Oshkosh Corporation Crushes Q4 Earnings Expectations, Reiterates Strong 2017 Guidance

By Markets Fool.com

The understatement of the year goes toOshkosh Corporation(NYSE: OSK) President and CEO Wilson R. Jones. "We ended the year on a high note," he said in a statement about the company's Q4 2016 earnings.

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"A high note"? The specialty truckmaker absolutely crushed expectations for the quarter. Here's what investors need to know.

Oshkosh Corporation makes fire and emergency vehicles, military vehicles, and other specialty trucks. Image source: Getty Images.

Oshkosh Corporation: The Raw Numbers

Metric Q4 2016 Q4 2015 Growth (YOY)
Consolidated net sales $1.8 billion $1.6 billion 11.2%
Consolidated operating income $95.5 million $86.6 million 10.3%
Adjusted net income $79 million $52.7 million 49.9%
Free cash flow (full year) $490.6 million ($48.7 million) N/A
Adjusted earnings per share $1.05 $0.67 56.7%

Data source: Oshkosh Corporation. Chart by author. YOY = Year-over-year.

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What happened this quarter?

Oshkosh had a stellar quarter, growing sales and earnings, and posting impressive free cash flow for the year. Adjusted earnings of $1.05 per share trounced analysts' estimates of $0.84.

All four of the company's divisions posted year-over-year net sales increases, but it was higher international sales in the defense segment that accounted for the majority of the quarter's revenue increases. Fire and emergency vehicle sales improved thanks tohigher domestic fire apparatus deliveries. The company credited improved operational efficiencies in the segment for the increased production rates, as well as higher demand. In the company's largest segment, access equipment, sales of telehandlers (read: forklifts on steroids) were down but were more than offset by improved aerial platform and other equipment sales.

During the quarter, the company also began shipping its new Joint Light Tactical Vehicle to the U.S. Department of Defense. This represents the first shipments in an eight-year contract to supply theU.S. Armyand Marines. However, the company reports great interest in the JLTV from international customers as well.

Although the company didn't repurchase any stock during the quarter, it bought backabout 2.5 million shares earlier in the year and announced an 11% quarterly dividend increase. This is Oshkosh's third straight year of double-digit percentage increases in its dividend.

What management had to say

Jones was justifiably pleased with the quarter's (and the full year's) results:

Adjustedearnings per share of$1.05 ...exceeded both our most recent estimates for the quarter and our results from the fourth quarter of fiscal 2015.Higher-than-expected sales in the access equipment segment, as well as lower bid and proposal costs due to the timing of the FMTV [family of medium tactical vehicles] request for proposal and favorable LIFO [last-in, first-out accounting method], warranty, and benefits costs in the defense segment drove the higher-than-expected results for the quarter. Our improved year-over-year performance compared to the fourth quarter of fiscal 2015 was led primarily by significantly stronger results in our defense segment, including the sale of 325 international M-ATVs [mine-resistant ambush-protected all-terrain vehicles]. We also benefited from revenue growth in our fire and emergency segment, which drives our confidence in the strength of this business as we enter fiscal 2017.

Looking forward

Weak construction markets are projected to continue into 2017, which will put a damper on sales in the company's largest access equipment segment. However, management believes that the company's defense and fire and emergency segments will more than offset that weakness, leading to a solid outlook for the whole company for fiscal 2017.

Jones opined, "I am confident in our team's ability to navigate through challenging market conditions in some of our businesses and positionOshkosh Corporationto take advantage of future opportunities."As a result, he announced that the company is reiterating its earnings per share expectations range for 2017, keeping it at $3.00 to $3.40. Oshkosh is also projecting 2017net sales of$6.5billion to$6.7billion and 2017 operating income of $390million to $430million. Those figures represent increases over 2016's net sales of $6.28 billion and EPS of $2.91 per share.

Oshkosh (excuse the pun) just keeps on trucking, displaying steady growth even with the current lackluster construction market. But good performance in the defense and fire and emergency segments, along with dividend growth, should keep investors satisfied until construction once again takes off.

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