Oshkosh Earnings: Improved Supply Chains and Production Lead to a Strong Quarter

Investors reacted positively to Oshkosh’s OSK second-quarter earnings, which showed earnings per share of $2.69, nearly 64% above FactSet consensus bottom-line estimates. The company’s shares were up 10% in intraday trading. EPS performance was higher than we were expecting, which led us to raise our near-term sales and margin forecasts. As a result, we raised our fair value estimate to $103 from $99 previously.

Management highlighted supply chains improved more than expected in the quarter, especially in the access equipment segment. Sales increased nearly 36% year on year to $1.3 billion, with an operating margin of nearly 16%. Demand in access equipment was strong, thanks to increased infrastructure and mega project spending. On top of that, access fleet ages are currently elevated, which is pushing construction contractors to replace their equipment.

Defense sales were down over 7% year on year, affected by lower joint light tactical vehicle, or JLTV, volume. Oshkosh is currently set to supply the JLTV program for about another year—the company lost the follow-on contract to AM General earlier this year. Management noted though that the company will continue to build JLTVs for international customers beyond 2024, albeit at lower volumes. As we’ve discussed in previous quarters, we think the U.S. Postal Service contract will help somewhat mitigate the loss of the JLTV contract. There, Oshkosh is working to build electrified next-generation vehicles.

Vocational sales increased over 6% year on year, due to stronger pricing and volume. Notably, backlog was up 38% versus the year-ago quarter, landing at $3.9 billion. Demand for fire trucks remains strong and management even highlighted that strong pricing in the backlog will be a tailwind to margins in 2024. This gives us the confidence to project low-double-digit operating margins in 2024.