Greetings, and Welcome to the Oshkosh Corporation 2026 third quarter results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Pat Davidson, Senior Vice President of Investor Relations. Thank you, sir. You may begin.
Good morning, and thanks for joining us. Earlier today, we published our third quarter 2026 results. A copy of that 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 is also available on our website. The audio replay and slide presentation will be available on our 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 and other factors that could cause actual results to be materially different from those expressed or implied by such forward-looking statements.
These risks and factors include, among others, factors that we listed in our release this morning and matters that we have described in our most recent Form 10-K and other filings we make with the SEC, as well as matters noted at our Investor Day in June 2025. 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. Our presenters today are John Pfeifer, President and Chief Executive Officer, and Matt Field, Executive Vice President and Chief Financial Officer. Please turn to slide three, and I'll turn it over to you, John.
Good morning, everyone, and thank you for joining us today. Our third quarter 2026 consolidated sales of $2.8 billion and adjusted earnings per share of $2.41 fell short of our expectations. This shortfall and our revised full-year outlook primarily reflect near-term challenges as we transform fire truck production. Pierce is the number one fire truck brand in America, with strong demand and a multi-year backlog. To meet this demand, we are transforming production from traditional labor-intensive assembly processes to more efficient, high-flow production lines. The long-term benefits of this are clear: supporting our customers by delivering more fire trucks to firehouses sooner while delivering a more resilient and flexible production system that results in improved returns for shareholders.
When we spoke last quarter, we had made specific improvements in production bottlenecks to support throughput and were in the early stages of converting portions of our production to support high-flow manufacturing processes. At that time, we identified inefficiencies around our parts flow. As a reminder, custom fire trucks are manufactured using thousands of parts. Many are unique and fabricated internally. During the third quarter, the routing of these parts led to greater production variability than we expected, resulting in lower fire truck production and deliveries. We are actively addressing these issues by improving material tracking for internally fabricated parts and point-of-use delivery, stabilizing the processes that support our manufacturing improvements, and adding experienced manufacturing leadership to support the transformation.
While our production has not yet stabilized at the higher rates we are targeting, we have a clearer understanding of the material flow and production challenges that need to be resolved. We are taking our learnings from the last few months into our future planning, where we will slowly ramp up our new high-flow lines in parallel with our existing final assembly operations to mitigate potential disruptions. Once implemented, we expect to see stable production levels at about 10% above last year. We still expect our high-flow production lines to deliver the additional fire truck volume that achieves the 25%-30% growth through 2028 that we discussed at our Investor Day last year. As a result of our revised near-term expectations for fire truck production, we are updating our outlook for 2026.
We now expect full-year adjusted earnings per share in the range of $8.50-$9.50, with potential timing of the next NGDV order also figuring into this range. Matt will go into this into more specifics in his section. Across the company, we see strong demand for our products, driven by positive macro trends and as reflected in our backlogs. This is especially true for fire trucks and airport products in our vocational segment. We saw orders recover during the quarter for refuse and recycling vehicles, which is a positive indicator for that business. We also see strong demand for our access equipment to support mega projects, as you have seen in CapEx announcements from key customers. Lastly, we have multi-year contracts for both defense and delivery customers in our transport segment.
We believe that these indicators of strong demand for Oshkosh products provide a solid foundation for our businesses going into 2027 and provide excellent visibility for the near future. Please turn to slide five, and we will review some highlights since our last call. Market conditions for the access segment continue to show improvement as the segment delivered another quarter of double-digit operating income margins with strong third-quarter sales. As we discussed on the last earnings call, large infrastructure investments and mega projects led by data centers and data center-related activities are important drivers of demand. Sales in the quarter continued to be led by national rental companies as expected. We have good visibility for the final quarter of 2026 and into 2027, supported by strong orders of $2 billion in the quarter, leading to a $2.7 billion backlog at the end of the quarter.
Demand is clearly evident, and we expect it will underpin growth in the market for the next several years. We remain focused on margin resiliency as we continue to drive cost efficiency and engage in discussions with our major customers around demand trends and pricing. During the quarter, we announced a strategic investment in Nextera Robotics, another step in advancing our vision for shaping the job site of the future. Nextera combines visual artificial intelligence, autonomous robotics, and digital mapping to provide customers with greater visibility into project progress, quality, and safety across an active construction site. We believe Nextera's capabilities complement JLG's connected equipment and ClearSky Smart Fleet technologies. This puts JLG in a position to extend its value proposition beyond individual machines to the broader job site.
We will work with Nextera on customer engagement, field validation, and future applications as we continue investing in advanced technologies that can improve safety and productivity for our customers. We look forward to sharing more with you on our journey for connected autonomous products at CES next January. Turning to slide 6 in our vocational segment. As I discussed earlier, vocational results did not meet our expectations, reflecting fire truck production challenges. Elsewhere in vocational, we are encouraged by signs that demand for refuse and recycling vehicles is beginning to recover as customers plan their 2027 fleets. We are starting to see fleets generally returning to their normal order timing as we book solid orders with several key fleet customers in the quarter. These orders provide encouraging evidence that the market will improve as we move into next year.
With the college football season in full swing, the delivery of our fully integrated electric McNeilus Volterra front loader to the University of Tennessee is a good representation of how the quality and performance of our products continues to win over customers, as we are seeing with 2027 orders. In September, our Oshkosh Airport Products business received an order from the U.S. Air Force for 34 Striker 6x6 Aircraft Rescue and Fire Fighting vehicles, with initial deliveries expected later this year. This order builds on our long-standing relationship with the United States military and reflects the trust our customers have in our advanced firefighting technology and purpose-built vehicles to protect personnel, aircraft, and critical infrastructure. Finally, demand at Oshkosh AeroTech remains strong as airports continue to invest in infrastructure and modernization.
Our investments in Jetway passenger boarding bridge production are expected to increase our output in 2027 to support that demand, while we leverage 80/20 simplification principles to drive operational improvements across our GSE business. Overall, the long-term outlook for our vocational segment is positive. The actions we have taken, the leadership we have added, and the progress we are seeing will position the segment for stronger performance in 2027. Please turn to slide seven. In the transport segment, we believe we have built the foundation for a strong finish to 2026 and a solid start to 2027. During the quarter, we welcomed officials from the Department of War to Oshkosh as part of the Arsenal of Freedom Tour, highlighting the strength of our people, advanced manufacturing capabilities, and industrial capacity.
Our defense business benefits from the scale, technology, and manufacturing expertise of the broader Oshkosh enterprise, including proven commercial production systems, mature supply chains, and the ability to respond quickly as customer requirements evolve. That combination of commercial capability and defense expertise positions Oshkosh well to support the long-term needs of the U.S. military and allied forces. Two weeks ago, at the AUSA trade show in Washington, D.C., we again showcased how the commercial strength of Oshkosh supports our war fighters. Our team met with key domestic and international customers who are important for our success in the segment over the next several years. One of these international customers, the Royal Moroccan Armed Forces, placed a follow-on order for HET A1 tractors and trailers earlier this month.
This order, building on the deliveries that began in 2025, is a great example of how success of our units in the field results in winning additional business with our allies. Turning to delivery, we are continuing to ship more NGDVs to the United States Postal Service, and fielded units have now achieved more than 60 million miles on the road. We saw modest improvement in production sequentially from Q2 - Q3 and continue to work through our production ramp where key suppliers are a gating factor. We are investing in additional supply buffers that we expect will mitigate bottlenecks and normalize production by the middle of 2027. In summary, our backlogs are robust and we continue to see evidence of long-term demand across each of our segments, demonstrating the strength of our value proposition, our leadership position in resilient high growth markets, and our ability to deliver for customers.
Now I will hand it over to Matt to review our financial results and provide additional details on our outlook.
Thanks, John. Please turn to slide eight. Consolidated sales for the third quarter of $2.8 billion increased $153 million, or 5.7%, compared with the same quarter last year. The increase primarily reflected improved sales volume in the access segment and improved pricing in all three segments, offset by lower sales volume in the vocational segment resulting from production challenges. Adjusted operating income was $217 million, down $57 million from the prior year, primarily due to unfavorable mix and higher SG&A expenses. These were partially offset by the higher overall sales volume and improved price cost dynamics. Free cash flow continued to be robust in the quarter as we achieved $275 million, bringing our year to date free cash flow to $433 million. Our strong free cash flow reflected our continued discipline in managing working capital, particularly related to higher customer advances and improved inventory management.
During the third quarter, we repurchased approximately 556,000 shares of our stock for $82 million. This month, Moody's upgraded our credit rating to Baa2, reflecting the resilience of our company and strength of our balance sheet. Turning to our segment results on slide nine, Access third quarter sales of $1.3 billion were up 21% from last year. The increase was driven by higher sales volume in North America and improved pricing. As John mentioned, market conditions showed continued improvement. We delivered a book to bill ratio of 1.5 during the quarter, significantly higher than the third quarter last year. Orders in the quarter included early receipt of 2027 annual purchase orders from select NRCs and follow strong activity in the first half of the year. Access achieved a double digit adjusted operating income margin of 11.2%, a 20 basis point improvement over last year.
The increase reflected improved manufacturing efficiencies on higher volume, offset in part by adverse sales mix and higher incentive compensation. The solid adjusted OI margin also reflected roughly neutral price cost with improved pricing, largely offsetting higher tariff costs. Vocational sales were $900 million, down $68 million compared with the same quarter last year, primarily due to fire truck volume as a result of the manufacturing challenges discussed earlier. With some physicals behind the financials, we saw production and shipment volume roughly 20% below what we delivered in the third quarter of last year. Our volume also declined compared with what we achieved in the second quarter. The Vocational team is taking the right actions to improve our production operations, and we expect sequential improvements in the fourth quarter.
Refuse and recycling vehicle volume was also lower than last year, consistent with the softer market conditions we have experienced throughout the year. As John noted in his remarks, we are beginning to see early signs of demand recovery for refuse and recycling vehicles and now expect demand to strengthen heading into 2027. Lower fire truck volume coupled with higher costs as we execute our manufacturing modernization program at Pierce impacted our Vocational segment adjusted operating income, which was $102 million, down $49 million from last year, of which a little over $10 million can be attributed to additional spending on production improvement initiatives. Despite the challenges from our production transformation, the Vocational segment delivered a resilient adjusted operating income margin of 11.4%. Transport segment sales decreased $26 million, or 4%, to $562 million in the quarter.
As a reminder, last year's sales included a license of JLTV related intellectual property to the U.S. government for $25 million that did not recur. Increased sales from the ramp-up of NGDV production were offset by lower defense sales volume. Transport segment operating income was $8 million, down $28 million, primarily reflecting the licensing of software IP last year. We expect Transport operating margin to improve in the final quarter of 2026 and into 2027 as we continue to transition out of past fixed price contracts and ramp up NGDV production. We also continue to expect an additional NGDV order this year. Turning to our expectations for 2026 on slide 10. As John mentioned earlier, we are updating our outlook with full year adjusted EPS now expected to be in the range of $8.50 - $9.50.
While our outlook for Access demand is improving, we are resetting our expectations for the pace of improvement for fire truck throughput in Vocational, as John Pfeifer described earlier in the call. The bottom end of this range reflects the possibility that we receive the NGDV order in 2027 instead of this year. We now expect consolidated revenues of approximately $11 billion and adjusted operating income of approximately $850 million. For Access, we expect full year revenue of $4.8 billion and an adjusted operating income margin of approximately 9.75%. While we are seeing improved demand in production efficiencies, we continue to manage a dynamic external economic and tariff environment that is impacting raw material prices and freight costs, which is reflected in this margin outlook.
For Vocational, we expect revenues of approximately $3.7 billion and an adjusted operating income margin of 12.5% as a result of the extended transition of fire truck production to a modern high-flow process. Lastly, for Transport, we are adjusting our full year revenue expectations to be approximately $2.3 billion with an operating income margin of approximately 4%. The revised segment revenue reflects lower delivery vehicle production. We also continue to expect a follow-on order from the USPS to be received by year-end. This order could impact our earnings by up to about $40 million or $0.50 per share in the fourth quarter. The timing of this order does not affect production or cash flow for 2026. The low end of our adjusted EPS range of $8.50-$9.50 reflects this order slipping beyond year-end.
On cash flow, I want to compliment the operating teams across the company, as they have continued to drive cash flow improvements across the quarters. As a result of these efforts, we expect free cash flow of $600 million-$700 million, up $50 million from our prior guidance. With that, I'll turn it back over to John Pfeifer for some closing comments.
Our teams remain focused on improving manufacturing execution at Vocational. At the same time, we are encouraged by strong demand in Access and healthy order activity. We continue to generate strong free cash flow. Our priorities are clear. Increase fire truck production, continue strengthening performance across our segments, and execute to deliver sustainable, profitable growth over time. I'll turn it back to you, Pat Davidson, to get the Q&A started.
Thanks, John. I would like to remind everyone to please limit your questions to one plus a follow-up. Please stay disciplined on your follow-up question. After that follow-up, we ask that you rejoin the queue if you have additional questions. Operator, please begin the Q&A session.
Thank you. We will now be conducting 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. You may 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 your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from the line of Steve Volkmann with Jefferies. Please proceed with your question.
Good morning, guys. Thank you for taking the question. I just want to sort of dial in a little bit to what is going on in fire, John, because I think last quarter we were talking about sort of a skilled worker shortage, I think, and some standardized material flow. This quarter it seems more like you are talking about production flow and scheduling. I am just trying to figure out, is this the same kind of issue that is getting elongated, or are you kind of finding additional issues as you work through this?
Yeah. Thanks for the question, Steve. Let me elaborate a little bit on this topic. I might reiterate a couple of things from my prepared remarks, but essentially, of course, I want to make sure it is understood that we are not satisfied with the disruptions or the pace of improvement that we have seen in fire truck production. Let me explain the overall context of what we are doing and why we are doing it. I think everybody knows Pierce is the best fire truck brand in America.
We have got a multi-year backlog, which is an indicator of how strong the demand is for the product. The challenge with this business is our capacity. If you go back to, say, 2023, 2024 production rates, that was kind of indicative of what we had been doing for a long time, and those production rates were really insufficient to support today's market.
At that time, in 2023, 2024, if we needed more units, we'd throw more overtime work at it or something like that, squeak out a few more units. But driving materially higher production throughput consistently certainly takes more than that, and it takes really a modern production system, which is what we are doing right now. We are totally transforming and putting in modern high flow manufacturing into how we make fire trucks. Changing how a fire truck moves through the plant, essentially the root of it right now means changing how thousands of parts reach the production line. We've made a lot of improvement in core process. Bottlenecks have been improved as we've gone through this process.
Now it's about material flow on a very complicated product where every one that comes down the line is a little bit different from the next, so each one has a little bit different bill of materials. We are addressing this by putting in great people who understand high-flow manufacturing, digitizing, and controlling parts flow down to every single unique part.
We expect that that's going to drive stability and meaningful improvement with fire truck production long term. It's really about how fire trucks are produced for the next decade and meeting strong demand for this product, getting fire trucks to firehouses faster and making Pierce a much, much stronger company. It's been harder than we wanted. Absolutely. It's been harder than we wanted, but we know what we have to do. We've got our arms around it, and we are going to fix this, and it's going to drive much better production as we go into 2027.
Okay. That's good color, I guess. Maybe just to follow on, disciplined follow on then, just your current view on sort of the trajectory of when we kind of get this behind us.
Yeah. As we go into Q4, we've got our arms around the material flow issues. We got a lot of people working on driving specific improvements. We pay attention to that. It's about digitizing every single part. It's about barcodes, it's about routings, it's about location, kind of going into the nitty-gritty. As we get that work done, we're seeing that we're stabilizing production throughout Q4. That's why we put more of a moderated outlook for the year. As we stabilize this production, we expect 10% increase in 2027, and we're very confident in that number, and we're very confident that this is going to drive 25%-30% improvement by 2028, which has been our objective all along.
Super. Okay. Thank you.
Our next question comes from the line of Mig Dobre with Baird. Please proceed with your question.
Good morning. Thank you for the question. I guess I would like to start with transport and with the NGDV specifically. The revenue here was essentially flat sequentially, and if I understood correctly, your comments implied that we're not reaching full rate production until mid-2027. So maybe you can clarify all of this a little bit more. What's really going on here, and what's kind of holding you back from reaching that full rate production?
Morning, Mig, and hope you enjoyed the Brewers win last night. In terms of transport
I did.
Yeah. Good series. All right. In terms of transport, quarter-over-quarter, what you are seeing is some higher production. We did achieve higher rates. We have stabilized at those rates in the third quarter. On a quarter-over-quarter basis, what is offsetting that is some of the lumpiness that you see in this type of operation. We had the one-time contract adjustment in the second quarter, and this time we had some CCAs. Underlying this is higher production rates in the third quarter. We expect that to continue to improve in the fourth quarter, at which time we will see kind of that normative range of, call it the 16,000 - 20,000 units we have talked about. Then as we talk about getting through these gating issues by mid-year, then we would be at the upper end of that range.
We are starting to hit that stride in the 16,000 - 20,000 units annualized. Then middle of next year, we would expect to be at the upper end of that. Yeah. Mig, we are moving from the low end of full rate to the high end of full rate over time.
Right. But to clarify, I think I heard you talk about some bottlenecks or something going on in the supply chain itself. Is that a factor, or am I misunderstanding here?
Yeah, sometimes this is a complicated product. There is a lot of critical suppliers. We have great suppliers or household names, and sometimes we have a slowdown because of supply in specific areas of the plant. That is why we are putting more buffers in place in different parts of the plant to make sure we can continue to increase production from the low end of full rate to the high end of full rate in a more consistent way.
Okay, great. I will leave it there. Thank you.
Thanks, Mig.
Our next question comes from the line of Jerry Revich with Wells Fargo. Please proceed with your question.
Hi. Good morning, everyone. I want to ask on the Access Equipment outlook. As you folks are engaging in the conversations around 2027, how are you thinking about the underlying pace of inflation and the opportunity to see a normal cyclical margin recovery in that line of business? Do you think we can make up for some of the price cost headwinds that we saw this year into 2027?
Yeah. Thanks, Jerry. Thanks for the question. Well, first of all, we're really encouraged by what we're seeing in our Access business right now. You talk about $2 billion of orders. We've got a good line of sight into what's going on. Of course, our price cost is always something that we pay very close attention to with the dynamic market that we're in on input costs. We will be price cost neutral this year or a little bit better than that. So we're keeping pace with it. And we're confident that we're going to drive healthy incrementals as this business continues to recover. Healthy incrementals for JLG, I think, as you know, is 30%-ish range. So we'll drive good incrementals.
As we're in a dynamic market with steel prices and freight and things, we pay attention to that, and we pay attention to how we have to pass those costs on if we cannot mitigate them through our total cost management efforts, which are pretty good. We've got really good total cost management efforts. We don't want to pass along costs that don't need to be, but when we do have to, then we will have to pass along some costs.
Super, John. Thank you. In terms of on the fire truck, just to expand on the comments there. You folks, maybe 15 years ago, worked down build rates and then built them back up at significantly higher margin. It took, I think, at the time, about 18 months to do that. Here, we are talking about a much faster timeline. Can you just compare and contrast the environment then and the way you folks are running now and the level of confidence about the big step-up in margins that is implied by the guide in Q4?
Yeah, sure. There is not a margin problem with our fire truck business, really absorption and getting the units through the line right now as we transition to a totally new modern production line. If you go back, I was not here 15 years ago. 15 years ago, though, we were building trucks the same way we were in 2023 and 2024, kind of a slow-moving bay build type production with a lot of tribal knowledge in the manufacturing operations, which is okay if you have a market that is in very steady state, slow growth mode.
But as we have seen this market continue to develop, we realized we had to drive a totally different throughput for these products, better efficiency, and that is why we have transformed it this time. I think 15 years ago, it was more about simplification of the product, 80/20 principles. Today, it is about high flow manufacturing. Matt?
Just building on your comment on Q4, thanks, John, is we would expect a margin step-up relative to Q3 as we see sequential production rates more consistent with maybe what we would have seen in Q2 as we stabilize production.
Thank you.
Thanks, Jerry.
Our next question comes from the line of David Raso with Evercore ISI. Please proceed with your question.
Yeah. Hi. Regarding the vocational fourth quarter implied margin, just curious how you're thinking about that. Obviously, the bigger picture is the 2028 guide. Now that the numbers this year are around $9, it feels like a bit of a stretch, but I'm just trying to understand where your head is on how quickly the vocational margins could step up from this fourth quarter number. Because even the fourth quarter number, to be fair, I think people have lost a little bit of confidence in saying sequentially it's going to get better and it doesn't happen. I'm just trying to understand the credibility around that. The fourth quarter margin is obviously lower than we would've hoped to start the year, but it is up sequentially if you get that revenue sequential increase. How do we frame that?
I know you don't want to give 2027 guidance, but just given it's been a problem now for a few quarters, I think we'd really appreciate some thoughts around when you think of the margins at like $1 billion, $1.2 billion vocational revenues a quarter, not even the $1 billion in the fourth quarter, definitely not the $900 million in the third quarter. How should we think about that margin level? Because we started the year at 17%, right?
Yeah.
That's a wide gap and we're just trying to get our head around it. Thank you.
Yeah. Fair question. Thanks, David. If you look back last year, last year we had a full year margin for vocational, almost 16%. That in the third quarter last year was about 15.5%, fourth quarter was a little bit over 16%. Very strong performance out of vocational. This quarter certainly was a step back at 11.4%, and that was also down relative to the second quarter at about 13.5%. As we look into the fourth quarter into 2027, the way we really think about this is by stabilizing production, we'll get back to the levels of production we had earlier in the year.
As I said on the call, in the third quarter, we actually had production take a step backwards both year-over-year and quarter-over-quarter, which is moderately unusual when you're in a production plant, but reflects the disruption and level of parts flow that we saw in the third quarter. Getting back to those Q2 levels and then moving forward from there at a stable rate is what we expect would deliver those rates. As you look into 2027, we see, one, refuse stability. Two, increased production, as we talked about on the call in fire truck, more gradual than maybe what we would have thought at one point, but still a healthy rate. If you look at this in context historically, our guide for vocational at 12.5% is still a strong, robust business on a historic context.
Not where we would have liked it to be this year, and certainly we expect to take step forwards next year, and we feel quite comfortable that we're on track for 2028 results to get that margin back into that 16%-18% with the production actions we're taking.
Yeah, David, our margins will go back to where we all expected them to be in the 16% range. It is about fire truck throughput, and it is about the recovery of our refuse business.
Our next question comes from the line of Jamie Cook with Truist. Please proceed with your question.
Hi. Good morning. I guess just two questions for me. I have been juggling multiple calls this morning. John, just given where we are in 2026 in terms of numbers, can you frame your 2028 targets out there? What needs to happen for you guys to get there? Or should we sort of dismiss them, or is it time to push it out maybe a year because of what is going on with fire and emergency right now? I guess just my second question, did you guys give an update on your confidence level on the additional award for NGDV? That is all from me. Thanks.
Yeah. Let me start with the NGDV award, then I will go into our confidence on 2028. The NGDV award, we are confident we are going to get another order. We have been working on it with the United States Postal Service. It is late October, so the question is it going to come before the end of the year, or is it going to come next year? It is going to come. It is a question of when, not if.
That is why we gave a lower end of guidance versus maybe what people had expected, because that assumes we do not get anything, and it comes next year. There will be another order for NGDVs. Let me talk about 2028. We are not pushing out our 2028 targets. We realize that we are a bit lumpy in terms of one year to the next recently. It is driven primarily, as we have been talking about, by Pierce firetruck production.
What has to happen is we have got to see strong throughput in our firetruck operations, and we expect to see that. We are doing all the work that it takes. It has been slower than what we had wanted, as you have seen. But we are doing the work required to transform and get the throughput on firetrucks. NGDV will continue to move towards a higher rate of full rate production.
There is a big range of what full rate production means. The orders have to continue to come in for NGDVs. Access is growing again. You saw a $2 billion order intake in the third quarter. All signs are there is going to be several years of growth in the access market, and access will continue to drive margin improvement year-over-year. Their margins are good, but they will be much, much better over the next couple of years as that business grows. All the defense contracts, the pricing that has gone into the defense contracts, that starts to show itself in Q4 more than it has. These are all the pieces that come into play which tell us that we should continue to expect what we 2028 as we had guided when we did our Analyst Day.
Okay. Thank you.
Thanks, Jamie.
Yep.
Our next question comes from the line of Angel Castillo with Morgan Stanley. Please proceed with your question.
Hi, John. Hi, Matt. This is actually Stefan Diaz sitting in for Angel Castillo. My first one on the refuse demand recovery. You mentioned positive order trends in the quarter and the expectation for refuse stability going into next year. I guess, how much visibility does your current refuse backlog give you to give you confidence in those comments?
Hi, Stefan. Welcome. Good morning. Certainly, seeing our backlog at the same level we were last year after it was at lower levels earlier in the year. Our conversations with our customers have been more positive in terms of how they're looking at 2027. That gives me comfort that we're looking at 2027 more like a 2026, if not slightly better, and then we'll kind of take it from there. I'd say overall positive signs relative to where I was sitting earlier this year, but certainly not off to the races.
Great. That's really helpful color. Then maybe on access demand going into 2027. We've heard increasingly constructive commentary from the rental companies, including higher CapEx budgets. Maybe if you could just give some additional color on how your customer conversations are shaping up for 2027. I know you had some really good orders this quarter. Maybe if you could parse out if any of the strength that you're seeing currently reflects incremental fleet demand being potentially pulled forward from next year at all.
Well, thanks for the question. I think that what we are continuing to see is that there are a lot of big mega projects supporting data centers, supporting power gen, supporting other things that are happening that typically get indexed towards the national rental companies, the customers that we serve. They see this demand continuing for a long time. If you just look at what has been financed and what has been kicked off that last multiple years. When we look at the market, there is stability in the private non-res area of the market, but that is not really growing very much. It is still primarily a mega project driven market. When the private non-res stuff, that starts to grow, that will be incrementally good news to us versus what we are seeing right now with the nationals.
Today, it is really driven by all the big projects that we all read about every single day in the newspaper.
Thank you.
Thanks.
Our next question comes from the line of Tami Zakaria with JP Morgan. Please proceed with your question.
Hey, good morning. Thank you so much. My first question is about NGDVs. I think I heard you say you would reach the high end of the 16,000-20,000 production range after 2Q next year, if I heard it correctly. So what level of operating margin do you expect at that level of production? Do you still expect NGDV margins to reach a high single digit to low double digit percent range when the ramp is done?
Hi, Tami. I would think about it mid-year. No specific exact date. As John mentioned, we are installing buffers, which improve the flow of the plant when you have suppliers gating here and there, so it gives us more production stability. In terms of operating margin, we are not going to get into the specifics of how we see operating margin, let's say, in the near term, but I would say for 2028, which is really where we have historically talked, it is in that 10% range. Traditionally, government contracting is 7%-13%, so it is in that healthy range, is our expectation over the next couple of years.
Understood. That is very helpful. Regarding firetrucks, do you plan to reprice some of the backlog given that there is new information about non-compliance penalties possible next year for NOx regulations? Or did those orders already have escalators such that it would not have to go back and reprice, and it would just pass through?
Thanks for the question. In terms of how the NOx and engines work, obviously, we have scheduled our vehicles and work with our customers very closely in terms of what engines are installed in those vehicles. So we do not expect any material impact on how we price our vehicles from that. We work with a customer and customer basis based off what engine is installed into those vehicles.
Understood. Thank you.
Our next question comes from the line of Kyle Menges with Citi. Please proceed with your question.
Thanks for taking my question, guys. I wanted to follow up on your comments on still expecting 30% incremental margins in Access in this upcycle. Maybe would just like to hear what's giving you confidence in that. Is it maybe partially on some easy comps as you're lapping some negative price cost and tariff impacts? It sounds like maybe you've got easier comps going into next year on incentive comp and Access. Curious if there's anything, whether it's in the recent orders or conversations you're having with customers going into 2027 that's giving you some confidence in getting to that 30% incremental. Maybe how to think, if at all, how mix might play a role in getting to that sort of incremental margin if NRCs are continuing to drive the demand in 2027.
Kyle, thanks for the question. The 30% John cited, really, that's kind of a broad brush stroke as to what we would historically see from that business. As you think about scoping 2027, let me just first off, it'd be irresponsible for me not to say we're not providing any 2027 guidance at this point. But if you think about how to scope 2027, really, with this level of demand and these level of orders, we should get better production efficiencies, more throughput. Those drive better operating performance that result in those sort of incrementals. We do have better year-over-year comps, as you cite, both from a cost basis, as we've seen a more stable tariff environment, but also from flow through pricing, flow through material cost reductions we've had this year.
Lastly, there are some one-time lumpy things, as you say, like incentive comp, which has come back to normal levels this year relative to last year. That also would contribute to those incrementals. The team is laser-focused on driving price cost and driving positive incrementals. That 30% broad brush stroke, we will have more specifics when we get into our 2027 guidance early next year.
Great. Thanks, Matt. That is all for me.
Thanks, Kyle.
Our next question comes from the line of Tim Thein with Raymond James. Please proceed with your question.
Excuse me. Thank you, and good morning. Just to follow up on access. I am just thinking about the ramifications of the strong orders that you have received and obviously the backlog level that you sit at today as more of those big nationals have pulled forward some of those APOs. Obviously, it gives you more visibility, but are there implications in terms of you being able to kind of hedge and predict your cost base better just given that level of orders that sit in backlog? I guess that is part A of the question is: does it afford you greater ability to lock in more of your raw material and purchases such that you are able to kind of better match that price cost?
I guess the offsetting to that is, to the extent it is more filled nationals, at least today, and obviously there is more time to go to fill those orders in, but are we looking at a year potentially where there is that less favorable mix next year? Again, to the extent that the market continues to be dominated by these mega projects. I will just ask one. That is just one long question. Thank you.
Let me start, Tim, with some of the specifics. I will hand it off to John for some of the color on NRCs in the long term. We are encouraged by the level of orders. It does give us production stability and an outlook that we can manage our plants in a more consistent and optimal way. That makes the manufacturing team super happy. It drives cost efficiency. There are instances where we can also schedule our buys and kind of cluster things to make sure we are optimal on the ordering quantities and so forth to give us cost efficiencies. It is helpful from a, call it price cost planning standpoint for 2027 to have this. I will hand it off to John about kind of how we think about mix and demand overall.
Yeah. First of all, up to this point in time and going into the third quarter when we had these orders, we have had our pricing discussions with our customers. That is in light of the volatile market for input costs that we are in. We think that we have done some good work there together with our customers. We, of course, take cost out through a lot of work that we have done from tariff engineering to sourcing and other total cost management efforts. We got a $2.7 billion backlog as we continue through this. There is more volatility, then we will have to reopen the discussions with our customers. But we think we have done a nice job of covering ourselves as we go forward. We will maintain our diligence there with our customers. But we feel good about the $2.7 billion backlog.
We will certainly deliver it, and as I said, we should deliver that with healthy incrementals like JLG typically does as the market starts to come back from a lull, which is what is happening right now.
Okay. Thank you.
Thanks, Tim.
Our next question comes from the line of Lauren Sullivan with UBS. Please proceed with your question.
Hey, good morning. This is Lauren on for Steve Fisher.
Morning, Lauren.
Morning.
My first question is on the new defense contracts for FMTV and FHTV. How are those performing so far in light of current inflation?
Good. We are building under those contracts. The heavy we started building early this year or really late last year. That is underway. The mediums we are starting to ramp in progressively this year, and then that will progressively be an increasing percentage of our mediums over the course of next year. Then by 2028, we would expect to be fully building under the new contract on both sides. Overall, production is going well. Orders are showing strong demand, and the contract terms are there to support an inflationary environment if in fact, that is what drives our cost.
Yeah. Remember, Lauren, these contracts, by the way, will go through 2029 in terms of production. They have economic price adjustment clauses in them that give us some good protection.
Got it. Thanks. Super helpful. Then, as you mentioned, a lot of the strength and demand for access equipment is coming from these national rental companies. But on the independent side, are you seeing any actually cut back in CapEx, or is IRC CapEx more flat?
More flattish. It's spotty. There's thousands of independents that we serve. Some are in good markets, depending on regionally where they're located. Some are in good markets. They're indexed to the right end market and construction. Some are in not so good markets. So if you look at the total, that's kind of flattish. We haven't yet seen a turn in the kind of private non-res markets outside of the big mega projects.
Got it. Thanks.
We have no further questions at this time. Mr. Davidson, I would like to turn the floor back over to you for closing comments.
Thanks, Christine, and thanks everybody for joining us on the call today. We are attending several conferences in November and December. We look forward to meeting with you there. Take care and have a great day.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.