Oshkosh Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparison is with Q1 2023 unless otherwise noted. Oshkosh reports three segments: Access, Defense and Vocational. AeroTech, acquired in August 2023, is included in Vocational.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $2,543.8 million | $2,268.1 million | +12.2% |
| Gross income / margin | $470.0 million / 18.5% | $333.8 million / 14.7% | Margin +380 bps |
| Operating income / margin | $259.7 million / 10.2% | $130.8 million / 5.8% | +98.5%; margin +440 bps |
| Net income | $179.4 million | $88.5 million | More than doubled |
| Diluted EPS | $2.71 | $1.34 | More than doubled |
| Operating cash flow | $(355.8) million | $79.8 million | Declined $435.6 million |
| Capital expenditures | $100.1 million | $111.5 million | — |
Higher operating income reflected improved price/cost dynamics, favorable mix, higher organic volume and the absence of the prior-year loss on sale of a business. Interest expense, net of interest income, increased to $20.8 million from $7.2 million, primarily due to higher revolver borrowings and lower cash following the AeroTech acquisition. The effective tax rate was 23.1%, versus 26.4%; Q1 2024 included $2.3 million of net discrete tax benefits.
Segment results
- Access: Sales of $1,237.5 million, up 3.7%; operating income of $208.1 million, up 54.1%. Operating margin rose to 16.8% from 11.3%, primarily on lower material and logistics costs, improved customer mix and pricing.
- Defense: Sales of $536.9 million, up 4.6%; operating income of $11.3 million, versus $1.7 million. Operating margin was 2.1%. Higher aftermarket parts and FMTV volume were partly offset by lower JLTV volume.
- Vocational: Sales of $772.4 million, up 37.3%; operating income of $80.1 million, versus $28.1 million. AeroTech contributed $176.1 million of sales; higher pricing and the absence of the prior-year divestiture loss also supported results.
Balance sheet, debt and liquidity
- At March 31, cash was $69.9 million, down from $125.4 million at December 31, 2023. Total debt was $1,239.9 million, up from $772.5 million; debt-to-total capitalization rose to 24.5% from 17.3%.
- Revolver borrowings were $641.0 million; $444.3 million of capacity remained at quarter-end after borrowings and letters of credit. The facility carried a 6.55% interest rate. On April 3, 2024, the company increased its maximum facility availability from $1.1 billion to $1.55 billion.
- The company reported compliance with its credit agreement financial covenant at quarter-end and expects to remain compliant. It stated that liquidity and capital resources are adequate for projected needs.
- Operating cash flow was negative despite higher net income, largely reflecting working-capital demands: seasonal Access inventory and receivables, incentive compensation payments, lower customer advances on new orders and normalization of accounts payable.
Outlook, commentary and risks
- Management raised 2024 diluted EPS guidance to $10.55 from $9.45, on estimated sales of $10.7 billion and operating income of $1.0 billion. Guidance includes $0.70 per share of purchased-intangible amortization; adjusted EPS guidance excluding that item is $11.25.
- For Q2 2024, management expects EPS of $2.82, including $0.18 per share of purchased-intangible amortization, and sales approximately 15% above Q2 2023, largely due to AeroTech.
- 2024 segment outlook: Access sales of $5.4 billion and operating margin of 15.25%; Defense sales of $2.1 billion and margin of 2.25%; Vocational sales of $3.2 billion and margin of 10%. Expected 2024 corporate expenses are $190 million.
- Management expects approximately $725 million of operating cash flow and $300 million of capital expenditures in 2024. It expects NGDV production to increase during 2024 and 2025, reaching full-rate production by early 2026; this is expected to offset the loss of the domestic JLTV program. Domestic JLTV production is expected to conclude in early 2025.
- Backlog was $16.35 billion at March 31, up 10.2% year over year; approximately 57% is not expected to be filled in 2024. Backlog may be canceled or changed and is not necessarily indicative of future sales. Access orders began normalizing; management expects most 2025 Access orders to be booked in the second half of 2024.
- Principal disclosed risks include cyclical demand and economic conditions, input costs and labor availability, execution and cost estimates on long-term Defense contracts, USPS contract timing and costs, government budget uncertainty, AeroTech integration, receivables collectability, warranty claims, foreign exchange, tariffs, cybersecurity and litigation or other claims.
- Unusual and judgment-sensitive items include negative contract adjustments that reduced Q1 2024 sales by $10.0 million, operating income by $13.1 million and diluted EPS by $0.15. Deferred contract costs, mostly related to NGDV, were $793.4 million at quarter-end. The filing notes significant estimation judgment for long-term contracts, particularly in Defense.
Most important facts for investors to verify
- Whether improved margins and pricing persist as customer mix moderates and new-product development spending increases.
- Whether working capital reverses sufficiently to support management’s $725 million 2024 operating-cash-flow expectation.
- Access order normalization and the timing of 2025 orders; backlog conversion, cancellations and contract modifications.
- NGDV production ramp, deferred contract-cost recovery and the transition from domestic JLTV production to replacement work.
- AeroTech integration and performance, including its contribution to Vocational sales, margins and cash generation.
- Higher debt and variable-rate revolver exposure, available capacity and continued covenant compliance.
- Defense contract estimates, warranty and guarantee exposures, and resolution of legal and tax contingencies.