Oshkosh Corporation (NYSE: OSK) today reported fiscal 2010 first-quarter net sales of $2.43 billion and income from continuing operations of $191.2 million, or $2.10 per share, excluding non-cash intangible asset impairment charges. This compares with net sales of $1.33 billion and a loss from continuing operations of $11.7 million, or $0.16 per share, in the prior year’s first quarter.
Including pre-tax, non-cash impairment charges of $23.3 million ($0.20 per share, net of taxes) related to goodwill and other long-lived assets, the company reported income from continuing operations of $172.5 million, or $1.90 per share, for the first quarter of fiscal 2010. These results exclude the operations of the company’s former European fire apparatus business, BAI Brescia Antincendi International S.r.l. (BAI), which have been reclassified to discontinued operations due to the company’s sale of this business in October 2009.
We kicked off fiscal 2010 with strong revenue and earnings growth, led by our industry-leading defense business," said Robert G. Bohn, Oshkosh Corporation chairman and chief executive officer. "During the quarter, we supplied more than 2,300 life-saving MRAP All Terrain Vehicles (M-ATVs) to the U.S. armed forces for use by our warfighters in Afghanistan as we ramped up production to 1,000 units per month in December 2009. Additionally, our defense team executed extraordinarily well under all of our tactical wheeled vehicle and aftermarket parts & service contracts for the U.S. Army and Marines.
"Fiscal 2009 was a year of impressive debt reduction for Oshkosh, and we continued the trend in the first quarter of fiscal 2010 as we reduced our debt by an additional $182.5 million, further strengthening our balance sheet. We will continue to focus on reducing our debt throughout fiscal 2010.
"We believe that we are in position to generate strong earnings for our shareholders in fiscal 2010, despite a continuation of some industry-wide challenges facing a number of our businesses."
The company reported that consolidated net sales in the first quarter of fiscal 2010 increased 83.2 percent compared with the prior year’s first quarter largely due to $1.1 billion of M-ATV contract sales, including related aftermarket parts & service sales.
Operating income, excluding impairment charges, increased to $349 million, or 14.3 percent of sales, for the first quarter of fiscal 2010 compared with operating income of $25.6 million, or 1.9 percent of sales, in the prior year first quarter. Significantly improved defense segment performance, combined with improved access equipment segment performance, in each case, due in large part to high volume M-ATV production, led to the increase in operating income. Including impairment charges, the company reported operating income of $325.7 million.
Factors affecting first-quarter results for the company’s business segments included:
Defense – Defense segment sales increased 242 percent to $1.86 billion for the first quarter of fiscal 2010 compared with the prior year first quarter. The increase was due to the continued ramp-up of M-ATV production that began in the fourth quarter of fiscal 2009, an increase in sales of new Family of Heavy Tactical Vehicles (FHTVs) and a more than doubling of parts & service sales compared to the prior year quarter. Defense parts & service sales during the first quarter of fiscal 2010 benefited from the sale of TAK-4 independent suspension systems for Mine Resistant Ambush Protected vehicles and the sale of parts kits for the M-ATV. Combined vehicle and parts & service sales related to the M-ATV program totaled approximately $1.1 billion in the first quarter of fiscal 2010.
Operating income in the first quarter more than quadrupled to $339.7 million, or 18.3 percent of sales, compared with prior year first quarter operating income of $73.7 million, or 13.6 percent of sales. The increase in operating income as a percent of sales reflected a combination of higher volume on a relatively fixed cost base, lower material costs, improved manufacturing efficiencies and an improved parts & services mix.
Fire & Emergency – Fire & emergency segment sales for the first quarter of fiscal 2010 decreased 5.5 percent to $250.9 million compared with the prior year quarter. The sales decrease reflected lower shipments of fire apparatus, due to softer demand attributable to declining municipal budgets in the U.S., and continued weak demand for mobile medical equipment, offset in part by strong airport product sales. The mobile medical equipment market has been adversely impacted by a reduction in Medicare reimbursement rates and the uncertain health care environment due to potential U.S. legislation impacting the health care industry.
Despite lower sales, operating income, excluding impairment charges1, increased 9.1 percent in the first quarter of fiscal 2010 to $21.1 million, or 8.4 percent of sales, compared with the prior year quarter operating income of $19.3 million, or 7.3 percent of sales. The increase in operating income during the first quarter was primarily the result of improved product mix within the segment and lower material costs at the Company’s fire apparatus business. Including impairment charges, the fire & emergency segment reported an operating loss of $2.2 million.
In December 2009, the Company determined that events had occurred at Oshkosh Specialty Vehicles, which includes the Company’s mobile medical equipment business, which constituted interim impairment indicators requiring an assessment of goodwill and long-lived intangible assets at this reporting unit for potential impairment. Specifically, order rates for mobile medical equipment had not materialized as expected due to uncertainty surrounding potential U.S. health care legislation and this legislation may have further detrimental effects on the sales of mobile medical units. Testing revealed that an impairment was present and, as a result, the Company recorded goodwill and intangible asset impairment charges of $23.3 million ($18.7 million, net of tax) in the first quarter of fiscal 2010.
Commercial – Commercial segment sales decreased 14.1 percent to $155.1 million in the first quarter of fiscal 2010 compared with the prior year quarter. The sales decrease was largely due to a 21 percent decline in sales of concrete placement products as a result of lower construction activity in North America and a 15 percent decrease in domestic refuse collection vehicle (RCV) sales. The prior year’s first quarter RCV sales benefited from the timing of deliveries to large waste haulers.
Operating income increased to $3.1 million in the first quarter of fiscal 2010, or 2.0 percent of sales, compared with operating income of $0.6 million, or 0.4 percent of sales, in the prior year quarter. The increase in operating income primarily resulted from the recognition of profit on intercompany manufacturing activities and the benefit of cost reductions implemented in fiscal 2009, offset in part by the effect of further declines in sales in the first quarter of fiscal 2010.