Oshkosh - Q1 2015
January 27, 2015
Transcript
Operator (participant)
Greetings, and welcome to the Oshkosh Corporation First Quarter Fiscal 2015 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow a formal presentation. If anyone should require operator assistance, 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 begin.
Pat Davidson (Head of Investor Relations)
Thanks, Kevin. Good morning, everybody, and thanks for joining us. Earlier today, we published our First Quarter 2015 results. 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 to GAAP financial measures that we will use during this call and 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 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 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 conference call, if at all. All references on this call to a quarter or a year are to our fiscal quarter or fiscal year, unless stated otherwise. Our presenters today include Charles Szews, Chief Executive Officer; Wilson Jones, President and Chief Operating Officer; and David Sagehorn, Executive Vice President and Chief Financial Officer. Please turn to Slide 3, and I'll turn it over to you, Charlie.
Charles Szews (CEO)
Thank you, Pat, and good morning. Over the last few weeks, we've watched the stock market anguish over changes in oil prices and foreign currency exchange rates and generally sell off industrials. Meanwhile, Oshkosh just had an outstanding month of orders for its non-defense segments in December. Our non-defense markets are strong and continue to recover, and we remain poised to have another good year in 2015. We are pleased to announce first quarter adjusted earnings per share of $0.41. These results significantly exceeded our expectations. In fact, every segment exceeded our expectations, largely driven by strong operational execution and, to a lesser extent, the timing of MOVE-related spending. We believe these better-than-expected results reflect the continued success of our MOVE Strategy, which is the foundation for our positive outlook.
Of course, solid orders in the first quarter and substantially higher backlogs at quarter end than a year ago in all non-defense segments also contribute to that positive outlook. Recent rental company surveys in the U.S. do acknowledge that the energy exploration sector is slowing down as a result of lower oil prices. However, the majority of rental companies surveyed are still projecting that their businesses will be better in 2015 than 2014. We believe there is pent-up demand for housing, for infrastructure, and for other construction in the U.S., as evidenced by both macro data and analyst surveys. We expect that lower fuel and other energy costs will make it easier for companies and individuals to decide to move ahead with these projects.
Ordering activity is picking up seasonally in concrete mixers, and more large municipalities are beginning to talk about fleet replacement for both fire apparatus and refuse collection vehicles. Bottom line is we believe there will be more winners than losers with lower oil prices to sustain our slowly improving non-defense markets. You also hear Wilson talk about other positive trends in these businesses. We repurchased nearly 2 million shares of Oshkosh Corporation Common Stock in the first quarter, as we continue to believe this provides an excellent return on investment. We also paid our first quarterly cash dividend since the 13% increase we announced last quarter. We are maintaining our full-year outlook for 2015 based on our strong first quarter performance and our expectations over the next three quarters.
Were it not for some foreign currency-related earnings headwinds we expect to face due to the recent significant strengthening of the U.S. dollar. We will be raising full-year expectations. Please turn to Slide 4 for a discussion of our defense business. Our defense team remains focused on successfully executing on our programs of record, working hard to deliver solid execution in a period of continued declining sales. Simultaneously, we continue to pursue new business. As many of you are aware, the production RFP for the Joint Light Tactical Vehicle Program was issued on December 12th. This program will replace a large portion of the U.S. military's Humvee fleet.
In the next few weeks, we expect to turn in our proposal for this 8-year multi-billion-dollar contract. Our team has worked really hard and developed an extraordinary vehicle, and we hope the government sees it the same way we do. Based on the program schedule and our understanding of the process, we believe that a final decision on the initial production contract winner will be announced in late summer of this year. We look forward to submitting our proposal on February 10th and to the announcement of the winner. Please recognize that we must be tight-lipped about the program until any best and final offer period is over, which could be months away. While we have not announced any new contracts for the international sale of M-ATVs, we remain optimistic about these opportunities and are making progress.
As a reminder, we believe we have opportunities to sell thousands of these advanced vehicles over the next few years. Additionally, we believe a decision will be communicated by this June on the winner of the Canadian MSVS program. If we are successful with this Canadian opportunity, we expect we would deliver the trucks in 2017 and 2018. Finally, the fiscal year 2015 U.S. defense budget was signed into law in December, which is a positive development. The budget included about $150 million in additional funding for our FHTV and FMTV programs than we had previously expected, which will benefit our 2016 results. I'll turn it over to Wilson now to discuss our non-defense segments. Please turn to Slide 5.
Wilson Jones (President and COO)
Thank you, Charlie. Good morning, everyone. We're pleased with a solid start to the year in our access equipment segment. As expected, we experienced a strong telehandler mix in the quarter in advance of Tier 4 engine emission standards changes. We expect this mix will continue in the second quarter before we see a reversion to a heavier weighting of aerial work platforms in the second half of the year. Our outlook for this market remains positive, in large part because we're seeing strong demand continue in North America. Charlie mentioned it, and I'll elaborate further. Orders in this segment were up 46% in the quarter, and backlog was up 69% at the end of the quarter. We've spoken before about the changing dynamics of customer order patterns in this market.
While we don't expect to see 46% growth in orders every quarter, we do believe the timing of orders experienced in the first quarter, especially in the last two weeks of the quarter when oil prices were in a freefall, reflects a strong conviction by our customers in their business outlook. As you can imagine, we, including Charlie and myself, have talked to a lot of access equipment customers recently, and I can tell you they are positive about their outlook for 2015. We've heard investor concerns about the negative impacts that low oil prices may have on exploration and production. Our direct exposure to energy in the access equipment market is not significant. We don't have precise information because the vast majority of our sales are to rental companies, not the end user.
But we believe our access equipment segment exposure to energy is small, in line with what the rental companies are generally saying. Looking outside North America, we continue to expect to see higher volumes in Europe this year as owners deal with aged fleets. Moving around the rest of the world, we see opportunities and challenges. We expect that Australia will grow off a lower base and that the Pacific Rim will also move higher as product adoption continues to grow in many of the developing countries in the region. We continue to expect Latin America to be down based on ongoing weakness in Brazil, but several countries in the region should still experience higher sales. Finally, I want to make sure that we point out the impact that MOVE and our Oshkosh Operating System have had on this segment.
The new products launched at ConExpo in 2014 and the large number of new products that you will see at the rental show in New Orleans in February are a direct result of the discipline and rigor employed as we execute our MOVE Strategy. Equally impactful has been the success of our MOVE Strategy in improving our cost structure, leading us to achieve breakthrough results. We expect to extend these results into 2015 and beyond as we leverage the strong foundation we built in 2014 and earlier. Please turn to Slide 6 for some comments on our fire and emergency segment. We are pleased with the progress we've made in this segment. Last quarter, we told you that we were going to reduce our build rate so we could better manage the changes we were introducing to this business.
We expected the slower production rate to be accompanied by an operating loss this quarter. Due to the strong efforts by the fire and emergency team, we were able to record a small operating profit in the quarter instead of the expected loss. These results are evidence of the team's progress, and we will work hard to build on that progress in the second quarter. Turning to the North American fire market, we expect modest growth in 2015 as a result of improved municipal budgets and federal spending that has also stabilized, albeit at low levels. We believe the strong order rate that we experienced in the first quarter supports our view. Some of this demand has been driven by customer excitement surrounding our recently launched Enforcer and Saber chassis. They were both conceived with customer needs in mind and designed for ease of manufacturing at our factories.
We look forward to a long string of successes with these products. We also believe that the continued aging of fire truck fleets will be a contributor to demand in 2015 and beyond. We discussed this on our last quarterly conference call, and we believe that replacement demand is starting to show up in the marketplace and in our order book. We're also experiencing solid performance internationally. Over the past year or so, we've gained traction in Europe and continued our success in other airport rescue firefighting markets around the world. Specifically, we booked some solid orders in Asia, Australia, and Latin America during the quarter. Let's turn to our Commercial Segment. Please turn to Slide 7. We made a lot of progress in the Commercial Segment during 2014 and expect that 2015 will be another good year.
There is excitement across the business about continued improvement in previously soft markets. In particular, the concrete mixer market has experienced strong double-digit growth in each of the past few years despite choppy residential construction activity. We believe there continues to be significant pent-up demand for new housing. Housing starts over the past year have been more concentrated on multi-tenant dwellings. With lower gas prices, consumers should be able to afford a monthly house payment, leading to more single-family dwelling construction. We believe it will still be a while before the housing market returns to more normal levels, but the consensus is for housing starts in the U.S. to be comfortably over 1 million for both 2015 and 2016. The refuse collection vehicle market showed some improvement, closing out the year up about 3% from last year.
While not double-digit growth, it is a welcome sign when we look at the soft performance in this market over the last few years. Some of that softness was driven by certain customers aging their fleets. We have seen an uptick in aftermarket parts and service as fleet operators keep older trucks on the road. But those units will ultimately need to be replaced and represent opportunities for the Commercial Segment. Last quarter, we talked about our Split Bin and Automated Side Loader, RCV units. We are seeing clear increases in customer demand for these innovative offerings launched as part of our MOVE Value Innovation initiative and expect that their impact on our performance will continue to grow.
You can see these units in action on our website, and you'll have an opportunity to touch them up close at the WasteExpo show later this year. I'll turn it over to Dave now to walk us through our financial results. Please turn to Slide 8.
David Sagehorn (EVP and CFO)
Thanks, Wilson, and good morning, everyone. As Charlie mentioned, our first quarter results exceeded our expectations, with every segment contributing to the better-than-expected performance. In addition, orders and backlogs were up in each of the non-defense segments. Consolidated net sales for the first quarter were $1.35 billion, an 11.6% decrease from the first quarter of 2014. Sales declined to 44.1% in the defense segment and 15.6% in the fire and emergency segment, both of which were expected, more than offset sales increases of 7.2% in the access equipment segment and 9.1% in the Commercial segment. Access equipment segment sales benefited from higher telehandler volume and were up in all regions except Latin America, in line with our expectations. The higher Commercial segment sales reflect higher RCV sales, along with higher aftermarket parts and service sales.
Consolidated adjusted operating income for the first quarter was $62.3 million, or 4.6% of sales, compared to operating income of $96.5 million, or 6.3% of sales, in the first quarter of 2014. Lower operating income in the defense segment, largely as a result of the 44% decline in sales, was the largest contributor to the lower adjusted operating income compared to the prior-year quarter. Access equipment segment operating income was also lower than in the prior-year quarter, with the reduction driven by a shift to a heavier mix of lower-margin telehandlers in advance of a Tier 4 engine emissions standards change in the U.S., higher R&D and other operating expenses in support of ongoing MOVE initiatives, and the positive benefit in the prior-year quarter from finalizing pricing on a U.S. military contract.
We're pleased that both defense and fire and emergency segments reported positive operating income in the quarter compared to the small operating losses that we had expected them to report. Adjusted operating income in the quarter excludes $3.4 million of income in the defense segment from another post-retirement benefit curtailment gain related to a previously announced workforce reduction. Additional information related to segment first quarter financial performance can be found in the appendix to this morning's slide deck. Adjusted earnings per share for the quarter was $0.41 compared to earnings per share of $0.63 in the first quarter of 2014. The 35% decline compared favorably to our previous expectation. Earnings in the quarter benefited by $0.03 per share compared to the prior-year quarter from a lower share count as a result of our share repurchases over the past year.
Overall, we're pleased with our first quarter performance and believe we are on track to achieve our full-year earnings per share objective. Please turn to Slide 9 for an update of our fiscal 2015 outlook. We're pleased to reaffirm our full-year financial outlook. Our adjusted earnings per share estimate range of $4-$4.25 represents a 10%-17% improvement from 2014 adjusted earnings per share. This is despite the significant continued sales and earnings decline in the defense segment and foreign currency headwinds of approximately $0.15 per share that we now expect to face as a result of the recent significant strengthening of the U.S. dollar. Below the line, we continue to assume that we will call our 8.5% senior notes when they become callable in March of this year and refinance them at a lower interest rate.
In conjunction with these intended transactions, yesterday we increased the size of our credit agreement revolver by $250 million. We increased the revolver to provide liquidity to fund the call of the senior notes in the event that the high-yield market would not be conducive to issuing new debt at the time we call the existing senior notes. We also continue to assume that capital expenditures in 2015 will approximate $150 million, that free cash flow will be approximately $200 million, and full-year average diluted shares will be 80 million. We expect to generate all of the free cash flow in the second half of the year, largely as a result of seasonality factors and the timing of capital expenditures.
Turning to our second quarter outlook, we expect to see adjusted earnings per share in the range of the second quarter 2014 adjusted earnings per share, with improved results in all of the non-defense segments and the impact of lower share count being offset by significantly lower defense earnings due to lower sales, including the impact of an estimated six-month break in production of the Family of Heavy Tactical Vehicles program related to the timing of signing a contract extension for this legacy program. We also expect a continued heavier mix of telehandler sales in the second quarter in the access equipment segment before shifting towards a heavier mix of aerial work platforms later in the fiscal year. I'll turn it back over to Charlie for some closing comments.
Charles Szews (CEO)
Thanks, Dave. We are pleased with our solid start in 2015 and expect that we will have strong full-year results. We are confident in our ability to execute in these market conditions. Let me leave you with one final update. We have been planning to hold our analyst day in September 2015, but we are now moving that back to accommodate the new expected timing of the JLTV award decision, along with an expected protest period. We haven't finalized the date yet, but we think it will likely be sometime in February 2016, perhaps earlier if there was not a protest.
We think this timing will allow us to be able to provide investors the most robust and comprehensive update on our outlook for Oshkosh Corporation. That concludes our formal comments. We are 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)
Hey, thanks, Charlie. I'd like to remind everybody, please limit your questions to one plus a follow-up, and then after the follow-up, we ask that you get back in queue if you'd like to ask additional questions. Kevin, let's begin the question and answer period of this call.
Operator (participant)
Thank you. We're now coming up to question and answer period. If you'd like to ask a question, please press star one on your telephone keypad. You may press star two if you'd like to move your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, if you'd like to ask a question today, please press star one at this time, and we do ask that you please limit yourself to one question and one follow-up. Our first question today is coming from Jamie Cook from Credit Suisse. Please proceed with your question.
Jamie Cook (Managing Director of Equity Research)
Hi, good morning.
Wilson Jones (President and COO)
Good morning.
Jamie Cook (Managing Director of Equity Research)
I guess a couple of questions. One, obviously, the orders for aerials in the first quarter were very strong. Can you just talk about what you're seeing in January, whether those trends continued? And then I guess my second question within aerials on the profitability side, for access, should we assume margins down year-over-year again because of the higher telehandler mix? And then under that scenario, what sort of gives you confidence that we get to 15% for the full-year just because of the heavy mix of teles versus aerials for the year? Thanks.
Wilson Jones (President and COO)
Hey, Jamie, good morning. I'll jump in here, and I'm sure Charlie and Dave can add some color too. From a standpoint of January orders, obviously, we don't talk a lot about the current quarter. I'll tell you the positive outlook continues. Obviously, you saw what the first quarter looked like. A lot of good activity out there in the marketplace. I don't know if you've seen Ashtead just published a list of projects that they're working on energy-related. So we see Q2 being active. As I said earlier, we don't expect 46% order growth every quarter, but we did certainly enjoy that the first quarter. But I can tell you activity is high. You're seeing the surveys that we're seeing. A lot of positive outlook out there with the rental companies.
In terms of the total year and margins, we had forecasted this to be a front-half telehandler business, second-half more aerial business. So in line with our estimate for the year, we believe we're in good shape.
David Sagehorn (EVP and CFO)
Just to follow on to that, Jamie, a little bit, I think in terms of your question regarding the second quarter, I think we'll see margins approximately flattish year-over-year in the second quarter, with higher volume offset by the heavier weighting of telehandlers in the second quarter. Again, remember last year we did have heavier weighting of AWPs because they were dealing with the Tier 4 emission changes that were effective at the beginning of last year. And then just another item on the full-year, or as we look at the back half of the year, we've talked previous quarters about the cadence of R&D expense that in 2014 it ramped up every quarter. And in this fiscal year, we expect to see a ramp down as we go through the year. So that should provide a tailwind for us from a margin standpoint.
Jamie Cook (Managing Director of Equity Research)
All righty. Thanks. I'll get back in queue.
Operator (participant)
Thank you. Our next question today is coming from Pete Skibitski from Drexel Hamilton. Please proceed with your question.
Pete Skibitski (Senior Equity Research Analyst)
Guys, on the aerials revenue decline in the quarter, did that surprise you? Did you kind of push aside maybe volumes there to deal with the telehandlers? And I'm just wondering to what degree the AWPs participated in the huge backlog growth such that maybe you have pretty good visibility on them delivering in the second half of the year.
Wilson Jones (President and COO)
Yeah. Pete, if we look at the specific product lines in the first quarter, it's largely around what we saw last year with aerial work platforms, again, heading into the beginning of the calendar year. We did see a stronger mix of AWPs because they were dealing with the Tier 4 emissions change. This year, we're seeing telehandlers facing that Tier 4 emission changes. So that's what's really driving the product mix. And again, as we said, we really started seeing the telehandler mix pick up in the fourth fiscal quarter. We expect that it's going to continue into the second quarter before we see, we believe, a reversion to a heavier weighting of aerial work platforms later in the fiscal year.
Our backlog of orders does support that reversion back to the mean of aerial work platform orders and telehandler orders all rising for the year on a consistent percentage by the end of the year.
Pete Skibitski (Senior Equity Research Analyst)
Okay. And just want to follow up on sort of the vertical integration plan, the CapEx plan that you guys have underway, and I think that's kind of associated with the receivables build that you've had. Can you add some color as to how far along you are in that vertical integration plan? And I know you've built receivables to more readily benefit from sales opportunities. Can you talk to all that?
Wilson Jones (President and COO)
Yeah. Yeah. I think you probably meant inventories rising. We've raised our inventories really in all segments. And the reason for that really was that we overworked our employees last year. I mean, it was just too many long weekends of stress. So we've tried to level production out during the year, starting a little bit earlier. Our vertical integration plans are on schedule. And again, it's just one part of our whole strategy to continue to lift our margins like we have projected again in each of the non-defense segments for 2015.
Pete Skibitski (Senior Equity Research Analyst)
Is there a time when you'll finalize the integration?
Wilson Jones (President and COO)
You mean the vertical integration strategy?
Pete Skibitski (Senior Equity Research Analyst)
Right.
Wilson Jones (President and COO)
It's something we're going to probably look at forever because it's always an opportunity where we tend to be generally vertically integrated as a company. Some of the businesses that we bought over the years weren't as vertically integrated as Oshkosh. And so that's just one of the, I guess, tools that we use in our toolkit to raise our margins. A big part of our old strategy.
Pete Skibitski (Senior Equity Research Analyst)
Okay. Thank you, guys.
Wilson Jones (President and COO)
Thanks, Pete.
Operator (participant)
Thank you. Our next question today is coming from Stephen Volkmann from Jefferies. Please proceed with your question.
Stephen Volkmann (Equity Analyst)
Hey, good morning, guys.
Wilson Jones (President and COO)
Morning, Steve.
Stephen Volkmann (Equity Analyst)
I wanted to drill down, if we could, for a second into margins in defense and fire emergency. I think they were both better than what you had initially thought as we went into the first quarter here, which is great. But I'm trying to figure out sort of how that happened and what changed vis-à-vis, I guess, what surprised you. And probably more directly, is there anything sort of that you view as short-term in there since you didn't raise the forecast for those margins going forward?
Wilson Jones (President and COO)
Yeah. Steve, it's Dave. I'll start with defense. In the first quarter, I think a couple of things really drove the outperformance there. One, you'll recall last summer, we did some reconfigurations in our facilities here at Oshkosh as we were adjusting to the upcoming demand cadence from our government customer. And that did result in a number of changes, at least from a workforce standpoint, in terms of how they went about assembling product, the flow of product through our facilities. And we had assumed that we would be continuing to adjust to that new production layout through the first quarter. And what we really saw was the team stepped up, performed exceptionally well, especially on the FMTV product line in terms of adjusting to that new layout. And the efficiencies on that product line were much better than we had anticipated.
Second item would be a little bit higher aftermarket sales, along with a better mix of aftermarket products that helped contribute to the beat in the defense segment. On fire and emergency, I think we saw a number of factors there, not one that really stood out above the others. We did make a little more progress or faster progress than we thought from the operational side of the house. Sales ended up being a little bit better there. Our overhead spending was better. So it was just a combination of a lot of things in fire and emergency. In regards to the outlook for those two segments for the year, I guess I would say it's still early in the year.
We continue to strive and push all of our segments to deliver continued improved performance throughout the year. We'll see how it goes and provide you an update on our next earnings call.
Stephen Volkmann (Equity Analyst)
Okay. And then just a quick follow-up. I think last quarter we had talked about how this foreign sale, I guess I think it was for M-ATV that you expected to get at some point in the first half year was kind of baked into your 2015 guidance. Can you just update us on where we stand with that?
Wilson Jones (President and COO)
Yeah. We're still expecting or planning to sign a contract here and deliver M-ATVs and some other vehicles in our fourth quarter.
Stephen Volkmann (Equity Analyst)
Okay. If you don't get that, by what time would we start to worry about that?
Wilson Jones (President and COO)
We have some flexibility here. So right now, we feel very good about our outlook. Let's just say that.
Stephen Volkmann (Equity Analyst)
Okay. Thanks.
Wilson Jones (President and COO)
Thank you.
Operator (participant)
Thank you. Our next question today is coming from Eli Lustgarten from Longbow Research. Please proceed with your question.
Eli Lustgarten (Research Analyst)
Good morning, everyone. Nice quarter.
Wilson Jones (President and COO)
Thanks, Eli.
Eli Lustgarten (Research Analyst)
I guess what biggest surprise you're down 1/3 instead of 2/3, which is sort of expected, was the profitability in defense that we just talked about. With a forecast of slightly above break-even in the first quarter results, the implication is you expect to lose money in one or two quarters in the next couple. Can you give us some idea of how to cadence? I suspect that with the hiatus of some production that you probably expect to lose some money in the second or third quarter.
Wilson Jones (President and COO)
Correct, Eli. We have been talking about a break in production for our family of heavy tactical vehicles contract that actually already commenced in the month of January. That will go on for a few months, and that will lead to probable losses in the segment in the second and perhaps the third quarter as well. And then we'll have a good quarter. That's what we're projecting for the fourth quarter to be slightly positive for the year. So that is our outlook. That is what is causing the overall company results in the second quarter to be consistent with prior-year. If not for that, I mean, we'd be having a really good quarter in the second quarter. Our other segments are performing really well.
Eli Lustgarten (Research Analyst)
Yeah. As a follow-up, I mean, I don't have any qualms. I think we're all happy to see access and the mix and what have you. One of the concerns the data shows up is that the strength of the access market and equipment were in the 10 states that were really energy-producing. There was a skewness of demand to energy-related states. And while it's not a big direct effect, it could be an indirect effect. Were you seeing that, particularly in this country, that there was a bias toward the energy states, or was your demand for your business pretty well spread out across the country?
Wilson Jones (President and COO)
Eli, I would say it's spread out. Again, as I mentioned earlier, we're just not seeing a lot of our business in the energy sector. It's very insignificant at this stage. We watch it closely. We're not going to put our heads in the sand on the issue. But no, again, widespread opportunities for us in North America right now. So not really dependent on those 10 states. We did look through that data, talked to our customers about it. As you can imagine, there's a lot of discussion going on right now around this. And we're certainly comfortable with our forecast going forward.
Eli Lustgarten (Research Analyst)
All right. All right. Thank you very much.
Operator (participant)
Thank you. Our next question today is coming from Mig Dobre from Robert W. Baird. Please proceed with your question.
Mig Dobre (Associate Director of Research)
Good morning, gentlemen. Another quick question on access. Can you comment at all on the competitive environment? Excuse me, on the competitive environment. I know that last year we've seen maybe a bit of a pickup in price-related competition. I wonder if that has continued through the quarter.
Wilson Jones (President and COO)
I would say it's fairly stable compared to last year. We've got a few pockets around the world where we've seen some low pricing. But for the most part, I would compare it to last year.
Mig Dobre (Associate Director of Research)
All right. Then maybe a little more color too on the really nice pickup in fire orders. As I understood it, that was related to some new product introduction. Can you give more color there?
Wilson Jones (President and COO)
Sure. Sure. A lot of good things going on in fire. They're coming up from a low base. But when you look today, we're seeing more fleet replacements. The last few years, big cities really weren't replacing fleets. And when we talk fleet replacement in fire, you're talking a city would buy 7-10 fire trucks a year on a 7-year contract. And specifically, we were just successful in Jacksonville, Florida, Phoenix, Arizona, and Los Angeles, California. So it's nice to see that activity picking up. And then we have seen a pickup on the federal side. Again, coming up from a low base, we've had some nice orders come in from the Air Force, Navy, and Bureau of Land Management.
Mig Dobre (Associate Director of Research)
Well, then if that's the case, why shouldn't we be expecting the segment to, frankly, do a little bit better than the way you're guiding?
Wilson Jones (President and COO)
Well, it's early, Mick. Like Dave pointed out, we're working through some operational issues. We were very pleased with the team's performance in Q1. They did outperform where we thought they'd be. If you look at the revenue level that they were at in previous years when we've been at that revenue, we've lost money. So that tells you the optimizing cost focus there is gaining traction, but we're early. So we'll certainly evaluate that at the end of this next quarter. But if bookings continue, then obviously that's something that we'll be looking closer at. But right now, we just felt like it's a little early. They still have plenty of room to grow and go from an operational standpoint. But we are pleased with the way the market is picking up, so.
Mig Dobre (Associate Director of Research)
Great. Thank you, guys. Good luck.
Wilson Jones (President and COO)
Thanks.
Operator (participant)
Thank you. Our next question today is coming from Ross Gilardi from Bank of America. Please proceed with your question.
Ross Gilardi (Managing Director)
Hey, good morning. Thank you. Just a couple of questions. Charlie, I'm just wondering if you can talk a little bit more about your inventories. Clearly, some of the build was intentional, but they are up 35% year-over-year with a 12% sales decline. So can you be a little more specific on what's happening, how much of that's intentional, and what's the risk that you've got to cut production in the second half of the year if the demand outlook for AWP softens?
Charles Szews (CEO)
Ross, all of the inventory build was intentional. It's all outside of the defense business. Actually, yeah, it's all mostly outside the defense business. And the overall sales are down in defense, okay? That's where it's down. Our other segments were projecting increasing sales in fiscal 2015. And I guess what I would say is that if we're going to miss estimates, it's unlikely to be due to volume.
Ross Gilardi (Managing Director)
Okay. Thanks. Then can you give a little more color on what you're baking in for your full-year outlook for access internationally? You made some comments about the different regions. But are you expecting positive growth in Europe still? How negative of a number are you forecasting? Are you baking in for Brazil?
Charles Szews (CEO)
All right. So if you look at around the world, we've been seeing 5%-8% growth in sales for the segment overall. Higher in Europe, higher in the Middle East, higher in Pacific Rim. Australia may be consistent with that overall number. North America consistent with that overall number. And down in Latin America. And it's largely focused in Brazil. So it's a tough environment in Brazil right now. But overall, we're going to have a good year. Sales outlook looks good. Despite all of everyone else maybe having a different view, it looks good.
Ross Gilardi (Managing Director)
Gotcha. Thanks a lot.
Operator (participant)
Thank you. Our next question today is coming from Ted Grace from Susquehanna. Please proceed with your question.
Ted Grace (Research Analyst)
Hey, guys. Congratulations on the quarter.
Wilson Jones (President and COO)
Thanks.
Charles Szews (CEO)
Thank you.
Ted Grace (Research Analyst)
I was hoping just to touch on FX. I know you mentioned it'll be a headwind. I was wondering if you could just maybe frame out what the impact of FX was on sales, profits, and orders in the first quarter, and then just help calibrate us for what that headwind on sales and/or profits looks like in kind of for the full-year.
Wilson Jones (President and COO)
Ted, in the first quarter, FX, we didn't see a lot of movement until later in the quarter. So it was a fairly small impact. I'd say on the top line, you're probably talking $10 million or less. At the operating income level, maybe $1 million or so. As we look forward, depending on what rate assumptions you use, I think on a consolidated basis, we're probably in combined Q2 through Q4, somewhere in the $50-$75 million range overall.
Ted Grace (Research Analyst)
That would be sales, correct?
Wilson Jones (President and COO)
Yes, sales. I'm sorry.
Charles Szews (CEO)
Right. It's not so much a volume issue as it is the impact on translation of other currency to the US dollar.
Ted Grace (Research Analyst)
Yeah, yeah. Absolutely. On translation. And then just from the standpoint of profit impact and assuming that scenario and hedging and other kind of dynamics, how would you frame how we should think about the impact on margin?
Wilson Jones (President and COO)
From an EPS standpoint, I think overall, what I mentioned in the prepared remarks is we're looking at what we believe is about a $0.15 per share headwind in quarters 2 through 4 from currency.
Ted Grace (Research Analyst)
Okay. Great. I apologize if I missed that.
Wilson Jones (President and COO)
Oh, that's all right.
Ted Grace (Research Analyst)
And then the second thing I was hoping to ask you is maybe just talk about both, well, more from an orders perspective, what you saw from the national rental companies versus the independent rental companies. Just to give us a characterization for how those two sides of the market are kind of looking out at 2015.
Wilson Jones (President and COO)
Both of them look strong in the first quarter. We're continuing to see the independents come back and be a positive contributor. We've seen that for quarter after quarter now for going on a while. That's a well-established trend. As Wilson had mentioned before, we're hearing very positive things from a lot of our rental customers.
Charles Szews (CEO)
Yeah. Given that the backlog is up as sharply as it was at the end of December, it's clear that orders were strong across our full portfolio.
Ted Grace (Research Analyst)
Absolutely. And that's ultimately what I was trying to get at is just to understand from an order perspective what that growth may have looked like at the IRC versus the NRC levels.
Wilson Jones (President and COO)
Again, we saw the IRCs comprise a little bit higher percentage than they were in the fourth quarter. Meaningful improvement year-over-year in terms of their contribution. So it was strong across the board, Ted.
Ted Grace (Research Analyst)
Okay. That's great. Thank you very much and best of luck this quarter, guys.
Wilson Jones (President and COO)
Thank you.
Charles Szews (CEO)
Thanks.
Operator (participant)
Thank you. Our next question today is coming from Walter Liptak from Global Hunter. Please proceed with your question.
Walter Liptak (Managing Director and Senior Financial Analyst)
Hi. Thanks, guys. Good quarter. My questions have basically been asked, but I wondered if you could talk a little bit more about what studies you've done on your energy exposure. I hear you saying that it's low. Can you give us a %? And then in terms of the energy sector, can you break it out upstream, midstream, downstream? And just hoping for a little bit more color.
Charles Szews (CEO)
Well, from a specific standpoint, I would tell you that we've been all over this working with our rental customers. You heard, I'm sure, last week United Rentals talk about the analysis that they had been through. I can tell you a lot of rental companies are going through similar analysis, and we're right there with them. We talked about coming out of the recession, how much closer we're working with our customers from a forecast and sales and inventory operations planning process. That has certainly continued during this time of concern over oil and gas. And to be honest with you, well, it's just not there for us. We keep looking and studying this, and it's not very significant for us right now.
Where there are a few pockets where there are some projects that are not going to go forward, we're seeing upside in construction, chemical, manufacturing, plenty of other areas to more than compensate for the small amount of exposure we have with oil and gas. We'll continue to study it. It's a big part of our weekly sales and inventory operations planning process. The JLG sales team is staying very close to our customers, and our customers want that relationship. We'll continue to monitor it. But it's really just insignificant for us to even talk about at this point, Walt. So Walt, just repeat a couple of things. We see that there are more winners than losers for our customer base from lower oil. And secondly, if we miss, it's unlikely to be due to volume.
Walter Liptak (Managing Director and Senior Financial Analyst)
Okay. Got it. Okay. Thanks for the extra color.
Wilson Jones (President and COO)
Thanks, Walt.
Operator (participant)
Thank you. Our next question today is coming from Jerry Revich from Goldman Sachs. Please proceed with your question.
Jerry Revich (Senior Investment Lead and Head of US Machinery, Infrastructure, Sustainable Tech Franchise)
Hi. Good morning.
Wilson Jones (President and COO)
Morning, Jerry.
Charles Szews (CEO)
Morning, Jerry.
Jerry Revich (Senior Investment Lead and Head of US Machinery, Infrastructure, Sustainable Tech Franchise)
Can you tell me, talking about in Fire and Emergency, it looks like you made some solid progress this quarter. Can you just give us a few of the operating metrics on how the turnaround's tracking, maybe touch on cycle times or any other operating metrics that can help us better understand the momentum that you have in that turnaround?
Wilson Jones (President and COO)
Yeah. Jerry, it's the normal operational metrics that you would see when you walk through our plants at the stand-up boards. We've really focused on labor efficiencies there. When we go through the change in the market that I think we've discussed in the past, where, with the market being smaller, most fire truck makers have gone after trucks that were a different specification than they're used to building. So we did some of that. And what we've been working through is basically a new process to deal with that new market characteristic. And so a lot of process work there and going on inside the plants to better handle this increased complexity. And that's what you're seeing in Q1 is we're getting a handle now on that complexity. Our throughput is increasing.
Our open work orders are decreasing, part shortage, etc., because we're getting a cadence now with a new process. But again, normal metrics, same thing as you would watch in a throughput, is their trucks per day going through the lines and to test. We boil it down to really micromanaging each truck when you look at the volumes that they have. What we said was that we're going to take the production rate down and bring it back up. We've brought it back up to the targeted level. Now our challenge is, given our orders and backlog, is that we probably need to take our production rates up again.
Jerry Revich (Senior Investment Lead and Head of US Machinery, Infrastructure, Sustainable Tech Franchise)
Okay. Thank you. And then for the concrete mix truck business, can you just talk about whether you saw better order growth in the quarter in concrete mix or in the refuse vehicles? And I didn't see you call out concrete mix as a volume driver in the quarter. Can you just help us understand how you think the cadence of that business shakes out this year?
Wilson Jones (President and COO)
Jerry, I think as we look at the first quarter, orders were close to last year what we saw. But I think, as Charlie mentioned, we're seeing a lot of quoting activity as we kick off the beginning of the calendar year here. It's something that we saw last year as well. I think a lot of these customers have calendar year ends, and they get their budgets refreshed at the beginning of the year, and they get a little more active. Now, orders were flattish, but again, our backlog was up at the end of December quite nicely. So that just meant that customers ordered a little bit earlier. So back in August and September, they were already ordering. So again, our outlook for fiscal 2015 for concrete mixers looks pretty solid.
Jerry Revich (Senior Investment Lead and Head of US Machinery, Infrastructure, Sustainable Tech Franchise)
Thank you.
Operator (participant)
Thank you. Our next question is coming from Charlie Brady from BMO Capital Markets. Please proceed with your question.
Charlie Brady (Director and Senior Analyst)
Hey, thanks. Good morning, guys.
Wilson Jones (President and COO)
Morning, Jerry.
Charlie Brady (Director and Senior Analyst)
Just a quick one for you. Just on raw material costs and kind of what you're seeing with iron ore pricing that's going to flow into steel. Relative to kind of what you have been budgeting into your forecast, are you seeing, I guess, a material benefit on the margin side from raw material costs, or is it just a non-event at this point?
Wilson Jones (President and COO)
We do see some benefits on the cost side that will help us as the year goes on and maybe offset some of the foreign currency risk that we're facing.
Charlie Brady (Director and Senior Analyst)
Absolutely. Does your current guidance embed increasing raw material costs through the year currently?
Wilson Jones (President and COO)
Charlie, largely what we're hearing from our supply chain group is we shouldn't expect a lot of movement through the remainder of the fiscal year. It's largely how we've built or what we've built our forecast around. But there will be some. Some of the bigger component manufacturers are going to be seeking some cost increases and that sort of thing. And so we've got some costs increasing, some decreasing because obviously we're continuing to always look at opportunities in that vein. But overall, to our initial outlook for the year versus now, it's probably a little bit more positive in terms of a better cost profile.
Charlie Brady (Director and Senior Analyst)
Great. Thank you.
Wilson Jones (President and COO)
Thanks.
Charles Szews (CEO)
Thanks, Charlie.
Operator (participant)
Thank you. Our next question today is coming from Seth Weber from RBC Capital Markets. Please proceed with your question.
Seth Weber (Equity Research Analyst of Industrials and Machinery)
Hey, good morning, guys.
Wilson Jones (President and COO)
Good morning.
Seth Weber (Equity Research Analyst of Industrials and Machinery)
Hey, Seth. I just wanted to revisit the Access margin guidance again. I just wanted to confirm, I mean, by my math, it looks like you're sort of targeting an incremental margin in the back half of the year of something like 50% for that category. Is that what you're thinking? And if so, can you maybe help us get there by quantifying some of these new development costs and operating costs that you absorbed in the second half of last year?
Wilson Jones (President and COO)
Seth, I don't have the numbers at my fingertips for the second half of the year. But what we've talked about for some time here is we do expect significantly better product mix compared to the second half of last year due to more aerial work platforms and the ramp-up we started seeing late last fiscal year from a telehandler standpoint. I think in terms of some of the cadence around R&D spend, that can swing in a given quarter year-over-year anywhere from $5 million to $10 million. So that certainly will contribute as well. But I don't have all the specifics in front of me.
Charles Szews (CEO)
But Seth, I guess you are right. Incremental margins are going to be nice in the second half of the year. So if we're 10.8% operating income margin in the first quarter or flattish margin in the second quarter, again, because of a higher telehandler mix, certainly in the last half of the year, we're above 15% in terms of our projection for operating income margins in the second half of the year. So it is a strong period. Those are going to be two higher volume quarters. There's going to be more of a boom mix relative to telehandlers. That's going to benefit us. And then there's all those old initiatives that are coming to bear that really help us when the volumes pick up. So we are expecting really solid margins in the second half of the year.
Seth Weber (Equity Research Analyst of Industrials and Machinery)
Okay. That's helpful. Thank you. And then just kind of a nitpicky question, but your guidance for share count for the year is about 80 million. You're sitting there at the end of the first quarter. I mean, does that suggest should we assume that you're not going to be buying back stock for the rest of the year, or is that just some conservatism?
Wilson Jones (President and COO)
That does in terms of how the model was built, that they're assumed that there are not any additional significant share repurchases. I think what we'll do, Seth, and if you look at what we've done since we've started the share repurchase program, we've largely used excess cash. We've also talked about our plan to fund future share repurchases through free cash flow, along with the fact that we don't plan to lever up for share repurchases. So we will use cash through the first half of the fiscal year here and then expect to generate cash in the second half of the year. So we would take a look at it at that point in time.
Seth Weber (Equity Research Analyst of Industrials and Machinery)
Okay, guys. Thank you very much.
Wilson Jones (President and COO)
Thanks, Seth.
Operator (participant)
Thank you. Our next question today is coming from Ann Duignan from JPMorgan Chase & Co. Please proceed with your question.
Mike Conlon (VP and Equity Research Analyst)
Hi. Good morning. This is Mike Conlon on for Ann.
Wilson Jones (President and COO)
Morning, Mike.
Mike Conlon (VP and Equity Research Analyst)
Wanted to ask you about the telehandler business. If you could talk about some of the end user demand looking past the Tier 4, where are you seeing strength, where are you seeing weakness? If you could attach some color there, that would be great.
Wilson Jones (President and COO)
Yeah. It's primarily construction. Housing continues to pick up. Non-res, we're seeing a little uptick there, but primarily in the construction area.
Mike Conlon (VP and Equity Research Analyst)
Okay. Thank you. Any color about ag or about oil and gas?
Wilson Jones (President and COO)
In the U.S., telehandlers aren't used all that much. In ag, in Europe, they certainly are. So it's a much bigger factor. Our telehandler business is skewed heavily toward North America. So it's really construction.
Mike Conlon (VP and Equity Research Analyst)
Thank you.
Thank you. Our next question today is coming from Steve Barger from KeyBanc Capital Markets. Please proceed with your question.
Steve Barger (Managing Director of Equity Research)
Morning, guys.
Wilson Jones (President and COO)
Morning.
Steve Barger (Managing Director of Equity Research)
Charlie, you said a couple of times if you were to miss the forecast, it wouldn't be on volume. So where are the sensitivities that you're most concerned about? Is it mix and access, or is it efficiency in Commercial or Defense?
Charles Szews (CEO)
We have a positive outlook for the year. Certainly, we're going to drive to perform better based upon what we did in the first quarter, Steve. But it's early in the year, right? And we do know we're facing some foreign currency headwinds in the second half of the year. So overall, though, demand is there. So it would probably be some other part of our estimates.
Steve Barger (Managing Director of Equity Research)
Right. And Dave, I think you gave a number for the potential top line impact from FX, but did you say what the embedded level is in your model?
David Sagehorn (EVP and CFO)
We've got a number of currencies that we have exposure to. Is that what you're talking about?
Mike Conlon (VP and Equity Research Analyst)
Yeah, exactly.
David Sagehorn (EVP and CFO)
What rates we're assuming?
Steve Barger (Managing Director of Equity Research)
Yep.
David Sagehorn (EVP and CFO)
So that assumes a euro somewhere in the, call it, 1.13 range. Off the top of my head, the British pound somewhere around 1.50. And then we got a couple other currencies that I can't tell you off the top of my head that we have exposure to: Australian dollar, Canadian dollar, and the Brazilian real.
Steve Barger (Managing Director of Equity Research)
Okay. Thank you for that.
David Sagehorn (EVP and CFO)
The biggest one is the euro in terms of exposure.
Steve Barger (Managing Director of Equity Research)
Right. And last question. I hear you that your energy exposure is insignificant, but just to ask the question more directly, is there any hesitation or difference in tone at all from the rental customers in Texas, Oklahoma, North Dakota, or the energy-producing states versus none, or are they just sanguine about their outlook?
Wilson Jones (President and COO)
I was traveling in those states in the month of December when all of the oil prices were coming down. I'll tell you that they weren't worried. They were feeling very confident that their businesses were going to be up next year regardless of where the oil prices are going. Many of these projects are just long-term projects. They have to continue. They're not going to stop midstream. Some of the projects are actually to export our cheaper energy around the world. And they're just seeing other normal sort of construction projects going on.
Texas, today, is much more diverse than just energy. 34 years ago, when we were getting into business, when I was getting into business, it was much more tied to energy. Today, you've got high-tech, you've got software, you've got everything else going on there too. You shouldn't just assume that these states are only growing because of.
Steve Barger (Managing Director of Equity Research)
Got it. Thanks for your time.
Wilson Jones (President and COO)
Thanks, Steve.
Charles Szews (CEO)
Thanks, Steve.
Operator (participant)
Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments.
Charles Szews (CEO)
Okay. Let's wrap up. Thanks for spending time with us. We do have a positive outlook for the full-year, and we're here to serve our shareholders. We're on the move. We look forward to delivering strong results for the rest of 2015. Have a great day, everyone.
Operator (participant)
Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.