Oshkosh Corp (OSK) 2017 Q1 法說會逐字稿

Greetings and welcome to the Oshkosh Corporation first-quarter FY17 earnings results conference call.

(Operator Instructions)

It is now my pleasure to introduce your host, Pat Davidson, Vice President of Investor Relations for Oshkosh. Please go ahead, sir.

Good morning, and thanks for joining us. Earlier today we published our first-quarter 2017 results. A copy of the release is available on our website at Oshkoshcorporation.com. Today's call is being webcast and is accompanied by a slide presentation, which includes a reconciliation of non-GAAP to GAAP financial measures that we will use during this call and it's also available on our website. The audio replay and slide presentation will be available on our website for approximately 12 months. Please refer now to slide 2 of that presentation.

Our remarks that follow, including answers to your questions, include 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. All references on this call to a quarter or year are to our fiscal quarter or fiscal year unless stated otherwise.

Our presenters today include Wilson Jones, President and Chief Executive Officer and Dave Sagehorn, Executive Vice President and Chief Financial Officer. Please turn to slide 3 and I will turn it over to you Wilson.

Good morning, everyone. Before we talk about the quarter, I want to tell you how proud we are to be celebrating our 100th anniversary in 2017. The Company was started by two innovative and driven individuals that developed and patented a unique system for all-wheel drive on trucks. Thanks to their perseverance and drive, and the hard work of all of our team members over the past century, Oshkosh Corporation today is a Fortune 500 different integrated global industrial. We plan to celebrate our rich history throughout 2017, and build off that excitement as we position ourselves for success going forward.

Today, we announce first quarter earnings per share of $0.26. These results exceeded our 2016 first quarter results, as well as our expectations for the quarter. In particular, we saw stronger than expected performance from our Access Equipment and Defense segments. Today, as part of the simplification activities in support of the Company's MOVE strategy we also announced changes to our Access Equipment segment manufacturing footprint in both the United States and Europe. We're streamlining our European telehandler offerings. I will talk about those actions in a few minutes.

While there have been some minor updates to our assumptions for the year, I am pleased to announce that we are maintaining our earnings-per-share estimate range at $3.00 to $3.40 on an adjusted basis. Before I comment on each of our four segments, let me make remarks on the potential impact to Oshkosh with the new administration in Washington. It's clear that we have a unique mix of businesses. That's one of the reasons why we believe our Company is a different integrated global industrial.

We have a positive long-term outlook. Even without the benefit of initiatives that maybe implemented by the new administration and Congress. We certainly believe we can benefit from infrastructure stimulus package, increased defense spending, or tax reform. However, these initiatives must first be passed by Congress and the President. That will take time. And we don't know the details of how the final initiatives will look. So we're not incorporating any of these items in our outlook.

Please turn to slide 4 for a discussion of our results and date in our business. We are pleased with the Access Equipment segment performance in the quarter. While sales were down year over year, they were in line with our expectations and a positive mix favorably impacted results. We also saw a little heavier weighting of sales in North America. Where we don't have the headwinds of the strong dollar on margins that we have in other parts of the world. Dave will provide some more comments on the quarter results in a few minutes.

Turning to market conditions, our customers continue to aggressively manage their fleets and their fleet metrics. And we continue to see lower fleet replacement demand. Our customers' cautious approach to fleet expansion and low levels of replacement demand are driving the market weakness we continue to experience. This reduced demand, along with the strong US dollar, also continues to pressure pricing in the market. That said, rental customer sentiment in North America has remained strong. And has probably grown even stronger over the past six months. We believe it is driven by number of data points, including continued solid utilization rates and a stabilizing rental environment.

In addition, positive commentary on construction activity, an increase in benchmarks, like the Dodge Momentum Index, and early signs of return of activity in the oil patch are also supporting improved rental customer sentiment. This positive sentiment by our customers, along with what we expect will be an increased in rental fleet replacement demand starting in 2018 or 2019, help support our positive long-term outlook for the Access Equipment market. Finally, while we aren't yet factoring in the impact of any infrastructure stimulus package, we believe this segment could be a beneficiary of increased spending on our nation's infrastructure.

Please turn to slide 5 for a discussion of the restructuring activities announced today in the segment. As part of our simplification activities in support of the Company's MOVE strategy, we continue to look for ways to improve our cost structure and optimize our operations. Back in September, we announced plans to consolidate and modernize JLG's aftermarket parts distribution centers in the US and Europe. Those actions are expected to save us about $6 million annually beginning FY18.

This morning we announced additional plans to streamline operations in our Access Equipment segment. These plans include the closure of our manufacturing plant and free delivery inspection facility in Belgium. We are also streamlining our telehandler product offering products in Europe to simplify our portfolio. We intend to transfer manufacturing of reduced European telehandler rigs to our facility in Romania. This streamlining will also lead to reductions in engineering support staff in the United Kingdom and the closure of the UK based engineering center. Separately, we also announced plans to consolidate North American telehandler production at our facilities in Pennsylvania.

In total, the plans we're announcing today for JLG's global operations, are expected to result in ongoing pretax savings of about $20 million to $25 million a year. And we do not expect to realize any benefits this year. We expect to realize $15 million to $20 million of benefit in 2018 before hitting full run rate savings in 2019. We expect the cost of implementing these actions will be approximately $45 million to $50 million including $10 million of non-cash charges with the majority of the charges to be recognized in 2017. These are difficult actions, but we believe they are necessary to position our Company for long-term success.

Please turn to slide 6 for discussion on Defense. Building on our strong finish in 2016 we started out 2017 on a high note. Our Defense team reported improved operating income margins for the first quarter. Despite the expected sales decline we experienced in the first quarter as a result of lower international vehicle sales, we delivered operating income that was roughly even with 2016.

We experienced another very active quarter for the JLTV program. We're still in the early portion of the low rate initial production phase of this program, with a lot of attention focused on supporting government testing of the initial production units. As many of you know, this program is ramping up over the next several years. And we expect it to become a significant revenue-generating program in our Defense segment. We're pleased with our progress. And it's our intention to continue delivering a model program every single day.

We have talked previously about the strong potential for international JLTV sales. And this continues to be the case. Our team is busy promoting JLTV during international trade shows and conducting demonstrations to create demand.

The Defense team continues to execute well on our FHTV and FMTV programs. You might recall during our last quarterly conference call, we reported that one of our FMTV contract modifications was being protested by a competitor. That protest was withdrawn with minimal impact to our production schedule. We know expect to be building FMTVs for at least the next two years and maybe more.

Before I leave the topic of FMTV, you should be aware that the submission date for the FMTV recompete was shifted from January 31 to May 8. We now expect a decision on the contract award to be made sometime in 2018, as opposed our previous expectation for a decision in 2017.

Finally, the Defense team is ramping up production of the nearly 1000 international M-ATVs that we expect to deliver this year, with initial deliveries scheduled for later this quarter. We're also taking actions to build our international sales pipeline for our full range of Defense products including JLTV as mentioned earlier. We are making good progress on securing orders to help achieve the sales and operating income goals through 2019 that we shared at our analyst day.

Let's turn to slide 7 to discuss the Fire & Emergency segment. Our Fire & Emergency team is performing well and taking advantage of the changes they've implemented over the past few years to simplify their business. They delivered another quarter of year over year revenue and operating income growth and we believe they remain on path toward achieving double-digit operating income margins. Despite an overall fire market that was down approximately 5% in 2016, we successfully grew revenues and gained share. We still believe that the market will grow at a low to mid single digit percent rate in 2017.

With our extensive product line up and strong dealer network, we are targeted to outperform the market again in 2017. The data we review on a regular basis continues to support a generally positive market environment for fire trucks over the next few years. Specifically, we still expect municipal tax receipts and budgets for fire apparatus to be solid. We also believe that fire truck fleets remain older than they should be. So replacement demand should continue to be a driver for this market.

Before turning to Commercial, let's talk about one of my favorite topics, which is our Ascendant aerial ladder. We talked about the revolutionary new product on a number of occasions and I wanted to congratulate the team and their continued success. Ascendant orders have exceeded our initial projections. And the team remains positive about the future opportunities for this product as we look out over the next several years.

Please turn to slide 8 and we will talk about our Commercial segment. Last quarter, we talked about modest and choppy order flow for concrete mixers. We also talked about expecting the refuse collection vehicle market growth rate to moderate in 2017. These conditions have continued and they impacted first-quarter performance in the segment. Our revenues were even over the last year's first-quarter we experienced lower unit sales in orders. Which had a negative impact on operating margins to due to under absorption of fixed over overhead. The Commercial leadership team implemented cost reduction actions during the quarter to mitigate some of the impact. But the benefits of those actions will be realized throughout the remainder of the year, not in the first quarter.

We believe the cautious approach taken by concrete mixer customers will likely continue until they see sustained, positive economic and construction data that allows them to build confidence to refresh their aged fleets. Construction forecast and industry metrics point to positive trends, so we continue to maintain our positive on this business over the longer-term. Similar to our Access Equipment segment, we believe the Commercial segment would likely benefit from an infrastructure stimulus package.

In the slides we noted that the refuse collection vehicle customers paused in the first quarter. We typically see a bump in RCV orders late in the calendar year as companies and sanitation departments look to use of previously budgeted capital. But we didn't see that order bump this year. We did have a number of customers tell us that were going to take a pause to see how the results of the election settled out. We currently believe will see this market return to a more normal cadence this year. This is something we will watch closely as the year progresses. We also continue to believe that fleets are getting older which should lead to increased replacement demand in the coming years.

Earlier this month, an accident occurred at the McNeilus Dodge Center Minnesota Production Facility in which five team members were injured and taken to the hospital. Three team members were released within 48 hours. But two other team members were more seriously injured and are still receiving care. Our thoughts and prayers are with them and their families as they work through the recovery process.

As a result of the accident, we temporarily lost some capacity in our Dodge Center Paint Operations. The Commercial team has quickly taken action to recover much of the lost capacity through temporary outsourcing of certain paint operations, while we complete repairs to the damaged area. We expect this temporary loss of capacity to have some impact on Commercial's results in 2017. Although at this time, we do not expect the impact to be material to the Company's 2017 overall results. That wraps it up for our four business segments. I will turn it over to Dave to discuss our financials and update the outlook for 2017 in greater detail.

Thanks, Wilson. Good morning everyone. Please turn to slide 9. We are pleased report first-quarter results that exceeded both the prior year and our expectations. Consolidated net sales for the quarter were $1.21 billion, down 3.2% in the first quarter of 2016. Access Equipment segment sales were down 7.7%. Due largely to continued lower replacement demand from North American rental customers and lower sales in the Europe, Middle East and Africa or EMEA region. Orders in EMEA were actually up in the quarter, so we're viewing the lower sales in the first quarter as timing related. Defense segment sales were down 7.4% as a result of the timing of international sales in the prior year. Fire & Emergency segment sales were up 12% and Commercial segment sales were flat.

Consolidated operating income for the first quarter was $36.2 million or 3% of sales, compared to $30.3 million or 2.4% of sales in the prior-year quarter. Improved operating income margins in the Fire & Emergency, Access Equipment, and Defense segments contributed to the higher operating income margin. We are especially pleased that the Access Equipment and Defense segments were able to achieve higher operating income margins on lower sales. Margins in the Access Equipment segment benefited from timing of new product development spending and a more favorable mix. Defense segment margins benefited from favorable mix and performance on multi year contracts. Which more than offset the impact of higher bid and proposal spending for the FMTV recompete.

The Fire & Emergency segment delivered another quarter of year over year margin (inaudible) growth. Driven by favorable pricing and a continued focus on simplification. And Commercial segment results were negatively impacted by lower absorption compared to the prior year for the reasons noted by Wilson. Overall, the segments delivered strong operating performance in our seasonally weakest quarter of the year. Further information on segment first-quarter performance can be found in the appendix to the slide deck.

Earnings per share for the quarter was $0.26 compared to $0.19 in the prior-year quarter. Current quarter earnings benefited from the higher operating income.

The tax rate in the quarter was 21.8%. And while this is lower than our expected full-year effective tax rate of 32.5% to 33% due to discrete tax items recorded in the quarter, it was higher than the 10.6% tax rate in the first quarter of the prior year. We recorded a larger amount of discrete tax items in the prior-year quarter, mostly associated with the reinstatement of the research and development tax credit.

The Access Equipment and Defense segments drove the better than previously expected results for the quarter. Access Equipment segment results compared to our prior expectations benefited from a more favorable mix in spend timing. Defense segment results benefited from higher sales, stronger performance on existing programs of record, and favorable aftermarket mix.

Please turn to slide 10 for a review of our updated expectations for 2017. Our updated estimates do not include any impact on the restructuring activities in Access Equipment segment that we announced today. We intend to report our results on an adjusted non-GAAP basis that excludes the costs associated with these restructuring activities. And we don't expect to see the benefits from these actions until 2018.

We have modified several specific expectations for 2017. But our consolidated sales, adjusted operating income, and adjusted earnings-per-share estimate ranges remain unchanged from our last quarterly call. As a result, we continue to expect adjusted earnings per share of $3.00 to $3.40 for 2017.

Access Equipment segment full year sales and adjusted operating income margin estimate ranges of $2.7 billion to $2.8 billion and 7.75% to 8.5% respectively remain unchanged from our last call. We believe that the full-year mix in this segment will be a little stronger than we previously expected. But we expect the benefits of that stronger mix will be offset by the impact of steel prices that are higher than our previous expectations.

We're not changing our Defense segment sales estimates of approximately $1.85 billion. But we are slightly increasing our operating income margin estimate from 9.5% to approximately 9.75% to reflect the stronger than expected results in the first quarter. We also now expect to incur higher bid and proposal costs for the FMTV recompetition since the due date for bids has been extended from the end of January to May.

We are not changing our Fire & Emergency segment expectations of $1 billion of sales and operating income margin of approximately 8.5%.

We are modestly lowering our expectations for the Commercial segment to reflect the impact of lower than expected RCV market demand in first quarter. We expect the RCV market to recover to more normal levels starting in our second quarter but do not expect the order rate in the remainder the year to make up for the lower than expected market demand the we saw in the first quarter. We are reducing the sales expectations for this segment from $1 billion to approximately $975 million. And we're changing our operating income margin to approximately 6.5%.

We're not updating our Commercial segment expectations for any impact of the recent accident at McNeilus that Wilson mentioned. We are currently working with the team to quantify any short-term operational impacts. And with the insurance adjusters to understand the net financial impact. At this time, we do not believe the net financial impact of this accident will be material to the Company's 2017 overall results.

Below the operating income line we're tweaking our estimated tax rate from approximately 33% to an adjusted range of 32.5% to 33%. And finally, we are increasing our share count assumption to 76 million. Other assumptions for the year remain unchanged from last quarter. Overall we continue to feel good about the year and our prospects for the coming years.

I will conclude with a brief comment on our second-quarter outlook. We expect higher consolidated sales compared to the prior-year quarter with increased Defense and Fire & Emergency segment sales more than offsetting a decline in Access Equipment segment sales. And we expect lower adjusted earnings per share due mostly to the shift to a heavier weighting of Defense segment sales and a lower weighting of Access Equipment segment sales. I will turn it back over to Wilson now for some closing remarks.

Thanks, Dave. Before we get started on the Q&A I would like to make a few comments. First, we are a different integrated global industrial. We have unique blend of businesses with a variety of attractive end markets. As well as our differentiated approach to operating them as a cohesive integrated enterprise. Defense and Fire & Emergency are two segments with strong end markets that set us apart. Second, our MOVE strategy, with simplification activities as part of the execution, has evolved and continues to put us in a position to deliver solid results for the Company. And third, we believe we are well positioned for long-term success with a number of opportunities that we discussed with you at our analyst day last fall. And in this morning's call. 2017 is going to be an exciting year as we deliver our plan and celebrate 100 years strong. I will turn it back over to Pat now to get the Q&A started.

I'd like to remind everybody please limit your questions to one plus a follow-up. Operator, please begin the question and answer period of this call.

I'd like to remind everybody please limit your questions to one plus a follow-up. Operator, please begin the question and answer period of this call.

(Operator Instructions)

Stephen Volkmann, Jefferies.

Hi. Morning, guys. I'll just throw them both together at once. They are pretty simple. I am curious you gave us a lot of information but Dave, relative to your expectations, you obviously came out a little bit stronger. What actually surprised you in the first quarter is the first question. And then the second one is if you could just give us a sense of the cadence on the foreign M-ATV sales as we go through the quarters here would be great. Thanks.

Thanks, Steve. I think in terms of the performance in the quarter it's like we said, better than expected results in access as well as in defense.

Looking at access specifically, what we really saw there was two things. Mix, and with that, it was a better mix regionally. We ended up a little stronger in North America than we anticipated coming into the quarter.

As we noted on the call, Europe was a little weaker. Although based on the order patterns, we are confident that Europe was a timing issue and nothing more than that.

We also did see a little stronger product mix. So a heavier weighting of aerial work platforms versus Telehandlers. And those, generally as you know have higher margin profile.

Then in defense, we did see a little better higher sales than we anticipated and that was largely concentrated in aftermarket, so that's going to fluctuate. I would consider that more of a timing issue. And then the OI read through of that as well as some better mix in aftermarket and a couple of our other programs.

In terms of your question on the M-ATV cadence internationally, it's not unchanged from our prior expectations. We do still expect to deliver the majority of those in the second half of the year. I think we will get somewhere probably between 20% to 25% units in our second fiscal quarter.

Great. Thank you.

Nicole DeBlase, Deutsche Bank.

Thanks guys. Good morning. So my first question is around the defense segment. I know you said that the FMTV bid period is extended through May. Did you guys incur any costs related to that in the first-quarter? Or is it all shifting into the second quarter?

No, no. We did Nicole, incur costs on that. As expected, I think it was sometime in December when we actually pushed the date. So we were well along the path of preparing for a January submission. But with the push out, we do expect to incur additional costs related to that proposal development as we go through our second-quarter.

Okay got it. Thanks. And on the fire and emergency business, the revenue growth accelerated quite a bit this quarter. Can you elaborate on this? And is that a timing issue as well since your guidance seems to imply just a bit of a deceleration in growth throughout the rest of the year?

Yes. In general our full-year outlook has not changed. It is dependent quarter to quarter on some of the larger fleet orders that we see or some of the international orders. So I wouldn't read too much into that.

Okay. Great. Thanks I'll pass it on.

Jerry Revich, Goldman Sachs.

Hi good morning everyone. I am wondering if you could talk about what you have seen in the North America access equipment market in terms of cadence and values over the course of the quarter. Did you see an acceleration in used equipment demand versus normal seasonality?

We had one of your major customers today announcing a big CapEx increase. 2017 versus 2016. Appreciate it's too early for you to changer guidance, the can you help us understand the cadence of demand over the course of the quarter based on the leading indicators you track?

Sure, Jerry. Used values I would say are fairly stable where they've been. We haven't seen anything up or down there. I would say it is just normal.

From a CapEx increase, we are hearing, I would say more positive sentiment from our customers. But it's very early, Jerry, as you know. They are just starting their year. And we're certainly in a lot of discussions and learning more about their requirements.

We will continue to work with them on our forecast. Today, just looking at the landscape, we believe that our plan is still in place. That fits our current forecast. And no reason to change at this point.

Okay. Thank you. And can you provide enough an update on the US Postal Service bid prototype that you delivered? What is that timeline on the decision what's the opportunity for you folks? And if you win which facilities would you produce the trucks out of?

Right off the bat, Jerry, we haven't defined which facility we would build these products at. That's to be determined.

The longer-term program that we have talked about before where we were one of six companies selected, building six prototypes those are currently under process. That's a bigger contract potentially from $2.5 million up to $10.9 million and that's right out of fed biz ops.

The publication I'm talking about the prototype contracts there, Jerry. But the big program 180,000 of these next generation postal trucks. Five to seven-year program and again getting up into significant revenue dollars there. We are working through that. That's about a year out for delivery of the prototypes.

But there's an interim program that's out. And I'm sure you have seen it. They're looking for what we call a [COTS] a commercial office shelf program. Somewhere in the 3,000 to 18,000 vehicles. They're looking for an award expected later this spring or summer.

So we are currently looking at that opportunity and determining if that's something we're going to try to compete in or not. It's still a work in process there. There's actually two programs now with the United States Postal Service.

Thank you.

Jamie Cook, Credit Suisse.

Hi. Good morning. Nice quarter.

I guess just a follow up question on Jerry's question. Obviously, last night United Rentals provided a more optimistic CapEx forecast. Understanding why you would not change your numbers yet.

But, you noted when you're talking to your customers they seem a little more positive. Is that fairly widespread? Is it more the big rental houses versus small rental houses? I'm just trying to understand if this is just United Rentals or if there is something broader going on here.

And then my second question if you could just comment within that aerial business there have been some excess equipment related to the energy patch. Obviously, things in the energy patch have or will be improving very shortly. Can you comment on whether that's been washed through? And what you are seeing geographically in some of those areas? Thank you. Sure, Jamie. Thanks for your questions.

The first part around the NRC's and the IRC's. I would say where we are hearing more positive sentiment is where they are having milder weather less winter. We are seeing the project continue to move there. Obviously, in some of the tougher climates, there is not a lot of positive discussions going on.

Again, it's a fragmented and reason why we're not adjusting our forecast at this time. We still have a couple of the larger NRC's that are talking about less CapEx this year. It's kind of a mixed bag right now as far as some of the outlooks.

We think in the next three months, we will have a better handle on some of those as they fine-tune their forecasts. And again we are in great discussion with all of them. Have good relationships. We expect to continue to move along with better information as the year goes.

In terms of your question about aerials and the oil area. I think what we have heard our rental customers say is all of that that was down has been redeployed. So now as oil gets better, we would assume that some of those machines would now go back in. I think all the excess is passed us. So now it would be some potential upside if oil picks back up. Or as the move our aerials or Telehandlers back into those areas. Okay. Thank you. That's very helpful.

Charley Brady, SunTrust.

Thanks. Good morning, guys. You touched a little bit on the steel cost impacting a little bit of a headwind to some of the margin mix positive mix from access. Can you just quantify a little bit more what you are seeing and still cost not only in access but across the other platforms as well?

Yes. So, Charlie, we saw a spike, it started last March call it. And it continued up through much of the summer. And then in about the August time frame, steel started to drift back down.

If you would have asked us last quarter, our thoughts were it was going to continue to drift back down probably through the end of the calendar year and hold steady from there. But what we saw is another spike in December. Based on the experts that we follow, our expectation at this time is it's going to continue to remain elevated through probably at least the March quarter before we see a drift down from there.

In terms of what that means for us? I think, as you know, we do see a lag generally between when we see a movement in the market and that's driven by multiple factors. One of which, being that we do lock on a quarterly basis. So the next lock period then we would see the price readjust.

Then in addition to that, you have to procure the material, work the material and sell the ultimate finished goods. So, while we do expect to see some impact from the spike that we saw again in December, we probably won't see that really flow through until later in our fiscal year.

Okay. Thanks. And just as a follow up on the consolidation within access. Can you talk about the capacity utilization of the Pennsylvania and the Romania plants today and where that winds up being once you fully loaded is plants with the consolidation?

Yes so we looked at both facilities and we have looked at multiple years in terms of where we think the market can get to when we do see the recovery and the replacement demand. By moving North American Telehandlers into the Pennsylvania facilities, we think we are in good shape to handle that return of demand in Europe as well through the Romania facilities such that we're not going to have to have significant investments in brick and mortar when that market overall does recover.

Thanks.

Ann Duignan, JPMorgan.

Hi. Good morning, everyone. Just a quick follow-up on the last question. Can you quantify in dollars the impact of higher steel prices? Can you give us a sense of what you're thinking for the rest of the year?

We haven't quantified that, Ann. I think what I would say is, we have incorporated that into our guidance. And by telling you that we expect the costs to remain elevated through the end of the second quarter and drift down, I guess you can view whether our outlook is in line with what you are hearing your experts say about where steel is headed for the rest of the year.

Okay. Maybe I'll go back through that off-line later (inaudible).

Then you talked about all the positives that could impact Oshkosh from the new administration. Can you talk about any negative impacts in terms of are you hearing any increase chatter around renegotiating the contracts? Or competitors starting to talk about that? Are there any negative from the new administration that we should consider?

Ann, I saw your question in your write up and it's a good question. Because there is that chatter out there but I can tell you there's none around the JLTV. It's considered a model program.

The FHTV FMTV we are performing, we are delivering on time. We're not having any cost overruns. There's been a lot of quote activity from different executives in the procurement area or acquisition area of the government talking about how this program is a model program. At this stage, we are confident that that program will remain intact.

Ann, I think more from more of the global trade standpoint, there obviously is a lot of chatter around tariffs and boarder taxes, et cetera. I think one of the things that it would need to be seen how it plays out is what foreign governments may or may not do in the event that the US does institute a number of tariffs or order tax changes. But, again, it's early. I don't think anybody truly understands all the details associated with that both domestically and especially internationally from what type of a reaction you might see

Good point.

Is, I think point a little early in the term to figure it all out. Just a real quick follow-up on defense again. Can I just confirm that you're still expecting to deliver 1,000 M-ATVs and 750 JLTVs this fiscal year? There's no change to any of those programs?

You are correct, Ann.

Okay. I will leave it there. Thank you very much.

Ross Gilardi, Bank America Merrill Lynch.

Good morning. Thanks guys. Maybe just some follow-ups on that boarder tax issue. Recognizing there's still a lot of unknowns. Obviously a huge amount of unknowns.

Can you just flush out a little more? I imagine Oshkosh has got to be a net exporter as a whole.

Do you have big components or any major that you to import anything from Mexico? Anything in your supply chain you would see is potentially vulnerable?

Let's start at the beginning, Ross. We are a net exporter. If you think about, we do produce a lot of stuff here and ship it globally. What I would say in terms of a magnitude, we probably export about three times more than we import.

And in terms of what we do import, we do import countries all around the world. There has been a lot of talk about Mexico. Yes, we do import items from Mexico, but it is overall not a significant portion of our annual material spend.

But, again, it's really spread out globally in terms of where we are importing from. In general, without knowing all the specifics again, I think being a net exporter is probably the best position to be in at this time.

Sure, make sense. Thank you. Just want to get a little more color on the timing of the restructuring and access. Clearly, we are going through a little soft patch right now. But as you said you are expecting pick up in replacement demand in 2018 and clearly what you are doing is some facility consolidation.

But why now? Was there anything particular you felt got worse? Is it just the capacity utilization outlook not what you thought as pricing? Just some more color there would be helpful.

Yes, I'll talk a little bit about the decision in the marketplace and how we're looking at our product strategy. And I will let Dave talk a lot more about some of the specifics of the actual restructuring.

If you look at the European market, it's very fragmented. We've always been in there, and working hard and trying to meet all of that market. Taking a step back and really doing an 80/20 on the market and looking at the different segments where we can add value, create value and be profitable for our shareholders.

We made some decisions that there are some areas, some products, some segments that we need to move away from and focus more where we can create more value. That's the big move that we're making in Europe around the Telehandler. You have some specifics on the --

I guess, Ross, what I might add on that is the models we are talking about are along this 80/20. It costs money to support and maintain models and the volumes we're talking about associated with any of these are fairly small. You've got a regulatory environment where it seems like every two years major investments are needed to be made in terms of engine emission upgrades. And as we looked at the returns that we expected out of some of these, they just didn't meet the hurdle rate.

You have heard us talk before about simplification. This is just part of that exercise. We're continuing to try to simplify our overall enterprise. And in access, this is a move that made sense.

Thanks, guys.

[Mike Shlisky], Seaport Global.

Good morning, guys. Okay. Given what you've done since you first started move a couple years back and what you announced today for access equipment. Can you maybe [back it for us] what you think the appropriate market range is for accesses once you're fully ramped here on the benefits. In the past it's been maybe mid teens. Is it going a bit higher from here in it to FY19 or so?

Theoretically this certainly should help our cost structure and be a benefit for us. I don't think I would expect that this is going to drop straight to the bottom line because you're going to have your typical inflation on wage increases, et cetera. But overall, this certainly does improve our cost structure and I would expect you would see that play out when we do see a rebound in this market in the next couple of years.

Okay. Great. And I just want to confirm for Q2, you expect more defense revenue less access, and therefore margin headwind. That would make sense normally, but this year you are actually looking at higher margins in defense.

Can you give us your thoughts on the cadence here of the margins? Are you looking at an unusually low defense margin in Q2 or a much higher than guided for the full-year margin for access in Q2.

Mike, what I would say there is in general, we typically see higher incremental margins in the access equipment segment than we do in defense. That would be a starting point.

Additionally, as we're looking at the second quarter, and at this time, we are expecting a heavier weighting of international sales in access. Where as in the first-quarter, for example, we saw a little heavier weighting in North America. And then in the second quarter last year we also saw little heavier weighting in North America.

I think we're going to see the steel impact start to have an affect in access. And this is more the steel impact from later last summer. And then in defense, year over year, it looks like at this time, we are expecting a less favorable mix in certain of our defense programs including aftermarket.

FMTV costs.

There's a number of components in there. But the starting point really is, you typically have the higher incremental margins in access versus in defense

Okay. Great I appreciate it. Thanks guys.

Mig Dobre, Robert W Baird.

Good morning guys. I guess maybe tacking on to that last question there. How should we think about incremental margins in 2018 in the access business? Given all the moving parts and any sort of color on pricing? And how you view that through 2017 and into 2018 in access?

I'll start in terms of the 2018 and the incrementals and maybe let Wilson touch on the pricing.

Typical at this time it's early in FY17. Our focus is getting through this year. We aren't going to provide a lot of color on FY18. Again, certainly the benefit of the restructuring actions that we announced today, while we don't expect to get a full-year impact out of that next year, that should be certainly positive to the incremental margins in that business.

You have to take a look at a lot of the components. What you think your mix is going to be? What do you think your volume is going to be? What are your input costs going to look like? And to try to put together a view of all of that today for 2018 is a little premature. But overall, again, these cost are benefits that we are announcing or associated with the restructuring we're announcing today should benefit our incremental margins in 2018.

Mig on the pricing I would say the last couple quarters we have talked about it. It is challenging market from a pricing standpoint. We fight currency and quite a few markets.

I would say this quarter from the last two hasn't changed a whole lot. I would say if anything it's stable from where it has been. We haven't seen any major ups are down it's kind of plugging along.

I think with rental rates stabilizing, utilization rates moving up a little bit that should help pricing some. But we will have to see how that goes and again we still have the strong dollar that we are working against in some cases.

Okay. And we haven't really talked about commercial segment much. So I will ask you about your refuse component of this segment. You know you mentioned the election having an impact. It's not quite clear to me as to exactly how that would be the case. But the broader question is why is it that we are seeing this slow down? And what gives you confidence that we're not talking about something a little more permanent here rather than just election?

Sure, Mig. We mentioned that we expected the refuse collection vehicle business, basically the growth rate to moderate this year. We normally have a little bit of a pickup in our first-quarter or the customers last quarter. As they exhaust some of the budgets and move through the end of their year.

We didn't see that this year. And I think a lot of the reason was what we explained to us. Is they were just going to take a pause and see whether climate was going to be coming out of the election.

I will say, and we don't usually talk about the next quarter orders, but I will say that January is showing us that refuse is getting back on plan. We have been pleased with the order pace that we are seeing.

So we're certainly going to keep watching that. But I think our forecast of it moderating for the year is still in good place.

Are you seeing any bump in concrete at all in January?

No.

I wouldn't say we are seeing a bump in concrete, Mig. What I would say is, activity is picking up from a quote standpoint. But it's not materialized like we are seeing on the refuse side.

And I guess I would emphasize there, Mig, the quoting activity. The team that commercial is pretty optimistic in terms of the outlook. In terms of what they are hearing from their customers.

On mixers. We are not saying it's going to get back to a normal level yet. I think their view of how the quarter may play out from an order standpoint is actually pretty positive.

If you look at that install base now, Mig, concrete mixers that are out there are all approaching a 10 year average life. That's a long time for a concrete mixer.

All right. Thank you, guys.

Eli Lustgarten, Longbow Securities.

Thank you. Good morning everyone. Just a clarification. Can you give us a quantification magnitude of what the extra cost or the delayed bidding on FMTV? On the recompete contract is that a material number? Can you quantified that just for clarification since we talked about it?

In terms of the year over year that we experienced in the first-quarter?

The incremental cost you would not have had in your budget. So how much extra is it cost? I mean it's supposed to have been done.

Yes. I think Eli, we're probably looking at a couple million dollars incremental if we think about the quarter. Second quarter.

Okay. Can we step back for a moment because I have another question. Your guidance for the year is [effectively] unchanged at $3 to $3.40 even though you had a $0.15 fee. I know you're giving back $0.07 because of the share count. (Inaudible) can you maybe comment on are you not buying back shares are the higher price or what's causing that. Are you more confident that you're being in the upper end of the range or the same place within it? What has changed given you had a $0.15 fee in the first quarter as you look out towards the year. Or are there so many moving pieces that it still that unpredictable.

I guess the $0.15 is your number, Eli. We have not quantified what the [beat] was.

Consensus. (Multiple Speakers) Versus the street you beat us by $0.15.

As we talked about, there were some timing items in the quarter and we do expect to see those reverse out as we go through the year. Maybe the impact of the beat that you might think should carry through is not as much just from a standpoint of that.

Also material.

We also talked about the impact of steel costs negatively impacting access a little bit, although we do think they're going to have a little bit of a stronger mix on the year as a whole. As we mentioned, we do have the higher bid and proposal cost on M-ATV.

I think in general, our full-year outlook for the year, taking all in at this point, is largely unchanged from where we were at last quarter. As Wilson said before, it's early. We need to continue to have discussions with our customers in multiple segments and I think we will have a better view on where we are sitting as we exit the second quarter.

And it's fair that whatever increase benefit you got the first-quarter you are actually giving back in the second quarter with of negative comparison this at the we should think about it?

I don't know if I would say giving back. But as we noted, we do expect lower earnings in the second quarter based on the items that we talked about.

And one question I've got longer term on defense. We've got 1000 M-ATVs shipments this year that have anything duplicating in 2018. I know we more than doubled JLTV what have.

But you could you give your comments on how you look at the defense market? Is a going to be a problem filling the hole that set up by not having the (inaudible) or is there a follow-on contract. Give us some idea as to how we should think about that as we look out?

What we talked about at analyst day, Eli, we're working aggressively internationally to make sure we fill that gap. We're making good progress on some international, what I would call working with our allies. We are not making any of those announcements yet. The defense team is doing a nice job of working to secure some of those orders again to help us fill out that 2018 that you were talking about.

Expectation is you should be able to fill it sometime in the next couple quarters. Is that fair?

Yes I think what we set at the analyst day is we're looking at $1.7 billion to $2 billion a year for FY19. We think with the opportunities that we have out there we are on track to meet those targets.

All right. Thank you very much.

(Operator Instructions)

Seth Weber, RBC Capital Markets.

Good morning, everybody. Most of the questions have been asked and answered, so maybe just a bigger picture question for you. Given the improving sentiment in the rental channel and what you're saying what you're hearing from your customers, in your preamble you talked about the access equipment market may be getting better in 2018/2019. Do you have the more confidence now that 2018 would be an up year?

I think one of your competitors has talked about the North American market being up in 2018 in access equipment. Do feel more confident that you share that view today?

I don't think that we would say we are more or less confident today, Seth. What I would say, is there certainly is a lot more discussion around infrastructure, which construction, if that were to pick up in 2018 that certainly would be a benefit.

But, as we said earlier on the call it's so early and I don't think we could quantify today what are these initiatives. What is going to mean for us. Today versus six months ago, there's just more positive discussions around could be more construction.

Okay I thought I would give it a shot.

You're always good to try there, Seth.

Sorry if I missed this. Was there a JLTV build number of the quarter that you gave? Is there any cadence that we should be working around quarterly through the year?

What we have said, Seth, we're not going to quantify each quarter. We have 750 in our plan for this year. We are working on those. The focus is really on building those and supporting our government customer in testing.

Okay. Were there deliveries in the first-quarter though?

Yes. We have been delivering sense July.

There is a lot of focus still at this time in terms of supporting government testing. So the ramp-up it will build up rather slowly and be more heavily weighted and into the second half of the year.

Sure. Understood. Okay. That's all I had. Thank you very much, guys.

Stanley Elliott, Stifel.

Hey, guys. Good morning. Quick question. Just for a point of clarification on the concrete mixers. Was that the order activity ticking up on the rear discharge of the front discharge? Or was it a commentary around the entire product line?

So there's a as we both mentioned, Stanley, I would say it's pickup at this point in quoting activity. Front discharge has been strong all along. We have seen for some time now, a little bit of a disconnect in terms of the cautiousness of the rear discharge customers versus the front discharge guys continuing to move forward. And I think we are seeing that generally continue.

Can I switch gears to the fire and emergency. It's a very fragmented market out there. Have you all seen any of your competitors try to come up with some sort of a product to compete against the ascendant? Are you still sitting at the premier spot right there in terms of class relative to what else is out there in the marketplace?

At this stage, Stanley, we haven't seen arrival to the ascendant. The big FDIC show is coming up this spring and we will certainly be paying close attention there to see if there's something close. At this stage, we haven't heard anything that compares to it.

Great, guys. Thanks and best of luck.

Pete Skibitski, Drexel Hamilton.

Good morning, guys. I apologize. I was on another call thus far.

I had a question on defense margin. I thought it was pretty strong for the quarter despite not having any international M-ATV deliveries. I was wondering on the guidance for the full-year 9.5%, the next three quarters you will have some international M-ATVs at pretty good margin rates.

Is the full-year guidance is there a case that maybe that's a little conservative? Is the JLTV headwind from here offset some of the M-ATV goodness if you will?

Yes. Pete, thanks for the question. It is as we mentioned a few time on the call, and you were not on before. It's early. We still need to go through the vast majority of the ramp-up for that M-ATVs. That's a significant amount of volume that we need to deliver in the second half of the year.

There are some things that we need to see play out yet as the year progresses. Is there upside? I guess at this point I think we are comfortable with the margin guidance that we have provided for the year.

That said, you would always like to see over achievement through all of our segments. Again, it's early and we need there's a lot of work that needs to be done yet as we go through the year.

Understood. Thank you.

We have reach the end of our question-and-answer session. I would like to turn the floor back to Management for any further closing comments.

I want to thank all of you for participating on our call today. And we appreciate your interest in the Oshkosh Corporation. Have a good day, everyone.

Thank you it does conclude today's teleconference. You may disconnect your line at this time. And have a wonderful day. We thank you year participation today.