Oshkosh - Q3 2013

Transcript

Operator (participant)

Greetings and welcome to the Oshkosh Corporation report's fiscal 2013 third quarter results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Pat Davidson, Vice President of Investor Relations for Oshkosh Corporation. Thank you, Mr. Davidson. You may begin.

Patrick Davidson (VP of Investor Relations)

Thanks, Manny. Good morning, everybody, and thanks for joining us. Earlier today, we published our third quarter 2013 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 measures used during this call and is also available on our website. The audio replay and slide presentation will be available on the website for approximately 12 months, and please refer now to slide two of that slide presentation. Our remarks that follow, including answers to your questions, include statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed or implied by such forward-looking statements.

These risks include, among 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 results stated on this call are for continuing operations attributable to Oshkosh Corporation unless stated otherwise. Also, all references on this call to a quarter or a year are to our fiscal year or our fiscal quarter unless stated otherwise. Our presenters today include Charles Szews, Chief Executive Officer, Wilson Jones, President and Chief Operating Officer, and David Sagehorn, Executive Vice President and Chief Financial Officer. Please turn to slide three, and I'll turn it over to you, Charlie.

Charles Szews (CEO)

Thank you, Pat, and good morning, everyone. We're pleased to announce excellent third quarter results today. It was generally our strongest quarter of the year from a seasonal perspective. We delivered earnings per share of $1.67, nearly double last year's third quarter earnings per share of $0.84 per share. Third quarter performance significantly exceeded our expectations as our MOVE initiatives gained momentum in the quarter. As many of you know, MOVE is our roadmap to reach our target of delivering earnings per share of $4-$4.50 in 2015. Our team continues to execute with great energy and discipline to achieve that goal, and we believe we're on track to hit this range. Our third quarter results largely reflect continued strong replacement demand for Access Equipment in North America and growing demand for concrete placement products. Other markets are mixed, and Wilson will provide some color on those.

Now, this quarter also benefited from sales of approximately 400 M-ATVs internationally. During the quarter, we also continued to execute our capital allocation strategy as we repurchased 1.1 million shares of Oshkosh Corporation Common Stock at an average price of $38.35 per share. Dave will have a few additional comments on this later in the call. Finally, I'm pleased to announce today that we are significantly increasing our earnings outlook for the full year to an adjusted EPS range of $3.60-$3.70. This increase largely reflects our much better-than-expected third quarter performance. Now, please turn to slide four for an update on our Defense segment. Now, despite the challenges of spending reductions by the U.S. Department of Defense, our Defense team continues to execute extremely well. Results of this execution can be seen in the strong operating income margin that we are reporting today.

I would like to thank all of our Defense team members for their dedication to Oshkosh Corporation and to our brave servicemen and women. Our quarterly performance largely reflects the sale of approximately 400 M-ATVs internationally and some positive adjustments that Dave will describe. We expect to sell approximately 100 M-ATVs in our fourth quarter. Also, during June and July, as previously announced, we reduced both our hourly and salaried workforces in the Defense segment. These reductions were necessary to align our staffing levels with lower expected production requirements. With these reductions, we believe we remain on track to achieve at least the baseline projected results for this segment that we shared with you at our Analyst Day last fall for FY 2014 and 2015.

Now, turning to business development, we announced a strong win in May as our Defense and Airport Products groups teamed up to capture the Marine P-19R competition. This contract is for a quantity of up to 200 units, with the majority of the units scheduled for delivery in 2017 and 2018. We also secured a second order for the Kingdom of Saudi Arabia for additional M-ATVs for delivery in 2014. This brings our total M-ATVs for shipment to this customer in 2014 to just under 200 units. We continue to believe there are opportunities for additional M-ATV orders from international customers. Now, before we leave Defense, I'd like to make some comments on the Joint Light Tactical Vehicle Program. We continue to be encouraged by our engineering efforts and reliability testing on this high-profile program.

In mid-June, all three companies participating in the EMD phase of the competition demonstrated their vehicles to a group of key congressional and Department of Defense leaders. The Oshkosh vehicles pushed the pace and performed extremely well on the severe off-road course. We plan to deliver our 22 vehicles in August under the EMD contract in time for the planned start of testing. Now, the potential effects of sequestration of this program have been discussed in a number of different venues and trade publications. We believe the program can be executed to the published schedule or faster. This is an important program for the DOD, filling a critical capability gap for our ground operations, and the EMD competition has demonstrated that the DOD's next-generation performance requirements can be met now at their target cost and at low risk to them.

This is the kind of well-executed, successful program the DOD needs for our troops and our taxpayers. Now, Wilson Jones will discuss some of the highlights of other business segments, and please turn to slide five.

Wilson Jones (President and COO)

Thank you, Charlie. Good morning, everybody. The Access Equipment segment recorded one of its best quarters ever with third quarter operating income margins of 16.4%. Continued solid replacement-driven demand in North America drove the strong performance in this segment. The trends we've talked about over the past few quarters led to sales in North America that were nearly 25% higher than the prior year quarter, driven by deliveries to national rental companies. Independent rental companies in North America continue to return to the market for replacement equipment as they are finding available financing. We expect the IRCs buying to continue to grow well into 2014, which is a positive sign for the overall market. Outside North America, markets remain mixed. We have experienced solid demand and revenue growth in the Middle East.

In Europe, we have continued to experience positive activity in some countries, offsetting depressed markets in other areas of the region. Demand continues to grow throughout Latin America, although we are uncertain about the impact on demand in the short term of the high-profile protests taking place in Brazil. We do believe the Brazilian market is attractive and will provide sales growth for us over the next several years. Turning to Asia-Pacific, we continue to experience softer demand in Australia during the quarter due to a slowdown in mining activity and energy infrastructure build-out. Another contributor to the improved performance in this segment was our mix of business, which is more heavily weighted towards aerial work platform products this quarter. This follows the pattern that we described to you on our last quarterly earnings call when we discussed the relative strength we were experiencing with aerial work platform orders.

The strong product mix, along with benefits from the MOVE Initiatives and improved pricing, allowed the team to deliver the strong results this quarter. Please turn to slide six for some comments on our Fire & Emergency segment. Despite persistent challenging market conditions, our team and the Fire & Emergency segment continue to experience incremental improvement in the overall business environment. Last quarter, we told you that we thought we had turned the corner in the U.S. municipal market, and we still believe that to be true. In a number of areas across the U.S., we have seen improvements in orders. Just a couple of weeks ago, I was out visiting several of our dealers, and they spoke about the market turn in their regions. It was great to hear their enthusiasm and comments on fire departments beginning to move forward to replace aged equipment.

However, federal spending is still down significantly and is weighing on the improvements we're seeing in the municipal market. To counter some of this impact, we remain focused on capturing international opportunities. This focus has continued to pay off for us. During the quarter, we received orders from around the globe, including multiple unit orders from China and Iraq. We also continue to invest in MOVE Initiatives to improve our cost structure and our ability to respond to customer demand. We have dedicated teams tasked with delivering the benefits for each MOVE initiative. We expect to see the results of these teams' efforts in a more meaningful way in 2014 and 2015. With the long production cycles in this business, it takes a little time for our initiatives to impact the bottom line.

As a result of order patterns and delivery rates that we saw in this segment in the third quarter and that we expect in the fourth quarter, we have raised our expectations for this business for the full year, which is certainly good news. Dave will provide a few more specifics on this in a few minutes. Let's shift to our Commercial segment. Please turn to slide seven. The Commercial segment continued to benefit in the third quarter from the ongoing improvement in the U.S. housing market. Concrete placement products' quoting activity in the quarter remained at elevated levels compared to the last few years. In fact, compared to the prior year quarter, concrete placement sales were up 50%. However, this recovery market is still a long way from its historical volumes.

We have seen notable strength in several Southwest and West Coast markets but believe that all regions of the United States are participating in this market recovery. Turning to our refuse collection products, as we discussed last quarter, one of our largest customers pushed a large portion of their 2013 orders to the second half of the year. As expected, this contributed to our third quarter RCV sales being down year-over-year. Looking ahead, we do expect our fourth quarter RCV sales to be up slightly over the prior year quarter. We generated strong interest in our new Lightweight Front-End Loader at the WasteExpo show in May. While it's still too early for us to be forecasting 2014, given the timing of orders from a large customer as previously mentioned and the new Lightweight Front-End Loader launch, we believe we have opportunities to grow this business next year.

Similar to our other segments, we are continuing to ramp up our investments and resources dedicated to MOVE Initiatives in this segment. While we are starting to see the benefits from these investments, improving our cost structure and making lasting changes is not something that happens overnight. We need to thoroughly test and validate these changes to our products and processes. I'll hand it off to Dave now to review our financial results for the quarter and comment on our expectations for 2013. Please turn to slide eight.

David Sagehorn (EVP and CFO)

Thanks, Wilson, and good morning, everyone. We were quite pleased with the team's execution this quarter. Consolidated net sales for our third quarter were $2.2 billion, a 2.1% increase from the third quarter of 2012. Access Equipment and Commercial segment sales were each up double-digit percentages over the prior year period, while Fire & Emergency and Defense segment sales were down compared to the prior year. Access Equipment segment sales compared to the prior year benefited primarily from continuing improved market conditions, largely in North America. Incremental pricing from previously implemented price increases and higher aftermarket parts and service sales offset by lower unit sales in Australia. Commercial segment sales benefited from significantly higher concrete mixer sales and higher content units, which more than offset lower refuse collection vehicle sales.

While down compared to the prior year, Defense segment sales in the quarter benefited from the sale of approximately 400 M-ATVs to the UAE as part of a previously announced 750-unit order. Fire & Emergency segment sales were down mainly due to the timing of several large multi-unit sales in the prior year quarter. Consolidated operating income for the quarter was $225.6 million for 10.2% of sales. This compared to operating income of $126.2 million or 5.8% of sales in the third quarter of 2012. Access Equipment segment operating income margin of 16.4% compared to 10.8% in the prior year quarter, and Defense segment operating income margins of 9.8% compared to 4.2% in the prior year quarter were the main drivers of the nearly doubling of consolidated operating income margins in the third quarter.

Access Equipment segment margins in the quarter increased mainly as a result of benefits from MOVE Initiatives, including improved pricing, product and process cost reductions, and an improved product mix. Defense segment operating results largely benefited from a favorable product mix, including the sales of M-ATVs internationally, as well as the continued benefit of improved operational efficiencies that we discussed in last quarter's call and favorable adjustments upon the final negotiations of previously undefinitized contracts. And finally, Commercial segment results this quarter included $2.7 million of restructuring-related expenses. More information on our third quarter results by segment can be found in the appendix of today's slide deck. Earnings per share for the quarter was $1.67. This compares to earnings per share of $0.84 in the prior year quarter.

In addition to the strong operating income performance, third quarter 2013 results benefited from discrete tax items related to provision to return adjustments and the reduction of valuation allowances on state NOL carryforwards that together totaled $0.08 per share. This lowered our third quarter effective tax rate to 28.9%. Earnings per share also benefited by $0.07 from the share repurchases that we completed through the third quarter in 2013. We have repurchased almost 5.4 million shares of Oshkosh Common Stock in the current fiscal year, including 1.14 million shares for $43.9 million in the third quarter. Approximately 87 million shares of Oshkosh Common Stock were outstanding at June 30th. Please turn to slide nine for an update to our outlook for 2013. We're pleased to announce today's significantly higher expectations for 2013.

We are increasing our estimated adjusted earnings per share from a range of $2.90-$3.15 to a range of $3.60-$3.70. The increase in estimated full-year results is largely due to higher than previously expected results in the third quarter in our Access Equipment and Defense segments, along with an expected lower tax rate and the benefit of share repurchases completed in the third quarter. We now expect Access Equipment sales to external customers for the year will be approximately $3.1 billion, a more than 12% increase from 2012. We also expect operating income margins in the segment will be approximately 12%-12.25% compared to the 7.9% in the prior year and our prior estimate of 10.5%-11%. We expect Defense segment sales of approximately $3.1 billion for the year, which is at the low end of the range that we discussed last quarter.

We are, however, increasing our estimated 2013 operating income margin for Defense to about 7.5% compared to our prior estimate of approximately 7%. We're raising our Fire & Emergency sales estimate to nearly $800 million, an increase from our previous estimate of $720 million-$750 million, driven largely by expected higher shipments. Our operating income margin expectations for this segment remain unchanged at 2%-2.5%. Our sales and operating income assumptions for the Commercial segment remain unchanged from our previous expectations. We expect our corporate expenses will be approximately $145 million for the year, consistent with the top end of the range we discussed last quarter. We are now estimating a full-year effective tax rate of 29.5%, down from our prior estimate of 31%, reflecting the discrete tax benefits that we recorded in the third quarter.

We believe our capital expenditures for the year will be approximately $45 million. We're also increasing our free cash flow expectations to a range of $275 million-$300 million, based largely on our updated expectations for stronger earnings and improved working capital trends. We are now assuming an average share count of 88.8 million for full-year earnings per share calculations, which excludes the impact of any share repurchase activity that we may undertake in the fourth quarter. Implied in our updated full-year estimates is expected fourth quarter earnings per share of $0.37-$0.47.

While lower than previous quarters in 2013, this is to be expected as the fourth quarter is historically a seasonally weaker quarter for us and because we anticipate the Defense segment will experience a more than 35% reduction in sales compared to the third quarter as a result of reduced domestic volume and completion of the UAE M-ATV contract. Please turn to slide 10, and I'll turn it back to Charlie for some closing comments.

Charles Szews (CEO)

Thanks, Dave. We had a great quarter, which we believe reinforces the power of our MOVE strategy and our ability to achieve our 2015 earnings per share target range of $4-$4.50. We're on track with the plans that we discussed during our 2012 Analyst Day, and we are very pleased with the progress of our MOVE initiatives and performance to date. Keep in mind that our Defense business has significantly outperformed expectations in 2013 but is expected to decline in 2014. So while we have confidence in our ability to achieve our EPS range for 2015, the path to get there may not be linear. We will discuss our expectations for 2014 in the next quarterly earnings call in October, and we'll also provide you with a scorecard of our four MOVE initiatives. Above all, our MOVE strategy is working, and we're energized and excited about the future.

That concludes our formal comments. We're happy to answer your questions, so I'll turn it back over to Pat to get the Q&A started.

Patrick Davidson (VP of Investor Relations)

Hey, thanks, Charlie. I'd like to remind everybody, please limit your questions to one plus a follow-up, and after the follow-up, we ask that you get back in queue if you would like to ask additional questions. Manny, let's please begin the question and answer period of this call.

Operator (participant)

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. If you'd 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 remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Charlie Brady of BMO Capital. Please go ahead.

Charles Brady (Analyst)

Hi, thanks. Good morning, guys.

Charles Szews (CEO)

Morning, Charlie.

Charles Brady (Analyst)

Just want to focus on Access for a minute. Obviously, that margin performance in the quarter was pretty strong. Can you just give us a sense of what the mix was between AWP and telehandlers? And then in one of your slides in the back in the appendix, you kind of break it down on how the margin was impacted, price, and some other things. Can you give us a sense of maybe how much price contributed to the margin? And do you expect that mix in Q4 to kind of go back to a more normalized rate?

David Sagehorn (EVP and CFO)

Charlie, Dave, I'll start out with the mix and maybe pass it over to Wilson to talk a little bit about the pricing. We did see a stronger mix of aerial work platforms, and we had talked about that really in the last quarter that we were seeing that from some of the order trends that we were experiencing in the March quarter. I think if you look at the first half of the year, it was definitely more heavily weighted towards telehandlers. We did see that shift this year or this quarter, and really more in terms of aerial work platforms themselves. Within that whole category, we've got the boom products, we've got scissor products, and some other miscellaneous items. Where we really saw the strength was in the aerial work platforms with the booms.

As we look forward to Q4, I think based on the order trends that we've seen here, I think we're going to see a little bit of a shift back to maybe more along the lines of what we saw in the first half of the year, where we're probably going to see a little stronger mix of telehandlers than booms.

Wilson Jones (President and COO)

Yeah, Charlie, I'll just. This is Wilson. I'll just add that on the pricing side, our Access team has been very disciplined in the marketplace. We're very pleased with how they have maintained good pricing discipline over the year, and you're seeing that really kick in in Q3.

Charles Brady (Analyst)

All right. I mean, from the large national chains, are you still in conversations with them, getting the sense that they are still in the market refleeting, still bringing the age down? Or do you expect that maybe even next year to kind of wane a little bit and it's being more taken up by the independents?

Wilson Jones (President and COO)

Well, as I mentioned in my comments, the independents are definitely in the game. We expect that to continue through 2014, but no sign of the nationals really slowing down. There's still a good bit of replacement to go. And then we are seeing some expansion in some of these energy projects. There has been some expansion.

Charles Brady (Analyst)

Great. Thanks very much.

Wilson Jones (President and COO)

Thank you, Charles.

Operator (participant)

Thank you. The next question is from Jamie Cook of Credit Suisse. Please go ahead.

Jamie Cook (Managing Director)

Hi, good morning, and congratulations on a nice quarter. A couple of questions again, sorry, on the aerial business. One, did you get any material cost benefit in the third quarter, and what's your expectations for the year relative to when you guys initially guided? And then can you talk about your pricing strategy with regards to 2014 when your peers talked about announcing price increases potentially in August for January with Tier 4 ahead of us? So if you could talk about that. And then my last question just on 2014, again, do you get concerns at all? CapEx is trending better this year for the large rental companies that potentially is pulling forward from 2014, and 2014 could potentially disappoint. Thanks.

Charles Szews (CEO)

Okay. On the material, Jamie, I think what we've seen is material actually stabilize over the past number of months. If we look at the second to third quarter, there wasn't a lot of difference there. I think when you go back to where we were at the beginning of the year, material has been more favorable for us than we had expected as we came into the year. So that definitely has been a little bit of a benefit for us.

Jamie Cook (Managing Director)

Do you care to quantify how much more favorable?

Charles Szews (CEO)

Probably not a lot more detail than that. It's a contributor, and along with all the other MOVE Initiatives with the focus on the product and process cost reductions, they've all contributed.

David Sagehorn (EVP and CFO)

Jamie, I'll jump in on the price and CapEx question. We are studying now our pricing for next year. Normally, we announce in an August, September timeframe for a January implementation of pricing. So we're studying a lot of information right now. In the past, there's been some, when steel has moved with our backlogs, that can be an ugly situation for us. So we're doing a lot of planning around that now, trying to anticipate commodity pricing. We have communicated to our customers that we will be announcing a price increase in August, but again, a little early to come up with a specific amount there. With regards to their CapEx, are they pulling some forward?

There may be some pull forward, but the good solidifying factor there is the independents are really coming in, and they'll come in behind that in 2014 if there is a pull forward of the nationals and be in the game. So nothing significant pulling forward, but we are watching those fleet ages. We have seen a few of them come down, but a couple of the big guys are still up above 50 months, which bodes well for replacement.

Jamie Cook (Managing Director)

Okay, great. I'll get back in queue. Thank you.

Operator (participant)

Thank you. The next question is from David Raso of ISI Group. Please go ahead.

David Raso (Senior Managing Director and Partner)

Hi, another question on Access. Lately, you've been converting the backlog pretty strongly into revenues, and the implied fourth quarter Access revenues seem to be a slower conversion of your backlog. So assuming I'm doing the math correctly, does that imply that the backlog is starting to build a little bit more for fiscal 2014 in a sense of the conversation, some of the orders already starting to flow already for your fiscal 2014 thoughts that you commented on earlier, that 2014 is looking strong already?

Charles Szews (CEO)

Dave, this is Charlie. I'd say that we're a typical sort of mid-cycle or early mid-cycle in this business, which says that the customers really aren't buying real early for next year. They have time. They know our capacities are good. There's some concern because most of the larger companies have asked us already about what our capacity looks like next year, but I don't think we're expecting a frothy 2014. So I don't think you're going to see people order real too early. On the other hand, they're already starting to think about 2014. They're talking to us about our capacities. We do think it'll be another strong year. Housing looks good. Non-residential looks good. But I don't think that you see our backlog already building for 2014.

David Raso (Senior Managing Director and Partner)

Well, I guess that's another way. The backlog this time last year versus the backlog right now, is there more or less for the next fiscal year than this time last year? I'm just trying to get a feel because either the fourth quarter revenue guidance is conservative. You're going to convert more of that backlog than you're implying, or there's essentially more in the backlog for next year's shipments. So I'm just trying to understand which one is it?

Wilson Jones (President and COO)

I wouldn't say there's more in the backlog for next year, David. This time last year, we had a much healthier military backlog, which mix it look bigger from previous year to now. But again, I wouldn't say anything significant for 2014 in our backlog today.

David Raso (Senior Managing Director and Partner)

Okay. That's helpful. I appreciate it. Thank you.

Wilson Jones (President and COO)

Thanks.

Operator (participant)

Thank you. The next question is from Mig Dobre of Robert W. Baird. Please go ahead.

Mig Dobre (Senior Research Analyst)

Good morning and congratulations on a quarter, guys. My first question on Defense here. You mentioned roughly 200 M-ATVs follow-on order from the Saudis. Can you give us a sense for progression through 2014 as to how these revenues will flow through? And also related to this, recently the Pentagon mentioned their desire to sell a portion of the MRAP fleet to allied countries. How does that impact your ability to win additional orders?

Charles Szews (CEO)

Sure. This is Charlie. The orders that we receive to date from the Kingdom of Saudi Arabia are most likely shipped in the first half of the fiscal year in 2014. So that's sort of how that progresses. Obviously, we're still chasing additional opportunities for M-ATVs internationally that could fit in later in the year or 2015. You're right. The Department of Defense has announced that they're going to divest about 13,000 MRAPs. Most of their M-ATVs, however, they're going to retain. Some are going to be embedded in units, others in pre-positioned stocks, others still in training, will be utilized in training. Divestiture of MRAPs has eliminated some of our M-ATV sale opportunities, but then that has opened up some remanufacturing opportunities if these would be provided to friendly allies.

On the other hand, I would like to continue to reiterate that we still believe we have an M-ATV opportunity in the range of 3,000 units in the future. So I think that we still feel good about our opportunity to sell additional M-ATVs. The difficult part when going international, of course, is what's the timing.

Mig Dobre (Senior Research Analyst)

Sure. And sort of sticking with this topic too, maybe if you can help us with thinking about the operating margin, the normalized level of operating margin for this segment, because obviously in fiscal 2013, we have seen performance quite a bit above what you initially forecasted. So given what you know is coming in 2014, and I realize it's too early for guidance, but even some color there would be helpful.

Charles Szews (CEO)

Well, you'll recall at the Analyst Day, we provided some baseline estimates for sales and operating income, and those are still pretty good estimates in our view for baseline type situation. To do better than that, we're going to need to win some new business like additional international M-ATVs and other hard work of operating efficiencies or margin expansion. So we don't have any updated estimates for you for next year. We'll do that in October.

Mig Dobre (Senior Research Analyst)

Thank you very much.

Operator (participant)

Thank you. The next question is from Eli Lustgarten of Longbow Research. Please go ahead.

Eli Lustgarten (Senior VP)

Good morning, everyone. Nice quarter.

Wilson Jones (President and COO)

Good morning, Eli.

Eli Lustgarten (Senior VP)

Okay. I have one clarification. I think in your prepared amounts, you said the fourth quarter was $0.37-$0.47?

Wilson Jones (President and COO)

Yes.

Eli Lustgarten (Senior VP)

With 313 for the nine months and 360-370 guidance, shouldn't that be 47-57?

Wilson Jones (President and COO)

We have, Eli, you might be factoring in.

Eli Lustgarten (Senior VP)

The $3.13 excludes the $0.11 already.

Wilson Jones (President and COO)

Yeah. The guidance was meant to exclude the impact of the activist costs from earlier in this fiscal year.

Eli Lustgarten (Senior VP)

The $3.60-$3.70 versus the $3.24 for the, or $3.23-$3.24 for the nine months. So you excluded the $0.11 on that.

Wilson Jones (President and COO)

Yes. Right.

Eli Lustgarten (Senior VP)

Okay. I just want to make sure which way the guidance went on that. Thank you. And during your prepared remarks also, because we had a lot of questions, you made the point quickly that going from here to the $400-$450 may not be linear. And the implication, obviously, is that there's some difficulties in comparisons in 2014 versus 2013, given how strong this year turned out to be. I mean, can you give us some idea what's behind that thinking? Is it particularly mostly in the Defense sector? One of your big competitors talked about expecting 15% gain in Access next year. I'm not sure whether you believe it's that strong or not, but the Access market looks like it should be pretty strong next year.

I thought the biggest impact of final Tier 4 in your business because of the horsepower difference would be more in 2015 than in 2014. So where are your big concerns about the non-linearity of the ability to show improved gains in 2014 versus 2013? Is it Defense or something else?

Charles Szews (CEO)

Great question, Eli. And let me give you some color on that. We just delivered a great quarter. We're now projecting annual FY 2013 earnings per share. That's within 7%-13% of our FY 2015 EPS estimate range. So FY 2013 is real close already to FY 2015 estimate range. As you can imagine, when we came out with our guidance or our estimates, excuse me, at the Analyst Day, we did not provide FY 2014 estimates, right? And now our FY 2013 expected results now exceed our internal estimates that we had at the time of the Analyst Day. So we want to remind investors that Defense businesses expect to experience that decline next year. We described that last year at the Analyst Day.

Our challenge is to overcome the decline, which is now larger, since we have an even stronger performance in FY 2013 in Defense relative to prior expectations. So we really need to see significant improvement in our non-Defense segment earnings in FY 2014 results just to stay even with FY 2013. Now we're pursuing a number of opportunities that could help us to stay even with or slightly exceed our FY 2013 results, but we don't have clarity on them now. They may never fully develop, or they could develop too late for FY 2014. Having said that, we expect all of our non-Defense segment results to improve in 2014 from 2013.

We will have a better view on FY 2014 in a few months when we release our initial FY 2014 outlook as part of our Q4 earnings call, which again may or may not be a linear path from 2013 to 2015. But we do expect our FY 2014 results to be ahead of our original internal estimates for FY 2014 that we had at the time of the Analyst Day. So I believe that's what the quarter.

Eli Lustgarten (Senior VP)

Which you didn't tell us.

Charles Szews (CEO)

Right. We didn't give you that number. That's true. But as you can tell, we've inched very close to our FY 2015 estimates already. And as you can imagine, we're outperforming that internal estimate. Having said that, when we look at FY 2014, our view today is that we will exceed what that internal estimate was at the time of the Analyst Day.

Eli Lustgarten (Senior VP)

Let me do a quick follow-up. I mean, we spent a lot of time on Access and strength in Defense. The Commercial sector looks like it has a lot more upside potential than I guess we're all talking about because everybody's being conservative. But the number of cement trucks being sold is still a fraction of what used to be a normal market. And even the refuse business looks like it's starting to improve. Have you got any feel or sense of what kind of improvement or upturn or strength we may begin to see in that market, particularly as housing continues to recover?

Charles Szews (CEO)

Well, Eli, we certainly expect the Commercial segment to continue to strengthen. We continue to need housing to get better every quarter. We'll have a better view on that for you really in October when we provide earnings guidance for next year or earnings estimates for next year.

Wilson Jones (President and COO)

But I think it's fair to say that where the mixer market today in the U.S. is running, it's still down more than 50% from a normal year and significantly more than that from a peak year. So we agree that there's significant opportunity over time with the mixer market specifically.

Eli Lustgarten (Senior VP)

All right. Thank you.

Wilson Jones (President and COO)

Thanks, Eli.

Operator (participant)

Thank you. The next question is from Ann Duignan of J.P. Morgan. Please go ahead.

Ann Duignan (Managing Director and Equity Research Analyst)

Hi, guys. How are you doing?

Wilson Jones (President and COO)

Good.

Charles Szews (CEO)

Good.

David Sagehorn (EVP and CFO)

Good.

Ann Duignan (Managing Director and Equity Research Analyst)

Good. Can you talk a little bit? I know a lot of the focus has been on fiscal 2014 over the last couple of questions. But just from your perspective where you're sitting right now, where do you think the biggest risks are to 2014 outlook once we do get there? I mean, as you sit internally and you're looking at each segment, where do you see the biggest risks?

Charles Szews (CEO)

Well, as I just said, we do believe that our FY 2014 results will exceed what we thought we were going to do back in September 2012. So we have a good view and a strong view for what our performance will be for FY 2014. In terms of risks, it'd be global economic risks. Is the recovery in the United States? Did we hit a pause? Or does Europe not continue its slow recovery? It'd be something like that.

Ann Duignan (Managing Director and Equity Research Analyst)

Is that, in other words, the MOVE program actually performing better than you'd anticipated? It's more an operating comment?

Charles Szews (CEO)

Yeah. Our operating performance from what we can control, we're on pace, if not doing better than our original targets. And we're going to provide you with a scorecard on our MOVE Initiatives here in October. But we're very pleased with our margin enhancement initiatives that we laid out for the street back in September.

Ann Duignan (Managing Director and Equity Research Analyst)

Okay. And just to follow up on the Commercial, on the large order in the waste side, was that a delay in delivery because the customer is waiting for a 12 L natural gas engine?

Wilson Jones (President and COO)

Ann, we don't know all the specifics for the reasons for their delay other than they just delayed their big order. I don't think it was related to any kind of engine issue. I think it was more or less them getting their capital expenditure budget in place and working through some organizational changes.

Ann Duignan (Managing Director and Equity Research Analyst)

Okay. That's good color from our perspective. So thank you. I'll get back in line.

Operator (participant)

Thank you. The next question is from Walt Liptak of Global Hunter Securities. Please go ahead.

Walt Liptak (Analyst)

Hi. Thanks. I wanted to ask about the JLTV commentary. I wasn't sure if I caught everything that you were saying, Charlie, but I think you were suggesting that that project could move along faster and that the trucks are capable and the pricing is there. Can you provide a little bit more color about what you're alluding to here? Could we see awards going out before 2015?

Charles Szews (CEO)

Sure. There's been a lot of speculation in all directions on JLTV. Is it going to get delayed, canceled, etc.? You hear a lot about sequestration and BCA and having a devastating impact on the Department of Defense budget. All of that is true. However, what I'd say is that we've been engaging at the highest levels and that we believe JLTV will stay on schedule. It's a high-priority program that's relevant in all battles, in all theaters, including the shift to the Pacific. Some of the programs that it competes against are narrow in scope, only used in certain isolated conflicts. This is a vehicle that has major use in any kind of a conflict or theater. It's a vehicle that has next-generation capability at less than the customer's target cost. And then recently, all the competitors had demonstrations of their vehicles to congressional Department of Defense leaders.

It indicates that Oshkosh's vehicles are already now at low risk, and our competitors would probably say the same thing about their vehicles. So we think it's the kind of win-win program that the Department of Defense needs and our taxpayers need. That's why we think that in all the budget battles it will fare well. It has the opportunity to stay on schedule or be accelerated because we think that the testing can be done rapidly. The vehicles run faster off-road than previous competitive 8-wheeled vehicles. We think that this is just a program that will be managed tightly to schedule.

Walt Liptak (Analyst)

Okay. Good. Got it. Thanks for the color. And then I think all the questions on Access have been asked. But I wonder about the margin that you had. I understand the positive mix. But is Access exceeding your expectations for profitability? And are you rethinking that 2015 target?

Charles Szews (CEO)

Well, by definition, I suppose that it exceeds our expectations because it did exceed our prior estimates. I think what you're really seeing is that our margin initiatives are taking hold. The team's doing a great job on execution. As far as FY 2015 targets, we're not here to update any targets today.

Walt Liptak (Analyst)

Okay. Got it. Thank you.

Operator (participant)

Thank you. The next question is from Peter Skibitski of Drexel Hamilton. Please go ahead.

Peter Skibitzki (Analyst)

Yeah. Good morning, guys.

Charles Szews (CEO)

Morning.

Wilson Jones (President and COO)

Morning.

Peter Skibitzki (Analyst)

Just another time on the backlog at Access. Maybe I missed this, but if you stripped out the military in both periods, kind of year-over-year or sequentially, are you encouraged by the flow of backlog? Or are you incrementally more concerned from the last quarter?

Wilson Jones (President and COO)

No. I'd say we're pleased. One item we didn't mention is, I think I did it in my prepared remarks, is Australia is off significantly. And that's been a big market for us over the years. So if you take that into play, we've more than covered that miss in our backlog. So we're pleased with where we are from a backlog position.

Peter Skibitzki (Analyst)

Okay. Okay. And then I guess last one. What's your sense of why AWP volume was up so much this quarter? It doesn't seem like we've had much of a non-res construction recovery. So why the big bump in AWPs, do you think?

Charles Szews (CEO)

Pete, again, this is the seasonally strongest quarter of the year, historically, year after year. And so I think that's just the expectation playing out.

Peter Skibitzki (Analyst)

Okay. Okay. I mean, it was up double digits year-over-year even. But okay. So just the normal seasonality. Okay. Okay. Thanks, guys.

Wilson Jones (President and COO)

Three to six months, Pete. AWP was largely flat, right? So.

Peter Skibitzki (Analyst)

Right. Fair enough.

Wilson Jones (President and COO)

Yep.

Peter Skibitzki (Analyst)

Thanks, guys.

Operator (participant)

Thank you. The next question is from Jerry Revich of Goldman Sachs. Please go ahead.

Jerry Revich (Analyst)

Good morning.

Wilson Jones (President and COO)

Morning, Jerry.

Jerry Revich (Analyst)

Can you talk about how much production and process cost reduction contributed to the even improvement in Access Equipment in the quarter? You listed it on the slide. I'm wondering if you could just give us a ballpark estimate. Was it the first or second most significant factor? Just to give us a rough sense of appreciation on the MOVE Initiatives in this business.

Charles Szews (CEO)

Sure. We always list them in order of relevance to the margin impact. So I think that's the way you should consider it.

Jerry Revich (Analyst)

Okay. In terms of the Tier 4 transition for your Access Equipment business, if I remember right, you're going to have more of an impact in 2015 than 2014. But can you just update us on what proportion of your products will be transitioned in 2014 in the U.S. and European markets?

Wilson Jones (President and COO)

Well, it's the majority of our engine work, Jerry, that we'll be working through. We're finishing up aerials. We go into telehandlers next. You're right. It is late 2014 and into 2015. It'll be a significant adventure for Access to work through. I think where you look at where we're headed, we've guided to $4 billion in 2015. That'll be a big part of the pricing going forward is the tier change.

Jerry Revich (Analyst)

Okay. For Fire & Emergency, it looks like you've got pricing for the first time in a while. Can you just give us a sense how much of that is driven by mix on the custom trucks or what's the extent of real price increases that are holding on more of the legacy products?

Wilson Jones (President and COO)

Well, Fire & Emergency announced their price increase in June. With their long backlog, that will really come into play as we get into December and January timeframe. They did an average of 3% across all models. Again, that's in the market today. All orders coming in have that price increase on there.

Charles Szews (CEO)

The price increase that you saw in the current quarter. The price impact was from the prior year increases.

Wilson Jones (President and COO)

Yeah.

Jerry Revich (Analyst)

Thank you.

Operator (participant)

Thank you. The next question is from Steve Barger of KeyBanc Capital Markets. Please go ahead.

Steve Barger (Equity Research Analyst)

Hey. Good morning, guys.

Wilson Jones (President and COO)

Morning.

David Sagehorn (EVP and CFO)

Morning, Steve.

Steve Barger (Equity Research Analyst)

Pretty nice increase in the free cash flow guidance. You have $131 million more on the repurchase authorization. Just what's the conversation around capital allocation beyond that? Are you accelerating anything? Or what's the thought?

Wilson Jones (President and COO)

Steve, we came out with the share repurchase program last November. $300 million was targeted over the 12-18 months. We made a big dent in that in the first quarter. Took another whack at it again here in the third quarter. And I think we still would like to complete that $300 million. And we're going to see the market ebbs and flows, Oshkosh stock price ebbs and flows. And we're going to try to be opportunistic as we look to complete the remainder of that $300 million.

Steve Barger (Equity Research Analyst)

Do you feel like you need to go into FY 2014 with a bigger cash balance than you've been carrying just because of some of the concerns that prior questions have brought up? Or is that not really an issue?

Wilson Jones (President and COO)

No. I don't think so at all. I think the outlook for 2014, like Charlie mentioned, you look at our non-Defense businesses, we expect they're all going to be up. Defense, I think as we've clearly indicated, we expect that to come down next year. But we've been expecting that for some time here.

Steve Barger (Equity Research Analyst)

If anything, you should be able to work the cash balance down a little bit if you had a reason to spend some of that, whether it would be an acquisition or an accelerated buyback or anything else.

Wilson Jones (President and COO)

I think what we've talked about is trying to be opportunistic as we look at our capital allocation. If you go back to the, again, back to the Analyst Day, and that's the approach we're going to try to continue to maintain here as we head into 2014.

Steve Barger (Equity Research Analyst)

Okay. And then just one quick one on fire. When you think about the margins at low single digit, how much of that is mixed from the custom market being down? And how big of a margin driver could that be if that part of the market specifically were to pick back up?

Charles Szews (CEO)

Steve, it's probably mostly price compression and just a market that's down 40% that's driving the margins down. Mix is still favorable, custom versus commercial, although the content, the number of options on a custom truck probably aren't as high as it used to be. So those are all factors. But this is a business that we do think we have a lot of opportunity to work for margin enhancement over time to deliver some value for shareholders.

Steve Barger (Equity Research Analyst)

Great. Thank you.

Charles Szews (CEO)

Thank you.

Operator (participant)

Thank you. As a reminder, ladies and gentlemen, please press star one if you would like to ask a question.

Charles Szews (CEO)

Okay. It looks like we've concluded our Q&A. We appreciate your interest in Oshkosh. Our MOVE Initiatives are gaining momentum. We've been working hard to raise our margins in this quarter. The results of our efforts have become more visible. We will continue to work day in and day out to execute and deliver value for our shareholders. Have a great day, everyone.

Operator (participant)

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.