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Edited Transcript of OSK.N earnings conference call or presentation 29-Apr-20 1:00pm GMT

·58 min read

Q2 2020 Oshkosh Corp Earnings Call OshKosh Jun 16, 2020 (Thomson StreetEvents) -- Edited Transcript of Oshkosh Corp earnings conference call or presentation Wednesday, April 29, 2020 at 1:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * John C. Pfeifer Oshkosh Corporation - President & COO * Michael E. Pack Oshkosh Corporation - Executive VP & CFO * Patrick N. Davidson Oshkosh Corporation - SVP of IR * Wilson R. Jones Oshkosh Corporation - CEO & Director ================================================================================ Conference Call Participants ================================================================================ * Ann P. Duignan JP Morgan Chase & Co, Research Division - MD * Courtney Yakavonis Morgan Stanley, Research Division - Research Associate * David Michael Raso Evercore ISI Institutional Equities, Research Division - Senior MD & Head of Industrial Research Team * Jerry David Revich Goldman Sachs Group Inc., Research Division - VP * Michael Shlisky Dougherty & Company LLC, Research Division - Senior Research Analyst * Mircea Dobre Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst * Seth Robert Weber RBC Capital Markets, Research Division - Equity Analyst * Stanley Stoker Elliott Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst * Stephen Edward Volkmann Jefferies LLC, Research Division - Equity Analyst * Timothy Thein Citigroup Inc, Research Division - Director and U.S. Machinery Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Greetings, and welcome to Oshkosh Corporation Reports Fiscal 2020 Second Quarter Results Conference Call. (Operator Instructions) Please note, this conference is being recorded. I would now like to turn the conference over to your host, Pat Davidson, Senior Vice President of Investor Relations for Oshkosh Corporation. Thank you. You may begin. -------------------------------------------------------------------------------- Patrick N. Davidson, Oshkosh Corporation - SVP of IR [2] -------------------------------------------------------------------------------- Good morning, and thanks for joining us. Earlier today, we published our second quarter 2020 results. A copy of the 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 that could cause actual results to be materially different from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we have described in our Form 8-K filed with the SEC this morning and other filings we make with the SEC. 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. All references on this call to a quarter or a year are to our fiscal quarter or fiscal year, unless stated otherwise. Our presenters today include Wilson Jones, President and Chief Executive Officer; John Pfeifer, Executive Vice President and Chief Operating Officer; and Mike Pack, Executive Vice President and Chief Financial Officer. On our last call, we introduced Mike as our CFO successor. He hit the ground running back in January and today he'll be reporting on our financial results and discussing some of the actions we are taking. He's not a newcomer to Oshkosh. He's been with us for 14 years in roles of increasing responsibility and will continue to be a strong part of our leadership team going forward. So welcome to you, Mike. Please turn to Slide 3, everybody, and I'll turn it over to you, Wilson. -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [3] -------------------------------------------------------------------------------- Thank you, Pat. Good morning, everyone. Before I share my general comments, I want to take a step back and remind everyone that we are truly a different, integrated global industrial. We are better positioned to navigate through a crisis like COVID-19 than ever before. We have a strong balance sheet and liquidity. We have strong backlogs in our Defense and Fire & Emergency segments, giving us visibility well into 2021. And we have a strong people-first culture, driven to persevere through adversity. We responded quickly to the outbreak and have already developed a robust return to work plan that we continue to refine. With that said, we're all facing challenges brought on by the COVID-19 pandemic. Our first priority has been to keep our team members safe and to help reduce the spread of this virus. We're balancing that safety-focused approach with our responsibility -- responsibilities to customers as we supply them with essential products and services that operate in many critical industries. In fact, all of our products and services are considered essential, and we received communication from the Department of Defense, requesting us to continue manufacturing Defense vehicles and fire trucks. It's a tremendous responsibility and we are proud of the important role we play in keeping our country safe. Our teams moved quickly when the virus came to light in the first part of the quarter. At that time, the business impact was isolated to China and didn't become a major issue in Europe or North America until later in the quarter. But we didn't wait. We began daily action meetings, including all key functional areas to assess risks regarding our people, our customers, our operations, our supply chains and our communities. We've analyzed many scenarios as we strive to balance team member safety and protection while maintaining operations to serve our customers. Our office team members remain productive and are working remotely. For those team members who are required to be on-site for production, we've implemented Center for Disease Control recommendations to promote social distancing and to help keep our workplaces safe. We've gone beyond these stringent guidelines with staggered breaks and work schedules and increased Access to disinfecting cleaning supplies and sanitizers, and our teams are investing time to extensively clean work areas to minimize the chances of infection among our 15,000-plus team members. I want to give a shout out to all Oshkosh team members for their passion and commitment, especially our manufacturing teams that are answering the calls every single day. With near-term demand and supply chain challenges facing our businesses, we are squarely focused on managing our cost structure and preserving liquidity. We've instituted temporary plant shutdowns in our Access equipment segment to match production and customer demand and supply chain constraints. And we've implemented salary reductions, furloughs and other cost reduction actions across the company. We believe these cost reductions are a responsible way to manage the company during these unprecedented times. We have not made permanent staff reductions as we believe the crisis is temporary in nature. We've been through many challenges before and while COVID-19 is different, our business is well positioned to manage through this pandemic. I remain confident in our leaders, our people and our ability to deliver healthy decremental margins for the year. Please turn to Slide 4 for some highlights on the quarter. Revenues were down 9.7% to $1.8 billion, leading to operating income of $134 million and adjusted earnings per share of $1.25. I'm proud of all the efforts the Oshkosh team members provided this quarter and our people-first culture is alive and well to deliver these solid results. Late in our second quarter, we began to hear from customers in our Access equipment segment that wanted to push out delivery requirements and cancel some existing orders. There were similar requests, but to a lesser extent, with our Commercial segment. While COVID-19 has impacted demand in our Access and Commercial segments, demand was largely unaffected in our -- in both of our Fire & Emergency and Defense segments. And these 2 segments have strong backlogs, extending well into 2021, as we enter the back half of 2020. Again, this illustrates what makes us different from other industrials. John and Mike will talk more about these developments and the actions we are taking to drive our performance during this period. During the quarter, we did refinance our senior notes that were due in 2025, extending the maturity and lowering the interest rate, which will save us several million dollars per year. The market demand was very strong for our investment-grade debt. And finally, our Board has approved another quarterly dividend payment of $0.30 per share. Please turn to Slide 5 to begin the discussion for each of our business segments. I'll start off with Defense. Our Defense segment provides a solid foundation for the company, led by its 3 strong programs of record and the demand side of this business has been unaffected by the COVID-19 pandemic. You know the programs by their military acronyms: the JLTV, a high tech, next generation, light payload protected, tactical wheeled vehicle. JLTV production is still ramping up, and we announced 2 more international customers for JLTVs in February. We also participate in the U.S. Army's Industry Day in preparation for a potential recompete of the program in 2022. We are confident in our ability to retain this program. Under the current contract, we maintain strong visibility and expect to deliver JLTVs through 2024. Next up is the FMTV, which is the U.S. Army's medium payload tactical wheeled vehicle. Our production of the current A1P2 version is winding down. We are beginning to transition to the next generation version, the A2. We expect to produce the FMTV A2 through 2026 under the current contract. And finally, the pride of Oshkosh Defense for nearly 40 years, the FHTV. We really kicked off the modern off-road heavy payload tactical wheeled vehicle industry when the U.S. Army selected our entry in their open competition in the early 1980s. We've continued integrating new technologies and upgrading capabilities of these critical units over the past 4 decades. During the quarter, we received large orders for both the JLTV and FHTV programs that positively impacted our quarterly performance and increased our backlog. In fact, we now have the largest backlog for Defense in the last 8 years at $3.4 billion, including nearly $2 billion for 2021. Our team at Oshkosh Defense works very hard to deliver strong results and that was the case again this quarter. While demand remains strong in our Defense segment, the team still faces production challenges due to the COVID-19 related supply chain disruptions and workforce availability. They have successfully navigated through numerous supplier shutdowns, are resourcing critical components and they've addressed workforce issues with social distancing and increased cleaning frequency to enable continued production. However, it's possible, these factors could cause a slowdown in the coming months. Let's turn to Slide 6, and I'll pass it to John to discuss our nondefense segments. -------------------------------------------------------------------------------- John C. Pfeifer, Oshkosh Corporation - President & COO [4] -------------------------------------------------------------------------------- Thanks, Wilson, and good morning, everybody. Coming into the year, we expected lower Access equipment sales in North America and Europe, but we did not expect the effects of the COVID-19 pandemic. The shock to the business landscape is being felt most intensively in this segment. But in spite of the COVID-19 disruption, which drove significantly lower sales as well as supply chain disruption, our Access equipment team delivered another solid quarter with strong decremental margin performance. Led by our simplification drive, we have created a more nimble organization resulting in healthy operating margins at lower sales levels. The impact of COVID-19 was first felt in China as our business was part of the government's mandated shutdown to stop the spread of the virus. The shutdown extended 3 weeks beyond the Chinese New Year and with the entire country largely closed, sales in China basically stopped. The shutdown eventually ended and I'm pleased to report that our Tianjin facility is back up and currently running at pre-COVID-19 levels. All of our team members have returned to work and demand has begun to come back rapidly. We expect a strong second half of 2020 for JLG sales in China. Our long-term outlook in China remains positive as a result of product adoption, driven by safety and productivity improvements provided by these products. However, as COVID-19 began to spread globally in the back half of the quarter and many countries and states issued shelter-in-place restrictions, many customers began to push out and even cancel some orders. Our North American customers have been reviewing their operational requirements and market metrics. They have kept us well informed of their product demand requirements. The situation is fluid, and we are adjusting based upon our frequent communications and daily review process. Further, our North American operations and supply chains are experiencing disruptions as some suppliers have temporarily ceased production. As a result of slowing customer demand as well as production and supply chain constraints, our plants in North America instituted shutdowns from March 30 through April 13 and subsequently extended those shutdowns until April 27. In addition, 2-week shutdowns are planned monthly through July to further align production levels with customer demand. We expect Europe's demand decrease to be more pronounced than North America's, as already slower construction activity is expected to decline further due to COVID-19-related government mandates. We also expect that major disruptions to first and second tier suppliers will persist as the market reacts to COVID-19 operating restrictions. I'd like to finish my comments on JLG by sharing some of the game-changing new products and future technologies displayed to our customers at ConExpo. They highlight our continued positive long-term outlook for this market and the segment. These included all electric scissor lifts, which completely eliminate hydraulic fluid; a self-leveling 67-foot boom that provides unparalleled versatility on rough terrain job sites; as well as augmented and virtual reality tools to simplify training and job site awareness. These innovations drive significant productivity improvements for fleet operators and users of the machines. Our team at Access equipment is experienced and highly capable. We are working closely with customers and suppliers to position the business for success when the current situation improves. Please turn to Slide 7 for a discussion of the Fire & Emergency segment. Pierce is the market leader in custom fire trucks with its broad offering of pumpers, aerials and heavy-duty rescues. Fire trucks remain critical assets to first responders battling the COVID-19 pandemic on the front lines and our commitment to these heroes never waivers. Pierce just completed its largest quarter of fire truck orders in the company's history, leading to a record backlog of more than $1.3 billion for the segment. New order intake may slow in future quarters because of COVID-19, but it puts us in a strong position and provides visibility well into 2021. Despite strong demand, COVID-19 is impacting the Fire & Emergency segment in several ways: supply chain disruptions, workforce availability and modified customer delivery inspections. Much like our Defense business, our team in Fire & Emergency continues to drive strong performance, but they are facing challenges that are broadly in line with all truck and automakers in North America. We did not achieve our revenue target for the second quarter due to the combined effects of COVID-19-related customer travel restrictions and a supplier quality issue that impacted our truck delivery schedule. The supplier quality issue arose when one of our raw material suppliers delivered product that was out of specification. The issue surfaced during the quarter and we quickly identified all products that required replacement materials. This necessitated changes in both our production and delivery schedules, driving labor inefficiencies and shipment delays. Conforming product has been received and we expect to catch up by the end of the year. Customer travel restrictions sparked our team to launch an innovative new virtual inspection process for firefighters to approve their fire trucks. The process was launched very recently, so the benefits were minimal in the second quarter, but we expect fire departments to utilize this approach more frequently in the coming months. Looking to the remainder of 2020, we're expecting North American vehicle manufacturers, ourselves included, to be impacted by COVID-19 supplier shortages. Please turn to Slide 8 and we'll talk about our Commercial segment. Like our other segments, operations in Commercial have remained open since these products are considered essential. COVID-19, however, is impacting mixer product demand as construction sites in some states face temporary shutdowns and customers look to push out deliveries of our units. There are some order pushouts in the RCV and IMT product lines as well. Similar to our other segments, we have supply chain challenges as many suppliers limit their production or shut down due to shelter-in-place requirements. We have generally been successful mitigating these challenges to date but it is possible that a part or component shortage could limit production temporarily in the coming months. Even with those challenges, we continue on our simplification journey. We are also active with the ramp-up of our new front discharge concrete mixer, the S-Series 2.0, complete with connectivity and productivity technology, not previously seen in the concrete placement industry. We formally launched the vehicle at ConExpo in early March. Attendees of the show were excited about the new vehicle and we are all -- and we already have a solid backlog of orders. That wraps it up for our business segments. I'm going to turn it over to Mike to discuss our second quarter results and some additional comments on current business conditions and the actions we're taking. -------------------------------------------------------------------------------- Michael E. Pack, Oshkosh Corporation - Executive VP & CFO [5] -------------------------------------------------------------------------------- Thanks, John, and good morning, everyone. Please turn to Slide 9. We commented on our last earnings call that we expected second quarter sales to be roughly flat to the prior year with earnings modestly lower. However, the situation changed with the COVID-19 outbreak. Consolidated net sales for the quarter were $1.8 billion, down 9.7% from the prior year quarter. Lower Access equipment and Fire & Emergency sales were the primary drivers of the lower consolidated sales, offset in part by higher Defense sales. Access equipment sales were negatively impacted by pushouts in customer delivery requirements as a result of COVID-19. Prior to the emergence of COVID-19, we expected a modest decrease in Access equipment sales as a result of rental company customers in North America slowing down their capital expenditures for fleet expansion after 2 strong years of growth. Defense sales growth in the quarter reflected the continued JLTV production ramp, partially offset by lower FHTV volumes. Fire & emergency sales were lower due to the previously mentioned supplier quality issue that impacted the shipment of units and COVID-19-related travel restrictions impacting customers' abilities to inspect and accept completed units. These shipment delays also contributed to an unfavorable product mix. And Commercial segment sales were approximately flat to the prior year quarter, reflecting an increase in refuse collection vehicle sales, offset by a decrease in concrete mixer sales as the Commercial team was ramping up production of the new S-Series 2.0 front discharge mixer in the current year quarter. Refuse collection vehicle sales were negatively impacted in the prior year quarter by a partial roof collapse at the segment's main production facility. Consolidated operating income for the second quarter was $133.6 million or 7.4% of sales compared to $175.6 million or 8.8% of sales in the prior year quarter. Access equipment operating income declined on lower sales and unfavorable manufacturing absorption as a result of the planned slowdown in production, offset in part by lower management incentive compensation expense, lower amortization expense and favorable product mix. Defense operating income increased as a result of higher sales volumes, offset in part by adverse mix, higher warranty costs and higher new product development investment. Fire & emergency second quarter operating income declined due to unfavorable product mix, lower sales volume and manufacturing inefficiencies. These items were partially offset by improved pricing. Commercial segment's second quarter operating income increased compared to the prior year as a result of improved manufacturing absorption, as absorption was negatively impacted by the partial roof collapse in the prior year quarter, offset by higher litigation and manufacturing start-up costs. Adjusted EPS for the second quarter was $1.25 compared to EPS of $1.82 in the second quarter of 2019. Second quarter results benefited by $0.03 per share from share repurchases completed in the prior 12 months. As Wilson mentioned, we successfully refinanced our $250 million, 5.375% senior notes due 2025 with $300 million, 3.10% senior notes due 2030. We used the additional proceeds to pay down the company's senior secured term loan by $50 million. We expect the refinancing to reduce interest expense by approximately $5.5 million per year. Please turn to Slide 10 for a discussion on the remainder of fiscal 2020. As a result of the evolving impact of COVID-19, including the impact on our customers, suppliers and our team members and production facilities, we withdrew our 2020 financial expectations on March 23. Many of these uncertainties remain, so we are not in a position to provide updated guidance for 2020 at this time. In light of these uncertainties, we took decisive action to reduce pre-tax costs by $80 million to $100 million for the remainder of the year. These cost reduction actions include salary reductions, furloughs, temporary plant shutdowns, limiting travel and reducing project costs and other discretionary spending. Our balance sheet remains strong with available liquidity of approximately $1.2 billion, consisting of cash of approximately $400 million and availability under our revolving line of credit of approximately $800 million. During the quarter, we paused our share repurchases, and we will reevaluate them as we gain further clarity on the year. We are also reducing planned CapEx by approximately $40 million. We believe the third quarter will be our most challenging quarter for all segments, which will impact sales, operating income and decremental margins. Our Access equipment segment faces uncertain customer demand and a risk of supplier shortages of critical components as a result of COVID-19. As discussed earlier, we have implemented temporary plant closures to help balance production and supply chain constraints with revised customer demand. Our Defense and Fire & Emergency segments both have strong backlogs and both segments are essential, so production continues. However, both segments face a risk of supply chain shortages and workforce availability, which may interrupt production and drive inefficiencies. In addition, customer travel for final inspections could remain a challenge in Fire & Emergency. Similar to Access equipment, our Commercial segment is facing more uncertainty in customer demand, combined with the risk of supplier shortages and production interruptions. Our operations team members across the company are working diligently to stay safe and flexible so that we can manage production as effectively as possible during this dynamic period. Please turn to Slide 11, and I'll turn it back over to Wilson now for some closing comments. -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [6] -------------------------------------------------------------------------------- Thanks, Mike. The entire world is going through a challenging time. However, we believe Oshkosh is well positioned to weather these challenges. We have a strong balance sheet and liquidity. Our Defense and Fire & Emergency backlogs provide visibility well into 2021, and we've quickly taken the right actions to manage our cost structure. While we may face further production and supply chain disruptions in the coming months, we are resilient and will adapt and continue to leverage our different integrated global industrial model. I am reassured by the strength and resourcefulness of our team. We are better together and we'll take the right actions to ensure the safety of our team members as we do business the right way. We are communicating frequently and transparently as we manage the company through the current landscape and believe we can deliver solid sales and earnings performance over the long term. I'll turn it back over to Pat to get the Q&A started. -------------------------------------------------------------------------------- Patrick N. Davidson, Oshkosh Corporation - SVP of IR [7] -------------------------------------------------------------------------------- Thanks, Wilson. (Operator Instructions) Operator, please begin the question-and-answer period of this call. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from the line of Jerry Revich with Goldman Sachs. -------------------------------------------------------------------------------- Jerry David Revich, Goldman Sachs Group Inc., Research Division - VP [2] -------------------------------------------------------------------------------- I'm glad you're all doing well. I'm wanting to talk -- can we talk about the really strong decremental margins performance that you folks delivered in Access equipment given the deterioration in March that really stood out? And as we think about the plant shutdowns in April, I'm wondering how would you counsel us to think about the sustainability of decremental margin performance that you folks just delivered given the more challenging environment in the business in April and hopefully a pick-up in activity in May and June? Can you just maybe step us through the moving pieces directionally? That would be helpful. -------------------------------------------------------------------------------- Michael E. Pack, Oshkosh Corporation - Executive VP & CFO [3] -------------------------------------------------------------------------------- Yes. The -- as we look at it, we're certainly very pleased with the performance of Access equipment in the quarter from a decremental standpoint. And it's really a testament they -- as we saw the situation unfold, we jumped on those cost reductions very quickly. As we look to the rest of the year, I'd really point to, particularly at Access, look at on a full year basis. We're looking at a variety of scenarios, of course, really looking at it anywhere from a soft V to elongated U. We have a playbook really to manage through each one of those various scenarios, and we're going to continue to watch certainly as it unfolds. We're comfortable within a range of reasonable scenarios that we're going to maintain sort of mid-20s decrementals in Access. But again, I would really look at on a full-year basis. -------------------------------------------------------------------------------- Jerry David Revich, Goldman Sachs Group Inc., Research Division - VP [4] -------------------------------------------------------------------------------- Okay. And then in terms of the Defense segment, you mentioned 3Q would be challenging across the businesses. Can you just update us on contract to board timing in Defense? And can you just confirm that the challenging quarter comments does apply to Defense? Is that just caution around parts availability, if you wouldn't mind fleshing that point out, please? -------------------------------------------------------------------------------- Michael E. Pack, Oshkosh Corporation - Executive VP & CFO [5] -------------------------------------------------------------------------------- Yes, you're spot on. From a demand perspective, it's -- the demand is there. Our plants are operating. It's really a function of managing through the supply chain and workforce availability. -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [6] -------------------------------------------------------------------------------- I think the overall comment of Q3 being our challenging quarter, Jerry, is really for all 4 segments, not just Defense. -------------------------------------------------------------------------------- Jerry David Revich, Goldman Sachs Group Inc., Research Division - VP [7] -------------------------------------------------------------------------------- So it sounds like -- just a clarification, it sounds like we haven't seen any big supplier disruptions yet, but obviously given the environment, it's appropriate to be cautious. But we haven't seen anything yet that says 3Q will be a challenging quarter for Defense, it's just prudent at this point? -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [8] -------------------------------------------------------------------------------- Well, I -- no, we've had supplier constraint issues in all segments and in Defense. Again, our global procurement supply chain team has been all over this. We're managing suppliers, as there -- are they in business? Are they out? Are they -- even from a liquidity standpoint, how are they doing? And we've been able to resource to some other suppliers. So it's -- there's still kind of a slippery slope ahead of us as we work through this quarter but the team has done a nice job of navigating at this point. But we have had a few disruptions that we've been working around and we'll currently work -- and continue to work around. -------------------------------------------------------------------------------- John C. Pfeifer, Oshkosh Corporation - President & COO [9] -------------------------------------------------------------------------------- We've had -- just to give you a little bit more color, we've had literally hundreds of suppliers that have ceased production for anywhere from 2 to 6 weeks. So you can kind of understand the amount of work we have to go through to make sure we keep our operations running when we're in that environment. -------------------------------------------------------------------------------- Operator [10] -------------------------------------------------------------------------------- Our next question comes from the line of Ann Duignan with JPMorgan. -------------------------------------------------------------------------------- Ann P. Duignan, JP Morgan Chase & Co, Research Division - MD [11] -------------------------------------------------------------------------------- Just on the Defense again, are you saying that you will not be able to deliver the 4,000 to 4,500 units of JLTV that you had anticipated earlier? -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [12] -------------------------------------------------------------------------------- No. No, we're not saying that, Ann. We're just saying that there's going to be some choppiness in this next -- in this quarter as we continue to work with our supply chain on some shortages. There -- as you can imagine, different states are under different operating procedures. So it's just going to be a little choppy as we go through the rest of the year. But our expectation is that we'll continue to navigate. We may have some slowdowns but the team is prepared to continue to work and there's always, in our scenarios, opportunities to catch up. The good news is we have the backlog and the team is disciplined and executing well with that and working around these issues. -------------------------------------------------------------------------------- Ann P. Duignan, JP Morgan Chase & Co, Research Division - MD [13] -------------------------------------------------------------------------------- Okay. I appreciate the color. So maybe some overtime or something in the fourth quarter will help make catch up. Is that kind of what you're thinking at this point? -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [14] -------------------------------------------------------------------------------- Well, we'll have to see, Ann. I mean right now, we haven't had any slowdowns in Defense. There's been some inefficiencies with your workplace absenteeism and some of these supplier constraints, but they're running pretty close to their initial production levels. -------------------------------------------------------------------------------- Ann P. Duignan, JP Morgan Chase & Co, Research Division - MD [15] -------------------------------------------------------------------------------- Okay. Great. And then just a follow-up on the Access side, you said that shutdowns will continue every 2 weeks through -- for another couple of months. Can you just expand on that? Does that mean you'll be operating 2 weeks per month? Or just a little bit more color around your comments there would be helpful. -------------------------------------------------------------------------------- John C. Pfeifer, Oshkosh Corporation - President & COO [16] -------------------------------------------------------------------------------- Yes. Ann, this is John Pfeifer. So to give you a little bit of understanding. So first of all, today, all of our Access plants are running today with the exception of Medias in Romania. So essentially, we're up and running today. We were -- we're doing a very good -- very careful job of matching our production rates with demand rates. And demand rates right now are very low because there are hundreds of job sites that are down, construction sites that are down. More job sites that are down, 44 states are in shelter in place. So there's just not much activity going on. And therefore, there's very low demand for our equipment going into our rental customers right now. So we're -- we took 4 weeks of production out in the month of April. We're expecting we'll take more weeks out as we go through the third quarter. We're expecting that to be the worst quarter, the toughest quarter as we start to turn the lights gradually back on in the economy. So we're just doing a very careful job of prudent production and not overproducing during this period of time. -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [17] -------------------------------------------------------------------------------- I think just to add to that too. Ann, May, June, those are the big -- normally, the big construction months. And so that's -- there's a lot of things we know and that we're executing well from a team standpoint but the unknown is what's May and June going to look like. As John mentioned, more states are starting to open up again. We heard a couple this morning that are reopening from a construction standpoint. So we'll measure that, stay close to it as we go, but May and June are going to tell us a lot about the back-half of this year. -------------------------------------------------------------------------------- Ann P. Duignan, JP Morgan Chase & Co, Research Division - MD [18] -------------------------------------------------------------------------------- Okay. So just to be clear, and I'll turn it over. For fiscal Q3, do you have an expectation of like the percent of days available that you'll be down in Access? -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [19] -------------------------------------------------------------------------------- We talked about 2 weeks... -------------------------------------------------------------------------------- John C. Pfeifer, Oshkosh Corporation - President & COO [20] -------------------------------------------------------------------------------- Yes, 2 weeks per month. It gives you an indication. -------------------------------------------------------------------------------- Ann P. Duignan, JP Morgan Chase & Co, Research Division - MD [21] -------------------------------------------------------------------------------- 2 weeks per month for April, May and June? -------------------------------------------------------------------------------- John C. Pfeifer, Oshkosh Corporation - President & COO [22] -------------------------------------------------------------------------------- Correct. -------------------------------------------------------------------------------- Ann P. Duignan, JP Morgan Chase & Co, Research Division - MD [23] -------------------------------------------------------------------------------- Okay. I just want to make sure I get the number... -------------------------------------------------------------------------------- John C. Pfeifer, Oshkosh Corporation - President & COO [24] -------------------------------------------------------------------------------- April was 4. And then it's 2 for the remaining 2 months, for May and June. So more than half, Ann, will be down basically of the quarter. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- Our next question comes from the line of Stephen Volkmann with Jefferies. -------------------------------------------------------------------------------- Stephen Edward Volkmann, Jefferies LLC, Research Division - Equity Analyst [26] -------------------------------------------------------------------------------- If I could do one final AWP question, how should we think about sort of the revenue run rate in China in that business since that seems to be sort of back up and running? -------------------------------------------------------------------------------- Michael E. Pack, Oshkosh Corporation - Executive VP & CFO [27] -------------------------------------------------------------------------------- Yes. So China is where we saw this COVID-19 impact hit us first. So it kind of gave us an early view of what was going to happen. We were down for 3 weeks in China following the Chinese New Year. And everything was basically shut down in China, a hard stop, 3 weeks. We came back up gradually when -- as employees could start to return to work, depending on where the restrictions in their local communities were and we are now back at full production in China and demand has rapidly returned. So we have seen a V type of a shutdown in China. That's a very positive scenario. We would love it if we'd see a V in the U.S. However, we're not counting on a V in the U.S. We have a playbook of actions and as we can predict more closely and more carefully as this unfolds, what's going to happen, we'll execute that playbook. But we think that the economy is going to start to come back to life, but it's going to be a little bit of a dimmer switch, and we don't know the rate of speed with which that dimmer switch is going to get dialed up. And so we have to be very careful as to using that playbook appropriately. -------------------------------------------------------------------------------- Stephen Edward Volkmann, Jefferies LLC, Research Division - Equity Analyst [28] -------------------------------------------------------------------------------- Okay. And just any order of magnitude of how big that business is for you these days? -------------------------------------------------------------------------------- Michael E. Pack, Oshkosh Corporation - Executive VP & CFO [29] -------------------------------------------------------------------------------- China today, single-digit percent of our revenue, but it's getting bigger every year because it's in strong growth mode. I mean strong double-digit growth mode. So it becomes more material every year that goes by and we feel really good about the future of that business. -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [30] -------------------------------------------------------------------------------- We still expect in the next 4 to 5 years, if it stays on this pace, Steve, the boom market in China will be as big as what it is in Europe. -------------------------------------------------------------------------------- Operator [31] -------------------------------------------------------------------------------- Our next question comes from the line of Mike Shlisky with Dougherty & Company. -------------------------------------------------------------------------------- Michael Shlisky, Dougherty & Company LLC, Research Division - Senior Research Analyst [32] -------------------------------------------------------------------------------- So in Access, I noticed that your telehandlers were down a bit less than AWPs and your Other, which I guess might be, I don't know, Jerr-Dan, was actually almost flat for the quarter. Is the telehandler outperformance relatively due to some of their kind of usage in like logistics and delivery during the quarter? And maybe some color as to why the other stuff was actually flat during the quarter? -------------------------------------------------------------------------------- Michael E. Pack, Oshkosh Corporation - Executive VP & CFO [33] -------------------------------------------------------------------------------- Certainly, there is a lot of timing aspects. If you look at the quarter, our revenue was -- for Access, was down about $200 million versus our expectations. So you certainly had some movements in terms of what we had planned. I guess, just generally, we don't expect to see any notable mix shifts over the course of the year, first half to second half really being a big driver. -------------------------------------------------------------------------------- Michael Shlisky, Dougherty & Company LLC, Research Division - Senior Research Analyst [34] -------------------------------------------------------------------------------- Okay. And just a quick one on Defense. Great to see you guys have some more countries looking to buy the JLTV and place some motors here. Have other countries since the COVID-19 issue hit, have they at all changed their quantities that they're looking at that they might order? Have they changed how often they look at your products, et cetera? Has that changed for the back-half of the year or the first part of '21? -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [35] -------------------------------------------------------------------------------- No, Mike. I would say that hasn't changed. We know there are numerous countries at various stages in the FMS process. Roughly over 10 countries have been showing interest in -- and again, various stages of that FMS process. But we've heard no negative responses coming out of them due to the COVID-19 crisis that they're stopping or changing their quantities going forward. -------------------------------------------------------------------------------- Operator [36] -------------------------------------------------------------------------------- Our next question comes from the line of Mig Dobre with Baird. -------------------------------------------------------------------------------- Mircea Dobre, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [37] -------------------------------------------------------------------------------- And Mike, welcome to the call. Maybe -- excuse me, a little clarification on the announced savings. Can you talk a little bit about the cadence, Q3, Q4? I'm also curious as to how these savings get allocated at segments versus the unallocated corporate expense line item, which was down quite a bit in the quarter? Obviously, you're managing that number pretty aggressively. And then my interpretation of your discussion on the savings is that they're temporary in nature. So I guess what I'm wondering here is do we sort of see these costs come back into the P&L, ramping up with volume? Or is this more of a kind of a calendar year sort of -- rather fiscal year situation where as we go into fiscal '21, we see a more normalized expense base? So yes, maybe we can start there. -------------------------------------------------------------------------------- Michael E. Pack, Oshkosh Corporation - Executive VP & CFO [38] -------------------------------------------------------------------------------- Okay. Mig, I'll start off with the first part of your question just in terms of the cadence. We did see some benefit already in Q2. We took action right away in March. We really see it at fairly evenly spread through the back half of the year, those savings. The -- I guess, from a segment standpoint, you can imagine just it's proportionate to the level of activity and change that we're seeing from a customer demand perspective. So again, heavily weighted or more heavily weighted towards Access. But really, hats off to the team that everyone really stepped up in a hurry. And even those segments with Access -- or excuse me, Defense and F&E that have the bigger backlogs are participating in it. So we see that in the back half of the year fairly even. -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [39] -------------------------------------------------------------------------------- Yes. Mig, I'll just tune in on the -- I'm sorry, you have a question on the cadence back to Mike? -------------------------------------------------------------------------------- Mircea Dobre, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [40] -------------------------------------------------------------------------------- No, I was just looking for a clarification on the corporate expense line item too, but maybe you're going to address that. I don't know. -------------------------------------------------------------------------------- Michael E. Pack, Oshkosh Corporation - Executive VP & CFO [41] -------------------------------------------------------------------------------- Corporate as well. We -- similar to the other segments, we took aggressive cost action here as well at the corporate offices. So it's, again, all segments and corporate participated in aggressive manner on it. -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [42] -------------------------------------------------------------------------------- Yes. And on the -- as far as temporary in nature, Mig, what I would say is we're still working through our view and the landscape of Access going forward. I think we've said temporary. Our customers' commentary has been consistent that they think this is more temporary than long term. So you see the range of the $80 million to the $100 million there, we can fluctuate in that range. We also have scenarios that go deeper in that range and levers prepared to pull if we need to. But what we're working fast and furious on is May and June. What's that going to look like and what does that mean to the rest of this year and then into '21 in regards to your question. So we're anxious to get through these next couple of months. I think the next call we'll have much more clarity on just what is the shape of this recovery. We are starting to see some better signs. I think ARA came out yesterday with the rental market stabilizing. There's some positives with states opening up. So we're going to just micromanage this like crazy. And then as we work through May and June, I think we'll have a better view. If we need to pull some of those levers and go above the $100 million, we can still do that and have some effect in this year. So you -- I think you know us. We plan a lot of different scenarios through the cycles. We've been through it. Fortunately, over 60% of our team members and leadership roles here went through the Great Recession. And then obviously, the experience we just went through in China, we learned a lot of lessons. And I think that's why our record and knock on wood here, I don't want to jinx this, but out of our 15,000 team members, we've only had 5 positive cases at separate locations with no residual effects of those cases. And they're all healthy and actually back in the workforce today. So we're using a lot of those lessons learned and navigating through this and May and June are the key. I think that's going to really reveal what this looks like rest of this year and definitely into '21. -------------------------------------------------------------------------------- Mircea Dobre, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [43] -------------------------------------------------------------------------------- That's great color. Then my follow-up, a question on your inventories, which have ticked up and they're really the highest that I've seen them in a while. I guess what I'm wondering here is, how much of this uptick is you sort of having some challenges delivering product like what we heard in Fire & Emergency with customers struggling to take delivery versus maybe you having built up some stock of parts and so on to kind of deal with some of these supply chain challenges. And related to this, as we look into fiscal year-end here, where do you see -- or where would you hope this inventory figure to be going into '21? -------------------------------------------------------------------------------- Michael E. Pack, Oshkosh Corporation - Executive VP & CFO [44] -------------------------------------------------------------------------------- From an inventory perspective, inventory is definitely higher than we expected at the end of the quarter. And it was really due to the rapid decline of demand, particularly in Access equipment. So that's where you see the biggest impact. I think I had mentioned earlier in one of my responses to a question that our revenue in Access was down by about $200 million versus what our expectations were due to that rapid decline. And you really see inventory reading through at the corresponding value. So we adjusted quickly and that's really why you saw us take those days out of April. And we're managing it the next several months, and we'll continue to watch that, that our plan is really to get that back into line by the end of the year. But again, we're going to continue to watch the signals we're seeing in the marketplace. We'll continue to manage it accordingly. -------------------------------------------------------------------------------- John C. Pfeifer, Oshkosh Corporation - President & COO [45] -------------------------------------------------------------------------------- Yes. Part of -- Mig, this is John. Part of this is that we are running pretty well coming out of February -- outside of China anyway, coming out of February, end of March, and then the pandemic hit. And it was like a -- it's like somebody turned off the light switch. Everything just stopped. Basically, customers said, just push my orders out to Q3 and Q4 because I don't know what's going to happen. And so when that happens in March, the last month of a quarter, you can't adjust fast enough. Your inventory just naturally builds up. And as Mike said, therefore, we took production out in April. -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [46] -------------------------------------------------------------------------------- I think just one more piece of color, Mig. We're giving you a good narrative here this morning. But the inventory, I would say, you probably heard us say this before, it's a good inventory. It's that inventory that's kind of in the middle of a fairway; high usage -- high utilization in our rental customer company. So we're not overly concerned about that. It's just a matter of when the markets do get going again. And I would add too, Access is focused on maintaining that disciplined pricing approach that you've seen them deliver over the last couple of years. And so if there is some issue out there where someone else is shedding inventory at low prices, we're going to maintain our discipline. And if we do carry a little bit more inventory, that's okay as long as those markets do come back as we expect they will in the -- what do you say, short or medium term, but we'll know that more in May and June. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- Our next question comes from the line of Seth Weber with RBC Capital. -------------------------------------------------------------------------------- Seth Robert Weber, RBC Capital Markets, Research Division - Equity Analyst [48] -------------------------------------------------------------------------------- I hope everyone is well. I guess maybe for Mike, just to follow-up on that question. Have you seen any issues with collections from any of your customers? Anything getting pushed out across -- I assume not on the Defense side, but across any other segments? Anything to call out there? -------------------------------------------------------------------------------- Michael E. Pack, Oshkosh Corporation - Executive VP & CFO [49] -------------------------------------------------------------------------------- No, we're -- from a collection standpoint, it's largely been business as usual. You saw we had a positive cash flow in the quarter. We are taking extra measures to look at really our entire customer base, looking at credit limits and so on. And we're really watching it on a daily basis. But really no unusual changes from a collection standpoint. -------------------------------------------------------------------------------- Seth Robert Weber, RBC Capital Markets, Research Division - Equity Analyst [50] -------------------------------------------------------------------------------- Super. And then maybe, Wilson, just back on the Defense side. Revenue and margin was actually -- was a lot better than what we were looking for. Was there anything that got kind of pulled forward? Or is there any color as to the unusual strength there, both on the top line and the margin for the quarter that you would call out? -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [51] -------------------------------------------------------------------------------- It basically was the orders we received, Seth. FHTV and FMTV orders that came in, in the quarter. And I think that's the main reason. -------------------------------------------------------------------------------- Michael E. Pack, Oshkosh Corporation - Executive VP & CFO [52] -------------------------------------------------------------------------------- Yes. And then we had a full -- obviously, the demand was there. So we were producing pretty solidly in the entire quarter. So it's definitely in line with what we were -- what our expectations were in that segment. We have the big JLTV order as well. Yes. -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [53] -------------------------------------------------------------------------------- Yes. As I mentioned earlier too, Seth, Defense has continued to operate on a pretty normal production schedule. They've had a few misses with supplier constraints, but for the most part, they're staying pretty well on track. -------------------------------------------------------------------------------- Seth Robert Weber, RBC Capital Markets, Research Division - Equity Analyst [54] -------------------------------------------------------------------------------- Right. So -- I mean I think your guide for the year originally was around, I think, a 9% margin. So kind of in a normal operating environment where the supply chain is good and all. I mean is there any reason to think that the 9.5% you guys just did wouldn't be sort of the new run rate then? -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [55] -------------------------------------------------------------------------------- Seth, we're trying to stay away from being too definitive on our margins because as John mentioned, we've had hundreds of supplier issues. And again, our team is really doing well, working through all those. So it's just too early for us to know if we are going to have any slowdowns due to some supplier constraints or any kind of employee absenteeism. I'd say so far, so good. But we've got to get through these next couple of months before we could really be more definitive about that. -------------------------------------------------------------------------------- Seth Robert Weber, RBC Capital Markets, Research Division - Equity Analyst [56] -------------------------------------------------------------------------------- I understand. I was just talking on more of a kind of a normalized business environment, understanding that near term is going to have some hiccups, but it seems like you're at a pretty good level here for the second quarter. JLTV is not going down. You have this big backlog. I'm just sort of looking -- trying to understand what the normalized margin should be for this business. But I appreciate you don't know what the near term is going to be, but that was the spirit of the question. -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [57] -------------------------------------------------------------------------------- Okay. All right. -------------------------------------------------------------------------------- Michael E. Pack, Oshkosh Corporation - Executive VP & CFO [58] -------------------------------------------------------------------------------- I mean long term, we have not changed our viewpoint, right? So when you say normalized, Seth, if we say long term, high single digits has been our target and I think we've got a pretty good track record. -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [59] -------------------------------------------------------------------------------- I think our commentary also has been we see the next couple of years as it's being at least a $2 billion run rate business. -------------------------------------------------------------------------------- Michael E. Pack, Oshkosh Corporation - Executive VP & CFO [60] -------------------------------------------------------------------------------- Right. -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [61] -------------------------------------------------------------------------------- So again, long term, when you say normalized Seth, we really look forward to being able to talk about normalized. I hope it's sooner rather than later, but that's not a word that I think we're going to use for at least a month or 2. -------------------------------------------------------------------------------- Operator [62] -------------------------------------------------------------------------------- Our next question comes from the line of Tim Thein with Citigroup. -------------------------------------------------------------------------------- Timothy Thein, Citigroup Inc, Research Division - Director and U.S. Machinery Analyst [63] -------------------------------------------------------------------------------- Just on the Defense margins one more time. Was the -- was there a -- I know you didn't call it out, but in terms of the second quarter margins, was there any impact from the FHTV order that came in towards the end of the quarter in terms of a contract or a catch up adjustment? Did that trigger an impact in -- a meaningful impact in the quarter? -------------------------------------------------------------------------------- Michael E. Pack, Oshkosh Corporation - Executive VP & CFO [64] -------------------------------------------------------------------------------- There was a benefit for the quarter. But if you look at it year-over-year, it's pretty -- the benefits of contract awards was pretty similar year-over-year. -------------------------------------------------------------------------------- Timothy Thein, Citigroup Inc, Research Division - Director and U.S. Machinery Analyst [65] -------------------------------------------------------------------------------- Okay. All right. And then maybe, Wilson, looking out a bit further, maybe just talk about -- I mean obviously, F&E has got a good runway here from a quarter, from a backlog perspective. But as you look, again, a little bit further out, what do you think in terms of the potential impact from, obviously, a lot of state and local governments taking it on the chin here pretty good? What do you think and how do you see that playing out in terms of a procurement cycle and maybe contrast that versus what history would have suggested on Pierce? -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [66] -------------------------------------------------------------------------------- Yes. I'm going to let John jump in on this. He's been knee-deep in the Fire & Emergency, as we've been evaluating municipal spending for both fire and refuse collection. So John, why don't you grab Tim's question? -------------------------------------------------------------------------------- John C. Pfeifer, Oshkosh Corporation - President & COO [67] -------------------------------------------------------------------------------- Yes. So the short story is we feel really, really good about our position in Fire & Emergency. As we said, all-time record order intake in the quarter. And our backlog at $1.3 billion extends well into 2021. So let me do a little bit more explaining as to those municipal tax receipts and how they might impact us. We, of course, know that they do impact the segment to some extent. They -- the municipal tax receipts tend to follow recessions 18 months later or so. That said, the shock of COVID-19 and expectation of a downturn, this whole shock could cause some near-term new order intake to slow a little bit. That's possible. But I'll take you back to the reference point of pre Great Recession. The market then was close to 5,500 units, and it fell 40% to around 4,200 to 4,600 units in the Great Recession. It never really came back to that 5,500 unit number. Even at that smaller market size, we're hitting new records in F&E. We also know that the fleet is aged and municipalities really need their trucks and they tend to prioritize their trucks. And with the way that our business and the incredible people and the great management team we've got in this business is performing, the position we've got, we feel good about the long-term outlook. -------------------------------------------------------------------------------- Operator [68] -------------------------------------------------------------------------------- Our next question comes from the line of David Raso with Evercore ISI. -------------------------------------------------------------------------------- David Michael Raso, Evercore ISI Institutional Equities, Research Division - Senior MD & Head of Industrial Research Team [69] -------------------------------------------------------------------------------- Related to the Access margins, when I think about the amount of shutdown days in the coming quarter, a decremental margin commentary with some implication from the savings program. It does appear that you think you'll be able to stay at least close, if not still profitable, close to breakeven for Access. Am I reading that correctly? I mean just given back in '09, this business lost a significant amount of money. I think it'd be pretty impressive if you can avoid even 1 quarter losing money. I just want to make sure I'm capturing those metrics correctly. -------------------------------------------------------------------------------- Michael E. Pack, Oshkosh Corporation - Executive VP & CFO [70] -------------------------------------------------------------------------------- Bottom line, as we look at, we don't expect to lose money for any quarter for the entire corporation. And we don't expect to lose money in any individual business for the year. We're -- you get into the quarter, it really depends -- there's a lot of uncertainty with Q3. So it's just difficult and really for the rest of the year. So we just need to see how the construction activity starts picking up before we're going to call a quarter. -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [71] -------------------------------------------------------------------------------- I think one thing that helps us, Dave, is we're going into the back-half a lot different than the Great Recession back-half for us in that we've got $844 million in Access backlog today, and that backlog is current through last Friday, April 24. We went ahead and net of cancellations, we wanted to have a correct up-to-date backlog number for you today, and that's $844 million today. And I think, in the Great Recession, it was at less than $100 million that we had in backlog going into that second half. So that should help us a little more in the second half than what you could recall in the Great Recession. -------------------------------------------------------------------------------- David Michael Raso, Evercore ISI Institutional Equities, Research Division - Senior MD & Head of Industrial Research Team [72] -------------------------------------------------------------------------------- Yes, I'm just trying to think if there's the risk of we get to May, June, a lot of the rental companies don't see a reopening quickly enough and they go, look, let's just push this out a bit, and that backlog comes down. Even if you did have a 60% revenue decline for the quarter, the way you're speaking about decrementals, you still -- I mean it's close, but you stay profitable. And there's no doubt with that kind of decline versus what we showed in '09, it'd be obviously terribly impressive if you could do it. So that's why I just wanted to set the parameters there on that. So that's helpful. And the follow-up, the conversations you are having with, particularly some of the bigger rental companies, if there is some decisions will be made in the next 6 to 8 weeks, are they going to take the machines this year? Or is it sort of a push out situation because, obviously, there's some seasonality to when they want to take the iron? Are you having conversations that are already coloring your view of this? With this pushout, what's their replacement demand for '21? I'm just curious how holistic the conversations are of things getting cut out of '20 and what does that help for '21 on replacement? -------------------------------------------------------------------------------- John C. Pfeifer, Oshkosh Corporation - President & COO [73] -------------------------------------------------------------------------------- Well, this is John. I'll try to give you some color on what we are seeing. So when COVID-19 hit, we essentially saw things come to a screeching halt in terms of activity. In other words, orders started to get pushed out. Our -- all of our customers across the board said, hey, we need to push this order out. It wasn't a cancellation, it was a push out. Now we have had some cancellations, been more pushouts than cancellations. But we have -- we are in conversation with our customers all the time, every single day, to understand what we're seeing in the marketplace. Of course, utilization rates of the equipment have come down. We believe today that as of about mid-April, utilization rates have bottomed. Maybe they're improving a little bit, still too early to say, but we think they may have bottomed. We also know that there's not much defleeting going on with -- in the marketplace. So that means that our customers are really kind of still in a wait-and-see mode, and that makes a lot of sense that they're in a wait-and-see mode because 44 states still have shelter in place. There are hundreds of construction sites that are down and hundreds more job sites where they use our equipment that are down. And we need the economy to get moving again and the dimmer switch start to dial up before we'll really know what the demand in Q3 and Q4 is going to look like. And really, that's the essence of why we can't provide guidance at this point in time. We've got to see the economies open up. -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [74] -------------------------------------------------------------------------------- I would just add, Dave. Relationships, JLG has great relationships with our customers. I was there for a few years, as you probably recall, and I've maintained a lot of relationships with the leaders of some of the big rental companies. And the conversation I had with one last week was aligned with what we're thinking. It seems to be temporary. And our commentary back and forth was how temporary is temporary? Is it a couple of months? Is it 4 months? Is it 6 months? So I think the general thesis with our big customers or even our independent, I don't know if that's all of our customers, is to John's point, wait and see what's May and June going to look like. States are starting to open up. Again, I think everybody is still leaning toward the more temporary thesis, but May and June will tell us. -------------------------------------------------------------------------------- John C. Pfeifer, Oshkosh Corporation - President & COO [75] -------------------------------------------------------------------------------- Yes and I just have one final... -------------------------------------------------------------------------------- David Michael Raso, Evercore ISI Institutional Equities, Research Division - Senior MD & Head of Industrial Research Team [76] -------------------------------------------------------------------------------- And the more they view it temporary -- I'm sorry, go ahead. -------------------------------------------------------------------------------- John C. Pfeifer, Oshkosh Corporation - President & COO [77] -------------------------------------------------------------------------------- I was going to say one final comment. We know the markets are going to come back. That's one thing that we do know. We feel highly confident in that. It's really a question of what rate are they going to come back at. And that's what we're trying to figure out over the next short period of time. -------------------------------------------------------------------------------- David Michael Raso, Evercore ISI Institutional Equities, Research Division - Senior MD & Head of Industrial Research Team [78] -------------------------------------------------------------------------------- Okay. And that's the issue. If they think it's temporary, that backlog, we can -- as you said, it's a lot higher than going into the Great recession, we can embrace that backlog. If they decide to say it's -- look, it's not really temporary, we're going to push this out to next year. That's when we lose the support of the $844 million in backlog. So again, even the numbers I was running, you still think you're going to be breakeven or even above, which obviously, the business lost a significant amount of money in '09. So that would be a pretty dramatic change. So -- okay. I really appreciate it. -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [79] -------------------------------------------------------------------------------- Dave, just a parting shot. I can tell you all of our segments. Mike Pack and his team on the finance side are really focused on managing those decrementals. We know how important that is. And again, the team is responding well and we feel like we're in a pretty good position to deliver those mid-20s from a company standpoint for the whole year. -------------------------------------------------------------------------------- Operator [80] -------------------------------------------------------------------------------- Our next question comes from the line of Stan Elliott with Stifel. -------------------------------------------------------------------------------- Stanley Stoker Elliott, Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst [81] -------------------------------------------------------------------------------- Nice to hear your voices. I had a quick question on some of the fire business, I guess, in particular. If we think back kind of post-9/11, your post financial crisis and the Obama stimulus, what degree were some of those businesses beneficiaries of some form of stimulus or grant money? And I think about that in part, there was an earlier question about municipal budgets and just on the off chance that, that's kind of the next round of stimulus, which it could be. I was curious to get your thoughts on that from a historical context. -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [82] -------------------------------------------------------------------------------- Yes, Stanley. If you go back to 9/11, we had the what was called the Fire Act grant that allowed cities, local townships to apply for federal money for fire trucks. And it helps, I think. Some parts of the market, I think the primary products that were being purchased through that Fire Act grant were more commercial in nature. Not a lot of custom products. But again, it was a boost to help the market. Coming out of the Great Recession, there really wasn't any kind of stimulus around fire departments for fire apparatus. That's why I think John mentioned earlier, we've got a pretty aged fleet out there from a fire priority standpoint. And with the priority of a municipality being able to fight a fire or react to an emergency, that'll keep that as a priority from a replacement standpoint. The stimulus that's currently in play, there's not much for fire apparatus from the municipal side, but there is a $10-billion stimulus effective for airports. And so we believe our airport rescue firefighting business could benefit by some of that just with all the airports having that type of money to upgrade their products, their services around the airport. -------------------------------------------------------------------------------- Operator [83] -------------------------------------------------------------------------------- Our final question comes from the line of Courtney Yakavonis with Morgan Stanley. -------------------------------------------------------------------------------- Courtney Yakavonis, Morgan Stanley, Research Division - Research Associate [84] -------------------------------------------------------------------------------- Can you just comment or just elaborate a little bit more on your comments about the JLTV potential recompete in 2022? How long are your deliveries locked in for at this point? And does that have any implications for your international rights going forward? And then also if you can just highlight any differences in the cost structure today versus when you were originally bidding for the program back in the '14-'15 time period? -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [85] -------------------------------------------------------------------------------- Okay. Courtney, the JLTV program, first and foremost, is performing very well. We know our Department of Defense customers appreciate the product and really value its effectiveness and what it can do from a mission profile standpoint. The government has stated that 2022 is their planned year for recompete. To be determined if that date holds, but that's what has been stated. Obviously, our plan would be to retain it. We think going forward, building the way we are, the efficiencies we've gained in building the product, we know it. We've got a good supply chain around it. So again, we like our chances to continue to win it. From an international standpoint, obviously, we have the opportunities in front of us today. But going forward, I don't like to say it this way, but if we were to lose on the recompete, we still have a JLTV product that we could sell internationally. That doesn't prohibit us from selling internationally with that product, even though we might not be the winner of the program for the Department of Defense. I have to say it, though, we don't plan to lose it. We plan to retain it. From a cost structure standpoint, no, again, I think we're in good shape. Supply chain, we've got a good supply chain. Really, the majority of the supply chain for Defense is about a 100-mile radius around their facility. And so that certainly helps, a, from a relationship and connectivity, but then logistics help too. So cost structure going forward, I think we're going to be in shape. What you would expect on a program like this is there will be some changes. We saw that on FMTV, the A1 went to the A2. There was some changes that the government made to the product going forward. So that may come into play here going forward. But to be determined, again, it's 2022. We can take orders for JLTV on the current program through 2023 with deliveries in 2024. So we're in good shape on the program and the outlook going forward is good too. -------------------------------------------------------------------------------- Operator [86] -------------------------------------------------------------------------------- We have reached the end of our question-and-answer session. And I would like to turn the call back over to Mr. Wilson Jones for any closing remarks. -------------------------------------------------------------------------------- Wilson R. Jones, Oshkosh Corporation - CEO & Director [87] -------------------------------------------------------------------------------- I want to thank all of you for joining us today. We appreciate your interest in the Oshkosh Corporation and wish all of you good health and safety. We'll sign off now. Thanks again for joining us today. -------------------------------------------------------------------------------- Operator [88] -------------------------------------------------------------------------------- This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.