Greetings, welcome to the Oshkosh Corporation reports Fiscal 2021 Fourth Quarter and Full Year Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to Pat Davidson, Senior Vice President of Investor Relations for Oshkosh Corporation. Thank you, Mr. Davidson. You may begin.

Good morning, and thanks for joining us. Earlier today, we published our fourth quarter 2021 results. A copy of the 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 that could cause actual results to be materially different from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we have described in our Form 8-K filed with the SEC this morning and filings we make with the SEC. 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. As we highlighted in our business update on October 8th, 2021, we are changing our fiscal year to the calendar year. The October to December 2021 quarter will represent an abbreviated fiscal year or Stub period to facilitate the transition to our first full calendar year, which will begin on January 1, 2022. This change should provide us with better visibility as our planning and reporting cycles will be aligned with those of many of our customers and suppliers. As a result, all references on this call to a quarter or year in 2021 or before, or to a fiscal quarter or fiscal year, unless stated otherwise. All references to 2022 or later years as to a quarter or a year or two, a calendar year. Our presenters today include John Pfeifer, President and Chief Executive Officer; and Mike Pack, Executive Vice President and Chief Financial Officer. Please turn to slide three and I'll turn it over to you, John.

Thank you, Pat, and good morning, everyone. As we discuss our fourth quarter and full year results, I want to provide some color on the current business environment. It's clear that we're in a unique period of time with robust customer demand for our market-leading products, while facing one of the most challenging global supply chain, logistics and workforce availability environments in decades. These factors are limiting production and also contributing to manufacturing and labor inefficiencies. At the same time, we're facing significant material costs inflation. We view these challenges as temporary, and we believe we are taking the right actions to position our company for success as we emerge from the current environment as a stronger, more resilient business. Some examples of the actions include implementing multiple price increases in the last several months in our non-defense segments to mitigate cost inflation, redesigning many of our JLG products to accept higher capability microprocessors, which are produced in higher quantities by chip makers to reduce our risk of shortages, shifting production within our existing facilities to better align with labor availability, and we're undertaking a rigorous qualifying process to identify and engage hundreds of new suppliers to drive a more robust supply chain for key materials and components. Our long-term outlook is attractive based on strong market fundamentals, strategic program wins and a comprehensive offering of innovative new products that will drive continued market leadership. With this backdrop, we reported 15.6% higher revenues on sales growth in our Access Equipment, Defense and Fire & Emergency segments. This led to fourth quarter adjusted earnings per share of $1.05, slightly above the estimated range included in our October 8th business update. The modest increase was driven by a lower effective tax rate. And we continue our commitment to responsible capital allocation with increased share repurchases in the quarter, which Mike will discuss. I'm also pleased to announce that our Board approved a 12% increase in our quarterly dividend from $0.33 to $0.37, which represents the eighth consecutive year of double-digit percentage increases. Now, let's move to the full year. Please turn to slide four. We grew revenues by just under 13% for the year and adjusted earnings per share by 16.4%. This led to a full year record for free cash flow of more than $1.1 billion. Importantly, we have an opportunity to grow revenue and EPS over the next few years based on our innovative products and strong market drivers. We also have a strong foundation of programs in our Defense segment bolstered by a significant reason program wins including the United States Postal Service Next Generation Delivery Vehicle, and the U.S. Army's Medium Caliber Weapons System. 2021 was a year of significant electrification announcements for our company. Beyond the USPS win, we launched our revolutionary new Volterra family of electric fire trucks, including the Pierce Volterra electric custom pumper currently in service in Madison, Wisconsin. And the Volterra electric ARFF truck, which was a major highlight for attendees at the Advanced Clean Transportation Expo back in late August. The Expo brings together participants from across the globe to discuss and demonstrate clean technologies for commercial applications. Customer response to these electrified products has been outstanding. We made several important investments in 2021, including the acquisition of Pratt Miller and a strategic investment and partnership with Microvast. We wrapped the year up with a minority investment and strategic partnership with Carnegie Foundry to build upon our autonomy and robotics capabilities. We also announced a minority investment in wildland fire truck market leader, Boise Mobile Equipment. These investments highlight our commitment to advance into new markets and leverage technology to both enhance our product offerings and drive profitable growth as part of our long-term strategy. We have also continued our commitment to environmental, social and governance leadership, as evidenced by our investments in electric vehicle technologies, while fostering an inclusive culture and continuing to deliver on our high governance standards. For many years, Move, M O V E, was our strategy. Over the past year, we evolved beyond Move and have introduced our strategy summarized with three simple words, innovate, serve, advance. We believe this strategy provides the necessary framework to continue to drive long-term sustainable growth, and it is grounded in our purpose, making a difference in people's lives. We innovate customer solutions by combining leading technologies and operational strength to empower and protect the everyday hero. We serve and support those who rely on us with a relentless focus throughout the product lifecycle. We advance by expanding into new markets and geographies to make a difference around the world. We're excited about the direction we're headed and believe that innovate, serve, advance provides the roadmap to get us there. I invite you to check out the details of our strategy on the Oshkosh website. Please turn to slide five, and we'll get started on our segment updates, with Access Equipment. Demand for our industry-leading Access Equipment remains very strong, but near-term results are being significantly affected by supply chain and logistics challenges, as well as increased input costs. Access Equipment, which saw a sharp decline in demand in 2020 due to the COVID-19 pandemic, has experienced the fastest recovery of any of our businesses. The quick return of demand in 2021 further complicated the supply chain issues we have been facing, and we anticipate that this will continue to be inconsistent well into 2022. Our Access team is working diligently to source components to manufacture and deliver products to customers worldwide. Despite these obstacles, we achieved strong revenue growth of 37% in the fourth quarter, resulting in 22% revenue growth for the full year. We have implemented several pricing adjustments in recent months due to rising input costs, and we expect these actions to largely resolve price cost challenges by the end of the second quarter of 2022. We will also remain vigilant regarding our pricing strategy in the event that input costs rise further. Orders totaled $1.9 billion in the fourth quarter, setting a quarterly record for the segment and resulting in a record backlog of $2.8 billion as of September 30th. The rental equipment market is robust, and the Access leadership team has made careful efforts to maintain the industry's health by addressing unfair competition through our trade case. We believe we are in the early stages of a multi-year growth cycle for Access Equipment, as rental companies aim to reduce the overall age of their fleets, which were at historically high levels entering 2021. Our growth outlook is supported by strong market fundamentals and our ongoing introduction of innovative product offerings, such as the DaVinci all-electric scissor lift and many other new launches in recent quarters. Our trend of new product launches continued in the fourth quarter. We are making a more significant entry into the North American telehandler market for agriculture with a new 9,000-pound capacity model. We are also expanding our leading U.S. telehandler range with a new line of rotating telehandlers in collaboration with our Italian partner Dieci. I look forward to sharing more about additional new products in the upcoming quarters. Please turn to slide six and I'll review our Defense segment. Our Defense team delivered a solid fourth quarter leading to a full year revenue of $2.53 billion, an increase of almost 10% and an operating margin of nearly 8% in this very challenging supply chain environment. You're all familiar with the JLTV, one of our foundational and enduring programs. We've been showcasing the vehicles' ability to serve as a long-range weapons platform in either manned or semi-autonomous modes. These capabilities directly support the Department of Defense's focus on near peer threats. Domestic and international customers continue to be impressed with the JLTV's outstanding versatility. We are also preparing for the upcoming recompete scheduled in 2022 and believe we are well-positioned to win the follow-on contract. As we've discussed over the past several quarters, we are actively competing for a number of adjacent programs, including the CATV, a tracked vehicle for Arctic climates, the OMFV, which has planned to replace the Bradley fighting vehicle and the EHET, or the enhanced heavy equipment transporter, among many others. The acquisition of Pratt Miller significantly enhances our ability to win adjacent programs, just like it helped us win the MCWS contract earlier in 2021. Before I leave Defense, I'd like to make a few comments about our Next Generation Delivery Vehicle contract with the United States Postal Service. We continue to work with the customer to finalize some of the vehicle parameters. We are also on track with setting up our new facility in South Carolina and expect a successful product launch in the back half of 2023. This is a 10-year contract call for between 50,000 and 165,000 vehicles with a mix of both zero-emission battery electric vehicles and fuel-efficient ICE vehicles and allows the USPS to electrify its fleet. Let's turn to slide seven for a discussion of the Fire & Emergency segment. The Fire & Emergency segment delivered another strong quarter, with an operating income margin of 14% despite the challenging supply chain environment and extreme cost inflation. Even more impressive is the fact that our team at F&E delivered an all-time record for operating income margin for a full year at 14.2%. The municipal market remains strong and we're encouraged by the record orders we booked last year, which led to our year-end record backlog. We are tempered in our outlook for the Stub period as a result of near-term supply chain disruptions we've talked about during this call. Of course, we expect to overcome these hurdles in time, and we are planning an expansion of our Appleton manufacturing site that will support long-term growth. As I mentioned earlier, our Volterra electric custom pumper is serving frontline duty in Madison, and we recently announced an agreement with Portland to work with them on Volterra as well. We are receiving a steady stream of inquiries from fire departments around the United States and our Volterra electric ARFF vehicle has been receiving rave reviews while conducting demos at airports around the U.S. As I close out my comments on F&E, I want to welcome Boise Mobile Equipment to the Pierce's family. Boise is the industry leader in wildland firefighting trucks. Our minority investment will bring the Boise product into our dealer network and allow both Pierce and Boise to take advantage of this growing segment of the market. Please turn to slide eight and we'll talk about our Commercial segment. Similar to our other segments, Commercial delivered solid results in 2021. In fact, the team posted its best full year adjusted operating income margins in the past 15 years. That's an impressive accomplishment in this difficult supply chain environment, with record high steel costs. As many of you are aware, we build our RCVs in rear discharge concrete mixers on third-party chassis either purchased by us and supplied to customers with the body and a complete package or furnished by our customers. This represents a meaningful risk as chassis availability has worsened over the past couple of months and we expect it will remain a challenge for much of 2022. Demand for our RCVs and the mixers has been strong and we have a solid outlook for both markets. Residential construction as well as other construction indicators are positive and elevated customer fleet ages are creating additional demand for replacement. Our outlook is further supported by solid orders in the quarter for both RCVs and mixers as the U.S. and Canada moved beyond the pandemic. These orders led to an all-time high backlog of just under $570 million, providing good visibility into 2022. I'm going to turn it over to Mike to discuss our fourth quarter results and expectations for the Stub period.

Thanks, John and good morning, everyone. Please turn to slide nine. As John highlighted, we faced significant supply chain and logistics disruptions in the fourth quarter, well beyond our experience in the third quarter. We also experienced meaningful material cost inflation. Recall that we account for inventory on a last-in, first-out basis, so the additional cost escalation we saw on purchases in the fourth quarter negatively impacted price cost dynamics, particularly at Access Equipment. We previously expected a consolidated year-over-year price cost headwind of $35 million in the quarter. The actual price cost impact increased to approximately $60 million. Supply chain disruptions, unfavorable price cost dynamics, and labor constraints all contributed to fourth quarter financial results significantly lower than the expectations discussed on our third quarter call. Consolidated sales for the fourth quarter were $2.06 billion or $279 million higher than the prior year, representing a 16% increase. The consolidated sales increase was driven by a 37% increase at Access Equipment, a 5% increase at Defense and a 10% increase at Fire & Emergency, partially offset by a 6% decrease in Commercial. Access Equipment sales increased by $230 million over the prior year quarter due to improved market demand led by North America. As the impact of the pandemic has waned, the sales increase was lower than our prior expectations by approximately $130 million, largely due to the previously mentioned supply chain disruptions. Defense sales increased in the quarter due to higher JLTV sales, as well as the benefit of Pratt Miller sales, which we acquired in the second quarter, partially offset by lower FMTV and international sales. Fire & Emergency sales increased in the quarter because of higher ARFF deliveries, and Commercial sales were down on lower package sales. Consolidated adjusted operating income for the fourth quarter was $104.2 million or 5.1% of sales compared to $124.1 million or 7% of sales in the prior year quarter. Access Equipment adjusted operating income decreased as a result of unfavorable price cost dynamics. The return of spending subject to temporary cost reductions in the prior year and unfavorable product liability, largely offset by an increase in sales and improved manufacturing absorption. Defense adjusted operating income decreased due to unfavorable product mix, increased material costs and unfavorable production variances, partially offset by higher sales volume. Fire & Emergency adjusted operating income decreased in the current year quarters as a result of higher material costs, unfavorable manufacturing efficiencies, and the return of spending subject to temporary cost reductions in the prior year, offset in part by higher sales and improved pricing. In the Commercial segment, adjusted operating income decreased because of unfavorable material costs and the return of spending subject to temporary cost reductions in the prior year, offset in part by improved manufacturing absorption and improved pricing. Adjusted earnings per share for the quarter was $1.05 compared to adjusted EPS of $1.30 in the prior year. During the quarter, we repurchased approximately 821,000 shares of common stock for a total cost of $95 million. Please turn to slide 10 for a discussion of our expectations for the Stub period. The fourth quarter of 2021 will extend into the Stub period. Demand remains strong across the company, evidenced by our robust order rates in the fourth quarter and record year-end backlogs in multiple segments. However, ongoing supply chain and logistics disruptions are complicating sales volume forecasts. Although our backlogs suggest a 15% sales increase in the Stub period compared to the first quarter of 2021, we anticipate that parts availability might limit our capacity to achieve higher sales. Due to this uncertainty, we cannot provide specific expectations for the Stub period right now. We do expect that Stub period earnings per share will be considerably lower than in the first quarter of 2021 and may reach breakeven levels on a consolidated basis. We project that unfavorable pricing dynamics will present a $75 million to $85 million challenge compared to the first quarter of 2021. Costs for steel and other components have continued to rise. We have implemented several price adjustments in our non-defense sectors over recent months, with many prices now exceeding 10% of early 2021 levels. We believe these price increases will help us achieve equilibrium between price and costs, but it will take until the end of the second quarter of 2022 for these measures to align with cost escalations fully. If further increases occur, we are prepared to adjust pricing again. We also foresee higher expenditure levels in the Stub period compared to the first quarter of 2021. Last year, COVID-19 infection rates surged early in our first quarter, keeping our spending levels low. Since then, spending has begun to normalize in areas such as travel, advertising, and medical costs. Additionally, we expect that constraints on parts availability will continue to lead to labor inefficiencies. Though the current landscape is challenging, we are taking the necessary actions and are optimistic that supply chain issues will ease over time. The long-term outlook for our businesses remains very promising. We will offer more updates on 2022 in our January earnings call. I'll now hand it back to John for some closing remarks.

We just completed a challenging quarter and expect those challenges to remain for the next few quarters. However, we believe we're taking the right actions as we manage through this period and position ourselves for success as supply chains improve. We also won significant programs in 2021 and are committed to driving long-term profitable growth as we innovate, serve, and advance the company. Before I turn it back over to Pat for Q&A, I want to thank all 15,000 Oshkosh team members for the hard work and sacrifice they go through every single day to help our company be successful. Okay. Pat, back to you.

Thanks, gents. I'd like to remind everybody, please limit your questions to one, plus a follow-up, and we need to be disciplined on the follow-up question. Afterwards, we ask that you get back in queue if you'd like to ask additional questions. Operator, please begin the question-and-answer period of this call.

Thank you. Our first question is from Felix Boeschen with Raymond James. Please proceed.

Hey, good morning, everybody.

Good morning.

Good morning.

Hey, just curious if you could talk about maybe directionally how you think the new fiscal year shades out from a price cost perspective over time. I know you said $75 million, $85 million headwind is Stub and then price cost parity by the end of 2Q. But just wondering if we think that $85 million headwind gets slightly better by quarter as sort of pricing flow then, or just generally how much visibility you have that are giving a large backlog and clearly still some supply chain issues.

Sure. Thanks, Felix. I can take that one. First of all, just the levels that everything that we're currently booking in North America has double-digit price increases in it since the beginning of 2021. So, I think that's just a good backdrop as we think about the backlog. From a quarterly cadence, you're correct. We see about $75 million to $85 million in the Stub period. As we look to the first quarter expecting similar levels to that based on our backlog, we do see in the second quarter that starts getting meaningfully better. And you should start seeing our margins start normalizing. And then as we said, by the second quarter, we should be largely price cost neutral.

I think the end of the second quarter.

Okay. That's helpful. And then, John or Michael, I'm not sure who this is best for, but the model is growing up, obviously substantial amount of free cash and cash has grown on the balance sheet. I know you guys have talked about M&A in the past as a focal point. So, maybe just curious if you could touch on that environment and how you would think about uses of cash or the right amount of cash on the balance sheet outside of M&A going forward. I'll leave it there.

Yeah, this is John. I'll address that because we are focused on our capital plan and have a significant amount of cash on our balance sheet. We're committed to returning cash to shareholders, and I've mentioned our plans for share buybacks and increasing dividends. Additionally, we are investing in technologies and new product developments to grow the business over time. We also have a steady pipeline of inorganic opportunities that we are cautiously evaluating. We've made some smaller moves, like our acquisition of Boise Mobile, which was a great decision, and we also acquired Pratt Miller a few quarters ago, which has opened up many positive growth opportunities for our company. We'll remain active in the market, but given the current M&A environment, we are careful about our approach. We want to ensure that any moves we make will significantly contribute to our growth. So, you can expect us to pursue a few inorganic opportunities moving forward.

And Felix, I want to mention that we increased our repurchase activities during the quarter. I expect this to continue, potentially at an even more substantial level into the Stub period. Therefore, share buybacks and the increased dividend we discussed today will remain significant components of our capital allocation strategy.

Very helpful. Thank you.

Our next question is from Stanley Elliott with Stifel. Please proceed.

Hey, good morning, everyone. Thank you all for taking the question. I'm curious on the EV commentary. I mean, you got a lot of prototypes and units in the field across all the different segments. Are we still looking at kind of a 2023, 2024 period of commercialization? Is there an opportunity to accelerate that? I mean, you mentioned kind of a frothy M&A environment. Just curious how you think about that, given the interest levels we're seeing.

Yes, electric vehicles are a long-term strategy for us. We believe that EVs will gradually be introduced to the market over the next 10 to 20 years. Currently, we are already commercializing certain segments, particularly in Access, where we have all-electric aerial work platforms. In 2023, we expect to see increased commercialization of the EVs we've launched, with the U.S. Postal Service starting to ship EV vehicles as part of this initiative. We have initiated this process in some areas, and 2023 will definitely see more products available for sale and shipment. This trend will continue to grow each year for the next decade or two as fleets become electrified, which is advantageous for us as it provides economic benefits to our customers. These EVs create significant value and deliver better economic solutions, positively impacting our margins.

Great. And then, in terms of the Access, you mentioned North America strength, what's happening over in China? I mean, that's been a great growth market for you all. Curious what's happening if some of the things with the property markets has kind of curtailed some of the growth opportunities there, just curious how that shaken out.

Yes, the Access Equipment segment in China has seen some slowdown due to the overall economic conditions, but it remains a strong market. It is poised to be one of the largest markets globally and is currently the biggest construction market in the world. Although there has been a slight deceleration, we maintain a positive outlook on China. Our operations there are excellent, supported by a dedicated team that effectively serves the market. However, there has been a bit of a slowdown over the last year.

Pretty good. Thanks and best of luck.

Our next question is from Jerry Revich with Goldman Sachs. Please proceed.

Hi. Good morning, everyone.

Good morning.

John, can you talk about coming through and exiting this post-COVID environment, how are you thinking about potential structural changes to the supply chain, or a price protection that you give customers and orders going forward? Any significant changes in the business model that you're thinking through, as a result of what we learn, call it, in the COVID and post-COVID environment so far.

Thank you for the question, Jerry. We have made significant strides in enhancing our supply chain capabilities. We have qualified hundreds of new suppliers to diversify our sources and strengthen our supply resilience in response to recent disruptions. We are not only addressing immediate needs but are also focused on building a robust supply chain for the future, with a perspective that extends beyond the next quarter to the next five years as we continue to grow. This has involved extensive work, including digitally connecting our supply chain to improve visibility, enabling us to identify opportunities and issues more swiftly. We have also been reengineering components to enhance supply, which includes redesigning chips for Access to ensure better chip availability. In relation to current pricing challenges, we expect to emerge stronger as we progress through Q2. We've built significant backlogs in the Access Equipment segment since early 2021 while facing higher-than-normal material cost inflation. When we booked orders, we had forecasts for material cost inflation that often increased soon after. This discrepancy has contributed to current pressures, but we are confident in our approach moving forward. In hindsight, we should have been more proactive in locking in prices earlier. Going forward, we are taking a more aggressive stance as we build backlogs at full prices, ensuring we protect ourselves by being prudent about our material cost forecasts. This gives us confidence that we'll see improvements as we enter Q2.

And John, on that note, as we think about the next time the demand environment accelerates like this, will you have the capability to lock-in costs when orders are accelerating? Is that a function of the work you've done on qualifying and expanding the supply base? So, is the expanded use of any futures or other instruments? In other words, the type of demand recovery, it's pretty easy to match those two, but what about the next time we have the type of demand cycle we're looking at now? Are the systems in place to allow you to match in that type of environment?

We are currently focusing on managing costs by securing prices with suppliers as we experience strong order rates and a growing backlog. The current environment is particularly challenging due to rising costs and disruptions in logistics and component availability, which affect not just our industry but many others as well.

Thanks, Jerry.

Good discussion. Thanks.

Our next question is from Stephen Volkmann with Jefferies. Please proceed.

Hi, good morning guys. Thanks for taking my question. I'm wondering if we can just go back. You talked a lot about the price cost trajectory. That was very helpful, but you also talked about a lot of other sort of near term pressures with labor availability and parts availability and productivity resulting from those. Can you just talk us through sort of like you did on price cost? How does that play out sort of in the Stub period and then into 2022, do you think?

Sure. As we look at the Stub period, while we aren't giving specific guidance, we can discuss it qualitatively. We don't anticipate a significant change in the supply chain at this time, so we expect to continue experiencing the labor inefficiencies we faced previously. We are aware of the associated costs. Although we have not provided guidance for 2022 yet and there are many variables at play, we believe that supply chains will improve over time, along with the labor situation. The exact timing of this improvement is uncertain, but hopefully by our January earnings call, we will have better visibility. The main challenges we are currently dealing with relate to cost dynamics, and we are confident that we will begin to see a return to normal margins as we move out of the second quarter, particularly more in the third quarter and into the fourth quarter next year.

We've made significant progress with our suppliers during this period of supply chain disruption. Our suppliers have improved their ability to align with our production forecasts. However, there are still some areas of concern, such as the issue with chassis, which remains a fundamental supply challenge. Overall, many of our suppliers have made commendable strides in production capabilities. The logistics side continues to pose significant challenges, particularly with high costs and the unpredictability of lead times for both domestic and ocean freight. The lengthy and uncertain lead times complicate our ability to get supplies on time. While we still have work to do on the logistics front, we have observed improvements in our suppliers' capacity to keep up with demand.

Okay. That's helpful. Thanks. And then, related to that, I saw your inventories didn't look like they were up much sequentially. I would have thought maybe you would have some partially built equipment sort of sitting around, waiting for parts that could ultimately be shipped out, but maybe that's not as big a deal as I might've thought, just anything happening there.

From a concentration perspective, we're definitely seeing higher raw materials and whip levels. Our finished goods are definitely at lower levels. I think what you're seeing is, is really the supply of parts in the fourth quarter certainly was not at the levels that we wanted to see and that ultimately impacted sales. I think you're still seeing some supply chain availability dynamics reading through those inventory numbers.

Thank you.

Our next question is from Mircea Dobre with Baird. Please proceed.

Thank you and good morning everyone. I'm just trying to maybe put a little finer point here and understanding all the moving pieces on your price cost commentary. If we're looking at the orders that you've taken into the quarter in Access Equipment, so a little over, call it, $1.8 billion. Is it fair to say that these orders are going to convert to revenue in the second quarter of 2022 or maybe even beyond, and is this ordered batch that you've taken this quarter considered to be priced cost neutral? Related to this too, I'm curious as to what your cost assumptions are in this comment that your price cost neutral. Do you actually bake in current spot prices for raw materials, or is it that you're expecting that raw materials are going to moderate? It's kind of a lot here, but hopefully you can address.

First of all, regarding the backlog, we won’t detail the various price levels we’ve had due to multiple price increases. The backlog consists of several price levels, and our most recent pricing actions occurred around the middle of the fourth quarter. Therefore, some orders booked in the fourth quarter were not yet at that third price level. This aligns with our previous commentary that we expect to ship the backlog over the next two and a half quarters. There is a $75 million to $85 million headwind in the Stub period, which is tied to the inventory in backlog today. In the first quarter, we anticipate similar levels of cost price headwind, but it will improve significantly afterward. We expect to benefit from the pricing increases as we progress through the second quarter of next year. That's why we indicated that by the end of the second quarter or in the third quarter, we should be largely back to cost price neutral. From an assumption perspective, we are assessing our current costs and have better visibility as we work with our suppliers to understand the cost landscape. We’re no longer seeing rapid increases in steel prices, although they remain elevated. The good news is that we’re finding locks in areas like hot rolled coil at prices significantly lower than current spot rates. This trend is consistent with many of the published fuel curves, which indicate prices are expected to decrease, even though they will still be elevated compared to historical levels. Additionally, we are considering all components in our pricing decisions, from labor and rubber components to aluminum and third-party chassis. We are taking a comprehensive look at it.

And Mig, I want to highlight that our order rates are quite strong, and the market is in good shape. A significant portion of our recent orders and our backlog is at full price levels. Specifically, when I look at Access, all of our commercial orders are showing double-digit increases due to inflation in material costs. For Access, both independent and national rental companies are seeing new order rates that meet our price expectations. This positions us well in terms of balancing our pricing and cost.

I understand. To revisit the process question that Jerry raised earlier, it seems that skeptics might believe there are flaws in the process given this year's events and your performance compared to your peers. This relates to how order intake was managed alongside cost inflation, as well as some disruptions that may have affected you sooner than others. As you conduct your analysis and consider qualifying additional suppliers, are there procedural changes you plan to implement moving forward? This would help reassure investors that structurally, you can improve your business in the next cycle or as you navigate through these challenges. Thank you.

I believe the answer to your question is a clear yes. It was a unique time, particularly from March to September, in terms of how quickly the backlog grew and how much cost escalation occurred unexpectedly. The forecasts were constantly changing, leading us to believe we were managing costs effectively, only to see them rise continually. However, we will definitely learn from this experience and implement more specific practices to ensure we are better protected against a rapid increase in backlog and cost escalation in the future.

When we discuss the forecast, we are examining the fuel curves published in the marketplace. If we look back to February, we had started to secure significant orders with the expectation that fuel prices would be high for a few months before decreasing, similar to previous cycles. However, this time we experienced a different trend. Those forecasts, which companies worldwide were relying on, continued to rise and extend further out. Therefore, we are certainly facing some unique factors that we haven't encountered in other recoveries. Reflecting on our management during the pandemic, we achieved impressive results, and the challenges we face now are short-term. We definitely see a positive outlook as we move beyond the second quarter.

And Mig, I want to stress that we are not pleased with our current situation. However, we will learn from it. We are experiencing a few quarters of disruption. We believe we are addressing a multiyear cycle in Access Equipment. We have complete confidence in our ability to serve our customers and meet our investors' expectations as we navigate through this growth cycle, despite the short-term challenges we are facing.

Thanks, Mig.

Our next question is from Chad Dillard with Bernstein. Please proceed.

Good morning, everyone. This is Brandon filling in for Chad. I have a quick question. Regarding the current backlog, what are your expectations for the customer mix next year, particularly between national rental companies and independent rental companies?

Sure, I can address that. Looking at the customer mix year-over-year, we noticed it remains quite similar. This year, it's been slightly more weighted towards national companies compared to the last two years, exceeding 50%. However, we anticipate maintaining a similar mix moving forward and do not foresee any significant shifts in that regard.

Cool. And then one follow-up, how should we think about for Defense the top line in 2022, and then how it goes into 2023? Can we expect to see some growth in the business in 2023 on top of the USPS?

Sure. Looking ahead to 2022, we anticipate that JLTV volumes will decrease, which will negatively impact Defense's revenues. Additionally, we will not see significant USPS revenue this year. However, we expect some revenue from medium caliber weapons systems, with a more substantial increase projected for 2024 as USPS ramps up in the latter part of 2023.

John here. The way to view our Defense business is as a growth sector. Currently, it mainly involves tactical wheeled vehicles, which serve as a solid foundation for us. These vehicles experience cycles of growth and decline, but there are essential and lasting programs for the Department of Defense. This is considered a growth business because we are securing adjacent programs that are significant and will contribute to growth from the latter half of 2023 or 2024 onward. Notable examples include the MCWS program and, importantly, the United States Postal Service program. These are substantial initiatives that will drive growth, and we are competing for many more. Therefore, we have this solid base of tactical wheeled vehicles that we are proficient in executing, along with the addition of incremental program wins, which will result in a growth business over the next three to five years.

Great. Thank you all.

Thanks.

Our final question is from Tim Thein with Citigroup. Please proceed.

Thank you. Mike, your earlier point about LIFO accounting is a good reminder. I believe it has contributed to the differences in our recent performance compared to peers. John, continuing on that line of thought, how should we view the growth prospects for Defense, especially in light of recent reports about possible significant cuts to JLTV volumes? I understand there may be timing factors involved, but could you share your thoughts on this? Thank you.

Sure. Here's my perspective on JLTV. The recent presidential budgets suggest that volumes will decrease in 2022 and likely continue to decrease in 2023. These programs experience fluctuations. However, our focus remains on the Army's acquisition goal, which is around 50,000 vehicles, specifically 49,900. The U.S. Marines have increased their target from 5,000 to about 15,000 or 16,000 units. So far, we've delivered approximately 13,500 units. This indicates that both the Army and the Marines have a long path ahead with these programs, which are expected to extend well into the 2040s. That's why I believe this represents a solid foundational business. While there will be highs and lows influenced by presidential budgets and global events, these programs are essential for the Army and Marines. Additionally, we're enhancing our Defense business with other program victories, making it a robust growth opportunity for our company. We remain focused on the long-term acquisition goals of the Army and Marines, understanding there will be annual variations.

Got it. Okay. In interest of time, I'll just leave it there. Thank you.

Thanks, Tim.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks. So thank everybody for joining us today. Appreciate your interest in Oshkosh Corporation and wish everyone a safe and healthy next quarter. Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.