Oshkosh Corp Q3 FY2024 Earnings Call

Greetings and welcome to the Oshkosh Corporation Third Quarter 2024 Earnings Conference Call. 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 for Oshkosh. Thank you. You may begin.

Good morning, and thanks for joining us. Earlier today, we published our third quarter 2024 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 2 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 other 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. Our presenters today include John Pfeifer, President and Chief Executive Officer; and Mike Pack, Executive Vice President, Chief Financial Officer, and President of our vocational segment. Please turn to Slide 3, and I'll turn it over to you, John.

Thank you, Pat, and good morning, everyone. I'm pleased to announce another solid quarter with revenue growth of 9% and an adjusted operating margin of 10.3%. Our adjusted EPS of $2.93 was in line with our third quarter expectations we shared during our second quarter earnings call. We continue to see improving performance and growth across our vocational business portfolio and an improving defense segment outlook with new contract award pricing. While our access segment is experiencing softer market conditions in North America in the near term, we expect we will continue to deliver resilient, healthy margins. In light of somewhat softer access equipment markets, we are updating our full year 2024 outlook for adjusted EPS to be approximately $11.35 per share versus our prior estimate of approximately $11.75 per share. During the quarter, we achieved a significant milestone as the United States Postal Service began placing our next-generation delivery vehicles, or NGDV, in service for last mile delivery. The NGDV leveraged our market-leading innovation and technological capabilities to provide the U.S. postal service with the industry's most state-of-the-art purpose-built delivery vehicles that modernize and decarbonize their fleet while enhancing driver safety. We are pleased with early positive feedback on NGDV performance in the field, and we remain focused on executing our production ramp-up, which is progressing well. Last month, the science-based targets initiative notified us that they approved our greenhouse gas emission reduction targets. SPTI's validation of our targets reflects another important step in our journey of reducing our carbon footprint while consistently delivering groundbreaking solutions that shape a more sustainable future. Please turn to Slide 4, and we'll get started on our segment updates. The Access team delivered year-over-year third quarter sales growth. While we believe mega projects and fleet ages remain tailwinds, pockets of slowing nonresidential construction activity and persistently higher interest rates have been putting pressure on the market. Furthermore, as mentioned on our last call, we have seen customer demand revert back to more typical seasonality. We remain confident in our ability to deliver solid margins even during a period of softer market conditions. We are working with our customers on their 2025 requirements, and we continue to expect meaningful orders during the fourth quarter of 2024 and first quarter of 2025. Overall, we believe the access market will remain healthy over our long-term planning horizon. Our access team continues to advance its products with state-of-the-art technology, our ClearSky smart fleet connected solutions platform is an example of this capability. Customers are enthusiastic about the two-way communications and other technology enhancements, including over-the-air software updates, digital access control, and integration into our online Express e-commerce platform which are improving productivity. In early September, we completed our previously announced acquisition of AUSA, a leading European manufacturer of specialty equipment, including wheeled dumpers, rough terrain forklifts, and telehandlers. We are pleased to bring AUSA into the Oshkosh family. AUSA is a market leader in Spain and serves adjacent new markets for us, including vegetation management. It expands our agricultural presence and complements our traditional access equipment markets. We also believe that leveraging our North American sales channel for AUSA products will support growth moving forward. For example, our slide deck shows JLG's new E313 electric telehandler manufactured by AUSA. The battery-powered E313 offers zero emissions and low noise operation for moving materials around in critical workspaces. Please turn to Slide 5, and I'll review our vocational segment. Our vocational segment achieved strong year-over-year revenue growth of 17.6% in the third quarter, leading to another solid adjusted operating margin of 13.7%. Demand for vocational products remains very strong, and our backlog continues to grow, providing long-term visibility. We remain focused on achieving increased throughput in our existing facilities to support growth. Concurrently, we are reviewing our manufacturing footprint as we evaluate additional investments to increase production capacity over the next few years. Furthermore, we have continued to lead in technology insertions across our range of products from autonomous functionality to electrification and intelligent product features. We expect this technological advancement to provide substantial benefits to our customers and drive growth for our company. In September, Republic Services issued another significant order for 100 of our new purpose-built zero-emission electric Volterra ZSL Refuse and Recycling collection vehicles, as Republic strives to improve productivity while reinforcing its commitment to a reduced carbon footprint. Customer interest in these revolutionary fully integrated electric vehicles remains very high. We have more than 100 customer demonstrations scheduled that began in the third quarter and will continue over the next several months, allowing current and future customers to experience firsthand the significant benefits of our Volterra ZSL. I'd like to highlight two smaller but important vocational businesses on today's call; both our IMT service vehicle and front discharge concrete mixer businesses have been performing well, delivering strong margins and contributing to the success of the vocational segment. We celebrated the 1-year anniversary of the AeroTech acquisition on August 1, and we are pleased with the integration and results to date. By combining our strengths, we expect to drive innovations in electrification, autonomous functionality, and intelligent product features. The team at AeroTech showcased several innovative products at the ground support Equipment Expo last month in Lisbon, Portugal. The show was well attended and featured our market-leading airport ground support equipment, our electric ARFF Volterra as well as JLG equipment which is also used extensively at airports. Our display demonstrated the broad capabilities Oshkosh provides to the air transportation industry as well as the strong commercial synergies between our businesses. Global air passenger metrics continued to strengthen with International Air Transport Association's August figures showing growth of 8.6% year-over-year. Let's turn to Slide 6 for a discussion of the Defense segment. Sales were up 14% as a result of NGDV production, higher tactical wheeled vehicle deliveries, and aftermarket parts sales. As a reminder, we expect to ramp up in NGDV production throughout 2025 and exit 2025 at full rate production, leading to strong revenue expectations for these vehicles in 2026. We completed a 5-year contract extension for the FHTV program in early August, which includes a combination of better pricing and a robust economic price adjustment provision. We also expect to complete a 3-year contract extension for FMTV A2 in the first half of 2025 with both better pricing and a similar EPA. We expect to begin delivering units under both of these contract extensions in early 2026. We believe these contract extensions provide solid visibility to customer demand and will support stronger, more resilient margins over the next several years. We continue to wind down domestic JLTV production and expect to ship the final domestic units in early 2025. On the technology front, during the quarter, we submitted our prototype proposal for Phase 2 of the robotic combat vehicle, RCV program. Our offering leverages engineering expertise across Oshkosh, including Pratt Miller to provide the U.S. Army with innovative, adaptable technologies to enhance soldier performance and mission success. The Oshkosh RCV is purpose-built and brings capabilities necessary for increased performance, improved maintainability, and flexibility in multi-domain operations. With that, I'll turn it over to Mike to discuss our results in more detail and our updated expectations for 2024.

Thank you, John. Please look at Slide 7. In the third quarter, our consolidated sales reached $2.74 billion, which is an increase of $232 million or 9% compared to the same quarter last year. This growth was primarily due to higher organic volume across all segments, an additional month of AeroTech sales following its acquisition on August 1, 2023, and better pricing, especially in our vocational segment. Our adjusted operating income rose by $6.2 million from the previous year to $283 million, representing 10.3% of sales. This improvement was mainly attributed to stronger sales volumes and better price cost dynamics, although it was partially offset by increased SG&A and engineering expenses. Adjusted earnings per share for the third quarter were $2.93, down from $3.04 in the previous year. The slightly lower earnings per share despite higher operating income was due to increased interest expenses on our revolving credit facility. Please turn to Slide 8 for an update on our expectations for 2024. We are lowering our full-year adjusted earnings outlook. We now project 2024 sales to be around $10.6 billion, down from our previous expectation of $10.7 billion. We estimate adjusted operating income will be about $1.1 billion, revised from our prior estimate of $1.14 billion, and adjusted earnings per share are now expected to be approximately $11.35, compared to our last estimate of about $11.75. By segment, we estimate access sales to be near $5.1 billion with an adjusted operating margin of 16%, lower than our prior forecasts of $5.3 billion and 16.5%, respectively. The decreased revenue and slightly lower margin expectations reflect the weaker market conditions in North America that we previously mentioned. We anticipate vocational sales to be roughly $3.25 billion, and we are raising our expectations for adjusted operating margin to approximately 13.25%, up from an earlier forecast of 12.75%. We expect better price/cost dynamics and reduced spending to enhance our margin outlook. For Defense, we now anticipate sales of around $2.15 billion and will maintain our expectations for an adjusted operating margin of about 2.25%. Our estimate for corporate and other costs is $190 million, and we expect the tax rate to remain at 24%. The share count expectation is also unchanged at 65.8 million shares. We are reducing our CapEx target by $25 million to $275 million and cutting our free cash flow estimate by $25 million to $350 million. I'll hand it back to John for some final comments.

We reported another solid quarter and while we are reducing our expectations for 2024 adjusted EPS, we continue to expect meaningful growth in revenue, adjusted operating income, and adjusted EPS compared to 2023. We continue to benefit from strong long-term growth drivers, and we believe the strength of our people, innovative products, and our businesses will continue to drive long-term shareholder value. I'll turn it back to you, Pat, for the Q&A.

Thanks, John. I'll remind everyone to please limit your questions to one plus a follow-up and 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.

Our first question is from Mircea Dobre from RW Baird. We'll go on to our next question here from Angel Castillo from Morgan Stanley. Please go ahead.

This is actually Stefan Diaz sitting in for Angel. Thanks for taking my question. So, regarding your lower sales outlook, you indicated this was due to a softer outlook in access. However, if I'm not mistaken, I recall your access backlog give you full coverage for 2024. So maybe if you could give us more color on the exact puts and takes on what drove the revenue decline and whether there were any order cancellations or delays. If you could help us bridge 2024 to your more optimistic outlook for 2025, that would be great as well?

Thank you for the question, and for stepping in today. When discussing our backlog, it's important to note that it extends into 2025. At the start of each quarter, we typically have most of our bookings secured. However, the timing is crucial; some of our backlog is set to ship next year while others are scheduled for the fourth quarter. In the fourth quarter, we have a significant amount of our backlog already accounted for, but additional orders are still expected to complete the quarter. This is part of the change you’ve noticed. It’s essential to focus on backlog rather than just order intake. Though order intake is important, backlog provides a clearer picture. Despite lower orders in the third quarter, which we anticipated, our backlog remains robust at over $2 billion. In the access equipment sector, a backlog of three to six months is considered healthy and we are currently at the top end of that range. Overall, we are confident about our backlog.

Great. Thanks for the color. And then for my follow-up, within vocational, can you talk about the degree of incremental price upside that's embedded in your backlog? And maybe if you could remind us how we should expect that to flow through the P&L within the next couple of years. And then I'll turn it over.

Yes, this is Mike. We still have strong double-digit price increases in our backlog. That will continue to read through over the next few years, really, we're starting for fire trucks, we start getting out into about a 3-year backlog. So that will continue to read through. So, what that means is we expect to continue to see not only growth top-line of the business from volume, we continue to expect to see the benefit of price cost.

Our next question is from Jerry Revich from Goldman Sachs. Please go ahead.

Good morning, everyone. John, nice to hear the update on the improved economics in defense. Can you update us on how you're thinking about the path towards the 9% to 10% margin targets that you have for the business? How big of a step forward do you expect in 2025 and any updated thoughts on the cadence, please?

Yes, I believe you'll notice progress, with a significant improvement expected in 2025 and an even greater advancement in 2026. Much of this is driven by our core defense business and the new contracts we're securing. We experienced 40 years of relatively low inflation until 2021, and fixed price contracts can be challenging when confronted with unexpected inflation, as we've witnessed. The positive aspect is that our business is set to improve significantly over the next few years due to new fixed price contracts that reflect current input costs. We anticipate robust margins from the large and medium vehicles we provide, along with our combat programs and some international operations. We expect our core defense business to recover to nearly 10% margins, although it may shrink slightly due to the absence of the core JLTV business for the DoD. Nevertheless, it will still generate over $1 billion in revenue. Additionally, the postal contract, particularly the NGDV program, is substantial and will drive growth, contributing good margins as well. Overall, we expect our business to improve significantly in the coming years.

Super. And in Access Equipment, you folks have made a lot of operational and process improvements over the past couple of years. When we do see demand cycle weaker, how should we be thinking about decremental margins looks like in the fourth quarter? The implied guidance is about 35% decrementals. I'm wondering if you could just talk about if we do see demand surprise to the downside? How should we think about any potential for improved decrementals versus history, given the process improvements?

Yes. It's easier to evaluate incremental margins on an annual basis, and we anticipate very strong incrementals for Access at around 60%, based on our guidance. When looking at a quarter-to-quarter comparison, there are some differences. Specifically for this quarter, we had a favorable freight material environment in Q3 last year, which was better than Q2 and Q4 of last year, making this a challenging comparison. We won't discuss decrementals for next year yet, as we're still early in our negotiation process. However, we expect to maintain solid margins, as previously mentioned, even if we encounter some market softness next year.

Our next question is from Tami Zakaria from JPMorgan. Please go ahead.

Good morning. Thank you so much. So, my question first question is on the vocational segment, really strong performance. I'm wondering, are you considering raising capacity for this segment? Because it seems like there's very high backlog. You have visibility into demand. So, have you considered raising capacity?

Yes, Tami, that's a great question, and it's a significant focus for us. In our existing facilities, particularly at the fire and refuse and recycling sites, we are working on increasing capacity. At our new Murphysboro, Tennessee facility, we are ramping up the electric refuse and recycling vehicles and also utilizing that location for some fabrication activities for the broader segment. I expect that we will continue to increase capacity at our existing facilities through capital investments and so on. Additionally, we will explore further capacity through new facilities over time. This will clearly be a focused area, and we anticipate seeing top line growth from this over the next several years.

Got it. That's helpful. And then one more question on AeroTech. It's been 1 year. What are some of the things that pleasantly surprised you versus your expectations when you bought it about a year ago?

Yes, Tami, there are many positive aspects about AeroTech. We acquired it mainly due to the close technological connections it has to our other initiatives. The areas of electrification, autonomy, and connected intelligent products show considerable overlap with our company-wide innovation efforts. This presents great synergies, which should help us accelerate these initiatives across the organization. Additionally, the commercial synergies between our businesses have also been very encouraging. As John mentioned earlier, we showcased JLG products, ground support products, and our ARC vehicles at the Lisbon ground support equipment show, where we saw substantial overlap in our customer base. The industry dynamics are also quite robust. Therefore, we continue to anticipate profitable growth in this sector.

Yes, I’d like to add one more point, Tami. After acquiring the business, we gained a deeper understanding of our customers and the strong relationships the AeroTech team has with them. We work with well-known companies like Delta, United, and Federal Express who have a positive view of our capability to keep innovating, particularly in areas like electrification and autonomous functionality, as these advancements enhance their performance. This aligns perfectly with our business model focused on technological innovation to boost productivity and safety for our customers and those engaged in challenging tasks. It remains a great fit for our objectives.

Wonderful. Thank you, so much.

Next question is from Kyle Menges from Citigroup. Please go ahead.

Good morning, guys. I was hoping if you could just talk a little bit more on what you're seeing in the access market and maybe if you could kind of bifurcate the market between some of the larger rental customers versus the smaller, more local players and just really which customers you're seeing the most, I guess, demand softness and any push outs into 2025? Is it just that it's more from the big rental guys or some of the smaller players?

Thank you for the question. I will try to clarify this. We have recently gone through a period of exceptionally strong demand, which we all recognize. Currently, we are witnessing a market that is normalizing. We have mentioned that our customers are returning to a more typical seasonal pattern, planning in the fourth quarter and first quarter for what will occur in 2025. They understand that lead times have returned to normal. Our backlog is currently between three to six months, which indicates a healthy situation. However, I want to emphasize that we firmly believe, and our customers agree, that the long-term drivers are still strong. We discuss significant infrastructure investments, major projects, and the urgent need for data centers. There is a high demand for power generation, and many categories we serve still have aging fleets, all of which are positive indicators. That said, we are aware of some current pressures related to nonresidential construction, particularly in private construction, primarily driven by high-interest rates, which has created some concern. We do not anticipate a significant downturn in 2025 but rather a soft market. We expect robust conditions in megaprojects, while private construction may experience some softness. Following this short-term period, we forecast continued growth. Our outlook suggests we can maintain strong, resilient margins. Regarding the comparison between large national companies and independents, it's not necessarily about being national or independent. An independent firm that relies heavily on private construction may feel the pressure more than one that also engages in megaprojects. However, an independent involved in megaprojects is likely to perform better. The key difference lies in the exposure to private versus large-scale trends we are observing.

That's helpful. I was curious if you could share some insights on the current ramp-up of the NGDV, especially in the near term. I noticed that NGDV deliveries seemed to decrease a bit sequentially this quarter, which I understand might be due to seasonality. You probably shouldn't read too much into that, but I'd love to hear how things are going so far.

You shouldn't be concerned about the recent delivery numbers. In fact, deliveries have increased rather than decreased. The variations are simply due to a cost-to-cost accounting method. We are very pleased with our current position and are closely collaborating with the postal service. The carriers are very satisfied with the vehicles they are currently using for e-commerce and mail deliveries. These vehicles are revolutionary, offering remarkable performance, safety, ease of use, and superior ergonomics, making them stand out from any other delivery vehicle available. Currently, we are increasing our production. When introducing a new vehicle to the market, we believe, in conjunction with the postal service, that a cautious production schedule is wiser than starting off too quickly. We are ramping up production now and expect to be at full capacity throughout 2025. This increase in production will more than compensate for any losses from the JLTV contract ending in 2025. It's a strong long-term program with numerous advantages. Thank you, Kyle.

Our next question is from Jamie Cook from Truist Securities. Please go ahead.

Good morning. I have two questions. First, Mike, regarding free cash flow, we've been lowering the guidance throughout the year. I understand some of this is due to the guidance cut this quarter, but it still suggests a significant increase will be needed to meet your free cash flow targets for 2024 in the fourth quarter. Can you help clarify what's happening there? Secondly, while I know you're not keen on discussing decrementals for 2025, your previous comments suggest you expect decrementals for access equipment in 2025, indicating that sales may decline. One concern is about pricing potentially turning negative. Can you shed some light on your thoughts regarding pricing? Can we assume a typical 25% decremental margin, and what might prevent us from achieving that if sales indeed decline?

Sure. Starting with cash flow, there are several significant factors to consider. We experienced another strong quarter in shipping, although Q4 typically sees lower revenue, leading to a natural decrease in working capital, particularly with inventory timing in our Defense segment. The timing of when vehicle acceptance occurs can significantly impact the flow from unbilled to billed receivables, and we observe a notable effect and advantage from the reduction of those unbilled receivables in the fourth quarter. These are the primary items influencing our cash flow. Regarding your other question, while the market appears somewhat softer at the moment, which may persist, the key moving forward is to delve deeper into negotiations with customers regarding the mix, volume, and other factors. Importantly, we anticipate a solid year ahead with robust margins.

Our next question is from Steven Fisher from UBS. Please go ahead.

Thanks, good morning. So, the vocational bookings and book-to-bill was certainly a bright spot. Wondering how to think about the order trajectory and vocational over the next quarters. Is there any visibility you have on that? And how lumpy do you think it might be on an ongoing basis?

Yes, I'd say from a backlog perspective, the backlog continues to grow in the business. We're highly focused on throughput, and the market dynamics in each of our sectors remain strong. If you look at vocational, especially with AeroTech and McNeilus, there can be some variability in the orders as we book large national account orders in blocks, but we expect demand to stay very strong moving forward. It’s likely that there will be some variability from quarter to quarter.

Yes. I think, Steve, one thing to note about these vocational markets that we're in, they are resilient markets, the airport market for example where AeroTech is in some of our other business, that will continue and is projected by pretty much every third party that measures it to continue to grow into the future because of shortage of capacity in the airport world. Fire trucks would be the same. These are resilient markets, not very cyclical and that's one of the reasons that we think this is a great place for us to be in this segment.

Great. And just a follow-up. So obviously, it sounds like vocational doing very well. You've already talked a bit about access in '25 being still having a relatively healthy backlog, and overall reasonable market and defense, you have NGDV ramping. So, I guess as we think about your prior expectations on earnings per share for 2025, that range that you had, I mean, should we be assuming that you're still thinking at the moment that that range is still broadly appropriate?

Well, we are already in that range today. I can't provide guidance for 2025 at this time. However, as we go through this quarter and work closely with our access customers, we will be able to offer much better guidance in January regarding our expectations for 2025. Keep in mind, we are already in 2024, where we said we would be in 2025.

Our next question is from Tim Thein from Raymond James. Please go ahead.

Yes, thank you. Good morning. First of all, Mike, congratulations on your new role. I'm sure you're going to miss hosting these calls.

I still get a mic, Tim, don’t worry about it.

There you go. Regarding access, just looking at the market, we’ll see what next year reveals. As you consider customer, geographic, and product mix, these factors can significantly influence the margins. At this moment, do you envision a differentiation between aerials and telehandlers? Without making a market prediction, do you foresee much change in the structure of the revenue base from a product perspective? I'll start with that question.

I would say, in general, telehandlers have been strong, but I think it's early still that I think the mix will continue to evolve as we get into next year. So, I think it's a little bit too early to call exactly what the dynamics of each one of those buckets is going to be.

Yes, I want to highlight that telehandlers have been particularly strong, along with booms. We are expanding our telehandler production capacity and are already in production, with plans to increase that output in 2025. We are fully committed to this effort and see significant demand that we currently cannot meet. New end markets, such as agriculture, are emerging, which reinforces our confidence in focusing on telehandlers. However, it’s difficult to determine if there will be a significant shift in product mix in 2025.

Our last question is from Mig Dobre from R.W. Baird. Please go ahead.

Good morning. Thanks for coming back to me. Just to sort of follow up here on the Access discussion. I guess understanding that you're not guiding for '25, but you have added capacity in the segment and things seem to be turning softer. So, I guess John, how do you approach next year here? What are some of the things that you can do to manage the cost basis? Should we maybe get ready for some restructuring here? Or do you have enough levers to kind of deal with potentially lower volumes not meeting such action?

Yes. So, Mig, thank you for this question. Sorry, you got cut off somehow when we started the call, I apologize for that.

It was my fault. Yes.

Thank you for the question. We've been focusing on our resilience for some time now. It's not a sudden initiative; we've been working on it continuously. This effort begins at our manufacturing plants, ensuring flexibility in response to various demand scenarios while managing our fixed costs. We've invested significantly in this area. Additionally, we continue to enhance our business resilience through our aftermarket and recurring revenue streams. Over the past few years, we've made important investments to grow our aftermarket parts business, which we believe will aid us in our ongoing management and expansion efforts. Looking ahead to 2025, we consider our outlook over a five-year period with detailed plans. We feel optimistic about the next five years, although we anticipate 2025 may present some challenges as we progress along our growth trajectory, potentially leading to a slight decline in sales, which we do not expect to be substantial. We also have cost reduction strategies in place to counter any unfavorable conditions in 2025, although I would not categorize it as significant restructuring. Instead, we have meaningful initiatives aimed at reducing costs, which we will persist with to mitigate any adverse impacts. Overall, we have been diligently working on the resilience of our business for an extended period.

Understood. For my follow-up regarding refuse collection, you mentioned the success with Volterra. I have two questions. Does having this proprietary chassis provide a competitive edge? If so, could you explain why? Additionally, how do you see the market developing between side-loaders and front loaders? I know you offer both products, but I'm interested in your perspective on how demand is changing in that area.

Sure. First of all, with the Volterra ZSL, we do believe that the chassis gives us a strategic advantage. And what that is, is because it's fully integrated. So, if you think about traditionally a refuse collection vehicle, it's sort of a separate body and chassis. So, you're limited in the level that you can integrate and create those two pieces of the chassis together. With a fully integrated unit, very much like a pure fire truck, you really have more advantages that you can add safety features to the vehicle that are all fully connected ultimately, so safety productivity benefits, ease of entry into the cab and exit. It just makes the entire driver experience more positive. Of course, ultimately with the electrification benefits of it, our customers are seeing that they have an advantage from a total cost of ownership perspective as well. So that's what we see. So, we believe that this is going to be a decade-long trend that as fleets continue to electrify. In terms of where the market demand is, frankly, the market is pretty strong across the board. As we're looking at capacity, we see capacity opportunities both on size and fronts. So that both are going to be a focus, and we see strength in both of them right now.

Our last question is from Chad Dillard from Bernstein. Please go ahead.

So, my first question is on pricing and access. So first of all, what was price realization in the third quarter? And then secondly, I recognize that you guys are going through negotiations for '25. But at least in terms of what's in backlog right now, how do you expect price and, I guess, price cost to evolve at least through the first half of '25 based on looking backlog?

Yes. From a price cost perspective, we faced a more challenging year-over-year comparison, but we expect to see a positive price cost outcome for the year. This is primarily what is contributing to the 60% incremental growth on a full-year basis. Looking ahead to next year, we have some backlog that will carry over, but we are still in the early stages of our negotiations. The mix of products, regions, and customers is significant. We will not speculate on the incremental or decremental changes for next year at this point, but given that the market is expected to soften, we believe we will continue to achieve solid margins in that business.

So, this concludes the question-and-answer session. I'd like to turn the floor back to Pat Davidson for any closing comments.

Thanks, and thanks, everybody, for joining us today. We look forward to speaking with you at upcoming conferences and trade shows where we will be showcasing our technology. In particular, we're displaying at the CES show in Las Vegas in early January. We are proud of the innovation and technology we bring to the market at Oshkosh, and we'll be showing these capabilities at the Las Vegas Convention Center. We hope you will consider making that trip and visiting us. Please reach out if you have any follow-up questions, and have a great day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.