Earnings Call Transcript - OSK Q3 2025

Operator, Operator

Greetings, and welcome to the Oshkosh Corporation Third Quarter 2025 Results Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Pat Davidson, Senior Vice President, Investor Relations for Oshkosh. Please proceed.

Patrick Davidson, Senior Vice President, Investor Relations

Good morning, and thanks for joining us. Earlier today, we published our third quarter 2025 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 as well as matters noted at our Investor Day in June 2025. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all. Our presenters today include John Pfeifer, President and Chief Executive Officer; and Matt Field, Executive Vice President and Chief Financial Officer. Please turn to Slide 3, and I'll turn it over to you, John.

John Pfeifer, President and CEO

Thanks, Pat, and good morning, everyone. We continue to successfully navigate a dynamic external environment with resilience and a strong sense of purpose to serve our everyday heroes with high-quality products that are safe, intuitive, and productive. We do this with a strong mission of service for our everyday heroes like firefighters in our communities. We proudly sponsored the 13th annual 9/11 Memorial Stair Climb in Green Bay where more than 2,000 people raised over $120,000 for the National Fallen Firefighters Foundation and honored the brave firefighters that lost their lives on 9/11. We also demonstrated our commitment to our communities as over 1,200 volunteers came together for OshKosh's eighth annual Feed the Body, Feed the Soul event. These volunteers packed 224,000 pounds of rice in just 12 hours to support individuals and families facing food insecurity across Eastern Wisconsin. Turning to our financial results on Slide 4. We delivered an adjusted operating margin of 10.2% on revenue of $2.7 billion in our third quarter. This led to adjusted earnings per share of $3.20, an increase of 9.2% over the prior year. These results reflect solid performance across each of our segments. Despite lower revenue, we maintained a double-digit adjusted operating income margin year-over-year, reflecting continued strong performance in our vocational segment, improved returns in our Transport segment, and a resilient double-digit margin in our Access segment. Our adjusted EPS grew compared with last year, reflecting our operating performance and taxes. While I am pleased with the resilience demonstrated in our third quarter results, we are updating our outlook for the full year to reflect the demand environment we have been seeing starting mostly in the third quarter. We are revising our 2025 adjusted EPS guidance to a range of $10.50 to $11, which reflects slightly lower revenue expectations for both Access and Transport segments. I want to emphasize that end market activity in our Access segment is healthy, but we are seeing customers be more cautious in the near term regarding new equipment purchases as a result of tariffs in the current economic environment. Matt will provide additional details on segment performance and our outlook later in the call. Please turn to Slide 6 for Q3 highlights. In September, we continued to demonstrate how Oshkosh is shaping the future of airports by showcasing our advanced technologies at the International Airport Ground Service Equipment Expo. And in Washington, D.C., at the AUSA Defense Conference just two weeks ago, we introduced our Family of Multi-mission Autonomous Vehicles, FMAV. Autonomy was a key focus at both events. At the GSE Expo, we displayed our full range of ground support equipment and showcased the flexible autonomous robot that can serve multiple roles on the tarmac. We also launched the new Tempest-si Deicer designed to easily navigate congested ramps while providing improved visibility and more intuitive controls for operators. At AUSA, OshKosh featured three production-ready variants from the autonomous vehicle portfolio, that's FMAV, highlighting our ability to deliver autonomous payload agnostic platforms. Please turn to Slide 7. As I mentioned earlier, access equipment end market activity remains healthy as we see in equipment utilization percentages. That said, customers are being cautious with CapEx spending. I'm proud of our team's execution, delivering double-digit adjusted operating margins despite this environment. While overall demand in the current environment is lower than in 2024, construction activity for data centers and infrastructure has continued to drive demand. We believe that additional long-term tailwinds related to lower interest rates, project deferrals, aged equipment, and manufacturing reshoring will support a broader pickup in construction activity. In the near term, the team remains resilient and is working to mitigate the impacts of tariffs across our business. As we have discussed previously, we are aggressively pursuing cost levers to offset the impact of tariffs. We are also having initial discussions with customers regarding the impact of tariffs on pricing with the expectation that we will raise prices in 2026 to keep pace with input costs. Our success is driven by designing and building world-class products to meet the needs of our customers. This quarter, we introduced our new AG619 mid-sized ag telehandler aimed at the heart of the market, which we revealed at the World Dairy Expo last month. And in Europe, we launched the innovative LiftPod, providing low-level access for commercial customers needing a safe, portable, and stowable solution to support a wide range of projects at height. Turning to Slide 8. In the Vocational segment, we continue to advance initiatives that support increased production of fire trucks. This is a multiyear process as we seek to improve production efficiency by addressing bottlenecks associated with building highly customized, complex trucks. At the same time, we continue to support firefighters with our stock pumpers and Build My Pierce product offerings, which improved lead times by simplifying configurations. In recent quarters, we've seen an increase in the mix of orders for Build My Pierce pumpers, which should further support our efforts to streamline production and reduce lead times. We finished the quarter with strong orders for vocational as the segment recorded $1.1 billion in the quarter, led by orders for Pierce fire trucks and our AeroTech products. Of course, we remain focused on increasing throughput, and we expect to bring the backlog down over the next few years as we discussed at our Investor Day in June. Finally, for the segment, I want to recognize the team that supports our McNeilus Volterra ZSL refuse collection vehicle, which won the coolest thing made in Tennessee 2025. This product is a game changer for the refuse collection industry as the first fully integrated electric vehicle designed with the operator in mind to deliver world-class ergonomics, purpose-built performance, and a zero-emission quiet driving experience in neighborhoods. Please turn to Slide 9. As I previously mentioned, we showcased autonomy at the AUSA Defense Conference. Earlier this month, we announced an order from the United States Army valued at $89 million for the modernized PLS A2 autonomy-ready heavy tactical truck designed for load handling, another example of innovation that is already available in our products today, not years in the future. We continue to advance core programs to support U.S. and international customers, including building FHTVs under our previously announced contract extension. We have also monetized JLTV related technology through a one-time license of select operational software IP to the Department of Defense that occurred during the quarter. This further demonstrates our commitment to our government customers by providing cutting-edge technologies to support mission-critical requirements and fleet sustainment. Lastly, we continue to ramp production of the NGDV this quarter and are targeting line rates that support our annual production goals. As with any new product launch in a new assembly plant, challenges are to be expected, and we've seen this across the vehicle industry worldwide and the team continues to work with urgency to ramp production while maintaining quality. We now have over 4 million miles driven by postal workers, and we remain excited about the rollout of this much-needed productivity-enhancing vehicle. With that, I'll hand it over to Matt to walk through our detailed financial results.

Matthew Field, Executive Vice President and CFO

Thanks, John. Please turn to Slide 10. Consolidated sales for the third quarter were nearly $2.7 billion, a decrease of $53 million or 2% from the same quarter last year, primarily due to lower sales volume in the access segment partially offset by higher vocational and transport sales volume and improved pricing. Adjusted operating income was $274 million, down slightly from the prior year, primarily reflecting lower volume. Adjusted operating income margin of 10.2% was roughly in line with last year on slightly lower sales. Adjusted earnings per share was $3.20 in the third quarter, $0.27 higher than last year. Adjusted EPS was favorably impacted by about $0.30 due to lower tax expense resulting from the resolution of a multiyear U.S. federal income tax audit. During the quarter, we again stepped up share repurchases, repurchasing approximately 666,000 shares of our stock for $91 million, bringing year-to-date share repurchases to $159 million. Share repurchases during the previous 12 months benefited adjusted EPS by $0.05 compared to the third quarter of 2024. Free cash flow for the quarter was strong at $464 million compared to $272 million in the third quarter of 2024, primarily reflecting working capital changes, including customer advances and inventory. Turning to our segment results on Slide 11. The Access segment delivered resilient adjusted operating income margins of 11% on sales of $1.1 billion. Sales were $254 million or nearly 19% lower than last year, which reflected weaker market conditions in North America and higher discounts. Our Vocational segment continued to deliver strong sales growth through higher volumes and improved pricing as we deliver our backlog, achieving an adjusted operating income margin of 15.6% on $968 million in sales. Sales grew $154 million or nearly 19% from last year, led by improved throughput from municipal fire apparatus and robust growth in airport products. Revenue in Airport Products was up 17% compared to the last year, demonstrating our strong Jet Bridge and RF businesses. The nearly 200 basis point increase in adjusted operating income margin for the segment primarily reflected improved price-cost dynamics. Transport segment sales increased $48 million to $588 million. Delivery vehicle revenue grew by $114 million to $146 million and now represents approximately 1/4 of transport segment revenue. Delivery revenue grew 37% sequentially compared to the second quarter of 2025. As expected, defense vehicle revenue was lower compared with last year due to the wind down of the domestic JLTV program. This was partially offset by higher international sales of tactical wheeled vehicles and one-time revenue from the license of JLTV related intellectual property to the U.S. government for $25 million. The transport segment delivered an improved operating income margin of 6.2% compared to 2.1% last year, reflecting the software IP license, improved pricing on new contracts, and favorable mix offset by higher warranty costs. The one-time licensing agreement, which was contemplated in our guidance last quarter, represented a roughly 400 basis point improvement in operating income margin. Please turn to Slide 12. Turning to our outlook for the remainder of 2025. The macro backdrop and end market activity have remained broadly resilient. Access customer orders, however, reflect a more judicious approach to spending, as you heard from John. Our team continues to execute well amidst a dynamic government policy and international trade environment. As John mentioned, we are updating our 2025 full-year adjusted EPS guidance to be in the range of $10.50 to $11 on revenues of approximately $10.3 billion to $10.4 billion. As you can see on this slide, we have further moderated our expected adjusted operating income margin in the Access segment to reflect our sales outlook and in the Transport segment for our present expectations for NGDV production. Our cash flow outlook of $450 million to $550 million, up $50 million from our previous outlook, reflects lower capital expenditures as we maintain rigorous spending controls. We also plan to continue with share repurchases through the balance of the year at a modestly higher pace than we did in the third quarter. With that, I'll turn it back to John for some closing comments.

John Pfeifer, President and CEO

Thanks, Matt. It's clear that 2025 has proven to be a dynamic year, including the tariff landscape and sustained higher interest rates. Our updated outlook reflects the impact of these conditions on our customers and in turn, on the demand for our products, notably in the Access segment. Even so, our team has shown strong focus and agility by managing through these conditions while delivering solid results. This performance reinforces our confidence in managing the near term while supporting our long-term growth objectives. Earlier this year at our Investor Day, we shared our vision to roughly double adjusted EPS to a range of $18 to $22 per share by 2028. Each quarter represents a step toward that goal and we're encouraged by the steps our teams are making today to lay the groundwork for nearly doubling EPS by then. We appreciate your continued confidence in Oshkosh and look forward to updating you as we advance our strategy and create long-term value for shareholders, customers, and team members. I'll turn it back to you now, Pat, for the Q&A.

Patrick Davidson, Senior Vice President, Investor Relations

Thanks, John. I'd like to remind everyone to please limit your questions to one plus a follow-up. Please stay disciplined on your follow-up question. And after that, we'll ask that you rejoin the queue if you have additional questions. Operator, please begin the Q&A session.

Operator, Operator

Our first question comes from Mig Dobre with Baird.

Mircea Dobre, Analyst

Maybe we can start with Access a little bit. And I'm sort of curious about your perspective here as you're talking to your customers, obviously, not only for business covering Q4 but into 2026, you hinted at the fact that prices are going to go up which makes sense given tariffs and whatnot. What is your sense for where demand seems to be shaken out because we have seen some that are increasing CapEx at least optically; it looks like there are signs of stabilization in that industry. I'm curious if that sort of gels with what you're hearing or what your salespeople are hearing as they're contemplating 2026. And maybe more broadly, what should investors be thinking, just as a general framework for the segment next year? It looks to me like production is likely to be down in the first half of '26, but perhaps you think about it differently.

John Pfeifer, President and CEO

Thank you for your question, Mig. We're not providing specific guidance today, but I can offer some context on our outlook. We're actively engaging with all our customers regarding their expectations for 2026, and we'll have clearer insights after the fourth quarter. Currently, we cannot confirm whether production will decrease in the first half of 2026. It's too early to determine that. However, when we evaluate the market moving forward, we recognize that our customers are diverse. We serve thousands of independent rental businesses alongside large national rental clients who have shared positive updates with us. There remains some caution in the short term, specifically regarding equipment orders in Q3 and Q4 given the current environment. Looking ahead to 2026, we are optimistic as we observe long-term demand drivers, including ongoing mega projects that significantly impact equipment needs. Additionally, we are noticing a relaxation in commercial construction, with many projects that were previously stalled now progressing through planning. This is an encouraging sign for the market's future. We are navigating this year's challenges effectively, despite it being an exceptionally dynamic period. We are confident in maintaining strong margins through 2025 and will provide more guidance in January regarding 2026. Overall, we believe the long-term market outlook is very promising, as we've been highlighting for some time.

Mircea Dobre, Analyst

Understood. My follow-up, maybe to put a finer point on the tariffs, give us a sense here for how the tariff picture has changed for you, maybe quantify the cost. And then as you think about next year, and again, I'm not asking for guidance; I'm just asking for your strategy, how do you think you'll be able to mitigate these tariffs, if any at all?

Matthew Field, Executive Vice President and CFO

So tariffs for this year, it's kind of $30 million to $40 million is what we see for the full year. Most of that being in the fourth quarter. So we would estimate that to be about $20 million to $30 million in the fourth quarter. Obviously, as you look into 2026, you would project a full-year impact as those are implemented and feathered in. What you don't see in the fourth quarter is the pricing John talked about and you highlighted in your questions. So there will be some pricing that would occur in 2026 against that. So that's how I think about tariffs for next year and how they are kind of feathered in this year.

Operator, Operator

The next question comes from Stephen Volkmann with Jefferies.

Stephen Volkmann, Analyst

So the follow-on, just to Mig's question, actually, is it reasonable to think that you can offset this tariff headwind during 2026? Is that sort of the plan? Or will it take longer?

Matthew Field, Executive Vice President and CFO

Steve, so as we've talked about on prior calls, our approach to tariffs is really multifaceted. First, it's negotiating the supply chain. Second, it's what we call tariff engineering, and that can come in many forms, that could be sourcing, it could be how we import, it could be the classification as we run into and other classifications. We look strongly at each part we bring in and make sure it's classified in the right way so that we get the right tariff treatment. And then only then do we start talking about pricing. So it would be preliminary for me to speculate on how much would be offset next year. But certainly, the goal is we mitigate as much as we can on the cost side and then we look at what pricing we need to discuss with our customers. John, is there anything you want to add?

John Pfeifer, President and CEO

I just want to make a point to say that we do, do a lot. We've got a lot of really great work happening with our teams, supply chain first and foremost. There's engineering manufacturing teams. We do a lot of work to offset the impact of tariffs, and we've had a lot of success doing that. Our MO when we look at tariffs is we want to absolutely minimize the impact of tariffs on our customers. That's our first goal, minimize the impact to the customer. And we've been pretty good at doing that. Now you can't mitigate everything. So that's why I said in my prepared remarks that there'll be some price increase in 2026. We believe that the landscape will be calmed down enough to be able to assess what any price increase needs to be. But our MO is to get through this without impacting customers very much.

Stephen Volkmann, Analyst

Got it. And then if my math is right, I think you're sort of implied to incremental margins for vocational in the fourth quarter, like 40%, which is obviously impressive, especially with tariffs. How should we think about that going forward? Is that a reasonable assumption for a while? Or is that something special?

Matthew Field, Executive Vice President and CFO

So yes. So fourth quarter, the math would imply exactly as you said, about a 40% incremental. For the year, our guidance is about 33% actually. So it's really impacted this year as higher production throughput, higher volume. We've had a good mix with strong sales in airport products. Again, it'd be preliminary for me to speculate what the incrementals are. Our 2028 guidance, which we provided in June, will be a little lighter than that on an annualized basis, but certainly strong results out of vocational. Thanks for highlighting.

Operator, Operator

The next question comes from Jamie Cook with Truist Securities.

Jamie Cook, Analyst

I guess just two questions. One, John, as you think about the competitive landscape within access equipment, in some of the market share movement you've seen between you and your peers. Do you feel like with Section 232 and tariffs, like are you in a position to gain share just based on your manufacturing footprint relative to some of your peers? And then my second question, if you could just quantify or talk through more some of the discounting that you noticed in the access market, quantify it and to what degree, given the tariff situation, does this ease, I guess?

John Pfeifer, President and CEO

Yes, thank you for the question. In the Access equipment sector, we are implementing a local-for-local strategy. We have primarily focused on U.S. manufacturing for U.S. sales in our Access business, which has given us a solid foundation. We are increasing our efforts both in the U.S. and in Europe. This strategy allows us to effectively manage tariffs and minimize costs. We believe this puts us in a favorable position compared to competitors outside the United States. JLG remains the leading brand in the industry, with continuous innovations being introduced to the market. Our aim is to prioritize our customers and drive improvements for them, as that is crucial for long-term market share. This is where our focus lies.

Matthew Field, Executive Vice President and CFO

And, Jamie, just adding to your second question and your follow on. So the team practices very disciplined pricing. You've seen that in prior cycles, you've seen it in prior quarters. That's also supported by a strong service network. And that, in the end results in a very strong residual on our JLG equipment, and that's important for rental customers. And so what you saw in the third quarter is about a 3%, 4% all-in discount level, which we think is very reasonable given the external environment we have. Obviously, we've not gotten into pricing for tariffs in the third quarter with the limited impact, and that will really be a factor in 2026 versus 2025.

Operator, Operator

The next question comes from Tami Zakaria with JPMorgan.

Tami Zakaria, Analyst

Good morning. Thank you so much. Question from me on the warranty costs, which seems to be an item headwind in the quarter. Are you able to elaborate on that? What's driving it? And how to think about it for the rest of the year?

Matthew Field, Executive Vice President and CFO

Tami, so that's really a one-time item we had in the third quarter as we're working through the units that we've built, specifically in the defense sector for vehicles in the kind of supply chain shortages, '21 '22, where we identified issues that we need to repair as we built with interim parts and so forth. So we took that charge in the third quarter. We think that's behind us.

John Pfeifer, President and CEO

Yes, Tami, I want to just emphasize, that's a core defense product. It's not the postal vehicle. It's core defense. We are a quality-focused company. We're known in the Department of Defense for quality. When we see that we have an issue, we wrap it up and we address it as quickly as we can with the customer. Again, as Matt said, this is not an ongoing issue to expect going forward.

Tami Zakaria, Analyst

Understood. That's very helpful. I have a question about Access. Earlier this year, you mentioned making some pricing adjustments. Is that still happening? Do you anticipate that continuing for the rest of the year, or has anything changed?

John Pfeifer, President and CEO

Can you clarify that, Tami? I'm not sure if I got exactly what you were referring to.

Tami Zakaria, Analyst

So my question is on Access pricing, aerials pricing for the year. The way it's playing out, do you expect positive pricing this year as some of these tariffs have come in? Or are you going back to your customers and giving some discount? Any comments on pricing and how that's trending in the Access segment would be helpful.

John Pfeifer, President and CEO

Okay. I'm sorry, I got it. Go ahead, Matt.

Matthew Field, Executive Vice President and CFO

Yes. Thanks for the clarification. So as I just mentioned, this year, really, given the weakness we see in external demand, we've seen a negative pricing environment in access. Obviously, with tariffs hitting in the latter part of this year and mostly next year, we would talk about a different pricing environment into 2026.

Operator, Operator

The next question comes from Mike Shlisky with D.A. Davidson.

Michael Shlisky, Analyst

In Access, it appears that a significant portion of clients in the third quarter was related to telehandlers, which experienced a decline of over 40% in sales. Additionally, you are increasing capacity in that area. Could you provide more details about the Access segment and how it is performing compared to the core aerials?

John Pfeifer, President and CEO

Yes. The difference is Cat. We have discussed for several quarters that we had a long-term agreement with Cat, which is now no longer in place. This is the main reason for the change in telehandlers. JLG telehandlers, including the Skytrack models, are performing well and not losing market share. Regarding aerials, the market is currently down due to a decrease in nonresidential private construction, but this is only a temporary situation. Looking ahead, we anticipate strong health in the market and are pleased with our resilient performance. For instance, in Q3, our revenue in access equipment decreased by nearly 19%, yet we maintained healthy double-digit margins. This is precisely how we expect to operate, and we will continue to navigate through these challenges as the market grows in the future.

Michael Shlisky, Analyst

Great. And then just talking about peers real quick. Have you seen any impact over the last few weeks at peers from the federal government shutdown, especially any local effects on firefighter assistance grants or other state-owned government systems that the federal government provides to fire departments?

Matthew Field, Executive Vice President and CFO

Mike, it's Matt. So in terms of the federal government shutdown in the near term, we've not really seen a material impact. If it extends much longer or significantly longer, I guess, we may have some contracts affected as we do sell directly to the government in some cases, think about our products and so forth. So there would be some knock-on effects if this extends for an extended period of time. Not huge numbers, but certainly something that I would watch for.

Operator, Operator

The next question comes from Kyle Menges with Citigroup.

Kyle Menges, Analyst

I think NGDV sales of $146 million in the quarter was a little bit below your expectation. And it sounds like fourth quarter is going to be a little lower than initially expected. So just curious what's driving that? What have been some of the challenges in increasing capacity? And then I don't want to put words in your mouth, but I got the sense from the prepared remarks, perhaps a walk back of the earlier guidance to get to annualized full run rate production of, I think, 16,000 to 20,000 units by year-end. Is that still feasible in your mind? Yes, I would just love to hear an update on that.

John Pfeifer, President and CEO

I will start with the annual projection of 16,000 to 20,000 units. Let me begin by discussing the new postal vehicles, an impressive product. The feedback we have received is very positive, with over 4 million miles driven in delivery operations by postal carriers. As mentioned earlier, this is a new plant producing a new product, utilizing highly automated processes, and it is indeed a remarkable facility. We have seen progress, and while revenue is increasing, it hasn't reached our desired pace. We are working diligently with a talented team focused on enhancing production until we achieve full rate production. We anticipate sequential revenue growth and are confident that by the end of 2025, we will be in a solid position to support our plans for the United States Postal Service and a strong performance in 2026. That summarizes the current state of the program.

Kyle Menges, Analyst

Got it. And just curious, I guess, when you would expect maybe now to hit that full annualized run rate production? And then my follow-up was just going to be on the lower CapEx guide; it looks like you brought it down $50 million. So curious what drove that.

John Pfeifer, President and CEO

Yes. So I'll start by the full rate production. We continue to target full rate production by the end of this year. I want to say that's not without challenges, of course, as I just mentioned previously, we have constant communication with the United States Postal Service to the highest levels. We're doing everything we can, but our plans are to get to full rate production by the end of the year. Matt, do you want to talk about the $0.50?

Matthew Field, Executive Vice President and CFO

Yes. The reduction in CapEx reflects twofold. One, stricter spending controls in this environment, but then two, just timing of spending.

Operator, Operator

Our next question comes from Angel Castillo with Morgan Stanley.

Angel Castillo Malpica, Analyst

Just wanted to go back to some of the discussion around Access. Could you just clarify, I guess, is the greater cautiousness that you talked about from your customers reflecting itself purely in just kind of the low ordering or the low book-to-bill this quarter? Or are you seeing any kind of order cancellations or delivery push out here? And just if you could add a little bit more color as part of that, kind of how the behavior maybe differs between the nationals and independents?

John Pfeifer, President and CEO

Yes. First, thank you for the question. We had a book-to-bill ratio of 0.6, which is typical for the third quarter when looking at historical data. That said, the market is a bit softer compared to last year, as I previously noted. However, it's important to highlight that end market demand is strong. Equipment utilization is solid, and the used market is performing well, all of which are encouraging signs. What we're observing in the dynamic market, with constantly changing tariffs and sustained higher interest rates, has led many customers to adopt a cautious approach. They recognize that the market appears healthy but are opting to delay their capital expenditures until they have more clarity on future developments, particularly in relation to the Federal Reserve lowering rates. This seems to be the prevailing sentiment in the market.

Angel Castillo Malpica, Analyst

That's helpful. And maybe just related to that, I know it's still early for fiscal year '26, and a lot of moving pieces here, but given just your ongoing discussions with customers, whether on kind of the near-term environment for next year, can you just talk about the magnitude of the price increases that are currently being discussed for next year? And whether that kicks in kind of January 1? And just kind of overall discussion of those negotiations because I guess, if I'm not mistaken, on the discounting part, it seems like discounting may have stepped up from 2% to 3% to 3% to 4%. So if you could just kind of help us understand perhaps the trajectory of that versus the kind of increases expected in January 1?

John Pfeifer, President and CEO

Yes, I'd be preliminary to talk about pricing for 2026. On a quarterly basis, it's really what you see there is some seasonality in how we go to market.

Operator, Operator

The next question comes from Tim Thein with Raymond James.

Timothy Thein, Analyst

Great. Just a lot of dialogue here on Access, but maybe I'll ask another one. Just with respect to your expectations, John, for order activity here in the fourth quarter and specifically maybe the composition, I would imagine more of your NRCs are the ones that take up the order slots in the fourth quarter that are booking orders rather. But maybe just any kind of guardrails as to how you're thinking and maybe how the initial discussions have shaped up just with respect to how we should be thinking about order activity. Obviously, that will be important as to how we think about '26. So maybe I'll start with that one. And then part B of the question is just on the vocational segment. And just on fire & emergency, obviously, that's a big part of the nice margin improvement that you have lined up into that 2028 target as you talked earlier about more stock units in the Build My Pierce. Does that have any implications that we should think about from a product mix standpoint? So that's two long questions.

John Pfeifer, President and CEO

Yes. So regarding access and our fire industry, especially our fire truck business, Pierce, let's start with access. You accurately pinpointed the situation, Tim. The reason we revised our guidance from $11 to between $10.50 and $11 is mainly due to orders in the fourth quarter for Access. Specifically, I'm referring to orders intended for delivery within the same quarter. Currently, we are assessing how much equipment our customers, ranging from thousands of independents to large clients, will order in the fourth quarter. This creates a slight range from $10.50 to $11. If the orders align with our expectations, we should reach around $11. However, if there is a decrease in the amount of equipment taken in the fourth quarter, it might drop a little. I also want to highlight the exceptional performance of our teams at Access Equipment and JLG in this dynamic market. We are doing exceptionally well and expect continued growth moving forward. As for our Pierce business in fire trucks, we are seeing improved output, which will help us reduce our backlog in the coming years. Both the Build My Pierce and our standard fire trucks are excellent products, and we do not see any notable margin differences between the Build My Pierce units and the fully customized ones we produce.

Operator, Operator

The next question comes from Steve Barger with KeyBanc.

Christian Zyla, Analyst

This is actually Christian Zyla on for Steve Barger. Just as a follow-up, maybe to Tim's first question on Access. I heard your comments about the near-term uncertainty your customers are facing. Just historically, 4Q was a big sequential order quarter for Access as your customers plan for next year. So do you still see a normal step-up in 4Q? Or is that more of a 1Q event now? And then is your access backlog split evenly? Or does this skew one way between bigger nationals or the smaller independents?

Matthew Field, Executive Vice President and CFO

Christian, it's Matt. So the way to think about Q4 is you're right. Traditionally, the book-to-bill will be higher. Honestly, I think it would be presumptive of me to assume that, that's the same as you end up with price negotiations. Some of that might set to January versus December. But honestly, it's too early to make a call like that. So traditionally, I would say it's higher; how it's going to shape up this year is unclear.

Christian Zyla, Analyst

Got it. Okay. And then just switching gears to your defense-related business. It seems like the industry is wanting more transport type vehicles. Is that what you're seeing as well? It may be a pitch for the CTT program. What differentiates your portfolio capabilities versus the other bidders in that program?

John Pfeifer, President and CEO

Yes. Thanks for the question. Sure. I mean what's really differentiating us in this market today is our technological capability as well as our quality. We've got a really strong quality and service reputation, so they know what they get when we supply them with tactical-wheeled vehicles. But going forward, as I talked in my prepared remarks, it's a lot about things like autonomous functionality or full autonomy and that's why you see a lot of our products moving that way with the technology that we have. And that's kind of what we see as the future of this. And it's why we stand out in that industry is that reliability and the technological performance and capabilities of our vehicles that get better and better as we go forward.

Operator, Operator

Our next question comes from David Raso with Evercore.

David Raso, Analyst

Of the defense revenue cut by $200 million, how much of that was the postal truck?

Matthew Field, Executive Vice President and CFO

It was all on the delivery side, David.

John Pfeifer, President and CEO

All of it, yes.

David Raso, Analyst

And when it comes to that, is that the ramp-up of the BEV truck that's giving you a little bit of struggle to ramp up? Or is it the ICE truck as well?

John Pfeifer, President and CEO

It's unrelated to ICE and BEV, David. The vehicles are produced on the same line. It's just continuing to dial in all of the autonomous functionality of this manufacturing plant and its normal ramp-up challenges that we're addressing and we will get to full rate production. But it's not related to ICE and BEV.

David Raso, Analyst

I would like to know how much of this you believe is within your influence because the 35% to 40% reduction in EBIT originated from defense. This program is extremely important for driving defense profits next year, which could alleviate some pressure on Access, making it significant. Many believe that the Vocational backlog should support you, but the relationship among transport, defense, and Access is also important. Can you clarify when you expect to be able to ramp that up? I am anticipating revenues approaching $300 million a quarter in the near future. I apologize for pushing, but I would appreciate a bit more clarity as it's crucial for 2026.

Matthew Field, Executive Vice President and CFO

That's fine, David. So just on the OI, remember the warranty charge we took in the third quarter, which is about $13 million, that's flowing into OI for the full year. We did fully expect the licensing, which was in our guidance, the warranty however, it would flow through to OI. So you shouldn't look at the top line change in revenue as the full impact on to OI.

John Pfeifer, President and CEO

And David, I will just say your expectation for quarterly revenue on the delivery side is in line with ours.

Operator, Operator

Thank you. At this time, I would like to turn the call back over to Mr. Pat Davidson for closing comments.

Patrick Davidson, Senior Vice President, Investor Relations

Thank you, and thanks for joining us today. We will be meeting with investors at several conferences during the fourth quarter in Chicago, Florida, and New York. We'd be happy to connect in early January. We'll be showcasing our technology at the annual CES show in Las Vegas. We encourage you to stop by our booth and learn about technology that supports airports, job sites, and neighborhoods of the future. Take care, everyone, and have a great rest of the day.

Operator, Operator

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.