Oshkosh Corporation (OSK) Q1 2008 Earnings Report, Transcript and Summary

Greetings ladies and gentlemen and welcome to the Oshkosh Truck Fiscal Year 2008 Earnings Release Conference Call. At this time, all participants are in a listen-only mode and a brief question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, to Mr. Pat Davidson, Vice President of Investor Relations for Oshkosh Truck. Thank you, Mr. Davidson. You may now begin.

Thank you. Good morning everybody, and thanks for joining us. Earlier today, we published our first quarter results for fiscal 2008. A copy of the release is available on our website at www.oshkoshtruckcorporation.com. Today's call is being webcast and is accompanied by a slide presentation, also available on our website. The audio replay and slide presentation will be available on the web for approximately 12 months. Please refer now to slide 2 of that slide presentation. Our remarks that follow, including answers to your questions, include statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include among others, matters that we have described in our Form 8-K filed with the SEC this morning and other filings we make with the SEC. Except, as described in the Form 8-K, we disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all. Occasionally today, we will refer to previous estimates. We made or updated such estimates during our fourth quarter earnings conference call for fiscal 2007 on November 1, 2007. Presenting today for Oshkosh Truck will be Bob Bohn, our Chairman and Chief Executive Officer; Charlie Szews, President and Chief Operating Officer; and Dave Sagehorn, Executive Vice President, Chief Financial Officer and Treasurer. Let's begin by turning to slide 3, and I will turn it over to Bob.

Thank you, Pat. Good morning and thank you all for joining us today, for what we expect will be our last quarter of reporting as Oshkosh Truck. We have a proposal outstanding to our shareholders to change our Company name, to more accurately reflect the scope of our business in our future. I'll touch on this in more detail in a moment. The almost daily dose of negative economic news, since our last quarterly call, has certainly hurt industrial stocks like ours. But our hands on operating team continues to execute efficiently even in the phase of this news. I will review the highlights while Charlie and Dave, go into more detail. For the first quarter we reported $1.5 billion and net sales of 49%, a 31.5% increase in operating income to $110 million and earnings per share of $0.50 down about 9% from last year's first quarter. This compares to our previous estimate range for earnings per share of $0.35 to $0.40, and prior year's earnings per share of $0.55. We had projected a tough first quarter. Last year's first quarter benefited from a pre-buy of vehicles in advance of the diesel engine emission standard changes in this quarter we faced the aftereffects of that pre-buy. We performed much better than our previous guidance primarily due to the strong performance of our North American Access Equipment team. Now, for 2008 fiscal year, we are maintaining our earnings per share estimate range of $4.15 to $4.35. We are being affected by the weak housing markets, lower municipal spending and high oil prices among other unfavorable economic news. And our new estimate reflect sharply lower sales in operating income estimates for our commercial and our Fire & Emergency segments, which were most impacted by that news. These estimates reflect recession like volumes in our current replacement business. However, we believe our management team has done an excellent job of mitigating these factors. We have invested in global initiatives to improve our distribution in key international growth markets and to reduce our supply chain costs, and we've rained in spending at businesses where market conditions are soft. We are also benefiting from higher Defense truck volumes, so uncomfortable with reaffirming our earnings per share estimate range for fiscal 2008, and pleased with how our team responded to both the present challenges and global opportunities in our market. This team is dedicated to performing for our shareholders in all market conditions. If the Federal Reserve and Federal Government are effected and progress in [ph] the U.S. economy into modest growth in 2008, then we expect to have the opportunity perhaps to do a little bit better. Please turn with me to slide 4. We continue to strengthen our management teams, so that we can perform efficiently in all market conditions and continue our outstanding growth record. How are we getting stronger? We have added a great deal of talent to our supply chain team. We hired a new Chief Procurement Officer with global low cost country sourcing experience and a record of building a world-class supply chain team. Additionally, we have added a number of talented leaders to our corporate logistics in Asian-based procurements teams. On top of this, we have been fortunate to bring into the company some key supply chain leaders for our business segments. We've been adding other talent as well, but our supply chain additions are particularly important to our success at this time. Overall, there are a lot of strong folks coming in who'll help take Oshkosh to the next level. As I mentioned a few moments ago, we have a proposal outstanding to our shareholders to change our corporate name from Oshkosh Truck Corporation to simply Oshkosh Corporation. We are very proud of our rich history of being a leading military and specially truck producer and we will continue to make the best military and especially work trucks in the world under the Oshkosh Truck brand. But particularly with our purchase last year of JLG industries, we expanded the scope of vehicles and equipment that we sell and we believe it is appropriate for our name to reflect that growth. I hope you have noticed in some of our communications and presentations that we already look at ourselves as a leading specialty vehicle producer. We will hear from our shareholders early next week, but we expect them to approve our name change as we continue the transformation of this great company. With that I will turn it over to Charlie Szews, our President and Chief Operating Officer who will review some of the highlights of our operating segments.

Thank you, Bob and please turn with me to slide 5. We've had a remarkable start to the fiscal year. Let me start with comments on our largest segment, Access Equipment which contributes so much to our first quarter performance. JLG continued the gross revenues in the first quarter and was basically up in all areas, except for North American telehandlers. For the quarter, our global Access Equipment business was up almost 20%, compared to the same period last year, including sales prior to our ownership. In our Access Equipment business, we annually conduct negotiations of the largest global rental companies with respect to their annual Access Equipment requirements. Such discussions with the largest European rental companies were largely complete, and associate annual orders went backlog at September 30, 2007. During our first fiscal quarter, we began discussions of the largest North American rental companies. Most of those discussions for calendar year end customers are now complete, although no agreements were signed or orders in house and those agreements by the end of the first fiscal quarter. Last year, we had progressed more quickly through this process and it realized large orders in backlog by the end of the first fiscal quarter. Overall negotiations have been favorable, using modestly higher pricing and volumes, that reflect in our estimates that Dave will share with you shortly. For the next 90 to 120 days we would expect these agreements to be finalized and reflect in our backlog. We continue to work hard to successfully complete the integration of JLG and achieve the synergy target that we set for ourselves and communicated to you when we announced the deal 16 months ago. We expect to achieve our second year target for procurement synergies which is helping us to boost our margins in this segment. One part of our integration plan was to construct a brand new 43,000 square foot European products distribution facility. This facility was up and running on January 2nd. I viewed it two weeks ago and was happy to see our immensely improved capability to serve our European customers. We now have more inventory in Europe to meet demand, and more efficient processes to fulfill that demand. The construction of this facility is a great example of our commitment to greater support of our customers which is something we are focusing on in all of our markets. Please move with me to slide 6, and let's take a look at our Defense business. We built on our strength from the back half of fiscal 2007, with an all-time record for the first quarter in sales and operating income. Adding to this, we continue to believe that fiscal 2008 will be strong and are encouraged by additional funding that was approved by Congress in the present and late calendar 2007. Significant additional requested funding for Oshkosh programs is currently with Congress and could be approved in the spring. While this funding won't affect us this fiscal year, it would provide support for a strong fiscal 2009 and a solid foundation for fiscal 2010. We are very pleased with two big announcements we made during the quarter regarding two important products in this segment. I will talk about the latest opportunity first. We are excited, very exciting and proud to be teamed with Northrop Grumman on the $40 billion, 10-year Joint Light Tactical Vehicle or JLTV program. We are both leaders in our areas of expertise and we are fully committed to supporting the team, so we can provide the winning solution. To refresh your memories, the JLTV is the next generation vehicle that the U.S. Department of Defense or DoD plans to acquire for use by the U.S. Army and U.S. Marine Corps to replace a significant portion of the requirements of the Humvee. As currently envisioned, the JLTV will be stronger, more survivable and more mobile than current tactical vehicles in this class as well as be more mobile and maneuverable than the Mine Resistant Ambush Protected or MRAP vehicles that are currently being deployed in Iraq. We and Northrop Grumman are committing significant resources to this program. When it comes to designing from scratch, a new tactical wheel vehicle to meet next generation specifications for the DoD. And then supporting that vehicle in theatre, we have been the DoD's premier supplier over the last 30 years. Now together with Northrop Grumman's Superior Communications and systems integration expertise, we believe we can deliver the best price to the DoD for their JLTV requirement. And our proven ability to insert new technologies into this program which will have a 40-year life span makes us a valued partner for the long-term. On October 1, 2007 we and our team partner Ceradyne and I-3, submitted two Bull vehicles pictured at the bottom of this slide for testing by the government. The Bulls and MRAP II vehicle that offers protection from explosively formed projectiles or EFPs, which present a more intense threat than an improvised explosive device or IED. The Bull is also highly mobile and it can take our soldiers in marines wherever they want to go. After successful initial test results, our MRAP team received an order for six additional Bulls for further testing. We are busy building these vehicles which we expect to deliver to our customer in March 2008. We don't assume any revenue for additional orders for Bull vehicles in our estimates today. So if we do receive follow-on production orders for Bulls, they will be incremental to our outlook. Please turn to slide 7. We have seen further signs of softer municipal spending in portions for our Fire & Emergency business. Furthermore, Pierce is experiencing the after effects from the 2007 engine emission standards changes pre-buy. Even with this tougher backdrop we recorded solid top line gains this quarter in both are Pierce fire truck and airport products businesses. Last quarter we talked briefly about our new Pierce Ultimate Configuration or PUC product. The reception we have received from Fire Department that have had the opportunity to use PUC units has been fantastic. We expect the benefit from the current users experience with these vehicles as words spreads of the benefits of this revolutionary new product. The towing and recovery market is being negatively impacted by high oil prices in general economic conditions. As a result, we have not seen a typical pick-up in orders heading into the busy winter towing season, which negatively impacted this business unit this quarter. Our airport's products business was led once again by strong aircraft rescue and firefighting are up, vehicle shipments and vigorous order activity in international market that support global airport expansion. Mobile medical business of Oshkosh Specialty Vehicles or OSV has been negatively effected by the Deficit Reduction Act, which reduced the support to medical diagnostic providers we see for certain procedures performed outside of hospitals. Furthermore, the rioters [ph] strike is beginning to effect the broadcast vehicle market which will likely continue at least until the dispute is settled. Overall, we are facing some tough market conditions. The global opportunities in new product introductions should still permit this segment to deliver modest single-digit growth in fiscal 2008. Please turn to slide 8. As we've been talking about for several quarter's now, several key factors are affecting our Commercial segment. The weaker residential construction market and the after-effects of large pre-buy that resulted from a 2007 diesel engine emission standards changes are both sharply curtailing demand through recession like levels that are concrete placement business. We believe this weakness will continue through the remainder of fiscal 2008. To address these issues, we have worked with our team at McNeilus to reduce its cost structure to better support the lower level of activity in the factory. We also continue to drive lean activities across the enterprise. We believe we have solved our issues of the Light Way Revolution mixer drum, as field data is coming back positive. We have virtually eliminated concrete and diesel [ph] issues and upgrade the quality and reliability of the product. Although we are in a tough market, we are seeing more customers express interest in the productivity enhancing mixer drum. Our domestic refuse collection vehicle business faired lower year-over-year revenues in the fourth quarter. But our outlook remains solid for this business for the fiscal year. In spite of lower industry volume, we expect to deliver approximately flat unit sales in this business this fiscal year. Lower refuse package sales involving both the chassis and the refuse collection body could cause core domestic revenue sales to decline slightly. Now finally, the restructuring of the... at the Geesink Norba Group, our European refuse collection vehicle business is in full swing and on schedule, thanks to a large dedicated team that is committed to successfully consolidating their facilities. Construction is nearly complete in Romania to begin the first phase of production of JLG fabrication this spring. We expect to be out of a lease facility in Blomstermala , Sweden by mid-spring in 2008. At the time of our last call, we are still negotiating with the associate Works Council to close the facility. That negotiation is now complete. We also have sold the Maarheeze, Netherlands facility. Negotiations will be affected employees in their Works Council are on going. We expect to record most of the restructuring impact for the affected employees in the second and third quarter when facilities closed. As fiscal 2008 will be a busy year for this business, as we execute on an aggressive facilities consolidation plan. We are taking the right actions to eliminate unnecessary overhead to get this business back to profitability and we are encouraged by the order flow we are experiencing and the improvements in both delivery times and product quality at this business. I will now turn it back over to Dave who will run through the numbers with you.

Thanks Charlie and good morning everyone. Please turn to slide 9. Consolidated net sales of $1.5 billion for the first quarter of fiscal 2008 were up 49% compared to the first quarter of last year, led by a full quarter of JLG being part of the company and strong Defense segment results. On a year-over-year basis, our overall sales would have been up approximately 7% if we had owned JLG for the fourth quarter during last year's fiscal first quarter. Operating income increased 31.5% to $109.9 million in large part due to including JLG's results for the fourth quarter in the current fiscal year. Operating income margin declined 100 basis points to 7.3%, compared to prior year due mainly to an anticipated operating loss in our Commercial segment and slightly lower profitability in our Fire & Emergency segment. Earnings per share decreased to 9.1% to $0.50 as a result of the previously mentioned items. Corporate operating expenses and inter-segment profit elimination grew by $8.4 million to $27.1 million in the first quarter of fiscal 2008, compared to last year. Largely due to higher personnel related costs, cost to support our growth objectives and incremental costs related to having JLG for our entire first fiscal quarter of 2008. Interest expense rose sharply over last year in the first quarter due to a full quarter of JLG ownership by Oshkosh and the resulting debt incurred for the acquisition. And finally, our tax rate for the quarter was 34% as we previously estimated. We continue to focus on paying down debt with our free cash flow. We typically see debt levels rise in the first quarter, but we aggressively managed our spending and working capital build this quarter and as a result debt remained at $3.1 billion at the end of the quarter. Now let's take a look at each of the segments in detail, please turn to slide 10. Access Equipment recorded sales of $610.5 million in the first quarter, compared to JLG standalone results for the same period last year, sales were down slightly in North America due to continued telehandler weakness, but we are up in Europe and elsewhere worldwide, even after excluding the sales volume contributed by the manufacture of telehandlers for Caterpillar. Overall, sales for the segment were 18.9% higher in the quarter than sales for JLG in the same period last year, including sales prior to our ownership. This led to operating income of $61.1 million and an operating income margin of 10% in the seasonally slow quarter. Operating income in the first quarter benefited from higher sales, favorable product mix and favorable foreign exchange rates. The backlog for Access Equipment was $922.9 million at December 31, 2007, which was down 21.9%, compared to the prior year first quarter end, but up 8.1%, compared to September 30, 2007. The decrease in backlog compared to the first quarter of fiscal 2007 is largely a result of the timing of our receipt of orders this fiscal year from large North America rental customers, as Charlie previously noted. Please turn to slide 11. Our Defense business has continued to build momentum with sales of $398.3 million, up 27.8%, compared to last year's first quarter. Operating income grew from $54.6 million to $63.9 million with strength coming from significantly higher new and remanufactured truck volumes. Parts and service sales were lower in the quarter, but this was expected. We do expect that parts and service will be up significantly in fiscal 2008 as we expect our armor kit business to pick up later in the fiscal year. Operating income margin for the quarter in this segment was still strong at 16%, but we expect this to decrease as the year progresses, because a larger percentage of our new truck sales will be under lower margin contracts. The backlog in this segment was up 68.5%, compared to the last year's first quarter end at $1.45 billion. Funding for Oshkosh programs included in the recent budget bill was not yet under contract as of the end of the quarter, so it is not reflected in backlog. Please turn to slide 12. Turning to Fire & Emergency, sales increased by 2.5%, compared to the prior year quarter in a more challenging environment. While our Pierce and airport products businesses had solid quarters, we experienced softer sales at JerrDan, OSV, and BAI. Operating income in this segment declined 9.3% to $22.2 million, compared to the prior year quarter for the reasons just mentioned. Compared to December 31, 2006, the Fire & Emergency backlog was down 17.2% to $573.2 million on December 31, 2007 due to continued weaker municipal spending in the fire apparatus market. The after effects of the diesel engine pre-buy and weaker orders at our JerrDan and OSV businesses. Please turn to slide 13. As we previously estimated, the Commercial segment was down in this quarter. Commercial sales declined 27.8% to $230.4 million, compared to last year's first quarter, due to a weak residential construction and the after-effects of the diesel engine pre-buy. This along with the ongoing rationalization activities in our European refuse collection vehicle business caused operating results to decline to an operating loss of $10.2 million in the seasonally slowest quarter for this business. In particular, we experienced significant sales and earning declines in our U.S. concrete placement business and modestly lower sales in our U.S. refuse collection vehicle business. Our domestic refuse collection vehicle business has been less affected by the diesel engine emission standards changes in our concrete placement business. Overall, we've taken the necessary steps to reduce staffing and expenses to match the lower volume. The Geesink Norba Group incurred an operating loss of $5.4 million in the quarter including facility rationalization charges of $1.3 million. Backlog for the segment was down 33% at December 31, 2007, compared to December 31, 2006 with the biggest declines concentrated in our concrete placement business as a result of large pre-buy related backlog last year. Please turn to slide 14 for a review of our guidance for the full fiscal year 2008. All comparisons are to our fiscal 2007 actual results and assume no new acquisitions. It's too early to tell what, if any, impact the recent actions by the Federal Reserve and Washington to stimulate the economy will have in our markets or our customers buying plans in 2008. As such, we have not factored in any impact in our estimates for these actions. We are maintaining our full year revenue forecast of between $7.1 billion and $7.3 billion. For Access Equipment, we are adjusting our revenue expectation up slightly to a growth rate of about 25% above our previous estimate of 20%. This is based on our strong first quarter results and expectation of stronger than previously estimated sales in international markets and a slightly improved expectation of North American sales, compared to our previous estimates. We are also slightly raising our estimate for Defense sales. We now expect the segment to grow by about 25% driven by both our vehicle, and parts and service businesses. Our estimates for Defense segment are independent of any potential MRAP vehicle business that we maybe awarded. We are adjusting the estimated growth rate for Fire & Emergency to an increase of 5% down from the prior range of 5% to 10% increase, reflecting the weakness we are experiencing in several other businesses in this segment. And finally, we expect that commercial sales will be down approximately 15% to 20% for the year as we expect the depth in duration of the residential construction weakness to work against us. We believe that the pre-buy ahead of 2010 diesel engine emission standards changes will benefit us, but due to economic conditions most likely not until fiscal 2009. Turning to slide 15, let's review our operating income assumptions. We are updating our expectations for full year operating income to a range of approximately $675 million to $700 million. This implies a consolidated operating income margin of 9.2% to 9.9%. We believe Access Equipment margins will improve by 150 to 200 basis points, due generally to higher volumes, favorable product mix, the benefits from foreign currency exchange rate changes, cost reductions and one time purchase accounting charges in the prior fiscal year that will not repeat in fiscal 2008. We are slightly lowering our Defense margin expectations to be down in a range of 250 to 300 basis points, reflecting the impact of lower contractual margins in certain of our programs as previously discussed, and anticipated incremental spending on the JLTV program. We are modestly reducing our estimate for Fire & Emergency margins and now expect them to remain flat in fiscal 2008, due to the weakness in several of our businesses in this segment. Given the lower order intake in our Commercial segment domestic businesses during the quarter, we are lowering our estimated earnings in the Commercial segment for the year. We now expect Commercial segment margins to decline between 150 and 200 basis points, compared to our previous estimate of a slight decline in margins. Coupled with our lower sales estimate, this is a significant change implying recession like performance for the segment. We still expect corporate and inter-segment elimination expenses will increase by about $30 million in fiscal 2008. As we said on the last call, the larger than historical increase reflects additional estimated expense associated with stock-based compensation awards, the cost for several large information technology projects, and the investment in additional staff. Turning to slide 16, let's take care of a few more P&L items. We estimate our interest expense will be in the range of $215 million to $220 million reflecting a full year of higher leverage following the JLG acquisition. We are lowering our full year tax rate estimate slightly to 33.5%, reflecting the favorable impact of tax planning strategies. Expectations for equity and earnings remain unchanged from our previous estimates at a range of $3.5 million to $4 million of income. And finally, we are lowering our estimate of average shares outstanding to approximately 75.2 million shares for our earnings per share calculation. Finishing up with slide 17, before I turn it back over to Bob, we are maintaining our fiscal 2008 earnings per share estimate of $4.15 to $4.35. This is an increase of 16% to 22% over our fiscal 2007 performance. While we have areas of strength in a number of our businesses, we are today more cautious than on November 1st regarding continued weakness in the U.S. economy and that's a potential effects on our businesses. This outlook is evident in our Fire & Emergency and Commercial segment guidance. We are estimating a range of $0.85 to $0.90 earnings per share for the second fiscal quarter of 2008. This represents an increase of 25% to 32% from the second quarter of fiscal 2007 driven by continued strong performance at our Access Equipment and Defense segments. We are maintaining our capital expenditures estimate for the year at $110 million and our debt target of between $2.65 and $2.75 billion by the end of fiscal 2008. I'll turn it back over to Bob for a final wrap up before the Q&A. Please turn to slide 18.

Thanks Dave and Charlie I also appreciate your comments. I will tell you what we got a phenomenal team here in this company. We are now in our second year of JLG ownership and the integration is proceeding exceedingly well. I think you will agree with me that the results have been stellar. But we are not through yet and we have more hard work to do in continuing to bring JLG into the Oshkosh family. We are still confident in our ability to grow Oshkosh in a variety of economic conditions. That is clearly the story today and going forward as we see solid growth in our two biggest segments, Access Equipment and Defense. We expect to feel the effects of the weaker markets in our Fire & Emergency segment and in our Commercial segment. We are proud, very proud to be announcing strong results and a positive yet responsible outlook today as we maintain our full year earnings per share estimates that result in 16% to 22% growth rate over 2007, despite the tough markets we see today. Our Defense business reported some impressive results today and we have good visibility into the government's needs for our tactical wheeled vehicles. We also made recent announcements on our JLTV and MRAP II opportunities. I know you will be monitoring the progress of these exciting programs going forward. The commercial part of our business is in a down cycle associated with the downturn of residential construction and the after-effects of the 2007 engine emissions pre-buy, but I believe that this segment will come back in fiscal 2009, as we work to turn around the Geesink Norba Group and prepare for the increase in demand ahead of the 2010 engine emission standards changes. We have strong franchises in our Fire & Emergency segment and we'll manage through a period of weaker spending. We have a strong outlook for our products which is being driven by robust international orders, as airports continue to be constructed in growing areas of the world. We know that many of you listening today are frustrated by a recent share price decline, we are too. We do not think that the current price accurately reflects the strength of this management team, our ability to mitigate weaker economic conditions of the long-term prospects for the Oshkosh family accompanies. The challenge for us is to continue to lead in our selected markets and to grow this company to new heights through continued hard work, determination and execution. That is our commitment to you. With that, I will turn it over to Pat and the operator for questions. One note, I hope to see all of you on at the CON/AGG show in March. We will have all the McNeilus products there, the different products from the commercial group and of course our largest segment JLG, thank you. Go ahead Pat.

Thanks Bob. Let's continue to limit the number of questions per person to one plus a follow up this works well and you know it gives the best opportunity for each participant to get involved. After the follow-up we ask you that you get back in queue and ask further questions, if you like. So operator I'll turn it back over to you and we will start the Q&A. Question And Answer

Thank you. [Operator Instructions]. Our first question is coming from Charlie Brady of BMO Capital Markets.

Thanks. Good morning guys.

Good morning.

With regard to the Commercial segment, can you quantify how much the concrete mixer business was down in the quarter and what the backlog... how much the backlog is down and what's embedded in your estimates for fiscal '08. What kind of declines?

A rough order of magnitude, it's down 40%, 50% in terms of volumes, order... sales volumes orders backlog, as we said in the call, it's somewhat recession like volumes that we are projecting for the year. We have saw our major customers that aren't even going to buy any units this year so, that's why we are pretty pleased that overall, we are able to reaffirm our estimates for the company and pretty good growth this year, in spite of weakness in the segment like that.

Yes and a follow-up, how many Rev drums were in the field today?

I want to say 1,500 to 2,000 neighborhood.

Right we've got the red discharge out there Charlie we also have the front discharge we'd launched last year. This product today is bullet proof and working really well.

Thanks. I will get back in the queue.

Thank you. Our next question is coming from Alex Blanton with Ingalls & Snyder. Alex Blanton - Ingalls & Snyder LLC: Hi good morning. I have some questions about JLG quickly. First, what were the acquisition-related charges year-over-year, so we can adjust numbers for that and what is your latest thinking on the accretion which you've been updating us on each quarter and thirdly, the margin was 10% and that would seasonally weak quarter, they don't usually do that well, could you comment on that too?

Yes Alex, starting with the purchase accounting, last year, in the first quarter... well JLG and we're only on for part of the quarter, so it's going to be a little tough comparison. Alex Blanton - Ingalls & Snyder LLC: So we can have to pro rata for the rest of the quarter, but it was, I think purchase December 6.

Right it was around $7 million last year in the first quarter JLG, and total this quarter is around $16 million.

It is difficult to just pro rate Alex, because we had the inventory revaluation that's part of it. So that's not a straight line kind of amortization. Alex Blanton - Ingalls & Snyder LLC: Okay, but we can still get an idea of the... this year; it's still being depressed by that. Right?

Yes, and we will continue to have that going forward with the step up on fixed assets, as well as the intangible assets that we capitalized. Alex Blanton - Ingalls & Snyder LLC: Okay and the accretion and comment on the strength of the margin, which is very unusual for this early in the year?

We did in this year, Alex, benefit by increased sales year-over-year. And when you look at JLG on a standalone basis, sales were up quite a bit as we discussed. Alex Blanton - Ingalls & Snyder LLC: Right.

So that helped also currency helped in the quarter. The dollar weakened quite a bit year-over-year. And we benefited by that as well.

And we are benefiting from an improved product mix. Lower telehandler mix and higher aerial work platform mix. Alex Blanton - Ingalls & Snyder LLC: Right and the accretion you expect would be?

Alex we've tried to... we have had that owned JLG for a year and have tried to get away from just talking specifically on accretion. It's directionally I would say it was accretive this quarter for us. Alex Blanton - Ingalls & Snyder LLC: And finally the boom demand is very high, I understand from JLG's major competitor. Would you agree with that the... especially the large booms which are the most profitable?

Yes, the very large booms 120 feet and up demand is very strong. It's, we're in sold out kind of condition. Alex Blanton - Ingalls & Snyder LLC: Okay. Thank you.

Thank you. Our next question is coming from Terry Darling of Goldman Sachs.

Thanks. First question follow-up on the aerial margins as it relates to guidance. I think obviously, the first quarter was stronger than what your guidance implied that you are not changing the aerial margins on a full year basis. Wondering if you can help us with that?

Terry it's early in the year. We did come through the seasonally weakest quarter of the year, and as we move through the year, we'll obviously re-adjust as we move along.

Okay, so just playing that conservative. And then second question on the aerial revenue outlook. Can you talk about, calibrate where your expectations are for North America. At this point, we had... we see United Rentals come out; say they'd be flat up in Terex at their Analyst Meeting in Paris this morning, said they are expecting North America to be flat this year. Have you also changed any expectations there?

Yes our estimate Terry is still assumed that we are going to be facing double-digit declines in North America. We certainly hear all the potentially positive news and I hope that over the course of the year, we can recognize them, some of our estimates but, long-term statistics which show you that there is going to be some weakness in non-residential following and what we don't know is are we in a situation where we are all flow through recognize that or if we are wrong. Well if we are wrong, hey you are going to be really happy as an investor as the year progresses. And if we are right, we are giving a very fair and prudent guidance at the present time.

Or else I guess the disconnect is just timing and it's an '09 issue versus an '08 issue. I guess the last question I had is on the Defense business that the lower margin guidance there is that a... should we think of that as something to extrapolate going forward or should we think of that as you've got some incremental spending on the JLTV this year and that would go away next year?

It's early to predict that Terry, because we're assuming hoping that we are going to win the TD phase of the JLTV competition and then spending could go up from there so, if we could face continuing pressure in margins in that segment, it depends on really where we're, what mix of products we have. We see our margins fluctuating significantly for quarter-to-quarter based upon mix of service contracts. We retain a lower margins or if we've got some, a larger component part and sales or we might have bigger margins as target, it's we'll be fluctuating a little bit, but we do believe we can be in the mid-teens range.

Good job guys, thanks.

Thank you. Our next question is coming from Bob Fletch, Abbott & Company [ph]

Hi good morning gentlemen. In regards to the news item, America and the [ph] France apparently have filed for bankruptcy; can you give us some sense as what's been going on with their market share in the last few years and anything... what that implications might be prospectively?

Bob this just developed last week. I think it's probably prudent and more professional for us not to comment on it at this time and that's what we are going to do, stay away from that at this time.

Okay, can you comment on in that regard though, what their share performance has been in the last two years, or is there a backlog?

I don't know right now. This was a company that was owned and then sold and we've seen them in various areas of the market in that, but that's really all I have to say Bob.

And Bob they are relatively small player in the market.

Had they been loosing dealers?

We don't want to touch...

Okay on JLT, can you elaborate a bit on how broad-based your presence today is in Europe and what initiatives you have to expand that, which would give us some sense as to penetration opportunities that are available to you and potential for meaningful sales overtime there?

Our businesses quite broad-based now in Europe. Its well over a $1 billion in sales in Europe, it's basically where we are. We're in virtually, every country operating. We're growing, particularly in the emerging market, as you might expect. We have facilities across the region, building distribution where we can. We just put up a new parts facility, as we announced here again in the quarter and that's up and running. So basically, if you look at our guidance today, not only Europe, but Asia and Middle East, Australia, these are the areas that are really fueling our ability to whether some of the weakness in North America right now.

Thank you. Our next question is coming from Walt Liptak of Barrington Capital Management.

Hi, thank you. Good morning everyone.

Good morning.

Charlie, my question is about the AWP business and you did a good job explaining why the backlog was down. You commented about the rental companies not signing agreements in North America and I believe in Europe, I wonder if you could talk just a little bit more about that. Its order entry related to... their concern about the economy, is it age of the fleets, is it pricing issue and you have to sharpen your pencil I'd just like to get a little bit more color.

Well first of all if you go to last year, I mean we had a couple of large customers, that did negotiated early why, because the industry is in a sober [ph] condition, so people put their orders in early. This year we had a number of different fix. We had one large customer obviously, that was potentially being taken over then that didn't happen, obviously that delays negotiations our annual agreements. We had... other customers where negotiations just slipped into January and it's not necessarily indicative of any particular difficulty or anything. One of our major customers doesn't have a year-end till April 30th and so our negotiations never really start until March or April. So overall, what we said is that we expect to experience some modestly higher pricing, overall volumes look good at this time. I don't want to be too specific on that, because I'd like to see the orders actually hit our books and more and more customers are moving toward, instead of putting one very large order in... early in the year to putting multiple orders in over the course of the year, so some of these, we are going to see over time.

Okay. Are you going to give us any visibility as these contracts are signed, press releases or commentary, or do we have to wait until the next earnings release?

We will have to wait for the next earnings release.

Okay. All right, thanks guys.

Thank you. Our next question is coming from Jamie Cook of Credit Suisse Group.

Hi good morning.

Hi Jamie.

Charlie, I guess my question is... I mean based on what Terex has said and United Rental said that the North American market doesn't appear to be bad as your stock price reflects, but I guess what is the likelihood or how easy is it for these guys to cancel orders on where must they decide, they just don't like what they are seeing on the macro front and sort of... what sort of stop gates do you have just sort of or how does that impact them, I guess?

To cancel larger orders is obviously things can happen like that but it's going to be much more of a negotiation with us I think. We are all and this is partners long-term and if, I don't think its customers best interest, they have us ramp up production at pretty high volumes to deliver product and then they have them cancel large orders, I just don't see that happening. I think that what is more likely is that they put their orders in, in smaller pieces over time. We hear what you are saying about the United Rental, the RC, the Hertz is, everyone is seeing overall what the market is in pretty decent condition. I guess you are saying this, the Terex might have said the same thing and we are basically experiencing pretty similar conditions. It feels okay, it doesn't feel that it's going to be as bad, but if you go back to the 2001 recession, we are all saying things were great and probably until September of the year and yet the real recession started in March. So, I think we need to be prepared for weakness that sort of estimates provide for and if the market is a little bit stronger, then we will be happy with that result.

And then I guess, just my follow up question on MRAP, what I guess no one's expecting much at MRAP II, and I am sorry if I missed it. Can you guys just comment anything on the testing of the vehicles or what do you think the likelihood of an order for MRAP II vehicles in a magnitude of this size in fiscal year, in calendar year 2008?

Where we are in the program Jamie as we've got the prototypes, as from another competitor that we are building and we have to have delivered in March. We do know that they originally wanted I think 15,000 MRAP vehicles. This is the MRAP II program, and I think what's left out there is somewhere between a 1000 to 3000 vehicles. At least that's what the customer may be looking for. So we will go into test with the competitor in March and April, and if we do well in tests, perhaps there's an opportunity for us. As Charlie and Dave mentioned, we don't have anything reflected in the numbers. But we do have a very, very good vehicle that needs the protection levels we need today over in the theatre. It's a beast of an animal, that's why we call it the Bull. And with Ceradyne, nobody's better in amour than Ceradyne and some of the other companies we've worked with and but the technology from I-3, we are going to give it a shot, we'll see what happens.

Thank you. Our next question is coming from Al Kaschalk of Wedbush Morgan.

Good morning. Just a follow-up on the Bull. Bob is your understanding that's going to be a winner, take all or do you expect if there are words that would be some type of allocation or split...?

I think that's really, I'll try to answer your question. I think it really depends upon how we do against the competition in test and of course where are prices. And then does it really need threat level that they are looking for which is the high threat level, compared to the MRAP I program, that's why it's called MRAP II. So hopefully we test and we do better. We do have capacity and capability to build these vehicles. A lot of the folks we're building them today on the first program are really pretty busy. So if we do well in test, I think we have an opportunity.

And that does an award to term as whether early as June of 2008?

It will be some time, I think this summer.

Great. And a follow up to the Access Equipment business. I guess you are not going to share additional products whether, either up or down in terms of growth other than just whether it is up or down what about geographic mix, could you talk about Europe and Asia and incorporate in those comment the cap business. This certainly sounds like that's the driver here, versus North America?

In terms of performance for the year or for the quarter?

Well I'd like think more on outlook here in terms of the guidance, because what you essentially did is you took up top line and I don't know if that's function of better than expected North America, or is it just a continued strength you're seeing in Europe and Asia?

its continued international strength, as well as what I will call a slightly less pessimistic view of North America.

So the comments at the beginning for FY'08 about seeing a slowdown mid year, is that... are you still even there on the table given the strength in Q1 or how should we think about that?

Yes we are. Yes, we're clearly still on our estimates sure downturn in our North American business progressively, as the year proceeds. We are cautiously optimistic obviously, when you're looking to what our customers are saying and maybe some competitors, but we'll... this is the big quarter. This is a big quarter, when lot of people place big orders and as rubber hits the road and we will know a lot more next quarter.

Okay. Thank you.

Thank you. Our next question is coming from Robert McCarthy of Robert W. Baird.

Good morning everybody.

Good morning Robert.

Good morning.

Can you tell us what size of charges you expect to book for the restructuring in Europe, in each of the second and third quarters, whether those estimates have changed from a quarter ago, or what was included in your outlook a quarter ago, and what kind of top line growth the Group put up in the first quarter?

Bob, in terms in what we took in the first quarter is actually a little bit lower than we anticipated.

Right.

Due to some timing of the negotiations ongoing in Europe overall for the year. I don't think our number has changed, meaningfully in terms of total charges and that number in the fourth quarter of '07 we took $4.8 million and it will be higher than that throughout the total of fiscal '08.

Okay and the top line?

Top line at Geesink or...?

Yes.

Top line at Geesink was up in the quarter and we expect it will be up for the full year.

Right. And can you then separate from that and again returning to Access Equipment, you all identified, appropriately I think everybody recognizes a positive impact from currency translation on revenue and operating income, can you give us an idea how large those effects were in the quarter?

In the quarter I think on the top line, somewhere around 5% Rob and on the bottom line somewhere between say 175 to 200 basis points impact.

Okay great. Thank you.

Thank you. Our next question is coming from Seth Weber of Banc of America Securities.

Hi good morning everybody. Just following up on some of the JLG questions, just doing some back of the envelope math here, I mean is it fair to get, to say that it looks like your international growth assumptions for JLG are kind of 30% to 40%, is that a fair number?

They are significant.

Okay.

It may be even a little stronger than that.

Okay right. Changing gears on the commercial business, I mean what do you think is a reasonable number of profit margin to think about for that business as kind of once the debt settles '09, 2010 what are you shooting for and how much longer do you kind of let... do you see play out and when do you make a decision may be just to kind of cut your losses?

Well, we think that when there is a recovery again, we can get back to the 8% to 10% operating income margin level, Everything we are doing is to get us back to that point. The restructuring in Europe is going very well at present time, we are on schedule. Quite a bit of this will be done in the second quarter. We're already in fact building some units ahead, and as this consolidation continues, our order levels have been very good. We should experience double-digit sales growth in our European refuse business this year. So we are looking to be in place to be profitable in 2009 and increase the profitability thereafter in that business. Our domestic concrete placement business and refuse business certainly have the capability to be in that 8% to 10% operating income margin in a normalized kind of environment and that's really what we expect to be able to deliver in as soon as this economy improves.

Yes and when we brought McNeilus, back in February of 1998, we knew this was a business that could run in a down cycle from 30% to 60%, it was even worse back in 1991. This is a great franchise, wonderful technology, the odds are if you are getting a curb or sidewalk or building it to McNeilus, through an Oshkosh truck. The refuse business has been improving, the products are getting better, the warranty has been going down and we are on track with what Charlie and his team is doing in Europe. So this is a business we love and we plan on keeping.

Okay and if I could just ask a quick follow-up on the first part of my question. The international JLG growth, would you characterize that as just the market growing or do you see yourselves taking share over there?

There are no market statistics globally, so it's very difficult to figure that one out. I think all of our competitors are scrambling to get into new markets and expand penetration in various markets. I think overall, we're benefiting from infrastructure build globally and the growing acceptance of this product.

Okay, thanks very much.

Thank you. Our next question is coming from Steve Barger of KeyBanc Capital Markets.

Good morning.

Good morning Steve.

Good morning.

You mentioned earlier, Bob, that your press release was where the share price is and Dave I think you said, if I heard it right, you're more pessimistic on the U.S. economy, than you were at November 1st and since then we've had another 150 basis point reduction from the Fed for a total of 225 basis points. You add to that the fact that you pretty consistently beat your own guidance. Have you talked internally about how you can get closer on the guidance to what your actual results are and maybe talk about what some of your modeling assumptions are to try and explain that disconnect.

Steve, it doesn't take a lot to move the needles here. Some of our businesses, we sell for example in the Defense in large quantity blocks of vehicles at a given time. You have customers in access that maybe high [ph], very large quantities of vehicles. So it doesn't take a lot to move the needle. We obviously try to develop our forecast and modeling and work closely with our business unit sales team as well as management to develop accurate forecast, but I guess that's the best I can say there. I mean we try and believe we're putting out responsible estimates.

Yes, we've got our shoulder to the wheel. We are pushing hard Steve. And even though we've got some headwinds and recessionary objectives that we have in concrete place with North America because of housing down at the slow level, lowest level of 16 to 18 years. Hey, we still are going to grow this thing 15% to 20% this year in earning per share, because of our... because we diversified and we got some great actions in place on a global basis. So I feel pretty good about this company and where we are going and sooner or later it will be recognized.

Yes. I agree you guys are such good manufacturers on that front and yes I think the share price could perform better if you... we had more clarity in to what you are seeing relative to what the Street sees. But I will move on to the second question. Municipal spending is the decrease in revenue and operating margin guidance for Fire & Emergency is that predicated more on the... continued decrease or weakness in the specialty vehicle while Pierce and RF continue to outperform? Or do you think that you will see more weakness in Pierce going forward?

Well I think you are seeing a few things. One is that we are seeing the record in towing equipment business. It's a little bit soft with the weaker economic conditions or higher oil prices, some of our specialty vehicle products that you just mentioned demand isn't quite there. Our aircraft rescue and fire fighting business is very; very strong, global demand is huge. There are more airport things built out and I think probably at least any time I can remember the last 10 or 20 years. So we are certainly benefiting there. Pierce is in a situation where we have weak market, but we have some really strong products and that's going to help us with our volume in 2008. We are introducing some new products, so I think what we saw in our first quarter is that the first 5 to 20 new philosophy [ph] and tell whatever kind of products are building, the margins aren't quite as strong. But we quickly get to curve them. So I think as the year progresses you are going to see that business the margins will benefit, from those conditions. And then, where the economy takes us with the other products, is a bit of a wild card. And I heard your comments on being able to project estimates. But, we really... as Dave said it doesn't take much to move our needle and we have some customers for example they've decided to delay picking up a truck from December 20th to January 3rd, practically speaking of the business it doesn't mean a thing. But if those 20 trucks would happen to be in some of our higher margin products, that can move a nickel, very easily. And it is just 20 trucks as a percentage of these vehicles we are going produce in a quarter it's been testing [ph].

Alright Charlie, I appreciate that follow-up commentary thanks.

Thank you. Our last question is coming from Charlie Brady of BMO Capital Market.

Thanks guys. On the Access Equipment just can you clarify for me on your revenue guidance being up 25% is that pro forma? Or is that based on the actual revenue dollars you earned?

Charlie it's based on actual Oshkosh ownership in fiscal 2007.

Okay. What is the mix currently between telehandler and aerials in JLG?

Yes. It varies a lot by quarter, and this time of year... this time of the cycle. But, it can be anywhere from 30% to 40%.

Telehandler?

Yes, right.

Yes.

Thanks. That's all I had.

Thank you. I would like to hand the floor back over to management for any closing comments.

Okay. Well Jacky thank you for moderating today. We appreciate your continued interest in the company. We look forward to seeing you with a pleasant weather here in Wisconsin at our annual shareholders' meeting next Tuesday, or out in Las Vegas at the CON/AGG show, we got some great products and we'd like to show you what we are up to. Thanks a lot have a great day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.