Oshkosh Corporation — Fiscal 2020 Form 10-K
Reporting period: Fiscal year ended September 30, 2020. The filing also reports unaudited fourth-quarter results. Oshkosh designs and manufactures specialty vehicles across Access Equipment, Defense, Fire & Emergency, and Commercial segments.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $6.857 billion | $8.382 billion |
| Gross income / margin | $1.120 billion / 16.3% | $1.517 billion / 18.1% |
| Operating income / margin | $488.7 million / 7.1% | $797.0 million / 9.5% |
| Net income | $324.5 million | $579.4 million |
| Diluted EPS | $4.72 | $8.21 |
| Cash from operations | $327.3 million | $568.3 million |
| Capital expenditures | $112.3 million | $147.6 million |
| Cash and cash equivalents at year-end | $582.9 million | $448.4 million |
| Total debt at year-end | $823.1 million | $819.0 million |
| Shareholders’ equity | $2.851 billion | $2.600 billion |
Consolidated sales fell 18.2%; operating income declined 38.7%. Lower volume and adverse product mix were the main pressures. Cost of sales rose to 83.7% of sales from 81.9%. Cash provided by operations decreased 42.4%, primarily reflecting lower net income. Net working capital was $1.951 billion, and debt-to-total capitalization was 22.4%, down from 24.0%.
Fourth quarter: Net sales were $1.784 billion, operating income $127.4 million, net income $100.0 million, and diluted EPS $1.46. FY2019 fourth-quarter figures were $2.196 billion, $203.1 million, $150.0 million, and $2.17, respectively.
Segment sales and operating income
| Segment | FY2020 sales | Change vs. FY2019 | FY2020 operating income |
|---|---|---|---|
| Access Equipment | $2.515 billion | Down 38.4% | $198.6 million |
| Defense | $2.262 billion | Up 11.3% | $183.5 million |
| Fire & Emergency | $1.147 billion | Down 9.4% | $151.1 million |
| Commercial | $957.8 million | Down 6.3% | $81.2 million |
COVID-19 drove sharp declines in construction-related Access Equipment demand and reduced Commercial demand; production constraints also affected Fire & Emergency deliveries. Defense benefited from JLTV growth and was a source of relative stability. Commercial operating income improved despite lower sales, supported by lower material costs and insurance proceeds.
Liquidity, debt and capital allocation
At September 30, 2020, the Company reported approximately $1.4 billion of available liquidity: $582.9 million of cash and $790.1 million of available revolving-credit capacity. It expected operating cash flow to fund fiscal 2021 capital expenditures, projected at approximately $120 million. The Company was in compliance with its credit agreement covenants and expected to remain compliant over the next 12 months.
In February 2020, Oshkosh issued $300 million of 3.10% senior notes due 2030, redeemed $250 million of 5.375% notes due 2025, and used remaining proceeds to reduce term-loan debt. The refinancing generated $8.5 million of debt-extinguishment costs. Fiscal 2020 shareholder returns included $81.8 million of dividends and $40.8 million spent repurchasing 550,853 shares; repurchases were paused temporarily to preserve liquidity. The quarterly dividend was increased 10% to $0.33 per share beginning November 2020.
Outlook, commentary and material risks
- Management provided no quantitative fiscal 2021 outlook, citing uncertainty about the pandemic’s duration and effects. It expected softer year-over-year demand in the first half of fiscal 2021 and planned two-week monthly U.S. production shutdowns in Access Equipment during the first quarter.
- Temporary cost actions reduced fiscal 2020 pre-tax costs by approximately $120 million; management expected much of that expense to return in fiscal 2021. Permanent restructuring actions were expected to generate $30–$35 million in annual savings once completed, with about $20 million of benefit in fiscal 2021 and the full effect in fiscal 2022. An additional approximately $15 million of permanent cost reductions was implemented for fiscal 2021.
- Year-end backlog increased 10.4% to $4.58 billion, including $2.81 billion in Defense and a record $1.12 billion in Fire & Emergency. Management cited supply-chain and workforce constraints, and delayed customer inspections, as risks to production and deliveries.
- U.S. government sales were approximately 35% of fiscal 2020 net sales. Defense results depend on appropriations, order timing and contract awards; the JLTV program faces a planned open competition for follow-on production, and fixed-price contracts expose Oshkosh to cost overruns.
- Other key risks include cyclical construction and municipal markets, customer credit and equipment-residual values, supplier concentration and shortages, commodity and foreign-exchange movements, restructuring execution, and cybersecurity. The ten largest Access Equipment debtors represented approximately 42% of consolidated gross receivables.
- Unusual items included restructuring costs, a property/business-interruption insurance recovery, an arbitration settlement gain, a Commercial business sale gain, debt-extinguishment costs, and a European deferred-tax valuation allowance. Collectively, management said identified items reduced FY2020 EPS by a net $0.22.
Items investors should verify
- Whether demand, margins and production recover as anticipated, particularly in Access Equipment and Commercial, and whether COVID-related labor and supplier constraints persist.
- Execution and timing of restructuring plans, including facility closures and the projected savings, versus the return of temporary cost reductions.
- Defense order funding and contract economics, including JLTV and FMTV A2 cost estimates, FHTV contract developments, and the planned JLTV follow-on competition.
- Receivable quality and guarantee exposure: $749.8 million of customer indebtedness was guaranteed, with estimated maximum exposure of $150.2 million.
- Potential tax and legal outcomes, including the disputed tax regulations and accrued product/general liability claims; the filing reports $33.8 million of estimated net liability for those claims.
- Backlog conversion, which is not assured: management estimated approximately 14% of September 2020 backlog would not be filled in fiscal 2021.
Audit: Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting.