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Text: Earlier today, we published our first quarter 2021 results.
A copy of the release is available on our website at oshkoshcorp.com.
Our presenters today include Wilson Jones, Chief Executive Officer; John Pfeifer, President and Chief Operating Officer; and Mike Pack, Executive Vice President and Chief Financial Officer.
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 faced 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 showed 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 is 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 the 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 & Emergency segments, which both have backlogs that extend into 2022.
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 is a true leader in all aspects.
Wilson has been a great mentor for me and the entire leadership team at Oshkosh.
While Wilson will be with us through the end of the quarter, this will be his last earnings call.
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 on 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 0 hydraulics and 0 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.
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 in the -- 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 motor sports heritage.
We 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 road maps 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.
Fire & 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 & 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 ARFF 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.
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 noncore 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.
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 & 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 has 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 & 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 adjusted 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 & 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 earnings per share for the quarter was $1.13 compared to earnings per share 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.
We're pleased with our solid start to the year, including strong consolidated adjusted decremental margins of 4% in the first quarter.
While we face significant workforce availability challenges in Wisconsin affecting both our Defense and Fire & Emergency segments, our teams were resilient and persevered through the challenges we face 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 cost 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're also -- 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 shutdown 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 & 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 with 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 Access Equipment segment and the evolution of steel prices.
We just announced a solid quarter to kick off 2021, and once again, control 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 am 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 doing 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 in 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 Pfeifer, leading the way, backed by a very strong leadership team.
We all know there are a lot of work.
Anyway, let's get started, everybody.

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q1 adjusted earnings per share $1.13 excluding items.

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