Q2 2011 Earnings Call
April 28, 2011 9:00 am ET
Charles Szews - Chief Executive Officer, President, Chief Operating Officer and Director
David Sagehorn - Chief Financial Officer and Executive Vice President
Patrick Davidson - Vice President of Investor Relations
Jerry Revich - Goldman Sachs Group Inc.
Ann Duignan - JP Morgan Chase & Co
Walter Liptak - Barrington Research Associates, Inc.
Stephen Volkmann - Jefferies & Company, Inc.
Paul Bodnar - Longbow Research LLC
Alexander Blanton - Clear Harbor
Charles Brady - BMO Capital Markets U.S.
Robert McCarthy - Robert W. Baird & Co. Incorporated
Josephine Millward - The Benchmark Company, LLC
Unknown Analyst -
Andrew Obin - BofA Merrill Lynch
Peter Skibitski - SunTrust Robinson Humphrey, Inc.
Peter Chang - Credit Suisse
Previous Statements by OSK
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Thanks, Rob. Good morning, everybody, and thanks for joining us. Earlier today, we published our second quarter results for fiscal 2011. A copy of the release is available on our website at www.oshkoshcorporation.com.
Today's call is being webcast and is accompanied by a slide presentation, which is also available on our website. The audio replay and slide presentation will be available on our website for approximately 12 months, and please refer now to Slide 2 of that slide presentation.
Our remarks that follow, including answers to your questions, include 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. 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.
Presenting today for Oshkosh Corporation will be Charlie Szews, President and Chief Executive Officer; and Dave Sagehorn, Executive Vice President and Chief Financial Officer.
Let's begin by turning to Slide 3. And now I'll turn it over to you, Charlie.
Thank you, Pat, and good morning, everybody. Let's get started. For the quarter, our sales increased 39% to $1.75 billion, leading to operating income of $132.4 million and earnings per share of $0.74.
Lower sales and earnings compared to prior year quarter were expected as we delivered nearly 3,000 M-ATVs in the second quarter of fiscal 2011 compared to none in the current quarter.
I want to highlight a few points and we'll then discuss them in more detail later in the call. First and foremost, we are proud of the strong performance turned in by JLG in the Access Equipment segment. While not at pre-recession level, this segment delivered significantly higher sales to external customers and was solidly profitable in the quarter. I should note that there were no M-ATV-related sales in the quarter from this segment to our Defense segment.
Second, we continue to work hard through a challenging launch of the FMTV program at our Oshkosh defense factories in the second quarter. Trucks and trailers were still being sold at a low volume during the quarter, while our deliveries have picked up since then. We plan to triple our daily production rate by the end of calendar 2011. And third, we continue to generate positive free cash flow and reduced our debt by another $50 million during the quarter. Let's take a look at some of the operating highlights by turning to Slide 4.
We talked about JLG beginning to turn the corner on our last call, and we believe that it's indeed taken place. Orders for the quarter were up significantly or sequentially from the first quarter and year-over-year, leading to a 193% increase in backlog to $596 million at March 31 in this segment. Both orders and backlog are at their highest levels since the recession began.
We participated in a very active and lively ConExpo last month in Las Vegas. In fact, many of you listening today attended the show and had the opportunity to experience the excitement firsthand as we took you through our Access Equipment Commercial segment booth. Attendance was the second highest ever for the show, with strong order intake during the show. I think all attending would agree that there was an air of confidence, anticipation and excitement from attendees.
The launch of the Family of Medium Tactical Vehicles program is a major activity for our company. It's been a challenging ramp up as our contract included higher technical and quality requirements than the previous FMTV contract. We have implemented production processes that were new to Oshkosh, in part to address new contract requirements, and that required a supply base to implement these changes as well.
We have resolved most of the initial startup issues and increased deliveries in April. Next in line is to triple production levels over the remainder of this calendar year due to higher orders than anticipated at the time of our bid, which will cause us to rearrange our factories and incur additional startup costs.
During the second quarter, our focus on startup issues and production ramp up caused us to divert resources from our cost reduction teams to our launch team. The net effect is that we incurred startup losses in the FMTV program in the second quarter and don't expect this program to be profitable until fiscal 2012.
We continue to execute on our other defense programs even as we ramp up on the FMTV program. We had a strong quarter of vehicle deliveries under our FHTV program, and we continue to deliver high volumes of M-ATV parts as expected. Key orders that we announced during the quarter include 2,080 M-ATV underbody improvement kit that should be delivered by the fourth quarter, as well as an order for 60 of our massive heavy equipment transporters for the United Arab Emirates. We received a stop work order in the quarter related to our previous award for 250 M-ATV ambulances. This is a development program, and U.S. government is investigating another option for delivery of ambulances into the theater.