Oshkosh Corporation Reports Fiscal 2009 Second Quarter Results
OSHKOSH, Wis.--Oshkosh Corporation , a leading manufacturer of specialty vehicles and vehicle bodies, today reported fiscal 2009 second quarter net sales of $1.3 billion and a net loss of $17.7 million, or $0.24 per share, excluding non-cash intangible asset impairment charges1 compared with earnings per share of $0.97 on net sales of $1.8 billion and net income of $72.6 million for the second quarter of fiscal 2008. Including previously announced pre-tax non-cash impairment charges of $1.20 billion ($15.78 per share, net of taxes) related to goodwill and other long-lived assets, the Company reported a net loss of $1.19 billion, or $16.02 per share, for the second quarter of fiscal 2009.
“Our defense, Pierce fire apparatus and airport products businesses all delivered double-digit revenue increases and higher operating income in the second quarter,” said Robert G. Bohn, Oshkosh Corporation chairman and chief executive officer. “These gains and significant additional cost reduction actions implemented in the quarter were not enough to overcome sharply lower demand at a number of our other businesses, particularly those serving construction-related markets, like our access equipment and concrete placement businesses. As a result, we posted a net loss of 24 cents per share, excluding the impact of the non-cash impairment charges that were recorded in the quarter.
“While the global recession has had a significant impact on several of our businesses, we have been working diligently to manage through this challenging environment. During the quarter we implemented additional cost reductions to increase our expected fiscal 2009 savings from $150 million to more than $200 million. Even with these aggressive actions, the effects of the global recession and credit crisis lead us to believe Oshkosh will record a net loss for the full fiscal year, excluding the impact of the impairment charges recorded in the second fiscal quarter. We remain committed to continue doing what is necessary to further reduce our cost structure, drive operational improvements and increase cash generation to manage the business through this period of economic weakness,” added Bohn.
“Although we have reduced our outlook, we believe we are gaining share in many of our businesses, which is important in challenging times. Additionally, we are working on several exciting opportunities in our defense segment and throughout the Company that will position the business for the eventual economic recovery,” concluded Bohn.
The Company reported that consolidated net sales in the second quarter of fiscal 2009 decreased 26.9 percent compared with last year’s second quarter. The lower sales were the result of a decrease in sales in the Company’s access equipment and commercial segments, offset in part by double-digit growth in the Company’s defense, domestic fire apparatus and airport products businesses.
Operating income, excluding impairment charges1, decreased 86.5 percent to $22.6 million, or 1.7 percent of sales, for the second quarter of fiscal 2009 compared with operating income of $168.2 million, or 9.5 percent of sales, in the prior year quarter. Higher operating income in the defense segment combined with lower consolidated operating expenses were not enough to offset a loss in the access equipment segment. Including impairment charges, the Company reported an operating loss of $1.18 billion.
During the second fiscal quarter, the Company determined that goodwill and other long-lived assets were impaired at a number of the Company’s reporting units. This determination was based upon a sustained decline in the price of the Company’s common stock subsequent to the Company’s fiscal 2008 year end when its share price approximated book value, depressed order rates during the second quarter which historically has been a strong period for orders in advance of the North American construction season, as well as further deterioration in credit markets and the macro-economic environment. The Company previously announced that it expected to record impairment charges of between $1.20 billion and $1.50 billion in its second fiscal quarter. Following the completion of the impairment assessment, which was performed with the assistance of a third party valuation firm, the Company recorded pre-tax non-cash impairment charges of $1.20 billion in the second fiscal quarter. These charges were driven by current projections and valuation assumptions that reflect the Company’s belief that the current recession will be deeper and longer than previously expected, that credit markets will remain tight and that costs of capital have risen significantly since the Company last performed its annual impairment testing. Despite the requirement to record an impairment charge, the Company believes the long-term prospects for its businesses remain strong.
Factors affecting second quarter results for the Company’s business segments included:
Access Equipment – Access equipment segment sales decreased 69.4 percent to $249.2 million for the second quarter of fiscal 2009 compared with the prior year quarter. Sales reflected substantially lower global demand arising from tight credit markets and recessionary economies. European, African and Middle Eastern equipment sales declined about 80 percent while equipment sales elsewhere, including North America, were down about 70 percent compared with the second quarter of fiscal 2008.
Excluding impairment charges1, the access equipment segment incurred an operating loss of $49.1 million, or 19.7 percent of sales, for the second quarter of fiscal 2009 compared with operating income of $123.6 million, or 15.2 percent of sales, in the prior year quarter. The decrease in operating results was primarily the result of lower sales volume, higher raw material costs and adverse product mix, offset in part by lower operating expenses as a result of cost reduction initiatives. Including impairment charges, the access equipment segment reported an operating loss of $941.6 million.
Defense – Defense segment sales increased 30.9 percent to $590.2 million for the second quarter of fiscal 2009 compared with the prior year second quarter due to the continuing requirements of the Company’s largest customer, the U.S. Department of Defense. The Company recorded a substantial increase in sales of heavy-payload tactical vehicles to the U.S. Army during the second quarter of fiscal 2009.
Operating income in the second quarter increased 25.7 percent to $75.0 million, or 12.7 percent of sales, compared with prior year quarter operating income of $59.7 million, or 13.2 percent of sales. The decrease in operating income as a percent of sales reflected a larger percentage of sales under lower margin contracts and higher development costs, offset in part by better absorption of fixed costs and improved performance on in-theater service work.
Fire & Emergency – Fire & emergency segment sales for the second quarter of fiscal 2009 increased 7.7 percent to $293.1 million compared with the prior year quarter. The sales increase reflected higher shipments due to increased demand at the Company’s domestic fire apparatus and airport product businesses, offset in part by weaker sales of towing and recovery equipment.
Excluding impairment charges1, operating income increased 20.2 percent in the second quarter to $24.7 million, or 8.4 percent of sales, compared with the prior year quarter operating income of $20.6 million, or 7.6 percent of sales. The increase in operating income during the second quarter was primarily the result of higher volume and improved product mix in the Company’s airport products business. Including impairment charges, the fire & emergency segment reported an operating loss of $96.3 million.
Commercial – Commercial segment sales decreased 24.7 percent to $188.9 million in the second quarter of fiscal 2009 compared with the prior year quarter. The sales decrease was largely the result of an approximate 60 percent decline in sales of concrete placement products as a result of lower construction activity in North America.
Excluding impairment charges1, the commercial segment incurred an operating loss of $8.2 million, or 4.4 percent of sales, in the second quarter compared with an operating loss of $5.5 million, or 2.2 percent of sales, in the prior year quarter. The operating loss was primarily the result of the further, sharp decrease in concrete placement product sales in the second quarter and a $3.0 million loss at the Geesink Norba Group (Geesink), the Company’s European refuse collection vehicle business, offset in part by lower operating expenses as a result of cost reduction initiatives. Including impairment charges, the commercial segment reported an operating loss of $192.5 million.
Corporate and other – Corporate operating expenses and inter-segment profit elimination decreased $10.4 million to $19.8 million for the second quarter of fiscal 2009 compared with the prior year quarter. The decrease was the result of lower incentive compensation and other cost reduction initiatives, including lower outside professional services, travel and recruiting costs.
Interest expense net of interest income decreased $12.6 million to $40.9 million in the second quarter of fiscal 2009 compared with the prior year quarter largely as a result of the repayment of a portion of the borrowings incurred in connection with past acquisitions and lower interest rates prior to the effective date of the March 2009 amendment of the Company’s credit agreement. The amendment increased the spread on LIBOR loans to 600 basis points compared with 150 basis points immediately prior to the amendment. The Company used cash on hand at December 31, 2008 to reduce total debt during the second quarter by $174.4 million. During the second quarter, charges totaling $2.3 million, or $0.03 per share, were recorded related to the amendment of the Company’s credit agreement, which include non-cash charges associated with early debt repayment.
Excluding the impact of the largely non-deductible impairment charges, the Company recorded a tax benefit in the second quarter of $3.3 million on a pre-tax loss of $21.2 million. The low tax benefit was impacted by tax expense related to the reversal of a portion of a European tax incentive of $5.8 million, offset in part by discrete tax benefits of $2.5 million related to the Company’s other foreign operations during the quarter.
Six-month Results
Excluding impairment charges1, the Company reported a loss of $0.52 per share for the first six months of fiscal 2009 on sales of $2.7 billion and a net loss of $38.3 million, compared with earnings per share of $1.47 for the first six months of fiscal 2008 on sales of $3.3 billion and net income of $109.9 million. Including impairment charges, the Company recorded a net loss of $1.21 billion, or $16.30 per share for the first six months of fiscal 2009. The lower sales were the result of decreases in sales at the Company’s access equipment and commercial segments due to the tight credit markets and a global recession, offset in part by strong demand for defense vehicles and armor kits.
Excluding impairment charges1, operating income decreased 85.7 percent to $39.7 million, or 1.5 percent of sales, in the first six months of fiscal 2009 compared with $278.1 million, or 8.5 percent of sales, in the first six months of fiscal 2008. An operating loss in the access equipment segment more than offset higher operating income in the defense segment and lower corporate expenses.
1 Further information regarding operating results including impairment charges and related reconciliations of these non-GAAP financial measures to the most comparable GAAP measures can be found under the caption “Non-GAAP Financial Measures” in this press release, which should be thoroughly reviewed.
Suspension of Dividend
Oshkosh Corporation’s Board of Directors did not declare a dividend for the third quarter of fiscal 2009. The amendment to the Company’s credit agreement in March 2009 effectively limits the Company’s ability to pay dividends to $0.01 per share per quarter; however, the Company is not likely to resume payment of dividends until there is a global economic recovery.
The Company will comment on second quarter earnings during a conference call at 9:00 a.m. EDT this morning. Viewer-controlled slides for the call will be available on the Company’s website beginning at 8:00 a.m. EDT this morning. The call will be webcast simultaneously over the Internet. To access the webcast, listeners can go to www.oshkoshcorporation.com at least 15 minutes prior to the event and follow instructions for listening to the broadcast. An audio replay of the call and related question and answer session will be available for 12 months at this website.
