Oshkosh Corporation — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2019. Amounts are in U.S. dollars; financial statements are unaudited. Fiscal 2018 comparisons were not recast for the company’s adoption of the new revenue-recognition standard.
Financial performance
| Metric | Q2 FY2019 | Q2 FY2018 | Six months FY2019 | Six months FY2018 |
|---|---|---|---|---|
| Net sales | $1,990.2 million | $1,886.4 million | $3,793.6 million | $3,472.7 million |
| Gross income | $357.9 million | $336.0 million | $686.2 million | $579.0 million |
| Operating income | $175.6 million | $156.4 million | $336.1 million | $230.9 million |
| Net income | $128.5 million | $110.8 million | $237.5 million | $167.2 million |
| Diluted EPS | $1.82 | $1.47 | $3.33 | $2.21 |
- Q2 sales rose 5.5%; operating income rose 12.3%. Operating margin was 8.8%, versus 8.3%; gross margin was approximately 18.0%, versus 17.8%.
- Six-month sales increased 9.2% and operating income increased 45.6%; operating margin was 8.9%, versus 6.6%. Results benefited from improved pricing, higher volume, the absence of prior-year restructuring costs, and the revenue-standard change.
- Q2 segment sales increased in access equipment, defense and fire & emergency, and declined in commercial. Commercial operating income fell to $7.8 million from $16.4 million, chiefly due to weather-related production disruption. Access equipment operating income increased to $119.8 million from $97.6 million.
- Reported revenue-standard adoption increased Q2 sales by $15.5 million and net income by $5.2 million; for the six months, it increased sales by $53.6 million and net income by $24.4 million. The standard also reduced opening retained earnings by $60.4 million after tax.
Cash flow, balance sheet and liquidity
- Six-month operating cash flow was $153.0 million, compared with $43.9 million a year earlier. Investing used $56.3 million and financing used $232.0 million. Cash declined $132.7 million to $321.9 million.
- At March 31, 2019, total debt was $818.5 million, shareholders’ equity was $2,499.7 million, and debt-to-total-capitalization was 24.7%. Cash was $321.9 million. No revolving-facility borrowings were reported; $784.8 million of revolving capacity remained available, net of letters of credit.
- Current assets were $3,369.7 million and current liabilities were $1,810.1 million. Inventory was $1,503.5 million, up from $1,227.7 million at September 30, 2018; management said inventory turns declined to 4.6 from 5.1.
- The company repurchased $195.0 million of shares in the first six months and paid $38.3 million in dividends. The quarterly dividend declared was $0.27 per share.
Outlook, commentary and material risks
- Management raised FY2019 diluted EPS guidance to $7.40–$7.70, operating income to $725–$755 million, and consolidated sales to $8.20–$8.30 billion. Excluding an estimated $0.10-per-share repatriation-tax adjustment, adjusted EPS guidance was $7.50–$7.80.
- FY2019 segment outlook: access equipment sales of $3.95–$4.05 billion and operating margin of 11.75%–12.00%; defense sales of approximately $2.0 billion and margin of 9.5%–9.75%; fire & emergency sales of approximately $1.225 billion and margin of 13.50%–13.75%; commercial sales of approximately $1.025 billion and margin of 5.75%–6.00%.
- Management forecast approximately $625 million of FY2019 operating cash flow, $175 million of capital expenditures and targeted $350 million of share repurchases. It cited healthy backlogs and market outlook, while noting exposure to cyclical markets, input-cost inflation, tariffs, labor and supplier constraints, foreign exchange, and government procurement timing.
- A February 24 roof collapse at the Dodge Center, Minnesota facility disrupted commercial production. The company recorded $3.3 million of related Q2 expenses, estimated about $10 million to replace damaged equipment, and received a $5.0 million insurance advance. Management estimated FY2019 lost sales of about $20 million and lost operating income of about $15 million; it did not expect to record business-interruption insurance recovery in FY2019.
- Defense contract estimate-at-completion adjustments increased Q2 operating income by $11.3 million and six-month operating income by $41.6 million. The company said the six-month benefit from the revenue standard in defense was expected to be offset in the second half, with an immaterial full-year segment operating-income effect.
- Gross unrecognized tax benefits were $90.9 million at March 31, 2019, up from $33.7 million at September 30, 2018; six-month results included $7.1 million of net discrete tax charges. The company reported compliance with its credit-agreement covenants and expected to remain compliant over the next twelve months.
- Backlog was $6.18 billion, up 25.1% year over year, including a $1.7 billion JLTV order. About 42% of backlog was not expected to be filled in FY2019; access-equipment backlog may generally be canceled without penalty.
- The filing describes customer credit and residual-value guarantees, product and general-liability claims, bonds and ordinary-course legal matters. Management did not expect these matters to have a material financial effect, while noting actual outcomes remain uncertain.
Important facts for investors to verify
- How much reported earnings growth reflects underlying performance versus revenue-recognition timing, defense contract estimates and prior-year restructuring comparisons.
- Whether the Dodge Center facility recovery, insurance settlements and production alternatives limit the projected commercial-segment impact.
- Whether access-equipment demand, pricing and margins meet guidance amid higher material and labor costs, and whether commercial margins recover.
- Whether cash generation supports planned capital spending and share repurchases while maintaining covenant compliance and liquidity.
- Developments in tax reserves and repatriation-tax adjustments, and any changes in defense orders, contract estimates or customer backlog conversion.