At the start of the year, I believed that shares of Oshkosh Corporation (NYSE:OSK) were looking good into 2024. The company enjoyed solid operating momentum, allowing shares to surpass the $100 mark, with the fundamentals looking good into 2024, backed up by a growing backlog.
In the first half of the year, shares have gradually risen, although they have recently seen a setback again, now trading flattish since the start of the year. All this happened as Oshkosh has seen operating momentum continue, as it delivered on a convincing hike in the 2024 guidance, making me gradually appealed to the shares again at current levels.
Heavy Equipment Producer
Oshkosh is a producer of heavy equipment, access equipment, and more, used by emergency crews, construction companies, as well as in defense and environmental applications.
The company splits out its activities across three reportable segments. On a $9.7 billion revenue base in 2023, just over half of revenues are generated in its $5.0 billion so-called access segment. Half of these sales are generated in the aerial work platforms, complemented by revenues generated from telehandlers and others.
The so-called vocational platform measures nearly $2.6 billion in sales, largely comprised out of a $1.2 billion fire apparatus, the $800 million “other” segment, and nearly $600 million refuse collection business. The third segment is a $2.1 billion defense segments, somewhat of a problem child with lumpy orders, sales results and margins.
Total revenues rose by 16% and change in 2023 to nearly $9.7 billion, driven by inflationary pressures and operating momentum. The company displayed on great operating leverage, with GAAP operating profits more than doubling to $838 million, for margins equal to 8.7% of sales, although the margin comparables were relatively easy. The company posted GAAP earnings of $598 million, equal to $9.08 per share based on a share count of 65 million shares, with adjusted earnings posted at $9.98 per share.
Note that these earnings were superior compared to earnings of just $5-6 per share as reported recently, as the business is quite lumpy and cyclical in its result. With results improving during 2022 and 2023, the company made a substantial $800 million deal to acquire the AeroTech business from John Bean Technologies (JBT) last year, providing another driver for growth.
All this created quite a decent setup for 2024, as the company reported a strong backlog of $16.8 billion as of the end of 2023, for a backlog of 1.7 years, as the backlog grew by $2.6 billion in dollar terms during the year.
The company ended the year with a modest $650 million net debt load, while EBITDA was trending around a billion in 2023.
Zooming Out
While the 2023 results look strong, the reality is that the company has been posting lumpy sales developments in the past. In the year 2019, the company posted sales exceeding $8 billion already, while posting operating margins in the high single digits. These revenues were stagnant (and down during the pandemic), when margins fell to the mid-single digits, before record results and profits were achieved in 2023.
This resulted in various waves of expectations in the shares. An $80 stock in 2019 peaked near $140 in 2021 amidst optimism on the economy and the prospects for Oshkosh, but fell to $70 in 2022 as that optimism did not pan out.
The solid results in 2023 meant that shares recovered to the $100 mark, with recent enthusiasm pushing up shares to the higher $120s recently, with shares now trading hands at $108 per share.
What Happened So Far?
The original 2024 outlook was pretty uneventful, with Oshkosh calling for sales of $10.4 billion, up about 7% from 2023, aided by the deal with John Bean, of course. Adjusted for that, sales growth was much more modest, as a similar observation can be made for adjusted earnings, seen at $10.25 per share, comparing to a $9.98 per share number reported in 2023.
The lack of strong (earnings) growth is in part attributed to the defense segment, which sees segment margins at just 2.5% in 2024, down from 2023 amidst flattish sales, as the same applies to the core access segment.
In April, the company posted first quarter sales up 12% to $2.54 billion, with growth benefiting from a $176 million revenue contribution of the acquired AeroTech activities, as otherwise growth would have come in at mid single digits. The company saw strong margin performance, as operating profits doubled to $260 million, for net earnings of $180 million, for earnings equal to $2.71 per share.
The strong results made that the company hiked the adjusted full-year earnings guidance by a dollar to $11.25 per share, based on sales now seen around $10.7 billion, marking a convincing hike in the full-year guidance.
Somewhat questionable was a big increase in net debt to $1.17 billion, roughly doubling this quarter on the back of changes in operating assets and labilities, which mostly seems to be temporary impact.
In May, the company took advantage of the operating momentum to announce a next bolt-on deal. The company has reached a deal to acquire AUSACORP, a Spanish-based manufacturer of wheeled dumpers, rough terrain forklifts and telehandlers for construction and agriculture purposes, among others. The team of 350 workers will add some EUR 132 million, about $140 million in annual revenues, adding just over a percent to overall sales. No other financial details were announced on this bolt-on transaction.
Despite the generally upbeat news, the company surprised the market somewhat as well with a somewhat unexpected CFO transition at relative short notice, as all this meant that shares lost some 15-20% from its peak in April. More so than was the case at the start of the year, momentum remains very solid and with earnings power trending at $11 per share, multiples remain non-demanding, although I fear some kind of normalization of higher single digit margins over time.
What Now?
At the start of the year, I took some profits after Oshkosh Corporation shares rose a swift 50% from the lows of 2023 as the operating momentum was real. With the business doing relatively well and shares trading flattish, I am growing more upbeat again after shares have essentially consolidated over the past six months.
At current levels, and certainly in the $90s, I will be willing to dip my toes into the business again, with the solid operating momentum expected to last a bit longer here.
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