All right, I think we are live here, folks. Let's kick this off. This is the Oshkosh session, and I'm Stephen Volkmann. I cover Oshkosh for Jefferies, along with a bunch of other machinery and diversified industrial companies. But I'm very pleased to welcome John Pfeifer, who's the CEO and President of Oshkosh, for a bit of a fireside chat here. Would love to have participation from you guys if, so if there's any questions, there will definitely be time toward the end of this session. We do have a mic, so this is being webcast, so if you don't mind waiting for the mic to ask the question, that would be great. We also have Pat Davidson, who looks after investor relations, sitting in the front row here in case anybody wants to connect with him.
So with that, John, thank you so much for coming, and I think you're gonna have a few opening remarks, and then we'll sort of dive into it.
Yeah, sure. Thank you for joining us today. Certainly delighted to be here to talk about our company. I thought I'd just kind of level set everybody. Don't know how much knowledge there is about our company in the audience. So Oshkosh Corporation, we'll do this year $9.5 billion or $10 billion of revenue. We are a specialty vehicle and equipment company, so that may seem pretty generic and boring, but when you think about why we do what we do, it gets a lot more compelling, because we produce purpose-built vehicles and equipment for the people in our communities who do really tough, hard, and sometimes very dangerous work.
We design those vehicles and that equipment to enable them to be more productive and, most importantly, more safe when they're doing the work that they do that's so critical. So I'm talking about soldiers, I'm talking about firefighters, I'm talking about people that work at great height every day on construction sites or in other venues. We serve about a dozen different end markets in doing what we do. We are clearly an industrial company, but we're also a technology company. We have an incredible technological capability that's focused on autonomous functionality. We do a lot of AI work. We do a lot of digital technologies work, giving making the user of the equipment as well as the fleet operator more productive, providing better insights as they go about the work that they do.
We are a growing company. We are putting electric vehicles into every end market that we serve. Probably the most notorious is the upgrade of the U.S. Postal Service's fleet. It's the largest fleet of delivery vehicles in the world. We will supply electric vehicles starting next year and upgrade that entire fleet over about the next 10 years, and we're putting electric vehicles into again, every market that we serve, from GVW 80,000 airport rescue and firefighting vehicles down to aerial work platforms in the access equipment segment. And that technological advancement for those industries does help provide growth for us. We are also an acquisitive company. We most recently acquired a company from JBT called AeroTech. It was interesting.
I came in at the tail end of Brian Deck's segment talking about JBT. It was a great transaction from JBT to Oshkosh Corporation, which allowed us to get into the airport markets more than we had previously been. All of the equipment that AeroTech provides is purpose-built equipment. It's moving an airplane around a runway around the tarmac. It's cargo loading. It's jet bridges. It's de-icing equipment, and taking the capabilities that this AeroTech business has and the footprint that it has to deliver for airport markets and combining it with our technological capability, we think it's a great marriage. We like the marketplace. Airports are growing. There's more investment in airports going forward.
This type of acquisitive activity allows us to build on our core strength of what we do in purpose-built vehicles for people in markets that are really tough jobs for people in our communities. We are very optimistic in most markets that we serve with the growth outlook that we have long term. So that's a brief introduction of what we do.
Okay. Great. So, maybe let's start off by just doing a very quick review. I mean, your last quarter was really strong, and you know, what are the key drivers of kind of what's making that so strong?
Well, what we saw in Q2 with the strong results that we had was not a surprise to us. We knew that we would deliver those types of results. The only thing that was perhaps a little bit of a surprise is that it happened sooner than we had been previously forecasting. So what I mean is, we had better supply chain performance that allowed us to be more efficient and ship more product than we had previously forecast we would do, and we also got better price realization from that we were able to reflect in our P&L statements. So, we're starting to see the impact of our ability to perform in a constrained supply chain environment, but the supply chain is also getting better. It's not back to normal yet, but it's getting better, which is helping us. And of course, our ability to get price is finally being manifest after a persistent inflationary period of time.
Are there any yellow or red flags that you're seeing as you look forward relative to either supply chains or demand in any of your end markets?
So we see really healthy demand in our end markets. Even, you know, we have a variety of different end markets. Some are susceptible to cyclicality in the economy, others are not. So if you look at our municipal fire business, and you look at our defense business, it doesn't really follow normal cyclical patterns. When you look at our big JLG business, it can follow the normal cyclicality of the market. But we're really seeing long-term, robust demand growth in these market segments. If you look at construction, there's three primary drivers of long-term demand. Number one is infrastructure projects. That's really the big bills that have been passed by Congress on the Inflation Reduction Act, the CHIPS Act, the infrastructure bills. That's spawning what we call mega projects.
So a mega project is a $400 million construction project to build roads and bridges or broadband access, and you have to have our equipment to do all of that work. The other, big driver is onshoring. There's an enormous amount of onshoring activity happening across North America, and that is providing a lot of healthy demand for the foreseeable future. And then finally, it's technological infrastructure development. So these are EV plants, gigafactories to produce batteries, chips plants. All of these, all of this investment activity is converging, and we're seeing more mega projects than we've ever seen before, and they're continuing to come online, and they're forecast to continue to come online. So that's really driving healthy demand dynamics. It's why we've got the biggest backlog we've ever had in our JLG business.
It's why our order rates are still strong. Even in a seasonal period in the summer, where you typically see lower order rates, we've seen stronger order rates than normal. We expect it to be long term. We do know that at some point, there may be a downturn, but we see a downturn as more of a speed bump along the road to this healthy market outlook that we see across the North American continent. And the North American continent is by far our most important market.
So you mentioned a lot of these sort of mega trends. You actually think you're seeing dollar revenue dollars flowing from these big programs already, or is that more of a 2024-2025 kind of?
From the order perspective, it's certainly flowing in already. We're clearly seeing. So if you look at today, the current environment, about 15%-18% of the installed fleet would go into serving what we call a mega project. That's in normal times. Today, it's about double that. It's close to 30% of the installed base that's absorbed in a mega, what we call a mega project, and the mega projects are just getting started. You know, then when you look at, say, the infrastructure bills that have been passed, it will take 10 years to, for all of those projects to be initiated and completed. If you look at a mega project, each mega project takes at least three years to complete one specific project.
Okay, so let's drill into access a little bit. You know, where are we with kind of fleet age now and just sort of the basic cycle dynamics apart from these mega trends?
Yeah, the fleet age is about 60 months. And a healthy fleet age would be, say, between 40 and 50 months of age. And we've had a fleet age that is continuing to grow for at least a couple of years. And what our customers wanna do is they want to replace the fleet with newer technology. They wanna make sure they replace the fleet because the older the fleet gets, it gets more expensive to maintain, and they don't wanna see the residual values drop off before they sell it into the used market.
The fleet growth requirements have been so robust with everything we just talked about in terms of the underlying demand dynamics, that it's been difficult to get enough equipment to replace fleet when the fleet needs to grow like it needs to grow to meet some of the demand.
Okay. Any difference that you're hearing relative to some of your large rental customers versus sort of the smaller regional type folks?
Well, we pay attention to serve both of those markets equally, of course. And there's, you know, thousands of independents. There's maybe 10, what we call national, like a United Rentals or a Sunbelt size customer. I think it's when I talk about all those mega projects, I think the nationals get more of that business than the independents, but the independents do get some of it. When there's a mega project in an independent's region, they will get some of that demand coming into them, but I think a little bit more goes to the national rental companies.
Okay, and then finally, on JLG margins have finally kinda come back to where I guess we want them to be-
Mm-hmm.
... but, is there more opportunity there?
Well, there's always opportunity. You know, well, when we look at our JLG business, what we really try to do - what we're trying to do is structure it to be resilient because it's a cyclical business. It typically follows economic cycles. And today we're at mid-teens margins. We think mid-teens margins is a healthy place and a sustainable place for our JLG business to operate, in a growing access equipment market. Now, we all know it might happen next year, it might happen five years from now. There's going to be a downturn. It, it, it will happen. So we try to structure it where in a downturn, we can still generate double-digit operating margins. If the demand drops by 20%, we can still generate double digits. It might not be mid-teens, but it'll be double digits.
And we do that by variabilizing the cost base and making it as variable as we possibly can, using our 80/20 principles, even using, in some cases, new technology to be able to be more efficient with lower volumes. And, we're confident that the resilience of the business is improving with each cycle that, as we go forward.
Okay, good. I apologize, I'm gonna use some of your old nomenclature relative to-
Sure
... your segments here.
Yeah, go ahead.
Let's dig in a little bit to what we used to think of as fire and emergency. That's an area where margins have been lagging, but I think you have very strong backlog. Just give us the lay of the land and how that sort of plays out over the next couple of years.
Yeah, so we have not gotten the full price realization in our fire and emergency business. The good news about our fire and emergency business is we have a lot of pricing leverage. The bad news about it is that we don't have real-time pricing leverage. So to get the realization of the price increases that we put into place as a result of inflation takes a little bit longer. So as we get through 2024, you'll start to see full price realization in our fire and emergency business, and that's a very high-margin business for us. So we have strong backlogs for that business. Our customer base, which is municipalities across North America, want new technology.
They want electrification, they want autonomous functionality, they want digital technologies in terms of digital products, and therefore, they're continuing to invest in their fleets. They're investing in their fleets because they've got healthy municipal budgets driven by property tax receipts, primarily, is what keeps those budgets healthy. They're continuing to invest, which means we've got big backlogs, healthy growth. We're prudently expanding our capacity to be able to deliver more products going forward as a result of healthy backlogs and healthy order rates, and as a result of continuing to deploy new technology, like fully electrified municipal fire trucks, which we have in the market today, and that'll continue to grow year-over-year as we look to the future.
And what's happened relative to industry dynamics? I think there's been a little bit of consolidation in fire, which is probably a good thing. Where is the Pierce market share roughly these days, and how would you characterize the competitive dynamics?
Well, we... I can't say exactly what our market share is because of the rules of the industry association, but I can tell you that we are, by far and away, the leader in municipal fire trucks in the marketplace. Pierce is considered the aspirational brand in the market. Our business is growing, and it's healthy, and we continue to invest in it because we believe in it. And we are the leader because we have a technological advantage. Municipalities are very particular about their fire trucks. They want the best fire truck with the best technology, and they also know it's got to be beautiful 'cause it's gonna be the star of the 4th of July parade.
Therefore, we design the product to do everything they need it to do, but also look really, really nice and like a showcase vehicle that municipalities want. We're the leader because of the ability to do that and deliver that technology.
Okay. And I think you're also a leader in refuse and cement vehicles as well. So let's talk a little bit about that segment. That's one where I guess the margins really haven't come back yet. What's the outlook there?
Yeah, the outlook there is also very positive. We'll continue to get some price realization in that market. We've got big backlogs in that market, but I think the most exciting thing in that market is what we've recently introduced, which is our Volterra electric fully integrated refuse and recycling collection vehicle. It's the first time in this industry anybody has ever made a purpose-built, fully electric refuse and recycling vehicle. Every vehicle, to this point in time, has been a third-party chassis with a body built on the back of it, and that's important. The number one, it's electric, that's interesting, and our customers want electric, but what they want is productivity.
The way you deliver productivity is doing a purpose-built design, where the cab is completely integrated with how the truck operates, and we can build autonomous functionality into the vehicle. So it's comfortable and easy for the operator to, to use the vehicle. Easy for them at every single stop to be quicker and safer when they, when they execute their work. And that allows the driver not only to, be more comfortable with doing what they're doing, but allows the driver to be more productive. And so if you look at a refuse collection or a recycling collection vehicle, if because of that functionality and the ease of use and the autonomous capability, they can be 20% more productive, that is a huge improvement for our customer base in, in enabling them to do that.
You know, so, so we're very, very, optimistic about the future of this marketplace. It's a stable market, not a very cyclical market, and it's a market that's gonna continue to grow at about the rate of, likely at about the rate of GDP for a long, long time, and, and we're happy to be the leader there.
But I guess the technology angle there is that these electric trucks are gonna cost quite a bit more than the standard truck.
The sticker price will be more, but we always equate it to a total cost of ownership equation. And when we can give our customer an economic total cost of ownership, they pay a higher price, but their total costs drop, that's when it becomes a real trend in the marketplace. And that's why in the last five years in our industries, particularly the last two, we've seen a surge in the amount of electric vehicles we've put into the market, whether it's fire municipal fire trucks, refuse collection, airport rescue and firefighting, electric aerial work platforms, the postal service vehicle. It's because we've gotten the input cost to a level where we can deliver better performance. Remember, an electric propulsion system performs better than an internal combustion propulsion system, but it also offers total cost of ownership benefits.
Then it becomes a real trend in the market. If it's only about sustainability, it's a little bit unpredictable. It's the economics have to be with it. The economics are with it today, and that's why we're seeing so much interest in adopting electric propulsion across our market segments.
Okay, great. So I've held the obligatory defense discussion till last.
Yeah. Yeah, let's talk defense.
But we have five minutes left. Does anybody have any other questions from the field here before I keep going? All it takes is one to start the flow. Okay, so let's talk a little bit about defense. That's a business that may be shrinking a little bit near term, but also has some great long-term, I think, electrification angles to it as well.
At the defense market?
Yeah.
So our defense markets, the segment that we serve is going through a lot of transformation. So we'll see our core defense business going forward be a smaller business, but it'll still be a healthy business going forward. It's a smaller business because we won't do the bulk of the joint light tactical wheeled vehicles going forward. The DoD put a lot of pressure on that program. We weren't willing to take it at very low margins, and so we decided that we'd be a smaller business on programs that we think are healthy programs. So that's medium, heavy, some combat vehicles like the Stryker program. So it'll be a smaller but healthy operating contributor to the company.
That business is really converting to last-mile delivery with the United States Postal Service contract, which is a big program, a long-term program, and a very healthy program for us to deliver. We'll go into production in 2024. We'll ramp up through 2025 and be at full production by 2026, and that's really the future of what that business looks like.
What have you said about the Postal Service, the potential margins on that contract relative to kind of the segment average?
Well, we've said that they're healthy margins, for sure, for us, and it's good for the Postal Service because this dramatically improves the Postal Service capability to deliver e-commerce-type packages. Which is, you know, the current vehicle that they're using is primarily set up to deliver letters and catalogs. What they needed was a productive way to deliver e-commerce, e-commerce packages, which is the mail of today and the mail of the future. That's what the vehicle that we designed gives them the ability to productively and efficiently do that with all the technology that they want. It's got technology with regard to surround cameras and safety features, auto stop features, electric propulsion, of course, which makes the vehicle a lot more efficient and performs better on the streets, autonomous functionality.
I mean, it's a vehicle that's going to transform the productivity for postal carriers across the country, and that's gonna help the U.S. Postal Service because we design a lot of that technology in, and it's our purpose-built design. It's a good, healthy margin contributor for our business.
Okay, great. So we have about a minute and a half left, and we haven't had a chance to talk about AeroTech, but,
Yeah
... can we do that in 90 seconds?
Absolutely. Yeah, so why did we make this AeroTech acquisition? We participated in the airport markets in certain applications for a long time, airport rescue and firefighting vehicles being one. JLG supplies a lot of equipment to airports. You can't walk through an airport today without seeing JLG equipment, either in the terminal or on the tarmac. And we've long said, "Hey, there's a lot of purpose-built equipment here that we think we could do a really good job with," so we've been paying attention to our opportunity to get into it. We came to an agreement with JBT to acquire their AeroTech business, and we think it's a fantastic acquisition for us. It was good for JBT, too, 'cause they wanted to focus on being a pure-play food tech company.
We wanted to take this business, it's right in our wheelhouse, and use our technology together with their strong brand and strong footprint and continue to improve it over time. But the good thing about it is there's a lot of things we can do to improve the equipment together with the AeroTech people, but there is a lot of long-term investment going into the airport markets today. When you listen to the CEOs of any airline, Delta, United, American, they all talk about the need to add capacity. Every time they add capacity, we all think about capacity as another airplane in the market. Every airplane that goes into the market needs tugs, needs cargo loading equipment, needs jet bridges to be able to operate it.
So we like the long-term trends, and we don't just like it in North America, we like the long-term trends around the world. Asia continues to be a great place for airport development and in municipalities. So the global trends, as well as the trends within North America, are healthy in this market, and, and we always acquire for the long term, and that's why we acquired this company.
Great. And with that, we are out of time. Very much appreciate your insights, and thank you all for coming.
Thanks very much.