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Oshkosh Corporation Reports 2016 Second Quarter Results

OSK, +13.30% today reported fiscal 2016 second quarter net income of $56.1 million, or $0.76 per diluted share, compared to $54.6 million, or $0.69 per diluted share, in the second quarter of fiscal 2015. Results for the second quarter of fiscal 2015 included after-tax costs of $9.3 million incurred in connection with the refinancing of the Company’s senior notes due 2020. Excluding this item, fiscal 2015 second quarter adjusted [1] net income was $63.9 million, or $0.81 per diluted share.

Consolidated net sales in the second quarter of fiscal 2016 were $1.52 billion, a decrease of 1.9 percent compared to the prior year second quarter. Higher sales in the defense, fire & emergency and commercial segments almost completely offset a decline in sales in the access equipment segment.

Consolidated operating income in the second quarter of fiscal 2016 was $91.4 million, or 6.0 percent of sales, compared to $109.7 million, or 7.1 percent of sales, in the prior year second quarter. The decline in operating income was driven by lower access equipment segment sales and higher corporate expenses, offset in part by improved performance in the defense segment. The Company also experienced improved margins and operating income in the fire & emergency and commercial segments as both segments continued to execute on strategies to deliver improved operational efficiencies.

“I’m proud of the focus that our team members exhibited executing our MOVE strategy as we delivered earnings per share of $0.76 during the second fiscal quarter, significantly exceeding our expectations,” stated Wilson R. Jones, Oshkosh Corporation president and chief executive officer. “Better than expected results in the access equipment and defense segments, along with discrete tax benefits of $0.06 per share, drove the higher than previously anticipated earnings.

“Our North American access equipment rental customers, as expected, adopted a more cautious approach to rental fleet capital expenditures during the quarter. However, we believe rental company market conditions continue to support a reasonable level of fleet investment. We believe a generally more positive view on the U.S. economy, a solid construction outlook and a relatively mild winter in the U.S. led some rental companies to make access equipment purchase decisions earlier in the year than they may have previously planned, leading to higher than expected sales in the access equipment segment in the second quarter.

“The defense segment achieved sales in the quarter above our prior expectations and delivered strong operational performance,” added Jones. “We’re also pleased that our defense team can now move forward on the JLTV program without the constraints of the competitor protest that was filed after the award of the production contract to Oshkosh. Our defense team is energized to begin delivering these game-changing vehicles to our customer this fall. The team also secured a contract that they have been pursuing from an international customer for more than 1,000 M-ATVs. The team is working with the customer to finalize the funding and vehicle delivery schedule for this important contract and as a result, our outlook for fiscal 2016 and the defense segment backlog exclude any sales of vehicles under this contract.

“We are modestly raising our earnings per share expectations for fiscal 2016 from a range of $2.20 to $2.60 to a range of $2.30 to $2.70, largely as the result of a lower estimated tax rate, along with increased expectations for results in the defense segment.”

Factors affecting second quarter results for the Company’s business segments included:

Access Equipment – Access equipment segment sales declined 23.2 percent to $754.3 million for the second quarter of fiscal 2016. The decline in sales was primarily due to the slowdown in North American replacement demand that began last summer and lower shipments of telehandlers in North America. In the second quarter of fiscal 2015, the access equipment segment experienced a large increase in telehandler sales related to the transition to Tier 4 engines.

Access equipment segment operating income decreased 44.7 percent to $75.7 million, or 10.0 percent of sales, for the second quarter of fiscal 2016 compared to $136.9 million, or 13.9 percent of sales, in the second quarter of fiscal 2015. The decrease in operating income was primarily the result of the lower sales volume and a challenging pricing environment, the impact of a prior year benefit associated with a favorable vendor recovery settlement and adverse manufacturing absorption as the business significantly reduced production rates, offset in part by lower spending on engine emissions standards changes.

Defense – Defense segment sales for the second quarter of fiscal 2016 increased 87.1 percent to $297.0 million. The increase in sales was primarily due to increased sales of Family of Heavy Tactical Vehicles (“FHTVs”) and international Mine Resistant Ambush Protected All-Terrain Vehicles (“M-ATVs”). The Company experienced a break in production under the FHTV program in the second quarter of fiscal 2015.

The defense segment recorded operating income of $27.8 million, or 9.4 percent of sales, for the second quarter of fiscal 2016 compared to an operating loss of $12.0 million, or 7.5 percent of sales, in the second quarter of fiscal 2015. The increase in operating results was largely due to higher sales volume and favorable product mix.

Fire & Emergency – Fire & emergency segment sales for the second quarter of fiscal 2016 increased 18.5 percent to $240.4 million. Sales in the second quarter of fiscal 2016 benefited from higher domestic fire apparatus deliveries as a result of increased production rates to meet higher demand and the delivery of a multi-unit international order. Improved operational efficiencies have allowed the fire & emergency segment to increase and maintain higher production rates.

Fire & emergency segment operating income increased 66.0 percent to $14.9 million, or 6.2 percent of sales, for the second quarter of fiscal 2016 compared to $9.0 million, or 4.4 percent of sales, in the second quarter of fiscal 2015. Higher sales volume was the largest contributor to the increase in operating income.

Commercial – Commercial segment sales increased 7.1 percent to $236.7 million in the second quarter of fiscal 2016. The increase in sales was primarily attributable to higher refuse collection vehicle volume driven by fleet replenishment by private waste haulers and share gains.

Commercial segment operating income increased 99.0 percent to $17.2 million, or 7.3 percent of sales, for the second quarter of fiscal 2016 compared to $8.6 million, or 3.9 percent of sales, in the second quarter of fiscal 2015. The increase in operating income was primarily a result of improved product mix and higher sales volume.

Corporate – Corporate operating expenses increased $11.4 million in the second quarter of fiscal 2016 to $44.2 million. The increase in corporate operating expenses in the second quarter of fiscal 2016 was primarily due to increased start-up costs of a shared manufacturing facility and higher health care costs compared to the second quarter of fiscal 2015.

Interest Expense Net of Interest Income – Interest expense net of interest income decreased $13.1 million to $15.1 million in the second quarter of fiscal 2016. Results for the second quarter of fiscal 2015 included a $14.7 million charge related to debt extinguishment costs in connection with the refinancing of the Company’s senior notes. Excluding debt extinguishment costs, adjusted [1] interest expense net of interest income increased $1.6 million in the second quarter of fiscal 2016. The benefit of lower interest rates on the Company’s refinanced senior notes was more than offset by increased borrowings to support increased working capital levels.

Provision for Income Taxes – The Company recorded income tax expense of $20.3 million in the second quarter of fiscal 2016, or 27.0 percent of pre-tax income, compared to $29.5 million, or 35.7 percent of pre-tax income, in the second quarter of fiscal 2015. The Company recorded $4.4 million, or $0.06 per share, of discrete tax benefits in the second quarter of fiscal 2016.

Share Repurchases – Share repurchases completed...


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