Oshkosh - Q3 2020
July 30, 2020
Transcript
Operator (participant)
Greetings. Welcome to Oshkosh Corporation's Fiscal 2020 Third Quarter Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Pat Davidson, Senior Vice President of Investor Relations for Oshkosh Corporation. Thank you, Mr. Davidson, you may begin.
Pat Davidson (SVP of Investor Relations)
Good morning, and thanks for joining us. Earlier today, we published our third quarter 2020 results. A copy of the release is available on our website at oshkoshcorp.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 it's also available on our website. The audio replay and slide presentation will be available on the website for approximately 12 months. Please refer now to slide two of that presentation. Our remarks that follow, including answers to your questions, contain 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, Chief Executive Officer, John Pfeifer, President and Chief Operating Officer, and Mike Pack, Executive Vice President and Chief Financial Officer. Please turn to slide three, and I'll turn it over to you, Wilson.
Wilson Jones (CEO)
Thank you, Pat. Good morning, everyone. I want to start today by sharing how proud I am of the hard work and disciplined execution our Oshkosh team members have demonstrated as we manage through the current pandemic-induced environment. The underlying strength we derive from our people-first culture has been a key enabler to our success as we navigate through these challenging times. We often talk about how we are better together, and we are exhibiting that with our results this quarter. For the third quarter, we delivered sales of nearly $1.6 billion, adjusted earnings per share of $1.29, and our consolidated backlog is up nearly 6% versus the prior year, as we've controlled what we can control while responding quickly to challenges outside of our control.
Given the conditions present in our markets in the U.S. and around the world, we believe this represents solid performance. The duration and impact of the pandemic on the economy remains uncertain, but the resiliency of Oshkosh team members has been impressive as we've responded to a variety of challenges, including changing customer demand, new working protocols, and supply chain disruptions, among others. We believe our values and strengths as a differentiated, integrated global industrial are even more pronounced versus our competitors in times like these. We implemented temporary cost reductions we discussed last quarter. Those actions are evident not only in our third quarter results, but should also benefit us as we manage through the ongoing uncertainty. Recently, we also announced some permanent cost reductions in areas of our business, most significantly impacted by changes in customer demand as a result of the pandemic.
John and Mike will discuss those actions and the related impacts in their sections. Before I turn it over to John, I wanted to mention that our balance sheet and liquidity both remain strong, and our board approved another quarterly dividend payment of $0.30 per share, consistent with our dividend last quarter. I also want to take a moment to congratulate John on his recent promotion to President. It's a testament to John's strong leadership and dedication to a people-first culture. I look forward to continuing to work with him as we lead this great team here at Oshkosh. Please turn to slide four, and John will discuss each of our segments.
John Pfeifer (President and COO)
Thanks, Wilson. Thanks for the comments, and good morning, everyone. Before I provide an update on each of our segments, I'd like to provide a brief update on our operations, including our people and supply chains. Across the company, we are focused on maintaining the safety of our team members and preventing the spread of the virus, with increased social distancing, both in the offices and throughout our manufacturing facilities. While this can make completing work more challenging, we have maintained strong efficiencies. I am proud of the way our team has remained disciplined in maintaining these strict protocols. We also successfully navigated through over 200 supplier shutdowns early in the quarter to continue production without any major supplier-induced line stoppages. This is a true testament to the focused efforts of our supply chain team, our integrated capabilities, and our strong supplier partners.
While we've largely stabilized our operations and supply chains, elevated infection rates in parts of the U.S. extend production and supplier risks, and we will remain diligent in our actions. Additionally, we've carried out our return to work or return to the office actions for our team members. I won't go into all the details, but about half of our office workforce physically enters our facilities for work each day, with appropriate social distancing and cleaning protocols in place... Essentially, we implemented changes that enable Oshkosh team members to work from home when they need to and work in our facilities when they need to, and they can do it seamlessly. Now I'll move to our segment updates and kick it off with Access Equipment.
Our Access Equipment segment has experienced the negative impacts of the current business landscape more intensively than any other segment in our company, with year-over-year revenues down more than 60% in the quarter. Despite these challenges, our team rallied quickly with aggressive steps to reduce production at the factories and to lower our costs, resulting in solid adjusted decremental margins of just under 20% and an adjusted operating income margin of 8.4%. This performance is impressive, given the significant declines in Access Equipment markets in North America, Europe, and other parts of the world. On our second quarter call, we discussed temporary manufacturing closures in the segment during the third quarter, and with market recovery timing still uncertain, we shut down production for the month of July, and we will have two-week shutdowns in both August and September.
Wilson mentioned that we also have taken some permanent actions to reduce our costs, particularly in this segment. We announced the closure of our Medias, Romania facility at the end of June, which will occur over the next 12 months. We remain committed to the EMEA market and will be able to serve it more efficiently from our existing global manufacturing footprint, including plants in France and the U.K. In addition to the facilities rationalization, we also reduced our office staffing in the segment with a modest workforce reduction. Our Simplification Framework has been an important enabler for our ability to deliver robust margins throughout the business cycle, as well as relocate production so that we can operate with improved logistics and customer service levels. While COVID-19 has impacted Access Equipment markets around the world, we are staying flexible and nimble in our approach to managing the business.
However, given the uncertainty around the broader economic recovery, we are not in a position to provide an industry or Oshkosh-specific outlook at this time. We know that Access Equipment will come back, but we do not currently have a timeframe. We will control what we can and make the right decisions that we believe will facilitate our success when demand returns. We are further encouraged by the age of Access Equipment fleets, particularly in North America, that we expect will be a positive demand driver in future quarters. Finally, just as we discussed last quarter, our facility in China is back online, and we retain our positive outlook for this market as demand is returning. Our team in China has plenty of experience in both the demand and supply sides of the market, and we remain very bullish on our prospects for long-term growth in China.
Please turn to page five, and I'll discuss our Defense segment. Our Defense segment performed well in the quarter as the team continues to ramp up the JLTV program, which helps provide a solid foundation for the company with a large backlog and multiyear visibility. During the quarter, we received an order for JLTV trailers that further solidifies our leadership in tactical wheeled vehicles for the U.S. Department of Defense and our allies. We continue to work with a number of foreign governments on JLTV opportunities, and while we are not making any announcements today, we have a strong pipeline of opportunities and expect that we will be discussing additional international successes in future quarters.
Our Defense backlog remains solid at nearly $3.3 billion, up over 15% from the prior year, which provides good visibility, especially given the current environment, where the pandemic has limited visibility across many industries. During the quarter, we announced a joint venture to manufacture tactical wheeled vehicles in Saudi Arabia. We have been working with our partner, Al-Tadrea, for the past two years to finalize the agreement. This is part of our longer-term plan to be an integrated strategic partner with this key U.S. ally for Defense vehicles and life cycle services. This is an important milestone for our international Defense activities. Before I wrap up my comments on our Defense segment, I want to congratulate both our production UAW team members in Oshkosh and our leaders in the business for agreeing to a new collective bargaining agreement, which provides continuous coverage through September 2027.
This is a great example of the benefits of working together and reaching solutions that provide security and peace of mind for our team members, as well as continuity for our company. Let's turn to slide six for a discussion of the Fire & Emergency segment. Fire & Emergency delivered a strong quarter with a 15.7% adjusted operating income margin. Last quarter, the segment experienced some challenges with a supplier issue that impacted both our shipping schedule and our margins. This supplier issue is behind us, which paved the way for a great quarter as the team focused on operations and delivered impressive results despite lower year-over-year sales. Customer travel restrictions implemented during March eased midway through the third quarter.
This was a positive development for the team, but given the recent increase in COVID-19 cases and states reinstating quarantines for travel, we may experience temporary sales headwinds in the fourth quarter. As we discussed on the last earnings call, we expected third quarter orders to be down year-over-year and sequentially, and that was the case. Remember, we are coming off a quarter that was an all-time record for orders, and we expected there to be a pause in orders due to the pandemic. The backlog continues to be robust, providing visibility well into 2021. Even with strong year-to-date orders, we will continue to monitor the pandemic's impact on municipal budgets, which could impact spending on fire trucks in the future. Please turn to slide seven, and we'll talk about our Commercial segment.
It's clear that customer demand for both concrete mixers and refuse collection vehicles has been impacted by the pandemic. As construction work was limited and often stopped at various locations across North America over the past three months, we expected concrete mixer sales and orders to slow. That has been the case. RCV demand tends to be more stable, and we've seen residential trash collection remain strong and even elevated in some cases. But we've also seen non-residential refuse collection slow during the shutdown, and this has had a negative impact on demand for RCVs in the current environment. Despite these challenges, Commercial really came through with a solid margin quarter. This can be attributed to quick actions and a passionate culture that permeates throughout the business.
Those of you that have followed us for the past few years know that we are committed to simplification throughout Oshkosh, and we began the journey a couple of years ago in the Commercial segment. As part of this journey, we are transferring concrete mixer production from our facility in Dodge Center, Minnesota, to consolidate production in our other mixer facilities in North America. Thus, Dodge Center will become a focused RCV operation. This will reduce costs and better position both the mixer and the RCV businesses for success in the future as they'll benefit from focused facilities. The transition will occur over the next six months for this important step in our simplification journey. Also, we recently sold our concrete batch plant business, CON-E-CO. We regularly review all of our businesses for value and strategic fit within our company.
We determined that CON-E-CO was a better fit with a different owner and closed on the transaction last week. We think this will help us more effectively focus our resources in the Commercial segment. We appreciate the contributions from the team at CON-E-CO and wish them all the best as they move forward with a new parent company. Before I leave this segment, I wanted to mention the ramp-up of our new front discharge concrete mixer, the F-Series 2.0, complete with industry-leading connectivity and productivity technologies. We're pleased with customer orders and interest levels, even against the backdrop of the pandemic. We believe this redesigned mixer will be a long-term driver of solid performance for the company. Watch for new megatrend technologies applied to this vehicle in the future. This wraps it up for our business segments.
I'm gonna turn it over to Mike to discuss our third quarter results and some additional comments on current business conditions.
Mike Pack (EVP and CFO)
Thanks, John, and good morning, everyone. Please turn to slide eight. During our last earnings call, we commented that we expected the third quarter to be a challenging quarter, and it was. However, strong execution by our teams, combined with rapid implementation of cost reduction actions, allowed us to effectively manage the business and deliver solid adjusted consolidated decremental margins of 15.9% for the quarter on a significant decrease in year-over-year sales. Consolidated net sales for the quarter were $1.6 billion, down 33.9% from the prior year quarter. A significant decrease in Access Equipment sales, and to a lesser extent, decreases in Fire & Emergency and Commercial sales, were the primary drivers of the lower consolidated sales, offset in part by higher Defense sales.
Access Equipment sales were negatively impacted by customer pushouts, some cancellations, and lower order intake rates as a result of COVID-19 and the related shelter-in-place restrictions, driving low levels of job site activity throughout much of the U.S. and the world. Defense sales growth in the quarter reflected the continued JLTV production ramp and higher aftermarket parts and service sales, partially offset by lower FHTV volumes. Fire & Emergency sales were lower than the prior year quarter, primarily as a result of decreased production line rates necessitated by COVID-19 related workforce availability and supply chain disruptions, offset in part by a catch-up of units affected by the supplier quality issue we noted last quarter....
Commercial segment sales were lower than the prior year quarter, driven by a combination of lower demand for refuse collection vehicles and concrete mixers, as well as some production disruptions, both caused by COVID-19. Consolidated adjusted operating income for the third quarter was $128.8 million, or 8.1% of sales, compared to $257.8 million, or 10.8% of sales, in the prior year quarter. Access Equipment adjusted operating income declined on lower sales and unfavorable manufacturing absorption as a result of the facility shutdowns during the quarter, offset in part by favorable price cost dynamics, lower incentive compensation expense, the benefit of temporary cost reductions, and lower amortization expense.
Defense operating income increased as a result of an unfavorable prior year cumulative catch-up adjustment, higher sales volume, and the benefit of temporary cost reductions, offset in part by higher warranty costs. Fire & Emergency third quarter adjusted operating income declined due to lower sales volume and adverse sales mix, largely offset by improved pricing, lower incentive compensation expense, and the benefit of temporary cost reduction actions. Commercial segment third quarter operating income increased compared to the prior year quarter as a result of the absence of inefficiencies caused by a weather-related partial roof collapse in the prior year and favorable price cost dynamics, offset in part by lower sales volume. Adjusted earnings per share for the quarter was $1.29, compared to earnings per share of $2.72 in the third quarter of 2019.
Third quarter results benefited by $0.03 per share from share repurchases completed in the prior twelve months. Please turn to slide 9 for a discussion on the remainder of fiscal 2020. During the second quarter, we withdrew our financial expectations as a result of the evolving impact of COVID-19. While we have seen stabilization in our supply chain and operations, recent increases in infection rates in parts of the U.S. continue to drive potential supply chain and production risk. Further, the cadence of customer demand in our Access Equipment and Commercial mixer businesses remains uncertain. As a result, we're not in a position to provide updated expectations for the fiscal year. Last quarter, we announced decisive actions to reduce pre-tax costs by $80 million-$100 million for the year in response to the uncertainties caused by COVID-19.
These cost reduction actions include salary reductions, furloughs, temporary plant shutdowns, limiting travel, and reducing project costs and other discretionary spending. As a result of the outstanding focus by our teams, we now expect these temporary cost reduction measures to exceed $100 million in fiscal 2020. As John discussed, we have also announced permanent restructuring actions in our Access Equipment and Commercial segments, which are expected to yield combined annualized cost savings of $30 million-$35 million once complete. We expect to begin realizing some benefits of these actions in 2021, with the full impact of these actions by 2022. As we shared with you on the last call, we established a playbook of options to respond to the pandemic. With recovery trending at a slower pace, permanent cost actions were prudent.
Our balance sheet remains strong, with available liquidity of approximately $1.1 billion, consisting of cash of approximately $300 million, and availability under our revolving line of credit of approximately $800 million at the end of the quarter. Share repurchases remained paused during the quarter, and we will reevaluate them as we gain further clarity on the recovery of our end markets. On the second quarter earnings call, we discussed our target of achieving mid-20% adjusted decremental margins, both on a consolidated basis and within the Access Equipment segment for the year. We were able to exceed those targets during the third quarter with disciplined execution and the help of our cost reduction initiatives.
We expect the benefit of cost reduction activities to be lower in the fourth quarter compared to the third quarter, as shelter-in-place restrictions have eased, leading to increased expenses. Nonetheless, we expect to achieve the targeted mid-20% adjusted decremental margins, both in the fourth quarter and for the full year on a consolidated basis. I'll turn it back over to Wilson now for some closing comments.
Wilson Jones (CEO)
Thanks, Mike. We have a strong culture with strong leaders at Oshkosh. Our revenues and earnings were down in the quarter from last year, but given the challenges we've been facing, we're proud of our performance. We have a strong balance sheet with ample liquidity. Our Defense and Fire & Emergency backlogs provide visibility well into 2021, and we took aggressive actions early during the pandemic to lower our costs. Additionally, we announced permanent cost reductions that we discussed on today's call that we believe will position us for greater success in the future. Our team has managed production and supply chain disruptions very effectively and has kept Oshkosh on the right path during these challenging times. I am reassured by our strength and resourcefulness and believe we can deliver solid sales and earnings performance over the long term.
I'll turn it back over to Pat to get the Q&A started.
Pat Davidson (SVP 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. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For a participant using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Jerry Revich with Goldman Sachs. Please proceed.
Jerry Revich (Analyst)
Yes, hi, good morning, everyone.
John Pfeifer (President and COO)
Morning, Jerry.
Jerry Revich (Analyst)
Really nice quarter. You know, what really stands out is getting to double-digit margins in Commercial in the middle of pandemic, when I don't think, at least in my model, I have you hitting double-digit margins in any quarter historically. Can you just talk about the sustainability of the performance this quarter within this segment? You mentioned some travel costs are gonna come back, but are you still in a position where price cost can drive year-over-year margin expansion for this business in coming quarters? And expand a bit more on the performance this quarter, please.
Mike Pack (EVP and CFO)
Sure, Jerry, I'll take that. You know, we're certainly excited by the great results that Commercial delivered this quarter. It was certainly they jumped on their cost actions quickly, and we got a nice tailwind from price cost. Bottom line, though, is we did benefit from some one-time items in the quarter. You know, this business is on a nice simplification journey. We believe it's a double digit margin business over time. We don't see us being a sustained double digit business in the near term. So I think it was, again, a nice quarter, but I think for the sustained double digits, it's gonna be a bit of time yet, as we continue our simplification journey.
Wilson Jones (CEO)
I think just to add to that, Jerry, the moves we're making that John described in his prepared remarks, where we're focusing our factories from a mixer standpoint and a focus factory from our refuse collection vehicle standpoint, that's gonna help us get to those double digit margins.
Jerry Revich (Analyst)
Well, and that's what's interesting, the fact that you got the double-digit margins while making these decisions. You know, I'm wondering if you could talk about JLG and the decision around the Romania facility. Is that a function of higher productivity in your other plants, or is that a view on European demand? Can you just expand on that? And I'm wondering, you know, with all the telematics that you folks have in the field for JLG, can you talk about whether the utilization improvement has continued beyond normal seasonality into July?
John Pfeifer (President and COO)
Yeah, Jerry, this is John. So when we make moves on fixed costs, like you've seen us do in Access in Romania or in Commercial with the mixer business being consolidated, we're always doing that in line with our simplification journey. So we kind of know where we have simplification opportunities, and we look at execution based upon what we see in market conditions. We've been talking about Europe for a couple of quarters, at least now, in terms of our concern with the market there. And our ability to be able to consolidate what we produce in Medias in other focus factories is simplification, but it's also an opportunity to take fixed cost out with a fairly weak European market.
And we think Europe's always gonna be an important market for us, and we'll continue to serve it really well, and we're confident we can serve it even more efficiently with the moves that we've just made. With regard to utilization rates at Access, you know, utilization rates bottomed out kind of in April, and as we got to early June, we saw improvements in utilization rates. We talk to our customers all the time. They give us indications on what they're seeing. We even had some of our customers report publicly that utilization rates were improving. Then we got towards the end of June, and June ended very differently than the way it started, with infection rates of the virus starting to go back up.
And that caused a pause for a lot of markets like California, Texas, and Florida, which are big, big markets for us. And so utilization rates are still up from when they bottomed out in, let's say, the April timeframe, but they're not back to pre-pandemic levels. And I think there's a little bit of pause going on in the market because of all the reinfection rates that we're seeing.
Jerry Revich (Analyst)
I appreciate the discussion. Thank you.
Wilson Jones (CEO)
Thanks, Jerry.
John Pfeifer (President and COO)
Jerry.
Operator (participant)
Our next question is from Ann Duignan with JPMorgan. Please proceed.
Sean McMullen (Analyst)
Hi, thanks. This is Sean McMullen on for Ann. Just one clarification question. You said you're extending your temporary shutdowns through FQ4 and Access. Those are still going to be two-week shutdowns each month, as FQ3 was?
Mike Pack (EVP and CFO)
So just to clarify, July is the entire month, and then it's two two-week shutdowns in August and September. Very same cadence as we saw last quarter.
Sean McMullen (Analyst)
Great, thanks. Appreciate the clarification there. And then shifting gears a little bit, your F&E backlog looks pretty solid at the end of FQ3. Can you update a little bit on your visibility in that segment and maybe compare it to Defense?
John Pfeifer (President and COO)
Yeah, so our backlog at F&E and Defense is really strong. F&E is over $1 billion backlog. Our order rates for F&E are up nicely year to date. Q3 is always kind of a weak order quarter, and with the pandemic, it was a little bit weak, but year to date, orders are strong, backlog's great in F&E. That goes well into 2021. And Defense goes even into 2022 at over $3 billion of backlog. So, those are really good anchor businesses for us as we go through a very tough climate in our other two segments, Access and Commercial.
Mig Dobre (Analyst)
Great, thanks. Appreciate the color. I'll pass it on.
John Pfeifer (President and COO)
Thanks.
Mike Pack (EVP and CFO)
Thanks, John.
Operator (participant)
Our next question is from Jamie Cook with Credit Suisse. Please proceed.
Jamie Cook (Analyst)
Hi, good morning, and nice quarter. I guess just first question, can you just talk about the cadence of sort of sales and orders that you saw throughout the quarter? Some companies are citing that sort of June was better, and then just any trends that you're seeing that continued, you know, what you're seeing, I guess, in July, if that trend continued. And then my, my second question, obviously, good job on margins and sort of cost control. You know, as we look to 2021, are there any costs that you're realizing that are now sort of structural, whereas before you thought they were just sort of like discretionary? Thanks.
John Pfeifer (President and COO)
Let me start with the orders. I think you're probably talking about the Access business when we're referring to orders.
Jamie Cook (Analyst)
Yeah, that's fine.
John Pfeifer (President and COO)
I'll go back to the month of June, the last month of the quarter. You know, June finished in a very different place than where it started. And as the pandemic unfolded, and we talked about this a quarter ago on our call, we started to see pushouts, and then we started to see a lot of cancellations. And we included cancellations in the month of April in our previous backlog, and then we still saw cancellations, although not to the same extent in May and June. Now, considering the environment that we operate, that we've been operating in with this downturn, we're very pleased with what our orders looked like in the quarter.
As we've come into July, I think what we're seeing is we're still seeing uncertainty in the market versus what we felt in early June. I think, again, as I said earlier, we're seeing uncertainty in the marketplace, primarily because utilization rates are not back to pre-pandemic levels yet, and I think they're not back to pre-pandemic levels because of reinfection rates that are going back up, especially in those key states that are really important to our business. We are seeing, though, which I think is a very positive with the marketplace, is really responsible leadership. When I say really responsible leadership, I'm talking about across our customer base and Access. You know, there's a lot of mixed conditions in vertical segments with Access.
Oil is really, really bad, for example, whereas some other markets are a little bit different from construction and different levels of opening in different states, and facilities usage at a, at yet different states. But there's a responsible fleet management going on. There isn't a lot of irrational activity. So, and the de-fleeting that's happened is, is a, is a slight rational level of de-fleeting. There's no wide-scale de-fleeting going on. So we think we're in a really good position that when the market stabilizes, that the entire market is gonna perform very, very well. We just don't know when that's gonna happen.
Mike Pack (EVP and CFO)
I can take the back half of the question, just looking at our cost actions. So, as we said in their prepared remarks, our temporary cost actions this year, we expect to see exceed $100 million. Those costs generally come back in the future, as you look to future years. However, we did talk about the permanent actions that were announced over the past several weeks, at full run rate by 2022. That's $30 million-$35 million. We'll get about half of that benefit as we look to fiscal 2021. You know, what we can say, though, is we're gonna continue to manage the business. We have our playbooks we talked a lot about on the last call.
We're continuing to maintain those, and certainly, we'll continue to monitor what market activity is as we get into next year, and we'll continue to be disciplined in our management approach.
Jamie Cook (Analyst)
Thank you. I appreciate the color.
John Pfeifer (President and COO)
Thanks, Jamie.
Operator (participant)
Our next question is from Mig Dobre with Baird. Please proceed.
Mig Dobre (Analyst)
Thank you very much, and good morning, everyone. I wanna stick with this last point or discussion on cost savings. And Mike, I'm wondering if you can maybe give us a little better detail as to how much of these temporary cost savings contributed to Q3, and obviously, what that's gonna look like in Q4, given your updated figure here. And then, related to this is, as I'm thinking about fiscal 2021, if nothing really changes from a volume standpoint or a demand standpoint, I'm presuming some of these temporary cost savings carry through into fiscal 2021. So if you could maybe help us kind of parse these things out, I think that'd be great. Thanks.
Mike Pack (EVP and CFO)
... Thanks, Mig. So from a cost action standpoint, you know, we talk about north of $100 million. You kind of have an idea of the timing in mid-Q2 that those kicked off. We do see that Q4 cost benefits gonna be somewhat less than we saw in Q3, as I mentioned in the prepared remarks. And that's really because the first half of the quarter, the level of economic business activity was at such a low level with the shelter in place restrictions. So we do expect the spending to be somewhat higher in our fourth quarter.
Jumping to, you know, we're not in a position to call next year, but I guess going back to my previous commentary, we're certainly managing those playbooks, and as we see that demand cadence, we're certainly gonna take prudent action and manage the business responsibly.
Mig Dobre (Analyst)
But Mike, I mean, look, you weren't implementing these sorts of actions back in Q1 2020 or a good portion of Q2 2020. So I guess I'm wondering, are there components to these savings that are sort of programmatic that automatically reset when you enter a new fiscal year? Or, you know, do we just have those relatively easy comps on a year-over-year basis where we can still expect the benefit into fiscal 2021? This isn't about guidance, this is just about, you know, how you kind of structure these savings.
Mike Pack (EVP and CFO)
Yeah, certainly some costs come back structurally, you know, you know, things like incentive compensation can be a headwind.
Mig Dobre (Analyst)
Right.
Mike Pack (EVP and CFO)
There's certain actions that we've taken that again, you look at things like travel and entertainment, there's so little travel that was taking place, you know. So it's, you know, it's those types of things. Again, it's really gonna depend on what we see for activity when you start comparing that year-over-year, and it's just that it's hard to call at this point, and I think that's, that's what we're gonna continue to manage.
Wilson Jones (CEO)
Yep. We know we have the restructuring cost in the year that will help us, Mig. But then it's really a product of what markets is available to us. Obviously, if the market goes down further or stays where it is, then we'll use those playbooks to manage that and look at some permanent costs if we need to. Obviously, if the market starts to tick back up, then we'll be prepared to use the playbook and take it back up. But to Mike's point, it's hard for us to call how much will read through or keep going because we haven't called the market yet. It's just too early and too much uncertainty right now.
Mig Dobre (Analyst)
Understood. Then my final question, looking through your inventory build here, I guess I'm looking for a little more color as to what was related maybe to some of the supply chain issues that you talked about earlier, versus some other moving pieces. And how should we think about inventory progression going forward, looking at the next couple of quarters? Thank you.
Mike Pack (EVP and CFO)
Sure. Related to inventory, inventory is at an elevated level at the end of the quarter. I guess what I'd say is that, you know, you looked at the quarter, back Q3, back to John's comments, you did see demand start picking up, but then customers paused a bit more as infection rates increased. So, in response to that, again, following our playbooks, we took more production at Access out in the fourth quarter to really manage that the customer demand dynamic with our inventory levels. So we've taken more action. We have, there's a certain extent of it. It's, you know, call it maybe one third, two thirds.
Some of it is we did buy a little bit ahead to protect just supply chain disruption. But the bigger factor is really just the cadence of the demand. You know, as we look at it going forward, again, some of it's gonna be the timing of when demand picks up. But we have good inventory. We're not in a forced liquidation position with it. It aligns with the backlog we have, particularly as you look at Access, where you see the higher, a little bit higher inventory level. And so we're gonna continue to manage it. And depending again, on the case that that normalization of it could extend into next year.
John Pfeifer (President and COO)
So Mig, this is John. I just wanna add to Mike's comments. You know, with, with a cyclical business like Access, we always have to balance our ability to reduce costs and generate earnings, which we've shown we can do in a steep downturn, and we think that's, that's a really positive thing, with our ability to come back when the market comes back. Because we, we keep saying, "Hey, it's uncertain exactly what that timing's gonna be." But we need to, and we work very carefully on positioning ourselves to come back, because when it comes back, it'll come back pretty quickly.
Mig Dobre (Analyst)
Mm-hmm.
John Pfeifer (President and COO)
And so my point is that that inventory is good inventory, as Mike said, and it's partly there to help us, when the market turns, be able to meet the demand in the market.
Mig Dobre (Analyst)
Got it. Thank you, guys.
John Pfeifer (President and COO)
Thanks, Mig.
Mike Pack (EVP and CFO)
Yeah, thanks.
Operator (participant)
Our next question is from Tim Thein with Citigroup. Please proceed.
Tim Thein (Analyst)
Thank you. Actually, just following on that, that issue of inventory, as we think about Access specifically, you know, it from an order perspective, given you know your your earlier comments about maybe some pause in the market, how are you thinking about it’s kind of multiple parts here, but just thinking about year-ending backlog in Access, wherever that that sits, and how that or how it will inform you in terms of you know your your thoughts around 2021.
And I'm not asking for guidance on 2021, obviously, but just thinking about what kind of cushion or comfort, you know, backlog may or may not give you, you know, as you think about also managing or kind of toggling, you know, across the inventory levels that may end the year, you know, higher than, you know, potentially you were thinking. So maybe it's just the question is how it really comes down to backlog and what kind of, you know, view that provides as you look into the next year.
Mike Pack (EVP and CFO)
Hey, Tim, this is Mike. I'll try to take that one, and certainly, John can add in. You know, we're gonna continue to watch. We're not calling Q4 yet. We're gonna have to watch those order intake rates, and it's gonna be all the things we've been talking about, just from general market conditions. But what we can say is, as we watch that order cadence over the course of the quarter, look at our inventory levels, that's something that we're looking at literally on a daily basis. We're talking to our customers, and we can meter that production rate if we need to into the future. And we're gonna. It's something that, again, is a daily conversation.
So it's tough to call what that exact dynamic's gonna be at the end of the year, but we are gonna be-- we're gonna continue to manage it and adjust.
Wilson Jones (CEO)
And just to add to that, Tim, you've heard John say it's good inventory. It's in the right product categories, and we're okay if we carry some of that into next year, because, again, it's in kind of the middle of the fairway of the business. But I'll just remind you, too, and you've watched this, JLG, really, all of our segments have been very disciplined in their pricing. So, we're gonna be smart with that inventory, too. We're not, as Mike said, there's no reason to be in any forced liquidation mode. We have a lot of, you know, positive outlook for this segment, for this whole market. It's just a matter of timing right now.
So, it is elevated, but at this stage, we're working through it. And obviously, into next year, if we need to take more production out, we can do that. If we need to add production, as John mentioned, we're equipped to go both ways, and that's what we like about our position is the team has really positioned that segment very well.
Tim Thein (Analyst)
Okay. Got it. And then maybe just a high level, going back to the Defense backlog, can you maybe just update us in terms of some of, you know, your three large programs there in terms of you know, what funding levels and how we're thinking about. You know, obviously, you've got a little bit more visibility there. Just how we're thinking about the outlook for the three big programs into FY 2021.
Wilson Jones (CEO)
Yeah. You know, it'd be nice to have that kind of visibility in all four segments, wouldn't it? I mean, that's, we're really pleased that we have a Defense business and a Fire & Emergency business that, that can provide us a, what we call a longer porch versus some of the shorter porch businesses that we, that we have. But, we're in good shape in Defense. As you've mentioned, a little over $3 billion backlog. If you think about the programs, we can take FHTV, the heavies, into 2022. We can accept JLTV orders and deliveries into early 2025, and then the FMTV A2, the new program, goes into 2026. So three solid tactical vehicle programs, really the, the, the main tactical vehicle programs today for our, our U.S. military, in, in good shape.
The acquisition objective for JLTV hasn't changed. It's still 49,000 for the Army and 15,390, I think, for the Marine Corps. So, we like that acquisition objective is holding. Some of the timing is slipping a little bit, but we really like where we are. And as you've heard us talk about, now we're starting to get some momentum internationally that could help us later in 2021, but definitely into 2022, when JLTV draws down just a little bit in 2022. So good shape on all three of those programs. We would expect probably some extensions with FHTV. It's a proven program, so we certainly would expect that would continue on past 2022, but that's yet to be determined.
Tim Thein (Analyst)
Got it. Thanks for the, thanks for the time.
Wilson Jones (CEO)
Thanks, Tim.
Mike Pack (EVP and CFO)
Thanks, Tim.
Operator (participant)
Our next question is from Stephen Volkmann with Jefferies. Please proceed.
Stephen Volkmann (Analyst)
Hi, guys. Good morning, guys.
Wilson Jones (CEO)
Thanks, Steve.
Mike Pack (EVP and CFO)
Morning.
Stephen Volkmann (Analyst)
A couple quick clarifications. It sounds like you're gonna be shut down in Access for about 50% of the fourth quarter. Is that basically the same as the, what you were in the third quarter?
Mike Pack (EVP and CFO)
Yeah, that's correct.
Wilson Jones (CEO)
Right.
Stephen Volkmann (Analyst)
Okay, great. And then I would assume you have fantastic visibility into the fourth quarter for Defense, but I know that sometimes those margins can bounce around or whatever. Anything for us to keep in mind relative to the fourth quarter in Defense?
Mike Pack (EVP and CFO)
I would just say, consistent with what we've talked about in the past, it's a high single digit business. It can vary from quarter to quarter. But I would... Again, I think I would just look at, you know, that high single digits and assume it would be in that territory.
Stephen Volkmann (Analyst)
Okay, great. And then just one longer-term one, Wilson. I know you were kind of right in the middle of the fire around the global financial crisis, pun intended, on the Fire & Emergency side. And I know that-
Wilson Jones (CEO)
Sure.
Stephen Volkmann (Analyst)
That business ended up declining, you know, fairly meaningfully post the GFC. And I'm curious how you're thinking about the current state of affairs in the world relative to what we saw back there. And I know you called out in your prepared remarks that there could be some pressure there, but I'm just curious, as you look out over the next two or three years, do you think this is a similar kind of a trajectory to what we saw post GFC, or is there some mitigating circumstance?
Wilson Jones (CEO)
Yeah, I wanna be careful, Steve, in calling it the trajectory, but what I would tell you is that I believe it's different now versus back then. You know, we had the residential housing crisis, right? And today, residential is not great, but it's, you know, there, there's housing starts. And so that gives us hope that we can keep those tax receipts going in that way. You know, I think the other thing, too, is we watch our distribution channel, and that helps us with our confidence. And just this past nine months, we've seen six of them invest in new facilities. So I think that, and then you look at the fleet age. Fleet age is still elevated in Fire & Emergency.
And as you know, it's kind of an emotional issue in a city if the fire truck doesn't work, and so it usually gets some priority. So we think things are a little different today, but again, I wanna be careful because, as you know, they're always last in, last out, and we're gonna learn more over the next couple of quarters with their order patterns to see if some of that's gonna happen. You have to believe some cities are gonna debate that because of just what's going on, not just with COVID, but some of the social unrest things that are going on, too. So, more to come on that, but I don't... You know, where we sit today, I think the difference is we've still got some housing, and we didn't have it back then.
Stephen Volkmann (Analyst)
Fair enough. Good point. Okay, thank you.
Wilson Jones (CEO)
Thanks, Steve.
Operator (participant)
Our next question is from Courtney Yakavonis with Morgan Stanley. Please proceed.
Courtney Yakavonis (Analyst)
Hi, thanks for the question, guys. Maybe can you just comment a little bit on the dynamics that you're seeing between Europe and the U.S.? It sounds like most of your more conservative comments about the exit rates in June have been related to the case counts in the U.S. You know, are you seeing any differences in utilization between Europe and the U.S.? And then when you talked about those pushouts and cancellations of orders, any discrepancies there?
John Pfeifer (President and COO)
I think that the European market, based on what we're seeing right now, is very similar to what we reported a quarter ago. You know, a quarter ago, we were saying, we don't know if we're gonna be a V shape or a U shape or an L shape in different markets around the world. Or I'm sorry, in the U.S. But we did say we know China's gonna be a V, and indeed it's been a V. And we think that the European recovery is gonna be much slower just because of the macroeconomic indicators that we see in Europe, more than anything. And so that is indeed what we're seeing, is we continue to believe it'll be a slower recovery in Europe.
That's what led us to make some of the fixed cost actions that we reported in terms of our simplification journey and how we're gonna serve the European market going forward.
Wilson Jones (CEO)
Yeah, I think our expectation with the North American market is going to recover quicker than-
John Pfeifer (President and COO)
Yeah
Wilson Jones (CEO)
... than Europe.
John Pfeifer (President and COO)
Yeah.
Wilson Jones (CEO)
But again, to be determined.
John Pfeifer (President and COO)
To be determined. Well, the timing is to be determined.
Wilson Jones (CEO)
Yeah. Yeah.
Courtney Yakavonis (Analyst)
Okay, gotcha. And then, you know, I appreciate there's been a lot of conversations about the cost actions you guys have taken, but just in terms of that, you know, more than $100 million that you're anticipating this year, is there any framework you can give us, you know, when we're thinking about how those costs will roll back in, either, you know, when you stop doing the temporary shutdowns or, you know, when you reach a certain sales recovery, just to kind of help us think about, you know, the margin trajectory into 2021?
John Pfeifer (President and COO)
Yeah. Again, I think not in a position to call 2021, and it's really gonna come down to, as we said earlier, that the volume and demand signal that we're seeing in the Access and Commercial markets, and that's, you know, we have. We're ready to respond based on what we see. So we have optionality, and I think you'll see our actions will align with that demand. Now, again, some of these measures do come back sort of structurally next year because they're temporary in nature. But again, we're gonna continue to manage those playbooks. We're gonna be disciplined, and we have, if we see softness, we have the opportunity for further permanent actions.
Courtney Yakavonis (Analyst)
Okay, great. Thanks.
Wilson Jones (CEO)
Thanks, Courtney.
John Pfeifer (President and COO)
Thanks.
Operator (participant)
Our next question is from Nicole DeBlase with Deutsche Bank. Please proceed.
Nicole DeBlase (Analyst)
Yeah, thanks. Good morning, guys.
Wilson Jones (CEO)
Hi, Nicole.
Nicole DeBlase (Analyst)
So I kind of want to try to dig into the margin question a different way. You know, can you just remind us, in a normal recovery, what you guys have seen in the past with respect to incremental margins? And I guess, you know, based on what you're doing this time, to me, it feels like the same playbook that Oshkosh always follows, and so I don't see why incrementals would be different than they've been in past cycles. But, you know, any perspective you have on that?
John Pfeifer (President and COO)
... I guess, I can start and certainly, Wilson can add in, based on some more historical perspective. But I guess our, again, we're gonna manage the businesses responsibly, but we're in a different place today than when we were going into the Great Recession, for instance. The simplification playbook that we've deployed with great success at Access, at Fire & Emergency is allowing us to really manage the decrementals that we're seeing today are very different than they were in the Great Recession. And again, we're gonna have some temporary cost headwinds when we come back up, but we're gonna manage that responsibly, and we'll deliver responsible, or we believe we'll deliver responsible margins on the way back up.
Wilson Jones (CEO)
Yeah, Nicole, I'll just jump in with a little more color on that. And, you know, your the Oshkosh playbook, I wouldn't argue with you that it's not similar, but I can tell you we've really enhanced it. A lot more simplification. I can't remember when we first met and you started covering us, but, you know, going back, I've been here 15 years, and I remember we struggled on the incremental, decremental side back then. We didn't have the foundation back then that we have today. And what I mean by that is a culture that's working together. We have a people strategy, and, you know, the cost reductions that you've heard us talk about, everybody participated.
And whether their segment, like Defense, was running well, but they still participated in cost reductions to support this different integrated global industrial. I look at the simplification that we've been talking about, and we've really matured, not just with process, but products, the facility rationalization. We're constantly studying on how we can be more efficient and effective in our marketplace. And again, all about creating the value. But the flexibility and the way we're nimble today, I can tell you, five, six, seven years ago, we didn't have that. And again, it's a credit to our teams and how they have really worked together. They've embraced this people-first culture, and it's showing, you know, in our results. And so I think from the decremental standpoint, it exceeded my expectations.
You know, Mike talked at the last call, you know, somewhere mid-20s, maybe low-20s, but to see where we came in, and how fast our teams took those costs out, that's what gives us confidence that as we go into 2021, we can move fast if we need to. I hope we don't have to. I hope we move and move up, but, you know, we're gonna have to wait and see how the markets are recovering before we do that. But I would just say the, probably the playbooks when you first met us, the foundations are here, but we've added a lot, enhanced them a lot, to get to where we are today.
Again, I think if you go back in time, you'd see a big difference in how we've had managed the incrementals and decrementals, compared to the past.
Mike Pack (EVP and CFO)
But Nicole, this is Mike.
Nicole DeBlase (Analyst)
Yeah, totally.
Mike Pack (EVP and CFO)
Supply chain and operations, just faster moving, better information, better decisions.
Wilson Jones (CEO)
Yes.
Mike Pack (EVP and CFO)
Heads up, more connected with our supply base. Those are, those are some of the attributes.
Wilson Jones (CEO)
Yeah, that showed in managing 240 suppliers that were-
Mike Pack (EVP and CFO)
Right
Wilson Jones (CEO)
... were out of business for a while, and how we kept our lines going there. That was a real credit to our supply chain teams.
Mike Pack (EVP and CFO)
Mm-hmm.
Nicole DeBlase (Analyst)
Yeah, I mean, listen, you guys really showed it in your decrementals this quarter. That's very clear. And then just maybe one very quick follow-up from me. I've already taken enough time. The commitment to the mid-twenties decrementals in the fourth quarter, does that also reflect in the Access segment as well?
Mike Pack (EVP and CFO)
Yes.
Nicole DeBlase (Analyst)
Thanks. I'll pass it on.
Wilson Jones (CEO)
Thanks, Nicole.
Operator (participant)
Our next question is from Mike Shlisky with Colliers Securities. Please proceed.
Mike Shlisky (Analyst)
Good morning, guys.
Wilson Jones (CEO)
Hey, Mike.
Mike Pack (EVP and CFO)
Good morning.
Mike Shlisky (Analyst)
Hey there. So I just want to follow-up on Access. Just kind of hear me out here. So if it's the exact same production schedule as far as when you're shut down, when you're open in the fourth quarter, you know, is there any chance we could see a quarter-over-quarter increase in top line in the fourth quarter over the third quarter? Are there any, you know, mix improvements or changes, any increased production you've gotten, you know, I guess, to some of your operational changes over the last couple of months? Or do you think it'll be somewhat flat in the fourth quarter if it's the exact same opening and closing schedule?
Mike Pack (EVP and CFO)
Hey, Mike, it really comes down to we're staying close to our customers. It's really gonna depend on that demand signal. Our customers, you know, as they continue to manage through it, they have the ability to pull orders up a bit if they're seeing an increased demand signal from their customers or push it out a bit, and that really comes down to why we're not making the call on Q4. It's that fluidity that we're seeing in that demand signal.
Mike Shlisky (Analyst)
Okay, great. And then secondly, I think it's about time I asked about it. I wanted to ask about the U.S. Postal Service contract out there. You know, it's over $6 billion. You're one of the finalists. The bids were due about two weeks ago. It's over 100,000 vehicles. I guess, I've talked with the other bidders, and kind of it seems like there's a bit of a lid on what the USPS is allowing the bidders to kind of say, but they've at least confirmed to us that they are bidding. So I guess, first, can you confirm that you're bidding on that deal? And then secondly, can you please tell us, you know, how you would produce the products?
I know it's an outside chassis, but, like, what facility will you actually upfit these, you know, Ford trucks in, and under what, segment will they be under if you were to actually win the contract?
Mike Pack (EVP and CFO)
Yeah. I'd like to be able to give you all that information, but I can only give you a little bit, for some of the reasons you mentioned.
John Pfeifer (President and COO)
... when you just asked your question. So I will tell you that we did submit a proposal for the USPS program. We did it just a couple of weeks ago. It formally went in. We don't have a specific date yet as to when we're gonna hear back from the Postal Service, but we believe we could find out as early as the end of the calendar year, but we might not find out until sometime in calendar year 2021. That's, that I know you want a little bit more information. That's about all I can tell you. That's all I'm allowed to tell you, really.
Wilson Jones (CEO)
Yeah, I think you know we're under non-disclosure, Mike.
Mike Shlisky (Analyst)
Okay. Okay, that's fair. I can, I can always follow-up, offline. Thanks so much, guys.
John Pfeifer (President and COO)
Thanks, Mike.
Operator (participant)
Our next question is from Seth Weber with RBC Capital Markets. Please proceed.
Seth Weber (Analyst)
Hey, guys, good morning. Thanks for keeping the call going. Maybe just a bigger picture question. You know, Wilson, in the slide in your prepared remarks, you talked about fleet Access fleet age as a potential tailwind that you see, an eventual tailwind, I guess. Is that something you're hearing from the rental companies? Because, you know, the fleet's utilization's obviously low. I think the rental companies have gotten a little bit smarter about how they're using fleet and stuff. So I mean, do you... Is that a message that you're hearing from the rental companies, that fleet age is going to kind of cause a pretty, you know, cause a replacement cycle, or is that just your kind of internal assumption? Thanks.
Wilson Jones (CEO)
Yeah, Seth, good question. We, as you know, we have really good relationships with all of our rental customers, and a lot of good information shared that helps us with our sales and inventory operation planning process. And when you look at their fleet ages, if you remember when 2012, 2013, and 2014, that's when the market really started to come back, and we hit peak there at end of 2014. A lot of machines purchased back then. You know, now those are getting into the seven-year, eight-year cycle, and there's still a routine turn of those. You're right, some of those machines aren't being utilized as much, so they could extend that some, but we still believe that that replacement cycle is there. It's just the timing of it.
If markets start to recover, as you know, a lot of the ways our good rental customer friends grow market share is with new machines. And so we think that's still in play, and again, some of the information that we do have tells us that there are a lot of older machines that are gonna need to be replaced. It's just, as you know, Seth, we can't call the timing of that right now. We look forward to doing that, but someday, but we can't right now.
John Pfeifer (President and COO)
Mm-hmm. Yeah, Seth, it's John. I'll just add to that. You know, we hear, you know, the information comes from our customers, but it also comes specifically from data. We know the most opportune time in terms of residual value to replace fleet is between seven and eight years. It can be pushed out a little bit, but the economic equation really falls off if you push it out too much. A lot of it's real data driven.
Seth Weber (Analyst)
Sure, sure. Okay, I appreciate it, guys.
Wilson Jones (CEO)
This is the point, Seth, where we usually give you a hard time about getting on our rental customer friends about buying.
Seth Weber (Analyst)
Well, times are changing, you know? I appreciate it, guys. Thank you very much.
John Pfeifer (President and COO)
Thanks, Seth.
Seth Weber (Analyst)
Have a good rest of the day.
Wilson Jones (CEO)
Take care, Seth.
Operator (participant)
Our next question is from David Raso with Evercore. Please proceed.
David Raso (Analyst)
Hi, thank you for taking my call. I apologize. I got kicked off the call earlier, so I may have missed this. I wanted to push a little harder on Access seasonally. Normally, the fourth quarter sales are down 10%-20% from the third quarter, but given the extended shutdowns, but at the same time, you also have a little inventory to ship out of, and your customers don't take a lot of iron in September, a bit in August, and July is already upon you. Should we be expecting the normal 10%-20% sequential decline, 3Q-4Q on Access? I know it's been an abnormal year, so that's why the question is more relevant than normal. I'm trying to use normal seasonality.
Wilson Jones (CEO)
I wish the word normal was something—
David Raso (Analyst)
Yeah
Wilson Jones (CEO)
... we could use these days, David.
David Raso (Analyst)
Yeah, that's gone now, I know.
John Pfeifer (President and COO)
Yeah, I think the bottom line is, yeah, you can't look at this as a normal year. I think it's, again, it's when you're dealing with these lower levels of activity. I think some of the prior year comps don't necessarily apply. So I think it's we're gonna continue to talk to our customer stakeholders. We have to have the inventory to respond to their demands or needs, and we're gonna have to just continue to manage it and see where they end up. But we're certainly prepared to respond to what those needs are.
David Raso (Analyst)
Mm-hmm. But given the seasonality of their buying, and you're again, you're already done with July. Are you implying that down 10-20, it should be better because 3Q is so low? I'm just trying to baseline it, because you must have enough visibility to at least have a comment about versus normal seasonality, above or below.
Wilson Jones (CEO)
Well, Dave, you know, we don't comment in the quarter we're in. We've always stayed away from that, especially now. And you know this, that this market as well or maybe even us at times, it starts and stops so fast. And you know, like our position, because of the inventory we do have, we know if some things open up, some of these states lift some of the restrictions that are there, and you get some more construction going, we think that could be good for us. But again, we don't know, you know, we're not in control. So what we're doing is controlling what we can. And as you saw, the teams did a great job in the quarter, managing costs down and delivering some really good decrementals.
David Raso (Analyst)
You know, the margins are great. I guess another way to think about it, when you speak of an aging fleet, and if you think about current volumes versus where you believe, from your conversations with your customers, where is replacement demand, or if you want to project on, on next year, where do you think current volumes are versus replacement demand?
Wilson Jones (CEO)
Well, I don't know that we could answer that. When we sit down and do the, you know, negotiations, they give us an idea of how much fleet they're buying expansion, how much fleet they're buying for replacement. But as you know, a lot of that CapEx has been pulled back this year. So we're probably not as current on what they are buying. Is it for replacement or is it for expansion? You know, there's not a lot of expansion today in, from our vantage point, so I would lean that some of it is replacement. But I'd hesitate to try to call that from a percentage standpoint.
John Pfeifer (President and COO)
Yeah, I'll just add to it. You know, our customers are being very careful right now and being very responsible in managing their CapEx as they go through a severe downturn. The good thing within that is we watch the fleet and the size of the fleet, and fleet managers throughout our entire customer base, we see is they're being very careful analyzing their assets, and they'll recommend a sale in a very early fashion. But so there's a slight change in fleet sizes, but there's no significant change in the overall fleet size, and we think that that's a positive sign. We just don't know, again, the timing of when indicators are gonna move the market back to normal seasonality and normal conditions.
David Raso (Analyst)
Yeah, and that's what we're trying to figure out. Of course, in a downturn, all the big guys can age their fleet a bit. I was just curious if you were getting some insight already on, we can age this year, but, you know, all else equal next year, we're not looking to age any more. And thus, if we're below replacement today, there's some built-in growth for next year, just going back to replacement if they cease aging. But, you know, look, I know the orders are down materially right now, so it's not easy to forecast 2021 up at this stage. So we're just trying to put some parameters around it. So I appreciate the time. Thank you so much.
Wilson Jones (CEO)
Thanks, David.
John Pfeifer (President and COO)
Thanks.
Operator (participant)
Our final question is from Steve Barger with KeyBanc Capital Markets. Please proceed.
Steve Barger (Analyst)
Good morning, guys. Thanks for pushing the call.
Wilson Jones (CEO)
Sure, Steve.
Steve Barger (Analyst)
you know, you said there were still deferral requests in May and June for Access. So, can you tell us what percentage of the $557 million in backlog there has a firm delivery date in 4Q, and, and what's scheduled to ship in 2021?
John Pfeifer (President and COO)
Sure, I'll take that, Steve. Generally, we'd expect, you know, a majority of it would be deliverable in the next quarter. But in general, obviously, it's kind of back to the commentary we've had. It's just hard to know. There is that, the-- just as we saw ability to defer, in the previous quarter, there's that opportunity in Q4. Again, it's gonna come down to market activity, and infection rates and just what happens. I think even looking at what happens with schools this fall and whether people are, you know, whether that creates economic headwinds. So we're just gonna continue to monitor it, but it's, you know, we're monitoring it on a daily basis.
Steve Barger (Analyst)
Okay. And just based on the decremental comments, it sounds like you expect a sequential decline in Access margin, even if revenue were sequentially up. Did I - Am I reading that right?
John Pfeifer (President and COO)
I guess what we've said is some of those temporary cost actions, they were more heavily weighted in the quarters. That could be just in total a headwind versus Q3. So to the extent that our range has bumped up on those temporary cost measures, there was a decent chunk of that hit Q3.
Steve Barger (Analyst)
Yeah. And not trying for guidance here, but, you know, as I think about the comments about Commercial not staying double digit and costs in other segments starting to come back, as I'm working through the model based on your comments, it seems like 3Q could be peak EPS for the year. Am I reading that wrong? Do you expect a big variance one way or the other as you go into 4Q?
John Pfeifer (President and COO)
We're not in a position to make a call. Again, it, a lot of it, it's gonna come down to the volume and activity in, in Q4. But again, we're gonna... Depending on what that activity level is, we're gonna stay disciplined from a, cost management standpoint as we manage through it.
Steve Barger (Analyst)
Mm-hmm. All right. Thanks.
Wilson Jones (CEO)
Yeah. Steve, just one final... It's, it's really changed. You know, you've, you've followed us in the early Access business. Normally, you know, we can manage it, you know, on a quarterly basis, and then when things tightened up, we go to a monthly basis. Well, now, literally, they've got customer decisions changing daily on delivery dates, orders, things like that. And so that's why it's so hard for us to really define Q4, because our visibility is not near what it normally would be. And I'm sure you understand why, with what all is going on.
Steve Barger (Analyst)
Yeah, for sure. Thanks very much.
Wilson Jones (CEO)
Thanks, Steve.
John Pfeifer (President and COO)
Thanks.
Operator (participant)
We have reached the end of our Q&A session. I would like to turn the call back over to Wilson Jones for closing remarks.
Wilson Jones (CEO)
Thank you, operator. Thanks for joining us today, everyone. I just want to say please stay safe and healthy as we get through these challenging times together. We certainly look forward to speaking with you on a virtual conference or on the next earnings call. Take care.
Operator (participant)
This concludes today's conference call. You may disconnect your lines at this time, and thank you for your participation.