Oshkosh Corporation (Holding Company)Common Stock

Greetings and welcome to the Oshkosh Corporation Fiscal 2022 First Quarter Results Conference Call. At this time, all participants are in 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, Vice President of Investor Relations for Oshkosh. Thank you, sir. You may begin.

Good morning, and thanks for joining us. Earlier today, we published our first quarter 2022 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. 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. As a reminder, we changed our fiscal year to align with a calendar year, effective January 1, 2022. All comparisons during this call to the prior year quarter are to the quarter ended March 31, 2021. 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. For the quarter, we reported sales growth of 3% with adjusted earnings per share of 24 cents, modestly above the expectations we shared on our last earnings call. As expected, we experienced peak-level price-cost headwinds during the quarter, which challenged margins throughout the company. We expect price-cost dynamics to improve in the second quarter and into the second half of the year as we begin to more fully realize the benefits of higher pricing levels. Customer demand remains healthy, as evidenced by strong order activity during the quarter and record high backlogs. Our long-term growth outlook is strong. Early in the quarter, we experienced modest improvements in supply chain and commodity costs. However, the Russian invasion of Ukraine has caused further inflation pressure and parts constraints across industries. In response, our teams acted quickly and implemented additional price increases in our non-defense segments. In fact, many of these adjustments in the access and commercial segments were effective immediately. We are also closely monitoring COVID related lockdowns in China as this is impacting our production and parts availability in China, as well as global supply chains. I'm proud of the efforts of Oshkosh team members who have shown their grit and determination as we work to overcome supply chain disruptions, freight and logistics challenges, as well as workforce constraints. During the quarter, We received our first order from the United States Postal Service for our cutting-edge next-generation delivery vehicles. We have also remained active in the M&A and investment space. We purchased CartSeeker technology during the quarter, and just yesterday we completed a minority investment in robotics and autonomy leader robotic research. You've heard us talk previously about the benefits we expect to generate with programmatic M&A and investments, These are important steps in our journey to drive accelerated growth. Also, Ethisphere once again named Oshkosh as one of the world's most ethical companies. This is our eighth consecutive year to be recognized and is emblematic of our strong culture rooted in doing business the right way. In light of a more difficult supply chain and cost environment, we are updating our 2022 adjusted earnings per share expectations to a range of $5 to $6. Mike will provide further discussion on our expectations later in our presentation. Please turn to slide four and we'll get started on our segment updates with access equipment. Our access team grew sales by 20% over the prior year quarter as the team continues to execute in spite of short-term challenges. Despite ongoing supply chain disruptions and elevated commodity prices, our team at JLG has taken many positive steps to improve the capacity and resiliency of our supply base. We saw pockets of improvement with our supply chain on-time delivery metrics, but these metrics remain well off historical levels. Progress continues with the ramp up of additional production lines at our Bedford, Pennsylvania and Jefferson City, Tennessee plants, which should facilitate higher production rates going forward. The access team has done an outstanding job of executing these key capacity expansion projects, which allows us to continue to increase production to meet strong demand. During the early part of the quarter, commodity and freight costs began to moderate as we expected. As I mentioned in my opening remarks, Russia's invasion of Ukraine caused fuel, steel, aluminum, and numerous other input costs to increase sharply once again, resulting in additional risk to our outlook for the second quarter and back half of the year. In response, we implemented additional surcharges on shipments beginning April 1 as we worked to mitigate these headwinds. Orders were strong once again at 1.3 billion in the quarter. Market fundamentals are robust, supported by high utilization rates and elevated fleet ages. We only recently opened our order books for 2023 and are already gaining solid visibility to requirements across our customer base for next year. We expect strong orders in the second quarter as we finalize many 2023 annual purchase agreements leading to our positive outlook over the next several years. Please turn to slide five and I'll review our defense segment. Revenues for the defense segment were lower in the quarter versus the prior year quarter as a result of lower tactical wheeled vehicle budgets that we've been discussing for a while. However, as we look to late 2023 and beyond, defense is an exciting growth segment as new programs such as the NGDV and Striker MCWS, begin to ramp up. Our operating margin in the quarter was lower than we expected as a result of unfavorable cumulative catch-up adjustments due to increased input cost expectations. We do not expect margins to be notably lower on a prospective basis at this time. Mike will provide further details in his sections. We continue to execute the JLTV program well and are actively engaged in the re-compete process. During the quarter, the Army extended the bid submission date from April to July of 2022. As a result, we expect the final decision to push out from September to the December 2022 timeframe. As a reminder, we won the JLTV competition seven years ago, knowing that it would be re-competed and we believe we are well positioned to retain this significant program. I mentioned our USPS order in my opening remarks. The first order is for nearly $3 billion and includes a total of 50,000 units, of which approximately 10,000 units are battery electric, up from prior expectations of approximately $5,000. And we have given the USPS the option to convert this order to an even richer mix of EVs should they have the funding to do so. Progress continues as we prepare our factory in Spartanburg, South Carolina for production, and we look forward to supplying the USPS with these innovative new vehicles. You've heard us talk previously about the many adjacent market growth opportunities we're working on in the defense segment. One of the most significant adjacent programs is the Stryker medium caliber weapons system. We are very pleased with our progress on the program. The fiscal 2023 president's budget request was published a few weeks ago and contains solid funding for the MCWS program, as well as our other key programs. These adjacent programs, as well as the USPS contract, provide defense with a strong long-term growth outlook beginning late 2023. Let's turn to slide six for a discussion of the fire and emergency segment. Demand is strong for our industry-leading products in the fire and emergency segment. Production and deliveries were constrained in the quarter as a result of supply chain disruptions and workforce challenges. These disruptions led to manufacturing inefficiencies and lower sales, both of which impacted profitability. Operating margins improved sequentially, as we expected, and we expect F&E to deliver solid double-digit operating margins for the year as we benefit from price increases previously implemented and additional capacity that will be coming online later in the year and into next year. Orders remained strong at nearly $660 million during the quarter, leading to another record backlog. We announced a price increase effective February 1 and another price increase effective May 1. Our Volterra electric pumper is performing well for the Madison, Wisconsin Fire Department, and we just completed the next unit for Portland, Oregon. The Madison and Portland units will be showcased at the FDIC trade show in Indianapolis this week. We will also debut our next generation puck, or Pierce Ultimate Configuration, custom pumper unit which offers a proprietary pump placed under the cab, resulting in best-in-class storage and productivity benefits for firefighters. The Volterra Electric ARF, has been generating strong interest with airports around the world and will be showcased at the Interschutz Expo in Hanover, Germany in June. We will also be conducting demonstrations of the unit at several European airports this summer. These innovations continue to position our fire and emergency segment as the market leader. Please turn to slide 7 and we'll talk about our commercial segment. The commercial segment grew revenues over the prior year quarter and made progress to a more typical level of profitability in the quarter, despite experiencing the same price cost and supply chain challenges that I've mentioned with our other segments, which affected volumes and margins. Our focused factory approach as part of a simplification mindset is gaining momentum and supports improved performance over time. The commercial segment has remained disciplined with pricing actions, which we expect will drive higher margins as we progress through 2022. We've seen some signs of chassis availability improving, but it remains a primary focus in this segment as commercial is our biggest user of third-party chassis. Additionally, certain control modules and other components have also been constrained, impacting our ability to ship on pace with demand. During the quarter, we acquired CartSeeker curbside automation technology. CartSeeker complements our ongoing work with Autonomy by providing operational simplicity and high performance to customers through patented AI-based recognition technology. Demand for RCVs has been solid, reinforcing our positive outlook. We have been working closely with our customers on requirements, and many want to begin placing orders for 2023. We have not fully opened our order books for 2023 as we are continuing to watch and evaluate commodity markets. Our team will be attending Waste Expo in May, and we believe it will be a very well-attended show. There's a lot of excitement in the industry surrounding EVs and automation. Our EPTO RCV bodies for EV chassis are performing well in the market, and our CartSeeker automation technology shows great promise. Demand for this type of technology in the environmental services space continues to strengthen, and we believe we are well positioned for this positive long-term trend. With that, I'm going to turn it over to Mike to discuss our results in more detail and our updated expectations for 2022. Thanks, John, and good morning, everyone.