Executive Summary / Key Takeaways

• Oshkosh Corporation is strategically leveraging its diversified portfolio across Access, Vocational, and Defense segments, underpinned by a focus on innovation, to drive future growth and enhance resilience against market cyclicality.
• Recent financial performance reflects segment-specific dynamics, with strong growth and margin expansion in Vocational offsetting softness in Access and transition impacts in Defense, demonstrating the portfolio's balancing effect.
• The company's technological leadership in areas like electrification, autonomy, and connectivity provides a competitive moat, offering quantifiable benefits to customers and supporting premium positioning and aftermarket opportunities.
• Near-term outlook is influenced by Access market conditions and tariff headwinds, but management's proactive mitigation efforts and the ramp-up of key programs like the USPS NGDV and repriced Defense contracts are expected to drive improved performance in the latter half of 2025 and significantly into 2026 and beyond.
• Robust backlogs in Vocational and Defense provide strong revenue visibility, while strategic capacity investments and a shift to a dealer network in refuse/recycling are poised to unlock further growth potential.

A Foundation of Purpose-Built Innovation

Oshkosh Corporation, a long-standing manufacturer dating back to 1917, has evolved into a leading innovator of purpose-built vehicles and equipment serving diverse global markets. Operating through its Access, Vocational, and Defense segments, the company's overarching strategy, "Innovate, Serve, Advance," centers on applying advanced technology to enhance customer productivity and safety. This strategic focus has been instrumental in shaping its current market position and driving growth, particularly through targeted acquisitions like AeroTech and AUSA, which have expanded its product portfolio and geographic reach in attractive, adjacent markets.

The company operates within competitive landscapes populated by large, diversified players such as Caterpillar (CAT), Deere & Company (DE), PACCAR (PCAR), and Terex Corporation (TEX), as well as more niche specialists. While facing rivals with greater scale and R&D budgets, Oshkosh differentiates itself through specialized expertise, strong customer relationships in critical sectors, and a commitment to technological advancement tailored to the unique demands of its end markets.

A cornerstone of Oshkosh's competitive positioning is its investment in core and emerging technologies. The company is actively developing and deploying solutions in electrification, autonomy, and connectivity across its segments. For instance, its ClearSky Smart Fleet platform for Access equipment offers two-way communication, over-the-air software updates, and digital access control, integrating with e-commerce platforms to enhance productivity and machine uptime for customers. In the Vocational segment, the Volterra line of fully integrated electric refuse vehicles, like the ZSL and ZFL eRCV, leverages a proprietary chassis design that is believed to offer a competitive advantage through enhanced safety features, superior ergonomics, and potential total cost of ownership benefits, including considerable fuel savings. While specific quantitative metrics comparing the efficiency or cost advantages of every technology across all competitors are not always publicly detailed, management emphasizes that these innovations provide tangible benefits that support premium pricing and strengthen customer loyalty. R&D initiatives, including autonomous concepts like the HARR-E refuse robot and Defense programs like the Robotic Combat Vehicle (RCV) and ROGUE-Fires, aim to push the boundaries of capability, targeting improvements in performance, maintainability, and operational flexibility. These technological advancements are crucial to maintaining a competitive moat, enabling Oshkosh to command better margins and capture market share in segments where performance and specialized features are paramount.

The company's markets are influenced by broad trends such as significant infrastructure investments and mega projects, the aging of existing equipment fleets, and the growing demand for electrification and automation. While sectors like private non-residential construction face headwinds from elevated interest rates, these larger trends provide a robust long-term demand backdrop for Oshkosh's diverse product offerings.

Performance Reflecting Segment Dynamics

Oshkosh's recent financial performance illustrates the interplay of these market dynamics and strategic initiatives across its segments. For the three months ended March 31, 2025, consolidated net sales decreased 9.1% year-over-year to $2.31 billion. This decline was primarily driven by lower sales volume in the Access segment, partially offset by improved pricing and higher volume in the Vocational segment. Consolidated operating income decreased 32.5% to $175.4 million, or 7.6% of sales, impacted by lower gross margin associated with reduced sales volume, unfavorable production costs, higher operating expenses (including AUSA acquisition costs and software), higher new product development spending, and higher material costs, partially mitigated by improved pricing.

The Access segment experienced a 22.7% decrease in net sales to $957.1 million in Q1 2025, largely due to lower organic volume in North America and higher sales discounts, though partially offset by contributions from the AUSA acquisition. Operating income for Access fell 50.5% to $103.1 million, resulting in a margin of 10.8%. This margin contraction was primarily due to lower sales volume, higher production costs, increased new product development spending, and higher sales discounts. Despite the near-term softness driven by moderating non-residential construction and elevated interest rates, management highlights the segment's resilient margin performance and expects improving conditions in the second half of 2025, supported by ongoing mega projects and infrastructure investments.

In contrast, the Vocational segment demonstrated strong growth, with net sales increasing 12.2% to $866.8 million in Q1 2025. This was fueled by improved refuse and recycling collection vehicle sales volume and effective pricing actions offsetting higher input costs. Operating income surged 47.1% to $117.8 million, achieving a robust margin of 13.6%. This performance reflects the benefits of strong demand, favorable price-cost dynamics, and efforts to increase production throughput. The segment's backlog remains robust at $6.3 billion, providing significant revenue visibility.

The Defense segment saw net sales decrease 9.1% to $463.0 million in Q1 2025, primarily due to lower volume of tactical wheeled vehicles (mainly JLTVs, as domestic production winds down) partially offset by the ramp-up of the NGDV program which commenced in Q2 2024. Operating income was minimal at $0.6 million (0.1% margin), impacted by unfavorable cumulative catch-up adjustments ($17.7 million in Q1 2025 vs $12.7 million in Q1 2024) related to manufacturing inefficiencies on winding-down programs and higher anticipated labor costs on the FMTV program, as well as NGDV ramp-up costs.

Liquidity remains stable, with $210.3 million in cash and cash equivalents and $1.15 billion available under the revolving credit facility as of March 31, 2025. The company secured a $500 million term loan in March 2025 to enhance liquidity and reduce revolver borrowings. While operating cash flow was a use of $394.9 million in the first three months of 2025 due to lower net income and seasonal working capital needs, investing activities used less cash ($43.1 million) compared to the prior year as large facility investments completed. The debt-to-total capitalization ratio increased to 25.9% at March 31, 2025, reflecting seasonal working capital needs, but remains within the company's targeted range for maintaining an investment-grade credit rating. Working capital metrics like DSO and inventory turns increased in Q1 2025, primarily due to timing of cash receipts and increased inventory levels in Access and Vocational.

Outlook and Growth Catalysts

Looking ahead, Oshkosh's outlook is shaped by a combination of near-term market adjustments and significant long-term growth catalysts. For the full year 2025, the company estimates adjusted earnings per share of approximately $11.00. This guidance incorporates an estimated direct adverse impact from recently announced tariffs of up to $1.00 per share, net of targeted mitigation efforts, which are expected to offset up to $0.50 per share through cost reduction actions. The tariff impact is anticipated to be mostly back-half loaded in 2025.

Segment-specific guidance for 2025 includes Access sales of approximately $4.4 billion with a 13% adjusted operating margin, reflecting the expected market softness, particularly in the first half. Vocational sales are projected to grow to approximately $3.8 billion with a 15% adjusted operating margin, driven by continued strong demand, price realization, and increased production capacity. Defense sales are estimated at approximately $2.3 billion with a 4% adjusted operating margin, reflecting less adverse cumulative catch-up adjustments and the progressive ramp-up of the NGDV program throughout the year, with margins expected to improve sequentially.

The NGDV program is a critical growth driver. Production is on track to reach full rate by the end of 2025, with NGDV revenue in 2025 expected to exceed the decline in domestic JLTV revenue (estimated around $700 million) by over $100 million. Furthermore, securing new sole-source contract extensions for core military programs like FHTV and FMTV with improved pricing and economic price adjustments is expected to significantly boost Defense margins starting in 2026.

Strategic investments continue, with approximately $250 million planned for capital expenditures in 2025, primarily focused on expanding Vocational production capacity to meet robust demand. The company's 2028 financial targets, announced at its Investor Day, underscore its confidence in long-term profitable growth, targeting $13 billion to $14 billion in revenue, a 12% to 14% adjusted operating income margin, and $18.00 to $22.00 adjusted earnings per share.

Competitive Landscape and Strategic Positioning

Oshkosh operates in markets where competition is intense and varied. In access equipment, it competes with global players like Terex and segments of larger conglomerates like Caterpillar and Deere. While these competitors may possess greater scale and broader distribution networks, Oshkosh's JLG brand maintains a strong position, particularly in telehandlers where it continues to gain market share. The strategic acquisition of AUSA enhances JLG's product portfolio and leverages its North American channel for growth. Oshkosh's focus on technological differentiation, such as the ClearSky platform and electric concepts, aims to provide a competitive edge by offering superior productivity and operational benefits, potentially justifying a premium over more standardized offerings from rivals.

In the Vocational segment, Oshkosh holds leading positions in niche markets like municipal fire apparatus (Pierce) and refuse collection vehicles (McNeilus). The Pierce dealer network is considered a significant competitive advantage. The transition to a dealer network for McNeilus non-fleet sales is a strategic move to broaden market reach and enhance the life cycle business, aiming to improve penetration against competitors. The introduction of the Volterra electric refuse vehicles with their proprietary integrated chassis positions Oshkosh at the forefront of electrification in this market, offering a potential competitive moat against competitors relying on third-party chassis. The AeroTech acquisition strengthens its position in the growing air transportation market, leveraging synergies with other Oshkosh businesses.

The Defense segment operates in a unique competitive environment, primarily serving the U.S. government and international militaries. While facing potential competition for future contracts, Oshkosh has a strong track record and established relationships. The successful ramp-up of the NGDV program and securing favorable terms on core tactical wheeled vehicle contracts are critical for maintaining profitability and market share against potential challengers. The strategic move to rename the segment to "Transport" and focus on expanding into commercial markets signals an intent to diversify its customer base and leverage its defense-proven capabilities in new areas.

Financially, Oshkosh's TTM gross margin of 17.96% and operating margin of 9.31% are generally lower than those of larger, more diversified competitors like Caterpillar (36% gross, 20% operating) and Deere (39% gross, 23% operating), reflecting differences in scale, product mix, and market dynamics. However, Oshkosh's ROIC (TTM 11.36%) remains healthy, particularly given the capital intensity of its business. Its lower debt-to-equity ratio (TTM 0.35) compared to some peers provides financial flexibility. The company's ability to translate technological advantages and operational efficiencies into sustained margin expansion, particularly in Vocational and Access, and to restore profitability in Defense through contract repricing, will be key to closing the profitability gap with larger rivals.

Risks and Challenges

Despite the positive outlook and strategic momentum, Oshkosh faces notable risks. The cyclical nature of its end markets, particularly Access equipment and certain commercial vehicle segments, remains a key vulnerability, susceptible to macroeconomic conditions, interest rates, and construction spending levels. The recent softness in Access highlights this risk, although diversification helps mitigate the overall impact.

Government budget uncertainty and potential shifts in defense spending priorities pose risks to the Defense segment, as contracts can be terminated for convenience. While the NGDV and new contract extensions provide visibility, the long-term nature of these programs means they are subject to future political and budgetary decisions.

The international trade environment and the imposition of tariffs present a tangible headwind, as evidenced by the estimated $1.00 per share impact in 2025. While management is actively pursuing mitigation strategies, the dynamic nature of trade policy introduces uncertainty regarding the ultimate financial impact and potential secondary effects on supply chains or demand.

Operational risks include the successful execution of production ramps, particularly for the complex NGDV program, and achieving planned throughput increases in Vocational facilities. Supply chain disruptions, while not currently significant, remain a potential challenge. The ability to attract and retain skilled labor is also critical for meeting production targets.

Warranty costs and product liability claims are inherent risks in the heavy equipment industry. While management believes existing reserves are adequate, unexpected issues could arise. Finally, the successful integration of acquired businesses and the realization of anticipated synergies are crucial for delivering on growth expectations.

Conclusion

Oshkosh Corporation is navigating a period of transition and opportunity, strategically positioning itself for long-term profitable growth. While facing near-term headwinds from softer Access markets and tariff impacts, the company's diversified portfolio provides a degree of resilience. The core investment thesis is underpinned by the strength of its Vocational segment, the significant ramp-up of the USPS NGDV program, the expected recovery of profitability in the Defense segment through repriced contracts, and the long-term potential of its Access business supported by secular trends like infrastructure investment.

Oshkosh's commitment to technological innovation in electrification, autonomy, and connectivity is a key differentiator, offering tangible benefits to customers and strengthening its competitive standing against larger, more generalized rivals and agile niche players alike. The robust backlogs in Vocational and Defense provide a solid foundation of revenue visibility, while strategic capacity investments are aimed at unlocking future growth potential. Although risks related to market cyclicality, government spending, and trade policy persist, management's proactive approach to mitigation, particularly concerning tariffs, and the clear roadmap for program execution and margin improvement in Defense suggest a positive trajectory. For investors, Oshkosh represents an opportunity to participate in the modernization of critical infrastructure and defense capabilities, driven by a company leveraging its specialized expertise and technological edge to build momentum despite a complex operating environment.