Pat Davidson - IR Wilson Jones - President and CEO Dave Sagehorn - EVP and CFO

Tim Thein - Citigroup Stanley Elliott - Stifel Jerry Revich - Goldman Sachs Ann Duignan - JPMorgan Jamie Cook - Credit Suisse Mike Shlisky - Seaport Global Securities Stephen Volkmann - Jefferies Nicole DeBlase - Deutsche Bank Mircea Dobre - Robert W. Baird Seth Weber - RBC Capital Markets Charlie Brady - SunTrust Robinson Humphrey Ross Gilardi - Bank of America Merrill Lynch

Greetings, and welcome to the Oshkosh Corporation Fiscal 2018 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Pat Davidson, Vice President of Investor Relations for Oshkosh Corporation. Thank you. Mr. Davidson, you may begin.

Good morning and thanks for joining us. Earlier today, we published our first quarter 2018 results. A copy of the release is available on our website at oshkoshcorporation.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 it's 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, include 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 and Dave Sagehorn, Executive Vice President and Chief Financial Officer. Please turn to slide 3 and I'll turn it over to you, Wilson.

Thanks, Pat and good morning, everyone. We're pleased to announce a positive start to 2018 with consolidated results that exceeded our expectations. Adjusted earnings per share of $0.84 was more than triple the $0.26 that we reported in 2017. This performance was driven by consolidated sales growth of approximately 30%, the result of double digit percentage increases in the defense, access equipment and commercial segments. Order intake was up in all four segments and we finished the quarter with strong backlog across all four segments. The order activity we experienced in the quarter in our non-defense segments and really for the last few quarters, reflects the broader, positive macroeconomic conditions that we were seeing, especially in the US. We believe these positive economic conditions will continue through at least 2018. It’s a great way to start the new year and our entire team takes pride in this performance. But we know we have more work to do. As a result of our better than expected results and positive outlook, along with the impact of the new tax law, I'm pleased to announce that we are raising our full year adjusted earnings per share estimate to a range of $5 to $5.45. Dave will break down the drivers of the increase in a few minutes. Please turn to slide 4 to begin the discussion for each of our business segments. I’ll start off as I typically do with our access equipment segment. The access equipment team concluded annual negotiations with most of the large national rental companies in the quarter. The big takeaway from our interactions with these customers was the consistent positive outlook they communicated regarding their businesses and the rental market. This positive outlook is reflected in the level of purchase orders received in the quarter. Orders in this segment were up 94% compared with the prior year quarter, leading to a backlog exiting the quarter that was more than 2.5 times as large as the prior year quarter. We’re encouraged that customers had the confidence to place larger annual orders this year. You might recall in the past few years, some customers executed a more just in time approach to orders due to their cautious view of the economy and the rental market. While we'd like to see this large percentage increase in orders in every quarter this year, it's obvious that there's an element of timing at play here. We are however increasing our full year sales estimate range for this segment as a result of the more positive market environment. We continue to see solid international demand as well in this quarter although Latin America still remains weak. Turning to operations, we knew the access equipment segment was going to have a tough comparison to the prior year quarter due to higher material cost. The impact of that is reflected in the adjusted results we’re reporting today. We are disappointed however that restructuring actions we announced a year ago are taking longer to complete than originally planned. Coming in to the quarter, we’d made significant progress, implementing the restructuring actions, but this quarter, we experienced issues that caused operational inefficiencies and additional program related costs. Now, the heavy lifting is behind us and the majority of actions have been completed, but we still expect to incur some additional costs in future quarters. The team is now focused on optimization and we continue to believe that we will realize the annualized savings that we originally projected. Please turn to slide 5 for a discussion of the defense segment. Defense team opened the year with a strong quarter, led by the continued ramp-up of the JLTV program and delivery of international M-ATVs. As we've discussed previously, our team is working in lockstep with the JLTV program office. We're pleased with the test results our JLTVs have achieved as we work to a Q1, 2019 full rate production decision. In late December, the Department of Defense placed an order for additional JLTVs for delivery in 2019. We expect more JLTV orders later this year. We also continue to promote the JLTV with the international community, both in terms of trade shows where the JLTV recently generated significant interest in Dubai and through individual customer discussions where US allies are looking for the best tactical vehicles. They know Oshkosh vehicles are designed to meet evolving threats and challenging situations and they know that Oshkosh will be there to support them around the globe. We continue to expect international JLTV orders will follow the US government’s planned full rate production milestone in 2019, with sales likely beginning in 2020. We also remain in pursuit of additional international orders for Oshkosh defense products and services. We saw tangible progress in the quarter on one of the deals we were actively engaged in as the proposed contract moved to the next step in the approval process. Our assessment of the opportunities hasn’t changed as we remain in negotiations on opportunities we've talked about previously. On the FMTV recompete program, we currently expect the customer to announce the winner for this contract sometime during this quarter. As we've stated on previous occasions, we will continue to deliver FMTVs under the current contract into 2020. We believe the supplier of the new FMTV A2 version will begin to ramp up production in 2020, excuse me, 2021. Finally, the US government continues operating under another continuing resolution with FY18 funding capped at FY17 federal budget levels. We still do not expect the continuing resolution to impact our 2018, as we’re fully booked for trucks for the year. But the timing of orders for sales in 2019 could be impacted if the continuing resolutions stretch into late summer. Let’s turn to slide 6 to discuss the fire and emergency segment. The strong performance and momentum we saw from the fire and emergency segment in 2017 continued in the first quarter of 2018, with operating income margins up year-over-year.100 Pierce fire truck sales largely offset lower airport product deliveries. The airport products group delivered a large quantity of airport rescue firefighting units to an international customer in last year's first quarter, making for a challenging comparison this year from a sales perspective. The segment’s continued strong operational performance drove operating income growth of more than 45%. Fire truck orders were also up in the quarter, contributing to the strong foundation for our 2018 outlook. We recently received final industry data for fire truck orders in North America for 2017. The industry grew a little over 4%, but it's still approximately 20% below historical levels. Our custom pumpers and the Ascendant class of aerials continue to be areas of strength for Pierce in the fire truck market. We remain confident that our flat to slightly positive outlook for the market and our industry leading product lineup support our positive expectations for this segment. Municipal tax receipts continue to increase and as we've often said, age is our friend in reference to fleets that will need to be replaced. As I mentioned earlier, international shipments were lower in the quarter due to the large number of our shipments in the prior year. That said, we continue to be bullish on this part of our business. There are many opportunities in Asia, particularly in China as well as the Middle East that we are or will be pursuing. Please turn to slide 7 and we'll talk about our commercial segment. Commercial segment’s improved first quarter results were in line with our expectations. Commercial team has been implementing a new business structure that drives greater accountability, which we believe will result in more effectively supplying and servicing our customers. The team continues to attack complexity throughout the business with the objective of increasing operational efficiencies and focusing on the most value creating activities. As we’ve noted in prior conference calls, this aggressive effort will take time and there's still much work to do. From a market perspective, the domestic refuse collection vehicle market grew mid single digit percent in 2017 and recently exceeded pre-recession levels. We're seeing the impact of this in our RCV backlog, which is up significantly compared to a year ago. In contrast to this growth, the concrete mixer market remains below pre-recession levels, as fleets continue to age. We did however exit the first quarter with a higher backlog compared to the prior year. Many of our concrete mixer team members are busy this week at the Annual World of Concrete Trade Show in Las Vegas, so we should get a good view of current customer sentiment for this portion of the business. Looking forward, we remain bullish on the longer-term outlook for both the RCV and concrete mixer markets. That wraps it up for our four business segments. I’m going to turn it over to Dave to discuss our financials and updated outlook for 2018 in greater detail.

Thanks, Wilson and good morning, everyone. Please turn to slide 8. We had a good start to the year, which gives us confidence in increasing our full-year outlook. Consolidated net sales for the quarter were $1.59 billion, up 30.9% from the prior year quarter. Sales were up strong double digit percent in all segments with the exception of fire and emergency, where sales were down slightly. Access equipment sales reflected the strong market environment that Wilson mentioned, led by North America and the Europe, Middle East, Africa region. The significant increase in defense segment sales was driven by the continued ramp up of JLTV deliveries and the final deliveries of M-ATVs under the international order received in 2016. We didn't sell any M-ATVs in the prior year quarter. The commercial segment saw solid sales increases in both concrete mixers and RCVs, reflecting a reversion to a more normal order and delivery pattern. You may recall that last year, this segment experienced a pause in orders in the first quarter. Adjusted consolidated operating income for the first quarter was $92.4 million or 5.8% of sales compared to $36.2 million or 3% of sales in the prior year quarter. All segments delivered higher adjusted operating income, led by the defense segment, which benefited from the higher volume and improved performance. During our last earnings call, we said that we expected a challenging quarter for the access equipment segment in terms of incremental margin and that's what we experienced. Higher material costs compared to the prior year accounted for the majority of the lower incremental margin and unfavorable customer mix along with adverse foreign exchange and miscellaneous reserve adjustments also contributed to the lower incremental margin. Access equipment adjusted results for the quarter exclude $16.1 million of charges and inefficiencies associated with our restructuring actions. We are increasing our estimated total costs to execute the restructuring actions launched last year by $20 million to reflect the additional time and effort required to completely transition telehandler production and the aftermarket warehousing and fulfillment activities included in the restructuring project. We continue to expect however these actions to deliver $20 million to $25 million of ongoing savings on an annualized basis. Better fire and emergency segment results were attributable to higher pricing and improved operational execution, partially offset by higher operating expenses. And commercial segment results benefited from the higher sales volume. Commercial segment first quarter adjusted results exclude $2.5 million of restructuring charges related to implementation of this segment’s new business structure. Further information on segment first quarter results, including information on segment backlog, which was up in all non-defense segments can be found in the appendix to the slide deck. The adjusted tax rate for the quarter was 19.8%. This rate excludes the one-time entries to reflect the initial implementation of tax reform. Specifically, these entries are to record our deferred to -- excuse me, to adjust our deferred taxes to reflect the new tax rate and to record tax on our unrepatriated foreign earnings. The net effect of these entries was a one-time $6.5 million tax benefit. Again, the 19.8% adjusted tax rate for the quarter excludes the impact of these entries. The 19.8% tax rate reflects a blended full year tax rate that includes three months at the old statutory federal tax rate of 35% and nine months at the new statutory rate of 21%. The rate also includes discrete tax benefits from stock-based compensation. For 2018, we are now estimating that our full year adjusted tax rate will be approximately 23%. Going forward, we believe our annual tax rate will be 22% to 24%, reflecting in an approximate 800 basis point reduction from our current normal adjusted tax rate of 30% to 32%. The biggest impact to Oshkosh Corporation from tax reform will be the reduction in the statutory corporate income tax rate on income earned in the US. This benefit will be partially offset by the elimination of the domestic manufacturing deduction. Adjusted earnings per share for the quarter was $0.84 compared to $0.26 in the first quarter of 2017. First Quarter 2018 results exclude an $0.18 per share after tax impact from restructuring related costs in the access equipment and commercial segments and an $0.08 per share benefit from the one-time entries to record the initial implementation of US tax reform. First quarter adjusted earnings per share includes an $0.08 benefit as a result of applying the blended full year expected tax rate versus the tax rate under the old law. We repurchased 748,000 shares of our common stock during the quarter. On the last earnings call, we noted that our average share count assumption assumed that we would repurchase enough shares to hold our share count flat year-over-year. Please turn to slide 9 for a review of our updated expectations for 2018. As a result of our positive start to the year, improved demand outlook for access equipment and lower tax rate, we are revising our 2018 full year outlook as follows. We are increasing our consolidated estimated sales range from $6.9 billion to $7.1 billion to a range of $7.1 billion to $7.3 billion. We are increasing our adjusted operating income estimate range from $515 million to $565 million to a range of $550 million to $600 million. And we're increasing our adjusted EPS estimate range from $4.25 to $4.65 to a range of $5 to $5.45. Approximately $0.50 of the increase is to reflect the change in our adjusted tax rate due to tax reform. This adjusted EPS range excludes the one-time entries recorded upon implementation of US tax reform. At the segment level, we’re making the following changes. We're increasing the access equipment segment sales estimate range from $3.1 billion to $3.2 billion to a range of $3.3 billion to $3.4 billion, reflecting the stronger order activity in the quarter and more positive market outlook after completion of negotiations with the national rental companies. The new sales estimate range represents a 9% to 12% increase from 2017. We are also raising this segment’s adjusted operating income margin estimate range from 10.5% to 11% to a range of 10.75% to 11.25%. This revised margin estimate range reflects the impact of the expected higher sales volume, offset in part by a less favorable mix than we've previously expected, as we are seeing a heavier demand for telehandlers. We are increasing the defense segment operating income margin estimate range from 9.5% to 9.75% to a range of 9.75% to 10%, reflecting the strong first quarter performance in this segment. And we are making a similar adjustment to the fire and emergency segment operating income margin range, increasing it by 25 basis points to 10.75% to 11.25%. In the commercial segment, we're tightening the sales estimate to approximately $975 million, the high end of the previous $950 million to $975 million range. We're also increasing the corporate expense estimate from $150 million to $155 million. And as I mentioned a few minutes ago, we’re estimating that the adjusted tax rate for the year will now be approximately 23%. Finally, we are increasing our free cash flow estimate from $350 million to approximately $400 million, largely to reflect the impact of lower required tax payments. A couple of quick comments on our second quarter expectations before I turn it back over to Wilson. We expect higher adjusted earnings compared to the second quarter of 2017, led by higher sales and earnings in all non-defense segments and a lower tax rate. We expect defense sales and earnings to be lower, as higher JLTV sales will only partially offset lower sales of International M-ATVs. I'll turn it back over to Wilson now for some closing comments.

Thanks, Dave. In summary, we had a good first quarter and we’re pleased to be able to increase our full year outlook. As we said on our last call, we have opportunities to capture and more work to do. Our team is committed to driving shareholder value as we work to make Oshkosh Corporation a great place to work and a great business partner to our customers, suppliers and communities in which we work. I'll turn it back over to Pat to get the Q&A started.

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

[Operator Instructions] Our first question comes from the line of Tim Thein with Citigroup.

Just a question on access, you had alluded to a less favorable product mix. Just wondering if you can comment from a customer perspective just based on the order strength, as we look at the sales through the remainder of the year, how does customer mix play into that, either positive or negative, neutral? And then second, just on the revenue guidance for access. Was the increase all volume driven or does that include any assumption in terms of price delta relative to last quarter's guidance?

Sure. Tim in the first quarter, what we saw really was actually a heavier mix of NRCs, national rental companies than we saw last year. Looking to the backlog and what the team at access is telling us, we think that's going to kind of revert over the remainder of the year here, so that we’ll actually end up year-over-year relatively flat from a mix -- customer mix standpoint from NRC, IRC. I think from a region standpoint, we actually saw from a percentage standpoint, Europe be a little bit stronger than we thought. So I think, you compare it back to what we said a couple of months ago, we now think that Europe is going to be a little stronger vis-a-vis where we thought North America and Europe were going to be back then. In terms of the backlog and revenue guide, we came into the year assuming we're going to get some price. That is still our expectation. So our outlook really from a pricing standpoint hasn't changed much from what we told you three months ago. So as we look at the increased revenue guidance, that really is all volume driven.

And the next question comes from the line of Stanley Elliott with Stifel.

Congratulations and thanks for taking my question. Quick question, so with the discussion, you go back a couple of years ago, there wasn't a whole lot of access equipment in the marketplace being purchased. All this to me sounds like this is just to meet current demand and we're not talking about anything in terms of a replacement cycle in a way. Is that fair?

No. Stanley, we've been saying that replacement demand should pick up in ’18 or ’19 and we believe what we just had in the quarter showed some replacement. Our customers don't signal us on order of it's a replacement demand or if it’s for like construction demand. But we do believe in the quarter, we saw some replacement demand starting to pick up.

Great news. And then secondly kind of switching gears on the defense business, assuming it all works out as, I think it could, how quickly can you ramp the international JLTV in terms of units when you start thinking about that on an international basis along with the domestics?

Yeah. Stanley, at this time, we're looking at it from a capacity planning standpoint and don't anticipate any problems, ramping up JLTV international orders. They're not all clear in focus yet. We're just starting a lot of discussions, a lot of interest, but at this point, if you dial back to when we were building M-ATVs back in 2009, we were building 1000 of those a month. So, we have the capacity here to ramp up JLTV and we've got a slow ramp up now, we lowered production and we’ll move to the full rate production decision there in Q1 of ’19. But we're positioned well to build in international JLTV orders.

Thank you. Our next question comes from the line of Jerry Revich with Goldman Sachs.

I’m wondering if you could talk about the steps that you folks are taking to manage the supply chain as we're seeing a ramp up in demand for key components across -- really across industrials. What steps are you folks taking to make sure you’re your fair allocation of critical components? And how should we think about the impact that has on price cost across the portfolio over the course of ’18?

Well, Jerry, I'll start and Dave, you can fill in some of the commentary around this. From a supply chain standpoint, Jerry, our global procurement team works very close with our suppliers. We do a lot of advanced planning through our sales and inventory operation and planning process. So our goal has always been to stay as far ahead as we can with our suppliers, giving them plenty of advanced knowledge of what we're planning, where we're going, even in terms of our forecasting. So we stay very close to our suppliers. Over the years, we've done -- our supply chain team has done a really good job of consolidating suppliers and getting -- helping build up our supply chain to be at one that can run as we do go up and down in our volumes. So I think we're in a good spot with supply chain. It's always a negotiation from a material standpoint. We've been navigating through that. As Dave talked about, Q1 was a tough material quarter for us, but that's an area we’ll continue to negotiate and our current outlook from a supply chain forecast is built into our financial forecast that we just shared today.

And sorry, just a clarification. So if actually, the equipment demand, let’s say, surpasses 10% to 15% to the upside, do you think you'll be able to get the supply chain to respond to help you folks ramp, if demand is stronger than what you're laying out today?

Yeah. Jerry, we believe so. And again, we do a lot of the advanced planning where we forecast, I think the teams would tell you, it's more of a brainstorming session with suppliers on the what ifs and can they do that, if not, then we always have secondary suppliers that can support that too.

And Jerry, one of the things that, if you look at the order pattern that we saw this quarter, it does help with the customers giving us more advanced notice and you may recall the last year or two, we saw some of our customers, specifically in access kind of be a more just in time approach. That puts a little more pressure on the system, but the extent that we get a better earlier outlook from them, we're better able to get our supply base ready to support that demand as it's coming. But in terms of continuing to ramp up, it's certainly a good challenge to have.

Yeah. I think Dave makes a good point. The last couple of years, we've been on what we call a very short porch in terms of order intake and going into quarters with needing 60% of orders to complete the quarter and to sit down through the quarter that we just finished and have the long planning discussions with our customers and where obviously, you can see the order intake we had there. We’re now planning out in several quarters and that takes a lot of stress and pressure off of not only our operations, but our suppliers too.

Our next question comes from the line of Ann Duignan with JPMorgan.

I just wanted to pick up on what you were talking about there. Can you just talk a little bit about the cadence of sales in access, just given where the orders and backlog sit today?

Ann, I think we're going to see the typical seasonal cadence that we would normally see. Q1 is going to be the lowest quarter of the year. It's going to ramp up through Q3 and then Q4 is probably going to drop off a little bit. No indications that we should expect anything different from that standpoint.

And then can you just dig a little deeper into the restructuring and the pushback of the timing on restructuring and what exactly is going on there, it’s kind of uncharacteristic of Oshkosh to have operational issues.

Ann, a good question and certainly one that we're not pleased with what's happened there. Two really big issues. One, we were, as you know, we were moving our aftermarket parts to a 3PO. The first move was out to Vegas and that went very well. The second move was to Atlanta and that was kind of the final move to get completely out of our Ohio facility. And that last several months of hand-offs didn't go as smooth as the team had planned. There were several training issues with the new workforce. There were some process issues from JLG to the 3PO causing redundant labor, causing us to keep some facilities open longer than planned. And then obviously with all that, you get some expedite freight issues going. The other side of the issue, as you know, we were moving telehandler production. We were consolidating that in Europe and consolidating that in the US. And our goal was to get that completed. We knew that there was going to be an opportunity for more telehandler sales this year. Those sales actually came in quicker than we expected. So the ramp up of more sales was a good thing, but it did create more complexity as we were consolidating these lines in the US and in Europe. So, those are the two main issues. And I will say as I did in my prepared remarks, the team has done a nice job of recovery here. The metrics are all pointing in the right direction from the fulfillment rate, on time delivery. So we believe the heavy lifting is behind us at this point.

And what's the timing now to achieve the full year run rate savings?

Ann, we're going to have a little bit of a delay. I don't think it's going to impact ’19. I do believe that the benefits that we expected this year, we're going to start to see them a little later and as a result, we’re probably going to see a little less of the benefits and that's partially reflected in the updated guidance that we are providing this morning for that segment.

Our next question comes from the line of Jamie Cook with Credit Suisse.

I guess first question back to the order strengthen on the aerial side. Understanding the first quarter, you generally have good orders, but was there anything unusual in that order mix that would have created a pull forward, whether it was ordering ahead of price increases or a certain customer where you have more favorable market share and sort of how you're thinking about order trend in the remaining nine months, just given the strength that you saw in the first quarter? And then I guess my second question, I think you said most of the strength was from the big national rental companies. How do you think that impacts the independents and how they think about ordering? Are they starting to get concerned about lead times and stuff like that?

I’ll start, Jamie and then if Wilson wants to get in anything, he can. I think one of the things that we did see and we kind of alluded to it on another question was in the last couple of years, you had a number of customers that were kind of taking a more just in time approach to their ordering. And we saw a few of those and these were some of the larger customers and we saw a number of them this year decide to put in more of an advanced order, similar to what we would have historically seen. So that certainly was at play here. In terms of your questioning, were they trying to get ahead of price increases? The price increase was effective for deliveries after January 1 or starting January 1. So that wasn't a part of it. I just think overall, this is a reflection of the increased confidence that our customers have in their businesses and in their rental market overall and the economy. And it's -- not only did we see strength in the US, we saw strength internationally as well. So it's fairly broad based from that standpoint.

I think just to add to the timing on that Dave is, we had a couple of national rental companies that normally worked their agreements with us more into this quarter, we saw them actually working in the last quarter with us. So that was one thing that changed from previous quarter.

And then sorry, how that's impacting the independents thoughts about ordering, because generally, there is a herd mentality, i.e., when the nationals start going, the independents follow?

The nationals, we go through that exercise with them every year. I think when we look at the volume that we had in the quarter, again as Wilson mentioned, there is certainly some timing there. We can't necessarily predict what the independents are going to do. We saw good activity from them in the quarter as well. I think we should make sure everyone understand this wasn't just the national rental companies coming in with orders. It was strong orders across the board. What we did say however is, we don't expect that magnitude of growth quarter-after-quarter through the remainder of the year. So I think, especially with some of the timing of the big guys placing orders vis-à-vis where they did last year, I think the year-over-year cadence is certainly -- we would expect to slow down a little bit, but overall for the year, very positive.

Yeah. I think and you said it earlier Dave, we're expecting, Jamie, a similar customer mix in our CIRC as we had last year through the full year.

Our next question comes from the line of Mike Shlisky with Seaport Global Securities.

In defense, can just kind of remind us, how the JLTV has kind of done here? Besides the ramp up of JLTV, are there any big lumps in the backlog there that kind of left, kind of model the cadence of the top line for the rest of the year here.

Mike, I don't think it's going to be real lumpy. I don't have the numbers at my fingertips from a quarterly cadence standpoint, but I think in general, you're going to see, hang on, just a sec, I think it's going to be largely flattish in Q2 through Q4, just kind of across those three. No one quarter is going to really stand out versus the others, out of those three quarters.

Versus prior year or versus each other.

No. Versus each other within the year.

Got you. And then secondly in commercial, you just talked to the kind of 2018 there, but the outlook [indiscernible], that kind of suggests that it’s going to slow down from here. And generally, fiscal Q3 is the high point of the year for that segment. So, it’s obvious that mix has changed and it was a little bit of a strange order cadence last year, but is there anything else that’s kind of going on here where this year’s Q3 lumpy the high point for that segment?

I think it's really a reflection of last year, not so much this year, Mike. As you recall, we did have an order pause last year that impacted both our Q1, Q2. You saw a bunch of catch up occurring in Q3 and Q4 last year. So that's probably going to distort things really throughout this whole fiscal year. But other than that, when we think about market dynamics, nothing really is changing there.

Our next question comes from the line of Stephen Volkmann with Jefferies.

So one quick sort of follow-up. Just you mentioned in the release that there were some higher legal and inventory reserve adjustments. I think that was in access. Was that material? Is there any way to put a size around that?

The biggest driver Steve was material and we knew that was coming. We talked about that last quarter. Typically, what you'll see, reserves move around every quarter and more often than not, things offset and none of them really move large amounts. What we saw this quarter was everything kind of seemed to move in the same direction, none significant, but when you add them all together, it was a component that we felt we should probably call out in terms of helping describe the year-over-year performance of the segment.

And then maybe more of a big picture question, maybe for Wilson, but I'm just curious, does the tax change change the way you view any of your investment opportunities? I mean I suppose you will have a little bit of repatriated cash that's now more widely available? And then secondarily, obviously, you raised your cash flow estimate a little bit due to tax and are there internal or external opportunities that look better in that type of environment or do you hurdle rates not change and it becomes more of a return to shareholders? How do you just think about that strategically?

Yeah. I think Steve, we're going to stay, just from a capital allocation process, it's a robust process that we work with our board on a regular basis with. For us, it's $40 million. So it's significant, but yet, in the scheme of things, it's not as significant to make us divert from any of our previous allocation strategy. So we're going to stay due course. As we've said over the years, as we want to be opportunistic when those opportunities come about, and so having some cash is not a bad thing. We'll continue. Dave mentioned keeping our share count level. We repurchase shares this year. We’ll continue to focus with the goal of raising our dividend every year and then keep our out there to see if there are some opportunities.

Our next question comes from the line of Nicole DeBlase with Deutsche Bank.

So I just want to start with Access. And I guess my question is when you thought about pulling together the new full year guidance, did you embed any additional material inflation, relative to what you had guided for before? Just scale costs have continued to move higher and I'm trying to gauge how much risk there is to the rest of the year if that continues.

I would say a little. People that we talk to Nicole in general, what we're hearing pretty consistently is there's an expectation that we actually might see a material cost -- steel cost tick down in the second half of the year. But we did take into consideration what we have seen, where that steel mills are out there with additional price increase requests, but everybody we've talked to seems to believe that they're going to see a drift down in the second half of the year.

And then shifting to F&E, backlog was up pretty nicely, I think up like 9% year-on-year, but you're only guiding for flattish revenue in the segment. So I'm just curious to the disconnect there, if it's just some conservatism?

I would say maybe timing. Nothing really sticks out one way or the other and we do certainly benefit from the long lead times and good visibility from that standpoint. So, just based on where we are from a production scheduling standpoint, the only thing that really comes to mind would be timing.

Our next question comes from the line of Mircea Dobre with Robert W. Baird.

I want to go back to access orders as well and I'll tell you that the numbers here are just a little hard for me to wrap my mind around. If my math is correct here, we had something like 1.75 billion worth of orders in a quarter. And I’m ye to find a quarter that looks anything like this one. So I guess my question is this, when you think about the order cadence, I understand that maybe some things have been pulled forward. But historically, you get anywhere between 20% to 35% of your full-year order is in the first quarter. Should we expect something materially different than even the high end of that range? Is something all of the sudden in a market changing just structurally versus what we've seen in the past decade or so?

No, Mircea. I don't think it's -- I think what changes the confidence -- has increased confidence in the market. I think you're seeing -- the commentary we're having is that they are starting some replacement cycles and then you're also getting just a little bit more better planning, getting advanced planning into the next couple of quarters. So structurally, we don't see anything. There was not – it didn't benefit either one to pull forward orders around pricing or anything like that. So we really believe the commentary that we're hearing is its replacement cycle is starting and then there is just more advanced planning.

Then this to me would imply that you're essentially going to be running with a pretty significant backlog for maybe the rest of this year, which means that for any new orders that you're taking, deliveries get pushed out. How are you dealing with that and I guess the corollary here is, if really demand is this solid, would that argue for continued robust pricing going forward?

I'll start, we still need to capture a fair amount of orders to deliver the year and again, there certainly was some timing here and a lot of discussions need to continue to occur through the rest of the year. You hear us talk all the time about you get into the May, June timeframe and that really will decide the year, but I think overall, the backlog certainly does take us through Q2 and into Q3 today, but there's still a fair amount of orders to capture yet for the year.

Our next question comes from the line of Seth Weber with RBC Capital Markets.

I wanted to go back to Ann's question about the restructuring and how we should be thinking about the cadence here, because to get to your access margin guidance for the year, it implies a pretty big incremental margin at some point, north of 30% certainly for the back half of the year. So should we not assume that there is any benefit here in the second quarter and then the incrementals in the back half are just very large? Is that the right way to kind of model this? Or I'm just trying to figure out how to get from 4.8 in the first quarter to 11 for the year, if you could help at all there Dave?

Well, we’ll give it a shot. I think overall, at the high level, you should think about incrementals improving quarter-after-quarter as we go through the year, really driven by a couple of things. One, the year-over-year impact from the material cost drag is going to lessen as we go through there. So, that certainly will help. You had touched upon the benefits of the restructuring. I think we’ll see a little of that in Q2, but more of that -- more so of that in Q3 and Q4. So those are really the two big drivers of how I would view driving the incremental margin cadence for the remainder of the year.

And is your assumption that the independents kind of come in, in the back half of the year like they usually do and that's perhaps a little bit better from -- just from an margin perspective, from a sales perspective as well and the mix goes back more towards aerials versus telehandlers. Is that also part of it?

Well, a couple of other moving pieces there. So as we mentioned earlier in the call, in the first quarter, we saw -- we did see a heavier mix of the NRCs. But we do think that's going to be balanced over the course of the year. So yes, we do believe there will be a better mix as we go through the remaining three quarters of IRCs to NRCs than we saw in the first quarter. And then from a product mix standpoint, one of the things we called out was, we're seeing heavier demand for telehandlers and that's actually going to go -- drive things the other way, because I think as you probably know, there is a margin differential between telehandlers and the aerial work platform product line.

Right. So you don't expect that to normalize by the back half of the year. So you think telehandlers are stronger for the year. Is that what I’m hearing?

Yes. For the remainder of the year, we expect – because if you look at the first quarter, there wasn't -- they both grew pretty decent percentages. We expect we're going to see stronger growth in telehandlers for the remainder of the year than in aerial work platforms.

And then if I can just ask on the defense business, I know you had some international M-ATV, but it wasn't -- I don't think it was a big number. So was there anything else that contributed to the margin strength. Was there high parts business or something that really tweaked the margin higher here in the first quarter?

What we said on the last call was there was more than 100 M-ATVs to deliver in the quarter. So those were all delivered. The other thing I would call out is just the, as we mentioned in the prepared remarks, the better overall execution that we saw out of the segment. So kudos to John Bryant's team. They continue to focus on improving their operational efficiency and we saw some of that come through in the quarter as well.

Our next question comes from the line of Charlie Brady with SunTrust Robinson Humphrey.

Hey, just on access yet again here. Can you talk in terms of Europe? You talked, maybe it was a little bit stronger than you thought it was going to be. I'm just wondering, is currency helping you competitively over there or is it just fundamentally the market in Europe is stronger than maybe you thought it was going to be and kind of how does that bode for the remainder of fiscal ’18?

Yeah. I think Europe Charlie gives us more strength and a positive outlook. I would say the market is stabilized and growing some. I wouldn't say there's anything structural around Europe other than just market outlook, much like North America is picking up and confidence levels are increasing to.

As a follow-up on commercial, it sound as though your outlook for mixers and the RCVs are stronger than what it was a quarter ago and I think -- thinking maybe I might be, whether RCVs come through or not, it sounds like they are, you just comment to what's giving you that higher confidence. Is it a function of just what the order pattern you saw in the quarter here or is there something else that’s tied into that?

Charlie, the adjustment we made really was to take the sales estimate to the high end of the previous range. So I guess I would say it was, we have more confidence in the range that we put out initially and that's really driven by the activity that we saw in the quarter and what our teams are hearing from their customers. I would say mixer still is not back to where it was in a even normalized pre-recession levels. So I don't want to kid anybody on that one, but things were, overall, I would say, just a little bit better in terms of customer sentiment from what the team is telling us, as they experienced in the first quarter.

[Operator Instructions] Our next question comes from the line of [indiscernible] with Bank of America Merrill Lynch.

You guys might have addressed this in the opening comments, which I missed some of. So I apologize in advance if you did, but so what are you saying on access pricing. You were trying to get price at the beginning of the year, your incrementals were soft in the first quarter. But what happened with pricing? Did you get it, what you were looking for or is it still to be determined or is there competitive support for what you were looking for and you seem to indicate that you hadn't increased your pricing assumptions for the year, even though presumably the cost pressures have ratcheted up even further?

Ross, I'll start off and Dave may have some commentary based on our assumptions for pricing for the year. What -- we went through the quarter and good discussions with the NRCs and IRCs and announced a price increase effective January 1. Pricing discussions, as you know, are always difficult. You don't always get exactly what you're trying to get, but we're pleased that we think we did okay and that's reflected in our financial forecast. One good thing we have is that level of sophistication of our customers is really good. They understand the markets, they understand material costs. They know that a couple of years, we've done some mission work and obviously it’s tough to mark up things like that. So I think there's a good understanding there and good discussions going on around the table on our pricing going forward. So, you're never totally pleased with where you are on pricing, but we do feel like we did okay.

And Ross, just maybe to clarify, in terms of the first fiscal quarter, our price increases wasn’t effective until delivery starting January 1. So we knew we weren’t going to benefit from the price increase in the first fiscal quarter.

And real simple question, I mean you’ve touched this in many ways, you’re your backlog is up almost $1 billion and you've taken your revenue guidance for access up 200 million. So what is the disconnect there? Because, like you said, you've got deals like close to two quarters of revenue already covered. Would revenue be up more substantially is what I’m asking?

Yeah. Good question. What we've said is we believe that the large order intake in the quarter was largely a timing issue. We don't -- although we’d love to have quarters like that, we don't expect that through the rest of the year. Again, our customers are much more confident today with the market and their business. And so we're seeing a little change in order patterns, now there annual purchase agreements are going out more than one quarter at a time. They’re doing some good planning around their business along with what we believe is the replacement cycle has started. So we really look at the quarter and the order intake is more of a timing issue. I'll be honest, that's one thing that we hope we're wrong on next quarter that we have another quarter like that, but again, we're not expecting that. So that's really what's created that. Obviously, we talk always on the call about May and June tell us a lot in this market and that would be the goal if things continue to improve and there's more orders available, we would address our guidance again at that point.

Our next question comes from the line of Mircea Dobre with Robert W. Baird.

Very quickly, just maybe some comments on progress with international defense sales, excluding JLTVs or anything else that you might have there. And related to this, I'm just curious with the FDII -- from a tax perspective, would the FDII incentive for US production apply to your foreign defense sales?

Okay. I normally would answer the tax question, but I'm going to defer that today. On the international sales, from a defense standpoint, we are seeing good progress with a couple of different opportunities there. I mentioned in my prepared remarks we've -- from a contract standpoint, we went through another good gate. So we feel like, those are materializing, nothing that we're going to be definitive about at this time, but what we see in the international side, Mircea is, we’ve talked about the international interest in JLTV, but it's much more than just our M-ATVs currently in scope. Our FMTVs, our FHTVs, there's needs for those internationally too. So couple that with opportunities for sustainment, services, so we still remain very positive about our international opportunities in the short term and then even more so in the long term with JLTV.

Mircea, on your FDII question, I will preface it at the beginning by saying, tax is not my full time job, but my understanding of FDII is that's more around intangible income or income generated from foreign sources on intangible income. And if you think about what we're selling, it's certainly very tangible. A lot of impact from FDII related to our defense sales.

Our final question comes from the line of Charlie Brady with SunTrust Robinson Humphrey. Please proceed with your question.

Just a quick one, back on the access pricing. Can you quantify the impact material cost had in Q1 and with the pricing, let's assume, you get what you expect to get. Are you material -- are you neutral on material cost headwind you starting in January 1.

So we look at the year-over-year impact in Q1 Charlie. If you think about incrementals where they might normally be, more than half of the decline was related to what we saw from a material cost standpoint. And then looking forward, we believe we're largely neutral for the remainder of the year with pricing and the additional material cost escalation that we expect to see.

And just to clarify, your guidance in terms of steel costs, you’ve baked in an increase in the steel cost, not necessarily a potential decline that you talked about in the second half, correct?

I would say, there's not a lot baked in, but we are not factoring in a large decline either.

There are no further questions at this time. I would like to turn the call back over to Mr. Jones for any closing remarks.

Thank you, operator and thanks to all for your interest in the Oshkosh Corporation. Our team will remain focused on exceeding customer expectations and delivering strong shareholder value. We look forward to speaking with you on the road in Oshkosh, we’re doing an investor conference. Thanks for your time. Have a good day, everyone.

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.