Oshkosh Corporation (OSK) Earnings Call Transcript & Summary

Greetings, and welcome to the Oshkosh Corporation Second Quarter 2026 Results Conference Call. [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 second quarter 2026 results. A copy of that 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. 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 and other factors that could cause actual results to be materially different from those expressed or implied by such forward-looking statements. These risk factors include, among others, factors that we listed in our release this morning and matters that we have described in our most recent Form 10-K and other filings we make with the SEC as well as matters noted at our Investor Day in June 2025. 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. Our presenters today are John Pfeifer, President and Chief Executive Officer; and Matt Field, Executive Vice President and Chief Financial Officer. Please turn to Slide 3, and I'll turn it over to you, John.

Good morning, everyone, and thank you for joining us today. In the second quarter, we delivered consolidated sales of $2.9 billion and adjusted earnings per share of $2.87. We continue to benefit from growth in our Access segment with strong order intake of $1.5 billion. Additionally, we have robust backlogs at our Transport and Vocational segments and we're focused on increasing production, which is foundational to delivering our 2028 goals. We are building momentum and remain confident in our ability to deliver on our Investor Day targets. Within our Vocational segment, we are continuing actions to modernize our fire truck manufacturing and expand production to better serve strong customer demand and support long-term growth. Over the past quarter, we have implemented production changes to improve throughput. To support these changes, we are implementing new implant material flow processes that shift from reliance on individuals and experience to standardized modern process flows that will support our continued transformation to high-flow production lines. As a result of these changes, we expect to produce and ship fewer fire trucks this year than we previously planned. However, the work we are doing positions us well for 2027 and 2028. As a result of our revised expectations for production this year, we now expect full year adjusted earnings per share in the range of $11. Across the company, we continue to hear a common theme from customers who are looking for solutions that are safe, intuitive, productive and maximize fleet uptime. We are investing in AI-enabled technologies, autonomy and connectivity that are shaping the airport of the future, the job site of the future, the neighborhood of the future and the battlefield of the future. Please turn to Slide 5, and we'll continue to review some highlights since our last call. As expected, our Access segment delivered double-digit operating income margins with strong Q2 sales in a dynamic environment. We now expect full year Access segment revenue to grow compared to 2025, an improvement from our original expectation for a modest decline. Large infrastructure investments and mega projects remain important sources of demand, and our newest products, including micro-sized scissors and ClearSky smart fleet connected technologies continue to resonate with customers. We remain focused on managing the business with discipline, improving price/cost dynamics, driving operational productivity and innovating our products and services. These innovations will drive the job site of the future where we see tremendous promise in bringing autonomous AI-enabled solutions to construction sites. Orders in the quarter were strong at $1.5 billion, resulting in a book-to-bill ratio of 1.1. We enter the second half of the year with good visibility, supported by $2 billion backlog the end of the quarter. Mega projects are continuing to drive demand for our Access equipment, and we are working to ensure we have the inventory and production flexibility to support the demand. Turning to Slide 6 in our Vocational segment. Backlog and demand for fire apparatus and airport products provides excellent visibility and supports our investment in our manufacturing operations to drive long-term growth. We are making meaningful progress in modernizing our manufacturing operations and implementing the changes needed to improve material flow and assembly efficiency. These initiatives represent a transformation of our manufacturing operations for fire trucks. And while production throughput is improving more gradually than we initially expected in the near term, these steps remain the right actions to reduce lead times and better serve our customers. Demand for OshKosh AeroTech remains strong as airports continuing investing in expansion and modernization. Once again, order intake during the quarter was solid, particularly for passenger boarding bridges with key wins in Chicago, Denver and Philadelphia. In addition, we continue to advance our vision for airport of the future, including testing an autonomous, AI-enabled ground support robot at Grand Rapids Airport in the quarter. Refuse collection vehicle sales were lower than last year as we previously discussed. Even amidst lower sales, the quality of our products has resulted in notable recent orders including a significant order with the Sanitation Department of New York. Overall, we believe the long-term outlook for our vocational segment remains strong. Our backlog and market position continue to provide an excellent foundation for future growth, and we are confident in achieving our long-range targets. Please turn to Slide 7. In the Transport segment, we continue to ramp production of the next-generation delivery vehicle. We are excited to see more of our vehicles serving postal carriers and communities across the country. The fleet has now surpassed 35 million miles and feedback from both the United States Postal Service and its drivers remains positive, reinforcing the safety, productivity and reliability benefits platform. Our Defense business also continued to build momentum during the quarter. Participation at the EUROSATORY exhibition in France highlighted the growing interest we are seeing from both existing and potential customers. As defense priorities continue to evolve globally, we believe Oshkosh is well positioned to leverage our engineering capabilities, manufacturing scale and proven mobility platforms to pursue additional opportunities in both domestic and international markets. During the quarter, we received orders from the U.S. and international customers including a $142 million order for the FMTV A2 program and a $92 million order supporting the United States Marine Corps Rogue Fires platform, which combines next-generation autonomy with the protection, mobility, speed and off-road capability marines rely on in harsh environments. These awards reinforce the confidence our customers place in Oshkosh Defense while providing additional visibility beyond 2026 for these products. I'll hand it over to Matt to review our financial results and provide additional details on our outlook.

Thanks, John. Please turn to Slide 8. Consolidated sales for the second quarter of $2.9 billion, increased $183 million or 6.7% compared to the same quarter last year. The increase primarily reflected improved sales volume and pricing. Adjusted operating income was $258 million, down from $313 million in the prior year, primarily due to unfavorable mix and higher manufacturing overhead costs. which, in part, continues to reflect our investments for future production, partially offset by higher sales volume. Free cash flow for the quarter was $348 million, a significant improvement compared to $49 million last year. Our strong free cash flow reflected continued discipline in managing working capital, particularly related to inventory as well as higher customer advances. Our expectation for cash conversion remains strong for the year. During the quarter, we repurchased approximately 667,000 shares of our stock for $92 million. Turning to our segment results on Slide 9. Access second quarter sales of $1.4 billion were up 9.4% from last year. The increase was driven by higher sales volume and improved pricing. As John mentioned, demand is improving. We delivered a book-to-bill ratio of 1.1 during the quarter, more than double the second quarter last year as robust Q2 orders followed strong activity in the first quarter. Access achieved a solid double-digit adjusted operating income margin of 11.3%, which was lower than last year, in part due to adverse product and customer mix. As expected, price/cost dynamics also remained unfavorable compared with last year, primarily due to tariff costs. As we previously discussed, even though tariffs were announced in the second quarter last year, we did not see the cost impact until later in 2025. For the year, we still expect to be price cost neutral. Vocational sales of $967 million were relatively flat compared to last year, as lower volume, primarily Refuse and recycling vehicles more than offset improved pricing. Fire truck shipments were roughly in line with last year. Despite lower volume, the Vocational segment delivered an adjusted operating income margin of 13.5% as adverse sales mix and higher manufacturing overhead costs, including our investments in pure specialities, were partially offset by favorable price cost dynamics. Transport segment sales increased $57 million or 12% to $536 million in the quarter, primarily due to higher sales volume. Delivery vehicle revenue grew by $155 million to $262 million, more than offsetting the decrease in defense volume. Delivery represented nearly half of transport segment sales during the quarter and delivery revenue grew more than 20% sequentially compared to the first quarter of 2026. As expected, Defense revenue was lower than last year. As a reminder, in the second quarter of 2025, we were still building domestic JLTVs with the last units built in May 2025. Transport segment operating income was $16 million, down $2 million compared with last year, reflecting adverse mix as well as higher warranty and manufacturing overhead costs, which were partially offset by a favorable onetime item totaling $17 million related to the NGDV program. We expect Transport operating margin to grow in the back half of the year as we continue to transition out of past fixed price contracts, ramp up NGDV production and expect to receive an additional NGDV order. Turning to our expectations for 2026 on Slide 10. As John mentioned earlier, we are updating our outlook with full year adjusted EPS now expected to be in the range of $11. While our outlook for Access demand is improving, as we have stated, the more moderate pace of improvement for fire truck throughput has reduced our expectations by approximately $0.50. As we execute fire truck production plans, anticipate receiving an additional order for NGDV, increase NGDV production and build on revised defense contracts, we expect that our results in Q4 will be stronger than Q3. We expect that this Q4 momentum carries forward into 2027 and beyond as we work towards our 2028 targets. We still expect free cash flow of $550 million to $650 million, unchanged from our prior guidance. With that, I'll turn it back over to John for some closing comments.

Across Oshkosh, we continue to invest in technologies that make a difference to the Everyday Hero doing essential work in communities and create enduring value for customers. Whether through connected equipment, autonomy, artificial intelligence or electrification, we believe our Innovate, Serve, Advance strategy continues to position Oshkosh to shape the future of job sites airports, neighborhoods and battlefields of the future. To reiterate, we remain confident in our plans to achieve our 2028 financial targets. I'll turn it back to you, Pat, for the Q&A.

Thanks, John. I'd like to remind everyone to please limit your questions to one plus a follow-up. Please stay disciplined on your follow-up question. After the follow-up, we ask that you rejoin the queue if you have additional questions. Operator, please begin the Q&A session.

[Operator Instructions] Our first question comes from the line of David Raso with Evercore ISI.

Trying to figure out the Vocational. It sounds like that $0.50 comment. Just to be clear, is there upside to access and Vocational was taken down more than $0.50, just making sure. I mean, it sounds like you obviously bumped up the total revenue. I just wanted to be clear because it kind of sounded like Vocational was $0.50. I assume it's more than $0.50 and Access has upside? I just wanted to clarify that.

David, thanks for joining. Yes, that's the right way to think about it fundamentally is with the more moderate pace of production, that more than offsets the upside in Access, which was the revision to the guide.

And related to that, the Access upside, I know customer mix is important, price cost is important. How are you thinking about the margins in Access from previously? Just how much can we think of the incremental profitability from the higher volume?

Sure. I mean, over the year, that incrementality should improve as we improve our price cost dynamics. That's the kind of the general way I would think about it.

Our next question comes from the line of Tami Zakaria with JPMorgan.

Question on Access. Can you remind us where the industry Access volumes you expect to be end of this year versus the prior peak levels. What I'm trying to understand is where do you expect the industry to end this year versus the prior peak?

Tough for me to say where the overall industry is going to end up this year. I mean I can give you some context on where we are. I mean the industry right now is being driven primarily by mega projects, mega projects from infrastructure to data centers, which we all hear about every day and many other big mega projects, which is really what's driving a lot of demand right now. And for the most part, that's driven -- that's served by the big national rental companies because they've got the big fleets in order to serve it. So it's a good thing. It's going to go on for a long, long time, as far as we can see right now. The kind of Private, General or Nonres construction segments kind of just plotting along. There's a lot of different segments in that, and that's a huge marketplace for us. We expect that, that will start to improve at some point in the future, hard to call exactly when. Some metrics say it's going to improve by the end of the year, in the fourth quarter or some say, early 2027. But that's even going to just boost the demand that we're seeing even further because right now, it's just kind of plotting along. But overall, we're seeing a really nice improving demand environment for Access equipment.

Understood. That's very helpful color. And I apologize if I missed it, but could you comment on the 3Q EPS expectation versus the $2.87 you did in 2Q? I'm trying to understand what 3Q might look like versus 4Q.

Yes. So as we said on the call, 4Q, we think will be high relative to our normal seasonality. That's really driven as we both have on the slides and said on the script, driven by fire truck production, building under the new price contracts on Defense, NGDV production and then the expectations for an NGDV order. All of that we expect in Q4.

Our next question comes from the line of Stephen Volkmann with Jefferies.

I'm a bit of a slow learner. I apologize. So I was going to ask you if we could dive into access a little bit. And I'm trying to think about the 2 margin drivers that you talked about, the mix and the price cost. Do those get sort of sequentially better each quarter? Or maybe [indiscernible] '27, I don't know how should we think about those 2 mix driver -- mix and price cost driver?

Yes. Difficult to say exactly on mix. As John talked about, it's not exactly clear when we'll see broad-based recovery outside of mega projects. That obviously affects customer mix. In terms of price/cost, we would expect that to improve in part because once we have tariffs in the rearview mirror in terms of a year-over-year comp, that will improve our year-over-year price/cost. But also just through pricing activity as well as cost reductions as we've talked about on prior calls.

Great. And John, on Refuse cycle. Is this kind of a peak and we should expect a couple of years of something a little lower? Or is this a lull in the action as it were.

Well, Steve, the Refuse business has been kind of down in 2026. I mean we said it was going to be down. It has actually been down. In some industrial sectors, we're seeing customers remain cautious on CapEx until they see a little bit more certainty on the macroeconomic future. That's certainly been the case with customers in the refuse business. But the good news is that overall, it's a good market. Fleets remain age, and we all know that the generation of refuse and recycling remains unchanged. So we certainly expect that this business, even though it's been a little bit down in 2026, is going to return to a little bit more normal state maybe as we get into 2027.

Our next question comes from the line of Jamie Cook with Truist Securities.

Sorry, just a couple of follow-ups. Matt, again, on the third quarter versus the fourth quarter, given the items that you called out that are heavily fourth quarter weighted, it sounds like Q3 could potentially be flat to down relative to last year. I'm just wondering if that's the right way to think about it? And then also, my second question is within transport. I think before you were saying that revenue is about $2.5 billion, which I'm assuming that's still the same given you didn't really clarify that. It just implies a pretty healthy ramp. So is that still the right way to think about it? And just your confidence on when we get the NGDV award and how material that is to the guide for the year?

Jamie, roughly, I think that's the right way to think about it in broad frameworks. In terms of the order, we're assuming that's in Q4. I do that just because that's when the fiscal years are for the government. It could be Q3. But for planning purposes, we're assuming Q4, and we have ongoing dialogues with USPS to make sure we have our supply chain ready to support their production.

Okay. But to the first comment, EPS in the third quarter could be flat to down, you're confirming that.

I think that's the right way to think about it with strong Q4 and where we are in our production cycle.

Okay. And then transport is still $2.5 billion for the year.

Ballpark.

Our next question comes from the line of Jerry Revich with Wells Fargo.

I wanted to ask, John, just on your comment on being on track for 2028 targets for aerial platforms, in particular. Can you just talk about how much of a step forward you folks expect to take in 2027 to bridge the gap we're running now versus the '28 targets and your level of confidence on price cost to get there?

Yes. So I'll provide some commentary on the market and where we think it's headed. So we feel really good about where the access market is right now. We certainly feel better today than we did in January, as you know. That's what we've been talking about. But we also feel really good about where it's headed. And there's kind of 2 things happening. Number one, I always say, pay attention to our backlog. Backlog is building. That's good, of course. And I would say we got to pay attention to utilization rates, equipment in the market and how much is it utilized. And the utilization rates are really, really strong. That's both our own data as well as what our customers are telling us. You've seen publicly traded customers already report really strong utilization. So you got utilization improving and really healthy, and we've got backlogs that are building. Couple that with the fact that the boom category is still aged. So we have need for growth in boom equipment in the market, and we have aged boom equipment, so there's continued need to replace boom equipment. Those are all really healthy signs that point towards a strong recovery in the market. We think that, that goes at least through and beyond. With all the activity, mega projects are not going to slow down. And we have, again, the private nonres market that right now is kind of muddling along, but there's a lot of signs saying that at some point in the near future, that's going to pick up as well. So just the context here, we feel like we're in a good spot. We've done a lot of really strong work to position our manufacturing plants as well to be able to serve the market in the recovery that we're in.

And agreed on the recovery for sure. I'm just wondering your level of confidence on the ability to push price. It feels like you might need something like a mid-single-digit type price increases given the timing of tariffs and refunds this year and just general inflation. And John, I'm wondering, obviously, it's early for '27 orders, but what's your level of confidence in being able to price ahead of inflation given the backdrop you described?

Well, the short answer is, we're confident that we can do that. I'll give you a little bit more context. I mean we've been working for the last year on positioning our cost in the context of geopolitical tariff environments, really making sure that we're responding to that. We do a lot of tariff engineering. We think that we're going to get the fruits of that labor as the market continues to recover. But we always try to pay attention to cost first. How do we minimize the cost impact to our customer? That's always job one. we will have to pass some of it on, and we have done some of that, and we're confident that because we're so intensely focused on the cost side that as we pass along what we need to customers that, that will be accepted. And so we're confident that we'll continue to do that. And I think the history has shown that we have the ability to do that.

Our next question comes from the line of Mig Dobre with Baird.

It's Joe Grabowski on for Mig this morning. So my first question, you mentioned the fire truck shipments were roughly in line with last year, and you're making moves to improve the production flow. When do you think you'll start to see the benefits of those improvements that you're working on right now? I know you mentioned 2027, 2028. But is there a chance that we'll start to see some of the benefits later in this year? Or kind of when do you think those will kind of come through?

Yes. You should start to see it in the second half of this year for sure. I'll give you a little context. This is the most complex product that we produce, the municipal fire truck. And we're really transforming how we make it. We say we're going from bay build to high flow production lines, which is a big transformation in the manufacturing operations. And we're moving through that transition right now. We're really confident in the steps that we're taking. We've got the absolute best people on it. That includes expertise from third parties where we need it. We have done this before. We did it at McNeilus, and I can give you other examples beyond that, which we're all very, very successful. But what it's going to result in is a really resilient production flow for fire trucks where we can Sprint right now, we need to be sprinting because we've got huge backlogs. But when we're in normal sort of steady-state production, we'll be super efficient. And so we feel really good about what we're doing.

Got it. Okay. And then my follow-up question, -- if you could just update us on any impact on your facilities from the severe weather in the Appleton area yesterday.

Yes. It was a tough event for this area. I mean, luckily, we came out pretty good. We had people impacted in terms of homes damaged and things like that. And of the 7,000 people we have up here, we had one that was injured. So we're paying very close attention to that person. But operations are intact, a couple of power outages here and there, nothing material that would concern business performance.

Our next question comes from the line of Angel Castillo with Morgan Stanley.