Oshkosh - Q1 2018
January 25, 2018
Transcript
Operator (participant)
Greetings and welcome to the Oshkosh Corporation Fiscal 2018 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Patrick Davidson, Vice President of Investor Relations for Oshkosh Corporation. Thank you, Mr. Davidson. You may begin.
Patrick Davidson (VP of Investor Relations)
Good morning and thanks for joining us. Earlier today, we published our first quarter 2018 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 GAAP to non-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 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 David 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)
Thanks, Pat. Good morning, everyone. We're pleased to announce a positive start to 2018 with consolidated results that exceeded our expectations. Adjusted earnings per share of $0.84 was more than triple the $0.26 that we reported in 2017. This performance was driven by consolidated sales growth of approximately 30%, the result of double-digit percentage increases in the defense, access equipment, and commercial segments. Order intake was up in all four segments, and we finished the quarter with strong backlogs across all four segments. The order activity we experienced in the quarter in our non-defense segments, and really for the last few quarters, reflects the broader positive macroeconomic conditions that we are seeing, especially in the U.S. We believe these positive economic conditions will continue through at least 2018.
It's a great way to start the new year, and our entire team takes pride in this performance, but we know we have more work to do. As a result of our better-than-expected results and positive outlook, along with the impact of the new tax law, I'm pleased to announce that we are raising our full-year adjusted earnings per share estimate to a range of $5-$5.45. Dave will break down the drivers of the increase in a few minutes. Please turn to slide four to begin the discussion for each of our business segments. I'll start it off, as I typically do, with our access equipment segment. The access equipment team concluded annual negotiations with most of the large national rental companies in the quarter. The big takeaway from our interactions with these customers was the consistent positive outlook they communicated regarding their businesses and the rental market.
This positive outlook is reflected in the level of purchase orders received in the quarter. Orders in this segment were up 94% compared with the prior year quarter, leading to a backlog exiting the quarter that was more than two and a half times as large as the prior year quarter. We're encouraged that customers had the confidence to place larger annual orders this year. You might recall in the past few years, some customers executed a more just-in-time approach to orders due to their cautious view of the economy and the rental market. While we'd like to see this large percentage increase in orders in every quarter this year, it's obvious that there's an element of timing at play here. We are, however, increasing our full-year sales estimate range for this segment as a result of the more positive market environment.
We continue to see solid international demand as well in this quarter, although Latin America still remains weak. Turning to operations, we knew the access equipment segment was going to have a tough comparison to the prior year quarter due to higher material costs. The impact of that is reflected in the adjusted results we're reporting today. We are disappointed, however, that restructuring actions we announced a year ago are taking longer to complete than originally planned. Coming into the quarter, we had made significant progress implementing the restructuring actions, but this quarter, we experienced issues that caused operational inefficiencies and additional program-related costs. Now, the heavy lifting is behind us, and the majority of actions have been completed, but we still expect to incur some additional costs in future quarters.
The team is now focused on optimization, and we continue to believe that we will realize the annualized savings that we originally projected. Please turn to slide five for a discussion of the defense segment. The defense team opened the year with a strong quarter, led by the continued ramp-up of the JLTV program and delivery of international M-ATVs. As we've discussed previously, our team is working in lock step with the JLTV program office. We're pleased with the test results our JLTVs have achieved as we work to a Q1 2019 full-rate production decision. In late December, the Department of Defense placed an order for additional JLTVs for delivery in 2019. We expect more JLTV orders later this year.
We also continue to promote the JLTV with the international community, both in terms of trade shows, where the JLTV recently generated significant interest in Dubai, and through individual customer discussions where U.S. allies are looking for the best tactical-built vehicles. They know Oshkosh vehicles are designed to meet evolving threats and challenging situations, and they know that Oshkosh will be there to support them around the globe. We continue to expect that international JLTV orders will follow the U.S. government's planned full-rate production milestone in 2019, with sales likely beginning in 2020. We also remain in pursuit of additional international orders for Oshkosh Defense products and services. We saw tangible progress in the quarter on one of the deals we were actively engaged in as the proposed contract moved to the next step in the approval process.
Our assessment of the opportunities hasn't changed as we remain in negotiations on opportunities we have talked about previously. On the FMTV recompete program, we currently expect the customer to announce a winner for this contract sometime during this quarter. As we've stated on previous occasions, we will continue to deliver FMTVs under the current contract into 2020. We believe the supplier of the new FMTV A2 version will begin to ramp up production in 2021. Finally, the U.S. government continues operating under another Continuing Resolution with FY 2018 funding capped at FY 2017 federal budget levels. We still do not expect the Continuing Resolution to impact our 2018 as we're fully booked for trucks for the year, but the timing of orders for sales in 2019 could be impacted if the Continuing Resolutions stretch into late summer. Let's turn to slide 6 to discuss the fire and emergency segment.
The strong performance and momentum we saw from the fire and emergency segment in 2017 continued in the first quarter of 2018, with operating income margins up year-over-year. Higher Pierce fire truck sales largely offset lower airport product deliveries. The airport products group delivered a large quantity of airport rescue firefighting units to an international customer in last year's first quarter, making for a challenging comparison this year from a sales perspective. The segment's continued strong operational performance drove operating income growth of more than 45%. Fire truck orders were also up in the quarter, contributing to the strong foundation for our 2018 outlook. We recently received final industry data for fire truck orders in North America for 2017. The industry grew a little over 4%, but it's still approximately 20% below historical levels.
Our custom pumpers and the Ascendant class of aerials continue to be areas of strength for Pierce in the fire truck market. We remain confident that our flat to slightly positive outlook for the market and our industry-leading product lineup support our positive expectations for this segment. Municipal tax receipts continue to increase, and as we've often said, age is our friend in reference to fleets that will need to be replaced. As I mentioned earlier, international shipments were lower in the quarter due to the large number of our shipments in the prior year. That said, we continue to be bullish on this part of our business. There are many opportunities in Asia, particularly in China, as well as the Middle East that we are or will be pursuing. Please turn to slide seven, and we'll talk about our commercial segment.
Commercial segment's improved first quarter results were in line with our expectations. The commercial team has been implementing a new business structure that drives greater accountability, which we believe will result in more effectively supplying and servicing our customers. The team continues to attack complexity throughout the business with the objective of increasing operational efficiencies and focusing on the most value-creating activities. As we've noted in prior conference calls, this aggressive effort will take time, and there's still much work to do. From a market perspective, the domestic refuse collection vehicle market grew mid-single-digit % in 2017 and recently exceeded pre-recession levels. We're seeing the impact of this in our RCV backlog, which is up significantly compared to a year ago. In contrast to this growth, the concrete mixer market remains below pre-recession levels as fleets continue to age.
We did, however, exit the first quarter with a higher backlog compared to the prior year. Many of our concrete mixer team members are busy this week at the annual World of Concrete trade show in Las Vegas, so we should get a good view of current customer sentiment for this portion of the business. Looking forward, we remain bullish on the longer-term outlook for both the RCV and concrete mixer markets. 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 2018 in greater detail.
David Sagehorn (EVP and CFO)
Thanks, Wilson, and good morning, everyone. Please turn to slide 8. We had a good start to the year, which gives us confidence in increasing our full-year outlook. Consolidated net sales for the quarter were $1.59 billion, up 30.9% from the prior year quarter. Sales were up strong, double-digit % in all segments, with the exception of fire and emergency, where sales were down slightly. Access equipment sales reflected the strong market environment that Wilson mentioned, led by North America and the Europe-Middle East-Africa region. The significant increase in defense segment sales was driven by the continued ramp-up of JLTV deliveries and the final deliveries of M-ATVs under the international order received in 2016. We didn't sell any M-ATVs in the prior year quarter. The commercial segment saw solid sales increases in both concrete mixers and RCVs, reflecting a reversion to a more normal order and delivery pattern.
You may recall that last year this segment experienced a pause in orders in the first quarter. Adjusted consolidated operating income for the first quarter was $92.4 million, or 5.8% of sales, compared to $36.2 million, or 3% of sales, in the prior year quarter. All segments delivered higher adjusted operating income, led by the defense segment, which benefited from the higher volume and improved performance. During our last earnings call, we said that we expected a challenging quarter for the access equipment segment in terms of incremental margin, and that's what we experienced. Higher material costs compared to the prior year accounted for the majority of the lower incremental margin. An unfavorable customer mix, along with adverse foreign exchange and miscellaneous reserve adjustments, also contributed to the lower incremental margin. Access equipment adjusted results for the quarter exclude $16.1 million of charges and inefficiencies associated with our restructuring actions.
We are increasing our estimated total costs to execute the restructuring actions launched last year by $20 million to reflect the additional time and effort required to completely transition telehandler production and aftermarket warehousing and fulfillment activities included in the restructuring project. We continue to expect, however, these actions to deliver $20 million-$25 million of ongoing savings on an annualized basis. Better fire and emergency segment results were attributable to higher pricing and improved operational execution, partially offset by higher operating expenses. Commercial segment results benefited from the higher sales volume. Commercial segment first quarter adjusted results exclude $2.5 million of restructuring charges related to implementation of this segment's new business structure. Further information on segment first quarter results, including information on segment backlog, which was up in all non-defense segments, can be found in the appendix to the slide deck.
The adjusted tax rate for the quarter was 19.8%. This rate excludes the one-time entries to reflect the initial implementation of tax reform. Specifically, these entries are to defer to adjust our deferred taxes to reflect the new tax rate and to record tax on our unrepatriated foreign earnings. The net effect of these entries was a one-time $6.5 million tax benefit. Again, the 19.8% adjusted tax rate for the quarter excludes the impact of these entries. The 19.8% tax rate reflects a blended full-year tax rate that includes three months at the old statutory federal tax rate of 35% and nine months at the new statutory rate of 21%. The rate also includes discrete tax benefits from stock-based compensation. For 2018, we are now estimating that our full-year adjusted tax rate will be approximately 23%.
Going forward, we believe our annual tax rate will be 22%-24%, reflecting an approximate 800 basis points reduction from our current normal adjusted tax rate of 30%-32%. The biggest impact Oshkosh Corporation from tax reform will be the reduction in the statutory corporate income tax rate on income earned in the U.S. This benefit will be partially offset by the elimination of the domestic manufacturing deduction. Adjusted earnings per share for the quarter was $0.84 compared to $0.26 in the first quarter of 2017. First quarter 2018 results exclude an $0.18 per share after-tax impact from restructuring-related costs in the access equipment and commercial segments and an $0.08 per share benefit from the one-time entries to record the initial implementation of U.S. tax reform.
First-quarter adjusted earnings per share includes a $0.08 benefit as a result of applying the blended full-year expected tax rate versus a tax rate under the old law. We repurchased 748,000 shares of our common stock during the quarter. On the last earnings call, we noted that our average share count assumption assumed that we would repurchase enough shares to hold our share count flat year-over-year. Please turn to slide 9 for a review of our updated expectations for 2018. As a result of our positive start to the year, improved demand outlook for access equipment, and lower tax rate, we are revising our 2018 full-year outlook as follows. We are increasing our consolidated estimated sales range from $6.9 billion-$7.1 billion to a range of $7.1 billion-$7.3 billion.
We are increasing our adjusted operating income estimate range from $515 million-$565 million to a range of $550 million-$600 million. We are increasing our adjusted EPS estimate range from $4.25-$4.65 to a range of $5-$5.45. Approximately $0.50 of the increase is to reflect the change in our adjusted tax rate due to tax reform. This adjusted EPS range excludes the one-time entries recorded upon implementation of U.S. tax reform. At the segment level, we're making the following changes. We're increasing the access equipment segment sales estimate range from $3.1 billion-$3.2 billion to a range of $3.3 billion-$3.4 billion, reflecting the stronger order activity in the quarter and more positive market outlook after completion of negotiations with the national rental companies. The new sales estimate range represents a 9%-12% increase from 2017.
We are also raising this segment's adjusted operating income margin estimate range from 10.5%-11% to a range of 10.75%-11.25%. This revised margin estimate range reflects the impact of the expected higher sales volume, offset in part by a less favorable mix than we previously expected, as we are seeing a heavier demand for telehandlers. We are increasing the defense segment operating income margin estimate range from 9.5%-9.75% to a range of 9.75%-10%, reflecting the strong first quarter performance in this segment. And we are making a similar adjustment to the fire and emergency segment operating income margin range, increasing it by 25 basis points to 10.75%-11.25%. In the commercial segment, we're tightening the sales estimate to approximately $975 million, the high end of the previous $950-$975 million range.
We're also increasing the corporate expense estimate from $150 million to $155 million. As I mentioned a few minutes ago, we're estimating that the adjusted tax rate for the year will now be approximately 23%. Finally, we are increasing our free cash flow estimate from $350 million to approximately $400 million, largely to reflect the impact of lower required tax payments. A couple of quick comments on our second quarter expectations before I turn it back over to Wilson. We expect higher adjusted earnings compared to the second quarter of 2017, led by higher sales and earnings in all non-defense segments and a lower tax rate. We expect defense sales and earnings to be lower as higher JLTV sales will only partially offset lower sales of international M-ATVs. I'll turn it back over to Wilson now for some closing comments.
Wilson Jones (President and CEO)
Thanks, Dave. In summary, we had a good first quarter, and we're pleased to be able to increase our full-year outlook. As we said on our last call, we have opportunities to capture and more work to do. Our team is committed to driving shareholder value as we work to make Oshkosh Corporation a great place to work and a great business partner to our customers, suppliers, and communities in which we work. I'll turn it back over to Pat to get the Q&A started.
Patrick Davidson (VP of Investor Relations)
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. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'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. As a reminder, in the interest of time, we ask that you please limit yourself to one question and one follow-up and re-queue for any additional questions. One moment, please, while we pull for questions. Our first question comes from the line of Tim Thein with Citigroup. Please proceed with your question.
Timothy Thein (Analyst)
Yes, good morning. Just a question on, good morning, Dave, on access. You had alluded to a less favorable product mix. Just wondering if you could comment from a customer perspective, just based on the order strength. As we look at the sales the remainder of the year, how does customer mix play into that? Either positive, negative, neutral? And then second, just on the revenue guidance for access, was the increase all volume-driven, or does that include any assumption in terms of a price delta relative to last quarter's guidance? Thank you.
David Sagehorn (EVP and CFO)
Sure. Tim, in the first quarter, what we saw really was actually a heavier mix of NRCs, the national rental companies, than we saw last year. Looking to the backlog and what the team at Access is telling us, we think that's going to kind of revert over the remainder of the year here so that we'll actually end up year-over-year relatively flat from a customer mix standpoint from NRC, IRC. I think from a region standpoint, we actually saw from a percentage standpoint, Europe be a little bit stronger than we thought. So I think compared back to what we said a couple of months ago, we now think that Europe's going to be a little stronger vis-à-vis where we thought North America and Europe were going to be back then.
In terms of the backlog and the revenue guide, we came into the year assuming we were going to get some price. That is still our expectation. So our outlook really from a pricing standpoint hasn't changed much from what we told you three months ago. So as we look at the increased revenue guidance, that really is all volume-driven.
Operator (participant)
Thank you. Our next question comes from the line of Stanley Elliott with Stifel. Please proceed with your question.
Stanley Elliott (Managing Director and Equity Research Analyst)
Good morning, guys. Congratulations, and thank you for taking my question. Quick question. So with the discussion, we go back a couple of years ago, there wasn't a whole lot of access equipment in the marketplace being purchased. All of this to me sounds like this is just to meet current demand, and we're not talking about anything in terms of a replacement cycle underway. Is that fair?
Wilson Jones (President and CEO)
No, Stanley. We've been saying that replacement demand should pick up in 2018 or 2019, and we believe what we just had in the quarter showed some replacement. Our customers don't signal us on an order if it's a replacement demand or if it's more like construction demand, but we do believe in the quarter we saw some replacement demand starting to pick up.
Stanley Elliott (Managing Director and Equity Research Analyst)
Great news. And then secondly, kind of switching gears on the defense business, assuming it all works out as I think it could, how quickly can you ramp the international JLTV in terms of units when you start thinking about that on an international basis along with the domestics? Thanks.
Wilson Jones (President and CEO)
Yeah, Stanley. At this time, we're looking out from a capacity planning standpoint and don't anticipate any problems ramping up JLTV international orders. They're not all clear and focused yet. We're just starting a lot of discussions, a lot of interest. But at this point, if you dial back to when we were building M-ATVs back in 2009, we were building 1,000 of those a month. So we have the capacity here to ramp up JLTV. And we've got a slow ramp up now with low-rate production, and then we'll move to the full-rate production decision there in Q1 of 2019. But we're positioned well to build in international JLTV orders.
Stanley Elliott (Managing Director and Equity Research Analyst)
Thanks, guys.
Wilson Jones (President and CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.
Jerry Revich (Managing Director and Senior Equity Research Analyst)
Hi, good morning, everyone.
Wilson Jones (President and CEO)
Hey, Jerry.
Jerry Revich (Managing Director and Senior Equity Research Analyst)
I'm wondering if you could talk about the steps that you folks are taking to manage the supply chain as we're seeing a ramp up in demand for key components really across industrials. What steps are you folks taking to make sure you get your fair allocation of critical components, and how should we think about the impact that has on price cost across the portfolio over the course of 2018?
Wilson Jones (President and CEO)
Well, Jerry, I'll start, and Dave, you can fill in some of the commentary around this. From a supply chain standpoint, Jerry, our global procurement team works very close with our suppliers. We do a lot of advanced planning through ourselves and inventory operation planning process. So our goal has always been to stay as far ahead as we can with our suppliers, giving them plenty of advanced knowledge of what we're planning, where we're going, even in terms of our forecasting. So we stay very close to our suppliers. Over the years, our supply chain team has done a really good job of consolidating suppliers and helping build up our supply chain to be one that can run as we do go up and down in our volumes. So I think we're in a good spot with supply chain. It's always a negotiation from a materials standpoint.
We've been navigating through that. As Dave talked about, Q1 was a tough material quarter for us. But that's an area we'll continue to negotiate, and our current outlook from a supply chain forecast is built into our financial forecast that we just shared today.
Jerry Revich (Managing Director and Senior Equity Research Analyst)
Sorry, just a clarification. If access equipment demand, let's say, surprises 10%-15% to the upside, do you think you'll be able to get the supply chain to respond to help you folks ramp if demand is stronger than what you're laying out today?
Wilson Jones (President and CEO)
Yeah, Jerry, we believe so. And again, we do a lot of advanced planning where we forecast. I think the teams will tell you it's more of a brainstorming session with suppliers on the what-ifs. And can they do that? If not, then we also have secondary suppliers that can support that too.
David Sagehorn (EVP and CFO)
Jerry, one of the things that if you look at the order pattern that we saw this quarter, it does help with the customers giving us more advanced notice. You may recall the last year or two, we saw some of our customers, specifically in access, kind of be a more just-in-time approach. That puts a little more pressure on the system. But to the extent that we get a better earlier outlook from them, we're better able to get our supply base ready to support that demand as it's coming. But in terms of continuing to ramp up, it's certainly a good challenge to have.
Wilson Jones (President and CEO)
Yeah, I think Dave makes a good point. The last couple of years, we've been on what we call a very short leash in terms of order intake and going into quarters with needing 60% of orders to complete the quarter. And to sit down through the quarter that we just finished and have the long planning discussions with our customers and where they're obviously, you can see the order intake we had. They are now planning out into several quarters, and that takes a lot of stress and pressure off of not only our operations but our suppliers too.
Jerry Revich (Managing Director and Senior Equity Research Analyst)
Thank you.
David Sagehorn (EVP and CFO)
Thanks.
Operator (participant)
Thank you. Our next question comes from the line of Ann Duignan with J.P. Morgan. Please proceed with your question.
Ann Duignan (Retired Managing Director of Equity Research)
Yeah, good morning. I just wanted to pick up on what you were talking about there. Can you just talk a little bit about the cadence of sales in access, just given where the orders and backlogs sit today?
David Sagehorn (EVP and CFO)
Yeah, Anne, I think we're going to see the typical seasonal cadence that we would normally see. Q1 is going to be the lowest quarter of the year, and it's going to ramp up through Q3, and then Q4 is probably going to drop off a little bit. No indications that we should expect anything different from that standpoint.
Ann Duignan (Retired Managing Director of Equity Research)
Okay. I appreciate that. Can you just dig a little deeper into the restructuring and the pushback of the timing on restructuring and what exactly is going on there? It's kind of uncharacteristic of Oshkosh to have operational issues.
Wilson Jones (President and CEO)
Yeah, Anne, good question, and certainly one that we're not pleased with what's happened there. Two really big issues. One, as you know, we were moving our aftermarket parts to a 3PL. The first move was out to Vegas, and that went very well. The second move was to Atlanta, and that was kind of the final move to get completely out of our Ohio facility. And that last several months of handoffs didn't go as smooth as the team had planned. There were several training issues with the new workforce. There were some process issues from JLG to the 3PL, causing redundant labor, causing us to keep some facilities open longer than planned. And then obviously, with all that, you get some expedite freight issues going. The other side of the issue, as you know, we were moving telehandler production.
We were consolidating that in Europe and consolidating that in the U.S. Our goal was to get that completed. We knew that there was going to be an opportunity for more telehandler sales this year. Those sales actually came in quicker than we expected. The ramp up of more sales, which is a good thing, but it did create more complexity as we were consolidating these lines in the U.S. and in Europe. Those are the two main issues. Now, I will say, as I did in my prepared remarks, the team has done a nice job to recover here. The metrics are all pointing in the right direction from a fulfillment rate, on-time delivery. We believe the heavy lifting is behind us at this point.
Ann Duignan (Retired Managing Director of Equity Research)
What's the timing now to achieve the full-year run rate savings?
David Sagehorn (EVP and CFO)
Ann, we're going to have a little bit of a delay. I don't think it's going to impact 2019. I do believe that the benefits that we expected this year, we're going to start to see them a little later. As a result, we're probably going to see a little less of the benefits, and that's partially reflected in the updated guidance that we are providing this morning for that segment.
Ann Duignan (Retired Managing Director of Equity Research)
Okay. I appreciate the color. I'll get back in queue. Thanks.
Wilson Jones (President and CEO)
Thanks, Anne.
Operator (participant)
Thank you. Our next question comes from the line of Jamie Cook with Credit Suisse. Please proceed with your question.
Jamie Cook (Research Analyst)
Hi, good morning. I guess first question back to the order strength on the aerial side. Understanding the first quarter, you generally have good orders, but was there anything unusual in that order mix that would have created a pull forward, whether it was ordering ahead of price increases or a certain customer where you have more favorable market share and sort of how you're thinking about order trends in the remaining nine months, just given the strength that you saw in the first quarter? And then I guess my second question, I think you said most of the strength was from the big national rental companies. How do you think that impacts the independents and how they think about ordering? Are they starting to get concerned about lead times and stuff like that? Thank you.
David Sagehorn (EVP and CFO)
I'll start, Jamie, and then if Wilson wants to add in anything, he can. I think one of the things that we did see, and we kind of alluded to it on another question, was in the last couple of years, you had a number of customers that were kind of taking a more just-in-time approach to their ordering. And we saw a few of those, and these were some of the larger customers. And we saw a number of them this year decide to put in more of an advance order similar to what we would have historically seen. So that certainly was at play here. In terms of your questioning, were they trying to get ahead of price increases? The price increase was effective for deliveries after January 1 or starting January 1, so that wasn't a part of it.
I just think overall, this is a reflection of the increased confidence that our customers have in their businesses and in the rental market overall and the economy. It's not only did we see strength in the U.S., we saw strength internationally as well. It's fairly broad-based from that standpoint.
Wilson Jones (President and CEO)
I think just to add to the timing on that, Dave, is we had a couple of national rental companies that normally work their agreements with us more into this quarter. We saw them actually working in the last quarter with us, so that was one thing that changed from previous quarter.
Jamie Cook (Research Analyst)
And then sorry, how that's impacting the independents' thoughts about ordering? Because generally, there's a herd mentality, i.e., when the nationals start going, the independents follow.
David Sagehorn (EVP and CFO)
Well, the nationals, we go through that exercise with them every year. Yeah, I think when we look at the volume that we had in the quarter, again, as Wilson mentioned, there certainly was some timing there. We can't necessarily predict what the independents are going to do. We saw good activity from them in the quarter as well. I think we should make sure everyone understands it wasn't just the national rental companies coming in with orders. It was strong orders across the board. What we did say, however, is we don't expect that magnitude of growth quarter after quarter through the remainder of the year.
So I think, especially with some of the timing of the big guys placing orders vis-à-vis where they did last year, I think the year-over-year cadence is certainly we would expect to slow down a little bit, but overall for the year, very positive.
Wilson Jones (President and CEO)
Yeah, I think, and you said it earlier, Dave, we're expecting, Jamie, a similar customer mix, NRC, IRC, as we had last year through the full year.
Jamie Cook (Research Analyst)
Okay. Thank you. I'll get back in queue.
David Sagehorn (EVP and CFO)
Thanks, Jamie.
Operator (participant)
Thank you. Our next question comes from the line of Michael Shlisky with Seaport Global Securities. Please proceed with your question.
Michael Shlisky (Managing Director and Senior Equity Research Analyst)
Good morning, guys.
Wilson Jones (President and CEO)
Good morning, Mike.
Michael Shlisky (Managing Director and Senior Equity Research Analyst)
In defense, can you just kind of remind us now that the big M-ATV is kind of done here, besides the ramp-up of JLTV, are there any big lumps in the backlog that are kind of left to kind of model the cadence of the top line for the rest of the year here?
David Sagehorn (EVP and CFO)
Mike, I don't think it's going to be real lumpy. I don't have the numbers at my fingertips from a quarterly cadence standpoint, but I think in general, you're going to see. Oh, hang on just a second. I think it's going to be largely flattish in Q2 through Q4, just kind of across those three. No one quarter is going to really stand out versus the others out of those three quarters. Versus prior year or versus each other?
Wilson Jones (President and CEO)
No, just versus each other within the year.
Michael Shlisky (Managing Director and Senior Equity Research Analyst)
Gotcha. And then secondly, in commercial, pretty good start to the kind of 2018 there. But the outlook for $975 million, that kind of suggests that it's going to slow down from here. And generally, fiscal Q3 is the high point of the year for that segment. So it's obvious that mixes changed, and it was a little bit of a strange order cadence last year. But is there anything else that's kind of going on here where this year's Q3 won't be the high point for that segment?
David Sagehorn (EVP and CFO)
I think it's really a reflection of last year, not so much this year, Mike. As you recall, we did have an order pause last year that impacted both our Q1, Q2. You saw a bunch of catch-up occurring in Q3 and Q4 last year. So that's probably going to distort things really throughout this whole fiscal year. But other than that, when we think about market dynamics, nothing really is changing there.
Michael Shlisky (Managing Director and Senior Equity Research Analyst)
Okay. Thanks, guys.
Wilson Jones (President and CEO)
Mike, thanks for visiting our guys at Commercial out at World of Concrete. They appreciate you coming by.
Operator (participant)
Thank you. Our next question comes from the line of Stephen Volkmann with Jefferies. Please proceed with your question.
Stephen Volkmann (Equity Research Analyst)
Hi. Good morning. So one quick sort of follow-up. Just you mentioned in the release that there were some higher legal and inventory reserve adjustments. I think that was in access. Was that material? Is there any way to put size around that?
David Sagehorn (EVP and CFO)
The biggest driver, Steve, was material, and we knew that was coming. We talked about that last quarter. Typically, what you'll see, reserves move around every quarter, and more often than not, things offset. None of them really move large amounts. What we saw this quarter was everything kind of seemed to move in the same direction. None significant, but when you add them all together, it was a component that we felt we should probably call out in terms of helping describe the year-over-year performance of the segment.
Stephen Volkmann (Equity Research Analyst)
Okay. All right. Fair enough. And then maybe more of a big-picture question, maybe for Wilson, but I'm just curious, does the tax change change the way you view any of your investment opportunities? I mean, I suppose you'll have a little bit of repatriated cash that's now more widely available. And then secondarily, obviously, you raised your cash flow estimate a little bit due to tax. And are there internal or external opportunities that look better in that type of environment, or do your hurdle rates not change and it becomes more of a return to shareholders? How do you just think about that strategically?
Wilson Jones (President and CEO)
Yeah. I think, Steve, we're going to stay disciplined with our capital allocation process. It's a robust process that we work with our board on a regular basis with. For us, it's $40 million. So it's significant, but yet in the scheme of things, it's not as significant to make us divert from any of our previous allocation strategies. So we're going to stay the course. As we've said over the years, we want to be opportunistic when those opportunities come about. And so having some cash is not a bad thing. We'll continue. Dave mentioned keeping our share count level. We repurchased shares this year. We'll continue to focus with the goal of raising our dividend every year and then keep our monitors out there to see if there are some opportunities.
Stephen Volkmann (Equity Research Analyst)
Great. Thank you.
Wilson Jones (President and CEO)
Thanks.
David Sagehorn (EVP and CFO)
Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Nicole DeBlase with Deutsche Bank. Please proceed with your question.
Nicole DeBlase (Machinery Research Analyst)
Yeah. Thanks. Good morning, guys.
Wilson Jones (President and CEO)
Hey, Nicole.
Nicole DeBlase (Machinery Research Analyst)
Hey, there. I just want to start with access. I guess my question is, when you thought about pulling together the new full-year guidance, did you embed any additional material inflation relative to what you had guided for before? Just steel costs have continued to move higher, and I'm trying to gauge how much risk there is to the rest of the year if that continues.
David Sagehorn (EVP and CFO)
I would say a little. People that we talk to, Nicole, in general, what we're hearing pretty consistently is there's an expectation that we actually might see material costs or steel costs tick down in the second half of the year. But we did take into consideration what we have seen. We're aware that steel mills are out there with additional price increase requests, but everybody we've talked to seems to believe that they're going to see a drift down in the second half of the year.
Nicole DeBlase (Machinery Research Analyst)
Okay. Got it. That's helpful. Thanks. And then shifting to F&E, backlog was up pretty nicely. I think up like 9% year-on-year, but you're only guiding for flattish revenue in the segment. So I'm just curious to the disconnect there, if it's just some conservatism.
Wilson Jones (President and CEO)
I would say maybe timing. Nothing really sticks out one way or the other. And we do certainly benefit from the long lead times and good visibility from that standpoint. So just based on where we are from a production scheduling standpoint, the only thing that really comes to mind would be timing.
Nicole DeBlase (Machinery Research Analyst)
Okay. Got it. Thanks. I'll pass it on.
Wilson Jones (President and CEO)
Thanks, Nicole.
Operator (participant)
Thank you. Our next question comes from the line of Mig Dobre with Robert W. Baird. Please proceed with your question.
Mircea Dobre (Analyst)
Yes. Thank you. Good morning. I want to go back to access orders as well. And I'll tell you, the numbers here are just a little hard for me to wrap my mind around. If my math is correct here, we had something like $1.75 billion worth of orders in a quarter, and you have to find a quarter that looks anything like this one. So I guess my question is this: when you think about the order cadence, I understand that maybe some things have been pulled forward, but historically, you get anywhere between 20%-35% of your full-year orders in the first quarter. Should we expect something materially different than even the high end of that range? Is something all of a sudden in the market changing just structurally versus what we've seen in the past decade or so?
Wilson Jones (President and CEO)
No, Meg, I don't think it's—I think what's changed is the confidence has increased. Confidence in the market. I think you're seeing the commentary we're having is that they are starting some replacement cycles, and then you're also getting just a little bit more better planning and advanced planning into the next couple of quarters. So structurally, we don't see anything. There was not a—it didn't benefit anyone to pull forward orders around pricing or anything like that. So we really believe it's the commentary that we're hearing is it's replacement cycles starting, and then there's just more advanced planning.
Mircea Dobre (Analyst)
Okay. Got that. Then this, to me, would imply that you're essentially going to be running with pretty significant backlog for maybe the rest of this year, which means that for any new orders that you're taking, deliveries get pushed out. How are you dealing with that? And I guess the corollary here is if really demand is this solid, would that argue for continued robust pricing going forward?
David Sagehorn (EVP and CFO)
I'll start, Meg. We still need to capture a fair amount of orders to deliver the year. There certainly was some timing here, and a lot of discussions need to continue to occur through the rest of the year. You hear us talk all the time about you get into the May, June timeframe, and that really will decide the year. I think overall, the backlog certainly does take us through Q2 and into Q3 today, but there's still a fair amount of orders to capture yet for the year.
Mircea Dobre (Analyst)
Okay. Thanks.
David Sagehorn (EVP and CFO)
Thanks, Meg.
Operator (participant)
Thank you. Our next question comes from the line of Seth Weber with RBC Capital Markets. Please proceed with your question.
Seth Weber (Analyst)
Hey, guys. Good morning.
Wilson Jones (President and CEO)
Morning, Seth.
Seth Weber (Analyst)
I wanted to go back to Anne's question about the restructuring and how we should be thinking about the cadence here because to get to your access margin guidance for the year, it implies a pretty big incremental margin at some point, north of 30%, certainly for the back half of the year. So should we not assume that there's any benefit here in the second quarter and then the incrementals in the back half are just very large? Is that the right way to kind of model this? Or I'm just trying to figure out how to get from 4.8 in the first quarter to 11 for the year, if you could help at all there, Dave.
David Sagehorn (EVP and CFO)
Well, we'll give it a shot. I think overall, at the high level, you should think about incrementals improving quarter after quarter as we go through the year, really driven by a couple of things. One, the year-over-year impact from the material cost drag is going to lessen as we go through there. So that certainly will help. You touched upon the benefits of the restructuring. I think we'll see a little of that in Q2, but more of that or more so of that in Q3 and Q4. So those are really the two big drivers of how I would view driving the incremental margin cadence for the remainder of the year.
Seth Weber (Analyst)
Okay. Is your assumption that the independents kind of come in in the back half of the year like they usually do, and that's perhaps a little bit better just from a margin perspective, from the sales perspective as well? The mix goes back more towards aerials versus telehandlers. Is that also part of it?
David Sagehorn (EVP and CFO)
Yeah. Well, a couple of other moving pieces there. So as we mentioned earlier in the call, in the first quarter, we did see a heavier mix of the NRCs, but we do think that's going to rebalance over the course of the year. So yes, we do believe there will be a better mix as we go through the remaining three quarters of IRCs to NRCs than we saw in the first quarter. And then from a product mix standpoint, one of the things we called out was we're seeing heavier demand for telehandlers, and that's actually going to go drive things the other way because I think, as you probably know, there is a margin differential between telehandlers and the aerial work platform product line.
Seth Weber (Analyst)
Right. So you don't expect that to normalize by the back half of the year. So you think telehandlers are stronger for the year. Is that what you're— is that what I'm hearing?
David Sagehorn (EVP and CFO)
Yes. For the remainder of the year, we expect, because if you look at the first quarter, they both grew pretty decent percentages. We expect we're going to see stronger growth in telehandlers for the remainder of the year than in aerial work platforms.
Seth Weber (Analyst)
Okay. Thanks. And then if I could just ask on the defense business, I know you had some international M-ATV, but I don't think it was a big number. So was there anything else that contributed to the margin strength? Was there a high parts business or something that really tweaked the margin higher here in the first quarter?
David Sagehorn (EVP and CFO)
What we said on the last call was there was more than 100 FMTVs to deliver in the quarter, so those were all delivered. The other thing I would call out is just the, as we mentioned on the prepared remarks, the better overall execution that we saw out of the segment. So kudos to John Bryant's team. They continue to focus on improving their operational efficiency, and we saw some of that come through in the quarter as well.
Seth Weber (Analyst)
Great. Okay. Thanks, guys. Appreciate it.
David Sagehorn (EVP and CFO)
Thanks, Seth.
Operator (participant)
Thank you. Our next question comes from the line of Charles Brady with SunTrust Robinson Humphrey. Please proceed with your question.
Charles Brady (Analyst)
Morning, guys.
Wilson Jones (President and CEO)
Charlie.
Charles Brady (Analyst)
Charlie, hey, just on access yet again here. Can you talk in terms of Europe? You talked maybe it was a little bit stronger than you thought it was going to be. I'm just wondering, is currency helping you competitively over there, or is it just fundamentally the market in Europe is stronger than maybe you thought it was going to be? And kind of how does that bode for the remainder of fiscal 2018?
Wilson Jones (President and CEO)
Yeah. I think Europe, Charlie, gives us more strength in our positive outlook. I would say the market has stabilized and growing some. I wouldn't say there's anything structural around Europe other than just market outlook, much like North America is picking up, and confidence levels are increasing too.
Charles Brady (Analyst)
Okay. Thanks. And just as a follow-up on commercial, it sounds as though your outlook for mixers and the RCVs are stronger than what it was a quarter ago. And I think thinking maybe there might be-would the RCVs come through or not? It sounds like they are. Can you just comment to what's giving you that higher confidence? Is it function of just what the order pattern you saw in the quarter here, or is there something else that's tied into that?
David Sagehorn (EVP and CFO)
Charlie, the adjustment we made really was to take the sales estimate to the high end of the previous range. So I guess I would say we have more confidence in the range that we put out initially. And that's really driven by the activity that we saw in the quarter and what our teams are hearing from their customers. I would say mixers still is not back to where it was in an even normalized pre-recession level, so I don't want to kid anybody on that one. But things were overall, I would say, just a little bit better in terms of customer sentiment from what the team is telling us that they experienced in the first quarter.
Charles Brady (Analyst)
Thanks.
Wilson Jones (President and CEO)
Thank you, Charlie.
Operator (participant)
Thank you. Once again, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes from the line of Michael Feniger with Bank of America Merrill Lynch. Please proceed with your question.
Ross Gilardi (Analyst)
Morning.
Wilson Jones (President and CEO)
Morning.
Ross Gilardi (Analyst)
Oh, hey, guys. It's Ross Gilardi.
Wilson Jones (President and CEO)
Oh, hello, Ross.
Ross Gilardi (Analyst)
Hi, Ross. Sorry about that.
David Sagehorn (EVP and CFO)
Sound like Michael.
Ross Gilardi (Analyst)
You guys might have addressed this in the opening comments, which I missed some of, so I apologize in advance if you did. But, so what are you saying on access pricing? I mean, you were trying to get price at the beginning of the year. Your incrementals were soft in the first quarter. But what happened with pricing? Did you get it, what you were looking for, or is it still to be determined? Or is there competitive support for what you were looking for? And you seem to indicate that you hadn't increased your pricing assumptions for the year, even though presumably the cost pressures have ratcheted up even further.
Wilson Jones (President and CEO)
Well, Ross, I'll start off, and Dave may have some commentary based on our assumptions for pricing for the year. We went through the quarter and had good discussions with the NRCs and IRCs and announced a price increase effective January 1. Pricing discussions, as you know, are always difficult. You don't always get exactly what you're trying to get, but we're pleased. We think we did okay, and that's reflected in our financial forecast. One good thing we have is the level of sophistication of our customers is really good. They understand the markets. They understand material costs. They know that a couple of years we've put in some emission work that obviously it's tough to mark up things like that. So I think there's a good understanding there and good discussions going on around the table on our pricing going forward.
So you're never totally pleased with where you are on pricing, but we do feel like we did okay.
David Sagehorn (EVP and CFO)
And Ross, just maybe to clarify in terms of the first fiscal quarter, our price increase wasn't effective until deliveries starting January 1st. So we knew we weren't going to benefit from the price increase in the first fiscal quarter.
Ross Gilardi (Analyst)
Got it. Got it. Okay. Thanks for clarifying that, Dave. And a real simple question. I mean, you've touched on this in many ways, but your backlog's up almost $1 billion, and you've taken your revenue guidance for access up $200 million. So what is the disconnect there? Because like you said, you've got, it feels like, close to two quarters of revenue already covered.
Wilson Jones (President and CEO)
Yeah, Ross.
Ross Gilardi (Analyst)
How would your revenue be up more substantially, is what I'm asking?
Wilson Jones (President and CEO)
Yeah. Good question. What we've said is we believe that the large order intake in the quarter was largely a timing issue. Although we'd love to have quarters like that every quarter, we don't expect that through the rest of the year. Again, our customers are much more confident today with the market and their business. And so we're seeing a little change in order patterns, and now their annual purchase agreements are going out more than one quarter at a time. They're doing some good planning around their business, along with what we believe is the replacement cycle has started. So we really look at the quarter and the order intake as more of a timing issue. I'll be honest with you, that's one thing that we hope we're wrong on next quarter, that we have another quarter like that, but again, we're not expecting that.
So that's really what's created that. Obviously, we talk always on the call about May and June. Tell us a lot in this market. And that would be the goal. If things continue to improve and there's more orders available, we would address our guidance again at that point.
Ross Gilardi (Analyst)
Got it. Thanks, Wilson.
Wilson Jones (President and CEO)
Thanks, Ross.
Operator (participant)
Thank you. Our next question comes from the line of Mig Dobre with Robert W. Baird. Please proceed with your question.
Mircea Dobre (Analyst)
Yes. Thanks for taking my follow-up. Very quickly, just maybe some comments on progress with international defense sales, excluding JLTV, so anything else that you might have there. And related to this, I'm just curious, would the FDII, so from a tax perspective, would the FDII incentive for US production apply to your foreign defense sales?
Wilson Jones (President and CEO)
Okay. I normally would answer the tax question, Mig, but I'm going to defer that to Dave this time. On the international sales, from a defense standpoint, we're seeing good progress with a couple of different opportunities there. I mentioned in my prepared remarks, from a contract standpoint, we went through another good gate. So we feel like those are materializing. Nothing that we're going to be definitive about at this time. But what we see in the international side, Mig, is we've talked about the international interest in JLTV, but it's much more than just our M-ATVs currently in scope. Our FMTVs, our FHTVs, there's needs for those internationally too. So couple that with opportunities for sustainment services. And so we still remain very positive about our international opportunities in the short term and then even more so in the long term with JLTV.
David Sagehorn (EVP and CFO)
Mig, on your FDII question, I will preface this at the beginning by saying tax is not my full-time job, but my understanding of FDII is it's more around intangible income or income generated from foreign sources on intangible income. If you think about what we're selling, it's certainly very tangible products.
Mircea Dobre (Analyst)
It is very tangible.
David Sagehorn (EVP and CFO)
It's a lot of impact from FDII related to our defense sales.
Mircea Dobre (Analyst)
Okay. That's helpful. Thank you.
David Sagehorn (EVP and CFO)
Thank you.
Wilson Jones (President and CEO)
Thanks, Mig.
Operator (participant)
Thank you. Our final question comes from the line of Charlie Brady with SunTrust Robinson Humphrey. Please proceed with your question.
Charles Brady (Analyst)
Hey, thanks. Just a quick one back on the access pricing. Can you quantify impact material costs had in Q1? And with the pricing, let's assume you get what you expect to get. Are you neutral on material cost headwind starting in January 1st?
David Sagehorn (EVP and CFO)
If we look at the year-over-year impact in Q1, Charlie, if you think about incrementals where they might normally be, more than half of the decline was related to what we saw from a material cost standpoint. Looking forward, we believe we're largely neutral for the remainder of the year with pricing and additional material cost escalation that we expect to see.
Charles Brady (Analyst)
Just to clarify, you said earlier your guidance in terms of steel costs, you've baked in an increase in steel costs, not necessarily a potential decline that you talked about in the second half, correct?
David Sagehorn (EVP and CFO)
Yeah. I would say there's not a lot baked in, but we're not factoring in a large decline either.
Charles Brady (Analyst)
Got it. Thanks a lot.
David Sagehorn (EVP and CFO)
Thank you.
Wilson Jones (President and CEO)
Thanks, Charlie.
Operator (participant)
Thank you. There are no further questions at this time. I would like to turn the call back over to Mr. Jones for any closing remarks.
Wilson Jones (President and CEO)
Thank you, operator. Thanks to all for your interest in the Oshkosh Corporation. Our team will remain focused on exceeding customer expectations and delivering strong shareholder value. We look forward to speaking with you on the road in Oshkosh or during an investor conference. Thanks for your time. Have a good day, everyone.
Operator (participant)
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.