Oshkosh Corporation today reported that, for its second quarter of fiscal 2008, earnings per share (EPS) was $0.97, on sales of $1.8 billion and net income of $72.6 million. These results compare with EPS of $0.68 on sales of $1.7 billion and net income of $50.9 million for the comparable prior year quarter. Oshkosh’s EPS exceeded the company’s most recent earnings estimate range for the second quarter of $0.85 - $0.90.
“We are pleased to be reporting sales and EPS records for an Oshkosh Corporation second fiscal quarter. While we faced some significant challenges in several of our markets, their effects were overcome by sharply higher sales in global markets for our JLG access equipment business as well as an on-going need for defense vehicles built by Oshkosh,” commented Robert G. Bohn, Oshkosh Corporation chairman and chief executive officer.
“Strong penetration in markets outside North America with our access equipment customers bolsters our perspective as we move forward. Furthermore, our defense segment has benefited from substantial requirements for our heavy tactical vehicles. We expect this demand to continue solidly for the foreseeable future as there is an on-going need for these logistics workhorses.
“The outlook for both our access equipment and defense segments gives us confidence in maintaining our full year EPS estimate range of $4.15 to $4.35 for fiscal 2008,” added Bohn.
"The results in our commercial segment in the second quarter were below our expectations due largely to weak U.S. residential construction, the effects of a pre-buy of equipment prior to the 2007 diesel engine emissions standards changes and inefficiencies related to the consolidation of facilities at our European refuse collection vehicle business. We expect market conditions in the U.S. to remain weak during the fiscal year and we do not expect results for this segment to improve significantly until either residential construction strengthens or until pre-buy activity begins ahead of the 2010 diesel engine emissions standards changes next fiscal year.”
Sales in the second quarter of fiscal 2008 increased $111.9 million, or 6.7 percent, compared to last year’s second quarter. The increase was primarily attributable to higher sales in the defense segment and strong international access equipment sales, offset in part by lower sales in the commercial and fire & emergency segments due to the weak U.S. economy, including sharply lower residential construction.
Second quarter operating income increased 24.8 percent to $168.2 million, or 9.5 percent of sales. The increase in operating income was primarily related to strong performance in the access equipment segment and, to a lesser extent, the defense segment. This increase was offset in part by lower operating income in the commercial and fire & emergency segments as a result of lower sales, and increased corporate expenses largely due to higher personnel costs and information technology spending to support the Company’s growth objectives and increased stock-based compensation expense.
Factors affecting second quarter results for the Company’s business segments included:
Access Equipment - Access equipment segment sales increased 14.9 percent to $813.1 million for the second quarter due to substantially higher shipments internationally and favorable foreign exchange rates, offset in part by lower sales in North America. Sales outside of North America nearly doubled over the comparable prior year quarter while sales in North America declined nearly 20% as a result of the weak U.S. economy, including lower sales to large rental customers, due in part to smaller, but more frequent orders spread out over the year.
Operating income in the second quarter increased 132.5 percent to $123.6 million, or 15.2 percent of sales, compared to the prior year quarter operating income of $53.2 million, or 7.5 percent of sales. Operating income in the second quarter benefited from higher sales, favorable product and customer mix and favorable foreign exchange rates. Also, prior year second quarter results included a charge of $8.5 million related to expensing the revaluation of inventory at the acquisition date of JLG Industries, Inc. (JLG).
Defense - Defense segment sales increased 47.3 percent to $450.8 million for the quarter compared to the prior year second quarter due to an increase in sales of heavy-payload tactical vehicles and higher parts & service sales. Parts & service sales rebounded in the second quarter due to higher armor kit shipments.
Operating income in the second quarter increased 13.0 percent to $59.7 million, or 13.2 percent of sales, compared to the prior year second quarter operating income of $52.8 million, or 17.3 percent of sales. The decrease in operating income as a percent of sales compared to the prior year quarter reflected a higher mix of lower-margin truck sales, lower margins on truck contract renewals, inefficiencies on a service contract and higher bid and proposal costs.
Fire & Emergency - Fire & emergency segment sales decreased 7.4 percent to $272.3 million for the quarter compared to the prior year quarter. The decrease in sales reflected weaker demand for towing and recovery equipment as well as mobile medical trailers and broadcast vehicles and a shift in the timing of international fire apparatus sales into the second half of fiscal 2008. The towing and recovery equipment vehicle market has been negatively impacted by lower demand as a result of rising fuel prices and uncertainty in the U.S. economy. A reduction in medical procedure reimbursement rates has had a negative effect on sales of mobile medical trailers.
Operating income was down 25.6 percent in the second quarter to $20.6 million, or 7.6 percent of sales, compared to the prior year quarter operating income of $27.6 million, or 9.4 percent of sales. The decrease in operating income during the second quarter was due mainly to lower sales.
Commercial - Commercial segment sales decreased 30.7 percent to $250.9 million in the second quarter compared to the prior year quarter. The segment had an operating loss of $5.5 million, or (2.2) percent of sales, compared to operating income of $22.1 million, or 6.1 percent of sales, in the prior year quarter. The commercial segment concrete placement business has experienced significantly lower demand for vehicles and vehicle bodies in North America as a result of lower residential construction activity in the U.S. combined with the aftereffects of the 2007 diesel engine emissions standards changes. The Company’s European refuse collection vehicle operations sustained an operating loss of $8.6 million in the second quarter of fiscal 2008, as compared to a loss of $6.2 million in the prior year quarter. The increase in the loss as compared to the prior year quarter related primarily to charges associated with a previously announced facility rationalization plan and associated inefficiencies with the start-up of production of Norba-branded products in The Netherlands, along with an unfavorable foreign exchange rate that resulted in a larger loss when translated into U.S. dollars.
Corporate and other - Operating expenses and inter-segment profit elimination increased $9.3 million to $30.2 million for the second quarter compared to the prior year quarter. The increase was largely due to higher personnel costs and information technology spending to support the Company’s growth objectives and increased stock-based compensation expense.
Interest expense net of interest income decreased $7.5 million to $53.5 million compared to the prior year quarter, largely as a result of lower interest rates and the repayment of borrowings incurred in connection with the JLG acquisition. Total debt remained at $3.1 billion at the end of the second quarter, consistent with debt levels at December 31, 2007.
The provision for income taxes in the second quarter increased to 36.7 percent of pre-tax income compared to 36.0 percent of pre-tax income in the prior year second quarter. The higher effective tax rate reflects increased provisions for discrete items in the quarter.