Oshkosh Corporation — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2022. The company changed its fiscal year to the calendar year beginning in 2022; prior-year comparisons are for the corresponding periods ended June 30, 2021. Amounts below are in millions of dollars except per-share data.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $2,066.0 | $2,208.8 | $4,011.7 | $4,097.8 |
| Gross income | $240.1 | $384.6 | $441.4 | $699.7 |
| Gross margin | 11.6% | 17.4% | 11.0% | 17.1% |
| Operating income | $69.4 | $203.8 | $98.7 | $344.6 |
| Operating margin | 3.4% | 9.2% | 2.5% | 8.4% |
| Net income | $26.9 | $213.9 | $24.8 | $313.5 |
| Diluted EPS | $0.41 | $3.07 | $0.37 | $4.51 |
- Q2 sales declined 6.5%; six-month sales declined 2.1%. Q2 operating income fell 65.9%, while six-month operating income fell 71.4%.
- Management attributed lower profitability chiefly to higher material and logistics costs, supply-chain-related manufacturing inefficiencies, reduced sales volume, and unfavorable Defense contract cost estimates. Pricing partially offset these pressures.
- Q2 net income included an $11.2 million unrealized loss on an equity investment. Six-month results included an $18.1 million charge for taxes on prior-period income related to foreign anti-hybrid tax legislation. In Q2 2021, a $69.9 million discrete tax benefit materially boosted comparison-period earnings.
Cash flow, balance sheet and capital
- Six-month operating cash flow was a use of $22.9 million, versus $448.7 million generated in the prior-year period. Management cited lower net income and inventory growth amid supply delays, partly offset by higher customer advances.
- Cash and equivalents were $397.4 million at June 30, 2022, down from $995.7 million at December 31, 2021. Investing cash outflow was $139.2 million, including $110.3 million of capital expenditures; financing cash outflow was $425.4 million.
- Total debt was $604.6 million, compared with $819.0 million at year-end; debt-to-total capitalization was 17.4%, versus 21.0%. The company repaid its $225 million term loan. Long-term debt consisted principally of $300 million of 4.6% notes due 2028 and $300 million of 3.1% notes due 2030.
- Liquidity included $1.09 billion of unused revolving-facility capacity and $397.4 million of cash. The $1.1 billion unsecured revolver matures in March 2027. The company reported compliance with its leverage covenant and expected to remain compliant.
- Capital returns included $155.0 million of share repurchases and $48.9 million of dividends during the first six months. The quarterly dividend declared was $0.37 per share. Fiscal 2022 capital expenditures were expected to be approximately $345 million, partly supporting USPS vehicle production setup.
Segments and business developments
- Access Equipment: Q2 sales rose 5.7% to $977.1 million, but operating income fell 38.6% to $69.4 million as input costs and production inefficiencies outweighed pricing benefits.
- Defense: Q2 sales declined 24.1% to $539.3 million and operating income fell to $2.1 million. Lower tactical-vehicle volume and unfavorable cumulative contract adjustments for higher anticipated costs weighed on results.
- Fire & Emergency: Q2 sales declined 8.6% to $276.5 million and operating income declined 48.8% to $22.8 million, mainly due to parts shortages, lower deliveries, cost inflation and labor-related inefficiencies.
- Commercial: Q2 sales were down 1.0% to $275.3 million; operating income declined 49.0% to $15.1 million, reflecting cost inflation and manufacturing inefficiencies.
- Backlog was $13.03 billion at June 30, up 89.8% year over year. Approximately 65% was not expected to be filled in fiscal 2022; the filing cautions that backlog can change and is not necessarily predictive of future results.
- On June 13, the company acquired Canadian fire-apparatus and utility-vehicle maker Maxi-Metal for approximately $19.7 million. Preliminary purchase accounting included $8.9 million of goodwill; post-acquisition sales through June 30 were $1.0 million.
Outlook, risks and contingencies
- The company said it did not expect to achieve its prior fiscal 2022 EPS guidance of $4.75–$5.75. It expected EPS of approximately $3.25, including a $0.25 per-share foreign anti-hybrid tax charge, and said persistent supply-chain and inflation conditions made it difficult to provide a revised range. The estimate assumed those conditions continued through year-end.
- Management said price increases were beginning to help, with greater benefit expected in the second half, but supply constraints and inflation were more persistent than anticipated and were limiting production and increasing inefficiencies.
- Key disclosed risks include supply-chain and logistics disruption, raw-material, labor and freight inflation, ability to implement pricing, labor availability, cyclical end markets, government contract timing and estimates, USPS budget and demand changes, foreign-exchange exposure, receivable collection, product warranty claims, cybersecurity, and acquisition integration.
- Customer credit guarantees covered $747.6 million of customer debt, with estimated maximum loss exposure of $133.7 million; residual-value guarantees covered $93.9 million of equipment value, with maximum loss exposure of $11.0 million. Product and general liability reserves were $42.9 million. Management did not expect pending claims and proceedings to materially affect the company, while noting outcomes are uncertain.
- The company reported effective disclosure controls. It noted no material change in internal control over financial reporting other than changes related to implementing new consolidation software.
Important facts for investors to verify
- Whether supply-chain availability, production volumes and material, freight and labor costs improve as management’s EPS outlook assumes.
- Whether announced pricing offsets inflation quickly enough to recover margins, and whether the roughly $3.25 fiscal 2022 EPS expectation changes.
- Defense contract cost estimates and cumulative catch-up adjustments, as well as the timing of government customer acceptance and payment.
- Conversion and timing of the $13.03 billion backlog into shipments, revenue and cash; backlog may be modified or canceled.
- Working-capital trends, particularly inventory, receivables and customer advances, alongside planned capital spending and cash availability.
- Resolution of the foreign tax matter and other tax reserves, plus outcomes of warranty, guarantee and legal exposures.