Oshkosh Corporation (Holding Company)Common Stock

Greetings and welcome to the Oshkosh Corporation fiscal year 21 third quarter earnings 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, Mr. Davidson. You may begin.

Good morning. Thanks for joining us. Earlier today, we published our third 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 to 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 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 John Pfeiffer, President and Chief Executive Officer, and Mike Pack, Executive Vice President and Chief Financial Officer. Please turn to slide three and I'll turn it over to you, John.

Thank you, Pat, and good morning, everyone. I'm proud to share that Oshkosh has delivered another quarter of strong performance, experiencing strong orders, sales growth, and robust backlogs across all of our segments. Our strong third quarter results include sales of $2.2 billion and adjusted earnings per share of $2.09, an increase of more than 60% over prior year adjusted EPS. We are pleased with this strong performance, and I'm proud of our team's perseverance to deliver growth and solid results in the face of one of the most challenging global supply chain environments in recent memory. Our third quarter was highlighted by several exciting announcements on the heels of the USPS Next Generation Delivery Vehicle, or NGDV, win in the second quarter. In early June, we were notified that we won the U.S. Army's Stryker Medium Caliber Weapons System, or MCWS program, which represents an important new adjacency for our defense business. Less than a week later, we held a joint news conference with the city of Madison, Wisconsin, to announce our revolutionary new electric fire truck, the Pierce Volterra. Madison is the first city in North America to be operating an electric fire truck as part of its fleet, and we're pleased to report that the truck has been performing extremely well. This is a big step forward for our EVs and is another milestone in our two-decade-plus history of electrifying products. As we've been discussing over the past year, we have significant electrification projects in all of our business segments. And in late June, we announced Spartanburg, South Carolina, as our newest manufacturing facility. The Spartanburg factory will be the home of our USPS NGDV production. We are proud to be creating over 1,000 manufacturing jobs in South Carolina for this exciting new program. As we look at the current landscape, many industries, including our own, are seeing a rapid increase in demand with market recoveries causing significant stress on global supply chains. And that has only intensified over the past quarter. At Oshkosh, we are witnessing the effect of these supply chain disruptions primarily within the access equipment business, impacting sales by approximately $100 million during the quarter. Importantly, we believe these supply chain issues will eventually subside, and we are well positioned to capitalize on the market recovery. As we address these disruptions, we are updating our expectations for 2021 adjusted EPS and now expect $6.35 to $6.50, tightening the range a bit heading into our fourth quarter. Reducing the top end of the range reflects the ongoing supply chain issues that I mentioned. Mike will share more details in his section. Now, Let's turn to slide four and get started on our segment updates with access equipment. The recovery momentum we discussed on our last call continued and demand for our industry-leading access equipment strengthened. While we expected some supply chain disruptions in the back half of the year, the magnitude of the impacts has been more significant than we previously expected. Our access team did an outstanding job minimizing the volume impact during the quarter, which allowed us to deliver nearly 90% revenue growth versus the prior year. We are seeing strong demand led by North America. Elevated fleet ages combined with strong equipment utilization and a healthy rental market are fueling this demand. We expect a multi-year opportunity for robust replacement demand as rental companies look to lower the overall age of their fleets, which were at historically high levels entering 2021. We expect further opportunities when non-residential construction rebounds. As a result of these market fundamentals, our customers are already beginning to plan for their 2022 capital requirements. Orders were strong during the quarter, leading to a backlog of $1.75 billion, up more than 200% versus last year and an all-time record for access for the third quarter. We continue to be pleased with customer interest in orders for our electric booms and scissor lifts. The move towards electric is still in its early stages and is gaining traction with customers that are looking for improved performance benefits, total cost of ownership benefits, and carbon footprint reduction. The bottom line for the segment is that we're still in the beginning of what we believe is a multi-year growth cycle as economies recover and customers use our safety and productivity enhancing equipment in more applications. Please turn to slide five and I'll review our defense segment. Our defense team delivered solid third quarter results with double-digit sales and operating income growth and continues its success entering new adjacent markets that supplement our market-leading position with tactical wheeled vehicles. As I mentioned in my opening remarks, we announced the decision to build the USPS's next generation delivery vehicles in Spartanburg, South Carolina in late June. Spartanburg is an outstanding location with deep automotive manufacturing roots and we look forward to bringing new team members on board to help build these game-changing zero emissions and low emission last mile delivery vehicles for our nation's postal carriers. Our team has already begun preparing the facility for the planned production launch of the NGDB in 2023. Recall this is a 10-year contract that calls for between 50,000 and 165,000 vehicles with a mix of both zero emission BEVs and fuel-efficient ICE vehicles. We are continuously engaged with a broad cross-section of USPS representatives, including postal carriers, procurement and technology professionals, and are very encouraged by the positive feedback we received on the great technology we are building into the NGDB. We look forward to sharing our progress during our analyst day this September in Wisconsin. In early June, we were notified that we won the Striker MCWS competition, which will result in our team integrating the MCWS on the Striker vehicles that are used by U.S. Army Brigade Combat Teams, SBCTs. The six-year contract includes a full spectrum of system technical support, interim contractor logistics support, and integrated product support. To achieve this win, our team brought together the best in class capabilities for system design, manufacturing, and integration to provide a highly capable solution that meets current Stryker MCWS program requirements while offering the flexibility to upgrade in the future. The six-year contract is worth up to $943 million. This is a great example of our team's ability to successfully compete for and win programs in adjacent markets that are part of the Army's priorities. Our January acquisition of Pratt Miller was instrumental in our ability to win this important program. Before I leave defense, I wanted to mention some late-breaking news that our bid for the OMFV, or Optionally Manned Fighting Vehicle, was selected as one of five proposals to participate in the concept design phase of the program. We are working with some outstanding partners, and this is a significant win for Oshkosh. It's also another example of our ability to compete in adjacencies outside of tactical wheeled vehicles. The OMFV is planned to replace the Bradley fighting vehicle, and the program involves several milestones over the next several years. Let's turn to slide six for a discussion of the fire and emergency segment. The fire and emergency segment delivered excellent performance in the quarter with solid sales and an operating income margin of 14.7% despite the challenging supply chain environment. As we've shared over the past year, we had some concerns with municipal budgets as we emerged from the pandemic that could lead to downward pressure on firetruck demand. Our expectations are changing. as communities have been more resilient through the pandemic, buoyed by strong residential construction and increasing property values. We now expect 2022 to be a solid year as evidenced by our better-than-expected order rates. F&E finished the quarter with another solid backlog of $1.2 billion, an increase of 8.5% over last year. Orders in the quarter were impressive at $247 million, an increase of 69% over last year. Pierce is the industry leader in municipal fire trucks, and that leadership was punctuated with our June announcement of North America's first electric fire truck, a milestone for both Oshkosh and the industry. The city of Madison is piloting our new Volterra pumper as part of its frontline fleet. and it has successfully responded to hundreds of emergency calls. The Volterra highlights our expertise with electric vehicles and provides all the operational, functional, and safety benefits our customers have come to expect from Pierce while not sacrificing performance. Our customer is saving over 100 gallons of diesel fuel per week with the pumper, and they are also inviting the community and other fire departments to see the unit up close throughout the summer. We also launched the Volterra electric ARF vehicle, which will be visiting airports around the United States. Please turn to slide seven, and we'll talk about our commercial segment. Our commercial segment returned to growth this quarter with a revenue increase of over 12%. Our efforts to drive margin improvement through simplification and innovation in this segment are working, as evidenced by our 10.6% operating margin performance in the quarter, surpassing last year's 10.2% adjusted operating margin. Our third quarter results were particularly impressive given the challenging supply chain environment. As most of you are aware, our commercial segment is more reliant on third-party chassis than our other segments. Commercial has been working diligently to address reduced chassis availability that has been prevalent across the industry during the recovery. Our team has maximized production in the face of these headwinds by adjusting our schedules, thus allowing our production lines to remain operational and effective despite these hurdles. Our outlook is supported by strong orders in the quarter for both RCVs and mixers as the US and Canada move beyond the pandemic. These orders led to an all-time high backlog of just under $500 million, providing solid visibility into 2022. We're pleased to report that we're discharge concrete mixer production in our focused factory in London, Ontario, Canada is proceeding very well and the transition is complete. We are also focused on optimizing RCV production in our Dodge Center, Minnesota facility in the coming quarters. We also delivered the first unit of five electric RCVs for Boise, Idaho, working closely with one of our OEM partners. We look forward to working with our customers and partners as they establish and implement electrification and emission reduction strategies for the long term. Finally, we are participating in the Advanced Clean Transportation Expo in Long Beach, California, in late August. We plan to showcase our fully electric cobalt concrete mixer truck concept. I encourage all of you to check it out if you plan to attend the expo. I'm going to turn it over to Mike to discuss our third quarter results and expectations for the remainder of 2021.