Oshkosh Corporation Reports Fiscal 2008 Fourth Quarter and Full Year Results
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OSHKOSH, Wis. November, 3, 2008: Oshkosh Corporation , a leading manufacturer of specialty vehicles and vehicle bodies, today reported fiscal 2008 fourth quarter earnings per share (EPS) of $0.72 on sales of $1.90 billion and net income of $53.6 million. These results compare with EPS of $1.14 on sales of $1.79 billion and net income of $85.4 million in the prior year’s fourth quarter.
For the fiscal year ended September 30, 2008, the Company reported, excluding impairment charges1, EPS of $3.37 on sales of $7.14 billion and net income of $252.4 million. Including pre-tax impairment charges of $175.2 million ($2.31 per share, net of taxes) recorded in the third quarter of fiscal 2008, the Company reported EPS of $1.06 and net income of $79.3 million for its fiscal year ended September 30, 2008. These results compare with EPS of $3.58 on sales of $6.31 billion and net income of $268.1 million for the fiscal year ended September 30, 2007.
“We finished the year with a solid fourth quarter performance, driving strong cash flow and more than $200 million of debt reduction,” said Robert G. Bohn, Oshkosh Corporation chairman and chief executive officer. “Our growing defense business led the way in the quarter, which helped propel our full year revenue to more than $7 billion for the first time in our history.
“Looking ahead to fiscal 2009, debt reduction and cost management will remain priorities for us during this period of weaker global economies and uncertain credit markets. However, we intend to make limited strategic investments in global and new product development initiatives to continue moving our company forward,” said Bohn.
Sales in the fourth quarter of fiscal 2008 increased 5.8 percent compared to last year’s fourth quarter. These results included strong demand for defense vehicles and armor kits as well as increased refuse collection vehicle and fire apparatus sales, offset in part by a decrease in sales for the Company’s access equipment segment products as a result of the slowdown in the U.S. and, to a lesser extent, European economies.
Fourth quarter operating income decreased 31.9 percent to $122.1 million, or 6.4 percent of sales, compared to the prior year fourth quarter operating income of $179.2 million, or 10.0 percent of sales. The decrease in operating income was related primarily to lower operating income in the access equipment segment as a result of lower volume, higher raw material costs and adverse product mix.
Factors affecting fourth quarter results for the Company’s business segments included:
Access Equipment – Access equipment segment sales decreased 11.7 percent to $742.1 million for the fourth quarter of fiscal 2008 compared to the prior year quarter. Sales in North America declined more than 20 percent versus the comparable prior year quarter on significantly lower aerial work platform shipments as a result of weak U.S. construction markets. Sales in Europe declined nearly five percent. Sales continued to grow in emerging markets in the fourth fiscal quarter, and favorable foreign currency exchange rates also contributed to segment sales in the quarter.
Operating income in the fourth quarter of fiscal 2008 decreased 56.2 percent to $50.2 million, or 6.8 percent of sales, compared to the prior year fourth quarter operating income of $114.5 million, or 13.6 percent of sales. The decrease in operating income was primarily the result of lower volume, higher raw material costs, in particular steel, and adverse product mix, offset in part by favorable foreign currency exchange rates.
Defense – Defense segment sales increased 31.0 percent to $553.4 million for the fourth quarter of fiscal 2008, compared to the prior year fourth quarter due to the continuing requirements of the Company’s largest customer, the U.S. Department of Defense. During the fourth quarter of fiscal 2008, the Company experienced a substantial increase in sales of heavy-payload tactical vehicles for the U.S. Army and reducible-height armor kits for Medium Tactical Vehicle Replacement trucks for the U.S. Marine Corps.
Operating income in the fourth quarter of fiscal 2008 increased 3.8 percent to $75.1 million, or 13.6 percent of sales, compared to the prior year fourth quarter operating income of $72.4 million, or 17.1 percent of sales. The decrease in operating income as a percent of sales compared to the prior year quarter reflected an increase in the production of vehicles under contracts renewed with lower negotiated margins, costs associated with a ramp-up to higher production levels, learning curve costs associated with the change to the new Heavy Expanded Mobility Tactical Truck A4 configuration and start-up losses under the Logistic Vehicle System Replacement (LVSR) vehicle contract. These items were offset in part by better absorption of fixed costs and improved performance on in-theater service work.
Fire & Emergency – Fire & emergency segment sales increased 25.6 percent to $366.5 million for the fourth quarter of fiscal 2008 compared to the prior year quarter. The increase in sales reflected increased market penetration by the Company’s domestic fire apparatus business, higher sales at the Company’s international fire apparatus business as a result of a shift in the timing of multiple-unit sales from the third quarter to the fourth quarter of fiscal 2008 and strong airport products growth.
Operating income increased 26.2 percent in the fourth quarter to $33.2 million, or 9.1 percent of sales, compared to the prior year quarter operating income of $26.3 million, or 9.0 percent of sales. The increase in operating income during the fourth quarter was primarily related to the higher sales in the segment, offset in part by the costs of a work stoppage that was settled during the quarter at a fabrication facility.
Commercial – Commercial segment sales increased 4.7 percent to $261.2 million in the fourth quarter of fiscal 2008 compared to the prior year quarter. The increase in sales was caused by a more than 30 percent increase in domestic refuse collection vehicle sales as the Company believes customers worked to reduce the age of their fleets, offset in part by a 20 percent decline in sales of concrete placement products as a result of lower construction activity in the U.S.
The commercial segment incurred an operating loss of $6.9 million, or (2.6) percent of sales, for the fourth quarter of fiscal 2008, compared to an operating loss of $3.1 million, or (1.2) percent of sales, in the prior year quarter. The operating losses in the fourth quarter of both fiscal 2008 and 2007 were caused by losses sustained at the Geesink Norba Group (Geesink), the Company’s European refuse collection vehicle business.
Geesink sustained an operating loss of $10.7 million in the fourth quarter of fiscal 2008 as compared to a loss of $8.4 million in the prior year quarter. The loss in the fourth quarter of fiscal 2008 was driven by costs related to inefficiencies associated with the start-up of production of Norba-branded refuse collection vehicles in The Netherlands, restructuring costs of $4.5 million and higher material costs.
Corporate and other – Corporate operating expenses and inter-segment profit elimination decreased $1.4 million to $29.5 million for the fourth quarter of fiscal 2008 compared to the prior year quarter. The decrease was the result of lower incentive compensation and travel costs, offset in part by additional information technology spending.
Interest expense net of interest income decreased $9.4 million to $47.6 million in the fourth quarter of fiscal 2008, compared to the prior year quarter largely as a result of lower interest rates and the repayment of a portion of the borrowings incurred in connection with the JLG acquisition. Due to a focus on working capital management, the Company was able to reduce total debt by $202.5 million during the fourth quarter to $2.77 billion at September 30, 2008 as compared to $2.98 billion at June 30, 2008.
The provision for income taxes in the fourth quarter of fiscal 2008 decreased to 26.1 percent of pre-tax income compared to 30.0 percent of pre-tax income in the prior year fourth quarter. The current year rate was positively impacted by the implementation of tax planning strategies, additional income in lower tax rate jurisdictions and the doubling of the domestic manufacturing deduction rate in 2008. The prior year rate reflected a favorable tax audit settlement and the re-instatement of the federal research and development tax credit. Because Congress did not act until October 2008 to extend the federal research and development tax credit, the Company will record a full twelve months of research and development tax credits in the first quarter of fiscal 2009.
Full Year Results
For fiscal 2008, the Company recorded EPS of $1.06 and net income of $79.3 million. Excluding impairment charges1, the Company reported that EPS decreased 5.9 percent to $3.37 for fiscal 2008 on sales of $7.14 billion and net income of $252.4 million, compared to EPS of $3.58 for fiscal 2007 on sales of $6.31 billion and net income of $268.1 million. JLG was included in the Company’s operations for the full year in fiscal 2008 compared to only ten months in the prior year following its acquisition in December 2006. Strong international sales at JLG and increased defense segment sales also contributed to current year sales increases compared to the prior year, while the commercial segment experienced a significant decline in sales due to lower concrete mixer demand in North America, generally as a result of lower construction activity in the U.S., combined with the aftereffects of the pre-buy ahead of the 2007 diesel engine emissions standards changes.
Operating income decreased 31.2 percent to $406.3 million, or 5.7 percent of sales, in fiscal 2008 and included a $175.2 million non-cash impairment charge for intangible assets at Geesink recorded during the third quarter of fiscal 2008. Excluding impairment charges1, operating income decreased 1.5 percent to $581.5 million, or 8.1 percent of sales, in fiscal 2008 compared to $590.3 million, or 9.4 percent of sales, in fiscal 2007. This decrease was driven primarily by lower earnings in the commercial and fire & emergency segments due to the weak U.S. economy, larger operating losses at Geesink, including plant rationalization and personnel redundancy costs, escalating raw material costs late in the fiscal year and higher corporate costs largely due to higher personnel costs and information technology spending. These items were largely offset by the inclusion of JLG results for the full year in fiscal 2008 as well as increased defense segment and international access equipment earnings on higher sales.
1 Further information regarding operating results excluding impairment charges and related reconciliations of these non-GAAP financial measures to the most comparable GAAP measures can be found under the caption “Non-GAAP Financial Measures” in this press release, which should be thoroughly reviewed.
Fiscal 2009 Estimates
The Company also announced its fiscal 2009 EPS expectations of $1.65 to $2.05 on projected sales of $6.3 to $6.7 billion. The Company expects continued weakness in economies worldwide to significantly affect sales in fiscal 2009, particularly in the access equipment and commercial segments, driving consolidated sales down from $7.1 billion in fiscal 2008. The Company expects that the decreases in these two segments will be partially offset by an increase in defense segment sales due to U.S. government requirements for new heavy-payload tactical vehicles. The Company expects consolidated operating income margins to be between 5 percent and 6 percent as a result of lower sales expectations and increases in the costs of raw materials in the access equipment segment, offset in part by the expected return to profitability of the Company’s commercial segment.
The Company is proceeding with a plan to avoid seeking an amendment of its credit agreement by maintaining compliance with its financial covenants or at least delay seeking an amendment to mitigate the financial impact. The plan involves targeting $500 million or more of debt reduction in fiscal 2009 and maintaining strong fiscal management. If the Company is not successful in delivering the higher end of its EPS range and timely debt reduction of $500 million or more, then the Company will need to request an amendment to its credit agreement. In the event that the Company would need to amend its credit agreement, the Company would likely incur substantial fees and significantly higher interest costs than reflected in its EPS estimate range for fiscal 2009. The Company believes that an amendment could be obtained if ultimately necessary and believes that it has adequate liquidity to operate its business.
Dividend Announcement
Oshkosh Corporation’s Board of Directors declared a quarterly dividend of $0.10 per share of Common Stock. The dividend, unchanged from the immediately preceding quarter, will be payable November 25, 2008, to shareholders of record as of November 17, 2008.
The Company will comment on fourth quarter and full year fiscal 2008 earnings and expectations for fiscal 2009 during a conference call at 9:00 a.m. EST this morning. Viewer-controlled slides for the call will be available on the Company’s website beginning at 8:00 a.m. EST this morning. The call will be webcast simultaneously over the Internet. To access the webcast, listeners can go to OSHKOSH starting at 8:45 a.m. EST and follow the instructions for the broadcast. An audio replay of the call and related question and answer session will be available for twelve months at this website.
