Oshkosh: Sales outside U.S. expected to grow, first priority for cash is balance sheet maintenance

By Lisa Kerner

Charlotte, N.C., March 12 - Oshkosh Corp. is undergoing a transformational shift to become more global, according to executive vice president and chief financial officer David Sagehorn.

Sales outside of the United States are expected to comprise more than 25% of consolidated sales by 2015, said Sagehorn during a presentation at the J.P. Morgan Aviation, Transportation & Industrials Conference on Wednesday.

The company continues to work its three-year business strategy, known as MOVE. Sagehorn said as a result, Oshkosh is on track to reach its earnings per share target of $4.00 to $4.50 for fiscal year 2015.

MOVE is an acronym for market recovery and growth, optimized cost and capital structure, value innovation, and emerging market expansion.

Oshkosh's fiscal year 2013 results were reflective of MOVE's success, according to Sagehorn. While result overall exceeded the company's expectations, Oshkosh "fell just short" of its sales target due to lower Department of Defense spending on parts and services, said Sagehorn. The company did experience year-over-year sales growth within each of its nondefense segments.

"Most importantly, however, we exceeded our operating earnings and earnings per share objectives," Sagehorn said.

The CFO also highlighted Oshkosh's history of strong free cash flow of $3 billion over the last seven years. Oshkosh also paid down "a substantial amount of debt" in the last few years, he said.

Net debt at the end of December was less than two times estimated 2014 free cash flow, "well within our target range," said Sagehorn.

Oshkosh's number one priority for capital allocation is maintaining a strong balance sheet. To that end, the company refinanced $250 million of senior notes due March 2022, reducing the interest rate to 5.375% from 8.25%.

The second priority for use of cash is to reinvest in the business.

Sagehorn said the third priority is to return capital to shareholders and to invest in external growth opportunities since Oshkosh wants to be "opportunistic" when it comes to both. The company has repurchased 9.8 million shares for $368 million between July 2012 and Feb. 3, 2014 and also reinstated a $0.15 quarterly cash dividend.

Debt reduction is the fourth priority, while holding cash is fifth.

Oshkosh is an Oshkosh, Wis.-based designer, manufacturer and marketer of specialty access equipment, commercial, fire and emergency and military vehicles and vehicle bodies.

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