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Text: Earlier today, we published our second quarter 2021 results.
A copy of the release is available on our website at oshkoshcorp.com.
Our presenters today include John Pfeifer, President and Chief Executive Officer and Mike Pat, Executive Vice President and Chief Financial Officer.
We're happy to announce outstanding second quarter results, highlighted by sales of $1.9 billion and adjusted earnings per share of $1.48, both of which exceeded the prior year and our expectations.
Demand across the company and particularly in our Access Equipment segment has come back stronger and faster than we expected as a result of positive vaccination progress and the confidence that, that brings to the marketplace.
Our production rates are back to pre-pandemic levels across the company and our 14,000 dedicated team members continue to do an exceptional job of rapidly adapting to changing situations as we recover from the pandemic.
Companies across the globe are facing significant supply chain challenges as the economy rebounds, including a global semiconductor shortage, record high steel prices and resin shortages from the deep freeze in Texas back in February.
Our supply chain team members and third-party suppliers have worked hard to maintain production, but supply chain disruptions will likely remain a risk, we will continue to manage for the duration of 2021.
In addition to our strong second quarter performance, we received some great news on February 23, when we were notified that we won the Next Generation Delivery Vehicle program with the United States Postal Service.
I am very proud of the efforts of our team over the past several years that culminated in this historic win, which supports President Biden's goal to electrify the federal fleet with zero-emission vehicles and create new sustainable manufacturing jobs in America.
Our Defense segment will supply the Postal Service with as many zero-emission battery electric vehicles or BEV units that they desire as they upgrade their fleet to be increasingly sustainable.
This award is the latest accomplishment in our 25 years of continuous innovation in electric drive and BEV engineering.
I will discuss this exciting contract win in more detail a little later.
We are also proud to be included in the S&P Global Sustainability Yearbook once again in 2021.
The inclusion in the yearbook highlights top 15 performance for Oshkosh in our industry category and underscores our commitment to creating a more sustainable future and culture that is centered on a safe and inclusive workplace.
Additionally, we have pledged to further reduce greenhouse gas emissions and energy consumption as we continue to make investments in technology, including the development of battery electric products in all of our businesses.
I am also pleased to announce our expectations for 2021, adjusted earnings per share to be in the range of $6.35 to $6.85 as we return to our practice of providing quantitative guidance.
Mike will share more details in his section.
The improvements we started to see in our markets back in December and January, following positive vaccine news, rapidly accelerated over the past few months and helped drive the strong performance we are reporting today.
Revenue increased by 6.5% over the prior year, leading to a solid adjusted operating margin of over 11%.
We previously expected a return to growth in the second half of the year, so we are pleased to be ahead of schedule.
These strong results would not be possible without the access team's disciplined execution through the pandemic, which has enabled the business to quickly respond to changing customer demand, particularly in North America.
Orders were also strong, leading to a solid backlog of $1.5 billion for this segment, up 80% versus last year.
Since most forecasts project nonresidential construction to be down in 2021, we have -- we believe replacement demand is driving access equipment sales growth.
As we've discussed for the past several quarters, fleet ages are elevated throughout the North American market, and we believe the need to replace these aged fleets will be a significant driver for new equipment sales in the coming quarters.
We are further encouraged that demand has returned for a broad cross-section of customers, not just the largest and most visible rental companies.
This is important as we believe it signals a healthy and robust market.
As we noted on the last earnings call, JLG's U.S. production facilities returned to full production levels in March.
While the threat of absenteeism in our operations has significantly decreased due to lower COVID infectivity rates and robust contact tracing, we are closely managing supply chain challenges that could impact production in the second half of the year.
As part of the coalition of American Manufacturers of Mobile Access Equipment, we also took action during the quarter against some unfair competition practices by foreign companies in the United States.
We believe this is good for the long-term health of the industry.
Steel prices remain at record highs, and we took further actions during the quarter to mitigate the risk, including additional cost locks on portions of our planned steel purchases as well as price increases for new units ordered beginning in early March.
Much like we experienced in 2018 when steel costs increased significantly, there will be a lag in the benefit until we work through orders that were in our backlog prior to the price increase.
I'd also like to share some good news on our Tianjin China facility.
Construction is largely complete for our expanded operations, and we expect to begin shipping product out of the new capacity later this year.
This is an important step in our long-term strategy to drive profitable growth in China and other Asian markets.
We're proud to be the supplier of the next-generation delivery vehicles for the United States Postal Service.
Recall that this competition has been a rigorous five-year process and our world-class engineers really stepped up to the challenge to provide the postal service with a vehicle that meets or exceeds all of their current and future needs.
The program covers the purchase of 50,000 to 165,000 units over 10 years as part of the postal services plan to significantly modernize their delivery fleet with improved safety, reliability, sustainability, cost efficiency and a much better working experience for our nation's postal carriers.
Our offering provides the postal service with both zero-emission BEV units and fuel-efficient, low-emission ICE units with the option of delivering any combination up to 100% of either model.
The vehicle design also provides the postal service with the flexibility of converting ICE units to BEV units in the future.
We expect to begin delivering production vehicles in the second half of calendar 2023.
We are also pleased with the progress of integrating Pratt Miller into the company, following the close of the acquisition in January.
We look forward to leveraging their speed, agility and expertise as we intensify our innovation focus across the company.
Our operations team at Defense continues to work hard to deliver the JLTVs, FMTVs and FHTVs that support our U.S. armed forces.
During the quarter, we established a new production line for a portion of our volume.
The new production line incorporates industry-leading technology to further optimize the manufacturing process.
We did experience higher onetime costs and onetime inefficiencies during the quarter as part of the move, which supports the long-term success of the segment.
Before we leave the Defense segment, I'm pleased to announce that the National Advanced Mobility Consortium has selected Oshkosh Defense and our partner, ST Engineering, to participate in the prototype phase for the U.S. Army's cold weather all-terrain vehicle, or CATV.
The CATV is a new program for tracked vehicles that operate in arctic conditions and are designed to replace the small unit support vehicles that have been in service since the early 1980s.
We believe the program represents another solid opportunity in an adjacent product space for our defense business.
The Fire & Emergency segment delivered another quarter of outstanding performance with both strong sales growth and an operating income margin over 15%.
Last year, we faced a significant supplier challenge, combined with customer final inspection limitations as the pandemic struck, but the team recovered quickly and continues to deliver industry-leading performance.
We've also moved past concerns we had discussed surrounding absenteeism, and our operations have returned to pre-COVID levels.
We often talk about the strength and capabilities of our strong Pierce dealer network.
Despite the pandemic, our dealers have continued to increase investments in their sales and service networks, demonstrating their commitment to customers.
We believe this is the type of commitment that ensures sustainable success going forward.
The segment finished the quarter with another solid backlog of $1.3 billion, basically on par with last year's all-time record.
Orders in the quarter were lower year-over-year as we expected, largely due to the pandemic-related impacts.
As we've said previously, we will monitor municipal budgets, and we believe that the North American fire truck market will decline modestly over the next few quarters as a result of the pandemic.
However, we don't believe this will be much of an impact on the long-term success story that we are building with our Fire & Emergency business.
And as Mike will discuss, our outlook for this business in 2021 is strong.
Our Commercial segment delivered a solid quarter with higher operating income on lower sales.
Our simplification and innovation strategy in this segment is working, which gives us confidence that margins can continue to improve over the long term.
During the quarter, we continue to make excellent progress on our focused factory approach of transitioning mixer production to London, Ontario.
I want to commend the team on their efforts as it hasn't been easy due to cross-border travel restrictions with Canada as a result of COVID.
We are also making great progress in building a high flow refuse collection vehicle line in Dodge Center, Minnesota, leveraging the space freed up from the move of mixers.
This modernization and automation investment brings added capacity and efficiencies as part of our strategy.
Moving to our markets, we are seeing solid recovery in order activity for mixers and refuse collection vehicles as business improves as we move beyond the pandemic.
We believe the reopening of the U.S. is driving increased refuse collection, and construction is picking back up again, as evidenced by our higher year-over-year backlog.
We believe these trends will continue as we work through 2021.
As you might expect, supply chains also pose risks in the Commercial segment.
For instance, the availability of third-party chassis from truck manufacturers as a result of semiconductor and other component shortages is an issue that we are managing closely, and it could have some impact on our deliveries in the back half of 2021.
Our supply chain teams are doing a great job of responding to these challenges and keeping our production lines running, and we are staying vigilant.
We remain on track to deliver the electric refuse collection vehicles we talked about last quarter to our customer in Boise.
These units will provide valuable insights on opportunities and challenges when BEVs are used on a daily basis for refuse collection.
The development of these products is part of our long-term electrification journey across the company that we believe will generate significant benefits for our customers and the environment.
This wraps it up for our business segments.
We delivered a strong quarter that well exceeded our expectations.
As the quarter unfolded, demand increased sharply in the Access Equipment segment, leading to consolidated sales of $1.9 billion, $92 million higher than the prior year and approximately $140 million above our expectations.
The growth over the prior year was driven by a 29% increase in Fire & Emergency sales and a 6.5% increase in Access Equipment sales, offset in part by a modest sales decrease in the Defense segment.
Access Equipment sales increased due to improved market demand in Asia and North America.
Last year, demand was negatively impacted late in the second quarter as the COVID-19 pandemic drove shelter-in-place restrictions around much of the globe.
Defense sales decreased in the quarter due to lower FMTV sales and lower cumulative catch-up adjustments as we received FHTV and JLTV contract awards in the second quarter last year, offset in part by higher FHTV sales and Pratt Miller sales for a portion of the quarter following its acquisition in January.
Fire & Emergency sales increased as a result of both higher fire truck and ARFF vehicle sales.
In the prior year, fire truck sales were negatively impacted by the combined effects of COVID-19-related customer travel restrictions and a supplier quality issue that impacted our truck delivery schedules.
Our sales benefited from the delivery of vehicles under two multiunit contracts in the current year quarter.
And Commercial segment sales were down primarily due to lower refuse collection vehicle demand caused by the COVID-19 pandemic and the impact of divesting our concrete batch plant business in the fourth quarter of 2020, offset in part by an increase in concrete mixer volume.
Front discharge concrete mixer sales were muted in the prior year as the new S-Series 2.0 was still ramping up.
Consolidated adjusted operating income for the second quarter was $143.3 million or 7.6% of sales compared to $133.6 million or 7.4% of sales in the prior year quarter.
Access Equipment adjusted operating income increased as a result of higher sales volume, lower spending as a result of the COVID-19 pandemic and improved product mix, offset in part by higher incentive compensation expense.
Defense adjusted operating income decreased as a result of unfavorable cumulative catch-up adjustments as well as costs and labor inefficiencies associated with the start-up of the new manufacturing line during the quarter.
Fire & Emergency operating income increased in the current year quarter, primarily as a result of the increased sales volume, favorable price cost dynamics, improved product mix and improved manufacturing performance.
And Commercial segment operating income increased due to lower product liability costs, lower spending as a result of the COVID-19 pandemic and lower warranty costs.
Adjusted earnings per share for the quarter was $1.48 compared to adjusted earnings per share of $1.25 in the prior year.
We are pleased with our solid performance in the first half of 2021 as well as the improved visibility we have for the second half of the year, which has positioned us to once again provide quantitative expectations.
We have solid backlogs in all four segments and have seen a significant reduction in COVID-19-related absenteeism.
As John said, we faced supply chain risk for the remainder of the year, just like most companies around the globe.
Our supply chain teams have done an outstanding job of keeping our manufacturing lines running.
However, it is possible that supplier shortages could interrupt production in the back half of the year.
Our expectations that follow assume no major production interruptions as a result of supply chain shortages.
On a consolidated basis, we are estimating sales of $7.75 billion to $7.95 billion compared to $6.9 billion in 2020.
We are also estimating adjusted operating income of $610 million to $655 million compared to $496 million in the prior year and adjusted earnings per share of $6.35 to $6.85 compared to adjusted earnings per share of $4.94 in 2020.
At the segment level, we are estimating access equipment sales of $3.15 billion to $3.35 billion, a 25% to 33% increase compared to 2020.
We expect growth to be led by North America, although we expect sales growth in most regions as the world comes out of the pandemic.
We are estimating that access equipment adjusted operating margin will be 10.5% to 11.25%, included in our expectations is an approximately $30 million net headwind from elevated steel prices that we expect will primarily impact the fourth quarter.
We believe the headwind will decrease in 2022, as we begin to more fully realize the benefit of pricing actions implemented in the second quarter.
The full year impact of last year's temporary cost reductions returning to our expected run rate this year has declined versus prior expectations due to lower spending in the first half of the year as travel, trade shows and other discretionary spending have returned slower than anticipated.
Turning to Defense, we're estimating 2021 sales of approximately $2.5 billion, an 8% increase compared to 2020.
This estimate includes increased JLTV production and the benefit of Pratt Miller sales.
Backlog remains robust at $3.5 billion, providing solid visibility into 2022.
We are estimating our defense operating margins will be approximately 8%, consistent with our comments over the past several years of high single-digit operating margin percentages.
This estimate reflects higher new product development spending, manufacturing inefficiencies associated with the start of the new production line and lower cumulative catch-up adjustments compared to 2020.
We expect Fire & Emergency segment sales will be approximately $1.2 billion, roughly $90 million higher than 2020.
The increase in revenue is primarily due to a return to more normal production and customer deliveries as interruptions due to COVID-19 decline.
We expect operating margin in the Fire & Emergency segment to increase to approximately 14% as a result of increased sales volume.
We are estimating sales of approximately $925 million in the Commercial segment, down slightly from 2020 as a result of the prior year scale of the concrete batch plant business.
And we are expecting operating margins for this segment of approximately 7%.
Margins will be impacted the second half of the year in this segment as a result of the rapid increase in steel costs as well as disruption in the supply of third-party chassis.
Similar to access equipment, we expect this unfavorable impact to wane as we begin to realize the benefits of price increases in early 2020 June.
We estimate corporate expenses will be $150 million to $155 million, an increase of $25 million to $30 million as a result of the return of higher incentive compensation levels.
We estimate the tax rate for 2021 will be approximately 22%, and we are estimating an average share count of 69.3 million shares.
For the full year, we are estimating free cash flow of approximately $650 million, reflecting an expected strong year of cash generation.
We also estimate capital expenditures will be approximately $120 million.
Looking at the third quarter, we expect consolidated sales to be up approximately 40% over the prior year, with access equipment and defense up most significantly.
We expect commercial sales to be up high single digits as our markets rebound, and Fire & Emergency sales are expected to be essentially flat.
Last year, we benefited from approximately $60 million of temporary cost benefits in the third quarter.
This will be a headwind to incremental margins during the quarter as our spending begins to return to more typical levels in the third quarter this year with increased business activity.
We just announced a great quarter, and we have a strong outlook for the remainder of the year with expected growth in revenue, adjusted operating income and adjusted earnings per share compared to 2020.
We expect to exit the year in a strong position as we look forward to the next several years.
Supply challenges remain, but we believe we are in a great position to take advantage of the many opportunities open to us through the recovery as we continue to innovate, serve our customers and advance our company going forward.

user
sees fy adjusted earnings per share $6.35 to $6.85.
sees fy revenue $7.75 billion to $7.95 billion.
q2 adjusted earnings per share $1.48 excluding items.

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