Oshkosh Corporation (OSK) Earnings Call Transcript & Summary

I just build the trucks.

Yes. Okay. Fair enough.

And before we leave, I'd be remissed because I just love the pictures without pointing out the road fires, which sits in the middle there. So we talked about the technologies in Access and the job side of the future. One of the exciting technologies that we have is autonomy and building autonomous capable products. So actually, the middle one there is road fires. It's submarine contract. We got another award for this year, fully autonomous JLTV platform, which in carry multiple payloads. So as we think about the future in this segment, autonomy plays a big role, and we want to be that platform of choice, whether that's as you see there in rod fires or the vehicle of that, which is the PLS, [politice] load system A2, which is autonomous ready. And so really being that platform of choice, whether that's that or other products is one of our key missions.

Okay. And actually, I was going to kind of go there as well because I think you had a recent visit from our -- what are we supposed to call them?

Department of War Secretary.

Department of War Secretary. And there was some discussions around potentially restarting the JLTV line to talk about that?

Yes. So really excited to welcome Secretary [Headset] to our assembly operations 2 weeks ago. I want to say yes. It was really great to have him on site and see our production capacity and capabilities. I know you've visited our plant. The plant that builds these vehicles also builds our [F-Series] concrete mixer, which is in our Vocational segment. So a real commercial and defense application in that plant. He also had the chance to drive the MA TV, which is what he was in in Afghanistan, but also drive our JLTV, which you can see in the lower left. Yes. Sorry. I might have rights and lefts mess up here, but I'm not paid for right and left, unpaid for numbers. And so the JLTV, which we built for many, many years successfully performed spectacularly if nobody's ever driven in [aridna. It is a far step above other vehicles in that space. But the Marine Corps has asked for a request for information earlier this year to support their needs. And so we did respond to that. We've also invested ahead of that so that we can go from kind of a warm line, which is not building JLTVs to servicing Marine Corps or in 10 months. So we were explaining that on the trip as well. It's great to host them.

So how can investors sort of handicap the potential for something like this?

Go to [poly] market. No. I joke, I don't support any of that. But I I don't know, honestly. I would say, follow the news, we build a fantastic JLTV product, and we're happy to serve if we can. But handicapping it, I don't have any advice on that. I'm not a better gambler or -- yes. I don't even do fantasy [football].

All right. Fair enough. Okay. So maybe the last bucket of things to chat about product-wise would be kind of vocational. And there, you've been doing some work to improve throughput, just bring us up to speed on kind of what you're doing and where you are with that?

Absolutely. So in the Vocational segment, our largest operation is [Percefire] trucks. It's the #1 fire truck brand in the U.S. It's over 100 years old. Fire trucks for those who don't know the fire truck industry. I mean everyone loves a firetruck. That's the one thing I've learned in this role. It wasn't surprising to me because I love fire trucks before I joined Oshkosh. I was -- I'm a runner, and so I was running through New York yesterday. And it's just shocking to the when fire trucks come out of a fire department here, people stop and take videos of FDNY driving through the street just to show the power of the service that fire departments provide and the trucks they use are visualization of that. the Sales Director of [Pierce] joked with me once, and I used this joke repeatedly. So those who I see later in the day, I apologize because you will hear it again that if you've seen one fire truck, you've seen one fire truck. They're that unique and customized. Now we have an array of less customized vehicles. But for the most part, when we specialize in and what people ask for is a highly customized fire truck. And what that means is the manufacturing processes were established decades ago. And really, without the industry largely expanding, they've stayed the same. And so what we were originally focused on was using high flow manufacturing processes and breaking bottlenecks in our facilities and investing $150 million to increase [self] production throughput. And that was based off work we done at [Manelis], which is our [refuse] brand. You can see a picture there in the upper left. Yes, I got that right this time. And taking those principles into fire trucks, which is great, and it makes sense, and you can model it all out, and we've done that. And I can see how we're going to improve our production throughput by 25% to 30%, which is what we are at our Investor Day in 2025 and the journey we're on. What we didn't fully understand is the flow of material, in particular, fabricated parts. So if you look at that beautiful fire truck on the right, all that metal that you can see there, all those boxes, there are storage units, all those storage units, those are all fabricated in-house, as is all the shiny metal. And so if you have a step that's a foot, that's great, but some steps might be 1.2 feet or 1.3. And so all of those are [Benton] cut and welded in-house. And so making sure the flow of those parts internal to the plant are working effectively as you speed up the plant. So that's really where we're focused now. The processes as we relocated them are broken bottlenecks, those are looking good. Now we're really focused on making sure the flow of parts can support same line speed. And that was the learning we had in the second quarter was just we need to really look at how do parts go within the plant throughout the plan.

So is it becoming a little bit less custom then? Is that the prices?

We'd certainly be happy. We have a build my peers program, which takes it down from, like, whatever, 2 million [options] to $10,000 or something. That certainly could increase throughput. But if a fire truck wants a fully customized truck, we're still going to build it because the exacting standards of each fire department is different. Some need high turning rates, some don't. Some need more onboard water, some need less. So it really varies truck by truck. So our job is to create a flexible assembly line that can manage that complexity in an efficient way. And the great thing about the investment and why we've been so comfortable with it because I've gotten this question a lot over the last year is Well, you've got a backlog now that's 3, 4 years, what happens when that normalizes, what happens at the industry starts slow a little bit. What's great about the process we're putting in is it's a very flexible line. And so when we need extra capacity, you can run it faster, when you don't, you can run super efficient. And so it's not just through bricks and mortar up, it's really redesigning how fire trucks have been built for the first time in probably 50 years.

So what are lead times now? And where do you want them to be?

Lead times are still extended. So if I was taking a custom fire truck order today, it would be probably 2029 or so. That's too long. It really needs to be 12 to 18 months. And so that's what we're working towards is building more fiber trucks faster with the quality and customization that our customers.

Okay. And I think you're on track to increase production sort of 10% this year? Is that still...

It's our goal this year is by the end of the year, we had increased production 10%. Last year, we got a 10% increase in the second half of last year relative to the prior year. We're targeting 10% by the end of this year with the goal of getting 25% to 30%.

And how do you expect the margins to step up then as you go through this process?

So they have -- you saw that in the second quarter, they've taken a little bit of a dip as we've invested in the facilities as we've had some more assets in place, labor and otherwise to build fire trucks during the transition. Over time, we expect us to be solidly in that 16% to 18% margin range that we guided for 2028 for the segment.

Okay. And then maybe lastly, not leastly, refuse, maybe the one market that hasn't been sort of showing growth recently. Talk to us about sort of where we are in the cycle for [refuse] and how that played out?

Yes, really excited with our [McNelis] brand, which is our go-to-market brand for refuse trucks. You can see our [Volterra] there in the upper left. This one actually faces me, I should be able to do this without looking, but anyway, so the Volterra is a fully electric vehicle designed around the driver with, as you can see in the picture, optimized visibility, but also ergonomics and the ability to step into it. We're really excited about innovations we launched in that sector around refuse identification adding technology that makes the vehicle safer, more productive and so really excited about that end market. But it is in a slower state this year. We saw it come off a strong demand last year. The indications we have is that the end market, which is municipalities, I guess, the end market relates to us to generate garbage, but the people who contract the services are the municipalities are really taking a pause on ordering or signing new contracts, given inflation, given uncertainty around tariffs. And so without new long-term contracts in place, the waste haulers are pausing some of their purchases of trucks, which then affects us. And so I think we'll be through it in the near future. I don't know if that's late this year. I don't know if it's next year. But the reality is the flow of the process, the creation of refuse and recycling hasn't changed at all. So the age of the fleets are still aged. And so at some point, that flow, and industry needs to come back. But it's it's down, call it, 20% to 30% this year relative to last year. So I think it will come back at some point. I just don't have exact timing on that.

And it's hard to find data on that cycle from our perspective on the as external folks. Where do you think we are in that cycle? Do we normally have more than a year of downturn?

It's a great question. I've looked for the same data, and I haven't found that out so I'm glad to see I'm not alone. All indications are it shouldn't be an extended one because, again, the drivers of the pause in demand are uncertainty around the tariff environment and some of the '27 model year engine upgrades, some of the EPA certifications and so forth. We're going to get through those. Certainly, the tariff environment appears to be stablish. And so I think we should see a clearing of this, call it, the next 12 to 18 months.

Okay. Good. All right. So that's a good round the horn on the businesses. Maybe we'll take a moment anybody would like to ask a question here. All right. I can keep going then. You started to talk a little bit about technology and sort of your tech stack and how you're sort of sharing that amongst businesses. But I think maybe it might make sense to delve in a little deeper there. How do you share that amongst the businesses? And what are the sort of attach rates? What are the responses you're seeing from customers?

Yes. Technology is one of the most exciting parts about this business. One of the things I love about commercial vehicles and the end markets we serve is that you don't really need to guess what customers want. I mean you sit with them, and they'll tell you what their pain points are. They can tell you, "Hey, I want my side liter be 5 seconds faster because then I can pick up x more cans per day." They'll tell you their pain points about airport rescue firefighting. You can see a little bubble there with our [RF truck]. The electrification solves because if you have an electric it actually manages your pump, so you can pump and drive at the same time without having to manage the engine and the revs for that. And so we see a lot of opportunity with technology. And we've shared that to date on multiple fronts. So electrification is one of those examples. We have an electric fire truck. There is a combination of electric diesel. We have the same on the RF truck, the airport firefighting truck. We have an electric refuse truck that I spoke about earlier. So electrification is one of those skills that crosses vehicles. In fact, at [Eurosatory] we had an electric JLTV, which we had as a demonstrator and took to Europe. So that electrification is one of those channels. Autonomy and robotics is another one that I'm personally really excited about. We already have a [Jet dock]. So we build [Jet bridges] here in the U.S. primarily. And we have autonomous jet docking, which is somebody standing much like you are at a podium who has to handle a couple of switches to get the jet bridge to the plane. But [jetdock2.0] could allow that Jet Bridge to be monitored remotely and go straight to the plane. And so the ability not to set on a plane in here, I'm sorry, we're waiting for somebody to man the jet bridge is something near and dear to my heart, and I'm sure everybody who listens to this call. So bringing technology on [the tarmac, we think is a fantastic opportunity. And that's either autonomous technologies with Jet bridges, but also as you see on this picture, and there's videos we've shown call with airport of the future, but bringing robots under the Tarmac because I don't fully appreciate that when there's lightning you can't have people out guiding planes in and helping park the planes. Well, you can have robots. And so what we've done is we've taken some of the defense technologies we have and identified applications in -- do you have -- yes, okay, good Airport in the future has that robot fact here in the picture. And identified use cases on the Tarmac where you can take that robotic technology, sensing technology and then bring it into jobs in the airport. So this example here, you can see on the screen, is perimeter detection because sometimes like [deer, cross offense or other things cross-penses] that show and the airport needs to know that. But there's also things like there's a person who puts -- they're called [Chalk], those triangles that go in front of and behind the wheels. They have to put those in place. Well, you can have a robot do that. And so really excited to see that robotic technology go from, in this case, defense to airport, but also we invested in a robotics company, [Nextera robotics] for job sites, and we acquired technologies called [Canvas], which does a drywall sanding robot. It's a job -- it's a tough job, but it's great for robots. And so bringing robotics to the job site, bringing it to the airport neighborhoods. What are the things that really excites me.

Okay. Good. One more chance from the field here -- we do have one. Hold on one second for the mic. Thank you.

On price cost and access, segment next year. I'd be really curious to hear your thoughts on kind of the most important considerations there for you being successful in that? And do you see any challenge in the way you're going to after price with the NRCs versus IRCs? And is that typically -- is there typically a [bifurcation] in your ability to price between those two very important channels. And I'm curious if there are negotiations, that sort of thing involved with the NRCs and just kind of your degree of confidence going into next year?

Sure. So price cost is important for any company, especially in a inflationary environment or an environment where you're managing things like tariffs or raw material prices, not unique to us. And so the first thing any company has a responsibility to do is do whatever they can to offset the cost impact. And it depends on the driver of that cost impact. So we talked earlier in this year a lot about managing tariffs and that would be both through optimizing sourcing. How do you import parts those various things, footprint actions, so where do you build, what you build. And that's not just unique to the U.S., by the way. So we localized boom lift into our [Hino] facility, which we have been importing from our Chinese plant probably 2 years ago. And so making sure, first and foremost, you're addressing cost. And so tariff engineering, tariff management is on sourcing. Negotiation is another one. So aggressive negotiation on cost and make sure you're buying at best cost and that can be through scale across the company, and that could be through just understanding the best cost of design. Redesign, so making sure your designs are efficient is also your responsibility as a company and then production efficiency and kind of SG&A. So making sure you're efficient on your cost side first before you talk about pricing. Then you do need to talk about pricing for what you can't offset. Obviously, that does differ. There are different prices at volume, as anyone knows who shops at Costco. You pay a lower price per item at Costco than probably anywhere else on hypothesize that might not be true on everything. But certainly, when you take home bulk cans of coffee. You tend to get a discount. And so that's true in our industry as well. And so we have those discussions ongoing their regular discussions. Nothing to talk specifically about 2027 on that. But it is something we work through to get price cost neutral by year-end this year, and then we'll talk about 2027 at the appropriate time.

Have you launched that Costco Boom Lift product yet?

Not yet. No. No. It takes up a lot of floor space at Costco. So I think it would be did have to sell it at the outside.

Yes. Yes. Anyway, let's not go down that rabbit hole. 1 minute and 30 seconds left. Should we talk about capital allocation quickly? Priorities, plans.

Yes. So thanks for -- so our capital allocation, we shared at Investor Day in June 2025, very focused on, first and foremost, maintaining an investment-grade balance sheet. That's important for capital companies like ours that invest. So maintaining investment-grade balance sheet first and foremost, and then investing in our core business. You heard about a lot of those opportunities today, whether that's investing in fire truck manufacturing whether that's investing in robotics and technology. But investing in ourselves is the single best return we have on our capital. Additional capital, we're committed to a steady increase in dividends. We've increased our dividend for I think now 12 straight years by 10 percentage or more. And so having a steady growth in dividend is important to our shareholders. It's important to us. We then look at the remaining capital. We're always looking at what companies might be a good role in our portfolio or technologies, and we're evaluating our own portfolio as well. as well as we're looking at where our share price is and what our multiples are, to determine the next best use of capital. And so we've participated in share buybacks throughout this year. and last year as we think that's a good use of our capital for our shareholders. We've also looked at acquisitions. Some of those have come to fruition like in 2023 when we acquired [AeroTech] or our acquisition of [Henao] followed us to localize [bullets]. So that's kind of what we look at at the last part of our capital allocation, but investing in our core business, as we talked about buying ahead to support JLTV and other things, that remains [about use] of capital.

Super. All right. That's right on time. Thank you guys so much. Appreciate the insights.

Thank so much for having me.