Oshkosh - Q1 2017
January 26, 2017
Transcript
Operator (participant)
Greetings, and welcome to the Oshkosh Corporation First Quarter Fiscal 2017 Earnings Results Conference Call. At this time, all participants are in the listen-only mode. A 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. Please go ahead, sir.
Patrick Davidson (VP of Investor Relations)
Good morning, and thanks for joining us. Earlier today, we published our First Quarter 2017 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 it's 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 two 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 earnings conference call, if at all. All references on this call to a quarter or year are to our fiscal quarter or fiscal year, unless stated otherwise. Our presenters today include Wilson Jones, President and Chief Executive Officer, and Dave Sagehorn, Executive Vice President and Chief Financial Officer. Please turn to slide three, and I'll turn it over to you, Wilson.
Wilson Jones (President and CEO)
Well, thank you, Pat. Good morning, everyone. Before we talk about the quarter, I want to tell you how proud we are to be celebrating our 100th anniversary in 2017. The company was started by two innovative and driven individuals that developed and patented a unique system for all-wheel drive on trucks. Thanks to their perseverance and drive and the hard work of all our team members over the past century, Oshkosh Corporation today is a Fortune 500 Defense, integrated global industrial. We plan to celebrate our rich history throughout 2017 and build off that excitement as we position ourselves for success going forward. Today, we announced first quarter earnings per share of $0.26. These results exceeded our 2016 first quarter results, as well as our expectations for the quarter. In particular, we saw stronger than expected performance from our Access equipment and Defense segments.
Today, as part of simplification activities in support of the company's MOVE strategy, we also announced changes to our Access equipment segment manufacturing footprint in both the United States and Europe, and we are streamlining our European telehandler offerings. I'll talk about those actions in a few minutes. While there have been some minor updates to our assumptions for the year, I'm pleased to announce that we are maintaining our earnings per share estimate range at $3-$3.40 on an adjusted basis. Before I comment on each of our four segments, let me make some remarks on the potential impact to Oshkosh with the new administration in Washington. It's clear that we have a unique mix of businesses. That's one of the reasons why we believe our company is a different, integrated global industrial.
We have a positive long-term outlook, even without the benefit of initiatives that may be implemented by the new administration and Congress. We certainly believe we can benefit from an infrastructure stimulus package, increased Defense spending, or tax reform. However, these initiatives must first be passed by Congress and the President. That will take time, and we don't know the details of how the final initiatives will look, so we are not incorporating any of these items in our outlook. Please turn to slide four for a discussion of our results and an update on our business. We're pleased with the Access Equipment segment performance in the quarter. While sales were down year-over-year, they were in line with our expectations, and a positive mix favorably impacted results.
We also saw a little heavier weighting of sales in North America, where we don't have the headwinds of a strong dollar on margins that we have in other parts of the world. Dave will provide some more comments on the quarter results in a few minutes. Turning to market conditions, our customers continue to aggressively manage their fleets and their fleet metrics, and we continue to see lower fleet replacement demand. Our customers' cautious approach to fleet expansion and low levels of replacement demand are driving the market weakness we continue to experience. This reduced demand, along with a strong U.S. dollar, also continues to pressure pricing in the market. That said, rental customer sentiment in North America has remained strong and has probably grown even stronger over the past six months.
We believe it is driven by a number of data points, including continued solid utilization rates and a stabilizing rental rate environment. In addition, positive commentary on construction activity and increasing benchmarks like the Dodge Momentum Index and early signs of return of activity in the oil patch are also supporting improved rental customer sentiment. This positive sentiment by our customers, along with what we expect will be an increase in rental fleet replacement demand starting in 2018 or 2019, helps support our positive long-term outlook for the Access Equipment market. Finally, while we aren't yet factoring in the impact of any infrastructure stimulus package, we believe this segment could be a beneficiary of increased spending on our nation's infrastructure. Please turn to slide five for a discussion of the restructuring activities announced today in this segment.
As part of our simplification activities in support of the company's move strategy, we continue to look for ways to improve our cost structure and optimize our operations. Back in September, we announced plans to consolidate and modernize JLG's aftermarket parts distribution centers in the U.S. and Europe. Those actions are expected to save us about $6 million annually beginning in fiscal 2018. This morning, we announced additional plans to streamline operations in our Access Equipment segment. These plans include the closure of our manufacturing plant and pre-delivery inspection facility in Belgium. We are also streamlining our telehandler product offerings in Europe to simplify our portfolio. We intend to transfer manufacturing of a reduced European telehandler range to our facility in Romania. This streamlining will also lead to reductions in engineering support staff in the United Kingdom and the closure of the U.K.-based engineering center.
Separately, we also announced plans to consolidate North American telehandler production at our facilities in Pennsylvania. In total, the plans we are announcing today for JLG's global operations are expected to result in ongoing pre-tax savings of about $20 million-$25 million per year, and we do not expect to realize any benefits this year, but we expect to realize $15 million-$20 million of benefit in 2018 before hitting full run rate savings in 2019. We expect the cost of implementing these actions will be approximately $45 million-$50 million, including $10 million of non-cash charges, with the majority of the charges to be recognized in 2017. These are difficult actions, but we believe they are necessary to position our company for long-term success. Please turn to slide six for a discussion of Defense.
Building on our strong finish in 2016, we started out 2017 on a high note as our Defense team reported improved operating income margins for the first quarter. Despite the expected sales decline we experienced in the first quarter as a result of lower international vehicle sales, we delivered operating income that was roughly even with 2016. We experienced another very active quarter for the JLTV program. We are still in the early portion of the low-rate initial production phase of this program, with a lot of attention focused on supporting government testing of the initial production units. As many of you know, this program is ramping up over the next several years, and we expect it to become a significant revenue-generating program in our Defense segment. We are pleased with our progress, and it's our intention to continue delivering a model program every single day.
We've talked previously about the strong potential for international JLTV sales, and this continues to be the case. Our team is busy promoting JLTV during international trade shows and conducting customer demonstrations to create demand. The Defense team continues to execute well on our FHTV and FMTV programs. You might recall during our last quarterly conference call, we reported that one of our FMTV contract modifications was being protested by a competitor. That protest was withdrawn with minimal impact to our production schedule. We now expect to be building FMTVs for at least the next two years and maybe more. Before I leave the topic of FMTV, you should be aware that the submission date for the FMTV recompete was shifted from January 31 to May 8.
We now expect a decision on the contract award to be made sometime in 2018, as opposed to our previous expectation for a decision in 2017. Finally, the Defense team is ramping up production of the nearly 1,000 international M-ATVs that we expect to deliver this year, with initial deliveries scheduled for later this quarter. We're also taking actions to build our international sales pipeline for our full range of Defense products, including JLTV, as mentioned earlier. We are making good progress on securing orders to help achieve the sales and operating income goals through 2019 that we shared at our analyst day. Let's turn to slide seven to discuss the Fire and Emergency segment. Our Fire and Emergency team is performing well and taking advantage of the changes they've implemented over the past few years to simplify their business.
They delivered another quarter of year-over-year revenue and operating income growth, and we believe they remain on a path toward achieving double-digit operating income margins. Despite an overall fire market that was down approximately 5% in 2016, we successfully grew revenues and gained share. We still believe that the market will grow at a low- to mid-single-digit percent rate in 2017. With our extensive product lineup and strong dealer network, we are targeting to outperform the market again in 2017. The data we review on a regular basis continues to support a generally positive market environment for fire trucks over the next few years. Specifically, we still expect municipal tax receipts and budgets for fire apparatus to be solid. We also believe that fire truck fleets remain older than they should be, so replacement demand should continue to be a driver for this market.
Before turning to Commercial, let's talk about one of my favorite topics, which is our Ascendant Aerial Ladder. We've talked about the revolutionary new product on a number of occasions and wanted to congratulate the team on their continued success. Ascendant orders have exceeded our initial projections, and the team remains positive about the future opportunities for this product as we look out over the next several years. Please turn to slide 8, and we'll talk about our Commercial segment. Last quarter, we talked about modest and choppy order flow for concrete mixers. We also talked about expecting the refuse collection vehicle market growth rate to moderate in 2017. These conditions have continued, and they impacted first quarter performance in this segment.
While revenues were even with last year's first quarter, we experienced lower unit sales and orders, which had a negative impact on operating margins due to under-absorption of fixed overhead. The Commercial leadership team implemented cost-reduction actions during the quarter to mitigate some of the impact, but the benefits of those actions will be realized throughout the remainder of the year, not in the first quarter. We believe the cautious approach taken by concrete mixer customers will likely continue until they see sustained positive economic and construction data that allows them to build confidence to refresh their aged fleets. Construction forecasts and industry metrics point to positive trends, so we continue to maintain our positive view on this business over the longer term. Similar to our Access Equipment segment, we believe the Commercial segment would likely benefit from an infrastructure stimulus package.
In the slides, we noted that the refuse collection vehicle customers paused in the first quarter. We typically see a bump in RCV orders late in the calendar year as companies and sanitation departments look to use up previously budgeted capital, but we didn't see that order bump this year. We did have a number of customers tell us they were going to take a pause to see how the results of the election settled out. We currently believe we'll see this market return to a more normal cadence this year. This is something that we will watch closely as the year progresses. We also continue to believe that fleets are getting older, which should lead to increased replacement demand in the coming years.
Earlier this month, an accident occurred at the McNeilus Dodge Center, Minnesota, production facility, in which five team members were injured and taken to the hospital. Three team members were released within 48 hours, but two other team members were more seriously injured and are still receiving care. Our thoughts and prayers are with them and their families as they work through the recovery process. As a result of the accident, we temporarily lost some capacity in our Dodge Center paint operations. The Commercial team has quickly taken action to recover much of the lost capacity through temporary outsourcing of certain paint operations, while we complete repairs to the damaged area. We expect this temporary loss of capacity to have some impact on Commercial's results in 2017, although at this time, we do not expect the impact to be material to the company's 2017 overall results.
That wraps it up for our four business segments. I'm going to turn it over to Dave to discuss our financials and updated outlook for 2017 in greater detail.
David Sagehorn (EVP and CFO)
Thanks, Wilson. Good morning, everyone. Please turn to slide nine. We're pleased to report first quarter results that exceeded both the prior year and our expectations. Consolidated net sales for the quarter were $1.21 billion, down 3.2% from the first quarter of 2016. Access equipment segment sales were down 7.7%, due largely to continued lower replacement demand from North American rental customers and lower sales in the Europe, Middle East, and Africa, or EMEA region. Orders in EMEA were actually up in the quarter, so we're viewing the lower sales in the first quarter as timing-related. Defense segment sales were down 7.4% as a result of the timing of international sales in the prior year.
Fire and emergency segment sales were up 12%, and Commercial segment sales were flat. Consolidated operating income for the first quarter was $36.2 million, or 3% of sales, compared to $30.3 million, or 2.4% of sales, in the prior year quarter. Improved operating income margins in the fire and emergency, access equipment, and Defense segments contributed to the higher operating income margin. We're especially pleased that the access equipment and Defense segments were able to achieve higher operating income margins on lower sales. Margins in the access equipment segment benefited from timing of new product development spending and a more favorable mix. Defense segment margins benefited from favorable mix and performance on multi-year contracts, which more than offset the impact of higher bid and proposal spending for the FMTV recompete.
Fire and emergency segment delivered another quarter of year-over-year margin growth, driven by favorable pricing and a continued focus on simplification. Commercial segment results were negatively impacted by lower absorption compared to the prior year for the reasons noted by Wilson. Overall, the segments delivered strong operating performance in our seasonally weakest quarter of the year. Further information on segment first quarter performance can be found in the appendix to the slide deck. Earnings per share for the quarter was $0.26, compared to $0.19 in the prior year quarter. Current quarter earnings benefited from the higher operating income. The tax rate in the quarter was 21.8%, and while this is lower than our expected full-year effective tax rate of 32.5%-33% due to discrete tax items recorded in the quarter, it was higher than the 10.6% tax rate in the first quarter of the prior year.
We recorded a larger amount of discrete tax items in the prior year quarter, mostly associated with the reinstatement of the research and development tax credit. The access equipment and Defense segments drove the better-than-previously expected results for the quarter. Access equipment segment results, compared to our prior expectations, benefited from a more favorable mix and spend timing. Defense segment results benefited from higher sales, stronger performance on existing programs of record, and favorable aftermarket mix. Please turn to slide 10 for a review of our updated expectations for 2017. Our updated estimates do not include any impact on the restructuring activities in the access equipment segment that we announced today. We intend to report our results on an adjusted Non-GAAP basis that excludes the costs associated with these restructuring activities, and we don't expect to see the benefits from these actions until 2018.
We have modified several specific expectations for 2017, but our consolidated sales, adjusted operating income, and adjusted earnings per share estimate ranges remain unchanged from our last quarterly call. As a result, we continue to expect adjusted earnings per share of $3-$3.40 for 2017. Access equipment segment full-year sales and adjusted operating income margin estimate ranges of $2.7 billion-$2.8 billion and 7.75%-8.5%, respectively, remain unchanged from our last call. We believe that the full-year mix in this segment will be a little stronger than we previously expected, but we expect the benefits of that stronger mix will be offset by the impact of steel prices that are higher than our previous expectations.
We are not changing our Defense segment sales estimates of approximately $1.85 billion, but we are slightly increasing our operating income margin estimate from 9.5% to approximately 9.75% to reflect the stronger-than-expected results in the first quarter. We also now expect to incur higher bid and proposal costs for the FMTV recompetition since the due date for bids has been extended from the end of January to May. We're not changing our fire and emergency segment expectations of $1 billion of sales and an operating income margin of approximately 8.5%. We're modestly lowering our expectations for the Commercial segment to reflect the impact of lower-than-expected RCV market demand in the first quarter.
We expect the RCV market to recover to more normal levels starting in our second quarter, but do not expect the order rate in the remainder of the year to make up for the lower-than-expected market demand that we saw in the first quarter. We're reducing the sales expectation for this segment from $1 billion to approximately $975 million, and we are changing our operating income margin estimate for this segment to approximately 6.5%. We're not updating our Commercial segment expectations for any impact of the recent accident at McNeilus that Wilson mentioned. We're currently working with the McNeilus team to quantify any short-term operational impacts and with the insurance adjusters to understand the net financial impact. At this time, we do not believe the net financial impact of this accident will be material to the company's 2017 overall results.
Below the operating income line, we are tweaking our estimated tax rate from approximately 33% to an adjusted range of 32.5%-33%. And finally, we are increasing our share count assumption to $76 million. Other assumptions for the year remain unchanged from last quarter. Overall, we continue to feel good about the year and our prospects for the coming years. I'll conclude with a brief comment on our second quarter outlook. We expect higher consolidated sales compared to the prior year quarter, with increased Defense and fire and emergency segment sales more than offsetting a decline in access equipment segment sales. And we expect lower adjusted earnings per share, due mostly to the shift to a heavier weighting of Defense segment sales and a lower weighting of access equipment segment sales. I'll turn it back over to Wilson now for some closing remarks.
Wilson Jones (President and CEO)
Thanks, Dave. Before we get started on the Q&A, I'd like to make a few comments. First, we are a different integrated global industrial. We have a unique blend of businesses with a variety of attractive end markets, as well as our differentiated approach to operating them as a cohesive integrated enterprise. Defense and fire and emergency are two segments with strong end markets that set us apart. Second, our move strategy with simplification activities as part of the execution has evolved and continues to put us in a position to deliver solid results for the company. And third, we believe we're well positioned for long-term success with a number of opportunities that we discussed with you at our analyst day last fall and on this morning's call. 2017 is going to be an exciting year as we deliver our plan and celebrate 100 years strong.
I'll turn it back over to Pat now to get the Q&A started.
Patrick Davidson (VP of Investor Relations)
Hey, thanks, Wilson. I'd like to remind everybody, please limit your questions to one plus a follow-up. After the follow-up, we ask that you get back in queue if you'd like to ask additional questions. Operator, please begin the question and answer period of this call.
Operator (participant)
Thank you. I'll be conducting a question and answer session. If you'd like to be placed into question queue, 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'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up or hands up before pressing the star keys. Once again, that's star one to ask a question, and we ask that you do please limit yourselves to one question and one follow-up, then return to the queue. Our first question today is coming from Stephen Volkmann from Jefferies. Please proceed with your question.
Stephen Volkmann (Equity Analyst)
Hi, good morning, guys. So, I'll just throw them both together at once, and there, I think, pretty simple. I'm curious. You gave us a lot of information, but Dave, relative to your expectations, you obviously came out a little bit stronger. So, what actually surprised you in the first quarter is the first question. And then the second one is if you can just give us a sense of the cadence on the foreign M-ATV sales as we go through the quarters here. It would be great. Thanks.
David Sagehorn (EVP and CFO)
Sure. Thanks, Steve. I think, in terms of the performance in the quarter, it's kind of like we said, better-than-expected results in access as well as in Defense. Looking at access specifically, what we really saw there was two things: mix. With that, it was a better mix regionally. We ended up a little bit stronger in North America than we anticipated coming into the quarter. As we noted on the call, Europe was a little weaker, although based on the order patterns, we're confident that Europe was a timing issue and nothing more than that. We also did see a little stronger product mix, so a heavier weighting of aerial work platforms versus telehandlers. Those, generally, as you know, have a higher margin profile. Then in Defense, we did see a little better higher sales than we anticipated, and that was largely concentrated in aftermarket.
So, that's going to fluctuate. So, I guess, I would consider that more of a timing issue. And then the OI read-through of that, as well as some better mix in aftermarket and a couple of our other programs. In terms of your question on the M-ATV cadence internationally, that it's, I would say, unchanged from our prior expectations. We do still expect to deliver the majority of those in the second half of the year. I think we'll get somewhere probably between 20%-25% of those units in our second fiscal quarter.
Stephen Volkmann (Equity Analyst)
Great. Thank you. Okay.
David Sagehorn (EVP and CFO)
Thanks, Steve.
Operator (participant)
Thank you. Our next question today is coming from Nicole DeBlase from Deutsche Bank. Please proceed with your question.
Nicole DeBlase (Research Analyst)
Yeah. Thanks, guys. Good morning. So, my first question is around the Defense segment. I know you said that the FMTV bid period has extended through May. Did you guys incur any costs related to that in the first quarter, or is it all shifting into the second quarter?
David Sagehorn (EVP and CFO)
No. We did, Nicole, incur costs on that. As expected, it was, I think, sometime in December when they actually pushed the date out. So, we were well along the path of preparing for a January submission. But with the push-out, we do expect to incur additional costs related to that proposal development as we go through our second quarter.
Nicole DeBlase (Research Analyst)
Okay. Got it. Thanks. And on the fire and emergency business, the revenue growth really accelerated quite a bit this quarter. Can you just elaborate on this? And is that a timing issue as well, since your guidance seems to imply just a bit of a deceleration in growth throughout the rest of the year?
David Sagehorn (EVP and CFO)
Yeah. In general, our full-year outlook has not changed. So, it is dependent quarter-to-quarter on some of the larger fleet orders that we see or some of the international orders. So, I wouldn't read too much into that.
Nicole DeBlase (Research Analyst)
Okay. Great. Thanks. I'll pass it on.
Operator (participant)
Thank you. Our next question today is coming from Jerry Revich from Goldman Sachs. Please proceed with your question.
Jerry Revich (Analyst)
Hi. Good morning, everyone.
David Sagehorn (EVP and CFO)
Hey, Jerry.
Jerry Revich (Analyst)
I'm wondering if you could talk about what you've seen in the North America access equipment market in terms of cadence and your values over the course of the quarter. Did you see an acceleration in used equipment demand versus normal seasonality? And we had one of your major customers today announcing a big CapEx increase, 17 versus 16. I appreciate it's too early for you to change your guidance, but can you just help us understand the cadence of demand over the course of the quarter based on the leading indicators you track?
Wilson Jones (President and CEO)
Sure, Jerry. Used values, I would say, are fairly stable where they've been. We haven't seen anything up or down there. I would say it's kind of just normal. From a CapEx increase, we are hearing, I would say, more positive sentiment from our customers. But it's very early, Jerry, as you know. They're just starting their year, and we're certainly in a lot of discussions and learning more about their requirements. And we'll continue to work with them on our forecast. But today, just looking at the landscape, we believe that our plan is still in place that fits our current forecast and no reason to change at this point.
Jerry Revich (Analyst)
Okay. Thank you. And can you provide an update on the U.S. Postal Service bid of the prototype that you delivered? What's the timeline on the decision? What's the opportunity for you folks? And if you win, which facilities would you produce the trucks out of?
Wilson Jones (President and CEO)
Okay. Well, right off the bat, Jerry, we haven't defined which facility we would build these products at. So, that's to be determined. There's the longer-term program that we've talked about before where we were one of 6 companies selected, building 6 prototypes. Those are currently under process. That's a bigger contract, potentially, from $2.5 million-$10.9 million, and that's right out of the FedBizOpps. The publication, I'm talking about the prototype contracts there, Jerry. But the big program, 180,000 of these next-generation postal trucks, 5-year to 7-year program, and again, getting up into significant revenue dollars there. But we're working through that.
That's about a year out for delivery of the prototypes. But there is an interim program that's out, and I'm sure you've seen it. They're looking for what we call a COTS, a Commercial off-the-shelf program, somewhere in the 3,000-18,000 vehicles. They're looking for an award expected later this spring or summer. So, we're currently looking at that opportunity and determining if that's something we're going to try to compete in or not. It's still kind of a work in process there. So, there's actually two programs now with the United States Postal Service.
Jerry Revich (Analyst)
Thank you.
Wilson Jones (President and CEO)
Thanks, Jerry.
Operator (participant)
Thank you. Our next question today is coming from Jamie Cook from Credit Suisse. Please proceed with your question.
Jamie Cook (Analyst)
Hi. Good morning. Nice quarter. I guess just a follow-up question on Jerry's question. Obviously, last night, United Rentals provided a more optimistic CapEx forecast, understanding why you wouldn't change your numbers yet. But when you're talking, you noted when you were talking to your customers, they seem a little more positive, I guess. Is that fairly widespread? Is it more of the big rental houses versus the smaller rental houses? I'm just trying to understand if this is just United Rentals or if there's something broader going on here. And then my second question, if you could just sort of comment on, within the aerial business, there have been some access equipment related to the energy patch.
Obviously, things in the energy patch should or will have or will be improving fairly shortly. So, can you comment on whether that's sort of been washed through and just what you're seeing sort of geographically in some of those areas? Thank you.
Wilson Jones (President and CEO)
Sure, Jamie. Thanks for your questions. The first part around the NRCs and the IR, I'll include the IRCs. I would say where we're hearing more positive sentiment is where you're having milder weather, less winter. We're seeing projects continue to move there. Obviously, in some of the tougher climates, there's not a lot of as positive discussions going on. So, again, it's kind of fragmented. Again, a reason why we're not adjusting our forecast at this time. We still have a couple of the larger NRCs that are talking about less CapEx this year. So, it's kind of a mixed bag right now as far as some of the outlooks. We think in the next three months, we'll have a better handle on some of those as they fine-tune their forecast. Again, we're in great discussions with all of them. I have good relationships.
So, we expect to continue to move along with better information as the year goes. In terms of your question about aerials and the oil area, I think what we've heard our real customers say is all that that was down has been redeployed. So, now, as oil gets better, we would assume that some of those machines will now go back in. So, I think all the excess is past us. So, now it would be some potential upside if oil picks back up or as they move our aerials or telehandlers back into those areas.
Jamie Cook (Analyst)
Okay. Thank you. That's very helpful. I'll get back.
Operator (participant)
Our next question today is coming from Charlie Brady from SunTrust. Please proceed with your question.
Charles Brady (Managing Director)
Hey, thanks. Good morning, guys.
Wilson Jones (President and CEO)
Hey, Charlie.
Charles Brady (Managing Director)
You touched a little bit on the steel cost impacting maybe a little bit of a headwind to some of the mixed positive mix from access. But can you just quantify a little bit more kind of what you're seeing on steel cost, not only in access, but maybe across the other platforms as well?
David Sagehorn (EVP and CFO)
Yeah. So, Charlie, we saw a spike that started last March, call it, and it continued up through much of the summer. Then in about the August timeframe, steel started to drift back down. And if you would have asked us last quarter, our thoughts were it was going to continue to drift back down probably to the end of the calendar year and kind of hold steady there. But what we saw is another spike in December.
Based on the experts that we follow, our expectation at this time is it's going to continue to remain elevated through probably at least the March quarter before we see a drift down from there. In terms of what that means for us, I think, as you know, we do see a lag generally between when we see a movement in the market. That's driven by multiple factors, one of which being that we do lock on a quarterly basis. The next lock period, then we would see the price readjust. In addition to that, you have to procure the material, work the material, and sell the ultimate finished goods. While we do expect to see some impact from the spike that we saw again in December, we probably won't see that really flow through until later in our fiscal year.
Charles Brady (Managing Director)
Okay. Thanks. Just as a follow-up on the consolidation within access, can you talk about the capacity utilization of the Pennsylvania and the Romania plants today and kind of where that winds up being once you've fully loaded those plants with the consolidation?
David Sagehorn (EVP and CFO)
Yeah. So, we've looked at both facilities, and we've looked out multiple years in terms of where we think the market can get to when we do see the recovery and the replacement demand. And by moving North American telehandlers into the Pennsylvania facilities, we think we're in good shape to handle that return of demand in Europe as well through the Romania facilities such that we're not going to have to have significant investments in brick and mortar when that market overall does recover.
Thanks, Charlie.
Thank you. Our next question today is coming from Ann Duignan from J.P. Morgan. Please proceed with your question.
Ann Duignan (Analyst)
Yeah. Hi. Good morning, everyone.
David Sagehorn (EVP and CFO)
Hi, Ann. How are you?
Ann Duignan (Analyst)
Just a real quick follow-up on the last question. Can you quantify in dollars the impact of higher steel prices? Can you give us a sense of what you're thinking for the rest of the year?
David Sagehorn (EVP and CFO)
We haven't quantified that, Ann. And I think, what I would say is, we have incorporated that into our guidance. And by telling you that, we expect the costs to remain elevated through the end of the second quarter and drift down, I guess you can view whether our outlook is in line with what you're hearing your experts say about where steel's headed for the rest of the year.
Ann Duignan (Analyst)
Okay. I'll maybe go back through that offline later with Pat. Then you talked about all the positives that could impact Oshkosh from the new administration. Can you talk about any negative impacts in terms of you're hearing any increased chatter around renegotiating a contract or competitors starting to talk about it? Are there any negative impacts from the new administration that we should consider?
Wilson Jones (President and CEO)
Yeah. And I saw your question in your write-up, and it's a good question because there is some of that chatter out there. But I can tell you there's none around the JLTV. It's considered a model program. The FHTV, FMTV, we're performing. We're delivering on time. We're not having any cost overruns. There's been a lot of quote activity from different executives in the procurement area, acquisition area of the government talking about how this program is a model program. So, at this stage, we're confident that that program will remain intact.
David Sagehorn (EVP and CFO)
And I think, from maybe more of the global trade standpoint, there obviously is a lot of chatter around tariffs, border taxes, etc. I think one of the things that it would need to be seen how it plays out is what foreign governments may or may not do in the event that the U.S. does institute a number of tariffs or border tax changes. But again, it's early. I don't think anybody truly understands all the details associated with that, both domestically and especially internationally, from what type of a reaction you might see.
Wilson Jones (President and CEO)
Yeah. Good point.
Ann Duignan (Analyst)
Yeah. I think that's a fair point. It's a little early in the term to figure it all out. Just a real quick follow-up on Defense again. Can I just confirm that you are still expecting to deliver 1,000 M-ATVs and 750 JLTVs this fiscal year? There's no change to any of those programs?
Wilson Jones (President and CEO)
That's correct. You're correct, Ann. That's correct.
Ann Duignan (Analyst)
Okay. I'll leave it there. Thank you very much.
Wilson Jones (President and CEO)
Thank you. Thanks.
Operator (participant)
Thank you. Our next question today is coming from Ross Gilardi from Bank of America Merrill Lynch. Please proceed with your question.
Ross Gilardi (Analyst)
Yeah. Good morning. Thanks, guys. Ross. Maybe just some follow-ups on kind of that border tax issue, recognizing there's still a lot of unknowns, obviously, a huge amount of unknowns. But could you just flesh out a little bit more? I mean, I imagine Oshkosh has got to be a net exporter as a whole. But do you have big components or anything major that you do import, anything from Mexico, anything in your supply chain that you would see as potentially vulnerable?
David Sagehorn (EVP and CFO)
Let's start at the beginning, Ross. Yes, we are a net exporter. If you think about it, we do produce a lot of stuff here and ship it globally. I guess what I would say is, in terms of a magnitude, we probably export about three times more than we import. In terms of what we do import, we import from countries all around the world. There's been a lot of talk about Mexico. Yes, we do import items from Mexico, but it is overall not a significant portion of our annual material spend. But again, it's really spread out globally in terms of where we are importing from. So, in general, without knowing all the specifics, again, I think being a net exporter is probably the best position to be in at this time.
Ross Gilardi (Analyst)
Sure. Makes sense. Thank you. I just want to get a little more color on the timing of the restructuring in Access because clearly, we're going through a little bit of a soft patch right now. As you said, you're expecting pickup and replacement demand in 2018. Clearly, what you're doing is some facility consolidation. Sort of why now? I mean, was there anything in particular that you felt got worse? Is it just the capacity utilization outlook, just not what you thought of the pricing? Just some more color there would be helpful.
Wilson Jones (President and CEO)
Yeah. I'll talk a little about the decision in the marketplace and how we're looking at our product strategy. I'll let Dave talk a little bit more about some of the specifics of the actual restructuring. If you look at the European market, it's very fragmented. We've always been in there and working hard and trying to meet all that market. Taking a step back and really doing an 80/20 on the market and looking at the different segments where we can add value, create value, and be profitable for our shareholders, we've made some decisions that there's some areas, some products, some segments that we need to move away from and focus more where we can create more value. So, that's the big move that we're making in Europe around the telehandler. Do you have some specifics on the?
David Sagehorn (EVP and CFO)
Yeah. Just I guess, Ross, what I might add on that is the models we're talking about are just kind of along this 80/20, right? It costs money to support and maintain models. The volumes we're talking about associated with any of these are fairly small. You've got a regulatory environment where it seems like every two years, major investments are needed to be made in terms of engine mission upgrades. And as we looked at the returns that we expected out of some of these, they just didn't meet the hurdle rate. And you've heard us talk before about simplification. And this is just part of that exercise as we're continuing to try to simplify our overall enterprise. And in access, this is a move that made sense.
Ross Gilardi (Analyst)
Thanks, guys.
David Sagehorn (EVP and CFO)
Thanks, Ross. Thanks.
Operator (participant)
Thank you. Our next question today is coming from Mike Shlisky from Seaport Global. Please proceed with your question.
Michael Shlisky (Analyst)
Good morning, guys.
David Sagehorn (EVP and CFO)
Hi, Mike.
Michael Shlisky (Analyst)
Okay. So, given what you've done since you first started to move a couple of years back and kind of what you announced today for access equipment, can you maybe bracket for us what you think the appropriate margin range is for access once you're fully ramped here on the benefits? In the past, it's been maybe mid-teens. Does it go a bit higher from here once you get to fiscal 2019 or so?
David Sagehorn (EVP and CFO)
Well, theoretically, this certainly should help our cost structure and be a benefit for us. I don't think I would expect that this is going to drop straight through the bottom line because you are going to have your typical inflation on wage increases, etc. But overall, this certainly does improve our cost structure. I'm assuming that, or I would expect, you would see that play out when we do see a rebound in this market in the next couple of years.
Michael Shlisky (Analyst)
Okay. Great. I just want to confirm for Q2, you expect more Defense revenues, less access, and therefore a margin headwind. That would make sense normally. But this year, you're actually looking at higher margins in Defense. So, can you just give us kind of your thoughts on the cadence here of the margins? Are you looking at an unusually low Defense margin in Q2 or a much higher than guided for the full year margin for access in Q2?
David Sagehorn (EVP and CFO)
Yeah. Mike, what I would say there is, in general, we typically see higher incremental margins in the access equipment segment than we do in Defense. So, that would be kind of a starting point. But additionally, as we're looking at the second quarter, and at this time, we're expecting a heavier weighting of international sales in access, whereas in the first quarter, for example, we saw a little heavier weighting in North America. And then in the second quarter last year, we also saw a little heavier weighting in North America. You've got, I think we're going to see the steel impact start to have an effect in access. And this is more the steel impact from later last summer. And then in Defense, year-over-year, it looks like at this time, we're expecting a less favorable mix in certain of our Defense programs, including aftermarket. So, there's a few.
Wilson Jones (President and CEO)
FMTV cost.
David Sagehorn (EVP and CFO)
Yeah. Additional FMTV costs.
Wilson Jones (President and CEO)
So, there's a number of components in there. But the starting point really is you typically have the higher incremental margins in access versus in Defense.
Okay. Great. I appreciate it. Thanks, guys.
Thanks, Mike. Thanks.
Operator (participant)
Thank you. Our next question today is coming from Mircea Dobre from Robert W. Baird. Please proceed with your question.
Mircea Dobre (Analyst)
Hey. Good morning, guys. I guess maybe tacking on to the last question there. So, how should we think about incremental margins in 2018 and in the access business, given all the moving parts and maybe any sort of color on pricing and how you view that through 2017 and into 2018 and access?
David Sagehorn (EVP and CFO)
Mike, I'll start in terms of the 2018 and incrementals and maybe let Wilson touch on the pricing. But typical, at this time, it's early in fiscal 2017, and our focus is getting through this year. We aren't going to provide a lot of color on fiscal 2018. Again, certainly, the benefit of the restructuring actions that we announced today, while we don't expect to get a full year impact out of that next year, that should be certainly positive to the incremental margins in that business. But you have to take a look at a lot of the components. What do you think your mix is going to be? Where do you think your volume is going to be? What are your input costs going to look like?
And try to put together a view of all that today for 2018, I think, is a little premature. But overall, again, these costs or benefits that we're announcing or associated with the restructuring we're announcing today should benefit our incremental margins in 2018.
Wilson Jones (President and CEO)
Mircea, on the pricing, I would say last couple of quarters we've talked about it. It is a challenging market from a pricing standpoint. We face currency in quite a few markets. I would say this quarter from the last two, it hasn't changed a whole lot. I would say, if anything, it's kind of stable from where it's been. We haven't seen any major ups or downs there. It's just kind of plugging along. I think with the rental rates stabilizing, utilization rates moving up a little bit, that should help pricing some. But we'll have to see how that goes. And again, we still have the strong dollar that we're working against in some cases.
Mircea Dobre (Analyst)
Okay. And we haven't really talked about the Commercial segment much. So, I guess I'll ask you about your refuse component of this segment. You mentioned the election having an impact. It's not quite clear to me as to exactly how that would be the case. But I guess the broader question is, why is it that we're seeing this slowdown? And what gives you confidence that we're not talking about something a little more permanent here rather than just election?
Wilson Jones (President and CEO)
Sure, Mircea. We mentioned that we expected the refuse collection vehicle business, basically the growth rate to moderate this year. We normally have a little bit of a pickup in our first quarter or our customers' last quarter as they exhaust some of the budgets and move through the end of their year. We didn't see that this year. And I think a lot of the reason was what was explained to us is they were just going to take a pause and see what the climate was going to be coming out of the election.
Now, I will say that, and we don't usually talk about the next quarter orders, but I will say that January is showing us that refuse is getting back on plan. We've been pleased with the order pace that we're seeing. So, we're certainly going to keep watching that. But I think our forecast of it moderating for the year is still in good place.
Mircea Dobre (Analyst)
Are you seeing any bump in concrete at all in January?
Wilson Jones (President and CEO)
Go ahead.
David Sagehorn (EVP and CFO)
I wouldn't say we're seeing a bump in concrete, Mircea. What I would say is activity is picking up from a quote standpoint, but it's not materialized like we're seeing on the refuse side. And I guess I would emphasize there, Mircea, the quoting activity. I think the team at Commercial is pretty optimistic in terms of the outlook that they're in terms of what they're hearing from their customers on mixers. We're not saying it's going to get back to a normal level yet, but I think their view of how the quarter may play out from an order standpoint is actually pretty positive.
Wilson Jones (President and CEO)
Yeah. If you look at that installed base now, Mircea, concrete mixers that are out there are all approaching a 10-year average life. And that's a long time for a concrete mixer.
Mircea Dobre (Analyst)
All right. Thank you, guys.
Wilson Jones (President and CEO)
Thanks, Mircea. Thanks.
Operator (participant)
Thanks. Our next question is coming from Eli Lustgarten from Longbow Securities. Please proceed with your question.
Eli Lustgarten (Analyst)
Thank you. Good morning, everyone.
Wilson Jones (President and CEO)
Hi, Eli.
Eli Lustgarten (Analyst)
Just a clarification. How much or what can you give us a quantification magnitude of what the extra cost for the delayed bidding on the FMTV on the recompete contract? Is that a material number? Is it just? I mean, can you quantify that just for clarification since we talked about it?
David Sagehorn (EVP and CFO)
In terms of the year-over-year that we experienced in the first quarter, or?
Eli Lustgarten (Analyst)
Well, it's an incremental cost that you wouldn't have had in your budget. So how much extra is it? I mean, it's supposed to have been done.
David Sagehorn (EVP and CFO)
Oh, yeah. I think Eli, we're probably looking at $2 million incremental as we think about the quarter, second quarter.
Eli Lustgarten (Analyst)
Okay. And can we step back for a moment because we've got a question? Your guidance for the year is effectively unchanged at $3.00-$3.40, even though you had a $0.15 beat. And I know you're giving back $0.07 because of the share count that you're doing. Can you maybe comment on what you're not buying back shares or it's the higher price or what's causing that? But are you more confident that you're being in the upper-ended range or the same place within it? What has changed, given you had a $0.15 beat in the first quarter as you look out towards the year, or are there so many moving pieces that it's still that unpredictable?
David Sagehorn (EVP and CFO)
Well, I guess the $0.15 is your number, Eli. We haven't quantified what the beat was. But certainly.
Eli Lustgarten (Analyst)
$0.10 was what? $0.12 or something, whatever it is. So, versus the street, you beat us by $0.15.
David Sagehorn (EVP and CFO)
Yeah. So, as we talked about, there were some timing items in the quarter, and we do expect to see those reverse out as we go through the year. So, maybe the impact of the beat that you might think should carry through is not as much just from a standpoint of that.
Wilson Jones (President and CEO)
Also material.
David Sagehorn (EVP and CFO)
Yeah. We talked about the impact of steel costs negatively impacting access a little bit, although we do think they're going to have a little bit of a stronger mix on the year as a whole. And then, as we mentioned, we do have the higher bid and proposal costs on M-ATV. I think in general, our full year outlook for the year, taking all in at this point, is largely unchanged from where we were at last quarter. As Wilson said before, it's early. We need to continue to have discussions with our customers in multiple segments. And I think we'll have a better view on where we're sitting as we exit the second quarter.
Eli Lustgarten (Analyst)
And it's fair that whatever increased benefits you got in the first quarter, you're actually giving back in the second quarter with the negative comparison. Is that sort of the way we should think about it?
David Sagehorn (EVP and CFO)
I don't know that I would say giving back, but as we noted, we do expect lower earnings in the second quarter based on the items that we talked about.
Eli Lustgarten (Analyst)
One question maybe on a longer term on Defense. We've got 1,000 M-ATV shipments this year that are not have anything duplicating in 2018. Well, I know we more than double JLTV, what have you. But can you give a comment on how you look at the Defense market? Is it going to be a problem filling the hole that's sort of set up by not having that 1,000 or the follow-on contract? Give us some idea of how we should think about that as we look out.
Wilson Jones (President and CEO)
Yeah. What we talked about at analyst day, Eli, is that we're working aggressively internationally to make sure we fill that gap. We're making good progress on some international, what I would call, working with our allies. We're not ready to make any of those announcements yet, but the Defense team is doing a nice job of working to secure some of those orders, again, to help us fill out that 2018 that you're talking about.
Eli Lustgarten (Analyst)
The expectation is that you should be able to fill it sometime in the next couple of quarters. Is that fair?
David Sagehorn (EVP and CFO)
Yeah. I think what we said at the analyst day is we were looking at $1.7 billion-$2 billion a year through fiscal 2019. We think with the opportunities that we have out there, we're on track to meet those targets.
Eli Lustgarten (Analyst)
All right. Thank you very much.
Wilson Jones (President and CEO)
Thanks, Eli. Thanks.
Operator (participant)
Thank you. As a reminder, it's star one if you'd like to ask a question. Our next question today is coming from Seth Weber from RBC Capital Markets. Please proceed with your question.
Seth Weber (Analyst)
Hey. Good morning, everybody. Good morning. Most of the questions have been asked and answered. So, maybe just a bigger picture question for you. Given the improving sentiment in the rental channel and what you're seeing and what you're hearing from your customers, I guess in your preamble, you talked about the access equipment market maybe getting better 2018/2019. I mean, do you have any more confidence now that 2018 would be an up year? I think one of your competitors has talked about the North American market being up in 2018 in access equipment. Do you feel more confident that you share that view today?
Wilson Jones (President and CEO)
I don't think that we would say we're more or less confident today, Seth. What I would say is there's certainly a lot more discussion around infrastructure, which construction. And if that were to pick up in 2018, that certainly would be a benefit. But as we said earlier in the call, it's so early, and I don't think we could really quantify today what are these initiatives, what's it going to mean for us. But again, today versus six months ago, there is just more positive discussions around could be more construction.
Seth Weber (Analyst)
Okay. I thought I'd give it a shot.
David Sagehorn (EVP and CFO)
Good try.
Wilson Jones (President and CEO)
You're always good to try there, Seth.
Seth Weber (Analyst)
Yeah. And sorry if I missed this, but was there a JLTV build number for the quarter that you gave, or is there any cadence that we should be working around quarterly through the year?
Wilson Jones (President and CEO)
No. What we've said, Seth, that we're not really going to quantify each quarter. We have 750 in our plan for this year. We're working on those. The focus is really building those and supporting our government customer in testing.
Seth Weber (Analyst)
Okay. I mean, were there deliveries in the first quarter, though?
David Sagehorn (EVP and CFO)
Yeah.
Wilson Jones (President and CEO)
Oh, yeah. We've been delivering since July.
Seth Weber (Analyst)
Okay.
David Sagehorn (EVP and CFO)
There's a lot of focus still at this time in terms of supporting government testing. And so the ramp-up is going to it'll build up rather slowly and be more heavily weighted into the second half of the year.
Seth Weber (Analyst)
Sure. Understood. Okay. That's all I had. Thank you very much, guys.
Wilson Jones (President and CEO)
Thanks, guys.
Operator (participant)
Thanks. Our next question is coming from Stanley Elliott from Stifel. Please proceed with your question.
Stanley Elliott (Analyst)
Hey, guys. Good morning. Quick question, just for a point of clarification. On the concrete mixers, was that the order activity is picking up on the rear discharge or the front discharge, or was it kind of a commentary around just the entire product line?
David Sagehorn (EVP and CFO)
So, there's as we both mentioned, Stanley, a lot. I didn't say it's a pickup at this point in quoting activity. Front discharge has been strong all along. We have seen for some time now a little bit of a disconnect in terms of the cautiousness of the rear discharge customers versus the front discharge guys continuing to move forward. I think we're seeing that generally continue.
Stanley Elliott (Analyst)
And then kind of switching gears to the fire and emergency, it's a very fragmented market out there, but have you all seen any of your competitors try to come up with some sort of a product to compete against the Ascendant, or are you all still kind of sitting at the premier spot right there in terms of kind of class relative to what else is out there in the marketplace?
Wilson Jones (President and CEO)
Yeah. At this stage, Stanley, we haven't seen a rival to the Ascendant. The big FDIC show is coming up this spring, and we'll certainly be paying close attention there to see if there's something close. But at this stage, we haven't heard anything that compares to it.
Stanley Elliott (Analyst)
Great, guys. Thanks. And best of luck.
David Sagehorn (EVP and CFO)
Thank you. Thanks, Stanley.
Operator (participant)
Thanks. Our next question is coming from Peter Skibitski from Drexel Hamilton. Please proceed with your question.
Peter Skibitski (Analyst)
Hey. Good morning, guys. I apologize. I was on another call thus far, but I had a question on Defense margin. I thought it was pretty strong for the quarter despite not having any international M-ATV deliveries. And so, I was wondering, on the guidance for the full year, 9.5%, the next three quarters, you're going to have some international M-ATVs at pretty good margin rates. So, is the full year guidance, is there a case that maybe that's a little conservative, or is the JLTV kind of headwind from here offset some of the M-ATV goodness, if you will?
David Sagehorn (EVP and CFO)
Yep. Pete, thanks for the question. It is, as we've mentioned a few times on the call, and you weren't on before. It's early. We still need to go through the vast majority of the ramp-up for the M-ATVs. So, that's a significant amount of volume that we need to deliver in the second half of the year. So, there's some things that we need to see play out yet as the year progresses. Is there upside? I guess at this point, I think we're comfortable with the margin guidance that we have provided for the year. That said, you would always like to see overachievement through all of our segments. But again, it's early, and we need to, there's a lot of work to be done yet as we go through the year.
Peter Skibitski (Analyst)
Understood. Thank you.
David Sagehorn (EVP and CFO)
Thanks, Pete. Thanks, Pete.
Operator (participant)
Thank you. We 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.
Wilson Jones (President and CEO)
I want to thank all of you for participating on our call today. We appreciate your interest in the Oshkosh Corporation. Have a good day, everyone.
Operator (participant)
Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.