Oshkosh Corp (OSK) 2019 Q1 法說會逐字稿

Greetings, and welcome to the Oshkosh Corporation Reports Fiscal 2019 First Quarter Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Pat Davidson, Senior Vice President of Investor Relations for Oshkosh Corporation. Thank you, Mr. Davidson, you may begin.

Good morning, and thanks for joining us. Earlier today, we published our first quarter 2019 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 GAAP to non-GAAP financial measures that we will use during this call and is also available on our website. The audio replay and slide presentation will be available on our website for approximately 12 months.

Please refer now to Slide 2 of that presentation. Our remarks that follow, including answers to your questions, contain statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we have described in our Form 8-K filed with the SEC this morning and other filings we make with the SEC. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all. 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'll turn it over to you, Wilson.

Thanks, Pat. Good morning, everyone. We're pleased to announce another quarter of strong performance with $1.61 adjusted earnings per share, a 91.7% increase over the prior year quarter. A great way to start 2019, following the great year in 2018 where we achieved near-term highs in revenues, adjusted operating income and adjusted earnings per share. Our team delivered impressive results in the quarter that reflected solid demand and strong customer metrics. Feedback from our customers regarding their businesses remains upbeat, in contrast to some of the stock market headlines and the predicted direction of the economy. This positive customer sentiment drives our increased outlook for 2019, an outlook that is supported by our expectations for continued favorable end-market demand. Healthy backlogs across all 4 segments and an engaging and improving culture across the company is motivating and energizing our team members. Our strong results this quarter were led by double-digit revenue gains in our Access Equipment and Fire & Emergency segments. More broadly, we delivered higher operating income and operating income margins in all 4 of our segments. As a result of our positive start to the year and improved outlook in our Access Equipment segment, we are raising our expectations for adjusted earnings per share for 2019 to a range of $7 to $7.50. Dave will discuss our 2019 expectations in more detail in his section.

Please turn to Slide 4 to begin a discussion for each of our business segments. I'll start it off, as I typically do, with the Access Equipment segment. Our Access Equipment team worked very hard to achieve revenue growth of more than 30% in the quarter with sales up in all regions led by higher telehandler sales in North America. If you recall, last year at this time, we reported orders for the first quarter of more than $1.7 billion, and throughout the year we reminded you that we did not expect to surpass that figure in the first quarter of 2019. However, first quarter orders did exceed $1.5 billion, the second highest quarter ever for bookings, reflecting continued strong demand for access equipment. This segment has a backlog of $1.7 billion as we move into the second quarter of 2019, more than $100 million higher than last year, which, we believe, puts us on firm footing for the year. We continue to benefit from the strong rental market for access equipment in North America and most regions around the globe as evidenced by the robust sales and orders in the quarter. Utilization rates, rental rates and used equipment volumes all remained healthy, supporting the market conditions we are seeing in North America, and the forecast that we follow have broadly positive views on construction activity in 2019. We have overcome the staffing-related challenges we faced as we ramped production in 2018, and our team has made great progress as they strive to build the world's best access equipment. Our workforce has stabilized and the business has maintained the productivity gains we discussed on our last call. We are still experiencing periodic unplanned disruptions from some of our suppliers, and we'll continue to combat those challenges. December brought the publication of new ANSI standards for aerial work platforms in the United States. The new standards will be effective for units built starting in December of 2019. Many of our recently updated products are already compliant with the new ANSI standards, and we are confident that all of our products will be ready when the new standard is effective. For those of you who recall the transition to Tier 4 engine emission standards, we don't expect the cost or the market reaction to the new ANSI standards to be nearly as impactful as Tier 4 was. Finally, we are proud to be celebrating the fighting spirit and innovative culture that John L. Grove started back in 1969 when he commercialized the very first aerial work platform and really ignited a whole industry that has improved safety rates on job sites and has grown to become a multi-billion dollar global industry. The JLG team has continued to innovate in the 50 years since the introduction of JLG #1, and you will hear and see more examples of JLG innovation as we launch exciting new products and services over the next couple of years.

Please turn to Slide 5 for a discussion of the Defense segment. The Defense team started the year off on the right foot when they received a $1.7 billion order for 6,100 JLTVs and a large number of associated kits. This order takes our JLTV backlog out to production through early 2021. Our JLTV has been in Low Rate Initial Production, or LRIP phase. It will stay in that mode until sometime later this spring or early summer. Previously, we had expected the Joint Program Office to move the JLTV from LRIP to Full Rate Production in our first quarter, but that has been pushed out a bit as we update the design to address the U.S. Military's request to add some content to the vehicles. We expect these changes to be finalized in the coming months and do not expect them to materially impact execution of the program. There could be some minor impact on timing of international orders as the Full Rate Production decision moves out, but international interest remains strong and we don't view these modifications as negative to the long-term international opportunities for the program. Defense team continues to enhance productivity, with most recent example being the opening of a fabrication facility in Jefferson City, Tennessee. This facility will eventually employ approximately 300 Oshkosh team members and supply fabrications to both our Defense and Access Equipment segments. The Tennessee facility opens up to a new labor market and can serve multiple segments. Finally, we had a few questions regarding the recent federal government shutdown. We have not experienced any significant issues and do not anticipate any for our defense programs.

Let's turn to Slide 6 to discuss the Fire & Emergency segment. Fire & Emergency segment team delivered another quarter of year-over-year sales and margin growth as they continue the simplification efforts. As has been the case for the last several years, new products in the Ascendant class of aerials are proving to be very popular with fire department. Our view is that the domestic fire apparatus market remains healthy as municipal tax receipts have continued to grow and aging fire apparatus fleets need to be addressed. There continued to be headwinds from people costs consuming a larger portion of municipal budgets, but the industry seems to have found its stride and grew at a solid pace in 2018. We are forecasting slightly higher market volumes in 2019.

Please turn to Slide 7, and we'll talk about our Commercial segment. Like earlier segments, Commercial started the year off on a strong note and continues to put the building blocks in place for successful execution of their simplification initiatives. Their new business unit structure has been in place for about a year now, and we're seeing benefits already, but we expect even better results over time as their initiatives mature. The refuse collection vehicle market continues to be attractive. The market for concrete mixers is not much different from last quarter when we talked about a market that is cautious and that remains at levels below long-term averages. Multiple third-party projections for construction in 2019 support a favorable market outlook, but there's no doubt that the rising interest rates are impacting the housing market. Another factor for this segment is chassis availability. Chassis lead times have extended and some of the chassis suppliers are experiencing problems delivering chassis on time. We don't expect it to be a material issue for the full year, but we do expect it to impact Q2. We are working closely with these suppliers to minimize the impact on the business. Last week, at the end of World of Concrete trade show in Las Vegas, we introduced additional functionality for McNeilus concrete mixers with our innovative flex controls. These productivity enhancing controls give operators additional data and greater control, so they could be more confident in the quality of the loads they are delivering leading to higher customer satisfaction as well as improved safety. McNeilus is the leader in this category, and we tend to strengthen that leadership position with a greater support and functionality that these new tools offer. To sum it up, we continue to have opportunities in this segment. We have a team that has grown stronger, one that is hungry to drive continued improvement that support our positive outlook for this segment for 2019.

That wraps it up for our 4 business segments. I'm going to turn it over to Dave to discuss our financials and outlook for 2019 in greater detail.

Thanks, Wilson, and good morning, everyone. Please turn to Slide 8. We're pleased to announce a good start to 2019. Consolidated net sales for the quarter were $1.8 billion, up 13.7% from the prior year quarter, led by a 31.6% increase in the Access Equipment segment. The sales growth in this segment reflected the continued favorable business conditions experienced by the rental company customers and improved production rates as the Access Equipment team was completing the move of North American telehandler production last year. Higher pricing to cover material cost increases also contributed to the higher sales. Defense sales were down mid-single digit percent versus the prior year, reflecting no international M-ATV sales this year, partially offset by higher JLTV sales as that program continues to ramp up production and an approximate $15 million impact from application of the new revenue recognition standard. We have added a new slide this quarter detailing the impact of applying the new revenue standard. Fire & Emergency sales increased 29% compared to the prior year. This increase included an approximate $26 million positive impact from the application of the new revenue recognition standard and the benefits of some sales that slipped from the fourth quarter of 2018 into 2019 as noted on our last earnings call. And Commercial segment sales were 8% lower than the prior year due to a significantly lower mix of package units, where we sell both the third-party chassis and our body. In contrast to the lower sales dollars, unit volume was actually up versus prior year.

Consolidated operating income for the first quarter was $160.5 million or 8.9% of sales compared to adjusted operating income of $93.1 million or 5.9% of sales in the prior year. Operating income margins increased 200 basis points or more in all 4 segments, although Defense's margin increase was due to applying the new revenue recognition standard. Access Equipment segment operating income more than doubled compared to the prior year quarter, reflecting the significantly higher sales level. Price cost was also slightly favorable as non-steel material inflation was less than expected in the quarter. Partially offsetting these positive items were a less favorable product mix and the prior year benefit of a bad debt reserve reversal.

Defense segment operating income grew by nearly $6 million compared to the prior year to 15.3% of sales on a 6% sales decline. Results for this segment include an approximate $19 million favorable impact related to the application of the new revenue recognition standard. We now expect the full year operating income impact of applying the new standard to be immaterial to Defense segment earnings, implying that we expected a negative operating income impact from the new standard over the remaining 3 quarters of the year.

Fire & Emergency operating income and margin were up $14.6 million and 250 basis points, respectively, compared to the prior year. Higher sales volume was the main driver of the higher earnings and application of the new revenue recognition standard favorably impacted Fire & Emergency operating income this quarter by $5.8 million.

Commercial segment operating income increased $7.9 million compared to the prior year adjusted amount, and this segment's operating income margin grew 390 basis points to 8.4%. Favorable mix along with lower operating and warranty expenses contributed to the higher operating income margin. Corporate expenses were $3 million lower than the prior year quarter due to lower share-based compensation costs and a decrease in post-retirement liabilities.

Adjusted earnings per share for the quarter was $1.61 compared to adjusted earnings per share of $0.84 in the prior year. Higher operating income was the largest contributor to the significantly higher results. The first quarter also benefited by $0.08 per share as a result of share repurchases completed in the last 12 months. We repurchased almost 2.6 million shares for $170 million in the quarter, or nearly half of our $350 million full year share repurchase target.

Please turn to Slide 10 for a review of our updated expectations for 2019. We're pleased to be increasing our expectations for 2019 as a result of our positive start to the year and improved Access Equipment segment outlook. Expectations for the other segments remain unchanged from our last earnings call. A reminder that our original expectations for the year as well as these updated expectations reflect the adoption and application of the new revenue recognition standard at the beginning of this fiscal year. Last quarter, we talked about a wider-than-normal estimate range for the Access Equipment segment. As we exited the quarter, we both narrowed and raised this segment's sales and operating income margin estimate ranges. The new sales estimate range is $3.8 billion to $4 billion, an increase of $200 million on the low end of the range and $100 million on the high end. The new range reflects the strong order volume experienced in the quarter and the positive outlook JLG has continued to hear from its rental company customers. The new operating income margin estimate range for this segment is 10.75% to 11.25%. This represents an increase of 75 basis points from the previous low end of the range and 25 basis points from the high end. As a result of these changes, we are increasing our consolidated expectations as followed -- follows: the new sales estimate range is $8.05 billion to $8.25 billion; the new operating income estimate range is $685 million to $735 million, an increase of $45 million on the low end and $25 million on the high end; and the new adjusted earnings per share estimate range of $7 to $7.50 per share, an increase of $0.50 per share on the low end and $0.25 on the high end. Our other expectations, including corporate expenses, adjusted tax rate, capital expenditures, free cash flow and share count remain unchanged.

A few comments on the second quarter outlook. We expect modestly higher sales and flat to slightly higher earnings compared to the prior year quarter. There were several positive drivers to last year's second quarter earnings that we don't expect to repeat this year. We also expect the chassis availability issue, that Wilson mentioned, to impact Commercial segment second quarter results compared to the prior year. Overall, there will likely be some lumpiness in our quarters this year; however, we are raising our full year expectations for adjusted earnings per share to be 10% to 18% higher than 2018's adjusted results.

Wilson, I'm going to turn it back over to you for some closing remarks.

Thanks, Dave. We just announced a very strong start to 2019, and we're going to continue working hard and smart to drive strong full year results for 2019 and value for our shareholders. I am proud of our team and I'm confident that we will continue to execute on our strategic priorities to drive value for all stakeholders.

I'll turn it back over to Pat to get the Q&A started.

Thanks, Wilson. (Operator Instructions) Operator, let's, please, begin the question-and-answer period of this call.

(Operator Instructions) Our first question comes from the line of Seth Weber with RBC.

Question on access margin. Coming off the strong first quarter, it looks like you're sort of suggesting that margins are going to be flat or flat to down, or you know kind of flattish year-over-year for the balance of the year to hit your -- the high-end of your full year target. So I'm wondering why margins wouldn't be better, if you're kind of getting better price cost and moving away from some of the manufacturing challenges that you had last year? First question.

Seth, a couple of things, there; one, if you recall, last year in the second quarter, specifically, we did have several favorable adjustments, one was a customer that was on a deferral of profits, and we -- they paid us off fully, so we recognized that of kind of a one-time item; we also had a bad debt reversal in the second quarter last year. So combined those are probably $10 million to $12 million worth of drag year-over-year. The other thing that as we look at the outlook for the remainder of the year from a mix standpoint, we now believe we are going to see a little heavier mix of telehandlers for the remainder of the year and that, as you know, is a little different margin profile than the aerial work platform component.

Okay. But I mean, I would think that the price cost is getting better here. I mean, can you just talk about where you are on price cost? Are you with the increases in the surcharges? Do you feel like you're covering your higher material cost -- higher cost inflation at this point, materials, freight, things like that?

Sure. So first quarter, we ended up a little better than we thought and on steel, specifically, we ended up right about where we thought we would. It was some of the non-steel items where we ended up a little better, we think some of that is actually timing and we'll see that start to come through in the second quarter. But overall, we still believe Q2 through Q4, we're going to be largely at a cost neutral, net cost neutral between price and cost. We've seen sheet steel come down or hot rolled coil come down like everyone. But a couple items related to that; one, there is a lag effect, so it's probably a 5 to 6-month lag before we start to see that flow through our income statement, just to the -- related to the way we buy; and then secondly, when we look at between sheet steel and plate, we actually use more plate than we do sheet and plate steel has remained stubbornly high. That's -- as we looked at it recently, it's about 55% higher than it was as we entered into the beginning of fiscal '18. So if we do see some benefit and if sheet continues to stay at the levels it's at, we might see some benefit later in the year. But overall, our view is still, I would say, neutral from a cost price standpoint in this segment.

Okay. And then if I could just follow-up with a access revenue question on -- you're exiting the first quarter with backlog up, I think, about 8% year-to-year. You're only forecasting, I think, about 1% growth for the balance of the year for access to get to the high end of your range. So I'm just trying to tie those 2 numbers together?

Seth, I'll jump in on that. When we started the year, we shared that our concern about the year being flattish, possibly up a little bit, the main reason we were cautious going into the year, as you well know, is the price cost issue. We were coming out with most significant price increases we've ever introduced into the access market, and we knew those were going to be tough negotiations. But I want to really let the market know how pleased we are with our teams and the good work that they've done working closely with our rental customers and helping them understand our total cost of ownership model. And then the importance of supporting that, that these costs are real. So starting -- going back to the previous call to where we are today, we're very pleased to have advanced where we are. Obviously, the $1.5 billion order quarter, that was one that we weren't expecting to be that successful, but the team has done a really nice job. But where we are today, as you know, the seasonal slowdown, utilization will go down through the winter months. Just looked at our thermometer here in Oshkosh, it's minus 27 here today. So I'm guessing, there's not going to be lot of AWPs rented in this area today. But what we're looking forward to is the upcoming ARA show as we start to see our customers prepare now for the spring construction season. That's where we'll, as you know, possibly be able to adjust our forecast going forward. But what you're seeing today is what we know from our customers and what the expectation is for the back half, obviously, we're going to always work to improve that as we have in the previous years.

Okay. I appreciate that Wilson. It just seems like given the backlog and kind of the guide, it seems like there could be some conservatism in just the revenue outlook for access, is all.

So -- and we still have some negotiations going on. There's other customers that haven't come into the market yet that are planning for the back half of the year. And as we progress with those, then the opportunity may be there. Again, hope's not a strategy, but we hope you're right, Seth, that there is some conservatism there.

Our next question comes from the line of Charlie Brady with SunTrust.

Just on the commentary on Defense about the kind of the push out to Full Rate Production. Is there any margin impact -- positive margin impact from the design changes you are having to incorporate for the DoD?

No, Charlie, there's no margin impact.

So Charlie, what we'll do is we'll work with the DoD to finalize what that content they want added. That will be a contract mod. We'll retrofit vehicles that don't have that on currently, but we'll get paid for all that. We'll negotiate with the government what the pricing is for that content add.

Okay. But I guess, what I'm saying is, were these changes anticipated or is this something new that's just coming from the DoD that wasn't in the original kind of planning when you were talking about what your margin expectation is for JLTV?

Charlie, I would say this is success you have with a Low Rate Initial Production, where the customer is testing the vehicles and really kind of really dialing in the design, tweaking it to perform best for our soldiers and marines. And so this is normal in a program to make these types of adjustment. And to Dave's point, it's good, we add content, and then we have retrofit opportunities also.

Okay. And just a bit of follow-up here on the -- can you maybe quantify a little bit more what the chassis impact could be on Commercial? And do you think that, that pushes out beyond the second quarter impact?

Based on what we know now, Charlie, it's largely concentrated with one chassis OEM and specifically on refuse product line. And based on what the team is telling us in the quarter, it's probably low- to mid-single digit million dollar impact on the quarter. We do expect to make up some of that in the later part of the year. But there will be a little bit of disruption, but we do not expect it to significantly impact full year results.

Our next question comes from the line of Tim Thein with Citi.

Wilson, I bet the Packer fan sitting at the table with you weren't complaining about the cold weather this morning.

Somebody has got to do it, Tim.

Hey, on the -- just back, Dave, your comments on the implied incrementals for access. I think, the -- that some of the ramp up costs last year were estimated to be like $25 million. And back to your -- you mentioned earlier that the staffing-related challenges, you think, are largely behind you. So is that maybe it doesn't go to 0, but should we assume that, that headwind largely reverses in '19?

So we did call out some of those last year, Tim, and actually we moved some of those to non-GAAP because it was related to the overall restructuring program. But in general, we do not expect those to -- we expect those largely to be behind us. We have continued to see, as we mentioned in the prepared remarks, continuation of some supplier disruptions, although the magnitude and frequency of those has declined. But we do think we're going to see -- continue to see a little bit of that as we go through the remainder of the year as well.

Okay. And then on the free cash flow guidance unchanged despite the, call it, $35 million increase to the operating profits. What's -- is it just rounding or is there something offsetting that, working capital, et cetera, or just -- what's weighing against that?

More so just assumptions around working capital timing as we exit the year.

Our next question comes from the line of Ann Duignan with JPMorgan.

First question on Defense. I mean, the way that Defense contractors really make their money is when the government requests engineering changes. So why wouldn't you anticipate that the margin guidance is probably at the low end of where it could come out, given that the engineering changes will be on future content, but also retrofit?

Ann, we're going to have to see how this all plays out in terms of the magnitude of the content. At this time, while there are content changes, we don't expect it to be a significant quantity of changes. So when you scatter that or blend that in across the whole 6 -- almost $7 billion program, we'll certainly look at it. But as we sit here today, we don't think it's probably going to be enough to significantly move the margin on the program.

And I think just to add to that, Ann, we're still working through our government customers is looking at the alternatives on some of these changes, and they're just not finalized yet at this point.

Okay. I appreciate that. Then on access, was there any pull forward of deliveries on the telehandlers side ahead of price increases? And then could you talk about how quickly you'll have to give up surcharges if steel prices do come down, particularly to your large customers because your competitor increased list price as opposed to you did list -- smaller list price plus surcharge. So just want to get a sense of how quickly you might have to give up those surcharges, should steel prices remain as is or come back down?

[It's just] the pull forward, Ann. We don't believe there was a pull forward. If you remember back in our Q1 last year, we were consolidating telehandler lines. And so we weren't in the market as well as we needed to be, though a little -- the uptick in our quarter, we believe, was more related to having capacity, having availability of products. So price increase wise -- it doesn't appear that there was a pull forward there. On the surcharges, I'll let Dave talk again about the lag effect we have on steel pricing and some of the other issues around materials.

Ann, as I mentioned earlier, and Wilson just alluded to it now with the lag effect, it's probably 5 to 6 months before we see changes in the steel price start to flow through the P&L. And as we also mentioned, plate remains stubbornly high; and while sheet is down, it's still, I believe, about 15% above where it was when we began our fiscal '18. So it's still elevated, although not as elevated as much as it was. And if we do see some benefit, we're probably talking fourth quarter of this year, and that's assuming that it continues to hold. And only time will tell on that. But obviously, the access team will continue to watch where our costs are and we'll continue to monitor that.

Yes. My question was more around how quickly will you have to give up those surcharges to -- back to your customers?

It really depends, Ann, on where our price, where the costs end up. We don't know yet, and I'm not sure that anybody knows if -- is sheet steel going to stay where it is, is it going to bounce back up again? It's something that the team monitors on a regular basis, and they're in contact, in discussions with their customers on a regular basis.

I would just add in there to, Dave, that when you dial back, Ann, and -- again, our JLG team has done a nice job of explaining this and helping our customers understand to go back to 2015, 2016, where we had oil and gas, we had the tier changes. There has been some definite pricing erosion that we're still not caught up to that. And so from a price increase standpoint, I believe, our customers understand the pricing needs to remain in place. The debate will be as steel does move, if it moves down far enough, we'll have those discussions. But at this point, it's still not down low enough to even consider from our standpoint.

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

I just need to make sure I understood this right. I think you just answered this, but all the orders that you took in this quarter had the higher price increase associated with them, correct?

That is correct.

Okay, great. And then, I know you said, Wilson, that it wasn't going to be nearly as big a deal, but what's you sense on what the price increase with the new ANSI regulation will be, just in rough terms?

Well, what we've said, Steve, it's significantly lower than the tier change. Tier change was around $5,000 for emissions. And again, we've said significantly lower because it varies by -- if you think of a scissor, obviously it's going to be a higher increase on the scissors than versus narrow work platform just because of content. But it's really around safety and load-sensing systems, there's some runflat tire that will go in without tipping, some stability testing that's added in. So it's -- again, we haven't put a price on it because a lot of those models we said have been introduced, and the pricing has been discussed with the customers on the ones that we have finished. But the ones that are still in queue, those costs are still rolling up, and those discussions will go on with our customers as we complete the ANSI update.

Okay. Great. That's good color. I appreciate it. And then just finally quickly on Fire & Emergency. As we look forward, is there going to be any impact that we should be thinking about from this accounting change on the third -- second, third and fourth quarters?

Yes, there's a little bit, Steve. If you look at the schedule that we added to the slide deck, we show the Q1 impact and then the full year impact. So it's probably a couple million dollars yet. We think most of that will probably flow through here in the second quarter. And then after that 606, we don't expect much of an impact at all in the Fire & Emergency segment going forward.

Our next question comes from the line of David Raso with Evercore.

First, just a quick modeling question. The Defense business, the $18 million giveback from the accounting change for the rest of the year to get to your full year impact total, maybe I missed that, I apologize, what's the cadence of that, of that $18 million giveback over the next couple of quarters?

It's going to be more heavily weighted, David, to the fourth quarter. I think you'll see some in -- little bit in the third quarter, but mostly in the fourth quarter.

All right, that's helpful. On access, the sales guide increase, the $150 million midpoint to midpoint, was that largely all telehandlers or was there other used equipment sales, aerials?

It was more weighted to telehandlers, David, but it was not exclusively telehandlers.

So was it also new sales of aerials or was it more...

It was everything. It was everything. It was not related to one specific item.

David, referring the press release, we've got that break out, right, telehandlers and aerials. So at least that should give you some indication.

But on the guide, you don't give the...

Correct.

Thank you.

The guidance increase. Because to that point, Pat, I will say, if you tell me telehandlers were going to be up 100% in the quarter and aerial is only up 4%, I would have guessed a lower margin. So I was kind of impressed that the margin being that high with what is, at least, historically a pretty negative mix. I know you're not going to divulge this exactly, but can you give us some sense, the run rate right now between the margin differential between teles and aerials because again -- I thought the margins were a little higher than we'd have thought with a negative mix like that?

It's enough for us to tell you, David, that there is a difference there, and that's as far as we're going to go.

Our next question comes from the line of Jamie Cook with Crédit Suisse.

Sorry, back to access again, the strong orders that you saw in the quarter. Can you just talk about what you saw geographically in the U.S. and then sort of U.S. versus Europe as well as sort of the customers, sort of the larger rental customers versus smaller ones? And then if you could talk about sort of lead times on teles booms. That would be helpful.

I would say it was kind of a broad mix of customers, Jamie; and geographically, too, we were up in all regions around the globe, North America; and Pac Rim, we were up the most; but Europe was up, up a little bit in Latin America and up some in Australia, which was nice to see. The mix of customers, I would say, obviously, the NRCs were heavier on the order side, that is normal when we do our annual purchase agreements. But we had good activity with the IRCs also. So dialing back to where we were, when we started this quarter to where we are today, we're just pleased with the progress we've made, the pricing discipline that our team has been working with and the good discussions that we've had with our rental customers. I think it's been a very productive quarter for discussions with customers, not just North America, but around the globe, and it shows in our orders. So we're pleased with that. Second question?

So -- sorry. One, I was just wondering about lead times across the different product lines, how extended they are? And then my other question is, based on the conversations that you're having with customers, is there any reason to believe that -- how do we think about the cadence of orders for the remainder of the year? Is there any reason why normal seasonality wouldn't pull through? Are customers starting to get worried that orders in the fourth quarter, which generally are seasonally weaker, could be stronger because of concerns about lead times, et cetera?

Well, lead times, as you'd expect with the large telehandler order that we've been receiving is they're out about 5 to 6 months on some models. The rest of our booms our scissors, they're all within about a 30 to 45-day window, which is very accepted in the marketplace today. So other than telehandlers, we're in a good spot from, basically, a delivery standpoint. As far as the back half of the year and what customer is saying, we're not hearing anything at this time that's troubling, but we're certainly looking forward to the ARA show next month, and, obviously, as our customers navigate through the winter, what that's going to mean coming out for spring construction. So it's just early for us to call what Q3 or Q4 are going to be where we sit today, but we'll know in the next call and be able to model that better for you.

Our next question comes from the line of Chad Dillard with Deutsche Bank.

So just a question for you on the guidance. So ex rev rec, you raised the full year by about $0.10, about 2%, but beat by $0.30. Could you just kind of explain this differential? Is it conservatism? Are you seeing maybe some incremental weakness in the second half? Any color on that would be super helpful.

Well, I guess, to me, the best place to start, Chad, is, we didn't provide a quantitative guide for our Q1. So the beat is, I think, versus collective Street's view. You know we looked at where we were coming in for access, how the orders came in. As Wilson said, we're pleased with how those orders came in. We looked at the mix. We looked at what else is going on in the business. And that just -- it was kind of a bottoms-up approach to how we looked at adjusting the margin. We tightened it, the range for access and raised it, and it was just, I would say, a natural evolution of how we saw the quarter play out as well as the orders in the quarter for delivery in the remainder of the year here.

That's helpful. And then your access guidance on the top line implies about 2% growth versus the prior guidance of flat. Can you just walk us through how much of this increase are you seeing from just better price realization versus incremental volume growth?

Well, I think, you're aware of the surcharges and price increase that we came out with. And when we look at the top line, overall what that would imply is, pricing is certainly a major component to that. Volume, overall, underlying volume is, I would say, on the high end, up a little. But certainly pricing does play a component to that.

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

Wilson, sorry to beat this dead horse, I just want to make sure that I'm clear on this, in terms of how your pricing works in fiscal '19. Are the orders that customers are placing in, say, January of '19, priced differently than the orders that were placed in November or December of 2018? Or is pricing consistent from your Q1 fiscal '19 to your Q2 fiscal '19 and the rest of the year?

Mig, it's Dave, I'll take that. Pricing is all based around timing of delivery. So anything after March of last year would have had the surcharge associated, and we're talking access segment specifically here. And then as it relates to...

Any orders that wasn't in backlog.

Any order, yes. And then as it relates to the permanent price increase that was effective for deliveries on January 1, that was announced in, I think, September timeframe. So any orders for delivery starting January 1, whether it was placed in October, November, December or January, would all be at the same pricing.

Got it. That's really helpful. Then, I also want to ask a question about this other component of your Access Equipment segment. Growth there has been quite good, especially in a quarter. Can you maybe talk a little bit about all the elements that you have in there? I know there is Jerr-Dan, you've got some aftermarket, you've got some other things that you're selling. What's going on with this portion of the business and kind of what's embedded in the full year outlook?

Jerr-Dan is probably the area, Mig, where we saw the biggest growth. That's really been a success story for us. We don't highlight that a lot. But the team has done a very good job there. And I wouldn't say, necessarily that the weather we're experiencing was a big driver of that. But weather conditions like this certainly are conducive to continued strong demand for towing and recovery equipment. But that's probably the biggest mover year-over-year.

Used equipment is in there as well, Mig, right? So you got aftermarket. Jerr-Dan, as Dave said. And used equipment, I think, you've heard from some of our customers, used equipment market is strong.

Right. And if you can humor with one more on Jerr-Dan. Can you maybe size this business for us? And I'm wondering, how does this business compare, rather in terms of cycle, with what we would normally see in, say, class A truck orders?

It's less than 10% of the segment revenue. And as it relates to the cycle, it -- we don't see a strong correlation between demand for towing equipment and the -- what we see for the overall class A market. If you look at vehicles on the highway today, there certainly are more passenger vehicles than there are class A, and that's probably as bigger of a driver of demand for towing and recovery equipment.

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

I'm wondering if you could talk about your telehandler business. So last year, you folks had record sales and it sounds like with production constraints, how much market share do you think your business for telehandlers has gained cycle-over-cycle? And then, I think, normal seasonality is for telehandlers sales could be up 35%-or-so, fiscal 2Q versus fiscal 1Q. And I'm wondering is that how we should be thinking about the cadence for this year as well?

Jerry, just in terms of -- if you dial back to last year, you recall, we were going through the process of moving production of telehandlers in North America, and that did impact the output or production levels in that product line. We probably lost some share there last year. I think what you're seeing this year is a very nice rebound in terms of the teams getting back up to speed in terms of their cadence from a production standpoint. And I haven't seen market share information, but I would assume that we've had some recovery probably back to more normalized levels from a market share standpoint. As it relates to the cadence sequentially, we don't break it out by -- quantitatively in terms of what we're expecting for any of the segments or the product lines. But generally, as you know, the second quarter is typically a stronger quarter sequentially than the first quarters. And I don't expect that to be any different this year.

And Dave, just in terms of the really strong growth year-over-year we saw this quarter, would you characterize that -- any of that as factory catch up or were you folks effectively shipping to demand and, obviously, we'll see how 2Q and 3Q shape up, but I'm just trying to understand were there any one-offs in terms of just catching up following the production move that really benefited the quarter?

No. That -- we were impacted. That was really a year ago and the cadence improved as we went throughout the year. So our customers wouldn't wait 9 to 12 months for us to catch up and get them their units. So really we were shipping to demand in the first quarter, yes.

Okay. And in Fire & Emergency, you folks are performing really well in a tough environment. Can you just talk about, if you have prospects, for share gains over the balance of the year? How has the quoting process been? You mentioned you expected the market to be flattish, up a little bit. Are you folks optimistic on the share side for you?

Yes, Jerry, I think, the Fire & Emergency story is a good story, and we appreciate your compliment there. The team is focused and working very close with their dealer channel. We have the best distribution channel in the fire industry by far. And they work very close together. They partner with the pricing discipline in the marketplace. So I'd say that, to say that, there are some low price-type competitors in the market, and we're going to make sure that when we do grow share, we grow it profitably. And we certainly have good plans around the Ascendant aerial that we've delivered and the prospects there continue to grow. And that's what we're going to focus on, is the total cost of ownership model and really driving profitable market share. So we see opportunities there. Again, a lot of it's through some of the intellectual property that we have, patent protected products that we write the spec and that's what the customer wants and they pay for that value of that patented product.

Our next question comes from the line of Ross Gilardi with Bank of America Merrill Lynch.

Just, Dave, I had a question on the cash flow. The first quarter looked weak. I mean is that -- and so therefore the full year seems fairly back-end loaded. Is that tied to AWP inventory build or something in the Defense segment?

The biggest thing versus -- it was a little more than we expected. And the biggest driver of that was, we actually saw a slowdown in the patent -- payment cadence from our U.S. government customer in Defense. And that was a little unexpected for us, and actually saw one of the larger defense primes yesterday called that out as well. So it seems to be something that's multiple companies are experiencing. But that was the biggest driver. Hopefully, that gets rectified as we head through the second and third quarters here.

Do you have any color on like why that is the case or what's actually going on there?

What we understand is, they're referring to increased volume of invoices to process. And I don't have any more color than that.

Again, they're essential -- so they were working during the shut -- they weren't -- this wasn't a shutdown issue, Ross. They were working during the shutdown. So they're essential. It doesn't -- so it's not related to the government shutdown.

And just when you guys think about your cash flow, more in the out years, obviously, you're expecting a very strong free cash flow year this year. Is there any reason to think that your cash conversion would change materially from where it is in fiscal '19, out in '20 and '21? I'm not asking for guidance, but just more like directional views on cash conversion.

So Ross, our, what I would call, our going in view is, over the course of cycle, we believe, we should -- our cash conversion should be, call it, 100%. But we do -- and historically have seen and likely would continue to see in the future some lumpiness from year-to-year, and that's largely driven by when we get involved in some of these larger international programs. That tends to drive some swings in working capital, that would be not typical for us.

Okay. Got you. And just the last thing I want to ask you, more of kind of a housekeeping thing. But the top of your operating profit guide, it seems to imply a higher than $7.50 of EPS by about $0.10 to $0.15. I mean, is there a big other expense line item baked into your numbers? And if so, what's that for? Or is interest rate, interest expense for some reason go up over the balance of the year or income from affiliates?

We don't think so. When we ran the numbers or put the model together internally, we come up to the $7.50. So maybe Pat can take that offline with you and figure out what might be driving that difference.

Take that offline.

Our next question comes from the line of Stanley Elliott with Stifel.

A quick question on the Defense business. Of the 6,100 units, are you seeing anything in terms of expansion of the product scope or the mission scope, like we've talked about for additional units in the past? Or is this more what you're referring to in terms of kits were just more of minor modifications?

Stanley, when you say kits, are you talking about the content changes that we referenced?

Yes. Well I thought you said something in terms of some adjustments on the kits and -- I guess my guess is that's probably more on the content modifications, before you get to the Full Rate Production?

In the prepared remarks, we talked about the 6,100 units with associated kits. But so no really change, Stanley, to what we've been doing with our government customer. That's been the normal cadence. They have associated kits that come in with the orders. Where the changes will come in is if -- they make some adjustments here to the current specification, the content will change, it'll be additional content, and then we talked about retrofitting the units that have been delivered with that new content.

Perfect. And then switching gears, you had mentioned a cautious approach on some of the concrete placement [tables]. Do you think the numbers you're seeing on kind of a year-over-year basis, is that more seasonal what we'd expect and we'd expect that business to pick back up or is that reflective of the cautiousness, just trying to get a little bit more color there, if I could?

Actually, unit volume was up a little bit in the quarter, Stanley. The sales dollars were down because of lower package units. And just a reminder on that, package is when we sell a third-party chassis along with our body. So we saw a mix in the quarter of more just body-only sales...

Customer supply chassis.

Customer supply chassis and that is negative from a top line sales standpoint, but actually from a margin standpoint is a positive thing. But overall, as we said, we continue to see, in general, a cautious concrete mixer market. And I don't think we saw anything really in the quarter from a cadence standpoint that would lead us to conclude anything differently.

Our final question comes from the line of Courtney Yakavonis with Morgan Stanley.

This is Dillon Cumming, on for Courtney. Maybe just flipping back to your order book and access real quick. Understand your oil and gas exposure is a bit more limited, but still indexed on the telehandlers side. And you guys see more positive on that piece of segment. Is there anything kind of notable you guys would call out in terms of what you're seeing on the ground to suggest that maybe those markets are actually holding in a bit better despite all the oil price volatility?

Yes, rig count is up. I think it's up to approximately 1,100 now. If you dial back to May, we were down around 400. So as far as oil and gas, it's positive. We have said in the past that oil and gas is important, but it's not a significant driver of our product. So on a normal rig, you might see one telehandler and one narrower platform. So it's not a big driver, but we do watch it because it's a metric that does play into our own customers' outlook.

Okay, got it. That's helpful. And then maybe just sticking on the margin side there. I think you might kind of labor and manufacturing capacity plans in that segment, if we kind of end up seeing access sales at the high end or maybe even above your guidance range. How much slack are you kind of seeing in the supply chain and how much flexibility do you think you have in terms of both manufacturing capacity and maybe putting out some extra shifts if you have to?

Well, we have capacity. Most plants are running 2 shifts, some 3, but we have capacity to run up. What's helped increase our capacity this year, Dillon, and through the end of last year was getting our 600 team members up to speed that we brought on in the ramp up early last year. So that's, obviously, increased capacity for us, too. Another add was opening up a facility in Jefferson City, Tennessee, recently. That's going to add fab and well capacity. It's a labor market, that's a good labor market with skilled labor, and that's going to support both access and defense. So capacity is not an issue for us. The supplier question that you asked there, there's always concern when we're ramping up a supplier. And our supplier quality teams are dispersed and working closely with suppliers, that helped them with the ramp. The key there, just like for us, for them to access to skilled labor. And the labor market is very tight around the country. Another reason we spread out a little bit in Tennessee, there is labor available there. And I would anticipate some of our bigger suppliers will be doing some of the same things and actually some of them already have. So key is, as you do ramp up, obviously, just to make sure your suppliers can ramp up with you, and we've certainly got a strategy around that.

Thank you. We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Thank you, operator. Thanks, all too, for joining us today. We appreciate your interest in the Oshkosh Corporation, and look forward to speaking with you at a conference, or on our next earnings call. Have a great day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.