Bloomberg News

Oshkosh Shares Fall 3.6% After Profit Declines, Outlook Cut

November 04, 2011

(Updates with closing prices in first, second paragraphs.)

Nov. 1 (Bloomberg) -- Oshkosh Corp., the U.S. military’s largest supplier of armored trucks, fell 3.6 percent after the company reported a fourth-quarter profit decline and lowered its fiscal 2012 outlook.

Oshkosh, based in Oshkosh, Wisconsin, fell 75 cents to $20.11. Earlier, the shares fell as much as 7.7 percent, the most since Oct. 3. The company lowered its outlook for defense sales by 15 percent, or $225 million, primarily because of a tire shortage affecting military trucks.

“The 2012 outlook looks very challenging as defense looks to be getting weaker and 2011 was quite clearly not the transition year in the commercial businesses that investors were possibly looking for,” Ben-Ari Elias, an analyst with Sterne Agee & Leach Inc. in New York, said in a telephone interview. He has a “neutral” rating on the company.

Oshkosh said profit from continuing operations, excluding some items, fell to $43.4 million, or 48 cents a share, for the fiscal quarter ended Sept. 30 from $122.3 million, or $1.34 a share, in the year-earlier period. The average estimate of 11 analysts surveyed by Bloomberg was 32 cents a share.

Sales increased less than one percent to $2.12 billion from the year-earlier period, driven by increased demand for access equipment such as aerial work platforms.

In June, billionaire investor Carl Icahn declared a 9.5 percent stake in Oshkosh and has sought talks with the company’s management to enhance shareholder value. Shares declined 41 percent this year before today.

‘Poor Outlook’

“With a poor outlook and diminishing visibility, perhaps investors are looking for shareholder activism to unlock value,” Elias said.

Oshkosh lowered its expectations because of a Defense Department decision to re-allocate “certain tires with constrained capacity” from the company’s programs to other contracts “with higher military priority.”

The company shifted about $225 million in anticipated sales of family of heavy tactical vehicles, or FHTVs, heavy-duty trucks for the Army, to fiscal 2013 from fiscal 2012. As a result, it expects fiscal 2012 defense sales to decline by about 15 percent from the previous year, according to Chief Financial Officer David Sagehorn.

By moving the higher-margin FHTVs into 2013 and increasing plant spending on product development, “we now expect that defense segment fiscal 2012 operating income margins will be below 5 percent for the year,” Sagehorn said in a conference call with analysts.

Tire Supplier

“We’ve really led the industry in using the tire,” Chief Executive Officer Charles Szews said during the call. “We just don’t think that given the tire capacity, production capacity of our supplier that we’re going to be able to recover this volume by the end of the fiscal year.”

Tactical-wheeled vehicle programs will face their share of cuts to Pentagon spending that could range from $450 billion to more than $1 trillion over the next decade, Szews said.

“In order to be successful and achieve our target $2.5 billion of ongoing defense business, we will need to continue to perform on our current programs as well as win some new ones,” Szews said.

Peter Skibitski, an analyst with SunTrust Robinson Humphrey in Atlanta, said the company’s fourth-quarter fiscal 2011 sales were “pretty strong.”

“It’s certainly a tenuous outlook on the defense side,” Skibitski said in a telephone interview. He has a “neutral” rating on the company.

Medium Tactical Vehicles

Oshkosh has increased production of the Army’s family of medium tactical vehicles, or FMTVs, on a test basis to more than 30 trucks and 15 trailers a day, Szews said. The company expects the program to become profitable in the second-quarter of fiscal 2012, he said.

Increasing sales of FMTVs and access equipment “were almost entirely offset by” decreasing sales of blast-resistant trucks designed for Afghanistan, known as MRAP All-Terrain Vehicles, or M-ATVs, as well as suspension kits, and fire and emergency trucks, according to the company.

Defense revenue fell 12 percent to $1.17 billion, fire and emergency revenue declined 19 percent to $205.6 million, and commercial revenue fell 17 percent to $135.2 million. Meanwhile, access equipment revenue rose 25 percent to $673.5 million, according to the company.

--With assistance from Gopal Ratnam in Washington. Editors: Steven Komarow, Bob Drummond

To contact the reporter on this story: Brendan McGarry in Washington at bmcgarry2@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net


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