Oshkosh Corporation (Holding Company)Common Stock

Greetings, and welcome to the Oshkosh Corporation first quarter 2024 results conference call. At this time, all participants are in the listen-only mode. Any 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 2024 results. A copy of that 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 the website for approximately 12 months. Please refer now to slide two of that presentation. Our remarks that follow, including answers to your questions, contain statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we have described in our Form 8-K filed 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. 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 pleased to announce another strong quarter with year-over-year growth in revenue and earnings. This solid start to 2024 is a testament to our innovate, serve, advance strategy and the hard work of our people as we continue to launch new innovative products and technologies while adding capacity for several of our businesses. For the first quarter, we achieved an 80% increase in adjusted operating income, leading to an adjusted operating margin of 10.8% and adjusted EPS of $2.89. These results were led by outstanding business execution across our segments, and supported by the benefit of acquisitions. We continue to focus on execution. Importantly, we're driving improvements in our businesses, contributing to strong performance in the quarter and supporting our positive outlook for the remainder of the year. We are also focused on becoming a more resilient company throughout the business cycle while driving long-term growth and we are confident we're making meaningful progress. Our confidence is fueled by several key factors, including significant investments in market-leading technologies that we expect will drive demand for the next decade and beyond, robust backlogs that provide strong visibility, the ramp-up of several new innovative products, including next-generation delivery vehicles, and the benefits of strategic acquisitions such as Aerotech. Based on our first quarter results, along with solid execution and healthy demand for Oshkosh products, we are raising our full year outlook for adjusted EPS to be in the range of $11.25 per share. Notably, our current expectations place us within the range of our investor day target of $11 to $13 per share a year early, and demonstrates our ability to continue to drive accelerated growth and shareholder value. Please turn to slide four and we'll get started on our segment updates. Our team at Access is performing well. For the quarter, Access grew revenue by 3.7% and delivered an adjusted operating margin of 17%. We continue to invest in new products and technologies, including Moments of Autonomy and ClearSky Smart Fleet, our next generation IoT platform, enabling two-way real-time communications that we believe will contribute to long-term success in the access market. Last quarter, we told you that we expected customer order timing to begin normalizing. leading to lower orders in the first half of 2024 relative to both the prior year and the second half of the year, given that 2024 was largely booked as we entered the year. This remains the case, although healthy orders of 940 million in the first quarter exceeded our expectations. We continue to expect that the majority of 2025 orders will be booked in the second half of 2024, particularly in the fourth quarter, which more closely aligns with historical order timing. Demand for aerial work platforms and telehandlers in North America continues to be solid, supported by infrastructure investments, megaprojects, and industrial onshoring projects, as well as elevated fleet ages. Moving to operations and supply chain, our team continued to make progress with supplier on-time deliveries in the first quarter, which were in the 85% range. The combination of improving supply chain deliveries and our continuous improvement initiatives is contributing to increased throughput in our manufacturing facilities. We are progressing well with our plans to repurpose the Jefferson City, Tennessee facility for telehandler production. We are transitioning the facility throughout 2024 as defense fabrication work moves back to Oshkosh. We expect a meaningful ramp in telehandler production capacity in the facility for 2025, which will help us capitalize on demand for our equipment. Importantly, we believe there are many opportunities to continue to drive growth and strong performance at Access over time. Please turn to slide five and I'll review our defense segment. As we have discussed, 2024 is a significant transition year for our defense segment as we are winding down production of domestic JLTVs during the year. Simultaneously, we will be ramping up production of the U.S. Postal Service's Next Generation Delivery Vehicle, or NGDV. This month, the first NGDV units came off the production line in Spartanburg, South Carolina. Our team has spent a tremendous amount of time planning and executing this program launch, and I'm pleased with our progress. We look forward to a long and successful partnership with the U.S. Postal Service as we modernize their fleet over the next 10 years. As a reminder, we expect increased vehicle production throughout 24 and 2025 and exit 2025 at full rate production. We continue to support many defense programs including the FHTV and FMTV programs. We are working on contract extensions for both of these programs with plans to complete the extensions over the next several quarters. We are also the supplier for the Stryker medium caliber weapons system a program which has contributed to the diversification of our defense business beyond tactical wheeled vehicles. And we are in the midst of the robotic combat vehicle development program, which demonstrates our broad technical capabilities in autonomy, connected vehicle systems, and mobility, among others. Finally, I want to share an outstanding technical achievement that our teams recently accomplished with the United States Army. We successfully completed airdrop testing of our low velocity airdrop or LVAD FMTV A2 cargo truck at Fort Liberty in North Carolina. Essentially, the program allows the vehicle to be parachuted from a plane and operational on the ground within 30 minutes. We expect to begin receiving orders for LVAD units in 2025. Let's turn to slide six for a discussion of the vocational segment. Our vocational segment delivered strong year-over-year revenue growth in the first quarter of 37%, including the benefit of $176 million of sales at Aerotech, which we acquired in the third quarter of 2023. We continue to invest in electrification programs as well as autonomous functionality to enhance ease of use and productivity for our customers. Given strong demand for fire trucks and our extended backlog, production throughput continues to be a meaningful opportunity for the foreseeable future. Demand remains solid for our McNeill's refuse and recycling collection vehicles. Customers are enthusiastic for our purpose-built electric Volterra ZSL zero emission vehicles and test vehicles are performing well in the field. As you know, we will be ramping up production of these units at our factory in Murfreesboro, Tennessee. And earlier this month, we completed our first pre-production pilot unit in the facility representing an important program milestone. Customers are excited by the opportunity to reduce their carbon footprint while realizing an estimated 14% improvement in total cost of ownership. We look forward to the Waste Expo show in two weeks where we will showcase these game-changing vehicles and their key features. Moving to Aerotech, we're pleased with our integration progress to date and the business is performing well. Strong financial performance, robust customer demand, and exciting new products like the AMP cart, mobile charging station, which supports sustainable operations at airports, all highlight the reasons we are so pleased with this acquisition. With that, I'm going to turn it over to Mike to discuss our results in more detail and our updated expectations for 2024. Thanks, John.

Please turn to slide seven. Consolidated sales for the first quarter were $2.54 billion, an increase of $276 million, or 12.2% over the prior year quarter. The increase was driven primarily by the benefit of $176 million of Aerotech sales in the vocational segment, as well as increased volume in all three segments and the benefits of improved pricing. Adjusted operating income increased $124 million over the prior year quarter to $275 million, or 10.8% of sales, a 410 basis point improvement versus the prior year. The improvement in adjusted operating income was largely driven by improved price-cost dynamics, favorable mix, increased volume, and the benefit of Aerotech results. Adjusted operating income exceeded our most recent expectations, primarily due to higher volume at vocational, favorable customer mix at access, and lower spending. Adjusted earnings per share was $2.89 in the first quarter versus $1.63 in the prior year. During the quarter, we repurchased approximately 130,000 shares of common stock for a total of $15 million. Please turn to slide eight for review of our updated expectations for 2024. With our strong start to the year, we're revising our full year outlook. On a consolidated basis, we're estimating 2024 sales and adjusted operating income to be in the range of $10.7 billion and $1.075 billion respectively, which are up from our prior expectations of $10.4 billion and $990 million respectively. We are estimating adjusted earnings per share will be in the range of $11.25 versus our prior estimate of $10.25. At a segment level, we are estimating excess sales and adjusted operating margin to be in the range of $5.4 billion and 15.5% respectively, up from our prior expectations of $5.2 billion and 15% due to improved production throughput and improved sales mix. Compared to the first quarter, we expect customer mix to moderate and new product development spending to increase for the remaining quarters in 2024. Turning to defense, we continue to expect sales of approximately $2.1 billion and an adjusted operating margin of approximately 2.5%. We expect vocational sales and adjusted operating margin will be in the range of $3.2 billion and 11.5% respectively, up from our prior expectations of $3.1 billion and 11% respectively. Increased chassis availability and improved price-cost dynamics are contributing to the improved outlook. Our estimate of corporate expenses is approximately $190 million, an increase of $10 million versus prior expectations, as a result of higher incentive and stock-based compensation expense versus previous expectations. Our expectation for tax rate is now 24%, modest decrease versus our prior expectations, of 24.5%. Our expectation for share count is now 65.8 million shares. And finally, our expectations for CapEx and free cash flow remain unchanged. Looking to the second quarter, we expect adjusted EPS in the range of $3 per share, which is up versus the prior year and the first quarter. We expect sales to be up approximately 15% versus the prior year inclusive of the benefit of Aerotech sales. With that, I'll turn it back over to John now for some closing comments.

We continue to focus on execution, supporting our customers and empowering our people as we grow and strengthen our business. We raised our expectations and now believe we can achieve our investor day targets for 2025 revenue and EPS one year earlier than we originally expected. which is a testament to our team and our strategy. We are investing in new products and deploying technologies that support our customers and keep our company at the forefront as leaders in our industries. This is an exciting time for Oshkosh, and we look forward to continuing to execute our growth strategy to drive shareholder value. All right, Pat, let's get started with the Q&A.

Thanks, John. I'd like to remind everyone to please limit their questions to one plus a follow-up, and please stay disciplined on that follow-up question. After the 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 a question and answer session. We ask that all callers limit themselves to one question and one follow-up. If you have additional questions, please re-queue, and those 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 Stanley Elliott with Stiefel. Please proceed with your question.

Good morning, everybody. Can you talk, I guess, maybe a little bit more of a longer-term question for you? I mean, there's a number of kind of EV next-gen programs out. As you're moving kind of through this pre-production phase into more of a meaningful revenue generator, it sounds like that'll be more into early 2026, just to clarify that. And then how should we think about this from a margin perspective from you all? Is it Is it similar gross margins but higher gross profit dollars? Just trying to get a framework for how this could evolve.

Sure. Stanley, I can take that one. Just thinking about the ramp of NGDB, so what we talked about this year is we're going to have some startup costs. So it'll be about between that and NPD. We said last quarter about a $0.35 drag. As we get into next year, there's going to be a pretty significant ramp of volume. So we're going to start getting margins with that will start to follow. And by the time we get to 2026, we'll be at full rate production, well north of a billion dollars of revenue from the program. And then you'll see those good solid margins. And what we've talked about from a margin perspective, really on that program is to be better than our traditional tactical wheel vehicle margins.

And Stanley, Mike just commented on the NGDB for the U.S. Postal Service. That's our biggest electrification program. But we have electrification programs in other segments as well. You look at our vocational segment with the electric fire trucks, the electric airport rescue firefighting vehicles, the electric refuse and recycling vehicles, and there's others as well. Those are, you know, the margins are all healthy margins. These, you know, the adoption rate is different based upon the end market, but these will all provide healthy long-term growth drivers as over time we see municipal fire stations. We see our customers in the refuse and recycling segment upgrade fleets to better, more modern vehicles over time. So we look at it as a long-term move for us. It's not something that's going to happen overnight in some of these other segments.

That's great. And then I guess we hear a lot about stimulus for construction and other sorts of things. But there's a considerable amount kind of allocated for airports, too. Can you talk about kind of within the Aerotech portfolio how much more product do you need to potentially get refreshed? It sounds like you have some mobile charging stations coming down the line. Just curious kind of how you see that business ramping and evolving now that you have maybe a little more R&D firepower to put behind it.

Yeah, well, I think on the electrification front, we're kind of in our infancy. A lot of the electrification that's in the airport markets today with ground service equipment is really lead acid, so kind of the old-fashioned electric. And we're going to continue to move that to lithium ion, thus the amp cart, because you have to have a way to repower vehicles efficiently on the tarmac of an airport. And that's kind of what the amp cart does. I think our Aerotech people have been doing a phenomenal job with autonomous functionality for cargo loading and other applications, and we're going to continue to accelerate it there as well as in the electrification space. But in electrification for ground surface equipment, we're really, really early, early innings for that.

And, Stanley, in general, in orders, we're seeing really strong order intake in that business, and we expect that to continue for the reasons you mentioned.

Thanks. Appreciate it.

Thanks, Stanley.

Our next question comes from the line of Jamie Cook with Truist. Please proceed with your question. Hi. Good morning.

Nice quarter. I guess just two questions. You know, one, just the margins for access equipment in the first quarter were exceptional at 17%. I think based on the guide, it implies your margins for the remaining three quarters would be below, you know what I mean, prior year. And I'm just trying to understand why that would be the case with, it looks like based on your guide, the top line should be, the top line growth should be better than what we saw in the first quarter. So if you could help me on that. And then, John, I guess a question specifically for you with Postal Service, you know, starting to ramp, you know, more significantly next, you know, this year and next year. Can you just talk about conversations you're having with customers around opportunities on last mile delivery? I'm wondering whether, you know, we can start thinking about, you know, adding more of, you know, benefiting from the Postal Service win and expanding your, you know, market share and last mile delivery. Thank you.

Thanks, Jamie. I'll let Mike start with the access question, and then I'll go on the postal question. Sure.

On the access margins, as I'd mentioned in my prepared remarks, we did see a favorable mix in the first quarter. That was certainly a driver of the margin. We also did see, we talked about on the last call, expecting to see higher new product development spending of about $20 million for the year. We also have roughly $10 million of Jefferson City revenue Tennessee startup costs, a lot of those are really going to, those costs are going to be largely occurring in the next three quarters. That mix moderates, so that's really, it's really a mix in the timing of that spending that's driving the margin difference.

Yeah, and with regard to last mile delivery, Jamie, so first of all, I want to say that we are intensely focused today on on executing the NGDV program for the United States Postal Service and modernizing their fleet. We just went into production, started to produce vehicles, and I want to make sure, make this clear, I think everyone knows it, this is the largest fleet of last mile delivery vehicles in North America, probably in the world. So there's no bigger opportunity that we could execute on than the one that we've already gotten. It'll drive really nice growth for us for a long time. Of course, we're talking to many other service providers in last mile delivery, but we're one step at a time. We're going to make sure we make the NGDB successful, and I think in the future we may have some other things to talk about. But right now, we are really focused on making sure the U.S. Postal Service is very successful with this modernization.

Okay. I appreciate it. Thank you.

Welcome back, Jamie.

Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.

Yes, hi, good morning, everyone. I wanted to ask in fire and emergency, obviously not a reportable segment anymore, but pre-COVID, you know, that business ran in the mid-teens margins. And I'm wondering if you can comment, given the pricing that's in backlog, what's the potential for that business to go into the high teens in this cycle with not only pricing, but also logistics costs normalizing? Can you just talk about the opportunity there, please?

Sure. We're very excited about the progress we're seeing in vocational. We talked about when we combined the segments that it could be a $12-plus billion segment operating margin with over $3 billion of revenue, reiterated that with the Aerotech acquisition. And you see the great progress we're making on that with our quarterly results and also our outlook. And We'll continue to benefit from the segment synergies that bring the segment together, Aerotech synergies. As you mentioned, we have pricing and backlog. We have a lot of exciting new products coming out that will be margin enhancing. So we believe we're just at the beginning of our journey to continue to drive enhanced margin opportunity in the segment and see a lot of opportunity there.

And, Jerry, just in general, I'll tell you, we really – have an outstanding outlook for our vocational segment, and I say that long-term. We've got healthy markets. We've got really good backlog, strong demand. We continue to execute on long-term opportunities with technology application. We think this is a really healthy, stable business for us.

Thank you. And, John, can I ask, on the U.S. postal truck you had mentioned in your prepared remarks, on track to exit 25 at the full production run rate. Can you update us on what the anticipated mix is at full production between EV and ICE as we exit 25?

Yeah, you know, it's interesting. They've continuously, as I probably said before, they've continuously increased the mix towards battery electric vehicles, which we think is great and the Postal Service wants. So they're at about, so for the first 50,000 units, They're going to do about 75% battery electric and about 25% internal combustion. When we go beyond that, so that'll take us the first few years of the program. Beyond that, I expect, we don't know for sure, but I expect they'll yet even increase the battery electric even more, maybe even go to 100%. But this is going to be mostly zero emission battery electric vehicles. And reminding you, this is the first time that the Postal Service or anyone in last mile delivery has had a purpose-built vehicle, adding the productivity benefits that we're adding with this vehicle. It's really a big step forward for the entire industry.

Appreciate it. Thanks.

Our next question comes from the line of Meg Dobre with Baird.

Please proceed with your question.

Thank you. Good morning, everyone. I'm wondering if you can help us think through the cadence in defense. There's a lot going on here. You have the GLTV program that's winding down. You have NGDV that's ramping up. As we're thinking about a cadence of revenue through the year and what's implied in the guidance and what carries into 2025. Can you help us understand this dynamic here, how we should think about revenue? And then also associated with this, what should happen with margins here as NGDV ramps up?

Yeah, so I'll make good morning. It's John. I'll start. Mike may want to add a few things to my comments. We talk about defense going through a big transition, and defense is going through a big transition. We still have production of JLTVs through 2024. So when we get into 2025, and by the way, in 2024, we're in production today with the NGDV, the postal truck. But that's low-rate production through 2024, and it starts to really increase in 2025. So as you get into 2025, JLTV for the domestic JLTVs goes out of production, but we're ramping the postal NGDV. So we expect that the revenue we create in 25 through the postal NGDV will exceed what we have gone out of production with on NGDVs in terms of revenue. Giving you a little bit higher perspective of what's happening in the defense world, you know, defense will continue to drive better margins as they get to sole sourced contracts for many of the vehicles that we have today. And that allows us to reset price to the realities of what inflation has done to input costs. So as we can get those sole source contracts over the next 18 months, that's a good thing for the margins in the defense business. We've also won some smaller combat vehicle programs and are vying for other combat vehicle programs. These are high priority for the DOD, so the margins are good. And we've got an improving international landscape in terms of lots of countries that are increasing their Department of Defense spending as a percent of their GDP. That's also a bit of a good outlook for improving the defense side of the business. But 25 is the year where it really changes from JLTVs to NGDVs.

And just to follow up on this, to be clear, we shouldn't expect some sort of a material drop in revenue or maybe yet another decline in operating income in 2025 in defense?

No, that's not our expectation. Again, we would expect the revenue. There's about $700 million of domestic JLTV revenue we expect this year. We expect NGDB to be greater than that next year. So, really, we should, we'll start returning to growth next year, and 2026 should be, you'll see a meaningful step up even from there.

Okay, thank you for clarifying.

Our next question comes from the line of Steve Bulkman with Jefferies.

Please proceed with your question.

Great. Good morning, everybody. I wonder if we could go back to the access margin. I'm just trying to think about how the year progresses here, starting off as strong as you are, but obviously having to come down to meet your full year guidance. Is that sort of a step down and then sort of flattish for the remaining three quarters, or do we kind of you know, trend down and the exit rate might be significantly lower. I'm just trying to think about that cadence.

No, I think there's a, we certainly don't see growth flowing in that business at this time. There's strong demand. I think as we talked about in our last call, just that there's definitely more seasonality to our deliveries as deliveries have normalized. So what I would expect is our strongest quarters will be the second and third quarters. And then the The fourth quarter, I would expect to be lower as you start getting into the winter months. And then, again, just returning to that more traditional cadence. And you even see that in the first quarter. If you were to see within the months, you see more activity as you're approaching the springtime. So certainly March, from a shipment standpoint, is typically more robust. So it's really just a return of seasonality. Again, I think the big drivers, this mix was a big driver this quarter. And then I think the timing of some of those investments I mentioned before factor into it as well.

Okay. And then maybe just switching briefly back to vocational, I know you gave the revenue impact of the acquisition, but can you say anything about the margin there and how that impacted the segment?

Yeah, we're certainly benefiting from it. You know, we certainly have some integration costs up front, and you'll see the drivers. But, you know, we're near double-digit margins. I think that will certainly improve as we have some DT or information technology integration costs and so on early in the year. But view that solidly going to be a good double-digit margin performer for us over time.

All right. Thank you, guys.

Thanks, Steve.

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

Thanks. Good morning. So you were clear that the customer mix was an upside surprise for Q1 in Access. So I guess I'm just wondering, what are the variables that you see out there for Q2 in Access that you don't have clear visibility on at the moment? I mean, I know you seem to be pretty well sold out. And I would think you'd have a good view on the cost. So is it, you know, how does that customer mix kind of take shape within a quarter and what other variables might be a factor for Q2 at this point?

Yeah, I would say on the mix, it's really just the timing of shipment. So you go back to the beginning of the quarter, we're booked, we have a production plan, but you can always have timing of deliveries. So Again, going back to the comment I just made a minute ago with sort of this return of seasonality, our finished goods are up a bit. In fact, one of the things we really were pleased with is the throughput we saw at Access. We had about, call it, 75 to 80 million of additional finished goods. that are ready to be shipped that will be going out early in the second quarter. So it's really just a timing matter that it wasn't. So I guess as I look to the rest of the year, you could have some nuance gives and takes, but I don't, again, we're booked for the year. So it's really going to shake out over the course of the year because again, that those, those products and the customers are going to are known at this point.

Well, and Steve, you have a mix of aftermarket in there too, right? Aftermarket is a spot order, spot by business. And sometimes it can go up or down a little bit versus expectations in a quarter. And that's a very strong margin business that does affect the margins.

Okay. And then just as a follow-up, to what extent are there any cancellations that you're seeing in in the access business or changing in timing or pushouts or anything like that coming from customers?

You know, I'll tell you, Steve, that we're really pleased with the market and access. We see continued demand drivers going forward. We talked about the Q4 order book was really strong. The $940 million that we just booked was better than our expectations. So we're booked well through 2024 right now. And I'm telling you that because when I give you the health in terms of the marketplace, you know, we don't have any unusual cancellation activity going on. It's just the opposite. Customers are focused on when can I get the equipment and when are you going to slot it for me in your production schedule.

Terrific. Thank you.

Our next question comes from the line of Angel Castillo Morgan Stanley.

Please proceed with your question.

Hi, this is Brendan on for Angel. I just want to talk about your CAT telehandler supply partnership. That should be ending, I believe, at the end of this year. So can you talk to your expectations for renewal of that relationship beyond 2025 and then just any potential implications from a price or profitability perspective? Thanks.

Sure, yeah, good to hear from you, Angel. So I want to first say, hey, CAT's been a long-term partner of ours, and they've been a great partner. I mean, it's hard to find a better partner than CAT to work with in an industry. I'm not going to comment on the contract specifically. What I will say is that JLG is the premier provider of telehandlers in the industry. And if we had more capacity, we would be shipping a lot more telehandlers today. We are really paced by the capacity that we have. So that's why we're increasing capacity. We see new markets opening up. We talk about ag all the time. That's one of them. That is a real opportunity today and will continue to grow over time. So we expect, no matter what happens, that we will continue to grow our share and our revenue in the telehandler marketplace for the foreseeable future. That's what I can tell you about that market, and we see it as a good, healthy growth area for us.

Okay, thank you. And then just touching on the free cash flow guide, so new guidance is a little bit – earnings are higher than you previously thought. You mentioned on the call that CapEx is the same. So I'm just kind of curious what the puts and takes are for why the overall free cash flow hasn't gone up as well. Thanks.

You know, I would say right now it's early in the year. And I think exiting, we have a little bit more working capital exiting the first quarter. So that's something we're going to continue to monitor throughout the year. But it is something that certainly we expect to be a good, strong free cash flow generator. And so really it comes down to timing in a lot of cases with working capital. But I think bottom line is, you know, we talked about it. We expect to be a strong free cash flow generator over time.

Okay, thank you.

Thanks, Brendan.

Our next question comes from the line of Tammy Zacharia with JP Morgan. Please proceed with your question.

Hi, good morning, team Oshkosh. How are you? Good, you? I have two, great. So I have two quick questions. One is the strength in vocational excluding arrow text. Can you comment on the price versus volume? growth you saw in the quarter?

Yeah, we're certainly seeing the benefits of improved price-cost dynamics. You'll see in the queue that it's really the biggest driver in the quarter. About $30 million of our operating income year-over-year benefit was really price-cost, which is which is what we expected. And that's going to continue to be a nice strong driver as we look into the future.

Got it. That's very helpful. And then on access equipment, I think orders were down, but still better than what you initially expected. But could you provide some color on orders in North America versus Europe or other regions?

Yeah, Tammy. You know, access has been running at a really healthy clip, and we expect that to continue due to all the demand drivers that we talk about regularly. With regard to the global outlook, you know, U.S. is our biggest market, of course, and the U.S. is really healthy. When you look at our guide, you see that we're going to increase our revenues for the year in the high single digits, I think it's 8%, 9% in terms of the revenue growth. The orders across the globe and the revenue creation that we're seeing, for the most part, is positive and healthy. The only area that has turned not so good is Europe. Our European business this year is down, and we'll continue to invest in Europe for the long-term future, but Europe's the one outlier for us today when you look at the global markets. Asia's doing well. South America, Latin America's doing well.

That's kind of the global outlook.

Great. Thank you.

Thanks.

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

Yeah, thanks. Good morning, guys.

Morning. Morning, Nicole.

Maybe just on vocational... You talked about price cost being a big factor there. I guess you've guided to 11.5% margin for the full year. I know that's up versus prior guidance, but it does imply like a step down versus what you achieved in the first quarter. So can we just talk about the puts and takes there going from like one Q to the rest of the year?

Sure. I would say very similar, Nicole, to access. The timing of some of the investments we're making in the business are pretty occurring more Q2 through Q4. So Murfreesboro, Tennessee, some of the other new product development spending, some of our integration costs. We had a bid in Q1, so we talked about that a minute ago, but there's some more of the rest of the year. So it's really that. Again, we expect price costs to continue to be a driver throughout the year when we look at it on a year-over-year basis.

Okay, got it. That's clear. And then sticking with the price-cost topic then, can we also talk about how that's impacting access? So is the expectation that part of the margin, part of the explanation for margins through the year is perhaps the price-cost tail end was biggest in the first quarter, and that starts to moderate through the rest of the year? Do I have that right?

I guess ultimately, from a price-cost perspective, I think you'd You know, our pricing is essentially set for the year, so I think the price and cost dynamics are largely there. I would say the bigger drivers, just as we go through the year, is just, again, some of that customer mix nuance.

Yeah, Nicole, it's really an access Q1 to the rest of the year. It's mix, and it's R&D investment in the second half of the year. It's not price-cost. Correct.

Okay, got it. Thank you.

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

Hi, good morning, guys. Morning.

So my question is on order cadence and recognizing that you've already booked out 24. Like, how should we think about orders over the next couple of quarters? Is it, you know, more typical seasonality? Are you going to see more of your 25 orders, you know, in the fourth quarter? Just trying to think through that.

Right now, when customers place orders, Chad, they're primarily placing orders for units they're going to receive at some point in 2025. It makes it very difficult on our customers in the access equipment market when we have such big backlogs and therefore longer lead times. That's why we're saying, and we talk with our customers all the time about this, and when's the best time for them to be placing orders for the future. And right now, as we're booked out through 24 and into 25, they're focused on finishing up their 2024 and then starting to order for 2025 a little bit later in the year. So we think that'll start probably in the second half, Q3, let's say. and build into Q4. That's our expectation. Now, having said that, in Q1, our orders were better than what we thought they were going to be. So we still have a lot of customers that are willing to place orders for 25, even though we're so far from 25 still at this point in the year. That's what I can say about it.

Great. That's helpful. And then just shifting over to defense, I think You mentioned that you have some combat vehicle programs that you're potentially vying for. Could you give a little bit more color? What are the programs? When should we expect the down select with the products?

The most notable one is the robotic combat vehicle. It's an autonomous vehicle with a lot of technology on it. We won the prototype contract, so they will select the production vehicle They'll award the production contract in 2025, probably early 2025. You know, it's a billion-dollar-type business, maybe a billion-dollar-plus-type contract. But right in the crosshairs of where the DOD priorities are, because it's a high-tech vehicle, there's good margins on that vehicle. That's a prime example of, you know, where we can make a difference with our capabilities in the combat world. Rogue Fires, though, too, like you mentioned in prepared remarks, solid, right? Yeah. Rogue Fires is a program that we're selling today and will continue to sell.

Great. Thank you.

Our next question comes from the line of Steve Barger with KeyBank.

Please proceed with your question.

Good morning. This is actually Christian Zilong for Steve Barger. Thanks for taking the questions. Given 1Q's Given 1Q's strong operational beat, if you were to see upside in the back half of the year in guidance, any thoughts on what segment that would come from?

No. I guess what I'd say is we had a strong Q1, a solid increase to our revenue expectations in EPS, and you certainly see that our businesses are performing well, and that will continue to be the focus for the year. Certainly we see strength right now in vocational and access.

Yeah, and you know, Christian, I like the question. We feel really good about all of our businesses and we feel good about them because they all have good opportunities. You know, vocational's got great opportunities to continue to outperform in manufacturing and delivery with big backlogs and really good programs. But defense, I could say the same thing about. I can say certainly access is always that way. You know, the team's always going to try to strive and continue to drive improvement in the business. So, you know, we look at the world as half full.

The glass is half full as we look forward. We've got opportunities in our businesses.

Great. And then it looks like you're already going to hit the bottom end of your $11 to $13.25 targets by the end of this year. Not looking for guidance, but is the high end of that range what you're thinking about for 25? And any thoughts on what comes after that, given the order and backlog visibility you're really into 25 already? Thank you.

Well, I mean, thanks for the question, Christian, because we are delighted that we are hitting our 2025 target. long-range guidance a year early, which, as you just said, is exactly what we're doing. Now, that doesn't surprise us. You know, this type of performance, we always knew we'll get to this level of performance. We're just doing it a little bit faster than what we had forecast to the world we would do it at. That's all really, really good. We're not providing guidance today for 2025. We will provide guidance for 2025 when the timing's right. But, you know, we look at the health of the access market. We look at the strong position that we have in the vocational market. And in 2025, we'll start to see some positive change in the defense business.

You know, that's what I'll say about it.

Great, thanks. Thanks.

Our next question comes from the line of David Rasso with Evercore ISI. Please proceed with your question.

Hi, thank you for the time. As you get closer to volume ramp on the postal truck and you've gotten obviously a little more familiar with the BEV production process, and obviously it sounds like a large majority from the get-go is going to be BEV, can you give us an update where you're comfortable thinking about profitability for that program? I know you're not going to give us an exact number, but just give us some update of your thoughts. Now that obviously we kind of started thinking it would be a little more ice to start, but obviously now it's clear it's going to be bad from the get-go. So I'm just curious.

Do you want to answer it, Mike? Yeah, I would say, David, our view hasn't changed. I think ultimately we said by 2026 we'll be at full-rate production. We would expect, as we've said all along, stronger margins than our traditional tactical oil vehicle margins. This year we'll have some startup costs, so it's not – and volumes relatively low. So next year we see a really strong ramp, so it's going to be between that. And I think that's, you know, that's about what we're going to, what all we'll say at this point in time. But we're pleased with the progress and the outlook.

Thank you.

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

Thanks, Christine. And thanks to everybody for joining us today. We're pleased with our strong start to 2024. We look forward to speaking with you at a conference or one of the trade shows where we will be showcasing our technology and mobility. Our Volterra ZSL will be on display at Waste Expo from May 7th through the 9th. It will also be shown at the Advanced Clean Transportation Expo in Las Vegas on May 21st through the 23rd, along with the U.S. Postal Service's Next Generation Delivery Vehicle. Please reach out to us if you have any follow-up questions and have a great day.