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Text: Earlier today, we published our fourth quarter 2021 results.
A copy of the release is available on our website at oshkoshcorp.com.
As we highlighted in our business update on October 8, 2021, we are changing our fiscal year to the calendar year.
The October to December 2021 quarter will represent an abbreviated fiscal year or stub period to facilitate the transition to our first full calendar year, which will begin on January 1, 2022.
This change should provide us with better visibility as our planning and reporting cycles will be aligned with those of many of our customers and suppliers.
All references to 2022 or later years as to a quarter or a year are to a calendar year.
Our presenters today include John Pfeifer, President and Chief Executive Officer; and Mike Pack, Executive Vice President and Chief Financial Officer.
As we discuss our fourth quarter and full year results, I want to provide some color on the current business environment.
It's clear that we're in a unique period of time with robust customer demand for our market-leading products while facing one of the most challenging global supply chain logistics and workforce availability environments in decades.
These factors are limiting production and also contributing to manufacturing labor inefficiencies.
At the same time, we're facing significant material cost inflation.
We view these challenges as temporary, and we believe we are taking the right actions to position our company for success as we emerge from the current environment as a stronger, more resilient business.
Some examples of the actions include: implementing multiple price increases in the last several months in our non-defense segments to mitigate cost inflation; redesigning many of our JLG products to accept higher capability microprocessors, which are produced in higher quantities by chip makers to reduce our risk of shortages; shifting production within our existing facilities to better align with labor availability; and we're undertaking a rigorous qualifying process to identify and engage hundreds of new suppliers to drive a more robust supply chain for key materials and components.
Our long-term outlook is attractive based on strong market fundamentals, strategic program wins and a comprehensive offering of innovative new products that will drive continued market leadership.
With this backdrop, we reported 15.6% higher revenues on sales growth in our access equipment, defense and fire & emergency segments.
This led to fourth quarter adjusted earnings per share of $1.05, slightly above the estimated range included in our October eight business update.
The modest increase was driven by a lower effective tax rate.
And we continue our commitment to responsible capital allocation with increased share repurchases in the quarter, which Mike will discuss.
I'm also pleased to announce that our Board approved a 12% increase in our quarterly dividend from $0.33 to $0.37, which represents the eighth consecutive year of double-digit percentage increases.
Now let's move to the full year.
We grew revenues by just under 13% for the year and adjusted earnings per share by 16.4%.
This led to a full year record for free cash flow of more than $1.1 billion.
Importantly, we have an opportunity to grow revenue and earnings per share over the next few years based on our innovative products and strong market drivers.
We also have a strong foundation of programs in our defense segment, bolstered by our significant recent program wins, including the United States Postal Service Next Generation Delivery Vehicle and the U.S. Army's Medium Caliber Weapons System.
2021 was a year of significant electrification announcements for our company.
Beyond the USPS win, we launched our revolutionary new Volterra family of electric firetrucks, including the Pierce Volterra electric custom pumper currently in service in Madison, Wisconsin; and the Volterra electric ARFF truck, which was a major highlight for attendees at the Advanced Clean Transportation Expo back in late August.
The expo brings together participants from across the globe to discuss and demonstrate clean technologies for commercial applications.
The customer response to these electrified products has been outstanding.
We made several important investments in 2021, including the acquisition of Pratt Miller and a strategic investment and partnership with Microvast.
We wrapped the year up with a minority investment and strategic partnership with Carnegie Foundry to build upon our autonomy and robotics capabilities.
We also announced a minority investment in wildland firetruck market leader, Boise Mobile Equipment.
These investments highlight our commitment to advance into new markets and leverage technology to both enhance our product offerings and drive profitable growth as part of our long-term strategy.
We have also continued our commitment to environmental, social and governance leadership, as evidenced by our investments in electric vehicle technologies while fostering an inclusive culture and continuing to deliver on our high governance standards.
For many years, MOVE, M-O-V-E, was our strategy.
Over the past year, we evolved beyond MOVE and have introduced our strategy summarized with three simple words: Innovate.
We believe this strategy provides the necessary framework to continue to drive long-term sustainable growth, and it is grounded in our purpose: making a difference in people's lives.
We innovate customer solutions by combining leading technologies and operational strength to empower and protect the everyday hero.
We serve and support those who rely on us with a relentless focus throughout the product life cycle.
We advance by expanding into new markets and geographies to make a difference around the world.
We're excited about the direction we're headed and believe that Innovate.
provides the road map to get us there.
I invite you to check out the details of our strategy on the Oshkosh website.
Much like we discussed on our last call, demand for our industry-leading access equipment remains very strong, but near-term results are being meaningfully impacted by supply chain and logistics challenges as well as higher input costs.
Access equipment, which faced an extreme decline in demand in 2020 as a result of the COVID-19 pandemic, has since experienced the most rapid rebound of any of our businesses.
The rapid return of demand in 2021 exacerbated the supply chain challenges we have been facing, and we believe it will remain choppy well into 2022.
Our access team continues to work hard to source components to build and shift products to customers around the globe.
Despite these challenges, we delivered strong revenue growth of 37% in the fourth quarter, leading to 22% revenue growth for the full year.
We have taken multiple pricing actions over the past several months based on rising input costs, which we expect will largely address price/cost challenges by the end of the second quarter of 2022.
And of course, we will continue to be diligent in our pricing approach should input costs increase further.
Orders came in at $1.9 billion in the fourth quarter, representing a quarterly record for the segment, leading to a record backlog of $2.8 billion at September 30.
The rental equipment market is strong, and the access leadership team has taken measured steps to preserve the health of the industry by addressing unfair competition through our trade case.
We believe that we are in the early stages of a multiyear growth cycle for access equipment as the rental companies work to lower the overall age of their fleets, which were at historically high levels entering 2021.
I want to emphasize that our growth outlook is underpinned by strong market fundamentals, and our continued launch of innovative product offerings such as the DaVinci all-electric scissors that you've heard me talk about, and many other new product launches in recent quarters.
Our trend of new product launches continues -- continued in the fourth quarter.
We're entering the North American telehandler market for agriculture in a more significant way with a new 9,000-pound capacity model.
We are also expanding our industry-leading U.S. telehandler family with a new line of rotating telehandlers with our Italian partner, Dieci.
I look forward to discussing additional new products with you in the coming quarters.
Our defense team delivered a solid fourth quarter, leading to a full year revenue of $2.53 billion, an increase of almost 10% and an operating margin of nearly 8% in this very challenging supply chain environment.
You're all familiar with the JLTV, one of our foundational and enduring programs.
We've been showcasing the vehicle's ability to serve as a long-range weapons platform in either manned or semiautonomous modes.
These capabilities directly support the Department of Defense's focus on near-peer threats.
Domestic and international customers continue to be impressed with the JLTV's outstanding versatility.
We are also preparing for the upcoming recompete scheduled in 2022 and believe we are well positioned to win the follow-on contract.
As we've discussed over the past several quarters, we are actively competing for a number of adjacent programs, including the CATV, a track vehicle for Arctic climates; the OMFV, which is planned to replace the Bradley Fighting Vehicle; and the EHET, or the Enhanced Heavy Equipment Transporter, among many others.
The acquisition of Pratt Miller significantly enhances our ability to win adjacent programs just like it helped us win the MCWS contract earlier in 2021.
Before I leave defense, I'd like to make a few comments about our Next Generation Delivery Vehicle contract with the United States Postal Service.
We continue to work with the customer to finalize some of the vehicle's parameters.
We are also on track with setting up our new facility in South Carolina and expect a successful product launch in the back half of 2023.
This is a 10-year contract that calls for between 50,000 and 165,000 vehicles, with a mix of both zero-emission battery electric vehicles and fuel-efficient ICE vehicles and allows the USPS to electrify its fleet.
The fire & emergency segment delivered another strong quarter with an operating income margin of 14% despite the challenging supply chain environment and extreme cost inflation.
Even more impressive is the fact that our team at F&E delivered an all-time record for operating income margin for the full year at 14.2%.
Of course, we expect to overcome these hurdles in time, and we are planning an expansion of our Appleton manufacturing sites that will support long-term growth.
As I mentioned earlier, our Volterra electric custom pumper is serving frontline duty in Madison, and we recently announced an agreement with Portland to work with them on Volterra as well.
Boise is the industry leader in wildland firefighting trucks.
Our minority investment will bring the Boise product into our dealer network and allow both Pierce and Boise to take advantage of this growing segment of the market.
Similar to our other segments, commercial delivered solid results in 2021.
In fact, the team posted its best full year adjusted operating income margin in the past 15 years.
That's an impressive accomplishment in this difficult supply chain environment with record high steel costs.
As many of you are aware, we build RCVs and rear-discharge concrete mixers on third-party chassis either purchased by us and supplied to customers with a body and a complete package or furnished by our customers.
This represents a meaningful risk as chassis availability has worsened over the past couple of months, and we expect it will remain challenged for much of 2022.
Demand for RCVs and mixtures has been strong, and we have a solid outlook for both markets.
Residential construction as well as other construction indicators are positive, and elevated customer fleet ages are creating additional demand for replacement.
Our outlook is further supported by solid orders in the quarter for both RCVs and mixers as the U.S. and Canada moved beyond the pandemic.
These orders led to an all-time high backlog of just under $570 million, providing good visibility into 2022.
As John highlighted, we faced significant supply chain and logistics disruptions in the fourth quarter, well beyond our experience in the third quarter.
We also experienced meaningful material cost inflation.
Recall that we account for inventory on a last-in first-out basis, so the additional cost escalation we saw in purchases in the fourth quarter negatively impacted price/cost dynamics, particularly at access equipment.
We previously expected a consolidated year-over-year price/cost headwind of $35 million in the quarter.
The actual price/cost impact increased to approximately $60 million.
Supply chain disruptions, unfavorable price/cost dynamics and labor constraints all contributed to fourth quarter financial results significantly lower than the expectations discussed on our third quarter call.
Consolidated sales for the fourth quarter were $2.06 billion or $279 million higher than the prior year, representing a 16% increase.
The consolidated sales increase was driven by a 37% increase at access equipment, a 5% increase at defense and a 10% increase at fire & emergency, partially offset by a 6% decrease at commercial.
Access equipment sales increased by $230 million over the prior year quarter due to improved market demand led by North America.
As the impact of the pandemic has waned, the sales increase was lower than our prior expectations by approximately $130 million, largely due to the previously mentioned supply chain disruptions.
Defense sales increased in the quarter due to higher JLTV sales as well as the benefit of Pratt Miller sales, which we acquired in the second quarter, partially offset by lower FMTV and international sales.
Fire & emergency sales increased in the quarter on higher ARFF deliveries and commercial sales were down on lower package sales.
Consolidated adjusted operating income for the fourth quarter was $104.2 million or 5.1% of sales compared to $124.1 million or 7% of sales in the prior year quarter.
Access equipment adjusted operating income decreased as a result of unfavorable price/cost dynamics, the return of spending subject to temporary cost reductions in the prior year and unfavorable product liability largely offset by an increase in sales and improved manufacturing absorption.
Defense adjusted operating income decreased as a result of unfavorable product mix, increased material costs and unfavorable production variances partially offset by higher sales volume.
Fire & emergency adjusted operating income decreased in the current year quarter as a result of higher material costs, unfavorable manufacturing efficiencies and the return of spending subject to temporary cost reductions in the prior year, offset in part by higher sales and improved pricing.
The commercial segment adjusted operating income decreased as a result of unfavorable material costs and the return of spending subject to temporary cost reductions in the prior year, offset in part by improved manufacturing absorption and improved pricing.
Adjusted earnings per share for the quarter was $1.05 compared to adjusted earnings per share of $1.30 in the prior year.
During the quarter, we repurchased approximately 821,000 shares of common stock for a total cost of $95 million.
We expect that the challenges we faced in the fourth quarter of 2021 will continue into the stub period.
Demand remains robust across the company as indicated by our strong order rates in the fourth quarter and record year-end backlogs in several segments.
However, the current supply chain and logistics disruptions are making it difficult to forecast sales volume.
While our backlog supported a 10% to 15% sales increase in the stub period versus the first quarter of 2021, we expect parts availability will likely constrain our ability to deliver higher sales.
As a result of this uncertainty, we are unable to provide quantitative expectations for the stub period at this time.
We do expect that stub period earnings per share will be significantly lower than the first quarter of 2021 and may approach breakeven levels on a consolidated basis.
We expect that unfavorable price/cost dynamics will be a $75 million to $85 million headwind versus the first quarter of 2021.
Steel and other component costs have continued to increase.
We have taken multiple pricing actions in our non-defense businesses over the past several months, and in many cases, prices are now greater than 10% above early 2021 levels.
We believe these price increases will enable us to achieve price/cost equilibrium but will still need to -- but we still need to work through large backlogs, so will take until the end of the second quarter of 2022 for these pricing actions to largely catch up with cost escalation.
If we experience further escalation, we expect to take further pricing action.
We also expect higher spending levels in the stub period versus the first quarter of 2021.
Last year, COVID-19 infection rates spiked early in our first quarter and our spending levels remained low.
Since then, our spending levels have begun to normalize in areas such as travel, advertising and medical.
We also expect that parts availability constraints will continue to drive labor inefficiencies.
While the current environment is challenging, we are taking appropriate actions and believe that supply chain constraints will subside over time and the longer-term outlook for our businesses remains very strong.
We'll provide further updates on 2022 during our January earnings call.
We just completed a challenging quarter and expect those challenges to remain for the next few quarters.
However, we believe we're taking the right actions as we manage through this period, position ourselves for success as supply chains improve.
We also won significant programs in 2021 and are committed to driving long-term profitable growth as we innovate, serve and advance the company.
Okay, Pat, back to you.

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q4 earnings per share $1.30.
q4 sales rose 15.6 percent to $2.06 billion.

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