Oshkosh Corporation (OSK) Q1 2017 Earnings Report, Transcript and Summary

Greetings, and welcome to the Oshkosh Corporation First Quarter Fiscal 2017 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A 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, Pat Davidson, Vice President of Investor Relations for Oshkosh. Please go ahead, sir.

Good morning, and thanks for joining us. Earlier today, we published our first quarter 2017 results. A copy of the release is available on our website at oshkoshcorporation.com. Today's call is being webcast and is accompanied by a slide presentation, which includes a reconciliation of non-GAAP to GAAP financial measures that we will use during this call, and it's also available on our website. The audio replay and slide presentation will be available on our website for approximately 12 months. Please, refer now to Slide 2 of that 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 from those expressed or implied by such forward-looking statements. These 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. 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. All references on this call to a quarter or a year are to our fiscal quarter or fiscal year, unless stated otherwise. Our presenters today include, Wilson Jones, President and Chief Executive Officer; and Dave Sagehorn, Executive Vice President and Chief Financial Officer. Please, turn to Slide 3. And I'll turn it over to you, Wilson.

Thank you, Pat. Good morning, everyone. Before we talk about the quarter, I want to tell you how proud we are to be celebrating our 100th anniversary in 2017. The Company was started by two innovated and driven individuals that developed and patented a unique system for all-wheel drive on trucks. Thanks to their perseverance and drive and the hard work of all our team members over the past century. Oshkosh Corporation today is a Fortune 500 different integrated global industrial. We plan to celebrate our rich history throughout 2017 and buildup that excitement as we position ourselves for success going forward. Today, we announced first quarter earnings per share of $0.26. These results exceeded our 2016 first quarter results as well as our expectations for the quarter. In particular, we saw stronger than expected performance from our Access Equipment and Defense segments. Today’s part of the simplification activities in support of the Company's MOVE strategy, we also announced changes to our Access Equipment segment manufacturing footprint in both the United States and Europe, and we are streamlining our European telehandler offerings. I’ll talk about those actions in a few minutes. While there have been some minor updates to our assumptions for the year, I'm pleased to announce that we are maintaining our earnings per share estimate range at $3 to $3.40 on an adjusted basis. Before I comment on each of our four segments, let me make some remarks on the potential impact on Oshkosh with the new administration in Washington. It's clear that we have a unique mix of businesses. That's one of the reasons why we believe our Company is a different integrated global industrial. We have a positive long-term outlook even without the benefit of initiatives that maybe implemented by the new administration in Congress. We certainly believe we can benefit from an infrastructure stimulus package, increased defense spending or tax reform. However, these initiatives must first be passed by Congress and the President. That will take time and we don't know the details of how the final initiatives will look, so we are not incorporating any of these items in our outlook. Please turn to Slide 4 for discussion of our results and an update on our business. We're pleased with the Access Equipment segment performance in the quarter. Our sales were down year-over-year, they were in line with our expectations and a positive mix favorably impacted results. We also saw a little heavier weighting of sales in North America, but we don't have the headwinds of the strong dollar on margins that we have in other parts of the world. Dave will provide some more comments on the quarter results in a few minutes. Turning to market conditions, our customers continue to aggressively manage their fleets and their fleet metrics and we continue to see lower fleet replacement demand. Our customers’ cautious approach to fleet expansion and low levels of replacement demand for driving the market weakness we continue to experience. This reduced demand along with the strong U.S. dollar also continues to pressure pricing in the market. That said, rental customer sentiment in North America has remained strong and it's probably grow even stronger over the past six months. We believe it is driven by a number of data points, including continued solid utilization rates and a stabilizing rental rate environment. In addition, positive commentary on construction activity, an increase in benchmarks, like that Dodge momentum index and early signs of return of activity in the oil patch are also supporting improved rental customer sentiment. This positive sentiment by our customers along with what we expect will be an increase and rental fleet replacement demand starting in 2018 or 2019 help support our positive long-term outlook for the Access Equipment market. Finally, what we aren’t get factoring in the impact of any infrastructure stimulus package, we believe this segment could be a beneficiary of increased spending on our nation's infrastructure. Please turn to Slide 5 for discussion of the restructuring activities announced today in the segment. As part of our simplification activities in support of the Company's MOVE strategy, we continue to look for ways to improve our cost structure and optimize our operations. Back in September, we announced plans to consolidate and modernize JLG’s aftermarket parts distribution centers in the U.S. and Europe. Those actions are expected to save us about $6 million annually, beginning in fiscal 2018. This morning, we announced additional plans to streamline operations in our Access Equipment segment. These plans include the closure of our manufacturing plant and free delivery inspection facility in Belgium. We are also streamlining our telehandler product offerings in Europe to simplify our portfolio. We intended transfer manufacturing of reduced European telehandler range to our facility in Romania. This streamlining will also lead to reductions in engineering support staff in the United Kingdom and the closure of the UK based engineering center. Separately, we also announced plans to consolidate North American telehandler production at our facility in Pennsylvania. In total, the plans we’re announcing today for JLG’s global operations are expected to result ongoing pretax savings of about $20 million to $25 million per year and we don't expect to realize any benefits this year will expect to realize $15 million to $20 million of benefit in 2018 for getting full run rate savings in 2019. We expect the cost of implementing these actions will be approximately $45 million to $50 million including $10 million of non-cash charges with the majority of the charges to be recognized in 2017. These are difficult actions but we believe they're necessary to position our Company for long-term success. Please turn to Slide 6 for discussion of Defense. Building on our strong finish 2016, we start out 2017 on a high note that our Defense team reported improved operating income margins for the first quarter. Despite the expected sales decline, we experienced in the first quarter as a result of lower international vehicle sales, we delivered operating income that was roughly even with 2016. We experienced another very active quarter for the JLTV program. We are still in the early portion of the low rate initial production phase of this program with a lot of attention focused on supporting government testing of the initial production units. As many of you know this program is ramping up over the next several years and we expect it to become a significant revenue generating program in our Defense segment. We are pleased with our progress and it's our intention to continue delivering a model program every single day. We've talked previously about the strong potential for international JLTV sales and this continues to be the case. Our team is busy promoting JLTV during international tradeshows and conducting customer demonstrations to create demand. The Defense team continues to execute well on our FHTV and FMTV programs. You might recall during our last quarterly conference call, we report that one of our FMTV contract modifications was being protested by a competitor. That protest was withdrawn with minimal impact to our production schedule. We now expect to be building FMTVs for at least the next two years and maybe more. Before I leave the topic of FMTV, you should be aware that the submission date for the FMTV recompete or shifted from January 31 to May 8. We now expect a decision on the contract award be made some time in 2018 as opposed to our previous expectation for decision in 2017. Finally, the defense team is ramping up production of the nearly 1,000 internationally M-ATVs that we expect to deliver this year with initial deliveries scheduled for later this quarter. We're also taking actions to build our international sales pipeline for our full range of defense products including JLTV as I mentioned earlier. We're making good progress on securing orders to help achieve the sales and operating income goals through 2019 that we shared at our Analyst Day Let's turn to Slide 7 to discuss the Fire and Emergency segment. Our Fire and Emergency team is performing well and taking the advantage of the changes they have implemented over the past few years to simplify their business. They delivered another quarter of year-over-year revenue and operating income growth and we believe they remain oil path toward achieving double-digit operating income margins. Despite an overall fire market that was down approximately 5% in 2016, we successfully grew revenues and gain share. We still believe that the market will grow at a low-to-mid single-digit percent rate in 2017. With our extensive product line and strong dealer network, we are targeting to outperform the market again in 2017. The data we review on a regular basis continues to support generally positive market environment for fire trucks over the next few years. Specifically, we still expect municipal tax receipts and budgets for fire apparatus to be solid. We also believe that fair truck fleets remain older than they should be, so replacement demand should continue to be the driver for this market. Before turning to commercial, let's talk about one of my favorite topics which is our ascendant aerial ladder. We have talked about the revolutionary new product on a number of occasions and I want to congratulate the team on their continued success. Ascendant orders have exceeded our initial projections and the team remains positive about the future opportunities for this product as we look out over the next several years. Please turn to Slide 8 and we will talk about our Commercial segment. Last quarter, we talked about modest and choppy order flow for concrete mixers. We also talked about expecting the refuse collection vehicle market growth rate to moderate in 2017. These conditions have continued and they impacted first quarter performance in this segment. Our revenues were even over last year's first quarter we experienced lower unit sales in orders which had a negative impact on operating margins due to under absorption of fixed overhead. The partial leadership team implement cost reduction actions during the quarter to mitigate some of the impact, but the benefits of those actions will be realized throughout the remainder of the year not in the first quarter. We believe the cautious approach taken by concrete mixer customers will likely continue until they see stained positive economic and construction data that allows them to build confidence to refresh their age fleet. Construction forecast and industry metrics point to positive trends, so we continue to maintain our positive view on this business over the longer-term. Similar to our Access Equipment segment, we believe the Commercial segment would likely benefit from an infrastructure seamless package. In the slides we noted that the refuse collection vehicle customers pause in the first quarter. We typically see a bump in RCV orders late in the calendar year as companies and sanitation department look to use our previously budgeted capital, but we didn't see that order bump this year. We did have a number of customers tell us that we’re going to take a pause to see how the results of the election settled out. We currently believe we will see this market return to a more normal cadences year. This is something that we'll watch closely as the year progresses. We also continue to believe that fleets are getting older which should lead to increased replacement demand in the coming years. Earlier this month an accident occurred at the McNeilus Dodge Center, Minnesota Production Facility in which five team members were injured and taken to the hospital. Three team members were released within 48 hours, but two other team members were more seriously injured and are still receiving care. Our thoughts and prayers are with them and their families as they work through the recovery process. As a result of the accident, we temporarily lost some capacity in our Dodge Center pain operations. The commercial team has quickly taken action to recover much of the lost capacity to temporary outsourcing of certain pain operations, but we complete repairs the damaged area. We expect this temporary loss of capacity to have some impact on commercials results in 2017. Although at this time, we do not expect the impact to be material to the Company's 2017 overall results. That wraps it up for our four business segments; I am going to turn it over to Dave to discuss our financials and update outlook for 2017 in greater detail.

Thanks Wilson. Good morning, everyone. Please turn to Slide 9. We’re pleased to report first quarter results that exceeded both the prior year and our expectations. Consolidated net sales for the quarter were $1.21 billion down 3.2% from the first quarter of 2016. Access Equipment segment sales were down 7.7% due largely to continued lower replacement demand from North American rental customers and lower sales in the Europe, Middle East, and Africa or EMEA region. Orders in EMEA were actually up in the quarter, so we're viewing the lower sales in the first quarter as timing related. Defense segment sales were down 7.4% as a result of the timing of international sales in the prior year. Fire and Emergency segment sales were up 12% and Commercial segment sales were flat. Consolidated operating income for the first quarter was $36.2 million dollars or 3% of sales compared to $30.3 million or 2.4% of sales in the prior year quarter. Improved operating income margins in the Fire and Emergency, Access Equipment and Defense segments contributed to the higher operating income margin. We're especially pleased that the Access Equipment and Defense segments were able to achieve higher operating income margins on lower sales. Margins in the Access Equipment segment benefited from timing of new product development spending and a more favorable mix. Defense segment margins benefited from favorable mix and performance on multi-year contracts, which more than offset the impact of higher been proposals spending for the FMTV recompete. Fire and Emergency segment delivered another quarter of year-over-year margin get growth. Driven by favorable pricing and a continued focus on simplification and Commercial segment results were negatively impacted by lower absorption compared to the prior year for the reasons noted by Wilson. Overall the segments delivered strong operating performance in our seasonally weakest quarter of the year. Further information on segment first quarter performance can be found in the appendix to the slide deck. Earnings per share for the quarter was $0.26 compared to $0.19 in the prior year quarter. Current quarter earnings benefited from the higher operating income. The tax rate in the quarter was 21.8% and while this is lower than our expected full-year effective tax rate of 32.5% to 33% due to discrete tax items recorded in the quarter. It was higher than the 10.6% tax rate in the first quarter of the prior year. We recorded a larger amount of discrete tax items in the prior year quarter mostly associated with the reinstatement of the research and development tax credit. The Access Equipment and Defense segments drove the better than previously expected results for the quarter. Access Equipment segment results compared to our prior expectations benefited from a more favorable mix in spend timing. Defense segment results benefited from higher sales, stronger performance on existing programs of record and favorable aftermarket mix. Please turn to Slide 10 for a review of our updated expectations for 2017. Our updated estimates do not include any impact in the restructuring activities in the Access Equipment segment that we announced today. We intend to report our results on an adjusted non-GAAP basis that excludes the costs associated with these restructuring activities and we don't expect to see the benefits from these actions until 2018. We have modified several specific expectations for 2017, but our consolidated sales adjusted operating income and adjusted earnings per share estimate ranges remain unchanged from our last quarterly call. As a result we continue to expect adjusted earnings per share of $3 to $3.40 for 2017. Access Equipment segment full-year sales and adjusted operating income margin estimate ranges of $2.7 billion to $2.8 billion and 7.75% to 8.5% respectively remain unchanged from our last call. We believe that the full-year mix in the segment will be a little stronger than we previously expected. But we expect the benefits of that stronger mix will be offset by the impact of steel prices that are higher than our previous expectations. We’re not changing our Defense segment sales estimates of approximately $1.85 billion, but we are slightly increasing our operating income margin estimate from 9.5% to approximately 9.75% to reflect the stronger than expected results in the first quarter. We also now expect to incur higher bid proposal costs for the FMTV recompetition since the due date for bids has been extended from the end of January to May. We're not changing our Fire and Emergency segment expectations of $1 billion of sales and an operating income margin of approximately 8.5%. We're modestly lowering our expectations for the Commercial segment to reflect the impact of lower than expected RCV market demand in the first quarter. We expect the RCV market to recover to more normal levels starting in our second quarter, but do not expect the order rate in the remainder of the year to make up for the lower than expected market demand that we saw in the first quarter. We are reducing the sales expectation for the segment from $1 billion to approximately $975 million. And we are changing our operating income margin estimate for the segment to approximately 6.5%. We're not updating our Commercial segment expectations for any impact of the recent accident at McNeilus that Wilson mentioned we're currently working with the McNeilus team to quantify any short-term operational impact and with the insurance adjusters to understand the net financial impact. At this time, we do not believe the net financial impact of this accident will be material to the Company's 2017 overall results. Below the operating income line, we are tweaking our estimated tax rate from approximately 33% to an adjusted range of 32.5% to 33%. And finally, we're increasing our share count assumption to $76 million. Other assumptions for the year remain unchanged from last quarter. Overall, we continue to feel good about the year and our prospects for the coming years. I will conclude with the brief comment on our second quarter outlook. We expect higher consolidated sales compared to the prior year quarter with increased Defense and Fire and Emergency segment sales more than offsetting a decline in Access Equipment segment sales, and we expect lower adjusted earnings per share due mostly to the shift to a heavier weighting of Defense segment sales and a lower weighting of Access Equipment segment sales. I'll turn it back over to Wilson now for some closing remarks.

Thanks, Dave. Before we get started on the Q&A, I'd like to make a few comments. First, we are a different integrated global industrial. We have unique blend of businesses with a variety of attractive end markets, as well as our differentiated approach to operating them as a cohesive integrated enterprise. Defense and Fire and Emergency are two segments with strong end markets that set us apart. Second, our MOVE strategy, with simplification activities as part of the execution has evolved and continues to put us in a position to deliver solid results for the Company. And third, we believe we're well positioned for long-term success with a number of opportunities that we discussed with you at our Analyst Day last fall and on this morning's call. 2017 is going to be an exciting year as we deliver our plan and celebrate 100-year strong. I'll turn it back over to Pat now to get the Q&A started.

Thanks, Wilson. I’d like to remind everybody, please limit your questions to one, plus a follow-up. After the follow-up, we ask that you get back in queue if you'd like to ask additional questions. Operator, please begin the question-and-answer period of this call.

Thank you. [Operator Instructions] Our first question today is coming from Stephen Volkmann from Jefferies. Please proceed with your question.

Hi. Good morning, guys.

Hey, Steve.

Good morning.

So I'll just throw on both together at once and then I think pretty simple. I'm curious you gave us a lot of information, but, Dave relative to your expectations you obviously came out a little bit stronger. So what actually surprised you in the first quarter? It’s the first question. And the second one is, if you can just give us a sense of the cadence on the foreign M-ATV sales as we go through the corridors here would be great thanks.

Sure. Thanks Steve. I think in terms of the performance in the quarter is kind of like we said better than expected results in Access as well as in Defense. Looking at Access, specifically what we really saw there was two things mix and with that it was a better mix regionally. We ended up a little bit stronger in North America than we anticipated coming into the quarter. And as we noted on the call, Europe was a little weaker although based on the order patterns. We're confident that Europe was a timing issue and nothing more than that. We also did see a little stronger product mix, so a heavier weighting of aerial work platforms versus telehandlers and those generally as you know have a higher margin profile. Then in Defense, we did see a little better higher sales and we anticipated and that was largely concentrated in aftermarket, so that's going to fluctuate. So I guess I'd consider that more of a timing issue. And then, the [OI] read through of that as well as some better mix and aftermarket and a couple of our other programs. In term of your question on the M-ATV cadence, internationally it’s not I would say unchanged from our prior expectations. We do still expect to deliver the majority of those in the second half of the year. I think we will get somewhere probably between 20% and 25% of those units in our second fiscal quarter.

Great, thank you.

Okay.

Thanks Steve.

Thank you. Our next question today is coming from Nicole DeBlase from Deutsche Bank. Please proceed with your question.

Yes. Thanks guys. Good morning.

Hey, Nicole.

Good morning.

So my first question is around the Defense segment. I know you said that the FMTV bid period is extended through May. Did you guys incur any costs related to that in the first quarter? Or is it all shifting into the second quarter?

No, we did Nicole incur costs on that as expected, it was I think sometime in December when they actually pushed the date out, so we were well along the path of preparing for a January submission. But with the push out, we do expect to incur additional costs related to that proposal development as we go through our second quarter.

Okay, got it. Thanks. And on the Fire and Emergency business, the revenue growth really accelerated quite a bit this quarter. Can you just elaborate on this? And is that a timing issue as well since your guidance seems to imply just a bit of a deceleration in growth throughout the rest of the year?

Yes. In general, our full-year outlook has not changed. So it is dependent quarter-to-quarter on some of the larger fleet orders that we see or some of the international orders, so I wouldn't read too much into that.

Okay. Great. Thanks. I'll pass it on.

Thank you. Our next question today is coming from Jerry Revich from Goldman Sachs. Please proceed with your question.

Hi. Good morning, everyone.

Hi, Jerry.

I am wondering if you could talk about what you have seen in the North America Access Equipment market in terms of cadence and your values over the course of the quarter. Did you see an acceleration in used equipment demand versus normal seasonality? We had - one of your major customers today announcing a big CapEx increase 2017 versus 2016. Appreciate it's too early for you to change your guidance, but can you just help us understand the cadence of demand over the course of the quarter based on the leading indicators you track?

Sure, Jerry. Used values I would say are fairly stable where they've been. We haven't seen anything up or down there. I would say that it's kind of just normal. From a CapEx increase, we are hearing I’d say more positive sentiment from our customers, but it's very early. Jerry as you know they're just starting their year and we're certainly in a lot of discussions and learning more about their requirements and we'll continue to work with them on our forecast, but today just looking at the landscape, we believe that our plan is still in place that fits our current forecast and no reason to change at this point.

Okay. Thank you. And can you provide enough an update on the U.S. Postal Service bid the prototype that you delivered? What’s that timeline on the decision, what's the opportunity for you folks? And if you win which facilities would you produce the trucks out of?

Okay. Right off the that, Jerry, we haven't defined which facility we would build these products, so that’s best to be determined. The longer-term program that we've talked about before, we were one of six companies selected building six prototypes, those are currently under process. That's a bigger contract potentially from $2.5 million up to $10.9 million and that's right off a bizarre ups. The publication - I'm talking about the prototype contracts there Jerry, but the big program 180,000 of these next generation postal trucks five-year to seven-year program, and again, getting up into significant revenue dollars there, but we were working through that that's about a year out to deliver the prototypes, but there is an interim program that's out and I'm sure you've seen it. They're looking for what we call [COSP], a Commercial Office Shelf Program somewhere in the 3,000 to 18,000 vehicles. They're looking for an award expected later this spring or summer. So we're currently looking at that opportunity and determining if that's something we're going to try to compete in or not. It’s still kind of a working process, so there are actually two programs now with the United States Postal Service.

Thank you.

Thanks, Jerry.

Thank you. Our next question today is coming from Jamie Cook from Credit Suisse. Please proceed with your question.

Hi. Good morning. Nice quarter. I guess just a follow-up question on Jerry's question. Obviously, last night United Rentals provided a more optimistic CapEx forecast. Understanding why you would not change your numbers yet. But, you noted when you're talking to your customers they seem a little more positive. I guess is that fairly widespread? Is it more the big rental houses versus the small rental houses? I'm just trying to understand if this is just United Rentals or if there is something broader going on here. And then my second question if you could just sort of comment on within the aerial business there have been some Access Equipment related to the energy patch. Obviously, things in the energy patch have or will be improving fairly shortly. So can you comment on whether that's sort of been washed through and just what you are seeing sort of geographically in some of those areas? Thank you.

Sure, Jamie. Thanks for your questions. The first part around the NRC’s and the IRC’s, I would say we're hearing more positive sentiment is where you're having milder weather less winter. We're seeing the project continued to move there. Obviously in some of the tougher climates there's not a lot as positive discussions going on. So again, it's kind of fragmented and again a reason why we're not adjusting our forecast at this time. We still have a couple of the larger NRC’s that are talking about less CapEx this year. So it's kind of a mixed bag right now as far as some of the outlooks. We think in the next three months, we will have a better handle on some of those as they fine tune their forecast, and again, we're in great discussions with all of them and have good relationship. So we expect to continue to move along with better information as the year goes. In terms of your question about aerials in the oil area. I think what we've heard our rental customer say is, all that that was down has been redeployed. Now as oil gets better, we would assume that some of those machines will now go back in. So I think all the excess is passed us, so now would be some potential upside as oil picks back up or as they move our aerials or telehandlers back into those areas.

Okay. Thank you. That's very helpful. I'll get back.

Our next question today is coming from Charlie Brady from SunTrust. Please proceed with your question.

Hey, thanks, good morning guys.

Hi, Charlie.

You've touched a little bit on the steel cost impacting maybe a little bit of a headwind to some of the margin mix - positive mix from Access. But can you just quantify a little bit more kind of what you're seeing on steel costs not only in Access, but maybe across the other platforms as well?

Yes, so Charlie, we saw a spike, it started last March call and it continued up through much of the summer and then in about the August timeframe steel started to drift back down. And if you would've asked us last quarter, our thoughts were it was going to continue to drift back down probably through the end of the calendar year and kind of hold steady there. But what we saw is another spike in December. And based on the experts that we follow, our expectation at this time is it's going to continue to remain elevated through probably at least the March quarter before we see a drift down from there. In terms of what that means for us. I think as you know, we do see a lag generally between when we see a movement in the market and that's driven by multiple factors one of which being that we do lock on a quarterly basis. So the next lock period then we would see the price readjust then in addition to that you have to procure the material, work the material and sell the ultimate finished goods. So while we do expect to see some impact from the spike that we saw again in December, we probably won't see that really flow through until later in our fiscal year.

Okay, thanks. And just a follow-up on the consolidation within Access. Can you talk about the capacity utilization of the Pennsylvania and the Romania plants today and kind of where that winds up being once you fully loaded those plants with the consolidation?

Yes, so we've looked at both facilities and we've looked out multiple years in terms of where we think the market can get to when we do see the recovery and the replacement demand. And by moving North American telehandlers into the Pennsylvania facilities, we think we're in good shape to handle that return of demand in Europe as well through the Romania facilities such that we're not going to have to have significant investments in brick and mortar when that market overall does recover.

Thanks.

Thank you. Our next question today is coming from Ann Duignan from JPMorgan. Please proceed with your question.

Yes. Hi, good morning, everyone.

Hi, Ann.

Hi, Ann.

Just a really quick follow-up on the last question. Can you quantify in dollars they impact of higher steel prices? Can you give us a sense of what you're thinking for the rest of the year?

We haven't quantify that Ann and I think what I would say is we have incorporated that into our guidance and by telling you that we expect the costs to remain elevated through end of the second quarter and drift down. I guess you can view whether our outlook is in line with what you're hearing your experts say about where steel headed for the rest of the year.

Okay. And maybe go back through that offline later, and then you talked about all the positives that could impact Oshkosh from the new administration? Can you talk about any negative impacts in terms of are you hearing any increased chatter around renegotiate in a contract, our competitors starting to talk about, although any negative impacts from the new administration that we should consider?

Yes, and I saw your question in your write up and it's a good question because there is some of that chatter out there. But I can tell you there's not around the JLTV. It's considered a model program. The FHTV, FMTV, we’re performing, we're delivering on time. We're not having any cost overruns. There's been a lot of quote activity from different executives in the procurement area, on acquisition area of the government talking about how this program is a model program so. At this stage, we're confident that that program will remain intact.

And I think from - maybe more of the global trade standpoint, obviously it’s a lot of chatter around tariffs, order taxes et cetera. I think one of the things that it would seem to be seen how it plays out is. What foreign governments may or may not do in the event that the U.S. does institute a number of terrorists or border tax changes. But again that it's early. I don't think anybody truly understands all the details associated with that both domestically and especially internationally from what type of reaction. You might see at this point.

Yes, I think that's a fair point little early in term to figure it all out. Can I just a real quick follow-up on the Defense again. Can I just confirm that you are still expecting to deliver a 1,000 M-ATVs and 750 JLTVs. This fiscal year there is no change to any of those programs

You’re correct Ann. That’s correct.

Okay, I will leave it there. Thank you very much.

Thank you.

Thank you. Our next question today is coming from Ross Gilardi from Bank of America Merrill Lynch. Please proceed with your question.

Yes, good morning. Thanks guys.

Hi, Ross.

Maybe just some follow-up on that that kind of the boarder tax issue, recognizing there's still a lot of unknowns obviously, a huge amount of unknowns. But could you just flesh out a little bit more, I mean I imagine Oshkosh is going to be a net exporter as a whole, but do you have big components or any major that you do import, anything from Mexico, anything in your supply chain that you would see as potentially vulnerable?

Let's start at the beginning, Ross. Yes, we are a net exporter, if you think about it. We do produce a lot of stuff here and shipping globally. I guess what I would say is in terms of a magnitude, we probably export of all three times more than we import, and in terms of what we do import, we import from really countries all around the world. There's been a lot of talk about Mexico. Yes, we do import items from Mexico, but it is overall not a significant portion of our annual materials down. But it's really spread out globally in terms of where we are importing from, so in general without knowing all the specifics. Again I think being a net exporter is probably the best position to be in at this time.

Sure, it makes sense. Thank you. And just want to get a little more color on the timing of the restructuring and access because clearly you were going through a little bit of a soft patch right now but as you said you're expecting a pickup in replacement demand in 2018 and probably what you're doing is some facility consolidation. But sort of why now, I mean was there anything in particular that you felt got worse that just the capacity utilization outlook, just not what you thought as the pricing? Just more color there would be helpful.

Yes. I'll talk a little about the decision in the marketplace and how we're looking at our product strategy and I’ll let Dave talk little bit more about some of the specifics of the actual restructuring, but if you look at the European market, it’s very fragmented. And we’ve always been in there and working hard and trying to meet all that market and taking a step back and really doing 80-20 on the market and looking at the different segments where we can add value, create value and be profitable for our shareholders. We had made some decisions that there are some areas, some products, and some segments that we need to move away from and focus more where we can create more value. So that's the big move that we're making in Europe around the telehandler.

Yes. Ross, what I might add on that is the models we're talking about are just kind of long as 80-20, right. It costs money to support and maintain models and the volumes we're talking about associated with any of these are fairly small. We got a regulatory environment where it seems like every two years major investments are needed to be made in terms of engine emission upgrades and as we looked at the returns that we expected out of some of these they just didn't meet the hurdle rate and you've heard us talk before about simplification. And this is just part of that exercise as we're continuing to try to simplify our overall enterprise and in access this is a move that made sense.

Thanks guys.

Thanks Ross.

Thank you. Our next question today is coming from Mike Shlisky from Seaport Global. Please proceed with your question.

Good morning, guys.

Hi, Mike.

Okay. What you've done since you first started move a couple of years back and kind of [indiscernible] today for Access Equipment? Can you maybe record for us what you think the appropriate margin ranges for Access once you are fully ramped here on the benefits. In the past it's been maybe mid-teens is going a bit higher from here once you get to fiscal 2019 or so?

Well, theoretically this certainly should help our cost structure and be a benefit for us. I don't think I would expect that this is going to drop straight through the bottom line because you are going to have your typical inflation on wage increases et cetera, but overall this certainly does improve our cost structure and I'm assuming that or I would expect you would see that play out when we do see a rebound in this market in the next couple of years.

Okay. Great. I just want to confirm for Q2 you expect more defense revenues less access and therefore margin headwind. Now it make sense normally, but this year you're actually looking at higher margins in defense. So can you guys give kind of your thoughts on the cadence here of the margins? Are you looking at usually low defense margin in Q2 or a much higher than guided for the full-year margin for Access in Q2?

Yes. Mike what I would say there is in general, we typically see higher incremental margins in the Access Equipment segment than we do in Defense. And so that would be kind of a starting point, but additionally is we're looking at the second quarter and at this time we're expecting a heavier weighting of international sales in Access, whereas in the first quarter for example we saw a little heavier waiting in North America. And then in the second quarter last year, we also saw a little heavier waiting in North America. I think we're going to see the steel impacts start to have an effect in Access and this is more of the steel impact from later last summer. And then in defense year-over-year it looks like at this time we're expecting a less favorable mix in certain of our defense programs including aftermarket, so there's a few…

FMTV cost.

Additional FMTV cost, so there is a number of components in there, but the starting point really is it typically have the higher incremental margins in Access versus in Defense.

Okay, great. I appreciate it. Thanks guys.

Thanks Mike.

Thanks.

Thank you. Our next question today is coming from Mig Dobre from Robert W. Baird. Please proceed with your question.

Hey. Good morning, guys. I guess maybe taken to the last question there, so how should we think about incremental margins in 2018 in the Access business given all the moving parts and maybe any sort of color on pricing and how you view that through 2017 and into 2018 in Access?

Mig, I'll start in terms of the 2018 incrementals and maybe Wilson touch on the pricing, but it difficult at this time, it's early in fiscal 2017 and our focus is getting through this year. We are going to provide a lot of color on fiscal 2018. Again certainly the benefit of the restructuring actions that we announced today while we don't expect to get a full-year impact out of that next year that should be certainly positive to the incremental margins in that business. You have to take a look at a lot of the components, whether you think your mix is going to be, where do you think your volumes going to be and what are your input costs going to look like and try to put together a view of all that today for 2018, I think is a little premature. So but overall again these costs are benefits that we're announcing are associated with the restructuring we're announcing today should benefit our incremental margins in 2018.

Mig on the pricing, I would say the last couple of quarters we've talked about it is a challenging market from a pricing standpoint. We've by currency in quite a few markets. I would say this quarter from the last two has changed a whole lot of say and if anything it's got a stable from where it's been. We haven't seen any major ups or down there. It's just kind of plugging along I think with the rental rates stabilizing, utilization rates moving up a little bit that that should help pricing some, but we'll have to see all that goes and again we still have the strong dollar that we're working against in some cases.

Okay. And we haven't really talked about the Commercial segment much. So I guess I'll ask you about your refuse component of this segment. You mentioned the election have an impact, but it's not quite clear to me as to exactly how that would be the case, but I guess the broader question is why did that we're seeing this slowdown and what gives you confidence that that we're not talking about something a little more permanent here rather than just election?

Sure Mig. We mentioned that we expected the refuse collection vehicle business, basically the growth rate to moderate this year. We normally have a little bit of a pickup in our first quarter of our customers last quarter as they exhaust some of the budgets and move through the end of their year. We didn't see that this year and I think a lot of the reason was - what was explained to us is they were just going to take a pause and see what the climate was going to be coming out of the election. Now I will say that and we don't usually talk about the next quarter orders, but I will say that January is showing us that refuse is getting back on plan that we've been pleased with the order pace that we’re seeing. So we're certainly going to keep watching that. But I think our forecast of it modeling for the year is still in good place.

Are you seeing any bump in concrete at all in January?

No. Go ahead.

I would say we're seeing a bump in concrete Mig, what I would say is activity is picking up from a quote standpoint. But it's not materialized like we were seeing on the refuse side.

And I guess I would emphasize there make the coding activity. I think the team that commercial is pretty optimistic in terms of the outlook that their terms of what they're hearing from their customers on mixers we're not saying it's going to get back to a normal level yet, but I think they're a view of the quarter may play out from an order standpoint is actually pretty positive.

If you look at that better install base now Mig in concrete mixers that are out there are all protein of 10-year average life and that's a long time for concrete mixer.

All right. Thank you, guys.

Thanks.

The next question is coming from Eli Lustgarten from Longbow Securities. Please proceed with your question.

Thank you. Good morning, everyone.

Hi, Eli.

Just a clarification, how much or what can you gives a quantification magnitude of what the extra cost for the delayed bidding on FMTV on the recomplete contract if that material numbers that we can quantify that just clarification we talk about it?

In terms of the year-over-year that we experienced in the first quarter or…

Incremental costs that you wouldn’t have and your budget to how much extras you supposed to have been done?

Oh yes, I think Eli we're probably looking at a couple million dollars incremental. As we think about the second quarter.

Okay, and if we step back for a moment, is that a question, your guidance for the year respectively unchanged 300 to 340, even though you had a [$0.15] beat and I know you're giving back $0.07 because of the share count, can you maybe comment on - you are not buying back shares with a high price or what's causing it. But are you more confident that you mean in the upper end of the range or the same place within it is anything what has change given you had a $0.15 beat in the first quarter as you look out towards a year or so many moving pieces to that unpredictable?

I guess $0.15 is your number right?

Yes.

What the beat was that certainly…

[Indiscernible] something whatever it is versus the street, you'd be to spend $0.15.

Yes, so as we talked about, there were some timing items in the quarter and we do expect to see those reversed out as we go through the year or so maybe the impact of beat that you might think. Should carry through is not as much just from a standpoint of that.

Also material.

Yes, we talked about the impact of steel costs negatively impacting access a little bit, although we do think they're going to have a little bit of stronger mix on the year as a whole. And then as we mentioned we do have the higher bid and proposal cost on any M-ATV. I think in general our full-year outlook for the year taking all in at this point is largely unchanged from where we were at last quarter. As Wilson said before it's early. We need to continue to have discussions with our customers. And multiple segments and I think we'll have a better view on where we're sitting as exit the second quarter.

And it's fair that whatever increase benefit you got in the first quarter you’re actually giving back in the second quarter with the negative comparison, is that's sort of where we would think about it?

I don't know that I would say giving back, but as we noted, we do expect lower earnings in the second quarter based on the items that we talked about.

And one question maybe long-term on the defense, we've got a 1,000 M-ATV shipments this year that by not have anything duplicating in 2018. Right now, we more than double JLTV what have you? But can you think you'll comment on how you will look at the defense market, it could be a problem filling the hole that sort of set up by not having that thousand or their follow on contract? Give me some idea of how we should think about that as we look at.

Yes, what we talked about in Analyst Day, Eli is that we're working aggressively internationally to make sure we fill that gap and we're making good progress on some international what I'd call working with our allies. We're not already making those announcements, but defense team is doing a nice job of working to secure some of the orders again to help us and fill out that 2018 that you're talking about.

But expectations that you should be able to fill that sometime in the next couple of quarters, is that fair?

Yes, I think what we said at the Analyst Day is we were looking at $1.7 billion to $2 billion a year in fiscal 2019. And we think with the opportunities that we have out there. We're on track to meet those targets.

All right, thank you very much.

Thanks, Eli.

Thanks.

[Operator Instructions] Our next question today is coming from Seth Weber from RBC Capital Markets. Please proceed with your question.

Hey, good morning, everybody.

Seth, good morning.

Most of the questions have been asked and answered. So maybe just a bigger picture question for you, given the improving sentiment in the rental channel and what you're seeing, what you’re from your customers? On your preamble you talked about the Access Equipment market may be getting better to have 2018/2019. I mean due to have any confidence now that 2018 would be an up year, I think one of your competitors has talked about the North American market being up in 2018 in Access Equipment? Do you feel more confident or you share that view today?

I don't think that we would say were more or less confident today Seth. But I would say is there certainly a lot more discussion around infrastructure, which construction and if that were to pick up in 2018. That something would be of benefit, but as we said earlier in the call, it's so early and I don't think we could really quantify today what are these initiatives, what's it going to mean for us. But again today versus six months ago there is just more positive discussions around could be more construction.

Okay. I thought I'd give a shot.

You are always good to try other stuff.

Yes. Sorry if I missed this, but was there a JLTV build number for the quarter that you gave or is there any cadence that we should be working around quarterly or through the year?

So what we've said Seth is we're not really going to quantify each quarter, we have 750 in our plan for the year. We're working on those; the focus is really building those and supporting our government customer in testing.

Okay. I mean what were their deliveries in the first quarter though?

Yes, we have been delivering since July.

Okay.

There's a lot of focus still at this time in terms of supporting government testing. And so the ramp up is going to - it will build up rather slowly and be more heavily weighted into the second half of the year.

Sure. Understood. Okay. That's all I had. Thank you very much guys.

Thank you.

Thank you. Our next question is coming from Stanley Elliott from Stifel. Please proceed with your question.

Hey, guys, good morning.

Good morning.

Quick question just for point of clarification on the concrete mixers with that the order activity is picking up on the rear discharge or the front discharge or was it kind of a commentary around the entire product line?

So there’s a - as we both mentioned, Stanley I should say it pick up at this point in coding activity, front discharge has been strong all along and we have seen for sometime now a little bit of a disconnect in terms of the cautiousness of the rear discharge customers versus the front discharge guys continuing to move forward. And I think we're seeing that generally continue.

And then switching gears to the fire and emergency. It's a very fragmented market out there, but have you all seen any of your competitors try to come up with some sort of a product to compete against the ascendance are you all still kind of sitting at the premier spa right there in terms of kind of class relative to what else is out there in the marketplace?

Yes, at this stage, Stanley we haven't seen arrival to the ascendance. The big FDIC show is coming up this spring and then we will certainly be paying close attention there to see if there's something close, but at this stage we haven't heard anything that compares to it.

Great guys. Thanks and best of luck.

Thank you.

Thanks Stanley.

Thank you. Our next question is coming from Pete Skibitski from Drexel Hamilton. Please proceed with your question.

Hey, good morning guys. I apologize, I missed. I was on another call thus far, but I had a question on Defense margin. I thought it was pretty strong for the quarter despite not having any international M-ATV deliveries and so I was wondering on the guidance for the full-year 9.5% the next three quarter are international M-ATVs are pretty good margin rates. So is there full-year guidance is there case that maybe that's a little conservative or if the JLTV kind of headwind from here offset some of the M-ATV goodness if you will?

Yes, Pete thanks for the question. As we mentioned a few times on the call and you were not before you know it's early, we still need to go through the vast majority of the ramp up for the M-ATVs, so that’s a significant amount of volume that you need to deliver in the second half of the year. So there are some things that we need to see play out yet as the year progresses, is there upside. I guess at this point I think we're comfortable with the margin guidance that we have provided for the year. That said, you would all like to see overachievement through all of our segments. But again, it is early and we need - there's a lot of work to be done yet as we go through the year.

Understood. Thank you.

Thanks Pete.

Thank you. We reached the end of our question-and-answer session. I’d like to turn the floor back over to management for any further or closing comments.

Thank you all of you for participating on our call today and we appreciate your interest in the Oshkosh Corporation. Have a good day everyone.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.