baird’s 2019 global industrial conference · 2019-11-05 · forward-looking statements...
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Oshkosh CorporationBaird’s 2019 Global Industrial ConferenceNovember 5, 2019
DAVID SAGEHORN – EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICERJOHN PFEIFER – EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICERPATRICK DAVIDSON – SENIOR VICE PRESIDENT, INVESTOR RELATIONS
Forward-looking statements
2Baird's 2019 Global Industrial Conference November 5, 2019
This presentation contains statements that the Company believes to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including, without limitation, statements regarding the Company’s future financial position, business strategy, targets, projected sales, costs, earnings, capital expenditures, debt levels and cash flows, and plans and objectives of management for future operations, are forward-looking statements. When used in this presentation, words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “should,” “project” or “plan” or the negative thereof or variations thereon or similar terminology are generally intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond the Company’s control, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors include the cyclical nature of the Company’s access equipment, commercial and fire & emergency markets, which are particularly impacted by the strength of U.S. and European economies and construction seasons; the Company’s estimates of access equipment demand which, among other factors, is influenced by customer historical buying patterns and rental company fleet replacement strategies; the strength of the U.S. dollar and its impact on Company exports, translation of foreign sales and the cost of purchased materials; the expected level and timing of U.S. Department of Defense (DoD) and international defense customer procurement of products and services and acceptance of and funding or payments for such products and services; the Company's ability to predict the level and timing of orders for indefinite delivery/indefinite quantity contracts with the U.S. federal government; risks related to reductions in government expenditures in light of U.S. defense budget pressures, sequestration and an uncertain DoD tactical wheeled vehicle strategy; the impact of any DoD solicitation for competition for future contracts to produce military vehicles; risks related to facilities expansion, consolidation and alignment, including the amounts of related costs and charges and that anticipated cost savings may not be achieved; projected adoption rates of work at height machinery in emerging markets; the impact of severe weather or natural disasters that may affect the Company, its suppliers or its customers; performance issues with key suppliers or subcontractors; risks related to the collectability of receivables, particularly for those businesses with exposure to construction markets; the cost of any warranty campaigns related to the Company’s products; risks associated with international operations and sales, including compliance with the Foreign Corrupt Practices Act; risks that an escalating trade war and related tariffs could reduce the competitiveness of the Company's products; the Company's ability to comply with complex laws and regulations applicable to U.S. government contractors; cybersecurity risks and costs of defending against, mitigating and responding to data security threats and breaches; the Company's ability to successfully identify, complete and integrate acquisitions and to realize the anticipated benefits associated with the same; and risks related to the Company’s ability to successfully execute on its strategic road map and meet its long-term financial goals. Additional information concerning these and other factors is contained in the Company’s filings with the Securities and Exchange Commission, including the Form 8-K filed October 30, 2019. All forward-looking statements speak only as of the date of this presentation. The Company assumes no obligation, and disclaims any obligation, to update information contained in this presentation. Investors should be aware that the Company may not update such information until the Company’s next quarterly earnings conference call, if at all.
Oshkosh Corporation key messages
• A different integrated global industrial
• Committed to disciplined capital allocation
• Positioned for long-term success
3Baird's 2019 Global Industrial Conference November 5, 2019
4Baird's 2019 Global Industrial Conference November 5, 2019
A Different Integrated Global IndustrialMarket leader
Technology & operational synergies
Diverse end markets
ScaleStrong financial performance
Integrated approach reinforces Oshkosh value proposition
Disciplined Capital Allocation
FY20 capital allocation priorities • Invest to innovate and grow
• Target returning ~50% of FCF* to shareholders
• Grow dividend
• Opportunistically evaluate potential acquisitions
5Baird's 2019 Global Industrial Conference November 5, 2019
Target > 50% free cash flow* returned to shareholders over the cycle
Maintain strong and flexible balance sheet
($00
0s)
*Non-GAAP results. See appendix for reconciliation to GAAP results
0%
20%
40%
60%
80%
0
500
1000
1500
FY16 FY17 FY18 FY19
4 Year Cumulative Free Cash Flow Returned to Shareholders
% FCF* Returned to SH's Dividends Repurchases
Baird's 2019 Global Industrial Conference November 5, 2019
Strong Brands Value Creation
(1) Company estimates
6
Broad industry leadership North America Rank (1)
Fire apparatus #1
Wreckers & carriers
Airport products (ARFF/Snow removal) #1
#1Refuse collection vehicles
#1
#2
Concrete mixers & batch plants
Global Rank (1)
Aerial work platforms & telehandlers #1
Military tactical wheel vehicles #1
Strong and improving cultureDriving team member engagement
People First at Oshkosh• Engage. Develop. Connect.
• Maturing the concept
• Driving better results
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Industry data says
Recognized leader in making a difference
Customers• Innovation and quality drive market leadership• Received Magnus Hendrickson award for innovative achievement in vehicle dynamics
Shareholders• Long-term focus on generating attractive returns• Three-year Adj. Operating Income* CAGR of +27% and +38% Adj. EPS* CAGR
Ethics and Compliance• Ethisphere Institute’s 2019 World’s Most Ethical Companies list
(4th consecutive year)
Sustainability• Named as a member the Dow Jones Sustainability™ World Index in 2019• #17 in Barron’s “Top 100 Most Sustainable Companies”
(2nd consecutive year in top 20)
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* FY16 – FY19; Non-GAAP results. See appendix for reconciliation to GAAP results.
Oshkosh Corporation profile – FY19
Broad end market exposure provides solid foundation
Access Equipment
Defense
Fire & Emergency
Commercial
Revenue by segment
49%15%
24%
12%North America
EMEA
Rest of world
Revenue by geography
86%
6%8%
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Strong FY19 Performance
Strong execution and results in an uncertain environment
Double-digit sales growth in fire & emergency and defense segments
FY19 operating income margin >10% in 3 segments
Generated >$400M FCF
Strong capital allocation
Returned ~$425 million to shareholders through share buybacks and dividends
Increasing quarterly cash dividend by 11%
Net Sales(billions) Adjusted EPS*
+8.8% +30.7%
*Non-GAAP results. See appendix for reconciliation to GAAP results
$8.38
$7.71
$8.31
$6.36
FY18 FY19 FY18* FY19*
OSK FY19 Performance
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Access Equipment – FY19 Highlights
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Strong finish to FY19 - full year record revenues exceeding $4B Higher North America and Asia Pacific sales Product adoption in Asia Pacific remains a strong
market driver
Expanding manufacturing footprint in China in response to expected continued strong growth in the region
Market outlook Lower Q4 orders and backlog due to more cautious
capex approach by customers
Expect lower segment sales in FY20
Fleet demographics support expectation of increased replacement demand in North America in FY21
North America Fleet Replacement Demand
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0.0%
5.0%
10.0%
15.0%
20.0%
201820172016201520142013201220112010
Model Year of Fleet
Composition of Rental Fleet in 2019 as Percent of Total Units(1)
(1) Rouse Services: Age composition of Access Equipment of “Rouse 8” fleets in North America as of 07/31/2019
Fleet growth of 2012 – 2015 expected to drive demand in future years
Defense – FY19 Highlights
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TWV supplier of record, with deliveries expected through:
FHTV 2022JLTV 2024FMTV 2026 JLTV program continues to mature following Full
Rate Production milestone earlier in 2019 Incorporating configuration changes into production Program timing and budget on track
Significant interest in Oshkosh products at recent DSEI and AUSA tradeshows Showcasing Oshkosh’s tactical wheeled vehicle
leadership Expect to book international JLTV orders in FY20
Well positioned for FY20 sales despite U.S. government budget delay and continuing resolution
JLTV is next-generation protected mobility for the modern battlefield
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Global Light TWV Market PotentialSignificant international interest / opportunity
Today’s HMMWV Installed Base*
• 240,000+ HMMWVs
• 60 countries
• 30+ configurations 53%47%Armor CapableHMMWV
* Source: Government publications, IHS Jane’s, SIPRI, AM General Website
Jeep HMMWV
JLTV
The Oshkosh JLTV is shaping the future of light military vehicles
Fire & Emergency – FY19 Highlights
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FY19 performance set new segment records for sales and operating income > 1,100 basis point operating margin improvement
since FY13
Domestic municipal demand, increased U.S. Air Force volume and timing of international sales drove FY19 sales
Orders up 10% for full year Highest order rate at Pierce since FY09
Uncertain trade policy negatively impacted international orders
Expect flat to slight growth in North America fire truck market in FY20
Commercial – FY19 Highlights
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Strong finish to FY19 Increased RCV sales Operations back to normal
Simplification focus regaining momentum after recovery from partial roof collapse
Expect stable RCV and concrete mixer markets in FY20 to be similar to FY19 RCV at or slightly above long term average Concrete mixer remains below long term
average Expect choppiness as customers assess macro
outlook
Well positioned for successFavorable market dynamics and benefits of MOVE position OSK to deliver solid results
• Attractive End Markets • Defense• Fire trucks• Refuse collection
• Secular Tailwinds• Population growth• Urbanization• Household formation
• Strong free cash flow over the cycle• Growth optionality• Ensures strong balance sheet
• Integrated approach to cost containment• MOVE Strategy• Simplification
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Positive long-term outlook
Contacts:
Patrick N. DavidsonSenior Vice President, Investor Relations
pdavidson@oshkoshcorp.com
920-966-5939
Jeffrey D. WattDirector, Investor Relations
jwatt@oshkoshcorp.com
920-233-9406
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Appendix: Oshkosh FY20 expectations
• Revenues of $7.9 - $8.2 billion• Operating income of $690 to $765 million• EPS of $7.30 to $8.10
Additional expectations Corporate expenses of $150 - $155 million
Tax rate of ~21.25% - 21.5%
CapEx of ~$150 million
Free Cash Flow* of ~$450 million
Share count of ~69 million**
Q1 expectations Lower sales
− All segments lower except defense EPS percentage down more than sales
− Prior year large defense positive cumulative catch-up adjustment
Segment information
Measure Access Equipment Defense Fire &
Emergency Commercial
Sales (billions) $3.5 – $3.8 ~$2.2 ~$1.2 ~$1.05
Operating Income Margin
11.25% – 12.25% ~9.0% 14.5% – 15.0% ~7.0%
* Non-GAAP results. See appendix for reconciliation to GAAP results
** Assumes 50% of free cash flow returned to shareholders throughshare repurchases and dividends
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Consolidated FY19 results
FY19 comments
Sales impacted by:+ Higher sales in access equipment,
defense and fire & emergency segments
Adjusted EPS* impacted by:+ Higher sales volumes+ Share repurchases
Fiscal Year 2019 2018
Net Sales $ 8,382.0 $ 7,705.5
% Change 8.8% 12.8%
Adjusted Operating Income $ 797.0 $ 667.2*
% Change 19.5% 29.9%
% Margin 9.5% 8.7%
Adjusted EPS* $ 8.31 $ 6.36
% Change 30.7% 49.6%
*Non-GAAP results. See appendix for reconciliation to GAAP results
Dollars in millions, except per share amounts
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Appendix: Access Equipment FY19 Results
FY19 comments
Sales impacted by:+ Higher volume in all regions,
except EMEA+ Improved pricing
Adjusted operating income* impacted by:+ Higher sales volume+ Improved price/cost+ Lower freight costs
Backlog down 59% vs. prior year to $390 million at year end
*Non-GAAP results. See appendix for reconciliation to GAAP results
Dollars in millions
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Fiscal Year 2019 2018
Net Sales $ 4,079.7 $ 3,776.8
% Change 8.0% 24.8%
Adjusted Operating Income $ 502.6 $ 417.0*
% Change 20.5% 37.7%
% Margin 12.3% 11.0%
Appendix: Defense FY19 Results
FY19 comments
Sales impacted by:+ Ramp up of JLTV program− Absence of int’l M-ATVs
Adjusted operating income impacted by:‒ Adverse product mix‒ Facility startup costs+ Higher sales volume
Backlog up 34% vs. prior year to $2.49 billion at year end
Dollars in millions
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Fiscal Year 2019 2018
Net Sales $ 2,032.1 $ 1,828.9
% Change 11.1% 0.5%
Adjusted Operating Income $ 203.3 $ 206.4*
% Change (1.5)% (2.4)%
% Margin 10.0% 11.3%
Appendix: Fire & Emergency FY19 Results
FY19 comments
Sales impacted by:+ Higher fire truck deliveries+ Impact of ASC 606+ Improved pricing
Operating income impacted by:+ Higher sales volume+ Improved price/cost- Adverse product mix
Backlog down 1% vs. prior year to $970 million at year end
Dollars in millions
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Fiscal Year 2019 2018
Net Sales $ 1,266.1 $ 1,069.7
% Change 18.4% 3.8%
Operating Income $ 176.5 $ 137.6
% Change 28.3% 28.4%
% Margin 13.9% 12.9%
Appendix: Commercial FY19 Results
FY19 comments Sales impacted by:
‒ Lower deliveries in part due to partialroof collapse in Q2
Adjusted operating income impacted by:‒ Impact of partial roof collapse+ Favorable product mix+ Improved price/cost
Backlog down 21% vs. prior year to $297 million at year end
Dollars in millions
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Fiscal Year 2019 2018
Net Sales $ 1,022.2 $ 1,054.7
% Change (3.1)% 8.7%
Adjusted Operating Income $ 66.8 $ 68.2*
% Change (2.1)% 55.7%
% Margin 6.5% 6.5%
*Non-GAAP results. See appendix for reconciliation to GAAP results
Appendix: Commonly used acronymsARFF Aircraft Rescue and FirefightingAWP Aerial Work PlatformAMPS Aftermarket Parts & ServiceASC Accounting Standards CodificationCapEx Capital ExpendituresCNG Compressed Natural GasDGE Diesel Gallon EquivalentDoD Department of DefenseEMD Engineering & Manufacturing DevelopmentEMEA Europe, Middle East & AfricaEPS Diluted Earnings Per ShareFAST Act Fixing America’s Surface Transportation ActFDIC Fire Department Instructors ConferenceFHTV Family of Heavy Tactical VehiclesFMS Foreign Military SalesFMTV Family of Medium Tactical VehiclesFRP Full Rate ProductionFYDP Future Years Defense ProgramGAAP U.S. Generally Accepted Accounting PrinciplesGAO Government Accountability OfficeHEMTT Heavy Expanded Mobility Tactical TruckHET Heavy Equipment TransporterHMMWV High Mobility Multi-Purpose Wheeled VehicleIRC Independent Rental CompanyIT Information TechnologyJLTV Joint Light Tactical VehicleJPO Joint Program OfficeJROC Joint Requirements Oversight CouncilJUONS Joint Urgent Operational Needs StatementL-ATV Light Combat Tactical All-Terrain Vehicle
LRIP Low Rate Initial ProductionLVSR Logistic Vehicle System ReplacementM-ATV MRAP All-Terrain VehicleMRAP Mine Resistant Ambush ProtectedMSVS Medium Support Vehicle System (Canada)NDAA National Defense Authorization ActNOL Net Operating LossNPD New Product DevelopmentNRC National Rental CompanyOCO Overseas Contingency OperationsOH OverheadOI Operating IncomeOPEB Other Post-Employment BenefitsPLS Palletized Load SystemPUC Pierce Ultimate ConfigurationR&D Research & DevelopmentRCV Refuse Collection VehicleRFP Request for ProposalROW Rest of WorldSMP Standard Military Pattern (Canadian MSVS)TACOM Tank-automotive and Armaments CommandTDP Technical Data PackageTPV Tactical Protector VehicleTWV Tactical Wheeled VehicleUCA Undefinitized Contract ActionUIK Underbody Improvement Kit (for M-ATV)UK United KingdomZR Zero Radius3PL Third Party Logistics
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Fiscal Year ended September 30,
2019 2018 2017 2016
• Net cash flows provided by operating activities• Additions to property, plant and equipment, net• Proceeds from sale of equipment held for rental, net• Free cash flow
$ 589.1(165.3)
(14.6)$ 409.2
$ 436.3(89.6)
1.0$ 347.7
$ 246.5(85.0)22.1
$ 183.6
$ 583.9(92.4)
5.4$ 496.9
Appendix: GAAP to Non-GAAP reconciliationThe table below presents a reconciliation of the Company’s presented GAAP measures to the most directly comparable non-GAAP measures (in millions):
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Fiscal Year ended September 30,
2019 2018 2017 2016
• Consolidated operating income (GAAP)*• Costs and inefficiencies related to restructuring actions• Litigation settlement• Business interruption insurance proceeds• Loss on sale of a small product line• Long-lived asset impairment charge• Adjusted consolidated operating income (non-GAAP)
$ 797.0-----
$ 797.0
$ 656.035.4
(19.0)(6.6)1.4
-$ 667.2
$ 470.343.3
----
$ 513.6
$ 364.00.9
---
26.9$ 391.8
Appendix: GAAP to Non-GAAP reconciliationThe table below presents a reconciliation of the Company’s presented GAAP measures to the most directly comparable non-GAAP measures (in millions):
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*As restated for the adoption of ASU 2017-07
Fiscal Year ended September 30,
2019 2018 2017 2016
• Earnings per share-diluted (GAAP)• Costs and inefficiencies related to restructuring actions, net of tax• Impairment charge, net of tax• Litigation settlement gain, net of tax• Business interruption insurance proceeds, net of tax• Loss on sale of a small product line, net of tax• Debt extinguishment costs, net of tax• Revaluation of net deferred tax liabilities• Repatriation tax• Adjusted earnings per share-diluted (non-GAAP)
$ 8.21-------
0.10$ 8.31
$ 6.290.37
-(0.21)(0.07)0.010.10
(0.39)0.26
$ 6.36
$ 3.770.48
-------
$ 4.25
$ 2.910.010.22
------
$ 3.14
Appendix: GAAP to Non-GAAP reconciliationThe table below presents a reconciliation of the Company’s presented GAAP measures to the most directly comparable non-GAAP measures (in millions, except per share amounts):
28Baird's 2019 Global Industrial Conference November 5, 2019
Appendix: GAAP to Non-GAAP reconciliationThe table below presents a reconciliation of the Company’s presented GAAP measures to the most directly comparable non-GAAP measures (in millions):
FY20 expectations
• Net cash flows provided by operating activities • Additions to property, plant and equipment• Additions to equipment held for rental, net • Free cash flow
$ 600.0(150.0)
-$ 450.0
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Fiscal year ended September 30
2019 2018
• Access equipment segment operating income (GAAP)• Costs and inefficiencies related to restructuring actions• Adjusted access equipment segment operating income (non-GAAP)
$ 502.6-
$ 502.6
$ 387.529.5
$ 417.0
• Defense segment operating income (GAAP)• Litigation settlement• Adjusted consolidated operating income (non-GAAP)
$ 203.3-
$ 203.3
$ 225.4(19.0)
$ 206.4
• Commercial segment operating income (GAAP)• Restructuring costs • Proceeds from business interruption insurance• Loss on sale of a business• Adjusted commercial segment operating income (non-GAAP)
$ 66.8---
$ 66.8
$ 67.55.9
(6.6)1.4
$ 68.2
Appendix: GAAP to Non-GAAP reconciliationThe table below presents a reconciliation of the Company’s presented GAAP measures to the most directly comparable non-GAAP measures (in millions):
30Baird's 2019 Global Industrial Conference November 5, 2019
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