Greetings, and welcome to the Oshkosh Corporation Fiscal 2021 First Quarter Results Conference Call. At this time all participants are in a listen-only mode. 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, Pat Davidson, Senior Vice President of Investor Relations for Oshkosh Corporation. Thank you, sir. You may begin.

Good morning, and thanks for joining us. Earlier today, we published our first quarter 2021 results. A copy of the release is available on our website at oshkoshcorp.com. Today's call is being webcast and is accompanied by a slide presentation, which includes a reconciliation of GAAP to non-GAAP financial measures that we will use during this call and is also available on our website. The audio replay and slide presentation will be available on our website for approximately 12 months so please refer now to Slide 2 of that presentation. Our remarks that follow, including answers to your questions, contain 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 other matters 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 those 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 a fiscal quarter or fiscal year, unless stated otherwise. Our presenters today include Wilson Jones, Chief Executive Officer; John Pfeifer, President and Chief Operating Officer; and Mike Pack, 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. Our performance in the first quarter demonstrated the perseverance and disciplined execution of our team. Just like everyone listening today, Oshkosh team members are navigating the challenges brought on by COVID-19 and once again I’m proud of the hard work and efforts of our people. As I did last quarter, I want to give a shout out to all 14,000 plus members and our dedicated suppliers that have consistently stepped up during this difficult period to continue serving our customers. For the first quarter, we delivered sales of nearly $1.6 billion and adjusted earnings per share of $1.13, both of which exceeded our expectations. Much like I said on our last call, we’ve controlled what we can control or responding quickly to the challenges outside of our control. It’s no secret that our operations in Wisconsin face challenges related to significant COVID-19 spread all over this fall, particularly in the counties where our primary Defense and fire truck facilities are located. This shows elevated levels of absenteeism for us and similar challenge for our suppliers. Our people have done an exception job of adapting to changing situations where flexibility and resiliency have helped to keep us moving in the right direction. Going forward, we may face further challenges with absenteeism and our facilities with those of our suppliers. We may also face broader supply chain execution risk as the economy rebounds so daily focus remains critical in the weeks and months ahead. During the quarter, we announced our intent to acquire Pratt Miller which closed on January 19. Pratt Miller’s technology and capabilities are a great fit with our company and John is going to share more about this in his remarks. Revenue was softer than prior year in our Access Equipment and Commercial segments, consistent with our comments last quarter. As expected, we are seeing improvement in our Access Equipment segment on a sequential basis as the decline in sales is moderating. Compared with last quarter, we are more confident as second half recovery although our precise timing and magnitude are still uncertain. And of course our overall outlook is bolstered by the visibility we have with our Defense and Fire & Emergency segments which both have backlogs that extend into 2022. Please turn to Slide 4 and I’ll pass it over to John.

Thanks, Wilson and good morning everybody. Before I get started, I want to take a moment to thank Wilson for his unwavering leadership and commitment to this company over the course of his 16 years with us. A little over 5 years ago he became our CEO and has been an outstanding leader and motivator for our entire company around the globe. He has been responsible for driving dramatic improvement in our culture and he is a true leader in all aspects. Wilson has been a great mentor for me and the entire leadership team at Oshkosh. We have a strong leadership team as well as a highly engaged and motivated workforce. So I am confident in our future and wish him all the best. While Wilson will be with us through the end of the quarter, this will be his last earnings call, so I wanted to recognize his outstanding contributions and thank him for his service.

Thank you John.

Let’s get started with our segment updates with Access Equipment. Since our last earnings call we have seen improvements in our major markets versus expectations, led by North America, where we’ve had favourable negotiations with key customers for calendar 2021 equipment needs. Given the current environment for the Access Equipment market we are pleased with the orders our team at JLG booked in the first quarter and are very encouraged with a strengthening backlog. We also benefited from some late first quarter orders and deliveries, as some customers had available capital they deployed late in the calendar year. We remain confident that this segment will return to year-over-year growth beginning in our third quarter as rental companies begin to refresh their aging fleets. JLG ran its production facilities at reduced rates during the first quarter as we discussed on the last call, we are gradually ramping up our manufacturing rates and expect to exit the second quarter at more typical production levels. Our operations and supply chain teams have managed this difficult process very effectively. And it shows in the strong adjusted decremental margins we've been delivering throughout the pandemic. We've kept expenses low during a time of lower demand and lower production and I am confident in our ability to perform in a difficult environment. Going forward we're closely monitoring steel prices that have continued to rise and will be a cost headwind later in the year. Our global supply chain team is working diligently to manage this important raw material. We are also very excited about our recent formal launch of the revolutionary new all electric DaVinci scissor lift. With zero hydraulics and zero emissions, the DaVinci AE1932 scissor lift represents the next generation of electrification and elevates our position in the access industry once again. DaVinci’s innovative…

Thanks John and good morning everyone. Please turn to Slide 8. We delivered a solid start to 2021 was sales and adjusted operating income higher than our expectations. Consolidated net sales for the quarter were $1.6 billion down 7% from the prior year quarter. The decline was driven by decreases of 22% and Access Equipment sales and 13% in commercial sales, partially offset by increased sales in both the Defense and Fire & Emergency segments. Access Equipment sales continued to be impacted by lower customer demand as a result of COVID-19. However, the year-over-year rate of decline has moderated compared to Q3, and Q4 of 2020. As John mentioned, we did achieve higher sales in the quarter versus our expectations as several customers deployed more capital than previously expected near the end of December. Defense sales increased in the quarter as a result of higher aftermarket parts and service sales. Fire and emergency sales increased due to higher aircraft rescue and fire fighting truck shipments and commercial segment sales were down and lower RCV sales as customers have remained cautious in deploying CapEx during the pandemic, and due to the absence of concrete batch plant sales this year as the business was divested in the fourth quarter of 2020. Consolidated adjusted operating income for the first quarter was $104.6 million, or 6.6% of sales compared to $109.1 million, or 6.4% of sales in the prior year quarter. Access Equipment adjusted operating income declined on lower sales, unfavorable manufacturing absorption due to plant facility shutdowns during the quarter and unfavorable price cost dynamics as a result of the prior year benefit of price protected sales. This was offset in part by the benefit of favorable spending as a result of the on-going global pandemic, lower intangible asset amortization and favorable product…

Thanks Mike. We just announced the solid quarter to kick off 2021 and once again controlled costs, and manage their operations, allowing us to deliver higher, adjusted earnings per share on lower sales compared to the prior year quarter. Challenges remain including rising steel prices, and the potential for further challenges as a result of the pandemic that has stayed with us much longer than anyone wants. We believe, we're in a great position to take advantage of opportunities to deliver sales and earnings growth as our markets recover. As John mentioned, this will be my last earnings call and I just wanted to say that I've appreciated working with all of you who have participated with our company. I'm proud of the engaging dialogue that we've had over the years, whether it's on one of these calls, a conference, a trade show, or even doing a visit here at Oshkosh for one of our investor events. I'm even more proud of our people and the leadership team we have in place at Oshkosh. And I want them to know, it's been an honor to work with all them these past 16 years. I'll be working closely with John and the team to ensure a smooth transition over the next couple of months. And I'm confident that the Company is in good hands with John Pfeifer, leading the way backed by a very strong leadership team. I'll turn it back over to Pat to get the Q&A started.

Thanks, Wilson, and thanks for your leadership over the years and thanks for making these calls a little more enjoyable. We all know there are a lot of work. Anyway, let's get started everybody. I'd like to remind you please limit your questions to one plus a follow up and after that 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 comes from the line of David Raso with Evercore. Please proceed with your question.

Hi, good morning. And Wilson, best of luck and congratulations John. My question is about the access margins trying to think through the impact of steel. Can you give us some sense of how much steel do you have contracted out for the second half based on, whatever internal estimates you have for your access revenues? There, you'd have at least some somewhat understandable inflation adjusters, but your comment about uncertainty around that impact? How much is the steel for the revenue we're expecting will have to be purchased on the spot market, just trying to get a sense of how much exposure you have to rising steel prices for the back half?

Sure. David, Morning this is Mike. I'll just start with on steel. The team's managing it well. You know that all obviously we are seeing an inflated prices right now, while we're not it's early to be able to specifically identify it to a specific segment. What we believe at this time is it's a 10 plus million dollar headwind. If it continues to increase, obviously, it could be higher than that. It's, we're continuing to manage it, though. And we're going to see the impact is really in the later third quarter into the fourth quarter.

And the $10 million was a total company for the full year, but it's concentrated 3Q and 4Q? Is that the way...

Correct.

An estimate it's mostly in Access, but again, that's total company. So if we think of what we would at least assume to be normal incrementals, and then, say, for Access, they get 70%, 80% of the steel hit, is that a fair assumption? Because when I look at the mix, you would think you have a tug-o-war of better mix of AWP over tele's, but then you have a little bit of that natural when the cycle starts the negative customer mix, right? It's more of the big rental companies, not the mom and pops. But again, is that a fair way for The Street to think about it, normal incrementals? And then at this stage, a $8 million-or-so kind of steel hit, $7 million still hit to Access in the back half?

I guess, first of all, maybe we should just level set on the incrementals and decrementals. We had, we had very strong decrementals in the in the first quarter. And while we're always striving in that 20% to 25% range for access on a consolidated basis. We've been talking about in my prepared remarks as well as last quarter. We do have the cost headwinds, the $85 million. And that's there's obviously a meaningful piece of that. And that really hits, Q2 through Q4. So that's certainly a meaningful impact to factor into that incremental or decrementals. And then you add steel into that equation as well. So I think there's more moving pieces there than just the steel factor.

That's helpful. And in my follow up, John, your vision for the Company, the portfolio. How do you think of the strong cash flow and balance sheet as you take the reins starting next quarter?

Yes, so let me first just kind of wrap up the question about access. The mix side of it. I think you're right. We do expect to see favorable mix on the product side with more booms, just looking at the age of the fleet that's out there. And the booms are more aged than other products. So that's certainly something I'll confirm. I think on the customer mix, though, it's been pretty consistent between the NRCs and the IRCs recently in terms of demand, I'm not so sure that, that it won't stay consistent, because we're kind of seeing the activity across both the small independence as well as the big customers that we have. Now, back then to your main question on our go-forward vision, our strategy. I will tell you that we've got a great balance sheet. And we've got a disciplined capital allocation strategy. And that's going to -- that's going to include both returning money to shareholders, but it's also going to include growth. And we're in a great position right now, because of the balance sheet. And that affords us to do both. If you've seen us make one acquisition just recently, yes, I think you'll see us do more to use the strength of our balance sheet to drive growth. I think you're going to see us put a lot of investment continuously in innovation and new programs and new technologies to leverage new technologies to continue to accelerate our business. And you'll also see us continue to as I said, do some acquisitions that are really growth oriented acquisitions, they're either going to be an acquiring businesses, because they have capability and technology we that we need, or it could be in adjacent near adjacent categories that we think enhance our core business. So we feel pretty good about our capital plan. We feel pretty good about our balance sheet and our ability to responsibly execute it going forward.

Thank you very much. I appreciate the time.

Thanks.

The next question comes from line of Jamie Cook with Credit Suisse. Please proceed with your question.

Hi, good morning. Congrats on a good quarter. And congrats Wilson and John. So I guess just my first question, if we could just shift back to the Access Equipment Business? Just understanding what you said about steel costs headwinds and the 10 million sort of that that whole company will face. But within access specifically, I'm just wondering how you're approaching pricing this year. If you give any color and then you sort of when you were talking to growth, I think you were talking specifically to sort of the U.S. markets, if you could give some color on what you're seeing in Europe and China. And then my follow up question, any update on the postal service bid that's out there just if the timing has changed. And I think under Biden, there's a view that the vehicles would go more, EV, is that -- does that change your opportunity set? Thanks.

Great. Thanks, Jamie. This is Mike I'll start. Just talking about first of all of with access. As John mentioned in his prepared remarks, we're pleased with how the annual negotiations have gone from an Access Equipment perspective. And, as always you know us well. We've remained disciplined from a cost price perspective that we talked about the headwinds that we're facing related to steel, that it's early, so we're going to continue to manage that. So I think overall, that's what we're seeing from it from a pricing perspective. I guess in terms of postal service, John?

Well, so let me talk about access. First, I guess a question about our global business and access. I'll start, let me just start by talking about the U.S. put that in perspective. We're really pleased first of all, that we exceeded expectations in Q1. I want to start by saying that's a tribute to the people that we have access, managing through an incredibly difficult period of time. We're, but we've wrapped up most of our annual contract negotiations with our customers. We're really pleased with the outcome of those negotiations. I would say that in essence, what the outcome of that has been, as we've seen a shift in the -- I'm talking about the U.S. market, in sentiment towards more recovery, discussion and certainly a shift towards more attention to fleet replacement. And so that's all we think that that that's all positive direction for the U.S. market. Our backlog is healthy, and it's strengthening in the U.S, and we feel we feel pretty good about it. So you've seen actually, through the pandemic, the downturn, moderate from third quarter, down 60 to fourth quarter down 40. Now we're down just over 20. And we think that the conditions are right, that's support. So as we get into the back half growth, again, in the industry. Going more to the international markets, I'll first say Europe's a bit behind the U.S. We don't see quite the momentum; we think is bottomed in Europe. But we don't see quite the momentum right now, in terms of building growth in the near term, in the European market. And the other part of the world and Asia, Asia is very positive. The China market recovered quickly. As we've said in the past, it continues to be a significant growth opportunity…

Okay, great. Thank you very much.

Thanks, Jamie.

Our next question comes from the line of Steven Fisher with UBS. Please proceed with your question.

Thanks. Good morning and Wilson best wishes. Just curious how broad is the second half revenue growth that you guys expect. Is it across all segments? And what would you say are the most important things that need to happen in order to deliver that second half expectation of growth?

Sure. One of the reasons we're not providing guidance is, we -- obviously, we are dealing with a range, and there's a number of variables. So I think what we've seen over the course of the first quarter, in line with John's comments, we're seeing stronger indicators of that second half recovery at Access. So we now know that, that recovery appears to be robust enough that it's going to yield full year growth. Beyond that, it's difficult to predict. And I think a lot of it has to do with what's the -- how quickly do vaccines get out there? How quickly does the economy start ramping up? So those are the things that we're watching closely, but there is a range. As we look at the other businesses and look at Defense and Fire & Emergency, both have real strong backlogs. Both would be supportive of full year growth. I think the variable there that's difficult to predict is really a couple of variables. Number one, we've worked through some pretty challenging absenteeism challenges in Defense and Fire & Emergency in the first quarter. They did an -- the teams did an outstanding job managing through that. We could see more of that as the pandemic continues to evolve as well as the impact it can have on our suppliers. Again, our supply chain partners have done an outstanding job, but certainly, there could be headwinds as we get into the back half of the year. The other larger area that we're watching as well is just -- was the general economic recovery. How supply chain is able to ramp up to execute against that? So that could be a variable as we look to the back half of the year as well. So I think in those two segments, it's supportive, I think, Commercial, very similar to our Access view at this point.

Okay, great. And then just wanted to pick up on the comments about M&A. Just curious if there's any particular segment that that is weighted towards, and how would you frame sort of the size of the deals that you're considering?

Yes. So we have a structured process, we call it an always-on pipeline. We're regularly reviewing potential targets. And they really are in all segments, when we look at the targets. We like our four core segments a lot. We see opportunity to grow each of our four core segments. And so we look at targets that will enhance that growth across the board. When we look at size of targets, we're looking more at bolt-on, tuck-in type acquisitions that will help us drive growth either into a new adjacent category of products or a technology or an aftermarket enhancer. We -- and I would never say never on anything, but we're not out there looking for these big, huge transformative deals. That's not where we see the big opportunities in our M&A plan. But I think you'll see us do consistent executions as we go forward.

Okay, thanks very much.

Our next question comes from the line of Chad Dillard with Bernstein. Please proceed with your question.

Hi, good morning, guys. So just want to understand some of the puts and takes from the cost side in the first quarter. I think you called out COVID related production issues and absenteeism. Certainly quantify, what impact it had on a quarter? I mean it looks like you know, SG&A been a great spot to an extent from some of the temporary cross tailwinds and reversing and then I know, you talked about the $85 million of headwinds, the balance of the year was 25 million happening in second quarter, but we'll have to get a sense for how that balances out in the back end of the year.

Sure, yes, we're very pleased with the first quarter results. The teams did an outstanding job executing. So first of all, just on the execution side. We did see extra challenges with absenteeism as I mentioned a few minutes ago in our fire and emergency Defense segments. They did an outstanding job managing through it. It probably negatively impacted their volume of business a quarter, but we really didn't see it from a, a labor performance standpoint reading through. In fact, I call on our fire and emergency team did an outstanding job and actually delivered the best labor efficiency in our Appleton facility in the last decade plus, so great job by the team. Looking at some of the other drivers, we did see favorable spending in the quarter. Some of it was really environment related pertaining to COVID. So I think, if you look at it, a chunk of that is, was expected because of our permanent reductions, about $8 million. Those that 35 million permanent reductions hit our first quarter as a favorable item. The remainder of the cost spending benefits, I would say about half of them that we saw in the quarter are sort of remain. The other half are really more timing related that we'll see spent later in the year. So I think that's an important point. We did see the favorable with contract adjustment and our Defense segment with the large JLTV order. So that was, that was great news to see. See that order come in further strengthening our backlog. And of course, we had the tax benefits in the quarter. So as we as we look forward to the second quarter, I think it's a few important items. I think, number one, we do expect that that spending is going to be up particularly as we talked about ramping up for the second half of the year, that's going to drive higher spend levels. We did see also a positive cumulative contract adjustment in the second quarter of last year. So that will be a headwind as well. So those are a few of the things that that we're monitoring just as we as we move forward.

Like Defense from prior year in Q2, CCA?

Yes. I just mentioned that, Chad, that had we had a cumulative -- so we had a favorable cumulative contract adjustment in Q1 of this year. So that comps wise that will be a headwind going into the second quarter. We also had one in the second quarter of last year. So that will be a year-over-year comp challenge.

That's all. And then just second question. In access. Can you talk about your expectations for pricing in 2021? Do you expect positive growth and price realization in access?

We really look at it on a net cost basis. And what will what I say at this point is, and it's early in the year. We were -- we've remained price disciplined and looking at price constant areas, we've gone through our negotiations. And we talked about a couple of the things that we're watching. More specifically, as we look to the back half of the year, again, it's that $85 million net cost headwind, and then what happens was steel, which we're continuing to manage through. So that’s those are the items that I would point to as really drivers of incremental decremental margins as we go through the rest of the year.

Thanks. I’ll pass it on.

Our next question comes from the line of Ann Duignan with JPMorgan. Please proceed with your question.

Yes. Hi. Good morning. And similar congrats to both of you, Wilson. Best of wishes. I think on the prize cost, could you talk about your backlogs in each of your segments? And how much of that backlog includes cost inflation clauses? I mean, are those locked in fixed prices and all that business? Or is there are there inflation clauses in any or all of those backlogs, especially, Defense versus Commercial? Or all commercial businesses?

Ann, certainly as you go through the businesses that you look at our Defense segment, we tend to have we have long term contracts, both on the supply side and so that you can kind of they're not. So that’s sort of that Defense segment. If you look at really our other segments, it varies by contracts. But again, just go back to my previous comments that we've looked at all of the inputs, costs, labor, all the materials beyond steel, and we've remained cost discipline from a price cost dynamic. Again, it comes down to what happens with steel and a little bit of that right now is unknowable. We're doing a good job managing it. We're not going to see because of a lot of the management work we've done. We're not going to see it until much later in the year. So we're going to continue to see how it evolves that. But that is not the price cost is not the biggest driver beyond the aforementioned items for the rest of the year.

But I think Mike, we've always had inflationary clauses in our Defense programs. They're built in and we bid them over a annual period of time. So the Defense backlog does have those clauses in there, Ann.

Okay, I was just going to ask you for clarification on that. So thank you. I appreciate that. And then, perhaps, again, on depends on the 900 million contract, can you just give us some more color in that? Was that already in your $2 billion expectation for revenue for this year? Or is it incremental? And when would you expect to see those being shipped? And how much was international versus domestic? Just some general color on that contract? And whether it's incremental to what you had guided to at the beginning of the year?

We'll have to remind you about one plus two Ann -- so. But I appreciate your interest for color here.

Yes, I think, Ann a lot of those, a lot of those orders will be delivered in future years and in 2020, in 2022 and beyond.

It’s all in 2022 and beyond.

Yes that's. So I guess that's, that's the first point. We certainly appreciate the on-going confidence. And so this, this order was aligned with our expectations, and further supports just that on-going view that defends the two plus billion dollar business in the future.

And we haven't really broken out Ann the exact international numbers, but we're up to eight different countries now that have FMS cases that we've taken orders on. So we're, we're lacking how the international business started development with JLTV. And we have had those eight in.

Yes, so Ann a bigger perspective, kind of looking at the whole scope of the JLTV program. So the acquisition objective, the U.S. Army at about 50,000 units, the U.S. Marine is at about 15,000 units. Now, that's over multiple years, most of that still has yet to come. Now, of course, we're going to read, they're going to re compete that in 2022. We know that. We've been preparing for it. For a long time, we've actually been preparing for the re compete since we won the original contract. They've got what I'd call commitments to us and that big acquisition objective to date of about 23,200 units. And when they place orders on that, that's typically on those commitments is where, where they're being placed on. But there's a long way to run with this program and more orders to come.

Great. And I just finally, a real quick follow up on the steel. Are you more concerned about steel prices, or the potential lead? There just isn't the availability of steel? Which is the biggest concern?

I would say at this point, Ann we do have -- we have good visibility, and we're working closely with our suppliers there. So it's more a pricing equation at this point than availability.

Okay, appreciate that. Thank you. I'll get back in line.

Thanks, Ann.

Our next question comes from line of Stephen Volkmann with Jefferies. Please proceed with your question.

Hi, good morning, everybody. And Wilson, thanks for putting up with us over the years, much appreciated. But my question is about the Defense margin cadence. My assumption is that this first quarter was probably the high point for the year. Mike, I think you mentioned both the catch up on the contract, but also some positive mix on service and parts. So any color on what we should be thinking relative to Defense margin as the year progresses?

Yes, I think consistent with what we've talked about in the past, you really need to look at it over the course of the year. And we're still confident in what we've talked about in the past. It's a high single digit business, you will see variation quarter-to-quarter. I think that the piece that we're obviously watching is just what happens if you from a supply chain perspective, and that, depending on the volume that we've seen a particular quarter that certainly could have had a bit of an impact. But they did a really nice job. We saw a nice aftermarket mix in the quarter and that certainly was nice to see and great work by the team.

And a quick follow up when you get an order like you did this quarter. I think you get to spread your fixed costs over a longer production run. Does that mean that the margin that you booked going forward will be, 10, 20, 30 basis points higher than it was, before you get that order, is that the way the accounting works?

We're constantly looking at what we what we're seeing out there. And certainly we did, we did see a benefit to what we might see a modest improvement there. It's not that I would say it's not as it's at, we're getting more and more units out there. So obviously earlier in the contract, when you're getting a nearly a billion dollar order, it has a bigger impact versus once you have many more units under contract, and it certainly does help with that additional cost spread.

Yes, I was going to say essentially what you said is correct.

Great. Okay. That's one and a follow up. See.

Thank you.

Our next question comes from the line of Tim Thein with Citi. Please proceed with your question.

Great. Thank you. And Wilson and John, congrats again to you both. And by the way, Pat don't sell yourself short, you too make these calls enjoyable. So -- just the -- yes. The question is just on F&E, obviously, growing a lot of it in terms of its importance to the bottom line here for Oshkosh. So I think appropriate to get some airplane. Maybe just Wilson or others, maybe just a bit more color in terms of what you're hearing from F&E dealers as well as their customers? Obviously, some -- from a headline perspective, some pretty big headwinds that appears for muni and state budgets, but obviously, that doesn't all directly impact spending on your equipment and there's a lag and all that. So maybe if you just add some more color in terms of, obviously, we're working from a high backlog, but just potentially how that unfolds in terms of that segment, just given the potential budgetary pressures? Thank you.

Yes, I'll talk about it. Yes, I'm going to start by saying that the culture that we have at F&E is phenomenal. And to us culture is everything. We've got great people, we got great innovation that happens in the segment that drives it, we got really good operations, we had talked about our simplification all the time, it's a model for the whole company on how to deploy simplification. And we've got the best dealer network, by far in North America. And then all those things, when you combine them together, they create a really potent business. And we think that we're going to continue to drive performance as we go forward, or let me put it into a longer term perspective. If you go back to the Great Recession, which is a long time ago, now, the market for our products and fire and emergency was much bigger, it was over 5000 units. And we hit the Great Recession, and the market stumbled quite a bit, down 40%, so maybe 3000 units. And since then, it's never recovered the 5000 units, it's actually recovered that low 4000s, it’s 4,100ish, something like that. But we've been growing throughout that period of time, and we're bigger now, even in a smaller market. And we've been growing very, very profitably. So, growing and thriving, I guess, I guess, is what I would call it and we've taken market share. We continue, we expect to continue to execute. Now talking about the market today, sure we think there's going to be some municipal spending constraints. We're watching it closely. It's not we do not expect it to be anything like the Great Recession, because there's not a real estate crisis. And that's really what has a big -- the biggest impact on municipalities is real estate prices. Again, which there's not but some budgetary constraints. You know what makes us feel good, of course, first and foremost, what I talked about how powerful our business is today, coupled with the fact that fire trucks are high priority equipment. The fleet is aged. And as we look at our backlog, our backlog is really strong takes us, you know what? Well through 2021. We did see some softening in orders in our first quarter. We expected a softening of orders primarily because of the impact of the pandemic but, but overall, I fully intend on continuing to execute this business in a very healthy way.

And that's great color, John. Tim, what, what I would add just one other tidbit. I think, I started out in fire emergency so I know all the dealers very well and I've had a lot of fun calls the last few weeks you know wishing me well in my retirement and talking to a lot of them. One thing that really jumped out at me is the majority of math that I talked to they're investing in their business. They're either they're adding building service capabilities, last cycle services addition to their just, I've watched them really mature over the years, and they run a sophisticated business these days. And it's been fun to watch. And they're not wavering on those investments. They to John's point, they don't see from their conversations with fire departments because it is such a priority in the community and the fleet they just is to our favor there. They're not hearing a lot of a negative button useful spending, they're still holding the priority in majority of municipalities with fire truck budgets.

All right. Very good. We'll leave it there. Thanks a lot.

Thanks.

Our next question comes from line of Mike Shlisky with Collier Securities. Please proceed with your question.

Hey, good morning, guys. And Wilson, best wishes to you.

Thank you.

I wanted to maybe ask a quick question on Pratt, on Pratt Miller. That Company, they are playing in a few adjacent spaces beyond just the fence they're in industrial cleaning, and other areas that don't the cost currently plays in? Do you have any plans to maybe organically grow what Pratt Miller already does into anything larger? Or do you plan to exit anything that they're doing? It's not related to your four segments? And perhaps more broadly, I guess why buy them in the first place? And couldn't you just keep on paying them through a contract or as an external provider?

So I'll, I'll take that question. We really like this acquisition. Pratt Miller, as I said, my prepared remarks, we've had a long standing relationship with them. And when you have a long standing relationship with a potential company to acquire, it makes you feel a lot better about acquiring it, because there's a cultural fit. And there's a strong cultural fit of innovation between what we do at Oshkosh and what Pratt Miller does. So we're really, really pleased with this. Now, there's two, I'm going to give you two primary reasons why we made the acquisition. Number one, we believe that Pratt Miller gives us a higher probability of Defense program wins going forward in adjacent spaces that we want to grow in with the Department of Defense. So that's number one. And number two, is they are an enhancer to our technology development. One of the most incredible things about Oshkosh Corporation is our capability to develop technology, whether it's electrification or autonomy, we've been working on autonomy for a long time. We've been working on electrification for a long time. We really like what Pratt Miller does in those spaces. And it allows us to enhance our ability to apply it to specific use cases is the best way I can describe it. You mentioned, industrial cleaning. So that sounds like a strange thing. And industrial cleaning is interesting, but it's not the industrial cleaning that interested us. It's the automation behind the industrial cleaning that was so interesting, and their ability to take automation and apply it to a specific use case. That's why this is such an interesting application. So it's not industrial cleaning. It's the automation that's behind the industrial cleaning. And by the way, they're big into motor sports. We intend to continue to grow and develop all aspects of their business as it is today, including motor sports. We think motor sports give it a great culture of speed and agility. And there is a lot of technology that they developed for motor sports, in mobility and safety systems that are very directly transferable to lots of our different segments. So a lot, a lot of good that comes with our acquisition of Pratt Miller.

Got it? Thanks. That's great color. I also want to ask a quick follow up on another question about the USPS contract. Your opinion is based on the Ford Transit, I believe, and we've gotten since this last quarter, we just announced we just heard the announcement of the new Ford e-transit coming out here in 2021 so you comment that you can address whatever the USPS’s needs are as far as our power train. Is it as simple as just substituting the transit for the e-transit or do you have to have a special reopening on the contract and new approval to kind of make that switch?

So there's limited things that I can say about this program, not because I don't want to but because we're under a pretty tight confidentiality with the USPS. We don't have to reopen anything to address the needs that as they evolve with the contract. I really can't comment on the transit ban, because of confidentiality, but I can say that we don't need to go back and have some arduous task of reopening an agreement if the contract goes one way or another, we will not have to do that.

I think the foundational statement there is we furnished a program vehicles that meet their current and future needs. I think that's the best way to leave it, Mike.

Okay, I'll leave it there. Thanks so much, guys.

Thanks Mike.

Our next question comes from line of Nicole DeBlase with Deutsche Bank. Please proceed with your question

Yes, thanks, guys. I appreciate you squeezing me in. And good luck to Wilson in retirement. So I guess maybe starting with SME. Just think about, moving into some period of time where revenues could be a bit more challenged. I'm trying to tie that back to what you guys have done with respect to simplification? And how like the margin performance could be different in a future downturn versus what we've seen in the past. So I guess, it's a little cross cycle relative last time F&E faced a difficult revenue environment. Do you think there's room for decremental margins to look much better because of what you've done from a margin perspective?

Yes Nicole, you're spot on. I guess if you go back to the Great Recession, where we struggled from a margin perspective. We the simplification process that we've gone through has really transformed the business we're, a different business and being able to weather through lower volumes that we believe this is solidly a double digit business throughout the cycle. And so that's and again, it's all the efforts of simplification and managing really from stem to stern, managing that simplification, stem to stern through the business.

Got it. Thanks. And then just for my follow up, hearing investor concerns about the medium term impact of the new administration on Defense spending. And how we would dovetail that with how durable the JLTV program is, I guess over the next several years, you know, if you guys see any risks to that?

We do not see any specific risks when you consider the previous administration to the new administration. We really do not. Tactical, wheeled vehicles are a fundamental part of how the Department of Defense operates, and how it how it executes. And if they will continue to be a fundamental part of how the Department of Defense operates and executes. We've had a relationship for a long time. It was very successful when President Biden was Vice President, Biden. And so we don't see this as being a big change for us as we go forward.

Okay, that's clear. Thanks.

Thanks, Nicole.

Our next question comes from the line of Courtney Yakavonis with Morgan Stanley. Please proceed with your question.

Hi, congrats. Again Wilson and John. Just wanted to go back to the comments on the sales, the quality of sales outlook. I think you gave some good comments on Access, Defense and F&E being supportive of full year growth. But can you just help us think about Commercial? I think you said that the backlog -- it looks fairly similar to last year, but you mentioned that it's starting to trend up. Can you just help us think qualitatively about what we should be thinking about for the Commercial sales outlook for the year?

Yes, I'll take that. We're, we're seeing some -- the backlog is consistent with last year. And I remember, last year, at this time of commercial, we were still pretty pandemics and saying that the backlog is consistent with last year as is a positive statement. We sequentially have seen orders improve. And when you look at orders, year-over-year, it looks like there's a slight degradation but when you take out the divestment of Conoco, there's actually a little bit of order growth that we've seen in the first quarter, year-over-year in the business. Now remember, last year's first quarter was pre pandemic for us. So that's also a positive statement. So we see markets improving in the commercial segment, I'm primarily talking about refuse collection markets and talking about mixture markets. And when you look at residential construction, residential construction is very different from non rez and residential construction drives more of the commercial business and residential construction is very favorable right now and projected to be favorable throughout 2021 and into 2022. So that's also a positive macroeconomic indicator that that supports our view of what's happening with a more favorable outlook than we had maybe a quarter ago.

Okay. Great. That's helpful. And then just two quick follow-ups. On the steel $10 million headwind. Was that gross or net of pricing? And I think previously, you guys have taken surcharges when you've seen outsized steel inflation. So is that being contemplated at this point? And then on the Defense side, with the contract, the $900 million, can you just comment at all about the margins on that? I think it's FMTV contract, so I imagine it's pretty similar to the DoD margins. If you can just comment at all?

Sure, first of all, the steel. That's right now, we're talking about that as a headwind at this point, that it's very early yet. And we're going to continue to watch what steel evolves. We're going to manage this in a disciplined manner, the team's been all over it already, and is quite frankly, done a great job in mitigating the risk through a number of tools we have in our really in our toolbox that we've met. We manage through this a few years ago while and we'll do that again. We're not, we're not making a call today on surcharges we're going to we're continuing to manage it in a disciplined manner. And, I think, again, it's what it's going to come down to over the course of the year just watching what that cadence is. I think once we start getting a bit more of a, supply and demand equally or equilibrium that we do believe that steel, could start coming down.

The margin on Defense.

Oh, sorry. Margin on Defense. Sorry, which program was that again?

$900 million, over…

Oh the $900 million. That's, again, that's, that's under the broader contract. So it's, it's pricing that's consistent. And as we had a question earlier, you get the natural benefit of expanding the total number of units out there. So you get, you'll get a small margin improvement over the remainder of the contract because of that, and that is reflected that in that cumulative catch up adjustment as well that that we recognize in the quarter.

Our next question comes from line of Mig Dobre with Robert W. Baird. Please proceed with your question.

Yes, good morning. Thanks for going over here and fitting me in and Wilson, best of luck. I guess I'm going to beat this dead horse to death with price cost and extra equipment. I'm just trying to understand kind of what the setup is here. Is it that you have this net $10 million headwind because of all the sort of forward buying and other tools that you've deployed on a cost side? Or is it that you're going to be applying more dynamic pricing as the year progresses to gradually offset the headwind? So, if I'm looking at delivery, say into the fourth quarter of 2021. I would be thinking, the customer different pricing than the second quarter of 2021? You see what I mean?

Yes. I guess -- so the bottom line is, I guess, we're looking at not just -- but we're looking at all commodities and all of our cost dynamics. We have a lot of different cost dynamics. And the other dynamic is, we're still not able to fully call what the top line is. So I guess, foundationally, we're not -- we don't know exactly where steel is going to go. So we're trying to give an indication that, hey, we think there is a headwind here, we think it's $10 million-plus. But we're still early. We're not going to see an impact of this until really the second half of Q3 and Q4. And we've managed through elevated steel prices in the past. We're managing it well. That's why we're not seeing an impact until the back half of the year. And it doesn't mean that we don't have further opportunities to mitigate it through our -- through the various tools that we deploy. So I guess, just know that we believe today there's a headwind. We're managing it, and we're going to continue to leverage our tool back to execute in a disciplined manner.

I think what I'd add there Mig is, as the access team has great relationships with their customers, and they're very transparent in their discussions. So there's nobody that they're working with today. That doesn't understand that there's there could be some steel headwinds coming. We don't like to talk about our pricing strategies for competitive issues on this call, but as Mike says, the toolkit workforce last time we learned a lot and I know the access team will stay disciplined as we work through this one.

I appreciate that. And maybe lastly here, just a thought on seasonality and how that might play through in Access Equipment. I know typically, the third quarter is usually your strongest revenue quarter. But we're coming off the bottom here. Do you expect the business to build sequentially and have different seasonality this year? Thanks.

So just going back to our prepared remarks, I think what we're -- what we know at this time is that we still expect the first half of the year to be down, you saw it in Q1. And you can imply what that Q2 will be down. The -- it is -- we are seeing that moderating now. I guess, once we start to looking at Q3 and Q4, we believe between the two quarters that, that growth is going to be enough to yield full year growth. Exactly how that shakes out though, Mig, I think, has a lot to do with just what we see for infection rates around the country and then the ability for our customers to take on the equipment. So I think you could see a timing aspect that's a little challenging to call sitting here today between Q3 and Q4. And then, of course, the total magnitude of that second half recovery. So I think that we're still working through that with our customers. And again, there's inputs into this, namely the pandemic that can ultimately input the timing and the ultimate magnitude.

Mig, this is John. I think, in general, when we saw that the seasonality change was really in 2020, the pandemic hit us in the end of Q1, most fully in Q2 and Q3 and Q4. We expect this to start to go back to maybe more of a normal seasonality. Now, that's dependent upon continuing to get positive news on vaccines and vaccine distribution, because it's really interesting how the vaccine news has impacted the Access Equipment market. But if we continue to get favorable rollout of vaccines, and there's been choppiness in that as we've all seen. But we're all still expecting to get the vaccines rolled out, then I think we're going to see more normal seasonality really kind of resume in 2021 in Spring Summer periods of time.

Got it. Thank you.

Thanks, Mig.

Our next question comes from line of Jerry Revich with Goldman Sachs. Please proceed with your questions.

Hi. Good morning, and welcome, John. Will please accept my congratulations, as well.

Thanks.

I'm wondering if we could expand the discussion around the JLTV international opportunity? How meaningful are the conversations that you're having relative to the size of the domestic JLTV business today? And obviously, the customers will ultimately decide how much of their Humvee fleets they want to replace. But I'm wondering if you could just help us get a sense for the pipeline and just building the confidence on that $2 billion Defense number that you spoke about earlier in the call and obviously consistently over time?

Yes. Jerry, we're working with a lot of different countries on JLTV orders. The -- we had the Belgium order for $130-some-odd million that we took that we announced a quarter ago. And we've had other orders from Montenegro and Lithuania and Slovenia and Brazil and Macedonia, etc. There's probably about 40 different countries that make up the bulk of the international market for JLTVs. We're working with several of those countries. And continue to have new interest come in all the time. Usually, it starts out with a smaller order and then as the vehicles get put into the fleet, then subsequent orders come after that. But remembering that the market in total, when you look at the fleet size of Humvees that are out there, there's 60,000 armored Humvees in these international markets and with our allies. And over time, many of those will get replaced with a JLTV. So we really believe that we're in the early innings of addressing the international opportunity on JLTV. And this is a long-term opportunity that will probably go to 2030 and beyond.

Okay. Thank you. And then follow up on actual equipment. I'm wondering, can you just talk about what you're seeing in the telematics data that you're tracking in Europe and North America? I guess, I'm a bit surprised that the second quarter outlook for access implies sales are 10% weaker than normal seasonality despite the positive developments off the bottom that were discussed earlier in the call. So maybe you could just expand on what you're seeing there? Thanks.

Yes. I'll talk in general, but also about those utilization rates. So the big concern that everybody talks about is the non-residential construction was unfavorable in 2020 and is projected to continue to be down in 2021. So non-residential construction is a big metric for us in the Access world now offsetting that and why do we feel confident about returning to growth later in the year? Number one is equipment utilization that you just referred to. Equipment utilization based on our telematics data is back to where it was a year ago. So that's a very positive point. The other one -- the couple of others are: improving rental rates with our customers, improving rental rates with good utilization are coupled with -- as we always talk about the fleet age, that all bodes well to be a nice backstop or counter measuring non-residential construction being down. So we're really confident in the recovery. What we don't really have great clarity on is the exact timing and the exact speed of the recovery, that's probably still a little bit dependent upon the trajectory of the pandemic that we talked about. But equipment utilization back to where it was pre-pandemic, but that's adjusted for seasonality, I'm talking year-over-year.

In Europe as well. Sorry, John, just to clarify Europe as well as North America.

I don't have the European utilization data in front of me. I'm sorry, Jerry. Pat and I'll follow up later.

We'll try to follow up later. Thanks.

Thanks.

Thanks, Jerry.

Our next question comes from line of Ross Gilardi with Bank of America Merrill Lynch. Please proceed with your question.

Thanks, guys for squeezing me in. And I want to just add my congratulations to Wilson and John as well. I just -- all my questions have been answered. But inventory position, I was curious about that. Your inventories are flat quarter-on-quarter despite taking production downtime. And now you're stepping up your production in second quarter. Are your customer discussions giving you more confidence that you can take down that inventory number meaningfully as customers start ordering again without having a significant under production? And I know you're not guiding consensus for about $7 billion in revenue for fiscal 2021. Can you give us any sense as to where you'd like to see that inventory number exiting the year if that's broadly in the right ballpark?

Sure, Ross. I think just based on your question, I think it's maybe implying that its Access Equipment, that stayed flat. Access Equipment is actually down in the quarter. So we saw some nice improvement with higher revenue than our expectations in that segment where inventory is up a bit. In our segments, where we had a bit more absenteeism and -- during the quarter, which created some production interruption, but also we -- in those segments, we invested a bit more in safety stock to protect against line stoppages and so on. So that's really what you're seeing. The Access team has done a great job managing their inventory. We're positioned very well coming into the production cycle, and they're doing outstanding job managing it. We expect to exit the year at a very solid -- with a solid decrease in inventory. And so again, we'll continue to manage through it.

Thanks very much.

Thanks Ross.

Our next question comes from a line of Felix Boeschen with Raymond James. Please proceed with your questions.

Hey, good morning everybody, and thanks for squeezing me in here at the end. I just have a quick one. I really wanted to touch on the electric RCVs you talked about. I know you've been testing those with an OE partner. And it sounds like you're delivering the first real batch here sometime this year already. Just wondering broadly if you could expand on how you've seen customer reactions to electric offerings really changed in the past year? And how quickly you could see more broad-based adoption here? Maybe better ask, what's the biggest hurdle to adoption you guys still see?

So it's a great question. I'm going to first start by saying that we have incredible engineering capability at Oshkosh and a lot of work that's happening in electrification. So we -- and we are working hard on electrification across all of our segments. And in doing that, we partner with really the best-in-class suppliers to develop the technology that we need to develop. So we talk about some examples, the Access, all-electric DaVinci scissor lift. That's a -- the demand for that product, which is on sale now, has been much better than we had anticipated. It's an incredible product. There's no hydraulics on it of any kind. And it gives a lot of benefits to the user. We've also created a commercial -- in our Commercial segment, a fully electrified prototype of a concrete mixer, and that's with customers doing kind of data testing work to get customer feedback and that front discharge concrete mixer, that's in the same segment as refuse collection, where as you mentioned, we're working with an OE partner on electrified vehicles that will go-to-market now. So there are certain use cases that are closer to adoption than others. And it's really dependent upon total cost of ownership equations. When we electrify a product, there's benefits in manoeuvrability, there's benefits in drivability, there's instant torque versus an ICE engine, a lot more synergy with autonomy and connectivity and operating expense is a lot lower. But it really depends upon the use case that you put it in, the recharging infrastructure that's there. Do they go back to the same base every day? Or do they have to be away from a recharge station for long periods of time? So there's a lot of factors that go into it. But ultimately, when the total cost of ownership equation fits, that's when you start to see nice adoption rates. We think that there's clearly an opportunity in refuse. That's why we're partnering with an OE to put electrified units in the market this year. But lots of opportunity and specific use cases that we address, and this will all continue to evolve over a long period of time. But in the very, very near future, you'll hear us come out with announcements on other products that we're electrifying that are coming to market. So an exciting time for electrification..

Very helpful. Thank you.

Thanks, Felix.

Thank you. We have no further questions at this time. Mr. Jones. I would now like to turn the floor back over to you for closing comments.

Thank you, operator and thanks to everyone for joining us today. We really appreciate your interest in the Oshkosh Corporation. I know I can speak for John, Mike and Pat that they'll look forward to speaking with you in the near future, the virtual conference or another earnings call and -- everybody stay healthy out there. Let's work together to get through this. Take care.

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