Oshkosh - Q4 2014
October 31, 2014
Transcript
Operator (participant)
Greetings and welcome to the Oshkosh Corporation Reports 2014 Fourth Quarter and Fiscal 2014 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 on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Patrick Davidson, VP of Investor Relations. Thank you, sir. You may begin.
Patrick Davidson (VP of Investor Relations)
Thanks, Latonya. Good morning, everybody, and thanks for joining us. Earlier today we published our fourth quarter 2014 results. A copy of the release is available on our website at oshkoshcorporation.com. Today's call is also being webcast and is accompanied by a slide presentation which is a reconciliation of non-GAAP to GAAP financial measures that we will use during this call and is also available on the audio replay, and slide presentation will be available on the website for approximately 12 months. Turn now to slide 2 of that presentation. Our remarks that follow include answers to your questions include statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed by such forward-looking statements.
These risks include, among others that we have described in our Form 8-K filed with the SEC this morning and other filings we make with the SEC. We disclaim any obligation to update these forward-looking statements which may not be updated until our next quarterly conference call, if at all. All results stated today are for continuing operations unless stated otherwise. Also, all references on this call to. A quarter or a year are to. Our fiscal quarter or our fiscal year unless otherwise stated. Our presenters today include Charles Szews, Chief Executive Officer, Wilson Jones, President and Chief Operating Officer, and Sagehorn, Executive Vice President and Chief Financial Officer. Please turn to Slide 3 and I'll. Turn it over to you, Charlie.
Charles Szews (CEO)
Thank you, Pat, and good morning. Oshkosh is on the move. Our MOVE strategy is delivering strong results for shareholders. Positive outlook for the next few years. Today we announced full-year adjusted earnings per share of $3.62, which is $0.22 more than the high end of our initial range. When we first provided our expectations for the full year in 2014, earnings were well ahead of the company's internal expectations for 2014. As of our 2012 Analyst Day, when we set out ambitious targets to probable earnings per share from 2012 to 2015 despite an expected decline in defense earnings of more than 90%. That was nearly a per share headwind that we're overcoming. Our employees have given an outstanding effort across our company to deliver MOVE for our customers, shareholders and each other.
We greatly appreciate that effort and their commitment to deliver MOVE and we expect our employees will achieve our principal MOVE targets for 2015. Today we announced our initial 2015 adjusted earnings per share estimate range of $4.00-$4.40, which is within the target range that we set out at our 2012 Analyst Day. When we announced our 2015 EPS target range. Back then in 2012, we shared our detailed assumptions and expectations on how we would almost double earnings per share. We pointed out that a portion of the improved performance was dependent on markets recovering at realistic but slow rates from historical lows. While we've served some of our markets, it has been even slower than we originally anticipated. Fortunately, we've been able to deliver outstanding performance with the optimized cost and capital allocation portion of our MOVE strategy.
Offset the weaker than expected market recovery. More about where we are with MOVE in a few minutes. We know that there will be challenges to achieve our 2015 earnings estimate range, especially when you consider the mixed global economic headlines, but we have initiatives to grow globally. A largely U.S.-centric company with markets that are yet back and aren't yet back to pre-recession levels. We believe the U.S. economy will continue to improve in 2015. Most importantly, we expect housing starts in non-residential construction, which are the principal drivers of our businesses, will continue their slow recovery in 2015. Recall that MOVE was developed and launched in an effort to deliver superior returns for shareholders during a particularly difficult time for the company when we were expecting much lower U.S.
Defense spending for tactical wheeled vehicles due to the wind down of the conflicts in Iraq and Afghanistan and U.S. Federal budget pressures. It's probably ironic then that today our Defense segment provides the biggest upside opportunities to grow our sales and earnings also. Talk more about this in a few minutes. Simply put, we believe we have the right team, the right market dynamics and the right strategy to deliver in 2015 and beyond. Please turn to Slide 4. Our team pulled together and delivered solid fourth quarter results with adjusted earnings per share of $0.96 about double prior year order. Adjusted earnings led by continued strong performance in our Access Equipment segment for the quarter. Results were a little better than our most recent estimates and that's not a bad way to start off the year or to finish the year.
We also repurchased more than 5 million shares during the quarter. Given that recent volatility of the market, the average price per share was above where the stock is currently trading. However, we believe it was a good value. We would expect to continue to repurchase shares in 2015, of course subject to prudent leverage if we believe the stock at the time represents a good investment. I'm also pleased to announce the 13% increase in the dividend rate to $0.17 per share. This $0.02 per share increase in the quarterly dividend rate raises our annual cash dividend to $0.68 and we remain committed to growing it over time. Please turn to Slide 5. MOVE's impact on our financial results was evident in 2014. We improved operating income margins in all of our non-Defense segments, including a new record for the Access Equipment segment.
Fiscal outperformed our expectations as this segment battled through another year of significantly lower U.S. DoD spending on tactical wheeled vehicles. We launched more than 20 new products across the company with multiple offerings from both the Access Equipment and Commercial segments at Conexpo in March. Particularly noteworthy are our industry-leading 185-foot self-propelled boom, new hybrid booms, and McNeilus concrete mixer controls. Our Fire and Emergency segment launched exciting new Saber, Enforcer and Storm chassis at the Fire Department Instructors show in April, while our Commercial segment launched the industry's lightest weight front loader and an improved Zero Radius arm side loader at Waste Expo in May. Of course our team in Defense is now offering three new variants of the M-ATV for international customers.
The Defense team develop variants while also continuing to compete fiercely for the electric vehicle, so return a significant amount of capital to shareholders with a dividend and the repurchase of 8.3 million shares of common stock over the course of the full fiscal year. The impact of our Oshkosh Operating System was also more evident in 2014. We've rolled in tools to nearly all our 12,000 Oshkosh employees. The progress we have made in the maturation of our processes is impressive. OOS provides us with the tools to deliver our growth roadmap and will continue to do so for the foreseeable future. Now we still have work to do in the Fire and Emergency segment to greatly improve our operating income margins, but we have a good plan and a motivated team in place. Wilson will speak more about our actions in that segment.
Please turn to slide 6 and let's look at our MOVE scorecard. The bottom line of our scorecard is that we're doing quite well for shareholders as we initiated our adjusted earnings per share estimate range at $4.00-$4.25 for 2015. Again, within our EPS target range for the year consistent with last year, we are projecting this will recover more slowly in 2015 than our 2012 Analyst Day targets. In fact, we've lowered our expectations for Europe during just the last 90 days. The team continues to deliver above target on our optimized cost and capital structure initiatives. You can see the benefits of disciplined cost reduction, earnings, and margins in each of our non-Defense segments and we have runway to continue margin expansion to these segments beyond 2015.
Also, opportunistic purchases have contributed to a more than 12% reduction in shares outstanding since our September 2012 Analyst Day. This initiative has really been an important driver of our results. This year. We've moved our expectation for the Value Innovation Initiative to be above target where it was previously expected to be at target in 2015. We expect a steady stream of new product launches each quarter across the company throughout 2015 that we anticipate will provide important benefits to customers and earnings. That increase is coming with higher underlying investments that are most visible in our lower margins in our Defense segment. As we invest heavily to win the JLTV program and to support our international sales efforts, we're working hard to bring those defense upside opportunities home to Oshkosh.
Lastly, our international expansion activities remain on track. We've continued to add people and facilities around the world to bring the Oshkosh experience to more global customers. Again, the bottom line represents solid results for shareholders, nearly doubling earnings per share during a three-year period while our largest business has endured a sharp long term. Let's turn to Slide 7 for a discussion of the defense business. Our defense team continues to demonstrate incredible resolve and commitment to both the warfighter and shareholders as they manage operations in a funding environment. We are encouraged by the performance of our vehicles during testing that occurred over the past year under the JLTV EMD contract. We believe Oshkosh is the JLTV and anything else would be less for the warfighter.
Nonetheless, the evaluation criteria for this proposal are more complex than anything we've seen and certainly our competitors feel strongly about their vehicles. So be it. Tough competition, the RFP for the production contract will be issued in November, and we look forward to submitting our JLTV production proposal in January. Based on the latest announcements from the customer, we continue to believe the production contract will be awarded to the winning bidder next summer, probably in July, late July. We've talked about our efforts to capture additional international defense business. We were awarded a contract in the fourth quarter from the Middle East for nearly 70 M-ATVs, and most of these sales are expected to occur in our third quarter. We still believe there are opportunities to sell several thousand M-ATVs to foreign customers, and we are investing to expand the range of M-ATV variants to support these opportunities.
At the AUSA show in Washington, D.C., a few weeks ago, we highlighted one of our new wheel-based M-ATV variants. We're also eagerly awaiting an announcement from Canada on the winner of the program, which we believe will happen no later than next summer, but could possibly be awarded much sooner. Operationally, we've been quite active repurposing our Defense segment production facilities. We're in an environment of bursts of smaller contract awards and production runs. From a production standpoint, we've reconfigured our facilities to allow flexibility for shorter production runs while at the same time preserving our production capacity and workforce for a program like the JLTV. We recently announced a further planned but unfortunate reduction in the size of our defense workforce slated for late in our first quarter.
This is a responsible decision given the decreased level of production work we have scheduled beginning in December 2014, largely due to a break in production of FHTVs while we work with our government customers to finalize a new contract for this program. As a result of the continued investment in future opportunities and the expected break in FHTV production, our expectations for Defense Segment operating income in 2015 are now below our analyst day target. In fact, we expect operating losses in the first half of 2015 as we deal with that break in FHTV production and devote large teams to JLTV proposal preparation and M-ATV variant development. We expect essentially breakeven but positive operating income for the year, reflecting profitability in the second half of 2015. We're successful with the JLTV and international opportunities.
We should experience much stronger performance in defense starting in 2016 as the benefits of our actions and investments become evident. We think this is good business and we're still expecting to achieve our overall EPS target range for 2015. I'll turn it over to Wilson now to discuss our non-Defense segments. Please turn to Slide 8.
Wilson Jones (President and COO)
Good morning everyone. In 2014, the Access Equipment segment recorded a second consecutive year of record sales, operating income and operating income margin, reflecting continued recovery in the global Access Equipment markets, further operational improvements. We remain positive about the business. While there is always more work to be done, I would like to congratulate the Access Equipment team on their performance. There's been a lot of discussion regarding the outlook for the Access Equipment market. Overall, we believe we're going to see continued growth in this market in 2015 as there are a lot of positive indicators in North America, which remains our largest market: utilization rates, rental rates and used equipment values remain strong along with average fleet ages that are at or above pre-recession levels.
In addition, if you believe like we do that housing and non-residential construction will continue to improve in 2015, even if on a choppy basis, then we should see increased access equipment demand. Markets outside North America are mixed. Yes, there is concern about the economy in Europe, but access equipment fleets in Europe are much older than America. Our customers really like to bring their average fleet ages down, so deals continue to be completed every day. One of the largest European access equipment markets, the United Kingdom, continues to grow. Overall, we saw strong growth in Europe in 2014 and despite recently reducing our outlook for this region, we believe opportunities remain. Demand remains strong in the Middle East despite the geopolitical struggles there. Latin American demand is soft but remains important and we are beginning to see improving demand across the Pacific Rim.
The demand is much more about adoption of the product than it is about economic growth in a given country. Labor shortages and construction contract timelines are positively influencing product adoption along with emerging more stringent safety standards for working at height. As we think about 2015, we believe mid to high-single-digit sales growth is reasonable. Please turn to Slide 9 for some comments on our Fire and Emergency segment. We reported higher operating income and operating income margin for this segment for the fourth quarter despite lower year-over-year sales. We still have significant work to do in fire and emergency. We decided to take a step back in executing our business improvement road map for this segment to accelerate the turnaround of the business.
We were introducing too much change too quickly in this complex manufacturing environment where each truck is a custom designed complicated vehicle. So we slowed down the operational pace for the first quarter of 2015. We went in our first quarter, but we expect this segment to experience a gradual strengthening of performance as the year unfolds, with full year performance expected to be above 2014 levels. The actions we are taking now and that we will take during the early part of the year will put us firmly on the path to exiting 2015 with strength. We continue to be active internationally in this segment. During the quarter we completed the delivery of an order for 6 new Striker ARFF units to the Manchester International Airport, United Kingdom. This leading airport is a great example of conquest activity as Europe has traditionally been a challenging market for us.
We also continued our success serving industrial customers in the Middle East with the recent delivery of three tire presses to a petrochemical customer in Iraq. To remind you, we've had much success in Asia and, of course, North America, and we are excited to have made more in Europe and the Middle East. And has also had some strong releases like the Enforcer and all-new Saber chassis tailored for the North American market. The Enforcer offers enhanced performance with TAK-4 independent, a choice of two powerful engines, full protection, and significant improvements in visibility, space, ergonomics, and serviceability. The all-new Saber chassis was built with a value-driven firefighter in mind, delivering durability, greater space, improved ergonomics, and streamlined serviceability at an affordable price. In six to 12 months, we expect these launches to contribute to improved margins in the segment as they were purposely designed for manufacturing.
Before turning to the commercial segment, let's talk a little bit about the North American fire truck market which has shown signs of improvement in areas although we have yet to see a real breakout as fire truck orders are hovering in the 3,800–4,000 unit range on an annual basis. This is the sixth year of lower than average North American fire truck market demand. This alone tells us the fleet has continued to age. We expect that we'll benefit from orders to replace the aging of fleets, but we continue to believe it will be a slow recovery including 2015. Let's turn to our commercial segment. Please turn to Slide 10. We're pleased with the performance in 2014 of our team in the commercial segment as they delivered the segment's strongest full year performance since 2007.
We benefited from the moving concrete mixer market and began to see the effects of MOVE on our margins during 2014. Concrete mixer sales continued to benefit from a choppy recovery in residential and non-residential construction. We expect U.S. housing starts to improve modestly in 2015 to perhaps 1.15 million, significantly below the 1.4 assumed for 2015 at the time of our analyst day. We are expecting recovery in Canada which was weak in 2014, especially in Quebec. The refuse vehicle market looks a little better than it did a year ago with 6% unit growth over the last 12 months. We expect that improving economic activity and municipal spending will help drive demand, but this could be offset somewhat by some customers trying to age their fleets.
Finally, before I turn it over to Dave, I'd like to talk about the success we're having with our refuse collection products. Customers are responding favorably to our enhanced Zero Radius collection vehicle and our split-bin units. These versatile units provide great value for our customers. Our automated units provide efficiency and safety as the driver can spend more time in the cab running routes letting the truck body do the work and the split-bin product allows increased customer route flexibility, isolating regular waste, recycling and organic material into separate body areas on the truck. We like our position in these growing applications. Okay, I'll turn it over to Dave. Now to slide 11.
David Sagehorn (EVP and CFO)
Thanks Wilson and good morning everyone. We're pleased to announce results today that exceeded our previous estimates. Consolidated net sales for the fourth quarter were $1.67 billion, a 3.4% decrease from the fourth quarter of 2013. Sales growth of 19.5% in the Access Equipment segment, 22.4% when excluding military telehandlers in the prior year, and 16.4% in the Commercial segment largely offset the nearly 44% decline in Defense segment sales. Access equipment segment sales in the quarter were up over prior year levels in all regions except Latin America and were higher than we had originally expected, largely driven by higher telehandler sales in North America, which saw sales in advance of an engine emission standards change in January 2015. The increase in commercial segment sales compared. To the prior year was driven by.
Higher concrete mixer sales which continued to benefit from the recovering housing market in the U.S. consolidated adjusted operating income for the fourth quarter was $116.9 million, or 7% of sales compared to adjusted operating income of $78 million, or 4.5% of sales in the fourth quarter of 2013. Significantly higher access equipment segment operating income, up 41% from the prior year. Adjusted operating income was the largest contributor to more than offset the continued decline in Defense segment earnings. Access Equipment segment operating income margin for the quarter is lower than we had previously anticipated due to a stronger than expected sales mix of telehandlers, a more aggressive pricing dynamic in the market, and higher new product development spending.
Adjusted operating income in the current year quarter excludes $3.8 million of costs in the Defense segment related to a pension curtailment due to the recently announced planned layoffs of certain retirement pension obligations. Additional information related to the segment fourth quarter financial performance can be found in the appendix to this morning's slide deck. Adjusted earnings per share for the quarter was $0.96 compared to adjusted earnings per share of $0.49 in the fourth quarter of 2013. The increase in earnings per share for the quarter was driven by stronger earnings growth in the Access Equipment segment, overcoming lower defense earnings, a lower tax rate as a result of favorable tax audit settlements during the quarter, and a lower share count. I should note, however, that the tax audit settlements were expected and were included in our previously communicated earnings outlook for the year.
In fact, they were included in our initial earnings outlook for 2014 that we announced a year ago, full year adjusted earnings per share of $3.62 down from adjusted earnings per share of $3.74 in 2013. The $3.62 compares favorably to our original estimate range for the year of $3.10–$3.40 and our most recent estimate of $3.40–$3.55 on a full-year basis. We saw the improved performance in our non-Defense segments along with the impact of our share repurchases earlier in the year nearly offset a more than $1 per share negative impact related to the lower Defense segment results. Overall, we are pleased with our performance in the performance of Oshkosh Corporation team in 2014 and look forward to 2015 and beyond.
Turn to Slide 12. We are pleased to be announcing our initial 2015 adjusted earnings per share estimate range of $4.00–$4.25, which is a 10%–17% improvement from 2014 adjusted earnings per share despite another significant earnings decline headwind in the Defense segment. We started the new year. The midpoint of the range is probably a good place to assume how we're thinking about this. We are projecting margins to again improve in each of our non-Defense segments in 2015. Defense margins, however, are expected to be negatively impacted by lower sales, lift to lower margin FMTV sales and heavy investments in pursuit of the JLTV program and international sales opportunities.
Additionally, we're assuming that we secure an international contract in the Defense segment in time to recognize the sale of a couple hundred vehicles in the fourth quarter of the year below the operating income line. We're assuming that we call our 8.5% senior notes when they become callable in March 2015 and refinance them with similar notes at a lower interest rate. We have excluded the estimated costs to complete the refinancing and the write off of unamortized finance fees from our estimate, as we would expect to exclude these items when we report adjusted earned earnings. And finally, we're assuming a tax rate of 31% and a full year average share count of approximately 80 million. We believe free cash flow for 2015 will approximate $200 million, including an assumption of $150 million of capital expenditures.
Capital expenditures are higher than we would typically see as we continue to execute our vertical strategy, which we expect to contribute to our targeted margin expansion and as we support a large number of new product launches with capitalized tooling, we expect to generate all the free cash flow for the year in the second half of the year, largely as a result of seasonality factors and the timing of capital expenditures. Regarding our first quarter outlook, we currently expect that our first quarter earnings will be down approximately 2/3 from earnings in our first quarter of 2014. The decline in earnings is expected to be driven by a more than 40% decline in Defense segment sales along with investments in the JLTV production contract proposal and international sales opportunities.
In addition, we expect an increased mix of Telehandler sales and higher new product development spending in the Access Equipment segment compared to the first quarter of 2014. Last year we saw a heavier mix of aerial work platforms in the first quarter, which generally have higher margins than Telehandlers in advance of Tier 4 engine emission requirements. This year, we expect to see the same scenario play out with Telehandlers as they are facing Tier 4 engine emission requirements effective January 1, 2015. We also expect a loss in the Fire and Emergency segment in the quarter. As Wilson noted, despite the slow start to the year, we expect another strong performance from the Oshkosh team in fiscal 2015. Please turn to slide 13 and I'll turn it back over to Charlie for some closing comments.
Charles Szews (CEO)
Thank you Dave. We shared with you our targets to approximately double earnings per share from a little over $2 per share to $4 per share, maybe $4.50 at the high end. There have been many potential roadblocks along the way, but we have persevered. We have achieved significant cost reductions, new products and expanded our global footprint, acted on capital allocation opportunities, introduced our initial adjusted EPS estimate range bars to $4.25 for 2015. We've taken a little off the high end of the range that we previously targeted, but in light of macro events we are happy to have maintained an adjusted EPS estimate range at $4 and above. Of course we are looking further out than 2015 and expect that we can grow the business in 2016 and beyond with detailed margin enhancement plans that support our goals.
We are planning to discuss the evolution of our move strategy throughout the year in much greater detail when we hold our next Analyst Day in September 2015. We have intended date to be after when we expect the JLTV to be awarded and discuss the outlook for our company with greater clarity. 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 and A started.
Patrick Davidson (VP of Investor Relations)
Thanks Charlie. I'd like to remind everybody, please limit your questions to one plus a follow-up and after the follow-up. If you're interested in asking more, we ask that you get back in queue and we're happy to answer questions additionally. Latonya, let's please begin the Q&A period of this call.
Operator (participant)
Thank you. At this time we will conduct a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up before pressing the star keys. One moment, please. While we poll for questions, our first question comes from Stephen Volkmann with Jefferies. Please proceed with your question.
Stephen Volkmann (Managing Director)
Hi, good morning guys.
Charles Szews (CEO)
Morning.
Stephen Volkmann (Managing Director)
Can we dig into BPS a little bit and then one quick follow-up after that? But obviously your outlook is a little bit better than some others in the industry here. Sort of calling for continued growth. And I'm just curious if you think there's any share shifts happening in the business. Maybe you have a little bit different sort of customer breakdown or something and you could give us a little color on big nationals versus sort of mom and pop rentals and so forth and then any commentary you can expand on with respect to pricing in that business would be appreciated.
Wilson Jones (President and COO)
Okay, Steve, this is Wilson. I'll jump in here. You know, we don't really comment on share. I mean, you can see our performance and what we delivered for the year and form your opinions there. From a macro standpoint, looking at the national rental companies and the independents, we've talked in the past about how we use two or three different data points to bring our forecast up. So that's what we've done again this year just like we did last year. You're hearing some of the comments from the national rental companies out there and how they're looking at the business going forward. You watch non-res and res, there's opportunities there. There's some recent sell-side surveys out there from UBS and BoA that are very positive. Then you look at the fundamentals in the industry. They're just strong.
Even commenting on the European fleet, how old it is. So we believe the 5-8% is a reasonable forecast for us going forward and certainly believe we can deliver that providing any unforeseen market things happen. As you know, we can't predict all that, but the OV and E in our company is working well to deliver the 5-8% at Access. In regards to pricing, it's been competitive but again from our planning, we've been really focused on optimizing our costs where we can be competitive. There are some areas where we stay away from where it's not good for our margins, but we watch all that close and do monitor our share to make sure we're not backing up in any of the bigger markets.
Stephen Volkmann (Managing Director)
Are you able to recapture all of the Tier 4 that you incurred?
Wilson Jones (President and COO)
We did that on AWP. We're just starting it now. Handlers, and that's always our plan is to capture our costs.
Stephen Volkmann (Managing Director)
Thanks. Then this one may be for Dave, and this is a little unfair, so I apologize in advance, Dave, but I think last year around this time we were talking about the fiscal first quarter quite weak as well. And I think you ultimately came in and did about two times what the Street was. And I guess I'm just trying to figure out if maybe you're one of those guys who gets out on the holidays or if you actually feel like you have pretty good visibility into this next fiscal first quarter and you know, the visibility question. So I'll leave it at that.
David Sagehorn (EVP and CFO)
Steve, I think that's really an unfair question.
Charles Szews (CEO)
He's so hurt by it, he just fell on the floor. But you know, what I'd say is that the first quarter is always tough for us. You can't look at our outlook for the next fifth by looking at the first. Why is that? You know, we only get 2/3 or 3/4 of the shipping days in the quarter. So right off the bat we're struggling because of all the different holidays and people don't want to take trucks during the holiday periods that, you know, in the northern climates they don't want them either. They want everything to come, you know, in spring just in time to maintain strong utilization rates, et cetera. So always going to struggle in that first fiscal quarter quarter.
We put on top of that in our defense business today that, you know, we've got a lot of people working full time seven days a week on the JLTV proposal. We've got them working on M-ATV variants so that we can pursue some of these defense site opportunities. And you bring that up and it's a struggle for us in the first quarter. Having said that, we expect our second, third, fourth quarters to be strong. And I think our view is overall that we're feeling very positive about 2015 and that we're going to make shareholders happy.
David Sagehorn (EVP and CFO)
Steve, it's David, just to add on a little bit there. I think the biggest driver to how we're looking at the first quarter year-over-year is in the Defense segment, and we've got a pretty good visibility in terms of the volume there. We do expect it to be down significantly year-over-year. Charlie mentioned we expect loss in the quarter. If you do compare that back to how we performed in the first quarter last year, that is a pretty significant difference.
Stephen Volkmann (Managing Director)
Okay, good. I appreciate it. I'll pass it on. Thanks.
David Sagehorn (EVP and CFO)
Thanks.
Operator (participant)
Thank you. Our next question comes from Charley Brady with BMO Capital Markets. Please proceed with your question.
Charley Brady (Director of Equity Research)
Thanks. Good morning, guys.
Charles Szews (CEO)
Good morning.
Charley Brady (Director of Equity Research)
Hey, could you just back on AWP, just maybe a little color on Brazil? I know it's a lousy market right now. It's down for everybody. But has it stabilized or do you see it continuing even outside the quarter to trickle back, continue to move down? And then maybe you could talk about what you're seeing, kind of the growth rate you're seeing in. You know, one of your European competitors saw pretty strong growth when they reported. A few months ago. Well, I'm assuming you guys are seeing. That, the rate of growth.
Wilson Jones (President and COO)
Hey, Charley, it's Wilson. I'll start off and I'm sure Dave and Charlie can add some color from a Brazil standpoint. You know, with the election, there's not a lot of activity right now. We don't anticipate anything really getting going until after Christmas into January, February. Latin America for us was fairly strong the first half. We were up year-over-year, slowed down in the back half again. We believe related to a lot of the political things going on there. As we've said before, that's an important market for us. The middle class is growing there. So we believe it can be a good market. Right now we're not trying to be bullish or predict anything because there's just so much uncertainty around the political scene. But we do see that as a good market going forward.
In terms of Europe, yeah, we had a nice year in Europe. We were up. We don't have percentages, but we were pleased with our performance in Europe and we're certainly hoping that Europe will stay on a healthier plan going forward. Charlie was just in Europe. He may want to comment a little bit on what he saw.
Charles Szews (CEO)
Sure. The very, very strong double-digit growth rate across Europe in calendar 2014. I would say that we were right there. We had had a terrific year in Europe and that does bode well for next year given the fact that fleet ages are so old in Europe. I think Europe will be another good market for us in 2015. In terms of Brazil, I do think we're going to start the year slow like Wilson said, and then pick up toward the latter half of the year.
Charley Brady (Director of Equity Research)
Great, thanks. I'm going to quick on fire. The orders were up pretty sharply in Fire to Emergency. Can you just comment on where that's coming from and does that include the U.K. shipments in the quarter?
Wilson Jones (President and COO)
Yeah, the shipments from an order standpoint, Charlie, we're pleased with the order activity going on in Fire. You see their backlog growing. So fundamentally everything is looking a little bit better for Fire and Emergency. Most of those are domestic orders. We are getting some international airport orders, but for the most part the bookings have been domestic municipal orders. Just some good conquest account activity going on at fire today.
Charley Brady (Director of Equity Research)
Thanks.
Operator (participant)
Thank you. Our next question comes from Seth Weber with RBC Capital Markets. Please go ahead with your question.
Seth Weber (Equity Research Analyst)
Hey, good morning, guys.
Charles Szews (CEO)
Good morning, Seth.
Seth Weber (Equity Research Analyst)
I just wanted to kind of draw back on the access performance again and your comment about the more increased competitiveness. Can you just give us any more color? Is that across all regions and all products or is it or defined on a certain geographic area?
Wilson Jones (President and COO)
I would say, Seth, overall it's just a competitive environment. We've got some Asian competitors now moving around. So I think it's in every region you have different levels of competitiveness, some a little more aggressive than others, but nothing that I could just give you some specifics. It's just here, just there. It's just a general competitiveness that is picking up.
Seth Weber (Equity Research Analyst)
Okay, if I could just stick on Access for a second. You know, there's been some discussion about the bigger the national rental companies operate their fleets more efficiently and kind of running utilization levels higher relative to prior cycles. Have you kind of thought about that? Have you kind of, you know, baked that into your assumptions or are you. Still seeing? Are you seeing fleet growth? Here or is it fleet repeller? Can you give us some puts and takes in your outlook for next year?
Charles Szews (CEO)
Yes, Seth, we are seeing both still heavy replacement at the same time. We are seeing pockets of fleet growth around the country, particularly in Texas, Louisiana, then you have housing activity going on in the Southeast and California, et cetera. So I think that you're seeing a good marketplace overall.
David Sagehorn (EVP and CFO)
You also have to consider that the IRCs independent rental guys, they were late in terms of coming back compared to the NRCs. So we think they're going to continue to be strong in 2015 as well.
Wilson Jones (President and COO)
I started off earlier, Seth and Steve Volkmann. Part of our forecast roll up is including our customers, the voice of the customer. So a lot of that roll up does come from the information that we're receiving from them.
Charles Szews (CEO)
What we do is we build it up by customer around the world.
Seth Weber (Equity Research Analyst)
Right. Okay, thanks. One more on the commercial segment. Good revenue growth, not seeing a lot of margin expansion next year. Is there a mix headwind there or is there something going on? Why, why the margin wouldn't be better next year in commercial?
David Sagehorn (EVP and CFO)
Yeah, Seth, I think they are making some conscious decisions in terms of increased spending on MPD next year as well as continued investment in MOVE initiatives which are muting or will mute the incremental margins in that business. In 2015 should see the benefit from that in 2016, then starting late in 2015 and into 2016.
Seth Weber (Equity Research Analyst)
Great. Thank you very much, guys.
David Sagehorn (EVP and CFO)
Thanks.
Operator (participant)
Thank you. Our next question comes from Ross Gilardi with Bank of America. Please proceed with.
Ross Gilardi (Managing Director)
Yeah, good morning. Thanks, guys.
Charles Szews (CEO)
Morning.
Ross Gilardi (Managing Director)
The first question was just on the count assumption for fiscal 2015. I mean, how are you going to get it down so substantially and, you know, managing all the volatility in the share price? Could you tell me where you finished the year in terms of share count and would you consider an accelerated share repurchase?
David Sagehorn (EVP and CFO)
Sure, Ross. We did repurchase about 5.2 million shares in the fourth fiscal quarter. With that, the actual shares outstanding when you include in all the various dilutive items are right around 81 million. We really have all that much farther to go throughout 2015 to get to the 80 million target that we, we assume for our 2015 estimates.
Ross Gilardi (Managing Director)
Got you. Thank you. On Europe, you guys have. Been back and forth a little bit with your commentary. You had a great 2014 with respect to growth, but you also commented that you lowered your expectations in the last days. Can you flesh that out a little bit?
Charles Szews (CEO)
Sure. Seeing the kind of growth that we had in 2014, we were expecting stronger double digit growth in Europe in 2015 when you go back to say, July time frame. But as we stand here today, we're still looking at solid growth in 2015 in Europe, but just not at the kind of double digit rates that we were expecting earlier in the year. Well, there's still strength, for example, in the United Kingdom and Middle East, which we kind of lump into Europe when we look at that area and other pockets of Europe.
Ross Gilardi (Managing Director)
And what is that, Charlie? Is it the rental companies getting a little bit more selective on fleet investment and replacing the fleet, or is it some other dynamic?
Charles Szews (CEO)
The economic environment overall in Europe might be, you know, mixed and difficult in some areas, but rental companies are buying every day. Right now, this is still a very active and vibrant market in Europe and we expect it to be that way through 2015. Right. And I'm glad that we are. We're still less than half of prior peak.
Ross Gilardi (Managing Director)
Got it. Okay, thank you.
Charles Szews (CEO)
Thanks, Ross.
Operator (participant)
Our next question comes from Jamie Cook with Credit Suisse. Please proceed with your question.
Jamie Cook (Managing Director)
Hi, good morning and nice quarter. Just two questions. Sorry to focus back on AWP again, but can you just quantify what you're expecting the U.S. to be up versus Europe or versus world? And then my second question. I understand the first quarter and the different drivers behind that, but it seems your implied growth in the remaining nine months is more pronounced this year versus other years, implied EPS growth. So, I mean, you talk through some of the defense stuff like the revenues being higher in the back half of the year based on some of the recent awards. But is there anything else that's driving the more pronounced growth in the remaining nine months this year versus previous years? Thanks.
Charles Szews (CEO)
There are a few things. Again, defense, we've got this FHTV break in production that really hits hard in our second fiscal quarter. All right. And then when you get to the latter part of the year, we've got some international business. Some of the M-ATVs and other vehicles in the third and fourth quarters that are coming in that are uplifting the business in defense. So that's why you see first half struggle, second half stronger in defense. Then you get the normal fire seasonality, which is. It is huge.
David Sagehorn (EVP and CFO)
I think a couple other things Jamie, Wilson talked about some of the things we're doing in fire and emergency segment in the first quarter in terms of production rates, those will increase later in the year. So that will be more of a tailwind for us. And then in the access segment, we talked a little bit about NPD. So if you think about 2014, NPD kind of ramped up each quarter throughout the year. As we look at 2015, we think that will begin to ramp down and become a little bit of a tailwind for us later in the fiscal year as well.
Charles Szews (CEO)
That actually is a pretty similar state that we have in defense.
Jamie Cook (Managing Director)
Okay.
Charles Szews (CEO)
Cover your first half NPD spend and lighter in the second half.
David Sagehorn (EVP and CFO)
And then just maybe one other item would just be mix and access as well. So we talked about the first half here being probably more heavily weighted to telehandlers in 2015. If you think about 2014, we were more heavily weighted towards AWPs in the first half of the year.
Jamie Cook (Managing Director)
Okay, thanks. And then sorry to follow up, U.S. specifically versus Europe. Then, if you'll give it within AWP.
Charles Szews (CEO)
You know, we're looking at 5%-8%. All regions in the world, we're looking at it being up in 2015. Except for Latin America, we're looking at that being down.
Jamie Cook (Managing Director)
Okay. In Europe, I see more pronounced growth versus U.S.
Charles Szews (CEO)
A little.
Jamie Cook (Managing Director)
Thank you. I'll get back in queue.
David Sagehorn (EVP and CFO)
Thanks, Jamie.
Operator (participant)
Thank you. Our next question comes from Mircea Dobre. With Robert W. Baird. Please proceed with your question,
Mircea Dobre (VP of Equity Research)
guys. Very nice quarter. If we can go to the fire segment, maybe a little more clarity on exactly what it is that you're doing. You mentioned delaying some actions in the first quarter, but you're obviously doing things at the same time to improve margins going forward. Color on your actions and really the way we should be thinking about the margins through the year.
Wilson Jones (President and COO)
Yeah, Mig, I don't want to be too specific here from a compass point. I guess the line up front is we're streamlining the process there, you know, around the business a little bit. You know how complicated and complex the fire truck manufacturing process is during the downturn. As we mentioned, this market's been down for six years. Us, along with competitors, have gone and competed for trucks that in the past we might not have competed for, that were out of the complexity range for us or another competitor. We've all adapted to this new norm of competing and keeping share and going after trucks that normally were in our wheelhouse, so to speak. So that's created some internal issues for us to better adjust. That's what we're doing now. Instead of taking a traditional single line approach, we're doing that in a different way.
Again, I don't want to go into too much more detail, but we are getting a cadence now. The slowdown that I mentioned, we are seeing the metrics go in the right direction. We're excited about this new process. We think it's a process that we can sustain and compete in all segments of the marketplace. Now it's just about executing through this and as Dave mentioned, continued rates up through the year there.
Mircea Dobre (VP of Equity Research)
But can you give us maybe more specific color on the actual cadence of margins themselves?
Wilson Jones (President and COO)
Mig, we certainly expect that we will see a step up in margins each quarter throughout the fiscal year.
David Sagehorn (EVP and CFO)
And finishing the year ahead of last year.
Mircea Dobre (VP of Equity Research)
Right. The full year ahead. Then I guess my follow up is on defense. If I heard you correctly, your outlook embeds some additional international orders that you're supposed to receive. Hopefully sometime soon to be able to deliver in 2015. What would be the cutoff basically for these orders to be received? And then how confident are you that these orders can be closed on?
Charles Szews (CEO)
All right. The exact date we need to get a contract. We debate even internally, but certainly by early in the second fiscal quarter, we need to have the contracts in house because we obviously can still start building vehicles even before you have things under contract, if you're confident in the order. So we're in the early part of the second fiscal quarter. We really need to have the contracts in house.
Obviously, we feel good enough about the opportunity that we're putting it in our outlook if we thought it wasn't likely or it wouldn't be in the outlook.
Mircea Dobre (VP of Equity Research)
All right, thank you.
Operator (participant)
Thank you. Our next question comes from Jerry Revich with Goldman Sachs. Please proceed with your question.
Jerry Revich (Senior Investment Leader)
Good morning. Can you talk about the opportunities on the CapEx side? How much are you building out your footprint in international markets, as you highlighted was a strategic priority? And just can you step us through maybe some of the bigger, higher returns opportunities that you're investing in?
Charles Szews (CEO)
Well, you know, I guess the prime there are three really reasons for the increase in the CapEx. One is we're investing in a vertical integration strategy. It's a strategy we've deployed in defense since the beginning of time, and we're deploying it more aggressively in our other segments. And so I think that's probably the number one increase in capital spending. You'll see some benefit in the second half of the fiscal year. Most of it's going to be 2016 benefits.
On top of that, we are investing significantly in tooling for all these new product launches that we're talking about in 2015 that has a cost to it. Much of that is in the first half of the fiscal year because we're launching the products over the course of the year. So we're spending heavily in tooling to deliver products at high quality and strong targeted product cost. And then the last is we continue to invest pretty heavily in our IT systems, ERP, some edge systems, et cetera. Again, as an overall objective to make us a leaner, efficient, more efficient shop and secure. We've really had to up our cybersecurity investments in IT over the last several years in part because our defense customers demand it.
But we've also seen a real strong, I guess we've seen enough other companies struggle in this area that we don't want to be in the newspapers over it.
Jerry Revich (Senior Investment Leader)
Okay, thank you. And then follow up on the new product launches. The tooling investment. I guess when we saw you roll new product launch equipment, you had better build-ins on the new products versus the old ones. Can you just flesh out for us which segments of new products are directed at and whether we expect a similar magnitude? And maybe if you're willing to comment on the vertical integration opportunities in a little bit more detail, that would be great.
David Sagehorn (EVP and CFO)
Well, I can't say we're going to get into more detail on the vertical integration activities, but I would say they're across all segments. Not so much in defense, but certainly in our non-Defense segments. And in terms of new product development, again, this is across the board and I think you're going to see some nice launches every quarter.
Jerry Revich (Senior Investment Leader)
Thank you.
Charles Szews (CEO)
Thanks Jerry.
Operator (participant)
Thank you. Our next question comes from Pete Skibitski with Drexel Hamilton. Please proceed with your question.
Pete Skibitski (Senior Aerospace and Defense Analyst)
Good morning guys.
Charles Szews (CEO)
Good morning.
Pete Skibitski (Senior Aerospace and Defense Analyst)
On the CapEx on the vertical integration, is this kind of a one-time thing? Because it is a pretty big step up. I'm just wondering, should we model in a CapEx decline in FY16 or if this is kind of the new run rate?
Wilson Jones (President and COO)
Pete, this is certainly above what we would consider to be for this business. I think you're normally in, if you think around probably anywhere from $60-$80 million in a given year is probably more of a normal run rate for us.
Pete Skibitski (Senior Aerospace and Defense Analyst)
Okay, great, great. I gotcha. Vertical integration, right?
Charles Szews (CEO)
We've got it. It's, you know, it's a bit of an investment year but I think shareholders are going to like the returns that they're going to get.
Pete Skibitski (Senior Aerospace and Defense Analyst)
Got it. Let me follow up, I guess, on Access, just so I'm clear on the growth you're projecting in fiscal 2015. Is that all unit growth with kind of flat pricing given the competitive environment?
Charles Szews (CEO)
It's largely volume. There's some price improvement there as well. You know it's going to be modest. We have.
Pete Skibitski (Senior Aerospace and Defense Analyst)
The growth is IRC driven.
David Sagehorn (EVP and CFO)
I would say the IRCs are definitely going to be in 2015. They've been on a steady growth pace last couple years. But there is some growth in the nationals too. Yeah.
Pete Skibitski (Senior Aerospace and Defense Analyst)
Okay, thanks very much, guys. Thank you.
Charles Szews (CEO)
Thanks.
Operator (participant)
Thank you. Our next comes from David Raso with ISI Group. Please proceed with your question.
David Raso (Senior Managing Director)
Hi, good morning. Can you help split out for us? The implied order growth for Access was over 50%. Can you help us a bit with? The order growth in teles versus the aerials?
David Sagehorn (EVP and CFO)
David, you're talking about the fourth quarter, right?
David Raso (Senior Managing Director)
Sure.
Charles Szews (CEO)
It would have been higher in telehandlers than in booms because you saw it in our sales mix, for example, and that's what we expect, a heavier mix in our first fiscal quarter. So certainly you're right. We had over a 50% increase in orders compared to last year in the quarter and igger piece of that was telehandlers.
David Raso (Senior Managing Director)
But were they up double-digit? Just so we're clear to some diversity?
Charles Szews (CEO)
Yes.
David Raso (Senior Managing Director)
Okay. So if the mix is more teles up next year, I'm just trying to. So, the implied incremental margin for next year isn't much different than we just saw in fiscal 2014. But the mix sounds a little more challenging than last year. Is there something else we should be? Thoughtful about why rentals can be as strong this year as last year despite a negative mix.
Charles Szews (CEO)
I think over the course of the year you will see a more traditional mix of sales. That's what we're projecting. So we'd say the first couple quarters are going to be heavier in Telehandlers. The last part of the year will be a little heavier in booms. So it's going to somewhat even out as the year progresses. I don't think necessarily customers are going to buy a lot more Telehandlers just because of Tier 4 over the course of the year. Just going to buy them earlier to get benefits of pre-Tier 4 or whatever. So I think that's the way you're going to see it.
David Raso (Senior Managing Director)
You don't really expect much of a negative mix on a full year basis.
Charles Szews (CEO)
Correct.
David Raso (Senior Managing Director)
And then bigger picture with all the majors, including yourself now extending the life of the booms. I mean it seems like you went 8 years, Skyjack went from seven to 10, Genie went from seven to 10. Obviously the need to replace the boom being extended now. Now it's again mostly 10 years or eight years. Is that impacting the buying decision from the customers? I mean obviously, I would suspect a. Lot of the guys just obviously legally. Had to replace the boom in seven years, and it expired a replacement demand cycle that now I would suspect they'll just extend the life. Can you help us think about the. Cycle with that change, which I suspect is not a subtle change in how they're going to age their fleet.
Wilson Jones (President and COO)
On paper it looks significant, but to date we haven't really seen any measurable impact with this. We changed back in 2013. We went from seven to eight then and again we're conservative and responsible. We test and test and retest. So we think we're in the sweet. Spot on where we should be. We always visit these issues with our customers. But to this point, we haven't seen any measurable impact.
David Raso (Senior Managing Director)
You would think there's two ways to look at it. It extends the cycle to some degree, but it sort of flattens it out less of a stunt on the growth. Is that the right way to think? About it or is it simply just stunts demand a bit by just the age? The IRCs just aren't making the math work as well on the aerials right now at these prices. So you're seeing a lot of used buying by the IRCs. I'm just trying to think through all those dynamics with this age extension. Help us with your experience on how. It impacts the cycle.
Charles Szews (CEO)
Independents have always had a higher average age of their fleet, so this is really meaningless to them. The kind of moves that we're talking here. And don't forget that we're dealing with a number of factors. That's one thing that's affecting maybe the longevity of the product. The other thing that's affecting the product in the marketplace is the fact that penetration is greater. You know, work at height regulations are certainly stronger in the U.S. and across the world, you see more and more use of our product in different applications. So, you know, these are all factors that are coming together. When we look at 8% growth for this segment next year, this is very realistic. And we think that there's a long runway beyond FY 2015
David Raso (Senior Managing Director)
That's the key. I mean, the orders were so strong. Feel the new guide for the year doesn't seem that challenging. A look out beyond 2015, so. Okay, I appreciate that comment. Thank you very much.
Wilson Jones (President and COO)
Thanks, David.
David Raso (Senior Managing Director)
Thank you.
Operator (participant)
Thank you. Our next question comes from Eli Lustgarten with Longbow Research. Please proceed with your question.
Eli Lustgarten (Senior VP)
Good morning, and thanks for taking question. Let me just follow up. When we put out our report about the extended life, we were told by AWP, the rental companies, that they are aging their assets. What we've seen is the average age of AWP stay in the 52 different months. Do you have any feeling that it would follow the rest down in the other product lines to the 40s or it'll just stay there for a while? I think the implication that it's just going to stay in the 50s down.
Charles Szews (CEO)
I think you're right, Eli, and that's for us because that means that the next time that there's an economic downturn that they can't extend the age. I think it should smooth out the cycle for us. It'll smooth out the cycle for our rental company customers. We won't be sweating so much in the next downturn.
Eli Lustgarten (Senior VP)
Just a follow-up question, just the idea of how much the new product development spending is going up this year versus last year or first half versus second half because you've indicated there's a problem in the first part of it. Maybe you can give some quantification of how bad the losses will be in defense and equipment in the first half of the year.
David Sagehorn (EVP and CFO)
Eli, in terms of new product development we quickly referred to it for the access equipment segment. I mean overall for the year I think we're largely looking at flat. But as we said earlier, it will certainly be a headwind in the first half of the year and we expect it'll be a tailwind in the second half probably I'm not going to get into the specifics for each quarter but it's certainly meaningful enough for us to call it out as a driver.
Eli Lustgarten (Senior VP)
It's like a 60/40 split or something this year.
David Sagehorn (EVP and CFO)
Yeah, I don't have the numbers right in front of me, but something like.
Charles Szews (CEO)
That's directionally correct, right?
David Sagehorn (EVP and CFO)
Yeah.
Eli Lustgarten (Senior VP)
Can you give us some idea of what the magnitude of losses that we should expect in defense and equipment in the first quarter or second quarter? Just you know, doesn't have to be. Precise but just some ideas of how. We model this thing correctly.
Charles Szews (CEO)
Well, again we give you overall bottom line, we said it's down about 2/3.
Eli Lustgarten (Senior VP)
Okay, thank you very much.
Operator (participant)
Thank you. Our next question comes from Walter Liptak with Global Hunter Securities. Please proceed with your question.
Walter Liptak (Managing Director)
Hi, thanks. Good morning.
Charles Szews (CEO)
Good morning,
Walter Liptak (Managing Director)
Wilson. When you were making your comments, you were talking about labor shortages. I think it was access and labor shortage and more penetration of AWPs. And I think you were alluding to Asia. Is there anything, if that's right, is there anything concrete? Are there new rental companies or growth in the distribution channel that you're seeing, or is it just a general trend that you're thinking about?
Wilson Jones (President and COO)
Yeah, well we're primarily focused on Pacific Rim and you know, a lot of infrastructure building. I think adoption is. We're starting to see that get some traction there. I think a lot of work with the different agencies over there, the safety agencies. And so there's just a general awareness now there's been some visits over here to the U.S. to meet with different in the U.S. and understand really what safety working height truly means. So we're just seeing some good traction there and we are seeing more rental companies come on the scene. So the rental is coming into play where before we were driving it through construction companies. Today we have more help from the rental concept growing.
Charles Szews (CEO)
Well, let me just expand on that a little bit, at least in my travels in Asia. What we've been surprised by recently is that, you know, it's less of our effort to, you know, increase work at height safety regulations that's driving the increase in the number of rental companies and demand and more so that, you know, labor shortage in construction trades, more of an emphasis on hitting construction contract deadlines and those kinds of things that are driving demand relative to even work at height regulations. Now, I don't want you to get too frothy over this. It's not going to, you know, we're going to have nice, probably double digit growth, you know, in Pac Rim for a few years. All right. But again, you got to remember, this is a really small market overall today.
Someday it'll probably be the biggest market for us in the world. But, you know, I'm not sure I'll be living then or at least certainly probably retired.
Walter Liptak (Managing Director)
Okay, fair enough. Have there been new safety regs that have come out or is there a date that you can say, okay, like in China.
Charles Szews (CEO)
In China there were some new safety regulations that just came up that, for example, if a worker dies on a work site that I think it went up like four times or something like that, that the compensation that the company must pay for worker deaths on job sites and things like that. So don't quote me too specifically on the percentage there because I'm old and it's a while ago that this happened, maybe a couple months. But the facts are, is that there are changes that are occurring.
Walter Liptak (Managing Director)
Yeah, absolutely.
Wilson Jones (President and COO)
Just one addition to that, Charlie, is there's a focus on retiring scaffolding and there's some activity around that too that will help drive AWP.
Walter Liptak (Managing Director)
Okay, sounds good. And then for my follow up.
Patrick Davidson (VP of Investor Relations)
That was your follow up, wasn't it, Walt?
Charles Szews (CEO)
I didn't know you were there. Pat's keeping score.
Patrick Davidson (VP of Investor Relations)
Well, you know, I like to monitor these, so.
Walter Liptak (Managing Director)
Yeah, okay.
Patrick Davidson (VP of Investor Relations)
If it's an easy one, you can ask it.
Walter Liptak (Managing Director)
It's an easy one. If you look at the backlog in commercial, sequentially, it dropped more year-over-year, quarter-over-quarter than last year. So it's a bigger sequential decline, but you still got some pretty good solid double-digit growth forecasted in that $1 billion. So I wonder if we can get some more color on the confidence that you've got in commercial and non res markets.
Charles Szews (CEO)
Yeah, Walt, I think we have a very realistic outlook for the year commercial. You know, 1.15 million housing starts. It doesn't have to increase a whole lot. Right. Our estimates are even lower than what you see most economic forecasts at 1.25 and 1.3. So I think we have a very realistic outlook in concrete, on the refuse side, we're only looking at modest market increases, market demand increases, and we've seen that kind of a modest growth in 2014. So, in market, that's still down 40% from where it was or 30%. So I do think that our commercial outlook is very realistic, positive, really, for the next few years.
Walter Liptak (Managing Director)
Okay, got it. Okay, thanks guys.
Patrick Davidson (VP of Investor Relations)
Thanks, Walt.
Operator (participant)
Thank you. Our next question comes from Ann Duignan with JPMorgan. Please go ahead with your question.
Ann Duignan (Managing Director)
Hi guys, how are you doing? Just a couple of quick follow-ups. Most of my questions have been answered at this point. Telehandlers lower margin, traditional access equipment. Can you just tell us why that is? How did we end up at this point? And then philosophically also, what was the rationale for going to the extended life, for pushing the seven years to the eight years? I know the competitors did it first, so maybe you were just following competitors, but what was the rationale behind that move?
Charles Szews (CEO)
Okay, let me take the first on the Telehandler margin. Telehandler margins have been lower than aerial work platform margins for a long, long time. I think one big difference for us as a company is JLG designed ground up all of our aerial work platform products. When you look at our Telehandler product lines, it's a different story. JLG historically acquired a number of the brands, so there's sort of different, just a whole different product line that we find much like you see in the auto industry where they streamline product lines or chassis offerings, for example. We've got the same sort of effort going on today where we need to rework the product line to be able to improve our margins in that business. So I think you will see that over time that we're going to make some changes to our Telehandler product line.
Wilson Jones (President and COO)
On the extended life question, and I want a competitor. But we did it back in September of 2013, and we've always had a required inspection and replacement of the rope extension. Looking at that through testing, we felt like eight years was the right amount of years to do that before an inspection. Again, I can't speak to why someone does it years, but we just felt like going from seven to eight was the right way to do it from our testing. Again, we look at this and we're studying it right now since it has become kind of a question out there. So I think for now, that's about all commentary we have on it. But just to remind you, we did do it back in September of 2013.
Ann Duignan (Managing Director)
I appreciate that, but what was the value proposition for the customer or why do it? I guess I'm just trying to understand why from seven to eight.
Wilson Jones (President and COO)
Well again, trying to add it to our customer base. At seven years, we felt like the rope had another year, a good solid year of life. And so again, trying to better support our customers.
Ann Duignan (Managing Director)
Okay, I'll leave it there. Thanks.
Charles Szews (CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from Stanley Elliott with Stifel. Please proceed with your question.
Stanley Elliott (Managing Director)
Good morning guys. Thank you for squeezing me in and congratulations on the nice year. Thinking about the fire and emergency business. In the back half of the year. It looks like you guys are going to be tracking ahead of at least. Where your 2012 expectations were. It seems like this is just. Going to be from the internal initiatives. I guess my question is, when? We think about negative some of the new mix from some of the new equipment, conceivably, is it possible for that to even take a further step up from there?
Charles Szews (CEO)
Sure, Stan. Our view is that with no market improvement whatsoever in terms of market volumes, we can get this business to double-digit operating income margin. It's all internal right now. We're not counting any volume. We've got initiatives in place. We can see it, we can taste it. It's perhaps taking a little longer than we've wanted, longer than we desire. But again, it's a flexible manufacturing environment, highly customized. Every truck is different. So some of the processes that we use in our other segments we've had to modify to be able to apply into fire emergency.
So we've had a couple times where you've taken a step forward, they take a step back and you go back again forward. So we've done a little bit of that, but overall we can forecast it and we do think we have a solid roadmap on that business.
Stanley Elliott (Managing Director)
Great. Then last question on the CapEx for this coming year. Firm, is that number and is there a possibility that nine months out on another conference call, something like that, that we would say maybe that number gets ratcheted back to? Something more kind of in line with your historical spend?
David Sagehorn (EVP and CFO)
I don't think you'll see it go back more towards the historical spend. Could it dip a little bit below there? You know, we're saying approximately $150 million. Could be a little movement around that, but I don't anticipate it dipping back to the historical levels in 2015.
Stanley Elliott (Managing Director)
Thank you, guys, and good luck.
Charles Szews (CEO)
Thank you.
Operator (participant)
At this time, I would like to turn the call back over to management for closing comments.
Charles Szews (CEO)
Okay, let's wrap up. Spend time with us. Oshkosh is on the move. We're looking forward to a great 2015 and a strong outlook beyond that. Have a great day, everyone.
Operator (participant)
Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and have a great day.