Oshkosh - Q1 2013
January 25, 2013
Transcript
Operator (participant)
...Greetings, and welcome to the Oshkosh Corporation Reports Fiscal 2013 First Quarter Results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Pat Davidson, Vice President of Investor Relations for Oshkosh Corporation. Thank you, Mr. Davidson. You may now begin.
Pat Davidson (Head of Investor Relations)
Thanks, Rob. Good morning, everybody, and thanks for joining us. Earlier today, we published strong first quarter results for fiscal 2013. A copy of the release is available on our website at oshkoshcorporation.com. Today's call is being webcast and is accompanied by a slide presentation, which includes a reconciliation of non-GAAP measures used during this call and which 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 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 from those expressed or implied by such forward-looking statements.
These risks include, among other matters, 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 results stated on this call are for continuing operations attributable to Oshkosh Corporation, unless stated otherwise. Our presenters today include Charlie Szews, Chief Executive Officer, Wilson Jones, President and Chief Operating Officer, and Dave Sagehorn, Executive Vice President and Chief Financial Officer. So please turn to slide three, and I'll turn it over to you, Charlie.
Charlie Szews (CEO)
Thank you, Pat, and good morning. It is truly a pleasure to be speaking with all of you listening on our call today. I'm happy to kick off 2013 by announcing another quarter of strong performance for the company. This morning, we're reporting results that exceeded our expectations, with revenues of $1.76 billion and adjusted EPS of $0.60 for the first quarter. We also generated $39 million of free cash flow in the quarter, which helped support a repurchase of approximately 4.25 million shares of Oshkosh common stock. The momentum that we talked about in our last quarterly call has continued in our access equipment and commercial segments, as both businesses again delivered improved year-over-year performance. We also saw improved year-over-year performance in our fire and emergency segment.
While margins in our defense segment are lower than the prior year period, the defense team still drove performance that led to margins in this segment that exceeded our expectations. As a result of our strong first quarter performance, our positive outlook for the remainder of the year, first quarter share repurchases, and the reinstatement of the R&D tax credit, we are raising our adjusted EPS estimates for fiscal 2013 to a range of $2.80-$3.05. Dave will fill in the details on our estimates in a few minutes. Please turn to slide 4. We continue to believe in our three-year outlook for Oshkosh Corporation that we discussed last September in our Analyst Day. The building blocks for that outlook remain solid, and we are progressing as expected.
We've been talking about it for a while now, and we will keep talking about it. MOVE. This strategy is simple, straightforward, and easy to communicate. It provides us with a framework to improve our performance in all areas of the company, driving increased shareholder value. It's a journey that we'll be on for some time. From a results perspective, we're on schedule with all our principal MOVE initiatives and will provide a scorecard for them at the end of fiscal 2013. In the meantime, we expect to continue to demonstrate the success of the MOVE strategy through improved earnings and increased shareholder value. We expect to achieve these goals through the focused efforts of each of our 13,000 employees. To borrow a phrase from football, we are currently doing a lot of blocking and tackling and striving for continuous improvement, and it's working.
It's no secret that we're experiencing recovery in the housing in the U.S. We see the data on a regular basis, and it confirms that Americans are building more new homes. We directly benefit from these actions through stronger order flow for our concrete mixer trucks and telehandlers, both of which are essential equipment for new home construction. Indirectly, we expect increased housing starts to lead to higher tax receipts for municipalities and, in turn, stronger demand for new fire trucks and refuse collection vehicles in future years. Regardless of the news from Washington, we believe that the U.S. economy will power forward, albeit along a slow recovery consistent with our previous outlook. We received some good news in our defense segment during the quarter, as we secured large delivery orders for both the Family of Heavy Tactical Vehicles and Family of Medium Tactical Vehicles programs.
These orders are important as we believe these funds are no longer susceptible to the impacts of sequestration, and they fill out the backlog for our U.S. defense vehicle sales expectations for fiscal 2013 and a large portion of our baseline view for fiscal 2014. So please turn with me to slide 5. We had a strong quarter of execution in our defense segment, leading to better-than-expected margins, but it's never easy. John Urias and his team are working diligently to serve our U.S. government customer and expanding key international markets. At the same time, they're proactively managing our operations to deal with the realities of future defense spending levels. As we noted on our last quarterly earnings call, we made the difficult decision to reduce our defense segment workforce by 490 people early this calendar year.
The defense team secured delivery orders for the Family of Heavy Tactical Vehicles and Family of Medium Tactical Vehicles programs that I just mentioned, totaling about $800 million in the quarter. These orders are in our backlog as of December 31, 2012. We're also making very good progress in the production delivery of M-ATVs to the UAE, which we commenced in the first quarter. M-ATVs are performing extremely well on the battlefield for U.S. forces, and we believe the UAE program is a great example of how the Oshkosh defense team can quickly meet the emerging needs of defense customers across the globe. Lastly, we're pleased with our progress in the JLTV EMD program. We are on or ahead of schedule with all our contract milestones, and we recently completed successful design review with the U.S. government.
We are excited to deliver our test vehicles later this summer. As a reminder, we expect the request for proposal for the JLTV production contract to hit the streets in 2015, with Low Rate Initial Production for the winning bidder expected to begin in calendar 2016. Wilson will now provide an update on our non-defense segments. Please turn to Slide 6.
Wilson R. Jones (President and COO)
Thanks, Charlie. Good morning, everyone. I continue to share Charlie's confidence and enthusiasm regarding our MOVE strategy. MOVE provides us with focus, and we are progressing as planned to achieve our targets for our entire company. Strength in the access equipment market in North America continues to be led by replacement demand from our customers, who rent these assets to builders, contractors, and many other end users. The key metrics that we monitor and discuss with our customers, namely utilization, rental rates, fleet age, and used equipment values, all continue to lead us to believe that North American demand for our equipment should remain strong for the foreseeable future. Plus, we continue to experience an upturn in activity with our independent rental customers. We look forward to meeting all of our North American customers in two weeks at the Rental Show in Las Vegas.
It will be a good opportunity to further gauge sentiment in the industry and to renew some relationships. All this gives us confidence as we look out to our fiscal 2015 targets. Outside North America, we continue to experience mixed demand in Europe, where we're experiencing solid demand in the East and certain markets in the North. However, in a number of the Western and Southern countries, we expect continued softness. Both Latin America and the Pacific Rim posted increases in equipment sales compared with last year's quarter. Our sales in Latin America continue to benefit from demand for our equipment, driven by infrastructure build-out. When we announced our results on the last quarterly conference call, we reported a significantly lower backlog in this segment as of September 30, 2012, versus the prior year.
We told you that we saw a different pattern emerging regarding customer orders. We also told you that we were in the process of discussing requirements with several of our larger national customers. We have largely completed those discussions and are pleased with the results and orders we received. Access equipment orders in the first quarter were the second-highest quarterly order total for the segment since fiscal 2007. These orders are evident in the strong backlog we're reporting today, which is up significantly since the end of September and just slightly below last December's level. We believe the order performance in the first quarter further supports our outlook for this segment for the year. Turning to our fire and emergency segment, and to Slide 7, we saw continued evidence this quarter that the municipal fire truck market in the U.S. has stabilized.
We view this as a positive because it is a base from which this market can recover in the coming years. We still expect federal spending on fire apparatus to decline in 2013. With this backdrop, we're pleased with the improved results that we demonstrated this quarter in this segment. While the fire and emergency segment is still in the early stages of benefiting from our MOVE activities, we believe we are on the right path. We have the strongest fire apparatus dealer network in North America, and we will continue to leverage these relationships to provide outstanding service to our customers. The timing of international sales supported our fire and emergency first quarter results. We also experienced improvement in our Florida operations as we wind down our ambulance production and focus that facility on building and delivering high-quality fire trucks.
We are still on track to complete the build-out of the ambulance backlog in our second fiscal quarter. While there will likely be some lumpy quarters in this segment, I'm confident we're headed in the right direction, both from a market standpoint and an operational standpoint. Let's turn to our commercial segment. Please turn to Slide 8. As Charlie mentioned earlier in the call, the U.S. housing market has continued to show improvement. Housing starts data, released just last week, improved to a seasonally adjusted annual rate of 954,000, the highest level since June 2008. We see the impact of this improvement most intensively in our concrete mixer business. Most concrete ready-mix suppliers in the United States essentially stopped buying mixers in 2008, largely remaining out of the market until just recently.
As the market leader with our McNeilus rear discharge mixers and our Oshkosh-branded front discharge mixers, the dearth of customer orders impacted our business immensely. But we persevered and improved our operations and are excited about the direction and the opportunities that we now face with an improved concrete mixer market. The upturn in orders for concrete mixers that we mentioned in our last quarterly call continued this quarter, as we saw orders up approximately two-thirds from the prior year quarter… Further strength in the market is demonstrated by our sales of aftermarket parts for concrete mixers. We experienced continued improvement in parts sales and service work in the quarter. Turning to refuse collection vehicles, the market is generally stable to slightly down, at levels significantly lower than historical levels, but we continue to remain energized by the growth in demand for our CNG-powered units.
McNeilus has been a leader in integrating clean-burning, fuel-efficient CNG into refuse collection vehicles. For the quarter, approximately 40% of our units sold were CNG-powered, up from about 5% just a few years ago. Similar to the other segments, we remain focused on operational improvements in the Commercial segment. We've made good progress addressing our cost structure in this segment and look forward to continued improvement as our end markets recover. Now please turn to Slide 9, and Dave will take us through a brief discussion of our financial performance for the quarter and our expectations for the remainder of fiscal 2013.
Dave Sagehorn (EVP and CFO)
Thanks, Wilson, and good morning, everyone. Excuse me. Consolidated net sales for our first fiscal quarter were $1.76 billion, a 6.1% decrease from the first quarter of fiscal 2012. Sales to external customers in each of the non-Defense segments were higher than the prior year quarter. This continues a trend that we've seen in each of the last several quarters, reinforcing our belief that our non-Defense markets remain on the road to recovery. Higher non-Defense sales largely offset an expected year-over-year decline in Defense segment sales of more than 20%. Adjusted consolidated operating income for the quarter was $97.7 million, or 5.6% of sales. This compared to adjusted operating income of $79.2 million, or 4.2% of sales, in the first quarter of fiscal 2012.
Continued improved year-over-year performance in the non-Defense segments drove the higher adjusted consolidated operating income margin. We're especially pleased with the significant year-over-year improvements in the Access Equipment and Fire and Emergency segment results. Last year's first quarter results in the Access Equipment segment were significantly impacted by material cost increases. Price increases implemented in early calendar 2012 substantially addressed those material cost increases. The Fire and Emergency segment benefited from both higher sales compared to the prior year quarter and a continued focus on improving its operational efficiencies. More information on our first quarter results by segment can be found in the Appendix section of this morning's slide deck. Adjusted earnings per share from continuing operations for the quarter was $0.60. This compares to adjusted earnings per share of $0.39 in the first quarter of fiscal 2012.
Our first quarter fiscal 2013 adjusted earnings per share reflects non-GAAP adjustments totaling $0.09 per share. These non-GAAP adjustments eliminate costs related to the recent tender offer and threatened proxy contest, costs associated with the pension curtailment charge related to our Defense workforce reduction, a favorable adjustment to restructuring charges related to shutting down our ambulance business, and discrete tax benefits. As you recall, during the quarter, we announced a plan to repurchase up to $300 million of Oshkosh common stock over a 12- to 18-month period, with a target of repurchasing $75 million of shares by the end of December. Actual repurchases through the end of December were 4.25 million shares for a total cost of $125 million, or an average of $29.43 per share.
Due to the timing of the share repurchases throughout the quarter, the 4.6% reduction in outstanding shares will not fully benefit earnings per share until the second quarter. Wrapping up my comments on our first quarter results, I will echo Charlie's and Wilson's comments. The Oshkosh team is focused on delighting our customers and driving increased shareholder value, and our first quarter results are evidence of that focus. Please turn to Slide 10 for a review of our current outlook for fiscal 2013. We're pleased to announce today higher expected results for full-year fiscal 2013. We are increasing our estimated adjusted earnings per share from a range of $2.35-$2.60 to a range of $2.80-$3.05.
The increase in estimated full year results is largely due to the strong performance we experienced in our first fiscal quarter and our outlook for the remainder of the year, along with a lower share count and tax rate. You'll note on the slide that our sales estimates for the year are largely unchanged, with the exception of the Defense segment, where we now believe that some sales are going to move out from this year to next year. You'll also note that we're increasing our adjusted operating income margin estimates in the Access Equipment and Defense segments, again, reflecting the focus of the entire Oshkosh team on driving improved performance. We've updated our estimated corporate spend to reflect the impact of our higher stock price on stock-based compensation and higher expected information technology spending this year.
We also updated our tax rate, capital expenditure, free cash flow, and share count assumptions. We reduced our expected tax rate to 32% from 33%, largely to reflect the recent reinstatement of the research and development tax credit in the U.S. And our estimated full-year share count of 89 million, down from our previous estimate of 91.5 million shares, reflects share repurchase activity through the end of our first quarter, but excludes the impact of any additional share repurchases. I'll close with a quick comment on our second quarter outlook. We expect to see typical seasonally higher sales versus the first fiscal quarter in our segments with exposure to construction end markets. We also expect the Defense segment to benefit from a ramp-up in shipments of M-ATVs to the UAE.
Shipments of these outstanding vehicles will continue through the third fiscal quarter before winding down in the fourth fiscal quarter. As a result, we expect Defense segment sales to increase marginally in the second and third fiscal quarters from previous sequential quarters.
... We then expect Defense segment fourth quarter sales to decline approximately 25% from first fiscal quarter levels. I'll turn it back over now to Charlie for some closing comments.
Charlie Szews (CEO)
Thanks, Dave. Oshkosh's non-defense markets are improving, much as we described in our Analyst Day commentary last September. With the recent tender offer and threatened proxy contest behind us, we're now in a position to singularly focus our efforts and attention on delivering against our market opportunities for the benefit of both customers and shareholders. We are confident that we have the right roadmap and the right team to meet our target of approximately doubling earnings per share by fiscal 2015 to a range of $4-$4.50. That concludes our formal comments. We're happy to answer your questions, so I'll turn it back over to Pat to get the Q&A started.
Pat Davidson (Head of Investor Relations)
Thanks, Charlie. I'd like to remind everyone, please limit your questions to one, plus a follow-up. After the follow-up, we ask that you get back in queue to ask additional questions, and we'll do our best. Rob, let's please begin the question-and-answer period of this call.
Operator (participant)
Thank you. We'll now be conducting the question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is coming from the line of Stephen Volkmann of Jefferies. Please proceed with your question.
Stephen Volkmann (Analyst)
Hi, good morning, guys.
Dave Sagehorn (EVP and CFO)
Morning, Steve.
Wilson R. Jones (President and COO)
Good morning.
Stephen Volkmann (Analyst)
I was hoping to dig in just a little bit on access, and maybe I'll ask both my questions at once here. Can you just, excuse me, give us a sense of how things broke down between the telehandlers and, you know, the kind of core access stuff versus your expectations? Looks like a lot of strength in telehandlers. You know, what are you seeing in the orders? What are you seeing in the backlog? Is there any kind of shift in that mix happening that we should know about? And then the second follow-on is just on the margin. You obviously raised your margin target a bit here. Is that sort of price-related? Is it efficiency-related? It's obviously not volume-related, so I'm just curious what's driving that. Thanks.
Wilson R. Jones (President and COO)
Hey, Steven. This is Wilson. I'll take a run at the order mix that you're asking, and then maybe, Dave, you can follow behind on the margin question.
Dave Sagehorn (EVP and CFO)
Sure.
Wilson R. Jones (President and COO)
We are seeing a good order pattern, Steven. Obviously, telehandlers with housing construction, that's continues to be a good mix of product for us. We were pleased with the performance in the quarter. If you look at the high number of telehandlers we had to perform the way we did, we were pleased with that. But going forward, our forecast and what we're hearing from our customers is we will have more favorable aerial work platform mix throughout the rest of the year.
Dave Sagehorn (EVP and CFO)
Steve, then on the, your question on the margins, increase versus our prior estimates. I think, it, you know, you're gonna see, hear this consistently across the, the company here, the focus on MOVE and the MOVE strategy and the benefits that, that we think that can afford the company over time. I think we're seeing the, the benefit of that, specifically here in the Access segment, so that would be one piece. I think Wilson touched a little bit on the mix. I think we're, we're thinking that we're probably gonna see a little better mix than we might have thought previously as we go through the remaining quarters. Then also, probably a little bit of, price realization as well that played into that.
Stephen Volkmann (Analyst)
So, better mix? It means more AWPs?
Dave Sagehorn (EVP and CFO)
Yes.
Stephen Volkmann (Analyst)
Great. Thanks so much.
Dave Sagehorn (EVP and CFO)
Thank you.
Wilson R. Jones (President and COO)
Thank you.
Operator (participant)
Our next question is coming from the line of Jamie Cook of Credit Suisse. Please proceed with your question.
Jamie Cook (Managing Director)
Hi, good morning, and congrats on a good quarter. Just wanted to drill down a little bit on the Defense business, the margins there. You know, really surprised relative to what I was thinking, and I was just wondering if you could quantify. You talked about favorable adjustments on some contracts and warranty, if you could quantify that, and then I guess, except that, I would assume that the margins are probably even better than you thought. So if something, you know, sort of structurally changed versus when you laid out your margin targets in Defense, you know, back in September, you know, at your Analyst Day. If so, what? Or should we view this sort of, you know, as more of a one-time thing?
And then my second question, just on the cement mixer side, can you just sorta give us a sense for where that business you know, you mentioned the increase, which is nice, but can you give us a sense of how big that business is and the profitability relative to prior peaks, so we can see what the potential upside is? Thanks, and I'll get back in queue.
Dave Sagehorn (EVP and CFO)
Sure. Jamie, it's Dave. I'll take the question on Defense and then turn it over to Wilson to talk about the concrete mixers.
Jamie Cook (Managing Director)
Sure.
Dave Sagehorn (EVP and CFO)
In terms of the items in the quarter related to the definitization of contracts as well as warranty, that added about 80 basis points of margin to the segment in the quarter. So that is something that, you know, we're working through the quarter in terms of discussions with our government customer, and we just, the timing was such that we finalized those in the quarter.
Jamie Cook (Managing Director)
Dave, even ex that, your margins are pretty good.
Dave Sagehorn (EVP and CFO)
Yeah, and that's a great point, and I think some congratulations should go out to the Defense segment team. Those guys have focused a lot on driving operational performance and improvements in that segment, and they actually exceeded our expectations for the quarter in terms of what they've been able to deliver there.
Charlie Szews (CEO)
Jamie, it's Charlie. The assembly hours in our Defense factories are much improved from a year ago, and I think, probably given your pregnancy, you haven't been in the plant in a while, but if you came for a tour now compared to a year, year and a half ago, I think you'd see a dramatic improvement and-
... I think part of that is what you're seeing in our results.
Jamie Cook (Managing Director)
No, but I guess, I mean, has anything structurally changed since when you laid out your margin targets for the Analyst Day in September?
Dave Sagehorn (EVP and CFO)
Structurally, I would say just it's more, it's the performance.
Jamie Cook (Managing Director)
But you're not feeling more bullish relative to where we were?
Dave Sagehorn (EVP and CFO)
Well, I think we did-
Jamie Cook (Managing Director)
It seems like underlying margin performance could be better relative to what you guys had laid out, unless I'm being too positive.
Charlie Szews (CEO)
Yeah. Well, we did take our guidance up on our margins, and I think that we are feeling more confident in the performance in the segment. Absolutely.
Jamie Cook (Managing Director)
Okay. Then, sorry, on the concrete mixer.
Dave Sagehorn (EVP and CFO)
Along those lines, Jamie, I mean, our outlook for the future, I mean, we're competing, and, you know, defense spending is coming down, and our eyes are fully wide open on that.
Charlie Szews (CEO)
Yeah. I think what we're speaking to is 2013.
Dave Sagehorn (EVP and CFO)
Yeah.
Jamie Cook (Managing Director)
Okay. Okay, that's fair. And then, sorry, on the cement mixer side?
Wilson R. Jones (President and COO)
Yeah. Hi, Jamie, it's Wilson. The coming up from a very small base, we're probably still in the 65%-70%, down from peak.
Jamie Cook (Managing Director)
Okay.
Wilson R. Jones (President and COO)
I think, you know, it closely follows housing starts, and so we're seeing that come right up with the housing starts, which has been some, some good news. I think some of the smaller, ready-mix customers are still, you know, struggling along, but what we're seeing is some of the bigger ready-mix customers start to buy in volume.
Jamie Cook (Managing Director)
Okay, great. Thank you, and congrats.
Wilson R. Jones (President and COO)
Thank you.
Dave Sagehorn (EVP and CFO)
Thank you.
Operator (participant)
Our next question is from the line of Ann Duignan of JPMorgan. Please proceed with your question.
Ann Duignan (Managing Director)
Hi, good morning, guys.
Dave Sagehorn (EVP and CFO)
Morning, Ann.
Wilson R. Jones (President and COO)
Morning, Ann.
Ann Duignan (Managing Director)
Good morning. Just back to the access equipment, again, on the telehandler side, very solid performance there. I often think of that product going into the agricultural sector. Are you seeing any strength, or is that more of a European issue?
Charlie Szews (CEO)
Ann, this continues to be mostly a European issue, where, you know, probably in Europe, it's 50% of the market. Here in the United States, it'd be negligible.
Ann Duignan (Managing Director)
Okay, so it is all construction. I just wanted to clarify that.
Charlie Szews (CEO)
Construction, industrial, you know, but clearly, it's not an agricultural phenomenon here.
Ann Duignan (Managing Director)
Okay, good. And then can you talk about on the AWP side or the telehandler side, a lot of discussion about large rental companies versus small rental companies. Can you just talk about the mix of both in your backlog and then also, you know, just in terms of the discussions you've been having with customers on, you know, large versus small?
Wilson R. Jones (President and COO)
Yeah. Hi, Anne, it's Wilson. The talks are continued, as I said in my comments, they're ongoing, as you know, throughout the year. We had good discussions, and you're seeing, you know, the fruits of that in our backlog now from the first wave of orders. Telehandlers, we expect to continue to be prominent in our mix just because construction, when some residential kicks in, then the smaller telehandlers will come in. But overall, I think, you know, the discussions continue to go well. We're, when you ask about the smaller customers, I think everyone has a different definition of what an independent rental customer is. But I can tell you, our backlog kind of goes up and down, two-thirds of independent rental customers.
It has gone up a little bit, this past quarter. We are seeing some more activity out of the IRCs, which has been certainly good for our business.
Dave Sagehorn (EVP and CFO)
Ann, I think it's also fair to say that, you know, they are not. The Independent Rental Companies are not back to where they were prior to the downturn.
Wilson R. Jones (President and COO)
Sure.
Dave Sagehorn (EVP and CFO)
We think there's still a significant amount of runway for them to come back and be a meaningful part of this market over time.
Wilson R. Jones (President and COO)
Good point.
Ann Duignan (Managing Director)
Yeah. Okay, thank you. That's good color. Just really, finally, just, your ending diluted share count for the quarter, just so we can model correctly?
Wilson R. Jones (President and COO)
Well, for the year, we're-
Dave Sagehorn (EVP and CFO)
For the year, $89 million.
Wilson R. Jones (President and COO)
$89 million, right.
Ann Duignan (Managing Director)
Average.
Wilson R. Jones (President and COO)
I think it was $91.1 million.
Ann Duignan (Managing Director)
But that's the ending diluted?
Dave Sagehorn (EVP and CFO)
Uh, the-
Charlie Szews (CEO)
No, that was the quarter average. It was 91.
Ann Duignan (Managing Director)
Right.
Wilson R. Jones (President and COO)
Uh, ninety-
Ann Duignan (Managing Director)
So I guess we can figure that if we know how many you bought back, so.
Wilson R. Jones (President and COO)
Yeah. Okay. Let us look into that.
Ann Duignan (Managing Director)
Yeah.
Wilson R. Jones (President and COO)
In the 10-Q, it'll have it, Ann.
Ann Duignan (Managing Director)
Okay. Thank you. I'll get back in line. Appreciate it.
Operator (participant)
Our next question is from the line of Charlie Brady of BMO Capital. Please receive your question.
Speaker 16
Good morning, guys. This is Andrew on for Charlie Brady.
Dave Sagehorn (EVP and CFO)
Good morning.
Speaker 16
I was hoping you might be able to clarify on the fire and emergency segment, just how much, I guess, was from the international order and how much was, I guess, not from that? And then, on that second component, how do you see that kind of growing?
Dave Sagehorn (EVP and CFO)
On the second component being?
Speaker 16
Well, you mentioned kind of like broad-based demand,
Dave Sagehorn (EVP and CFO)
Well-
Speaker 16
which I assume is not from the international order.
Dave Sagehorn (EVP and CFO)
Sure. I think in the quarter, it was probably around $10 million or so that we benefited from increased international orders. Some. A little bit of that probably was timing between Q1 and Q2 as well. I think Wilson commented on the overall domestic fire market that you know, the municipal market in the U.S., we think, has kind of bottomed out based on the market data that we've seen. Does continue to be weakness from a federal government-
Wilson R. Jones (President and COO)
Yeah
Dave Sagehorn (EVP and CFO)
-spending standpoint, and as a result, we think that will make the market a little bit weaker in our fiscal 2013. But obviously, then there, you have to add in the international piece, and we think that there are still significant opportunities out there.
Speaker 16
Okay, great. And the next question just is, what is kind of for refuse collectors, when people are kind of, I guess, converting to the CNG ones, is it more of like a, you know, it's time to replace and they're replacing them, or are people adding?
Dave Sagehorn (EVP and CFO)
... Right now, I believe it's more when people are replacing equipment, they're installing CNG. There are some on the fringes that are doing what you're saying, that they're trying to convert some of the vehicles they have. But oh, it's you know, 95%-
Wilson R. Jones (President and COO)
Yeah
Dave Sagehorn (EVP and CFO)
- plus probably just, new purchases, they're buying CNG.
Wilson R. Jones (President and COO)
Very, very small % of refurbishment for CNG at this stage.
Speaker 16
Okay, great. Thank you, guys.
Wilson R. Jones (President and COO)
Thank you.
Operator (participant)
Our next question is coming from the line of Pete Skibitski of Drexel Hamilton. Please proceed with your question.
Pete Skibitski (Analyst)
Good morning, guys. Great quarter.
Wilson R. Jones (President and COO)
Thank you.
Dave Sagehorn (EVP and CFO)
Good morning, Pete.
Wilson R. Jones (President and COO)
Thanks.
Pete Skibitski (Analyst)
Hey, on the outlook for Access, your outlook for Access, you know, you kept the top line guide intact despite, you know, a really nice backlog increase. I guess that was, you know, what you planned, but I was just wondering if you're any more bullish today on, you know, the res and non-res construction outlook than you were one quarter ago?
Wilson R. Jones (President and COO)
Pete, we are optimistic, but we'd like to see a few more months pass before we lean out any further, okay?
Pete Skibitski (Analyst)
Understood. Understood. Just one quick follow-up. The RCV volumes were down pretty sharply. Is that kind of a timing thing, or is that kind of the level of decline you're expecting for the balance of the year?
Wilson R. Jones (President and COO)
No, actually, it's a timing thing, Pete. We still have, you know, our outlook. It is, it is a little later this year, but, it, it is. You're right, it is a timing issue.
Dave Sagehorn (EVP and CFO)
Pete, if you may recall in the December quarter last year, we did experience some increased demand due to the expiration of some bonus depreciation rules.
Pete Skibitski (Analyst)
Good. Thanks, guys.
Dave Sagehorn (EVP and CFO)
Thank you.
Operator (participant)
Our next question is from the line of Eli Lustgarten of Longbow Research. Please proceed with your question.
Eli Lustgarten (Analyst)
Good morning, everyone.
Wilson R. Jones (President and COO)
Morning.
Dave Sagehorn (EVP and CFO)
Hello, Eli.
Eli Lustgarten (Analyst)
Quick question. With our surveys indicate that there was a price increase at the beginning of the year, I think about 3%-4% in Access, that both you and, and sort of Terex. Can you talk about pricing in the industry and whether the upcoming price increase appeared to maybe brought some business forward into the December quarter, you know, combined with the fear that the bonus depreciation in Section 179 were going to expire? I mean, we sort of heard some talk like that, and I just wonder if you can comment on it.
Wilson R. Jones (President and COO)
No, Eli, I wouldn't say it pulled it forward. Our price increase went in effect on anything shipped after January one. So what you're seeing, performance in last quarter is just some good work by our teams on the operational side and a little bit of price realization. But going forward, price-wise, I would say that we're seeing some pricing discipline in North America. We are seeing some, unfortunately, lack of discipline in some of the international markets that were related to pricing, but that's, you know, that's something we battle every year.
Eli Lustgarten (Analyst)
Yeah. And the price increase was about 3%-4%, January 1? I don't think-
Wilson R. Jones (President and COO)
It was actually, Eli, it was actually 5%-8%.
Eli Lustgarten (Analyst)
Okay.
Wilson R. Jones (President and COO)
It wasn't, you know, we just -- It was on certain models where we had ups and downs, so it wasn't just a standard-
Eli Lustgarten (Analyst)
Mm-hmm
Wilson R. Jones (President and COO)
across-the-board increase. It was a range of 5%-8%.
Eli Lustgarten (Analyst)
The fact that you kept the top-line forecast for Access, you know, unchanged with better margins is sort of maybe a tip towards conservatism, not sure how everything will affect, as opposed to realizing the strength of the December quarter.
Dave Sagehorn (EVP and CFO)
Yeah. Again, it's early in the year. I think we've been projecting North America to be up, what, 6%-8% this year, and these estimates are pretty much in line with that. You know, if we get through the next two months with the federal spending debate and things are looking good in the economy, maybe our view of the outlook might change. But right now, this is a good place to be.
Eli Lustgarten (Analyst)
All right. Thank you very much.
Operator (participant)
Our next question is from the line of Jerry Revich of Goldman Sachs. Please receive your question.
Jerry Revich (Analyst)
Good morning.
Wilson R. Jones (President and COO)
Morning.
Dave Sagehorn (EVP and CFO)
Morning.
Jerry Revich (Analyst)
Excellent margin performance in aerials square. Dave, I'm wondering if you can just help us parse out a little bit on what proportion of the margin improvement was MOVE initiatives and, you know, what was the full contribution of pricing and mix, just to help us get a better feel for the underlying pieces. That'd be great.
Dave Sagehorn (EVP and CFO)
Yeah, Jerry, I don't know if I'm going to go into the level of detail that you may want. I guess what I would point you to is the slide in the appendix where we talk about Access results, where we did say margins year-over-year really improved because of pricing realization, the less intersegment sales between our Access and Defense segment, and we did have a negative margin impact from more telehandlers. Obviously, the pricing impact that we put in place early in calendar 2012 to address the material cost increases that we had experienced was a big driver of the year-over-year improvement in margin.
But also, just again, the focus on the MOVE strategy, optimizing our cost structure, again, the team at Access has done a very good job in terms of driving that, and I think we're going to continue to see that improvement as we move forward.
Jerry Revich (Analyst)
Okay. And the efficiency improvement in Defense, was that across the platform, platforms, or was that more concentrated on the FMTV side? And, Charlie, can you comment on how you feel about potential incremental order outlook, for foreign M-ATVs from here?
Wilson R. Jones (President and COO)
Sure. Clearly, it's across the platforms. We've had very nice efficiency improvements across our family of heavy tactical vehicles, M-ATVs, FMTVs, really across the board. In terms of international sales-
Dave Sagehorn (EVP and CFO)
... We are making progress. We hope to have, you know, some opportunities to announce in the next few months. Most likely, any of the international sales that we're able to generate here will hit fiscal 2014, given where we are in the cycle of things. But we do have some nice opportunities to continue to move forward.
Jerry Revich (Analyst)
Thank you.
Operator (participant)
Thank you. Our next question is from the line of Alex Potter of Piper Jaffray. Please proceed with your question.
Alex Potter (Managing Director)
Hi, guys, great quarter. I just wanted to touch on the Fire and Emergency segment here. A pretty good margin performance there this quarter as well, but I noticed you didn't pick that up in terms of guidance for the full year. Was just wondering what your thinking is behind that. Is that just because of mix in international coming in in the quarter benefiting you, or what the thinking is there? Thanks.
Dave Sagehorn (EVP and CFO)
Yeah. Yeah, I think we're gonna see, and Wilson mentioned it a little bit in his comments, maybe a little bit of lumpiness in terms of the sales trends through the quarter here. I think we're actually gonna see sales down in that segment, in the second quarter. So, I think there'll be some give and take. And again, for the full year, I think we're still looking at that 2%-2.5% margin segment.
Alex Potter (Managing Director)
Okay, but you'd say that, you know, the MOVE strategy and everything, as soon as you start getting volume trending in the right direction, you ought to be able to squeeze some additional margin out of that segment as well?
Dave Sagehorn (EVP and CFO)
We would hope so.
Alex Potter (Managing Director)
Yep.
Dave Sagehorn (EVP and CFO)
That's our goal.
Alex Potter (Managing Director)
Okay, very good. Thanks.
Dave Sagehorn (EVP and CFO)
Thank you.
Operator (participant)
Thank you. Our next question is from the line of Alex Blanton of Clear Harbor Asset Management. Please receive your question.
Wilson R. Jones (President and COO)
Alex?
Operator (participant)
We've lost Mr. Blanton's line.
Wilson R. Jones (President and COO)
Okay.
Operator (participant)
Move along. The next question will be from Walt Liptak of Barrington Research. Please receive your question.
Walt Liptak (SVP)
Hi. Thanks. Good morning, and, congratulations, guys.
Dave Sagehorn (EVP and CFO)
Thank you, Walt.
Wilson R. Jones (President and COO)
Good morning.
Walt Liptak (SVP)
Most of my questions have been asked. But did you mention what FMTV or what the mix of defense products were in the quarter yet?
Dave Sagehorn (EVP and CFO)
No, we didn't. Walt, it was about 45% was FMTV in the quarter, and that was consistent with what we saw, for example, in the fourth quarter of fiscal 2012.
Walt Liptak (SVP)
Okay. And you mentioned in an earlier question about margins picking up. Can you give us some idea of where margins are now with the FMTV?
Dave Sagehorn (EVP and CFO)
Yeah, we're, we're not gonna go into that level of detail on the program, other than the fact that we are seeing margin improvement, and we're very pleased with that.
Walt Liptak (SVP)
Okay. Okay, good enough. Thanks.
Operator (participant)
Our next question is from the line of Basili Alukos of Morningstar. Please proceed with your question.
Basili Alukos (Corporate Credit Analyst)
Hey, guys. Good morning.
Dave Sagehorn (EVP and CFO)
Good morning.
Wilson R. Jones (President and COO)
Good morning.
Basili Alukos (Corporate Credit Analyst)
Just a question regarding defense. Going back to your Analyst Day and looking at your long-term defense target, I think in 2015, you were at $800 million. I mean, I saw a headline of a company that doesn't really have much of a defense business with a contract. I'm just wondering if you guys are, have at all rethought your kind of baseline defense outlook on this, on the top line, and then, of course, if, you know, the flow-through on that, then to the bottom line as far as operating margins.
Dave Sagehorn (EVP and CFO)
Yeah, Basili, it's early. We haven't updated our baseline view for FY 15 for defense or really any of our segments right now. You know, probably toward the end of this fiscal year, sometime next fiscal year, we'll give you some updates, but at this point, it's unchanged.
Basili Alukos (Corporate Credit Analyst)
Okay. And as far as, I mean, like, the whole fiscal cliff or anything, that the way that that's been settled, that there's kind of no impact as of now?
Dave Sagehorn (EVP and CFO)
Well-
Basili Alukos (Corporate Credit Analyst)
Or are you still trying to assess where, how that might affect the business long term?
Dave Sagehorn (EVP and CFO)
It's not completely settled, you know? We still could have sequestration. You know, the Army, you know, put out some concerns in the last, you know, couple of weeks in terms of having to deal with maybe $16 billion of shortfalls and this and that. Having said that, for our programs, we're in very good shape through most of fiscal 2014 from a domestic sales outlook standpoint vis-a-vis our baseline view of sales. So I think we're in a good position, but, you know, the concerns are still there. They're valid.
Basili Alukos (Corporate Credit Analyst)
Great. Those are all my questions. Good quarter, guys.
Dave Sagehorn (EVP and CFO)
Thank you.
Basili Alukos (Corporate Credit Analyst)
Thank you.
Operator (participant)
Thank you. Our next question is from the line of Steve Barger of KeyBanc Capital Markets. Please proceed with your question.
Steve Barger (Equity Research Analyst)
Hi, good morning, guys.
Dave Sagehorn (EVP and CFO)
Good morning.
Wilson R. Jones (President and COO)
Good morning.
Steve Barger (Equity Research Analyst)
Of the $3.1 billion in the defense backlog, can you tell us what percentage is specifically slated to ship in the rest of the fiscal year?
Dave Sagehorn (EVP and CFO)
Sure. About $2.1 billion of that, Steve, is for FY 2013, and the remaining $1 billion would be for our fiscal 2014.
Steve Barger (Equity Research Analyst)
Got it. Thank you. And, I won't ask you for your own deliveries, but do you have a forecast for industry deliveries for fire equipment in the U.S. for 2013?
Dave Sagehorn (EVP and CFO)
We don't have a specific number, but again, we did say, you know, at our Analyst Day, and we'd reiterate that we do think that the market will be down again in fiscal 2013. Municipal shipments probably up a little bit, but more than offset with lower demand from the federal government.
Steve Barger (Equity Research Analyst)
Got it. Okay. Thanks. I'll get back in line.
Operator (participant)
Our next question is from the line of Pete Skibitski with Drexel Hamilton. Please proceed with your question.
Pete Skibitski (Analyst)
Yeah, I guess maybe just, for Charlie, can you guys maybe update us in terms of where you are on the MOVE initiative investments? I'm just wondering how many quarters are left before those investments are done, you know, and maybe, you know, what the total company investment was in Q1, or is it just kind of de minimis at this point?
Charlie Szews (CEO)
The numbers are not de minimis. We do expect to continue spending on the MOVE initiatives, certainly through fiscal 2015. And, actually, I would expect that the spending will ramp up over FY 13. So, you know, underneath our guidance, our investments are increasing, our net savings are also increasing. But, you know, they will be significant for some period of time, and we're very excited about the opportunities from these investments, and I think you're seeing it in the results today.
Pete Skibitski (Analyst)
Okay. And so we should just think, though, that the performance improvements from MOVE will outpace the investments in MOVE, at least annually? Is that the way to think about it?
Charlie Szews (CEO)
That's our expectation.
Dave Sagehorn (EVP and CFO)
Yeah, Pete, Pete, the numbers we shared with you at the Analyst Day-
Pete Skibitski (Analyst)
Mm-hmm.
Dave Sagehorn (EVP and CFO)
-from a MOVE benefit, were all net of any investment that we would be making in the, MOVE strategy.
Pete Skibitski (Analyst)
Okay. Okay, and then one quick follow-up, maybe for Dave. I just wonder what led to the reduction in the CapEx spend projected?
Dave Sagehorn (EVP and CFO)
Just as we look out and we, on a regular basis, look at the projects that we have out there, look at everything else that we have going on, and just the timing is such that we don't think we would've spent the $70 million that we originally had anticipated for the year.
Pete Skibitski (Analyst)
Okay, nothing really canceled or...
Dave Sagehorn (EVP and CFO)
Nothing significant.
Charlie Szews (CEO)
No.
Pete Skibitski (Analyst)
Okay, thank you.
Dave Sagehorn (EVP and CFO)
Thank you.
Operator (participant)
Thank you. Our next question is from Alex Blanton of Clear Harbor Asset Management. Please go ahead with your question, sir.
Alex Blanton (Analyst)
Thanks. I got so excited you changed your policy and started to call on the buy side, and I pushed the wrong button on my phone before.
Charlie Szews (CEO)
Hey, you're excited, Alex.
Dave Sagehorn (EVP and CFO)
Yeah!
Alex Blanton (Analyst)
Yeah, right. I also got excited about the results here on this. MOVE in the stock is up, was up more than $4 a few minutes ago. But I wanted to ask you about the guidance that. The continuing guidance for 2015, which is $4-$4.50. When you originally issued that guidance, you said that you were making the draconian assumption that you would never get another order in the defense business, or at least not in that period. And so that forecast included a decline in the defense business to $800 million annually, which would represent what was currently in the backlog at that time, but nothing else. So now you're saying that you did get additional orders for the defense business.
I'm not sure whether they go out to 2015, but if they do, then given that, why haven't you raised the $4-$4.50 estimate for 2015?
Charlie Szews (CEO)
Okay, Alex, this is Charlie. You know, we don't have any of, or very little of 2015 in our backlogs at the present time. We might have some FMTV sales or something, but for the most part, it's little. And, what we were saying is that, those were programs of record that were continuing. That was our baseline estimate in 2015.
Alex Blanton (Analyst)
Right.
Charlie Szews (CEO)
We've been talking about our potential orders for 2014.
Alex Blanton (Analyst)
Right.
Charlie Szews (CEO)
So that wouldn't impact the 2015-
Alex Blanton (Analyst)
Right
Charlie Szews (CEO)
view. There are going to be a lot of factors that will go up and down over the course of the next year, I suppose, relative to fiscal 2015, and I don't really want to be changing the target every quarter. So, you know, on some... You know, at some point, we will update our view on 2015 when it's, when it's relevant, but, you know, I, I don't think we're going to be, chasing every quarter new guidance or, for 2015.
Alex Blanton (Analyst)
Yeah, I can understand that, but, you do agree that with, with my assumption that it still assumes only $800 million in defense business for 2015, so that if defense business is more than that, it will add to that number?
Charlie Szews (CEO)
Well, that, that's true. But we haven't,
Alex Blanton (Analyst)
I know you haven't quantified it, but-
Charlie Szews (CEO)
Right. Well, we don't have anything to quantify, to-
Alex Blanton (Analyst)
I understand that, but-
Charlie Szews (CEO)
-present time.
Alex Blanton (Analyst)
But it still is a very draconian assumption.
Dave Sagehorn (EVP and CFO)
Sure.
Alex Blanton (Analyst)
All right.
Dave Sagehorn (EVP and CFO)
Alex, maybe just to add on a little, provide a little more color on that. If you go back to the Analyst Day, the numbers that we put in there for 14 and 15 assumed we used what the government had put out in February 2012 for their budget request for 13, as well as their view on the coming years of what orders they were going to place for our programs of record that we have, largely the heavy tactical vehicles, the medium tactical vehicles, and a couple smaller Marine programs.
Alex Blanton (Analyst)
Yeah. Okay, thank you.
Charlie Szews (CEO)
Thank you.
Dave Sagehorn (EVP and CFO)
Thanks, Alex.
Operator (participant)
Thank you. There are no further questions at this time. I would now like to turn the floor back over to Charlie Szews for closing comments.
Charlie Szews (CEO)
Okay, thank you. For those of you still on the call, thanks for staying with us. We are energized and excited about the opportunities in front of us, and particularly the recovery of the housing industry in the U.S. provides a spark for improvement in several of our markets. We'll be working diligently to take advantage of our opportunities to drive shareholder value. Have a great day, everybody.
Operator (participant)
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.