Oshkosh Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022, compared with the three months ended March 31, 2021. The company changed its fiscal year to the calendar year in October 2021; the periods shown are comparable three-month periods.
Financial performance
Amounts are in millions of dollars, except per-share data and percentages.
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $1,945.7 | $1,889.0 |
| Gross income / margin | $201.3 / 10.3% | $315.1 / 16.7% |
| Operating income / margin | $29.3 / 1.5% | $140.8 / 7.5% |
| Net income (loss) | $(2.1) | $99.6 |
| Diluted EPS | $(0.03) | $1.44 |
| Operating cash flow | $328.9 | $326.8 |
- Sales rose 3.0%, mainly from $48 million of improved pricing and $13 million of favorable mix, including more third-party chassis. Overall sales volume was relatively flat.
- Gross margin fell 630 basis points and operating margin fell 590 basis points. Management attributed the deterioration primarily to higher material and logistics costs, manufacturing costs, component shortages, and labor challenges. Higher material and logistics costs reduced operating income by approximately $151 million; higher manufacturing costs reduced it by approximately $20 million.
- Q1 income taxes were $20.2 million on $18.8 million of pretax income, a 107.4% effective rate. The period included an $18.1 million charge for taxes on prior-period income related to the company’s revised interpretation of foreign anti-hybrid tax legislation.
- Cash and cash equivalents were $944.5 million at March 31, versus $995.7 million at year-end. Debt was $594.4 million, down from $819.0 million after repayment of a $225 million term loan. Debt was 16.7% of total capitalization, versus 21.0% at year-end.
- Operating cash flow was $328.9 million; capital expenditures were $26.1 million. Financing used $337.9 million, including the term-loan repayment and $85.4 million of share repurchases. Current assets were $4,293.8 million and current liabilities $2,446.3 million.
Segment results
| Segment | Sales, Q1 2022 (year-over-year change) | Operating income, Q1 2022 (Q1 2021) |
|---|---|---|
| Access Equipment | $883.1 million (+19.6%) | $7.5 million ($80.5 million) |
| Defense | $535.6 million (−12.9%) | $19.4 million ($35.5 million) |
| Fire & Emergency | $287.9 million (−7.9%) | $22.4 million ($47.4 million) |
| Commercial | $241.4 million (+5.0%) | $14.3 million ($18.8 million) |
Access Equipment sales benefited from North American demand, but its results were sharply pressured by input and logistics costs. Defense sales declined with lower tactical-vehicle program volume; Fire & Emergency sales reflected lower ARFF shipments; Commercial sales benefited from pricing and mix but faced supply constraints.
Outlook, risks and notable items
- Management reduced fiscal 2022 guidance to sales of $8.1–$8.6 billion, operating income of $475–$560 million, and diluted EPS of $4.75–$5.75. Excluding the approximately $0.25-per-share anti-hybrid tax charge, adjusted EPS guidance is $5.00–$6.00.
- Expected fiscal 2022 operating cash flow is approximately $725 million; planned capital expenditures are approximately $300 million, including setup of the Spartanburg, South Carolina plant for USPS Next Generation Delivery Vehicles.
- Management raised expected fiscal 2022 price/cost headwinds to approximately $180–$200 million from $140–$150 million, citing renewed steel, aluminum and freight cost increases, supply-chain disruption, and labor constraints. The company expects improvement in price/cost dynamics in Q2 and further improvement in the second half, but notes uncertainty.
- Fiscal 2022 segment outlook: Access Equipment sales $3.8–$4.2 billion and operating margin 8.0%–8.75%; Defense sales about $2.2 billion and margin about 6.25%; Fire & Emergency sales about $1.2 billion and margin 11.0%–11.75%; Commercial sales $1.0–$1.1 billion and margin about 6.5%. Corporate expenses are expected to be about $160 million. The estimated fiscal 2022 tax rate increased to about 26%.
- For Q2, management expects consolidated sales approximately flat year over year, with Access Equipment up about 15% and Defense down about 20%, and a low- to mid-single-digit operating margin.
- Backlog was $12.70 billion at March 31, up 88.4% from a year earlier; approximately 52% was not expected to be filled in fiscal 2022. Backlog includes delays associated with supply-chain constraints and is not necessarily a reliable indicator of future sales.
- Defense contract estimates involve significant judgment. Contract adjustments reduced Q1 operating income by $10.6 million and diluted EPS by $0.12. The company also reported $82.2 million of gross unrecognized tax benefits at quarter-end.
- Liquidity included $944.5 million of cash and approximately $1.081 billion of unused revolving capacity. The amended unsecured facility matures in March 2027; the company reported covenant compliance. Risks include inflation and supply-chain disruption, labor availability, market cyclicality, foreign exchange, government contract timing and profitability, and customer credit and collateral values.
- The filing reports no legal proceedings under Part II, Item 1. It also describes ordinary-course product liability, warranty, environmental and other claims, and substantial bond and customer-financing guarantees; management does not expect these matters to have a material effect, but outcomes remain uncertain.
Important facts for investors to verify
- Whether pricing actions and cost reductions offset the revised $180–$200 million fiscal 2022 price/cost headwind, particularly after renewed commodity and freight increases.
- Whether supply-chain, labor and production constraints affect delivery timing, backlog conversion, margins and the $725 million operating-cash-flow expectation.
- Whether Defense contract estimates and cumulative catch-up adjustments change, and whether the USPS vehicle program proceeds on the expected schedule.
- Whether the foreign anti-hybrid tax charge, tax reserves and approximately 26% full-year tax-rate estimate are ultimately sustained or revised.
- Whether capital spending, share repurchases and dividends remain consistent with liquidity needs and the company’s investment-grade and credit-covenant objectives.