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Jonathan Sheets

OSK AT A GLANCE

P/E ► -2.90   EV/EBITDA ► -7.79   ROA ► -16.3% AVG ROE ► -115.5% LOW Debt to Equity ► 8.27 HIGH Current Ratio ► 1.29 AVG Interest Coverage Ratio ► -4.60 AVG

 

 

 

 

 

 

Oshkosh Truck (NYSE: OSK) recorded $6.3 billion in 2007 revenues and manufactures fire trucks, ambulances, cement trucks, tow trucks and cranes under the Oshkosh, Pierce, Jerr-Dan, MTM and other brand names. The company also produces medium duty (able to carry up to 7 tons off-road) and heavy duty (able to carry up to 13 tons off-road) trucks for the U.S. military and it's allies.^[1][2] With the purchase of JLG in 2006 the company added aerial work platforms, scissor lifts and telehandlers to its list of products.

Oshkosh received a $1.7 million boost to revenues as a result of favorable exchange rates in 2007. ^[3] On the other hand, a nearly $100 per ton increase in the price of steel decreased Oshkosh's operating margin and a 4% decrease in construction spending resulted in slower growth of Commercial products revenue.^[4][5] Oshkosh also depended on U.S. government contracts for 23% of its 2007 revenues.^[6] The company's products compete with similar products from Terex (TEX), BAE Systems (BAESY), Navistar International (NAV) and Federal Signal (FSS).

Business Segments

^[7]

Access Equipment

Access Equipment accounted for 40% of the companies revenues in 2007. Oshkosh added the Access Equipment segment in December 2006 when it purchased JLG for $3.2 billion. The segment manufactures aerial work platforms, scissor lifts and telehandlers (a mix between a cherry-picker and a forklift).^[8] Access Equipment also provides financing and rental purchasing programs to customers. The segment sells its products to industrial equipment dealers and rental companies.^[9] Oshkosh's Access Equipment products compete with similar products manufactured by companies like Genie Industries and small private companies.^[10]

Defense

Defense was responsible for 22% of the company's revenue in 2007. The Defense segment manufactures proprietary, all-wheel drive trucks for the military applications. The segment's products include heavy payload trucks such as the HEMTT and medium payload trucks such as the MTVR.^[11] The Defense segment sells nearly all of its products to the U.S. Department of Defense and continued growth in the segment is driven mostly by the company's continued ability to win contracts with the U.S. Department of Defense.^[12] Oshkosh's defense products compete with similar products from companies like BAE Systems (BAESY) and International Military and Government LLC.^[13]

Fire & Emergency

Fire & Emergency was responsible for 18% of Oshkosh's 2007 revenues. The segment primarily manufactures fire trucks based on custom and commercial chassis but also makes specialized fire trucks for airports (ARFF vehicles), ambulances and tow-trucks.^[14] The Fire & Emergency segment sells its products to federal and local municipalities world wide as well as airports, hospitals and towing companies around the world.^[15] Oshkosh's Fire & Emergency products compete with similar products from companies such as Federal Signal (FSS).^[16]

Commercial

Commercial generated 20% of Oshkosh's 2007 revenues. The Commercial segment manufactures garbage trucks and other waste collection vehicles for waste management companies and utilities. The Commercial segment also manufacturers front and rear discharge cement trucks as well as truck mounted cranes. In addition to manufacturing its products, the segment offers its customers financing services.^[17] The company sells its Commercial products to construction companies, waste management companies and industrial equipment rental companies through a network of distribution and service centers.^[18] Oshkosh's Commercial products compete with similar products manufactured by companies like Terex (TEX).^[19]

Business Financials

^[20]

Oshkosh Revenue, Operating Income, and Net Income^[21][22] ($ in millions)

Oshkosh added the Access Equipment segment in December 2006 when it purchased JLG for $3.2 billion.^[23]

Key Trends and Forces

^[24]

Rising raw materials costs compress Oshkosh's gross margin

If the cost of purchasing raw materials increases Oshkosh's gross margin decreases. On the other hand if the cost of purchasing raw materials decreases, Oshkosh's gross margin increases. Between January 2007 and December 2007 the price of hot rolled steel coil rose from $549 per metric ton to $630 per metric ton. During the same period the price of hot rolled steel plate rose from $747 per metric ton to $837 per metric ton.^[25] Oshkosh attempts to pass increases in the price of raw materials on to its customers, but often can't do so because of its contract structure.^[26] Partially as a result of increasing raw materials costs, Oshkosh's gross margin decreased from 18% in 2006 to 17% in 2007.^[27]

Changes in the economy determine the demand for Oshkosh's Commercial products

Between April 2007 and April 2008, total construction spending fell 4%, with a 20% decrease in residential construction spending.^[28] The decrease in spending on construction causes the demand for construction equipment like lifts, cement trucks and cranes to decrease as well. As a result of the decrease in construction spending, growth in Oshkosh's Commercial revenues slowed from about 10% during 2006 to about 5% during 2007.^[29] On the other hand, if construction spending were to increase, so would sales of Oshkosh's Commercial products.

^[30]

Exchange rates give Oshkosh's U.S. Dollar revenues a boost

Because Oshkosh reports their revenues in U.S. dollars but does 24% of its business outside of the U.S., it is exposed to fluctuations in exchange rates. If foreign currencies depreciate, the dollar value of Oshkosh's international revenues decreases. On the other hand, if the dollar value decreases (foreign currencies appreciate), the dollar value of Oshkosh's international revenues increases. Between June 18, 2007 and June 18, 2008 the euro value of one U.S. Dollar decreased from 0.75€ to 0.65€.^[31] As a result of the dollar's depreciation, Oshkosh received a revenue boost to the tune of $1.7 million in 2007.^[32]

Oshkosh depends on U.S. Government contracts for a large portion of it's revenues

In 2007, contracts with the U.S. Government Defense Department generated 23% of Oshkosh's total revenues.^[33] If Oshkosh were to lose one or more of it's government contracts due to budget cuts or failure to meet contractual obligations, they would find themselves loosing as much as 23% of their revenues.^[34]

Key Competitors

• Terex (TEX) produces aerial work platforms under the Genie Industries brand name. The company also manufactures construction equipment, cranes, and road building equipment. The company's aerial work platforms, cranes and cement trucks compete directly with those produced by Oshkosh's Access Equipment and Commercial segments.^[35]

• BAE Systems (BAESY) manufactures vehicles for armed forces operating over land, air and water. In addition to producing military vehicles, the company manufactures aerospace products. The company's military trucks compete directly with those produced by Oshkosh's Defense segment.^[36][37]

• Navistar International (NAV) manufactures commercial trucks under the International Trucks and MaxxForce brands in North America as well as engines and aftermarket parts for trucks. The company also produces medium and heavy duty trucks for the U.S. military under the International Military and Government LLC name. The trucks the company manufactures for the military compete with those produced by Oshkosh's Defense segment.^[38]

• Federal Signal (FSS) manufactures safety and utility vehicles such as fire trucks, ambulances and utility vehicles. The company's ambulances and fire trucks compete directly with those produced by Oshkosh's Fire & Emergency segment.^[39]

Oshkosh and Key Competitors 2007 ($ in millions)

Note: Figures for BAE Systems (BAESY) were converted using average 2007 GBP-USD exchange rates.^[40]

References

1. ↑ Oshkosh HEMTT Brochure
2. ↑ Oshkosh MTVR
3. ↑ OSK 2007 10-K: Summary of Significant Accounting Policies, pg 54
4. ↑ MEPS STEEL PRODUCT PRICE LEVELS ACROSS 2007 - 2008
5. ↑ Value of Construction Put in Place - Seasonally Adjusted Annual Rate
6. ↑ OSK 2007 10-K: Customers and Backlog, pg 12
7. ↑ OSK 2007 10-K: Results of Operations, pg 28
8. ↑ OSK 2007 10-K: Products, pg 5
9. ↑ OSK 2007 10-K: Marketing, Sales, Distribution and Service, pg 8
10. ↑ OSK 2007 10-K: Competition, pg 11
11. ↑ OSK 2007 10-K: Products, pg 5-6
12. ↑ OSK 2007 10-K: Marketing, Sales, Distribution and Service, pg 8
13. ↑ OSK 2007 10-K: Competition, pg 11
14. ↑ OSK 2007 10-K: Products, pg 6-7
15. ↑ OSK 2007 10-K: Marketing, Sales, Distribution and Service, pg 9
16. ↑ OSK 2007 10-K: Competition, pg 11-12
17. ↑ OSK 2007 10-K: Products, pg 7-8
18. ↑ OSK 2007 10-K: Marketing, Sales, Distribution and Service, pg 9
19. ↑ OSK 2007 10-K: Competition, pg 12
20. ↑ OSK 2007 10-K: Results of Operations, pg 29
21. ↑ OSK 2007 10-K: Results of Operations, pg 28
22. ↑ OSK 2007 10-K: Consolidated Financial Statements, pg 46
23. ↑ OSK 2007 10-K: Products, pg 5
24. ↑ MEPS STEEL PRODUCT PRICE LEVELS ACROSS 2007 - 2008
25. ↑ MEPS STEEL PRODUCT PRICE LEVELS ACROSS 2007 - 2008
26. ↑ OSK 2007 10-K: Risk Factors, pg 18
27. ↑ OSK 2007 10-K: Consolidated Statements of Income, pg 46
28. ↑ Value of Construction Put in Place - Seasonally Adjusted Annual Rate
29. ↑ OSK 2007 10-K: Results of Operations, pg 28
30. ↑ EUR to USD Exchange Rates
31. ↑ EUR-USD Exchange Rates
32. ↑ OSK 2007 10-K: Summary of Significant Accounting Policies, pg 54
33. ↑ OSK 2007 10-K: Customers and Backlog, pg 12
34. ↑ OSK 2007 10-K: Risk Factors, pg 17
35. ↑ Google Finance: TEX
36. ↑ Google Finance: BAESY
37. ↑ Business Week: BAESY
38. ↑ Google Finance: NAV
39. ↑ Google Finance: FSS
40. ↑ Monthly Average Graph (American Dollar, British Pound) 2007