it's supportive. I think commercial very similar to our access view at this point.

Okay, great. And then just wanted to pick up on the comments about M&A. Just curious if there's any particular segment that that is weighted towards, and how would you frame sort of the size of the deals that you're considering?

Yeah, so we have a structured process. We call it an always-on pipeline. We're regularly reviewing potential targets. And they really are in all segments when we look at the targets. You know, we like our four core segments a lot. We see opportunity to grow each of our four core segments. And so we look at targets that will enhance that growth across the board. When we look at size of targets, you know, we're looking more at bolt-on tuck-in type acquisitions. that'll help us drive growth either into a new adjacent category of products or a technology or an aftermarket enhancer. We, you know, and I would never say never on anything, but we're not out there looking for these big huge transformative deals. That's not where we see the big opportunities in our M&A plan. But I think you'll see us do consistent executions as we go forward.

Okay, thanks very much.

Our next question comes from the line of Chad Dillard with Bernstein. Please proceed with your question.

All right, good morning, guys.

Morning.

So I just want to understand some of the puts and takes from the cost side in the first quarter. I think you called out there's some COVID-related production issues and absenteeism. So can you quantify, you know, what impact it had on the quarter? I think, conversely, it looked like, you know, SG&A would soon be a bright spot. You know, to what extent, you know, is that from some of the temporary cost tailwinds? And, you know, is that reversing? And then I know you talked about, you know, $85 million of headwinds to the balance of the year with $25 million happening in the second quarter. But I'd love to get a sense for, like, how that balances out in the back end of the year.

Sure, yeah, we're very pleased with the first quarter results. The teams did an outstanding job executing. So, first of all, just on the execution side, we did see challenges with absenteeism, as I mentioned a few minutes ago, in our fire and emergency and defense segments. They did an outstanding job managing through it. negatively impacted their volume a bit in the quarter, but we really didn't see it from a labor performance standpoint reading through. In fact, I would call out our fire and emergency team did an outstanding job and actually delivered the best labor efficiency in our Appleton facility in the last decade plus, so great job by the team. Looking at some of the other drivers, we did see favorable spending in the quarter. Some of it was really environment related, tied to COVID. So I think if you look at it, a chunk of that was expected because of our permanent reductions, about $8 million, that 35 million permanent reductions hit our first quarter as a favorable item. The remainder of the cost spending benefits, I would say about half of them that we saw in the quarter sort of remain. The other half are really more timing related that we'll see spent later in the year. So I think that's an important point. We did see the favorable cumulative contract adjustment in our defense segment with the large JLPD order. So that was great news to see that order come in, further strengthening our backlog. And of course, we had the tax benefit in the quarter. So as we look forward to the second quarter, I think it's a few important items. I think number one, we do expect that spending is going to be up, particularly as we talk about ramping up for the second half of the year. That's going to drive higher spend levels. We did see also a positive cumulative contract adjustment in the second quarter of last year. So that will be a headwind as well. So those are a few of the things that we're monitoring just as we move forward. Mike, defense from prior year in Q2? Yeah, I just mentioned that, Pat. So we had a favorable cumulative contract adjustment in Q1 of this year. So that comp-wise, that will be a headwind going into the second quarter. We also had one in the second quarter of last year. So that will be a year-over-year comp challenge.

That's helpful. And just a second question. In ACCESS, can you talk about your expectations for pricing in 2021? growth and net price realization and access?

You know, we really look at it on a net cost basis. And what I'd say at this point is, and it's early in the year, we've remained price disciplined and looking at price-cost scenarios. We've gone through our negotiations, and we talked about a couple of the things that we're watching. More specifically, as we look to the back half of the year, again, it's that $85 million net cost, Edwin, and then what happens with steel, which we're continuing to manage through. So those are the items that I would point to as really drivers of incremental, decremental margins as we go through the rest of the year.

Thanks. I'll pass it on.

Our next question comes from the line of Ann Dagnon with J.P. Morgan. Please proceed with your question.

Yes, hi, good morning, and similar congrats to both of you, Wilson, best of wishes. I think on the price-cost, could you talk about your backlogs in each of your segments, and how much of that backlog includes cost-inflation clauses? I mean, are those locked in at fixed prices, all that business, or... Are there inflation clauses in any or all of those backlogs, especially, you know, defense versus commercial or, you know, all commercial businesses?

And, you know, certainly as you go through the businesses, if you look at our defense segment, we tend to have – we have long-term contracts both on the supply side and – And so that's, you can kind of, they're not, so that's sort of the defense segment. If you look at really our other segments, it varies by contract, but again, just go back to my previous comments that we've looked at all of the inputs, the costs, labor, all of the materials beyond steel, and we've remained cost disciplined from a price standpoint. Again, it comes down to what happens with steel, and a little bit of it right now is unknowable. We're doing a good job managing it. We're not going to see, because of a lot of the management work we've done, we're not going to see it until much later in the year. So we're going to continue to see how it evolves, but that is not – price-cost is not the biggest driver beyond the aforementioned items for the rest of the year.

But I think, Mike, we've always had inflationary clauses in our defense programs. They're built in when we bid them over an annual period of time. So the defense backlog does have those clauses in there, Ann.

Okay. I was just going to ask you for a clarification on that. So thank you. I appreciate that. And then perhaps, again, on – Defense, on the $900 million contract, can you just give us some more color on that? Was that already in your $2 billion expectation for revenue for this year, or is it incremental? And when would you expect to see those being shipped, and how much was international versus domestic? Just some general color on that contract and whether it's incremental to what you had guided to at the beginning of the year.

Well, we'll have to remind you about one plus a follow-up, though, too, Ann, so... But I appreciate your interest for color here.

Yeah, I think, Ann, a lot of those orders will be delivered in future years in 20, you know, 20. Yeah, it's all 22 and beyond. Yeah. So that's, so I guess that's the first point. You know, we certainly appreciate the ongoing confidence. And so this order aligns with our expectations. and further supports just that ongoing view that defends the $2-plus billion business in the future.

Yeah, and we haven't really broken out the exact international numbers, but we're up to eight different countries now that have FMS cases that we've taken orders on. So we're liking how the international business is starting to develop with JLTV now that we have those eight in.

Yeah, so, Ann, a bigger perspective, kind of looking at the whole scope of the JLTV program. So the acquisition objective, the U.S. Army at about 50,000 units, the U.S. Marines at about 15,000 units. Now, that's over multiple years. Most of that still has yet to come. Now, of course, they're going to re-compete that in 2022. We know that. We've been preparing for it for a long time. We've actually been preparing for the re-compete since we won the original contract. They've got what I'd call commitments to us in that big acquisition objective to date of about 23,200 units. And when they place orders on that, that's typically – on those commitments is where they're being placed on. But there's a long way to run with this program and more orders to come.

Great. And just finally, a real quick follow-up on the steel. Are you more concerned about steel prices or the potential that there just isn't the availability of steel? Which is the biggest concern?

I would say at this point, Ann, we do have – We have good visibility and we're working closely with our suppliers there, so it's more a pricing equation at this point than availability.

Okay. Appreciate that. Thank you. I'll get back in line.

Thanks, Ann.

Our next question comes from the line of Stephen Volkman with Jefferies. Please proceed with your question.

Hi. Good morning, everybody. And, Wilson, thanks for putting up with us over the years. Much appreciated. My question is about the defense margin cadence. My assumption is that this first quarter was probably the high point for the year. Mike, I think you mentioned both the catch up on the contract, but also some positive mix on service and parts. So any color on what we should be thinking relative to defense margin as the year progresses?

Yeah, I think consistent with what we've talked about in the past, you really need to look at it over the course of the year. And we're still confident in what we've talked about in the past. It's a high single-digit business. You will see variation quarter to quarter. I think the piece that we're obviously watching is just what happens if you, from a supply chain perspective, and that's, you know, depending on the volume that we've seen a particular quarter, that certainly could have have a bit of an impact. But yeah, they did a really nice job. We saw a nice aftermarket mix in the quarter, and that certainly was nice to see and great work by the team.

And a quick follow-up. When you get an order like you did this quarter, I think you get to spread your fixed costs over a longer production run. Does that mean that the margin that you book going forward will be, you know, 10, 20, 30 basis points higher than it was before you got that order? Is that the way the accounting works?

You know, we're constantly looking at what we're seeing out there, and certainly we did see a benefit. So we might see a modest improvement there. But I would say it's modest. We're getting more and more units out there, so obviously earlier in the contract when you're getting nearly a billion-dollar order, it has a bigger impact versus once you have many more units under contract. But it certainly does help with that additional cost spread.

Yeah, I was going to say essentially what you said is correct.

Great. Okay. That's one and a follow-up. See?

Thank you. Yeah.

Our next question comes from the line of Tim Dean with Citi. Please proceed with your question.

Great. Thank you. And Wilson and John, congrats again to you both. And by the way, Pat, don't sell yourself short. You two make these calls enjoyable. Yeah, the question is just on F&E, obviously grown a lot in terms of its importance to to the bottom line here for Oshkosh. So I think appropriate to get some airplay. Maybe just Wilson or others, maybe just a bit more color in terms of what you're hearing from F&E dealers as well as their customers. Obviously, from a headline perspective, some pretty big headwinds it appears for Muni and state budgets. But obviously, that doesn't all directly impact spending on your equipment and there's a lag and all that. So maybe if you just had some more color in terms of, obviously we're working from a high backlog, but just potentially how that unfolds in terms of that segment, just given the potential budgetary pressures. Thank you.

Yeah, I'll talk about it. I'm going to start by saying the culture that we have at F&E is phenomenal. And to us, culture is everything. We've got great people. We've got great innovation that happens in the segment that drives it. We've got really good operations. We talk about our simplification all the time. It's a model for the whole company on how to deploy simplification. And we've got the best dealer network by far in North America. And all those things, when you combine them together, they create a really potent business. And we think that... We're going to continue to drive performance as we go forward. Let me put it into a longer-term perspective. If you go back to the Great Recession, which was a long time ago now, the market for our products in fire and emergency was much bigger. It was over 5,000 units. And we hit the Great Recession, and the market stumbled quite a bit, down 40% to maybe 3,000 units. And since then, it's never recovered to 5,000 units. It's actually recovered to low 4,000, 4,100-ish, something like that. But we've been growing throughout that period of time. And we're bigger now, even in a smaller market. And we've been growing very, very profitably. So growing and thriving, I guess, is what I would call it. And we've taken market share. we expect to continue to execute. Now, talking about the market today, sure, we think there's going to be some municipal spending constraints. We're watching it closely. We do not expect it to be anything like the Great Recession because there's not a real estate crisis, and that's really what has the biggest impact on municipalities is real estate crises, again, which there's not. But some budgetary constraints You know, what makes us feel good? Of course, first and foremost, what I talked about, how powerful our business is today, coupled with the fact that fire trucks are high priority equipment. The fleet is aged. And as we look at our backlog, our backlog is really strong, takes us, you know, well through 2021. We did see some softening in orders in our first quarter. We expected a softening of orders, primarily because of the impact of the pandemic. But overall, you know, fully intend on continuing to execute this business in a very healthy way.

And that's great color, John. Tim, what I would add, just one other tidbit. I think you know I started out in fire and emergency, so I know all the dealers very well, and I've had a lot of You know, fun calls the last few weeks, you know, wishing me well in my retirement and talking to a lot of them. One thing that really jumped out at me is the majority of them that I talk to, they're investing in their business. They're adding buildings, service capabilities, lifecycle services, addition to their – I've watched them really mature over the years, and they're running sophisticated businesses these days. And it's been fun to watch, and they're not wavering on those investments. To John's point, they don't see from their conversations with fire departments, because it is such a priority in the community, and the fleet age is to our favor there, they're not hearing a lot of negative about municipal spending. They're still holding the priority in the majority of municipalities with fire truck budgets.

All right. Very good. We'll leave it there. Thanks a lot. Thanks. Thanks.

Our next question comes from the line of Mike Schliske with Collier Securities. Please proceed with your question.

Hey, good morning, guys. And, Wilson, best wishes to you. Thank you. I wanted to maybe ask a quick question on Pratt & Miller. That company, you know, they are playing in a few adjacent spaces beyond just defense. They're in industrial cleaning and other areas that I don't think Oshkosh currently plays in. Do you have any plans to maybe – organically grow what Pratt & Miller already does into anything larger? Or do you plan to exit anything that they're doing that's not related to your force segments? And perhaps more broadly, I guess, why buy them in the first place? And couldn't you just keep on paying them through a contractor as an external provider?

So I'll take that question. We really like this acquisition, Pratt Miller. As I said in my prepared remarks, we've had a long-standing relationship with them. And when you have a long-standing relationship with a potential company to acquire, it makes you feel a lot better about acquiring it because you know there's a cultural fit. And there's a strong cultural fit of innovation between what we do at Oshkosh and what Pratt Miller does. So we're really pleased with this. Now, I'm going to give you two primary reasons why we made the acquisition. Number one, We believe that Pratt Miller gives us a higher probability of defense program wins going forward in adjacent spaces that we want to grow in with the Department of Defense. So that's number one. And number two is they're an enhancer to our technology development. One of the most incredible things about Oshkosh Corporation is our capability to develop technology, whether it's electrification or autonomy. We've been working on autonomy for a long time. We've been working on electrification for a long time. We really like what Pratt & Miller does in those spaces, and it allows us to enhance our ability to apply it to specific use cases is the best way I can describe it. You mentioned industrial cleaning. So that sounds like a strange thing. And industrial cleaning is interesting, but it's not the industrial cleaning that interested us. It's the automation behind the industrial cleaning that was so interesting and their ability to take automation and apply it to a specific use case. That's why this is such an interesting application. So it's not industrial cleaning. It's the automation that's behind the industrial cleaning. And by the way, they're big into motorsports. We intend to continue to grow and develop all aspects of their business as it is today, including motorsports. We think motorsports gives it a great culture of speed and agility. And there is a lot of technology that they develop for motorsports in mobility and safety systems that are very directly transferable to lots of our different segments. So a lot of good that comes with our acquisition of Pratt & Miller.

Got it. Thanks. That's great, Keller. I also want to ask a quick follow-up on another question about the USPS contract. You know, your bid is based on the Ford Transit, I believe, and we've gotten since this last quarter, we just announced, we just heard the announcement of the new Ford E-Transit coming out here in 2021. So your comment that you can address whatever the USPS's needs are as far as a powertrain Is it as simple as just substituting the transit for the e-transit, or do you have to have a special reopening of the contract and, you know, new approval to kind of make that switch?

So there's limited things that I can say about this program, not because I don't want to, but because we're under a pretty tight confidentiality with the USPS. We don't have to reopen anything to address the needs that – as they evolve with the contract. I really can't comment on the transit ban because of the confidentiality, but I can say that we don't need to go back and have some arduous task of reopening an agreement if the contract goes one way or another. We will not have to do that.

I think the foundational statement there is we furnished a program vehicles that meet their current and future needs. I think that's the best way to leave it, Mike.

Okay. I'll leave it there. Thanks so much, guys. Thanks, Mike.

Our next question comes from the line of Nicole de Blasio with Deutsche Bank. Please proceed with your question.

Yeah, thanks, guys. I appreciate you squeezing me in, and good luck to Wilson in retirement. So I guess maybe starting with F&E, just as we think about moving into some period of time where revenues could be a bit more challenged, I'm trying to tie that back to what you guys have done with respect to simplification and how the margin performance could be different in a future downturn versus what we've seen in the past. I guess if we look cross-cycle relative to the last time F&E faced a difficult revenue environment, do you think there's room for decremental margins to look much better because of what you've done from a margin perspective?

Yeah, Nicole, you're spot on. I guess if you go back to the Great Recession where we struggled from a margin perspective, the simplification process that we've gone through has really transformed the business. We're a different business in being able to weather through lower volumes that we believe this is solidly a double-digit business throughout the cycle. And so that's – and again, it's all efforts of simplification and managing really from stem to stern – managing that simplification stem to stern through the business.

Got it. Thanks. And then just for my follow-up. Hearing investor concerns about the medium-term impact of the new administration on defense spending and how we would dovetail that with how durable the JLTV program is, I guess, over the next several years, if you guys see any risks to that.

We do not see any specific risks when you consider the previous administration to the new administration. We really do not. Tactical wheeled vehicles are a fundamental part of how the Department of Defense operates and how it executes. And they will continue to be a fundamental part of how the Department of Defense operates and executes. We've had a relationship for a long time that was very successful when President Biden was Vice President Biden. And so we don't see this as being a big change for us as we go forward. Great. That's clear. Thanks. Thanks, Nicole.

Our next question comes from the line of Courtney Yacovonis with Morgan Stanley. Please proceed with your question.

Hi. Congrats again, Wilson and John. Thank you. Just wanted to go back to the comments on the sales, the quality of sales outlook. I think you gave some good comments on access to Fence and F&E being supportive of full year growth, but can you just help us think about commercial? I think you said that the backlog, it looks fairly similar to last year, but you mentioned that it's starting to trend up. Can you just help us think qualitatively about what we should be thinking about for the commercial sales outlook for the year?

Yeah, I'll take that. We're seeing some, the backlog is consistent with last year. And I remember last year at this time in commercial, we were still pre-pandemic. So saying that the backlog is consistent with last year is a positive statement. We sequentially have seen orders improve. And when you look at orders year over year, it looks like there's a slight degradation. But when you take out the divestment of Conoco, There's actually a little bit of order growth that we've seen in the first quarter year over year in the business. Now, remember, last year's first quarter was pre-pandemic for us, so that's also a positive statement. So we see markets improving in the commercial segment. I'm primarily talking about refuse collection markets and talking about mixer markets. And when you look at residential markets, construction. Residential construction is very different from non-res and residential construction drives more of the commercial business. Residential construction is very favorable right now and projected to be favorable throughout 2021 and into 2022. So that's also a positive macroeconomic indicator that supports our view of what's happening with more favorable outlook than we had maybe a quarter ago.

Okay, great. Thanks. That's helpful. And then just two quick follow-ups. On the steel $10 million headwind, was that gross or net of pricing? And I think previously you guys have taken surcharges when you've seen outsized steel inflation. So is that being contemplated at this point? And then on the defense side with the contract, the $900 million, can you just comment at all about the margins on that? I think it's an FMS. contract, so I imagine it's pretty similar to the DOD margins, but if you can just comment at all.

Sure. First of all, on the steel, right now we're talking about that as a net headwind at this point, but it's very early yet, and we're going to continue to watch what steel evolves. We're going to manage this in a disciplined manner. The team's been all over it already and has, quite frankly, done a great job in mitigating the risk through a number of tools we have really in our toolbox that we managed through this a few years ago, and we'll do that again. We're not making a call today on surcharges. We're continuing to manage it in a disciplined manner. And I think, again, what it's going to come down to over the course of the year is just watching what that cadence is. I think once we start getting a bit more of a supply and demand equilibrium, we do believe that steel could start coming down.

The margin on defense?

Oh, sorry. Margin on defense. Sorry, which program was that again?

The $900 million order.

Oh, the $900. Again, that's under the broader contract, so it's pricing that's consistent. And as we had a question earlier, you get the natural benefit of expanding the total number of units out there, so you'll get a small margin improvement over the remainder of the contract because of that. And that is reflected in that cumulative catch-up adjustment as well that we recognize in the quarter.

Thanks, Courtney.

Our next question comes from the line of Mig Dobre with Robert W. Baird. Please proceed with your question.

Yes, good morning. Thanks for going over here and fitting me in, and Wilson, best of luck. I guess I'm going to beat this dead horse to death with price, cost, and access equipment. I'm just trying to understand kind of what the setup is here. Is it that you have this net $10 million headwind because of all the sort of forward buying and other tools that you deployed on a cost side? Or is it that you're going to be applying more dynamic pricing as the year progresses to gradually offset the headwind? So, you know, if I'm looking at delivery, say, into the fourth quarter of 21, I would be thinking as a customer of different pricing than the second quarter of 21. You see what I mean?

Yeah, I guess so the bottom line is I guess we're looking at not just steel, but we're looking at all commodities and all of our cost dynamics. We have a lot of different cost dynamics. And the other dynamic is we're still not able to fully call what the top line is. So I guess foundationally, we don't know exactly where steel is going to go. So we're trying to give an indication that, hey, we think there's a headwind here. We think it's $10 million plus. that we're still early. We're not going to see an impact of this until really the second half of Q3 and Q4. And we've managed through elevated steel prices in the past. We're managing it well. That's why we're not seeing an impact until the back half of the year. And it doesn't mean that we don't have further opportunities to mitigate it through the various tools that we deploy. So I guess just know that we believe today there's a headwind. We're managing it, and we're going to continue to leverage our toolbox to execute in a disciplined manner.

I think what I'd add there, Mig, is you know us. The access team has great relationships with their customers, and they're very transparent in their discussions. So there's nobody that they're working with today that doesn't understand that there could be some steelhead ones coming. We don't like to talk about our pricing strategies for competitive issues. on this call. But as Mike says, the toolkit worked for us last time. We learned a lot. And I know the access team will stay disciplined as we work through this one.

I appreciate that. And maybe lastly here, just a thought on seasonality and how that might play through in access equipment. I know typically the third quarter is usually your strongest revenue quarter. But We're coming off the bottom here. Do you expect the business to build sequentially and have different seasonality this year?

Thanks. So just going back to our prepared remarks, I think what we know at this time is that we still expect the first half of the year to be down. You saw it in Q1, and you can imply that Q2 will be down. We are seeing that moderating, though. I guess once we start to looking at Q3 and Q4, we believe between the two quarters that that growth is going to be enough to yield full year growth. Exactly how that shakes out though, Meg, I think has a lot to do with just what we see for infection rates around the country and then the ability for our customers to take on the equipment. So I think you could see a timing aspect that's That's a little challenging to call sitting here today between Q3 and Q4. And then, of course, the total magnitude of that second half recovery. So I think that, you know, we're still working through that with our customers. And, again, there's inputs into this, namely the pandemic, that could ultimately input the timing and the ultimate magnitude.

Hey, Meg, it's John. I think, in general, you know, when we saw that the – seasonality change was really in 2020. The pandemic hit us in the end of Q1, most fully in Q2 or Q3 and Q4. We expect this to start to go back to maybe more of a normal seasonality. Now, that's dependent upon continuing to get positive news on vaccines and vaccine distribution because it's really interesting how the vaccine news has impacted the access equipment market. But if we continue to get favorable rollout of vaccines, and there's been choppiness in that, as we've all seen, but we're all still expecting to get the vaccines rolled out, then I think we're going to see more normal seasonality really kind of resume in 2021 in spring, summer periods of time.

Got it. Thank you.

Thanks, Vic.

Our next question comes from Jerry Rebich with Goldman Sachs. Please repeat your question.

Yes, hi, good morning. And Wilson, John, please accept my congratulations as well. Thanks. I'm wondering if we could expand the discussion around the JLTV international opportunity. You know, how meaningful are the conversations that you're having relative to the size of the domestic JLTV business today. And obviously, you know, the customers will ultimately decide how much of their Humvee fleet they want to replace. But I'm wondering if you could just help us get a sense for the pipeline and just building their confidence on that $2 billion defense number that you spoke about earlier in the call and obviously consistently over time.

Yeah, Jerry, we're working with a lot of different countries on JLTV orders. uh... you know the the we have the belgium order for a hundred and thirty some odd million that we took a look at that quarter ago uh... and we've had other orders from montenegro lithuania and slovenia and brazil and macedonia except for you know there's there's probably about forty different countries that make up the the bulk of the international uh... uh... market for jail tds uh... we're working with uh... several of those countries and continue to have new interest come in all the time. Usually it starts out with a smaller order and then as the vehicles get put into the fleet, then subsequent orders come after that. But remembering that the market in total, when you look at the fleet size of Humvees that are out there, There are 60,000 armored Humvees in these international markets with our allies. And over time, many of those will get replaced with a JLTV. So we really believe that we're in the early innings of addressing the international opportunity on JLTV and that this is a long-term opportunity that will probably go to 2030 and beyond. Okay.

Thank you. And then follow up on access equipment. I'm wondering if you could just talk about what you're seeing in the telematics data that you're tracking in Europe and North America. I guess I'm a bit surprised that the second quarter outlook for access implies sales that are 10% weaker than normal seasonality, you know, despite the positive developments off the bottom that were discussed earlier on the call. So maybe you could just expand on what you're seeing there. Thanks.

Yeah, I'll talk in general, but also about those utilization rates. So, you know, the big concern that everybody talks about is the non-residential construction was unfavorable in 2020 and is projected to continue to be down in 2021. So non-residential construction is a big metric for us in the access world. Now offsetting that and why do we feel confident about returning to growth later in the year, number one is equipment utilization that you just referred to. Equipment utilization based on our telematics data is back to where it was a year ago. So that's a very positive point. The other one, a couple others are improving rental rates with our customers. Improving rental rates with good utilization are coupled with, as we always talk about, the fleet age, that all bodes well to be a nice backstop or countermeasure against non-residential construction being down. So we're really confident in the recovery. What we don't really have great clarity on is the exact timing and the exact speed of the recovery That's probably still a little bit dependent upon the trajectory of the pandemic that we talked about. But equipment utilization, back to where it was pre-pandemic, that's adjusted for seasonality. I'm talking year over year. Thanks, Jerry.

In Europe as well? Sorry, John, just to clarify. Europe as well as North America.

I don't have the European utilization data in front of me. I'm sorry, Jerry. Pat or I will follow up.

Yeah, we'll try to follow up later. Thanks.

Thanks. Thanks, Jerry.

Our next question comes from the line of Ross Gilardi with Bank of America Merrill Lynch. Please proceed with your question.

Thanks, guys, for squeezing me in. And let me just add my congratulations to Wilson and John as well. I just – all my questions have been answered, but the inventory position, I was curious about that. I mean, your inventories are flat quarter on quarter despite taking production downtime, and now you're stepping up your production in the second quarter. Are your customer discussions giving you more confidence that you can take down that inventory number meaningfully as customers start ordering again without having a significant underproduction situation? And, you know, I know you're not guiding consensus for about $7 billion in revenue for fiscal 21. Can you give us any sense as to where you'd like to see that inventory number exiting the year, if that's broadly in the right ballpark?

Sure, Ross. I think just based on your question, I think it's maybe implying that it's access equipment that stayed flat. Access equipment is actually down in the quarter. So we saw some nice improvement with higher revenues and our expectations in that segment. Inventory is up a bit. In our segments, we had a bit more absenteeism during the quarter, which created some production interruption, but also in those segments, we invested a bit more in safety stock to protect against line stoppages and so on. So that's really what you're seeing. The access team has done a great job managing their inventory. We're positioned very well coming into the production cycle, and they're doing an outstanding job managing it. We expect to exit the year with a solid decrease in inventory. Again, we'll continue to manage through it.

Thanks very much.

Our next question comes from the line of Felix with Raymond James. Please receive your question.

Hey, good morning, everybody, and thanks for squeezing me in here at the end. I just have a quick one. I really wanted to touch on the electric RCVs you talked about. I know you've been testing those with an OE partner, and it sounds like you're delivering the first real batch here sometime this year already. Just wondering broadly if you could expand on how you've seen customer reactions to electric offerings really change in the past year and how quickly you could see more broad-based adoption here. Maybe better ask, what's the biggest hurdle to adoption you guys still see?

So it's a great question. I'm going to first start by saying that we have incredible engineering capability at Oshkosh and a lot of work that's happening in electrification. And we are working hard on electrification across all of our segments. And in doing that, we partner with really the best in-class suppliers to develop the technology that we need to develop. So we talked about some examples, the Access all-electric DaVinci scissor lift. The demand for that product, which is on sale now, has been phenomenal. much better than we had anticipated. It's an incredible product. There's no hydraulics on it of any kind. And it gives a lot of benefits to the user. We've also created a commercial, in our commercial segment, a fully electrified prototype of a concrete mixer. And that's with customers doing kind of data testing work to get customer feedback. And that front discharge concrete mixer, that's in the same segment as refuse collection, whereas you mentioned we're working with an OE partner on electrified vehicles that will go to market now. So there are certain use cases that are closer to adoption than others. And it's really dependent upon total cost of ownership equations. You know, when we electrify a product, there's benefits in maneuverability. There's benefits in drivability. There's instant torque versus an ICE engine, a lot more synergy with autonomy and connectivity, and operating expense is a lot lower. But it really depends upon the use case that you put it in, the recharging infrastructure that's there. Do they go back to the same base every day, or do they have to be away from a recharge station for long periods of time. So there's a lot of factors that go into it. But ultimately, when the total cost of ownership equation fits, that's when you start to see nice adoption rates. We think that there's clearly an opportunity in refuse, and that's why we're partnering with an OE to put electrified units in the market this year. But lots of opportunity and specific use cases that we address, and this will all continue to evolve over a long period of time. But in the very, very near future, you'll hear us come out with announcements on other products that we're electrifying that are coming to market. So exciting time for electrification.

Very helpful. Thank you. Thanks, Felix.

Thank you. We have no further questions at this time. Mr. Jones, I would now like to turn the floor back over to you for closing comments.

Thank you, Operator. And thanks to everyone for joining us today. You know, we really appreciate your interest in the Oshkosh Corporation. I know I can speak for John, Mike, and Pat, that they'll look forward to speaking with you in the near future at a virtual conference or another earnings call. And just ask that everybody stay healthy out there, and let's work together to get through this. Take care.

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.