Oshkosh Corporation has reported fiscal 2015 third quarter net income of $89.9 million, or $1.13 per diluted share, compared to $105.1 million, or $1.22 per diluted share, in the third quarter of fiscal 2014.
Fiscal 2014 third quarter adjusted1 net income was $105.7 million, or $1.23 per dilutedshare, excluding an after-tax, other post employment benefits (OPEB) curtailment gain of $6.2 million related to announced workforce reductions in the company’s defense segment and after-tax costs of $6.8 million resulting from a reduction in eligible OPEB costs under historical cost-plus government contracts.
As expected, fiscal 2015 third-quarter results were positively impacted by $0.09 per share due to tax audit settlements and expiration of statutes of limitations and negatively impacted compared to the prior year quarter by $0.11 per share from currency translation, particularly the euro and Australian dollar, which declined against the U.S. dollar. Comparisons in this press release are to the corresponding period of the prior year, unless otherwise noted.
Consolidated net sales in the third quarter of fiscal 2015 were $1.61 billion, a decrease of 16.6% compared to the prior year third quarter. Significantly lower defense segment sales, as expected, and lower access equipment segment sales contributed to the lower sales levels. On a constant currency basis, sales decreased 14.7% compared to the third quarter of fiscal 2014.
Consolidated operating income in the third quarter of fiscal 2015 was $136.6 million, or 8.5% of sales, compared to $174.3 million, or 9.0% of sales, in the prior year third quarter.
Fiscal 2014 third-quarter adjusted consolidated operating income was $175.3 million, or 9.0% of sales, excluding before-tax OPEB adjustments that netted to $1.0 million. Lower operating income in the Company’s access equipment and defense segments on lower sales during the third quarter of fiscal 2015 resulted in the lower consolidated operating income.
“We are reducing our full-year 2015 expectations for adjusted EPS to a range of $3.00 to $3.25 based on lower expected sales in our access equipment segment,” said Charles L. Szews, Oshkosh Corporation chief executive officer. “While we are adjusting our access equipment segment expectations, we are confident in the overall strength of our business and expect improved financial performance in fiscal 2016 led by a strong recovery in our defense segment."
Szews continued, “Our access equipment segment sales fell short of our expectations for the third quarter, normally our seasonally best quarter, due to heavy rains in May disrupting construction projects across the Southern U.S., cautious order patterns arising from uncertain rental market conditions, including the impact of lower oil and gas prices on rental demand for access equipment, and to a much lesser extent, delays with several new product launches.”
Said Szews, “While these launch issues are largely behind us, they impacted our sales and manufacturing costs in the quarter. We believe the fundamental drivers for access equipment demand remain solid. Specifically, we believe slowly rising residential and non-residential construction in the U.S. will continue to drive rental fleet demand for access equipment, and that rental company metrics will remain strong."
"However, we now believe that a shortened construction season in the U.S. due to severe weather over the last two quarters along with the impact of lower oil and gas prices on rental fleet utilization are leading U.S. rental companies to reduce access equipment purchases compared to our earlier expectations for fiscal 2015. Further, we now expect an approximate 5% - 10% sales decline in our access equipment segment in fiscal 2016 as we do not expect improving construction demand to fully offset anticipated reduced replacement demand resulting from very low industry purchases during 2009 and 2010.
“Our other segments met our expectations in the third quarter. In particular, our commercial and fire & emergency segments performed well in the quarter with each reporting higher revenue, operating income and backlog.
“There were a number of important developments in our defense segment over the last two months that support our belief that the segment will return to meaningful growth in fiscal 2016. We recently received large contract orders under the Family of Medium Tactical Vehicle (FMTV) and Family of Heavy Tactical Vehicle (FHTV) programs. The signing of a new FHTV five-year recapitalization contract led to a re-start of production of those units in late June. We also made important progress this quarter in our pursuit of a significant quantity of international Mine Resistant Ambush Protected – All Terrain Vehicles (M-ATVs) for sales in fiscal 2016 and beyond.
“Yesterday, we submitted our Final Proposal Revisions for the Joint Light Tactical Vehicle (JLTV) program which, if awarded to Oshkosh, would represent an important development for the long-term stability and profitability of our defense segment. Oshkosh’s superior JLTV offering provides next generation mobility and survivability for U.S. troops at a fair value and is ready to enter production today in response to any conflict,” concluded Szews.
Factors affecting third quarter results for the Company’s business segments included:
Access Equipment – Access equipment segment sales declined 10.3% to $932.6 million for the third quarter of fiscal 2015. A slowdown in the order rate in North America was the primary driver of lower shipments in the quarter along with, to a lesser extent, delays in new product launches. The strengthening U.S. dollar also negatively impacted access equipment segment sales by $33.4 million. On a constant currency basis, sales decreased 7.0%.
Access equipment segment operating income decreased 18.2% to $136.4 million, or 14.6% of sales, for the third quarter of fiscal 2015 compared to $166.8 million, or 16.0% of sales, in the third quarter of fiscal 2014. The decrease in operating income was primarily the result of lower sales volume, unfavorable currency impacts of $6.9 million and production inefficiencies related to challenges with several new product launches, offset in part by lower incentive compensation expense.
Defense – Defense segment sales for the third quarter of fiscal 2015 decreased 58.7% to $194.2 million. The decrease in sales was primarily due to expected lower sales to the U.S. Department of Defense (DoD) stemming from the break in production under the FHTV program and lower FMTV requirements, as well as the absence of international sales of M-ATVs.
The defense segment recorded an operating loss of $7.1 million, or (3.7)% of sales, for the third quarter of fiscal 2015 compared to operating income of $19.1 million, or 4.1% of sales, in the third quarter of fiscal 2014. Excluding OPEB adjustments, adjusted1 operating income was $20.1 million, or 4.2% of sales, in the third quarter of fiscal 2014. The decrease in operating income was largely due to the lower sales volume, partially offset by lower operating expenses.
Fire & Emergency – Fire & emergency segment sales for the third quarter of fiscal 2015 increased 6.6% to $199.8 million. The increase in sales primarily reflected higher content fire apparatus units and higher aircraft rescue and firefighting vehicle shipments. Sales in the third quarter of fiscal 2014 were adversely impacted as several high volume international orders moved to the fourth quarter of fiscal 2014 because of back-ups at ports and other logistical issues.
Fire & emergency segment operating income increased 55.5% to $9.6 million, or 4.8% of sales, for the third quarter of fiscal 2015 compared to $6.2 million, or 3.3% of sales, in the third quarter of fiscal 2014. Higher sales volume was the largest contributor to the increase in operating income.
Commercial – Commercial segment sales increased 18.9% to $294.0 million in the third quarter of fiscal 2015. The increase in sales was primarily attributable to higher refuse collection vehicle unit volumes and the sale of higher content concrete mixer units, including units with both chassis and bodies.
Commercial segment operating income increased 12.9% to $22.4 million, or 7.6% of sales, for the third quarter of fiscal 2015 compared to $19.9 million, or 8.0% of sales, in the third quarter of fiscal 2014. The increase in operating income was primarily a result of higher sales volume, offset in part by investments in MOVE initiatives.
Corporate – Corporate operating expenses decreased $13.0 million to $24.7 million for the third quarter of fiscal 2015. The decrease in corporate operating expenses in the third quarter of fiscal 2015 was primarily due to lower incentive compensation expense as a result of lower expected earnings.
Interest Expense Net of Interest Income – Interest expense net of interest income decreased $1.1 million to $12.6 million in the third quarter of fiscal 2015, largely as a result of the benefit of lower interest rates on the Company’s senior notes refinanced in the second quarter of fiscal 2015.
Provision for Income Taxes – The Comp any recorded income tax expense of $34.8 million in the third quarter of fiscal 2015, or 28.1% of pre-tax income. This compares to $56.0 million, or 34.7% of pre-tax income, in the third quarter of fiscal 2014. The Company recorded a $7.5 million reduction of income tax reserves in the third quarter of fiscal 2015 related to settlement of tax audits and expiration of statutes of limitations.
Share Repurchases – Earnings per share in the third quarter of fiscal 2015 improved $0.09 compared to the prior year third quarter as a result of share repurchases completed during the previous twelve months.
Nine-month Results
The Company reported net sales for the first nine months of fiscal 2015 of $4.52 billion and net income of $179.2 million, or $2.25 per share. This compares with net sales of $5.14 billion and net income of $231.5 million, or $2.68 per share, in the first nine months of the prior year. Consolidated net sales in the first nine months of fiscal 2015 declined 12.1% on significantly lower defense segment sales.
On a constant currency basis, sales decreased 10.7% compared to the first nine months of fiscal 2014. Adjusted1 earnings for the first nine months of fiscal 2015 were $186.4 million, or $2.34 per share, as compared to adjusted1 earnings of $229.6 million, or $2.66 per share, in the first nine months of fiscal 2014. Improved operating income results in the company’s fire & emergency and commercial segments and lower corporate expenses were not sufficient to offset the impact of lower results in the company’s defense and access equipment segments. Adjusted operating income for the first nine months of fiscal 2015 was negatively impacted by $13.1 million as a result of the strengthening U.S. dollar.
Earnings per share in the first nine months of fiscal 2015 improved $0.17 compared to the prior year period as a result of lower average diluted shares outstanding as a result of share repurchases completed during the previous twelve months. Earnings per share for the first nine months of fiscal 2015 were negatively impacted by $0.11 as a result of the strengthening U.S. dollar.
Fiscal 2015 Expectations
The Company is reducing its most recent fiscal 2015 adjusted1 earnings per share estimate range of $3.75 to $4.00, down to $3.00 to $3.25 on projected lower net sales of approximately $6.1 billion. The decline in the Company’s fiscal 2015 estimates is driven by a lowered outlook for results in its access equipment segment.
Dividend Announcement
The Company’s Board of Directors today declared a quarterly cash dividend of $0.17 per share of Common Stock.
The dividend will be payable on August 31, 2015 to shareholders of record as of August 17, 2015.
Lift & Access is part of the Catalyst Communications Network publication family.
