Earnings Call
Oshkosh Corp (OSK)
Earnings Call Transcript - OSK Q2 2020
Operator, Operator
Greetings, and welcome to the Oshkosh Corporation's conference call for the results of the second quarter of Fiscal 2020. At this moment, all participants are in listen-only mode. A question-and-answer session will follow the presentation. Please be aware that this conference is being recorded. I will now hand it over to your host, Pat Davidson, Senior Vice President of Investor Relations for Oshkosh Corporation. Thank you. You may begin.
Pat Davidson, Senior Vice President of Investor Relations
Good morning. Thanks for joining us. Earlier today, we published our second quarter 2020 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 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. All references on this call to a quarter or a year are to our fiscal quarter or fiscal year, unless stated otherwise. Our presenters today include Wilson Jones, President and Chief Executive Officer; John Pfeifer, Executive Vice President and Chief Operating Officer; and Mike Pack, Executive Vice President and Chief Financial Officer. On our last call, we introduced Mike as our CFO successor. He hit the ground running back in January and today he'll be reporting on our financial results and discussing some of the actions we are taking. He's not a newcomer to Oshkosh. He's been with us for 14 years in roles of increasing responsibility and will continue to be a strong part of our leadership team going forward. So, welcome to you Mike. Please turn to slide three everybody, and I'll turn it over to you Wilson.
Wilson Jones, President and Chief Executive Officer
Thanks, Pat. Good morning everyone. Before I share my general comments, I'm going to take a step back and remind everyone that we are truly a different integrated global industrial. We are better positioned to navigate through a crisis like COVID-19 than ever before. We have a strong balance sheet and liquidity. We have strong backlogs in our Defense and Fire & Emergency segments, giving us visibility well into 2021. And we have a strong people-first culture driven to persevere through adversity. We responded quickly to the outbreak and have already developed a robust return-to-work plan that we continue to refine. With that said, we're all facing challenges brought on by the COVID-19 pandemic. Our first priority has been to keep our team members safe and to help reduce the spread of this virus. We're balancing that safety-focused approach with our responsibilities to customers as we supply them with essential products and services that operate in many critical industries. In fact, all of our products and services are considered essential. And we received communication from the Department of Defense requesting us to continue manufacturing defense vehicles and fire trucks. It's a tremendous responsibility, and we are proud of the important role we play in keeping our country safe. Our teams moved quickly when the virus came to light in the first part of the quarter. At that time, the business impact was isolated to China and didn't become a major issue in Europe or North America until later in the quarter, but we didn't wait. We began daily action meetings, including all key functional areas to assess risks regarding our people, our customers, our operations, our supply chains, and our communities. We've analyzed many scenarios as we strive to balance team members' safety and protection, while maintaining operations to serve our customers. Our office team members remain productive and are working remotely. For those team members required to be onsite for production, we've implemented center for disease control recommendations to promote social distancing and to help keep our workplaces safe. We've gone beyond these stringent guidelines with staggered breaks and work schedules and increased access to disinfecting cleaning supplies and sanitizers. And our teams are investing time to extensively clean work areas to minimize the chances of infection among our 15,000 plus team members. I want to give a shout out to all Oshkosh team members for their passion and commitment, especially our manufacturing teams that are answering the call every single day. With near-term demand and supply chain challenges facing our businesses, we are squarely focused on managing our cost structure and preserving liquidity. We've instituted temporary plant shutdowns in our Access Equipment segment to match production with customer demand and supply chain constraints. And we've implemented salary reductions, furloughs, and other cost reduction actions across the company. We believe these cost reductions are a responsible way to manage the company during these unprecedented times. We have not made permanent staff reductions as we believe the crisis is temporary in nature. We've been through many challenges before, and while COVID-19 is different, our business is well-positioned to manage through this pandemic. I remain confident in our leaders, our people, and our ability to deliver healthy, sustainable margins for the year. Please turn to slide four for some highlights on the quarter. Revenues were down 9.7% to $1.8 billion, leading to operating income of $134 million and adjusted earnings per share of $1.25. I'm proud of all the efforts the Oshkosh team members provided this quarter, and our people-first culture is alive and well to deliver these solid results. Late in our second quarter, we began to hear from customers in our Access Equipment segment who wanted to push out delivery requirements and cancel some existing orders. There were similar requests, but to a lesser extent with our Commercial segment. While COVID-19 has impacted demand in our Access and Commercial segments, demand was largely unaffected in our Fire & Emergency and Defense segments. And these two segments have strong backlogs extending well into 2021, as we enter the back half of 2020. Again, this illustrates what makes us different from other industrials. John and Mike will talk more about these developments and the actions we're taking to drive our performance during this period. During the quarter, we did refinance our senior notes that were due in 2025, extending the maturity and lowering the interest rate, which will save several million dollars per year. The market demand was very strong for our investment-grade debt. And finally, our Board has approved another quarterly dividend payment of $0.30 per share. Please turn to slide five to begin the discussion for each of our business segments. I'll start it off with Defense. Our Defense segment provides a solid foundation for the company, led by its three strong programs of record. And the demand side of this business has been unaffected by the COVID-19 pandemic. You know the programs by the military acronyms, the JLTV, a high-tech, next-generation high payload protected tactical wheeled vehicle. JLTV production is still ramping up and went out to two more international customers for JLTVs in February. We also participated in the US Army's Industry Day in preparation for a potential re-compete of the program in 2022. We are confident in our ability to retain this program. Under the current contract, we maintain strong visibility and expect to deliver JLTVs for 2024. Next up is the FMTV, which is the US Army's medium payload tactical wheeled vehicle. Our production of the current A1P2 version is winding down. We are beginning to transition to the next-generation version, the A2. We expect to produce the FMTV A2 through 2026 under the current contract. And finally, the pride of Oshkosh Defense for nearly 40 years, the FHTV. We really kicked off the modern off-road heavy payload tactical wheeled vehicle industry when the US Army selected our entry in their open competition in the early 1980s. We've continued integrating new technologies and upgrading capabilities of these critical units over the past four decades. During the quarter, we received large orders for both the JLTV and FHTV programs that positively impacted our quarterly performance and increased our backlog. In fact, we now have the largest backlog for Defense in the last eight years at $3.4 billion, including nearly $2 billion for 2021. Our team at Oshkosh Defense works very hard to deliver strong results, and that was the case again this quarter. While demand remained strong in our Defense segment, the team still faces production challenges due to the COVID-19 related supply chain disruptions and workforce availability. They have successfully navigated through numerous suppliers shutdowns while resourcing critical components, and they have addressed workforce issues with social distancing and increased cleaning frequency to enable continued production. However, it’s possible these factors could cause a slowdown in the coming months. Let's turn to slide six and I'll pass it to John to discuss our non-defense segment.
John Pfeifer, Executive Vice President and Chief Operating Officer
Thanks, Wilson and good morning everybody. Coming into the year, we expected lower Access Equipment sales in North America and Europe, but we did not expect the effects of the COVID-19 pandemic. The shock to the business landscape is being felt most intensively in this segment. But in spite of the COVID-19 disruption, which drove significantly lower sales as well as supply chain disruption, our Access Equipment team delivered another solid quarter, with strong sustainable margin performance. Led by our simplification drive, we have created a more nimble organization resulting in healthy operating margins at lower sales levels. The impact of COVID-19 was first felt in China as our business was part of the government's mandated shutdown to stop the spread of the virus. The shutdown extended three weeks beyond the Chinese New Year, and with the entire country largely closed, sales in China basically stopped. The shutdown eventually ended, and I'm pleased to report that our Tianjin facility is back up and currently running at pre-COVID-19 levels. All of our team members have returned to work, and demand has begun to come back rapidly. We expect a strong second half of 2020 for JLG sales in China. Our long-term outlook in China remains positive as a result of product adoption, driven by safety and productivity improvements provided by these products. However, as COVID-19 began to spread globally in the back half of the quarter and many countries and states issued shelter-in-place restrictions, many customers began to push out and even cancel some orders. Our North American customers have been reviewing their operational requirements and market metrics. They have kept us well informed of their product demand requirements. The situation is fluid, and we are adjusting based upon our frequent communications and daily review process. Further, our North American operations and supply chains are experiencing disruptions as some suppliers have temporarily ceased production. As a result of slowing customer demand as well as production and supply chain constraints, our plants in North America instituted shutdowns from March 30 through April 13 and subsequently extended those shutdowns until April 27. In addition, two-week shutdowns are planned monthly through July to further align production levels with customer demand. We expect Europe's demand decrease to be more pronounced than North America's, as already slower construction activity is expected to decline further due to COVID-19 related government mandates. We also expect that major disruptions to first and second tier suppliers will persist as the market reacts to COVID-19 operating restrictions. I'd like to finish my comments on JLG by sharing some of the game-changing new products and future technologies displayed to our customers at CONEXPO. They highlight our continued positive long-term outlook for this market and the segment. These included all electric scissor lifts, which completely eliminate hydraulic fluid, a self-leveling 67-foot boom that provides unparalleled versatility on rough terrain job sites, as well as augmented and virtual reality tools, simplified training, and job site awareness. These innovations drive significant productivity improvements for fleet operators and users of the machines. Our team at Access Equipment is experienced and highly capable. We are working closely with customers and suppliers to position the business for success when the current situation improves. Please turn to slide seven for a discussion of the Fire & Emergency segment. Pierce is the market leader in custom fire trucks with its broad offering of pumpers, aerials, and heavy-duty rescues. Fire trucks remain critical assets to first responders battling the COVID-19 pandemic on the frontlines, and our commitment to these heroes never waivers. Pierce just completed its largest quarter of fire truck orders in the company's history, leading to a record backlog of more than $1.3 billion for the segment. New order intake may slow in future quarters because of COVID-19, but it puts us in a strong position and provides visibility well into 2021. Despite strong demand, COVID-19 is impacting the Fire & Emergency segment in several ways: supply chain disruptions, workforce availability, and modified customer delivery inspections. Much like our Defense business, our team in Fire & Emergency continues to drive strong performance, but they are facing challenges that are broadly in line with all truck and automakers in North America. We did not achieve our revenue target for the second quarter due to the combined effects of COVID-19 related customer travel restrictions and a supplier quality issue that impacted our truck delivery schedule. The supplier quality issue arose when one of our raw material suppliers delivered product that was out of specification. The issues surfaced during the quarter and we quickly identified all products that required replacement materials. This necessitated changes in both our production and delivery schedules, driving labor inefficiencies and shipment delays. Conforming product has been received, and we expect to catch up by the end of the year. Customer travel restrictions sparked our team to launch an innovative new virtual inspection process for firefighters to approve their fire trucks. The process was launched very recently, so the benefits were minimal in the second quarter, but we expect fire departments to utilize this approach more frequently in the coming months. Looking to the remainder of 2020, we're expecting North American vehicle manufacturers ourselves included to be impacted by COVID-19 supplier shortages. Please turn to slide eight and we'll talk about our Commercial segment. Like our other segments, operations in Commercial have remained open since these products are considered essential. COVID-19, however, is impacting mixer product demand as construction sites in some states face temporary shutdowns and customers look to push out deliveries of our units. There are some order push-outs in the RCV and IMT product lines as well. Similar to our other segments, we have supply chain challenges as many suppliers limit their production or shutdown due to shelter-in-place requirements. We have generally been successful mitigating these challenges to date, but it is possible that a part or component shortage could limit production temporarily in the coming months. Even with those challenges, we continue on our simplification journey. We are also active with the ramp-up of our new front discharge concrete mixer, the S-Series 2.0, complete with connectivity and productivity technology not previously seen in the concrete placement industry. We formally launched the vehicle at CONEXPO in early March. Attendees at the show were excited about the new vehicle, and we already have a solid backlog of orders. That wraps it up for our business segments. I'm going to turn it over to Mike to discuss our second quarter results and some additional comments on current business conditions and the actions we're taking.
Mike Pack, Executive Vice President and Chief Financial Officer
Thanks John and good morning everyone. Please turn to slide nine. We commented on our last earnings call that we expected second quarter sales to be roughly flat to the prior year with earnings modestly lower. However, the situation changed with the COVID-19 outbreak. Consolidated net sales for the quarter were $1.8 billion, down 9.7% from the prior year quarter. Lower Access Equipment and Fire & Emergency sales were the primary drivers of the lower consolidated sales, offset in part by higher Defense sales. Access Equipment sales were negatively impacted by push-outs in customer delivery requirements as a result of COVID-19. Prior to the emergence of COVID-19, we expected a modest decrease in Access Equipment sales as a result of rental company customers in North America slowing down their capital expenditures for fleet expansion after two strong years of growth. Defense sales growth in the quarter reflected the continued JLTV production ramp, partially offset by lower FHTV volumes. Fire & Emergency sales were lower due to the previously mentioned supplier quality issue that impacted the shipment of units and COVID-19 related travel restrictions, impacting customers’ abilities to inspect and accept completed units. These shipment delays also contributed to an unfavorable product mix. Commercial segment sales were approximately flat to the prior year quarter, reflecting an increase in refuse collection vehicle sales, offset by a decrease in concrete mixer sales, as the commercial team was ramping up production of the new S-Series 2.0 Front Discharge Mixer in the current year quarter. Refuse collection vehicle sales were negatively impacted in the prior year quarter by a partial roof collapse at the segment's main production facility. Consolidated operating income for the second quarter was $133.6 million or 7.4% of sales compared to $175.6 million or 8.8% of sales in the prior year quarter. Access Equipment operating income declined on lower sales and unfavorable manufacturing absorption as a result of the planned slowdown in production, offset in part by lower management incentive compensation expense, lower amortization expense, and favorable product mix. Defense operating income increased as a result of higher sales volumes, offset in part by adverse mix, higher warranty costs, and higher new product development investment. Fire & Emergency second quarter operating income declined due to unfavorable product mix, lower sales volume, and manufacturing inefficiencies. These items were partially offset by improved pricing. The Commercial segment’s second quarter operating income increased compared to the prior year as a result of improved manufacturing absorption, as absorption was negatively impacted by the partial roof collapse in the prior year quarter, offset by higher litigation and manufacturing startup costs. Adjusted EPS for the second quarter was $1.25 compared to EPS of $1.82 in the second quarter of 2019. Second quarter results benefited by $0.03 per share from share repurchases completed in the prior 12 months. As Wilson mentioned, we successfully refinanced our $250 million 5.375% senior notes due 2025 with $300 million 3.10% senior notes due 2030. We used the additional proceeds to pay down the company’s senior secured term loan by $50 million. We expect the refinancing to reduce interest expense by approximately $5.5 million per year. Please turn to slide 10 for a discussion on the remainder of fiscal 2020. As a result of the evolving impact of COVID-19 including the impact on our customers, suppliers, and our team members and production facilities, we withdrew our 2020 financial expectations on March 23. Many of these uncertainties remain, so we are not in a position to provide updated guidance for 2020 at this time. In light of these uncertainties, we took decisive action to reduce pretax costs by $80 million to $100 million for the remainder of the year. These cost reduction actions include salary reductions, furloughs, temporary plant shutdowns, limiting travel, and reducing project costs and other discretionary spending. Our balance sheet remains strong with available liquidity of approximately $1.2 billion, consisting of cash of approximately $400 million and availability under our revolving line of credit of approximately $800 million. During the quarter, we paused our share repurchases and we will reevaluate them as we gain further clarity on the year. We are also reducing planned CapEx by approximately $40 million. We believe the third quarter will be our most challenging quarter for all segments, which will impact sales, operating income, and decremental margins. Our Access Equipment segment faces uncertain customer demand and a risk of supplier shortages of critical components as a result of COVID-19. As discussed earlier, we have implemented temporary plant closures to help balance production and supply chain constraints with revised customer demand. Our Defense and Fire & Emergency segments both have strong backlogs, and both segments are essential, so production continues. However, both segments face a risk of supply chain shortages and workforce availability, which may interrupt production and drive inefficiencies. In addition, customer travel for final inspections could remain a challenge in Fire and Emergency. Similar to Access Equipment, our Commercial segment is facing more uncertainty in customer demand combined with the risk of supplier shortages and production interruptions. Our operations team members across the company are working diligently to stay safe and flexible, so that we can manage production as effectively as possible during this dynamic period. Please turn to slide 11 and I'll turn it back over to Wilson now for some closing comments.
Wilson Jones, President and Chief Executive Officer
Thanks Mike. The entire world is going through a challenging time. However, we believe Oshkosh is well-positioned to weather these challenges. We have a strong balance sheet and liquidity. Our Defense and Fire & Emergency backlog provide visibility well into 2021. And we've quickly taken the right actions to manage our cost structure. While we may face further production and supply chain disruptions in the coming months, we are resilient and will adapt and continue to leverage our different integrated global industrial model. I am reassured by the strength and resourcefulness of our team. We are better together, and we'll take the right actions to ensure the safety of our team members as we do business the right way. We are communicating frequently and transparently as we manage the company through the current landscape and believe we can deliver solid sales and earnings performance over the long term. I'll turn it back over to Pat to get the Q&A started.
Pat Davidson, Senior Vice President of Investor Relations
Thanks, Wilson. Operator, please begin the question-and-answer period of this call.
Operator, Operator
Thank you. Our first question comes from Jerry Revich with Goldman Sachs. Please proceed with your question.
Jerry Revich, Analyst
Yes. Hi. Good morning everyone and I'm glad you're all doing well.
Wilson Jones, President and Chief Executive Officer
Thanks, Jerry. Good morning.
Jerry Revich, Analyst
Good morning. Can you discuss the impressive decremental margins performance in Access Equipment, particularly in light of the deterioration observed in March? As we consider the plant shutdowns in April, I'm curious about your thoughts on the sustainability of the decremental margin performance you achieved, especially given the tougher business environment in April. Also, there's hope for an increase in activity in May and June. Could you provide some insight into the various factors at play? That would be helpful.
Mike Pack, Executive Vice President and Chief Financial Officer
Good morning. We are very pleased with the performance of Access Equipment this quarter, particularly regarding cost management. As the situation developed, the team quickly implemented cost reductions. Looking ahead for the rest of the year, we are considering a range of scenarios, from a softer V shape to a prolonged U shape. We have strategies in place to navigate each of these possibilities, and we will keep monitoring how things progress. We are confident that we can sustain mid-20s decrementals in Access across reasonable scenarios, but I want to emphasize that this should be viewed on an annual basis.
Jerry Revich, Analyst
Okay. Thank you for the color. And then in terms of the Defense segment, you mentioned 3Q would be challenging across the businesses. Can you just update us on contract to board timing in Defense? And can you just confirm that the challenging quarter comments does apply to Defense? Is that just caution around parts availability, if you wouldn't mind fleshing that point out, please?
Mike Pack, Executive Vice President and Chief Financial Officer
Yeah. You're spot on. From a demand perspective, the demand is there. Our plants are operating. It's really a function of managing through the supply chain and workforce availability.
Wilson Jones, President and Chief Executive Officer
I think the overall comment of Q3 being our challenging quarter, Jerry, is really for all four segments, not just Defense.
Jerry Revich, Analyst
So, to clarify, we haven't experienced any significant supplier disruptions so far, but given the current environment, it’s wise to be cautious. However, there’s nothing at this time indicating that the third quarter will be difficult for the Defense sector. It's just a prudent approach for now.
Wilson Jones, President and Chief Executive Officer
Well, we've faced supplier constraint issues in all segments, including Defense. Our global procurement supply chain team has been proactive in managing suppliers, assessing their business stability and liquidity. We have found alternative suppliers when needed. While we anticipate some challenges ahead as we progress through this quarter, the team has done a commendable job navigating the situation so far. We have encountered a few disruptions that we are addressing and will continue to manage.
Jerry Revich, Analyst
Thank you.
Wilson Jones, President and Chief Executive Officer
We've had literally hundreds of suppliers that have ceased production for anywhere from two to six weeks. So, you can understand the amount of work we have to go through to make sure we keep our operations running when we're in that environment.
Jerry Revich, Analyst
I appreciate the instructions. Thank you.
Operator, Operator
Our next question comes from the line of Ann Duignan with JPMorgan. Please proceed with your question.
Ann Duignan, Analyst
Hi. Good morning.
Wilson Jones, President and Chief Executive Officer
Hi, Ann.
Mike Pack, Executive Vice President and Chief Financial Officer
Morning.
Wilson Jones, President and Chief Executive Officer
Just on the Defense again, are you saying that you will not be able to deliver the 4,000 to 4,500 units at JLTV that you had anticipated earlier? No, we’re not saying that. We’re just indicating that there will be some unpredictability this quarter as we continue to manage our supply chain challenges. Different states have varying operational procedures, so we expect some fluctuations as we move through the rest of the year. However, we believe we can manage through this. There may be some slowdowns, but our team is ready to keep working, and there are always opportunities to recover in our plans. The positive aspect is that we have a backlog, and our team is focused and executing effectively while addressing these challenges.
Ann Duignan, Analyst
Okay. I appreciate the color. So, maybe some overtime or something in the fourth quarter will help make catch up. Is that kind of what you are thinking at this point?
Wilson Jones, President and Chief Executive Officer
Well, we'll have to see, Ann. I mean, right now, we haven't had any slowdowns in Defense. There has been some inefficiencies with your workplace absenteeism and some of these supplier constraints, but they are running pretty close to their initial production levels.
Ann Duignan, Analyst
Okay. Great. I would like to follow up on the Access side. You mentioned that shutdowns will continue every two weeks for a couple more months. Could you provide more details on that? Does this mean you will be operating two weeks per month? A bit more clarification on your comments would be helpful. Thanks.
John Pfeifer, Executive Vice President and Chief Operating Officer
Yeah. Ann, this is John Pfeifer. To give you some context, all of our Access plants are operational today except for the Mediaș facility in Romania. Overall, we are up and running. We are carefully aligning our production rates with current demand, which is very low at the moment due to numerous jobsites and construction sites being inactive—44 states are under shelter-in-place orders. Consequently, there is minimal demand for our equipment from rental customers. In April, we reduced our production by four weeks and anticipate additional reductions as we proceed through the third quarter, which we expect to be the most challenging period. As the economy gradually starts to reopen, we are being very cautious in our production to avoid overproducing during this time.
Wilson Jones, President and Chief Executive Officer
I would like to add that May and June are typically significant months for construction. While our team is executing well, the uncertainty lies in how May and June will unfold. As John pointed out, more states are beginning to reopen, and we learned of a few this morning that are resuming construction activities. We will monitor that closely, as May and June will provide valuable insights about the latter half of this year.
Ann Duignan, Analyst
Okay. So, just to be clear, and I'll turn it over. For fiscal Q3, do you have an expectation of like the percent of days available that you'll be down in Access?
Wilson Jones, President and Chief Executive Officer
We talked about two weeks ...
John Pfeifer, Executive Vice President and Chief Operating Officer
Yeah, two weeks per month.
Ann Duignan, Analyst
Two weeks per month are April, May, and June?
John Pfeifer, Executive Vice President and Chief Operating Officer
Correct.
Ann Duignan, Analyst
Okay. I just wanted to make sure I get the number right.
John Pfeifer, Executive Vice President and Chief Operating Officer
April was four. And then it's two for the remaining two months. For May and June. So, more than half, Ann, will be down basically of the quarter.
Ann Duignan, Analyst
Perfect. That’s exactly what I was looking for. Thank you. I appreciate the color.
Wilson Jones, President and Chief Executive Officer
Thanks, Ann.
John Pfeifer, Executive Vice President and Chief Operating Officer
Thanks.
Operator, Operator
Our next question comes from the line of Stephen Volkmann with Jefferies. Please proceed with your question.
Stephen Volkmann, Analyst
Hi. Good morning, guys. If I could do one final AWP question? How should we think about sort of the revenue run rate in China in that business since that seems to be sort of back up and running?
Wilson Jones, President and Chief Executive Officer
Yeah. So, China is where we saw this COVID-19 impact hit us first. So, it kind of gave us an early view of what was going to happen. We were down for three weeks in China following the Chinese New Year. And everything was basically shut down in China, a hard stop for three weeks. We came back up gradually when as employees could start to return to work, depending on where the restrictions in their local communities were, and we are now back at full production in China and demand has rapidly returned. So, we have seen a V type of a shutdown in China. That's a very positive scenario. We would love it if we see a V in the U.S. However, we're not counting on a V in the U.S. We have a playbook of actions and as we can predict more closely and more carefully as this unfolds, what's going to happen, we will execute that playbook. But we think that the economy is going to start to come back to life, but it's going to be a little bit of a dimmer switch and we don't know the rate of speed with which that dimmer switch is going to get dialed up. And so, we have to be very careful as to using that playbook appropriately.
Stephen Volkmann, Analyst
Okay. And just any order of magnitude of how big that business is for you these days?
Wilson Jones, President and Chief Executive Officer
China today, single digit percent of our revenue, but it's getting bigger every year, because it's in strong growth mode. I mean, strong double-digit growth mode. So, it becomes more material every year that goes by, and we feel really good about the future of that business.
Mike Pack, Executive Vice President and Chief Financial Officer
We still expect in the next four to five years, if it stays on this pace, Steve, the boom market in China will be as big as what it is in Europe.
Stephen Volkmann, Analyst
Great. Okay. Thank you, guys.
Wilson Jones, President and Chief Executive Officer
Thanks, Steve.
Operator, Operator
Our next question comes from the line of Mike Shlisky with Dougherty & Company. Please proceed with your question.
Mike Shlisky, Analyst
Hey, everybody. Morning, guys.
Wilson Jones, President and Chief Executive Officer
Morning, Mike.
Mike Shlisky, Analyst
So, in Access, I noticed that your telehandlers were down a bit less than AWPs and your other, which I guess might be, I don't know Jerr-Dan, was actually almost flat for the quarter. Is the telehandler out-performance relatively due to some of their kind of usage in logistics and delivery during the quarter? Maybe some color as to why the other stuff was actually flat during the quarter.
Mike Pack, Executive Vice President and Chief Financial Officer
Certainly, there are many timing factors involved. Looking at the quarter, our revenue for Access was down about $200 million compared to our expectations. Therefore, there were some changes in what we had planned. Generally, we don't anticipate any significant shifts in the mix throughout the year, with the first half to second half not being a major influencing factor.
Mike Shlisky, Analyst
Okay. Just a quick question about Defense. It's great to see that more countries are interested in purchasing the JLTV and have placed some orders. Since the COVID-19 pandemic began, have other countries altered the quantities they are considering for orders? Have their purchasing patterns changed, and has that affected their interest in your products for the latter half of this year or early 2021?
Wilson Jones, President and Chief Executive Officer
No, Mike. I would say that hasn't changed. We know there are numerous countries at various stages in the FMS process. Roughly over 10 countries have been showing interest in various stages of that FMS process. But we've heard no negative responses coming out of them due to the COVID-19 crisis that they're stopping or changing their quantities going forward.
Mike Shlisky, Analyst
Okay. Excellent. Thanks everyone.
Wilson Jones, President and Chief Executive Officer
Thanks Mike.
Operator, Operator
Our next question comes from the line of Mig Dobre with Baird. Please proceed with your question.
Mig Dobre, Analyst
Yeah. Thank you. Good morning everyone and Mike, welcome to the call.
Mike Pack, Executive Vice President and Chief Financial Officer
Thank you.
Mig Dobre, Analyst
Could you please provide some clarification on the announced savings? Can you discuss the timing of these savings in the third and fourth quarters? I'm also interested in how these savings are allocated at the segment level compared to the unallocated corporate expense line item, which decreased significantly this quarter. It's clear that you're managing that figure quite tightly. Additionally, based on your comments about the savings, it seems they may be temporary. I'm wondering whether we will see these costs return to the profit and loss statement as volume increases, or if this is more of a situation linked to the calendar year or fiscal year, where we expect a return to a more typical expense level as we move into fiscal 2021. Let's start with that discussion.
Mike Pack, Executive Vice President and Chief Financial Officer
Sure. I'll address the first part of your question regarding the cadence. We already noticed some benefits in the second quarter. We took action promptly in March, and we expect these benefits to be fairly evenly distributed throughout the latter half of the year. The savings are proportionate to the activity level and the changes we are observing in customer demand. It's particularly focused on Access, but I commend the team for stepping up quickly. Even segments like Defense and F&E, which have larger backlogs, are contributing to this. So, we anticipate a fairly even distribution in the latter half of the year.
Wilson Jones, President and Chief Executive Officer
Yeah. Mig, I apologize. Are you asking about the cadence in relation to Mike?
Mig Dobre, Analyst
No, I was just looking for a clarification on the corporate expense line item too, but maybe you're going to address that.
Mike Pack, Executive Vice President and Chief Financial Officer
Corporate also took significant cost-cutting measures, similar to the other segments. Therefore, all areas, including corporate, were involved in these aggressive actions.
Wilson Jones, President and Chief Executive Officer
We are still assessing the situation with Access as we move forward. We've described it as temporary, and our customers have consistently shared that they believe this is a temporary issue rather than a long-term concern. We anticipate fluctuations between $80 million and $100 million, and we have strategies in place to address deeper declines if necessary. Our primary focus right now is on May and June, as these months will be crucial for understanding the outlook for the rest of this year and into 2021. We hope to provide more clarity in our next call regarding the recovery's trajectory. We're beginning to see some positive signs, such as the stabilization of the rental market reported by ARA and the reopening of states. We will manage this situation closely, and as we navigate through May and June, we will reassess our options. If we determine that we need to exceed the $100 million mark, we are prepared to take that step. We proactively plan for various scenarios through different cycles, drawing on the experience of our team, over 60% of whom have been with us through the Great Recession. Additionally, we have gained valuable insights from our recent experiences in China. Thankfully, among our 15,000 team members, we have recorded only five positive cases at different locations, all of whom are healthy and have returned to work. We are applying these lessons as we move forward, with May and June being pivotal in shaping our outlook for the rest of this year and into 2021.
Mig Dobre, Analyst
That's great insight. Thank you for sharing that. For my follow-up, I have a question regarding your inventories, which have increased and are currently at their highest level that I've observed in some time. I'm curious about how much of this rise is due to challenges in delivering products, similar to what we heard in Fire & Emergency with customers having difficulty receiving their orders, versus whether you have intentionally built up stock of parts to address some of these supply chain issues. Additionally, as we approach the end of the fiscal year, what are your expectations for the inventory figure as we head into 2021?
Mike Pack, Executive Vice President and Chief Financial Officer
From an inventory perspective, inventory is definitely higher than we expected at the end of the quarter. And it was really due to the rapid decline of demand, particularly in Access Equipment. So, that's where you see the biggest impact. I think I mentioned earlier in one of my responses to a question that our revenue in Access was down by about $200 million versus what our expectations were due to that rapid decline. And you really see inventory reading through at the corresponding value. So, we adjusted quickly and that's really why you saw us take those days out of April. And we're managing it the next several months, and we will continue to watch that. Our plan is really to get that back into line by the end of the year. But again, we're going to continue to watch the signals we're seeing in the marketplace. We will continue to manage it accordingly.
John Pfeifer, Executive Vice President and Chief Operating Officer
Yeah. Part of this is that we were performing quite well coming out of February, at least outside of China, but then the pandemic hit. It felt like someone turned off a switch, and everything just came to a standstill. Customers essentially asked us to push their orders to the third and fourth quarters because they were uncertain about what would happen next. When this occurs in March, the final month of a quarter, it’s challenging to adjust quickly, and as a result, inventory starts to build up. Therefore, as Mike mentioned, we reduced production in April.
Wilson Jones, President and Chief Executive Officer
I want to provide some additional insights. We are sharing a positive narrative today regarding our inventory, which remains in good shape. It consists of stock that is in high demand and actively utilized by our rental customers. Therefore, we are not overly worried about it. It is just a matter of when the markets will rebound. Additionally, Access is dedicated to upholding its disciplined pricing strategy that has been effective over the past few years. If there are competitors reducing prices by shedding inventory, we will stick to our pricing discipline. If we find ourselves with slightly higher inventory, that's acceptable as long as we anticipate market recovery in the short to medium term, and we will have more clarity on that in May and June.
Mig Dobre, Analyst
Sounds great. Thank you, guys. Good luck.
Mike Pack, Executive Vice President and Chief Financial Officer
Thanks, Mig.
Operator, Operator
Our next question comes from the line of Seth Weber with RBC Capital. Please proceed with your question.
Seth Weber, Analyst
Hey, good morning everyone. I hope you’re doing well. I wanted to follow up on that question for Mike. Have there been any issues with collections from your customers? Is there anything being delayed, particularly outside the Defense sector? Anything you’d like to highlight? Thanks.
Mike Pack, Executive Vice President and Chief Financial Officer
Thanks for the question. No, from a collection standpoint, it's largely been business as usual. We had a positive cash flow in the quarter. We are taking extra measures to review our entire customer base, looking at credit limits, and so on. We're monitoring it on a daily basis, but there have been no unusual changes from a collection perspective.
Seth Weber, Analyst
Super. Wilson, regarding the Defense side, revenue and margin were significantly better than we anticipated. Was there anything that might have been advanced, or can you provide any insights into the unexpected strength both in revenue and margin for the quarter?
Wilson Jones, President and Chief Executive Officer
It basically was the orders we received, Seth, FHTV and FMTV orders that came in, in the quarter. And I think that's the main reason.
Mike Pack, Executive Vice President and Chief Financial Officer
Yes, the demand was strong, and we maintained solid production throughout the entire quarter. This aligns with our expectations in that segment, including the JLTV order.
Wilson Jones, President and Chief Executive Officer
Yeah. As I mentioned earlier too, Seth, Defense has continued to operate on a pretty normal production schedule. They have had a few misses with supplier constraints, but for the most part, they are staying pretty well on track.
Seth Weber, Analyst
Right. So, I mean, I think your guide for the year originally was around I think a 9% margin. So, kind of in a normal operating environment where the supply chain is good and all. I mean, is there any reason to think that the 9.5% you guys just did wouldn't be sort of the new run rate then?
Wilson Jones, President and Chief Executive Officer
Seth, we're trying to stay away from being too definitive on our margins, because as John mentioned, we've had hundreds of supplier issues. And again, our team is really doing well, working through all those. So, it's just too early for us to know if we are going to have any slowdowns due to some supplier constraints or any kind of employee absenteeism. I would say so far, so good. But we've got to get through these next couple of months before we could really be more definitive about that.
Seth Weber, Analyst
I understand. I was discussing a more normalized business environment, recognizing that the near term might face some challenges. However, it appears you are in a solid position for the second quarter. JLTV is stable, and you have a significant backlog. I am trying to grasp what the normalized margin for this business should be. I appreciate that the near term is uncertain, but that was the essence of my question.
Wilson Jones, President and Chief Executive Officer
Okay. All right.
Mike Pack, Executive Vice President and Chief Financial Officer
I mean, long-term, we have not changed our viewpoint, right? So, I would say normalize, Seth, if we say long-term, high single digits has been our target and I think we've got a track record.
Wilson Jones, President and Chief Executive Officer
I believe our perspective is that we anticipate the next few years to yield at least a $2 billion run rate business.
Seth Weber, Analyst
Great. Okay. Good luck and take care guys. Thank you.
Wilson Jones, President and Chief Executive Officer
Thanks, Seth.
Operator, Operator
Our next question comes from the line of Tim Thein with Citigroup. Please proceed with your question.
Tim Thein, Analyst
Hi. Good morning. Thank you. Regarding the Defense margins, I wanted to ask about the second quarter margins. Was there any impact from the FHTV order that arrived towards the end of the quarter, particularly in relation to a contract or a catch-up adjustment? Did this have a significant effect in the quarter?
Mike Pack, Executive Vice President and Chief Financial Officer
There was a benefit for the quarter. However, when comparing it year-over-year, the benefits from contract awards were quite similar.
Tim Thein, Analyst
Okay. Looking ahead, Wilson, could you share your thoughts on F&E's prospects given its strong backlog? Additionally, how do you foresee the influence of state and local governments facing challenges, and how might that affect the procurement cycle compared to historical trends observed in peers? Thank you.
Wilson Jones, President and Chief Executive Officer
Yeah. I am going to let John jump in on this. He has been knee-deep in the Fire & Emergency as we've been evaluating municipal spending for both fire and refuse collection. So, John, why don't you grab Tim's question?
John Pfeifer, Executive Vice President and Chief Operating Officer
We feel very confident about our position in Fire & Emergency. We experienced record order intake in the quarter, and our backlog of $1.3 billion extends well into 2021. Regarding municipal tax receipts, we understand they can have some impact on our segment. These receipts typically lag behind recessions by about 18 months. However, the shock from COVID-19 and the expectation of a downturn might cause a slight slowdown in new order intake in the near term, which is a possibility. Looking back to the time before the Great Recession, the market was around 5,500 units but fell by 40% to about 4,200 to 4,600 units during the Great Recession. It never fully returned to that 5,500 unit number. Despite this smaller market size, we are achieving new records in Fire & Emergency. We also recognize that the fleet is aging, and municipalities really need their trucks and tend to prioritize them. Given the strong performance of our business and our exceptional team, we are optimistic about the long-term outlook.
Tim Thein, Analyst
Got it. Thanks a lot.
Wilson Jones, President and Chief Executive Officer
Thanks, Tim.
Operator, Operator
Our final question comes from the line of David Raso with Evercore ISI. Please proceed with your question.
David Raso, Analyst
Hi. Good morning.
Wilson Jones, President and Chief Executive Officer
Hey, David.
David Raso, Analyst
Related to the Access margins, when I think about the amount of shutdown days in the coming quarter, a decremental margin commentary with some implication from the savings program. It does appear that you think you'll be able to stay at least close, if not still profitable, close to breakeven for Access. Am I reading that correctly? I mean, just given back in 2009, this business lost a significant amount of money. I think it would be pretty impressive if you can avoid even one quarter losing money. And I just want to make sure I am capturing those metrics correctly.
Mike Pack, Executive Vice President and Chief Financial Officer
We do not anticipate losing money for any quarter across the entire corporation or in any individual business this year. As we approach the next quarter, there is considerable uncertainty regarding Q3, making it challenging to predict outcomes for the remainder of the year. We need to observe how construction activity begins to increase before we can assess the quarter effectively.
Wilson Jones, President and Chief Executive Officer
I think we're approaching the second half of the year in a much better position compared to the latter part of the Great Recession. Currently, we have $844 million in Access backlog, which is accurate as of last Friday, April 24. After accounting for cancellations, this is the updated backlog figure. In contrast, during the Great Recession, our backlog was under $100 million as we entered the second half. This larger backlog should provide us with more support in the upcoming months than what we experienced back then.
David Raso, Analyst
I'm considering the possibility that as we approach May and June, some rental companies may not reopen as quickly as anticipated and might decide to postpone their plans, which could lead to a decrease in backlog. Even if there was a 60% revenue drop for the quarter, based on how you're discussing decrementals, you could still remain profitable, which would be quite impressive compared to the situation in 2009. I wanted to clarify that point. Regarding the follow-up, what discussions are you having with some of the larger rental companies? Are decisions expected in the next six to eight weeks about whether they will take the machines this year, or will it likely be postponed? There's a seasonal aspect to when they prefer to acquire the equipment. Are these discussions shaping your perspective on the potential delays and their replacement demand for 2021? I'm interested in understanding how comprehensive the conversations are regarding potential cuts for 2020 and their implications for 2021's replacement needs.
John Pfeifer, Executive Vice President and Chief Operating Officer
Well, this is John. I'll try to provide some insight into what we are experiencing. When COVID-19 hit, activity came to a complete stop. Orders started to be delayed. All our customers expressed the need to push their orders back rather than cancel them. While we have encountered some cancellations, the majority have been push-backs. We are constantly in discussions with our customers to understand market dynamics. Utilization rates for our equipment have decreased, but we believe that around mid-April, these rates may have reached their lowest point. They might be improving slightly, though it’s still too early to determine. Additionally, there is minimal de-fleeting happening in the marketplace, indicating that our customers are largely in a wait-and-see mode. This makes sense, especially given that 44 states still have shelter-in-place orders. Numerous construction sites are inactive, affecting our equipment usage. We need the economy to restart and gain momentum before we can accurately gauge demand for Q3 and Q4, which is why we cannot offer guidance at this time. We need to see the economies open up first.
Wilson Jones, President and Chief Executive Officer
I would like to add that JLG has strong relationships with our customers. Having spent a few years there, I maintained many connections with leaders from major rental companies. A conversation I had last week was aligned with our thoughts, indicating that the situation seems to be temporary. We discussed how long temporary might last – could it be a couple of months, four months, or six months? Generally, our large customers, as well as all our clients, are in a wait-and-see mode to understand what May and June will look like. With states beginning to reopen, I believe everyone is still leaning towards the idea that this is temporary, but May and June will provide clarity.
John Pfeifer, Executive Vice President and Chief Operating Officer
Yeah. And I just ...
David Raso, Analyst
And the more they view it as temporary, go ahead.
John Pfeifer, Executive Vice President and Chief Operating Officer
I was going to say, with this backlog that we have, with that $844 million and the fact that we are planning to continue to move forward optimally when the market does turn back on, we – we're in a good position moving into the second half of the year and into 2021.
David Raso, Analyst
Okay. I really appreciate it. Thank you so much. Bye-bye.
Wilson Jones, President and Chief Executive Officer
Dave, just a parting shot. I can tell you all of our segments. Mike Pack and his team on the finance side are really focused on managing those decrementals. We know how important that is. And again, the team is responding well, and we feel like we're in a pretty good position to deliver those mid-20s from a company standpoint for the whole year.
David Raso, Analyst
Thank you.
John Pfeifer, Executive Vice President and Chief Operating Officer
Thanks.
Operator, Operator
Our next question comes from the line of Stan Elliott with Stifel. Please proceed with your question.
Stan Elliott, Analyst
Hey, good morning everyone. Nice to hear your voices.
Wilson Jones, President and Chief Executive Officer
Hi, Stan.
Stan Elliott, Analyst
I have a quick question about the Fire business, specifically regarding the impact of past events like post 9/11, the financial crisis, and the Obama stimulus. To what extent did these situations provide some of those businesses with stimulus or grant money? I'm considering this in relation to the earlier discussion about municipal budgets, especially if this might lead to another round of stimulus. I would appreciate your thoughts on this from a historical perspective.
Wilson Jones, President and Chief Executive Officer
Yes, Stanley. If we look back at September 11th, there were Fire Act grants that enabled cities and local townships to request federal funds for fire trucks. This was beneficial for certain parts of the market. The main products bought through those grants tended to be more commercial rather than custom. However, it provided a needed boost to the market. After the Great Recession, there wasn’t any stimulus directed towards fire departments for fire apparatus, which is why, as John mentioned earlier, we have a fairly old fleet in that area. Since municipalities prioritize their ability to respond to fires and emergencies, this will remain a focus for equipment replacement. Currently, there isn’t much stimulus available for municipal fire apparatus, but there is a $10 billion stimulus for airports. We believe our airport rescue firefighting business stands to gain from this, as airports have the funds available to enhance their equipment and services.
Stan Elliott, Analyst
Perfect. That’s it for me. Thank you.
Wilson Jones, President and Chief Executive Officer
Thanks Stanley.
John Pfeifer, Executive Vice President and Chief Operating Officer
Thanks.
Operator, Operator
We have reached the end of our question-and-answer session. And I would like to turn the call back over to Mr. Wilson Jones for any closing remarks.
Wilson Jones, President and Chief Executive Officer
I want to thank all of you for joining us today. We appreciate your interest in the Oshkosh Corporation and wish all of you good health and safety. We'll sign off now. Thanks again for joining us today.
Operator, Operator
This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.