Record sales of powered access equipment helped Oshkosh Corporation offset a downturn in defense-segment income during the third quarter of the company's fiscal year 2014.
The company has reported fiscal 2014 third-quarter net income of $105.1 million, or $1.22 per diluted share, compared to $148.4 million, or $1.67 per diluted share, in the third quarter of fiscal 2013.
Fiscal 2014 third quarter adjusted net income was $105.7 million, or $1.23 per diluted share, excluding an after-tax other post employment benefits (OPEB) curtailment gain of $6.2 million related to 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.
All results are for continuing operations, unless stated otherwise. Comparisons are to the corresponding period of the prior year, unless otherwise noted.
Consolidated net sales in the third quarter of fiscal 2014 were $1.93 billion, a decrease of 12.3%. Expected lower defense segment sales were offset in part by improved demand in the company’s access equipment and commercial segments.
Consolidated operating income in the third quarter of fiscal 2014 was $174.3 million, or 9.0% of sales, compared to $225.6 million, or 10.2% of sales, in the third quarter of fiscal 2013.
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. The decline in adjusted operating income in the third quarter of fiscal 2014 was primarily a result of lower operating income in the company’s defense segment, offset in part by favorable performance in the company’s access equipment and commercial segments.
"We are pleased with our overall third quarter results, led by record performance in the access equipment segment and breakthrough improvement in the commercial segment,” said Charlie Szews, Oshkosh Corporation chief executive officer. "Each area of focus in our MOVE strategy – powered by the Oshkosh Operating System – is helping us to meet our performance targets. This balanced strategy is guiding our team to produce results from the initiatives that we can control by optimizing costs, innovating to meet customers’ evolving demands and winning new business in emerging markets, even as some of our markets continue to recover at an uneven pace," said Szews.
“We continue to manage the downturn in our defense business in a responsible manner. We recently completed the previously announced additional reduction in our defense segment workforce, while retaining the expertise and skill sets that are essential to support potential new business, including the U.S. Joint Light Tactical Vehicle program and several international tactical wheeled vehicle opportunities," Szews added.
“For fiscal 2014, we are narrowing our estimate range for full year adjusted1 earnings per share to $3.40 to $3.55 as we head into the final quarter of the fiscal year. Looking forward, we continue to believe the outlook for our non-defense markets in 2015 is positive, and we expect MOVE initiatives to continue to contribute to margin expansion in 2015 and beyond,” said Szews.
Factors affecting third quarter results:
Access Equipment – Access equipment segment sales increased 10.4%, to $1.04 billion, for the third quarter of fiscal 2014, a record for quarterly sales. The improvement was principally the result of higher unit volumes in North America and Europe and higher pricing, offset in part by the absence of U.S. military telehandler sales under a contract that was completed in the fourth quarter of fiscal 2013. Sales of access equipment, excluding U.S. military telehandler sales in fiscal 2013, rose 13.2% in the third quarter.
Access equipment segment operating income increased 8.0%, to $166.8 million, or 16.0% of sales, for the third quarter of fiscal 2014 compared to $154.5 million, or 16.4% of sales, in the third quarter of fiscal 2013. Operating income of $166.8 million was also the highest quarterly operating income ever reported by the access equipment segment. The increase in operating income was primarily the result of higher sales volume and the favorable impact of cost reduction initiatives, offset in part by increased new product development spending and higher operating costs.
Defense – Defense segment sales for the third quarter of fiscal 2014 decreased 46.5% to $470.7 million. The decrease in sales was expected and was primarily due to lower sales to the U.S. Department of Defense (DoD). Sales in the third quarter of the prior year also included more international MRAP All-Terrain Vehicles as international orders and sales tend to be uneven.
Defense segment operating income decreased 77.7%, to $19.1 million, or 4.1% of sales, for the third quarter of fiscal 2014 compared to $85.8 million, or 9.8% of sales in the third quarter of fiscal 2013. Excluding OPEB adjustments, adjusted operating income was $20.1 million, or 4.2% of sales. The decrease in adjusted operating income was largely due to lower sales volume. In addition, the defense segment recorded favorable contract adjustments related to undefinitized contracts of $5.0 million in the third quarter of fiscal 2013.
Fire & Emergency – Fire & emergency segment sales for the third quarter of fiscal 2014 decreased 8.3% to $187.5 million. The decrease in sales primarily reflected lower sales volume as a result of lower international deliveries. Several high volume international orders moved to the fourth quarter of fiscal 2014 because of backups at ports and other logistical issues.
Fire & emergency segment operating income decreased 5.2%, to $6.2 million, or 3.3% of sales, for the third quarter of fiscal 2014 compared to $6.5 million, or 3.2% of sales, in the third quarter of fiscal 2013. The decrease in operating income was primarily the result of lower sales volume, offset in part by lower operating expenses.
Commercial – Commercial segment sales increased 27.0%, to $247.3 million, in the third quarter of fiscal 2014. The increase in sales was primarily attributable to a nearly 40% increase in concrete mixer unit volume. Refuse collection vehicle unit volume also rose due in part to delays in the prior year in the timing of orders from one of the segment’s largest customers. Severe weather in the second quarter of fiscal 2014 contributed to delays in chassis supplier deliveries, which impacted the company’s ability to ship completed units at the end of the second quarter. Some of the shipments were completed and recognized as revenue in the third quarter of fiscal 2014.
Commercial segment operating income increased 98.6%, to $19.9 million, or 8.0% of sales, for the third quarter of fiscal 2014 compared to $10.0 million, or 5.1% of sales, in the third quarter of fiscal 2013. The increase in operating income was primarily a result of higher sales volume. Production efficiencies also improved during the quarter. In addition, in the third quarter of fiscal 2013, the company recognized $2.7 million of restructuring-related costs.
Corporate – Corporate operating expenses increased $6.5 million, to $37.7 million, for the third quarter of fiscal 2014. The increase in corporate operating expenses in the third quarter of fiscal 2014 compared to the third quarter of fiscal 2013 was primarily due to higher information technology spending.
Interest Expense Net of Interest Income – Interest expense net of interest income increased $0.2 million, to $13.7 million, in the third quarter of fiscal 2014 as a result of the recognition of interest income on a note receivable from a customer in the third quarter of the prior year offset in part by the benefit of lower interest rates on bonds refinanced earlier in fiscal 2014. In the third quarter of fiscal 2013, the company recognized $2.7 million of interest income upon receipt from the customer.
Provision for Income Taxes – The company recorded income tax expense of $56.0 million in the third quarter of fiscal 2014, or 34.7% of pre-tax income, compared to $59.9 million, or 28.9% of pre-tax income, in the third quarter of fiscal 2013. Tax expense for the third quarter of fiscal 2013 was favorably impacted by provision to return adjustments upon finalizing the Company’s fiscal 2012 tax returns and a reduction in valuation allowances on state net operating loss carryforwards.
Nine-month Results
The Company reported net sales for the first nine months of fiscal 2014 of $5.14 billion and net income of $231.5 million, or $2.68 per share. This compares with net sales of $5.94 billion and net income of $280.6 million, or $3.12 per share, in the first nine months of the prior year. Adjusted net income for the first nine months of fiscal 2014 was $229.6 million, or $2.66 per share, compared to $291.0 million, or $3.23 per share, in the first nine months of fiscal 2013. The decrease in adjusted results in the first nine months of fiscal 2014 was largely attributable to lower sales and operating income in the Company’s defense segment and higher information technology and new product development spending, offset in part by higher sales and improved performance in the access equipment segment. Earnings per share in the first nine months of fiscal 2014 improved $0.10 compared to the prior year period as a result of lower average diluted shares outstanding.
Fiscal 2014 Expectations
The Company is narrowing its estimate range for full-year fiscal 2014 adjusted earnings per share to $3.40 to $3.55. The company expects consolidated sales for fiscal 2014 will be approximately $6.70 billion to $6.75 billion. The company’s estimated sales range reflects slightly lower expectations in the company’s non-defense segments. The company expects adjusted consolidated operating income to be between $490 million and $505 million. The adjusted consolidated operating income expectations reflect operating income margins of approximately 14.6% in the company’s access equipment segment, operating income margins in the defense segment at the high end of previous expectations and operating income margins in the Company’s fire & emergency and commercial segments at the low end of previous expectations.
Dividend Announcement
The company’s board of directors today declared a quarterly cash dividend of $0.15 per share of common stock. The dividend will be payable on August 28, 2014 to shareholders of record as of August 14, 2014.
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