Patrick N. Davidson - Oshkosh Corp. Wilson R. Jones - Oshkosh Corp. David M. Sagehorn - Oshkosh Corp. Steven C. Mizell - Oshkosh Corp..

Timothy W. Thein - Citigroup Investment Research Jamie L. Cook - Credit Suisse Securities (USA) LLC Charles Brady - SunTrust Robinson Humphrey, Inc. Mig Dobre - Robert W. Baird & Co., Inc. Jerry Revich - Goldman Sachs & Co. Nicole Deblase - Deutsche Bank Securities, Inc.

Michael David Shlisky - Seaport Global Securities LLC David Raso - Evercore ISI Group Ken H. Newman - KeyBanc Capital Markets, Inc. Seth Weber - RBC Capital Markets LLC Ross P. Gilardi - Bank of America Merrill Lynch.

Greetings, and welcome to the Oshkosh Corporation Reports Fiscal 2017 Second Quarter Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Pat Davidson, Vice President of Investor Relations for Oshkosh Corporation. Thank you Mr. Davidson. You may now begin..

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..

Thank you, Pat. Good morning, everyone. The positive momentum we generated in the first quarter continued in our second quarter, as we reported adjusted earnings per share equal to the prior year quarter and better than we expected. In addition, we exited the quarter with backlog up compared to the prior year quarter in all four segments.

Overall, we're pleased with our second quarter results and have a positive outlook. Let me expand on my positive outlook comment.

We have favorable market dynamics in our Defense and Fire & Emergency segments, opportunities to drive additional shareholder value through continued execution of our successful MOVE strategy and ageing customer fleets that will need to be replaced.

We believe the current low replacement driven demand in North America in our Access Equipment segment, will eventually turn positive and become a driver of new machine sales. We're also currently dealing with what we believe are atypical market dynamics in the Commercial segment, that we believe will revert back to more normal patterns in the future.

As we celebrate our 100th anniversary, our team members are engaged and energized about our future. The macroeconomic environment, especially in the U.S. and the sentiment of our customers are generally positive. The tone of customers at both the American Rental Association show and CONEXPO was better than previous shows.

These factors also support our positive outlook. As a result of our solid performance during the first half of the year and positive outlook for the remainder of 2017, we are raising our full year adjusted earnings per share estimate range from $3 to $3.40 to $3.20 to $3.50.

I'll let Dave walk you through the details of the increase while I discuss each of our segments. Please turn to slide 4 for a discussion of our results and an update on our business. The Access Equipment segment delivered another quarter of solid results.

While the dynamic of lower replacement demand in North America and challenging pricing continued in the quarter, there is reason to be optimistic about this market. Construction data in the U.S. remains generally positive and we believe rental customer sentiment continues to improve. This was evident at both the Rental show and CONEXPO.

There were a lot of customer comments at the shows about strong utilization rates, improved used equipment values and the expectation for stabilizing or improving rental pricing. Booth traffic was strong at both shows as we showcased a number of new products.

Market conditions in the quarter in other regions remained similar to what we have been seeing. Europe remains solid, while Australia and to a greater extent South America remain weak. The Asia-Pacific region continued to show growth, driven by increased product adoption in China.

We are pleased that both orders and backlog were up in the quarter and we now expect 2017 sales in this segment to be at the high end of our previous range. We also made progress during the quarter on the restructuring plans we announced during our first quarter earnings call.

Executing these plans will take time, but we are on track as we simplify our manufacturing and parts distribution in both the U.S. and Europe. Initial work has begun, including the recent opening of our new West Coast parts distribution center, but we don't expect to realize cost savings until 2018, with the full run rate achieved in 2019.

Dave will discuss the restructuring related charges we recorded in the quarter and expected savings in a few minutes. Please turn to slide 5 for a discussion of the Defense segment. The Defense team remains focused on executing existing programs and pursuing additional opportunities.

I'm pleased with the solid execution and strong results this team delivered this quarter. The JLTV program remains an important platform for our Defense team. As we have discussed before, we are still early in the Low Rate Initial Production phase of this program, focused on supporting government testing and evaluation.

This program is scheduled to ramp up over the next several years and we expect it to become a significant revenue generator in our Defense segment for a number of years.

We shipped a little more than 20% of our anticipated full-year 2017 M-ATV deliveries to the Middle East during the quarter and remain on track to deliver the bulk of the current order in the second half of the year. We continue to engage in ongoing discussions for additional orders for M-ATVs and other Oshkosh products.

While we didn't book any international orders in the quarter, we made progress and expect that we will secure additional orders. We also continued to market the JLTV internationally and expect to be able to begin non-U.S. government sales in 2019 or 2020.

Work also continued in the quarter for the May submission deadline for the FMTV recompete contract. You may recall from our last earnings call that the government shifted the submission deadline by about four months from January to early May.

We expect that there will be multiple bidders and we intend to submit a strong proposal incorporating enhancements to the vehicles that our government customer is looking for. Finally, our Defense team continues to closely monitor defense budget activity in Washington. As many of you know, the U.S.

government is currently operating under a continuing resolution. Of course this is not new, happening on eight occasions over the past decade. None of our major programs were considered new starts, so the impact to us in 2017 is negligible.

Essentially, all of our second half 2017 expected vehicle sales are in backlog, so we do not believe the timing of signing the 2017 defense budget will impact our 2017 results. We are hopeful Congress will complete the fiscal year 2017 appropriations process in the next few days.

At this time, we expect the fiscal year 2018 budget details to be delivered to Congress in mid-May, which should give us greater visibility into what our defense customers intend to spend on Oshkosh Defense programs. Let's turn to slide 6 to discuss the Fire & Emergency segment.

Progress on Fire & Emergency's journey to double digit operating income margins continued again this quarter with the segment reporting strong operating income margin growth. Our Fire & Emergency team has implemented a combination of initiatives to drive the margin improvements over the past several years.

A focus on simplification, continuous improvement in pricing discipline have been big factors. The Fire & Emergency team will continue to utilize these tools to drive continued margin improvement. As we said previously, we expect the U.S.

fire apparatus market to grow modestly in 2017 due to fleet replacement initiatives, along with the impact of continued construction growth and related increased property tax receipts, but we still expect end of market volumes to remain below historical levels.

We experienced very strong orders in our second quarter, some of which were likely related to the timing of a price increase at Pierce. As a result, we exited the quarter with a record backlog in this segment.

We'll have a good chance to gauge market sentiment over the next few days at the Fire Department Instructors Conference or FDIC show in Indianapolis. This the largest trade show in the U.S. for fire departments. It also offers OEMs a chance to show off their new products.

Pierce will be unveiling several new configurations of the extremely successful 107-foot Ascendant aerial apparatus, and our Airport Products Group is launching its all new Striker 8x8 airport rescue firefighting vehicle, the most capable ARFF unit in the company's history. We're looking forward to seeing attendees' reactions to these new products.

Please turn to slide 7, and we'll talk about our Commercial segment. Last quarter, we talked about an atypical slowing of orders, leading to reduced production and under absorption of costs in the Commercial segment.

We took actions to lower our cost in response to the slowdown, but the impact of these actions was not enough to offset the under absorption that we experienced this quarter as we worked through that lower demand.

The under absorption, lower-than-expected sales volume and one-time costs related to the January accident at our manufacturing facility, all contributed to the weaker-than-expected and weaker than prior year performance.

On a positive note, the individuals injured in the accident have all been released from the hospital and are continuing their recovery. We also saw orders rebound in the quarter for both concrete mixers and especially refuse collection vehicles. This order pattern is leading to an expected steep production ramp in the second half of the year.

While we can't say with 100% certainty, it does appear that the order slowdown we experienced late in calendar 2016 may have been a temporary event. I mentioned CONEXPO at the beginning of this call. This show is important for our Commercial segment just like it is for our Access Equipment segment.

We had good booth traffic at the show, introduced a number of new products. Customer sentiment was positive, but we expect concrete mixer customers to remain cautious. Overall, we're glad to see the rebound in orders in the second quarter, but we're not pleased with the financial performance of this segment.

While we've seen a more extreme first half to second half demand and production dynamic this year, we need to overcome the impact of that volatility. We're focusing on addressing these issues so we can deliver a bounce back in earnings in 2018. 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 2017 in greater detail..

Thanks, Wilson and good morning, everyone. Please turn to slide 8. We're pleased to report second quarter adjusted results that exceeded our expectations and matched the prior year's earnings per share. Consolidated net sales for the quarter were $1.62 billion, up 6.2% from the second quarter 2016.

A 50% increase in Defense segment sales led by JLTV and M-ATV sales increases, more than offset single-digit percentage sales declines in the Access Equipment and Commercial segments. Fire & Emergency sales were down 1.2%, so essentially flat with the prior year.

Access Equipment segment sales were down 4.1%, better than our expected full year percentage sales decline for this segment. Commercial segment sales were down 8.7%, with RCV sales down 20.5%, as a result of the order weakness experienced in the first quarter.

As Wilson noted, we did however see a rebound in Commercial segment orders in the second quarter. Consolidated adjusted operating income for the second quarter was $97.6 million or 6% of sales compared to $91.4 million or also 6% of sales in the prior-year quarter.

Higher Defense and Fire & Emergency segment results along with lower corporate expenses offset lower adjusted Access Equipment and Commercial segment operating income. Commercial segment results included $1.3 million of costs related to the January accident.

Adjusted Access Equipment segment and consolidated operating income for the second quarter 2017 excludes $17.2 million of restructuring-related costs recorded as part of a previously announced restructuring plan.

As a reminder, we expect Access Equipment restructuring actions announced in January to deliver annualized cost reductions of $20 million to $25 million with partial year savings of $15 million to $20 million expected in 2018.

Implementation costs to achieve these savings are expected to be $45 million to $50 million, with approximately $43 million to be incurred in this fiscal year. There were a number of drivers to the year-over-year change in segment adjusted operating income, in addition to changes in sales.

Rather than call them all out, I will point you to the appendix to the slide presentation on our website for a list of the drivers for each segment. Better than expected results for the quarter were driven by the Defense and Access Equipment segments. Defense results benefited from sales timing and stronger-than-expected program execution.

Access Equipment results benefited from a stronger mix, and the timing of discretionary spend. Adjusted earnings per share for the quarter was $0.76, equal to the prior year quarter. Adjusted tax rate was 32% and included discrete tax benefits of $1.5 million.

The tax rate in the prior year quarter was 27%, which included discrete tax benefits of $4.4 million. Please turn to slide 10 for a review of our updated expectations for 2017. As Wilson noted earlier, we are increasing our adjusted full year EPS estimate range from $3 to $3.40 to a range of $3.20 to $3.50.

The increase reflects the solid performance in the first half of the year, and positive outlook for the remainder of the year.

And while we are only partially through the seasonally important spring and early summer time period, which typically drives our businesses with exposure to the construction season in the northern hemisphere we'll perform, we are encouraged by the strong backlogs in all of the segments as we exited our second quarter.

Our updated 2017 adjusted outlook includes the following consolidated changes from our prior outlook, in addition to the adjusted earnings per share range change. Full year sales are now expected to be $6.6 billion to $6.7 billion compared to our previous expectation of $6.5 billion to $6.7 billion.

And adjusted operating income is now expected to be $415 million to $445 million, up from our prior expectation of $390 million to $430 million. At the segment level, we now expect Access Equipment segment sales to be approximately $2.8 billion, the high-end of the previous range. This represents an estimated 7% decline from 2016 sales levels.

We are also increasing our adjusted operating income margin range for this segment from 7.75% to 8.5% to a range of 8.75% to 9%, reflecting both the higher sales estimate and an expected more favorable mix. We're also slightly increasing our Defense segment operating income margin estimate from 9.75% to 10% reflecting stronger program execution.

We are reducing the Commercial segment operating income margin expectation from 6.5% to a range of 5% to 5.5%, reflecting higher than previously expected inefficiencies related to a more pronounced production ramp in the first half to the second half of the year, a less favorable mix and a more challenging price cost dynamic.

And we are now estimating that our corporate expenses will be approximately $145 million compared to the previous expectation of a range of $140 million to $145 million. All other full year expectations remain unchanged. I'll conclude my section with a brief comment on our third quarter outlook.

We expect higher sales and adjusted earnings compared to the prior year quarter driven by higher Defense and to a lesser extent Fire & Emergency sales. We expect the higher sales in these segments to offset the impact of continued lower Access Equipment segment sales compared to the prior year and lower expected Commercial segment margin.

I'll turn it back over to Wilson now for some closing remarks..

Thanks, Dave. Before we get started on the Q&A, I'd like to make a few comments. We've talked about Oshkosh being a different integrated global industrial, I think you're seeing that today. We have a unique blend of businesses with exposure to attractive end markets, and we operate them as a cohesive, integrated enterprise.

That said, we know we have opportunities to capture and more work to do. At this time, I'll turn it back over to Pat to get the Q&A started..

Okay. 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..

Thank you. We will now be conducting a question-and-answer session. Our first question is from Tim Thein with Citigroup. Please go ahead..

Great. Thank you. Good morning. The first question was just on Access, and specifically on product mix, as you look into the back half of the year.

I know in the last quarter you were expecting the year to be a little bit more favorable and I'm just curious how the order slotted through and specifically just as I look in the quarter, you had, well, looks like aerials continued to grow as a percentage, you also have that towing piece, the Jordan (19:17), I know there is couple of other odds and ends in there, but that's kind of an abnormally high percentage of 2Q sales.

So, just kind of wrapping that altogether, how do you think about product mix as we move into the back half of the year within Access?.

Good morning, Tim. It's Dave. Overall, I think we still continue to believe it will be positive and that's one of the main drivers why we did increase the margin for the full year. We did see specifically, as it relates to telehandlers, you talked about those being down a little bit.

We did see a nice rebound in orders in the quarter for telehandlers, but I still think, on a full year basis, we are going to see a more favorable mix than we saw last year..

Okay. Got it. And just on sticking with Access, the pricing, I know you've called that out, again, in terms of the continued pricing challenges I guess. But I noticed that was omitted in the 1Q 10-Q in terms of quantifying the pricing impact.

I'm just curious if you maybe update us on that? I know the comps are getting easier so that helps, but maybe just update us in terms of the expectations on the pricing side for Access? Thank you..

Sure. I think I have to dial back a little bit and refresh myself on the first quarter a bit. We certainly have been talking about pricing for a while now and I think the dynamics that we saw in the quarter were largely a continuation of what we really have seen for the past, probably a year plus in the market.

As you know, the markets have been down, especially North America. It's going on its third year, market overall, and historically or typically what we would see is pricing generally swing more towards the favor of the rental companies.

I think as we see the market recover, as replacement demand does pick back up, I think our expectation anyway would be that, we will see some improvement for pricing. But as we look at our outlook for fiscal 2017, that does reflect a continued weaker price environment on a full-year basis compared to fiscal 2016..

I appreciate the time. Thank you..

Thank you..

Thank you. The next question is from Jamie Cook of Credit Suisse. Please go ahead..

Hi, good morning. I guess a couple of questions. One, the backlog in the quarter for Access was pretty strong.

I guess my question is, as we think to – or can you just talk broadly, I guess, across product line within Access, how we're thinking about lead times, whether or not they are getting extended and how you're thinking about production in 2017? Are there opportunities to take production up? And then second, just a follow-up on Tim's question.

Can you just give more color on the improvement you talked about in used and then, if used continues to improve, at what point would you expect new pricing to improve? Thanks..

Jamie, good morning, I'll start and Dave, you can add some color as we go here. From a backlog standpoint at Access, the product lead times, we're in good shape today. Our sales and inventory operations, planning process is robust and we adjust those production rates as we go.

I think what we're going to learn a lot in the next couple of months, May, June, to really understand how robust the market is going to be and stay or be in place going forward. So, we do adjust production levels by models, as again, the orders move and JLG, Access segment, they are very nimble at moving those production lines.

So, today, we're pretty well within all lead times of our customers' expectations..

So, just to be clear, is it like 60 days, a couple of months.

And then, again, what does your guidance imply for production in 2017?.

Yeah. Those lead times vary by product line, Jamie. So the higher volume, the 40-foot, the 60-foot AWPs kind of the center of the fairway, if you will, of Access, those are anywhere from six to eight weeks..

Okay..

As you get into the Ultra Booms, will be a little longer lead time than that and then telehandlers are pretty well in line with what you would see our work platforms in that six to eight week timeframe..

And then production for this year, the assumption?.

So, if you recall last year, Jamie, we did a pretty significant reduction in inventory throughout the course of our fiscal 2016. So our production levels were low. As we came into the year, we did talk about an expectation that we would benefit from a little better absorption in fiscal 2017, and that's still the thinking..

Okay. But just to be clear, I just want to make sure I'm understanding the takeaway here.

So lead times seem pretty good right now, I guess, but if the order strength continued into your third quarter, there could be opportunities to take production probably a further, in particular on the bigger Booms and stuff like that?.

The answer to that question, Jamie, is yes. Like I said, they're very nimble and can adjust those production levels. And I do that evaluation through their weekly sales and inventory operations planning process..

Okay. Sorry. And then last, just a follow-up on the used pricing.

And then, at what point, would you expect to see the refuse continue to improve, and I'll get back in queue after that?.

Yeah. We have seen better used pricing in the market. I think, you've heard some of the publicly traded rental companies comment similarly on that. Overall, that certainly is a good sign, because, I think, that's one of the components that the rental companies look at as they're looking at fleet replacement and/or fleet expansion.

But, I think, it's really going to depend upon the timing and the cadence of the orders and the market pickup from the rental companies because that, again, back to historically what you would see is as the market for new equipment picks up, it's generally when you see a more favorable pricing environment for the OEMs..

Okay. Great. Thank you. I appreciate the time. I'll get back in queue..

Thanks..

Thanks, Jamie..

Thank you. The next question is from Charley Brady of SunTrust Robinson Humphrey. Please go ahead..

Hey, thanks. Good morning, guys..

Hi, Charley..

Good morning..

Just on the pricing theme, switching over to, maybe, on the fire business, can you remind us when that price increase went into effect and kind of within the second quarter, what you think that the impact of not having that price increase in place, the impact of margins on that?.

Charley, the pricing increase went into effect February 1 and given the backlog that we have in that segment, we won't see the impact of that until our fiscal 2018..

Okay.

So that pricing for the rest of the second half then we're still under a pricing pressure from the bookings already in backlog then?.

I wouldn't say pricing pressure, Charley. They've been very disciplined in their pricing in Fire & Emergency in the last year two years. Now, this is the third year in a row of a price increase and basically holding that price. So, backlog that they have in place is in good shape.

This is about going forward and the normal increase as we go year-over-year..

Yeah. I guess what I'm trying to get to is because the mix of the airport stuff was down, and that generally carries better margins, and the margins in the quarter despite airport being down were still pretty good, but you're also talking about pricing pressure.

So I guess, I'm just trying to really tease out the operational efficiency gains that you guys have had on a run rate basis, and kind of what that means to margins, even farther down the road?.

Actually, Charley, we were pointing to pricing as being a positive to the quarter, not a pressure..

Yeah..

Okay. Sorry, my mistake, read that wrong. Let me switch gears at FMTV, just a quick one.

On that re-compete product, is that going to be the government's technical data package as it was last time around or has that changed on where you're putting your own package in there?.

Well, this historically was a government technical data package. As part of the contract, we need to keep it up for any changes that have been made over the course of our number of years with the program.

The government will have the – as part of the re-compete, the government is looking to do some different things with the trucks, so there is going to be some....

Enhancements..

...enhancements to those. Thanks, Wilson. And the government similar to the JLTV program will have the right to procure the interest in those if the OEMs are interested in offering that to the government..

But that process was in the JLTV is in this FMTV re-compete, so it was a technical data package..

Okay. Got it. Thanks..

Thank you..

Thank you. The next question is from Mig Dobre of Robert W. Baird. Please go ahead,.

Yes. Good morning. Thanks for taking my question. I just want to go back to Access Equipment. The orders here were frankly better than what I expected. And now that I'm looking halfway through fiscal 2017, your combined orders were up something like 1%, your backlog is in the best shape it's been in couple of years.

And, I guess, I'm wondering from your perspective, in terms of orders and backlog, how are you tracking versus your initial expectations for fiscal 2017. And I get it that, it might be still a little bit early as to comment as to what customers are going to do going forward.

But I'm trying to get a sense here, if things are indeed getting better or if it's just sentiment?.

Mig, I think, things have improved. I think as we've said before positive sentiment – much more positive sentiment in the market. We said we did a little bit better than we expected, and Access is part of that explanation.

I think as I mentioned to Jamie on her question, we've said this several times, it's May and June that really are the kind of the proving months for us.

Those are the heavy times, and we're looking forward to getting into those two months, and we're certainly planning on being a big part of the market during those two months and participating, I think, can improve, that's good. We're certainly cheering for that, but we're also trying to be realistic.

And as you know, this market can change very fast, and we gauge the same question you do. Is it sentiment or is it really real action? And we have seen better action, but we're not ready to say it's full action, I guess, is the way I would describe it..

All right. Then, I guess, my follow-up, switching to the Defense segment. At your Analyst Day you talked about targeting $1.7 billion to $2 billion of sales as we look into call it fiscal 2018 and 2019. There are some moving pieces here. I'm not sure that we've gotten any more clarity on the additional M-ATV orders.

But knowing what you know today, is that range still appropriate as we look at 2018 and 2019?.

Yes, it is Mig. Today, if you look at our backlog plus the adding in the FHTV contract that was not in our March 30 backlog, we're looking at a little over $1 billion in Defense for 2018, that's in backlog. So, we still feel comfortable at that $1.7 billion number.

And again, as I mentioned in my prepared remarks, we're having some really good discussions internationally. We haven't booked any of those orders yet, but we like our position there..

What I would just – Mig, just to clarify on that in terms of the outlook, the $1.7 billion to $2 billion, I guess I would say that that range is still applicable. And what we also said at the Analyst Day was while we've got a meaningful quantity of M-ATVs this year, we probably don't need to rely as heavily on those in the next few years..

That's a good point. And also, we sometimes just have the perception that just M-ATV is international. We're also offering our product lines from a defense standpoint, the heavies, there is opportunities for those in the international community too..

Mediums, right?.

Yeah. Mediums as well..

All right. Thank you..

Thanks, Mig..

Thank you. The next question is from Jerry Revich of Goldman Sachs. Please go ahead..

Hi. Good morning, everyone..

Hi, Jerry..

Hi, Jerry..

Wilson, can you about within the Fire & Emergency industry, has the consolidation over the past couple of years helped at all with competitive disciplines.

Over the years, it's been tough for anyone not named Pierce to earn a reasonable margin in that business, and I'm wondering, post the consolidation, do you think the margin structure for the industry could start to improve?.

Well, first of all, thanks, Jerry. I think that was a compliment to our Pierce team. So, thank you for that. When you talk about consolidation, it really is meaningful consolidation has just started. You've seen a couple of companies that have added to the – two or three companies that now are making in a little more significant in size.

So, I think time will tell. We're certainly glad to see more companies consolidating especially publicly traded companies. We think that will help drive better discipline from a pricing standpoint in the market. But I think it a little early at this point, as the two that have started some consolidation really are barely into it.

So, we'll learn more as we go here, but that's certainly something we hope we see is a little more responsible pricing in the marketplace..

And Jerry, regardless of that, as Wilson said, we've been on a cadence where we're very focused on pricing discipline in our Fire & Emergency segment..

And in terms of – I appreciate that it's early.

Are you starting to see some positive signs on the bid activity because presumably that's started to play out to some extent?.

Jerry, I'd say it's early. We're evaluating that but there's nothing that I could say is a really positive trend at this point. And again, I think it's just because it's early, and there is still – you know, this is speculation on my part. But my guess is there is still a lot of integration activities going on in these companies.

And, I think, again in the next year to 18 months, I believe we'll be able to see – be able to evaluate a lot better..

Okay. And lastly ....

Jerry, we got FDIC today. You can pop down there and see what's going on. So I'm sure a lot of activity..

Sounds good.

And then in Access Equipment, can you just talk about, what you're seeing in terms of demand trends in Europe and utilization rates there? How does the recent cadence of activity in Europe compare to what we've all seen in the U.S.?.

I would say, it's similar, Jerry. Europe continues to be as we described fairly solid and its normal pockets that you would think of. The utilization rates are doing well. I think there's still some pricing concerns around Europe.

Again, I think it says that market is coming back and companies are starting to fleet up a little bit more that the pricing is – get a little more competitive in the rental space..

Okay. Thank you..

Thanks, Jerry..

Thanks, Jerry..

Thank you. The next question is from Ann Duignan of JPMorgan. Please go ahead..

Good morning. This is Tom Simmonich (35:38) on behalf of Ann. Just a couple of follow-ups, on the earlier questions on Access, mix and pricing.

Sorry, if I missed it but how does the breakdown of second quarter sales compare to your expectations, telehandlers and aerials? And, similarly, can you give more color on the pricing environment in telehandlers compared to AWP in the second quarter?.

From a product standpoint, I'd say the quarter played out largely as we expected. We did make comment about telehandlers being down, and especially, in Europe, when we made the announcement previously that we're going to be streamlining the telehandler product lineup, we did expect to see some lower sales there and that played through.

In terms of pricing from the various product lines, it's something that we typically don't comment on. Again, I guess, what I would say is, we did see a continuation of a challenging pricing environment that we've seen over the past year to year-and-a-half in that segment..

Okay. Thank you. I'll pass it on..

Thank you. The next question is from Nicole Deblase of Deutsche Bank. Please go ahead..

Yeah. Thanks. Good morning, guys..

Hi, Nicole..

Good morning..

So, my question is just around JLTV. I know you guys said that you shipped a little bit less than 20% of the international M-ATVs in the quarter.

But, I'm curious to know what the shipments looks like for JLTVs and how the ramp looks in the third quarter and the fourth quarter?.

Okay. Nicole, you hit on both JLTVs and M-ATVs there.

So, just to clarify, which one are you interested in?.

So, I know you gave M-ATV on the call, how much shipped in the quarter? I'm interested in what JLTV looks like?.

We did see a JLTV ramp in the quarter, but if you look on a full-year basis, from a revenue standpoint, and we've got under the JLTV program, we have both vehicles as well as non-vehicle contractual deliverables under that and about 60% to 65% of our JLTV revenues will come in the second half of the year..

Okay. Got it. That's helpful. And then, switching gears to Commercial, I understand some of the margin issues that you guys have been facing in the first half.

But, I guess, what does the progression look like in the second half of the year? And what's your level of confidence that you will be able to ramp margins back up in the segment?.

Sure. The second half of the year, as Wilson commented on, we are seeing or expecting a steeper ramp than we have seen in the prior years. And then in terms of our ability to deliver our expectations for the – I'll start with the third quarter. The backlog is up year-over-year, so that certainly is a good sign.

And what it's going to come down to really is just that throughput through the factories. Absorption needs to be better and it will be as we ramp up production here in the second half of the year and then mix. We talked about the second quarter and the first half really being a weaker mix on refuse collection vehicles.

As we look at the second half of the year, we expect based on what we're seeing in the backlog, a stronger mix of RCV. So, those two combined should help deliver the stronger margins that we're expecting to see in the second half of the year..

Okay.

What's actually driving that step up in refuse backlog?.

Well, it's really the – it goes back to the – we call it the air pocket of orders in the first quarter. We talked about it on the last call when we saw some weakness in refuse orders in that first quarter. We've heard everything from people were kind of taking a pause around the election to just timing of budgets....

Calendar year-end..

Calendar year-end. But where we did see some positive this quarter was that pick-up in the order pace year-over-year. It was quite a bit stronger for refuse collection vehicles, especially year-over-year in the second quarter. So I think it appears that a fair amount of this could be timing.

Obviously we'll need to see the next quarter or two play out, but that's kind of our thinking right now..

Okay, thanks. I'll pass it on..

Thanks, Nicole..

Thank you. The next question is from Mike Shlisky of Seaport Global. Please go ahead..

Hey, good morning, guys. I wanted to first....

Hi, Mike..

Hey. I wanted to first touch on the FHTV announcement you had in last couple of weeks, the contract that was announced. I guess, I was curious, just want to confirm first that almost all of that is fiscal 2018 revenue and maybe a small amount in fiscal 2019. But also more importantly, I was kind of looking at what could be margins beyond this business.

I mean, I think you're going to delivering what is essentially brand new equipment that's been refurbished but is it more parts and service? Was there a higher margin business for you than the second average or is it lower margin business for you for that particular contract? Thanks..

Like in terms of the sales cadence, you are right, it's largely fiscal 2018, maybe a little spilling into 2019. But I think I would say it's fiscal 2018. And then in terms of the margins on the FHTV programs, specifically as you know that's something we don't go into.

What I would say is, that does support our outlook that we talked about at the Analyst Day for the segment overall of high-single digit margins for the next few years..

Okay. And just also on the broader defense outlook here as well, great guidance in the quarter. And, I think your guidance kind of implies that you'll stay at that 10%, maybe a little higher than that for the back half of the year.

Is the uptick you've put in your guidance here, is that kind of a permanent change to your efficiencies and cost structure? I mean, is it kind of relevant for fiscal 2018 and fiscal 2019 to kind of bump up our overall margins a bit just on your efficiencies or is this due to what you've currently got in your mix and your execution on these exact programs happening this year only?.

Yeah. I think it certainly is a reflection of what we have in the backlog for 2017. If you look at the first half of the year, we delivered about 40% of that segment sales. We got 60% in the second half. So it's really going to come down to execution in terms of how the team performs there. We're confident in the Defense segment.

We got a great group of team members there, but there is a fairly significant ramp up in the second half of the year. We are benefiting, as you know, from a sizable M-ATV orders as we think about, the coming years, as I mentioned earlier, we're probably not going to need to be quite as reliant on M-ATV's to fill in in the coming years.

So, I guess, I'll point you back to that high-single-digit margin for the segment for the next few years..

Okay. Great. Thanks, guys..

Thank you..

Thanks Mike..

Thank you. The next question is from David Raso of Evercore. Please go ahead..

Hi. Thank you. I'll try to be quick here. The actual sales guidance increase in Access, maybe I missed in all the commentary on it.

What actually drove the increase in the sales guide, be it geographic or whatever may be?.

What we did David is, tightened the range really and just took it up to approximately the high end of the range and I think that's a function of what we did see in the first half of the year in terms of sales as well as orders and where we are probably seeing better results or expectations on sales than we may have previously thought is really North America.

So, that has been a positive and if you are going to think about a region of the world to have a little more positive outlook, that's a great region of the world to see that..

And within that a little more aerial, maybe of size versus teles because you bumped up, officially the numbers are you bumped up the revenue $50 million with $25 million higher EBIT. So, it's like a 50% incremental margin boost in the guide.

Is it also a positive mix in North America?.

Yes..

Yeah..

Yeah. A positive mix overall but certainly in North America as well..

And again, maybe I missed this, I apologize.

The savings on the restructuring in Access, can you lay out again, the timing of those, not the cost of savings?.

Sure. Call it $15 million to $20 million in fiscal 2018 and then we get to the full run rate in fiscal 2019..

Okay. Great. And second, you made the comment less reliance on M-ATVs, going forward.

But as you know, one of the anxieties around the stock is the dollar of this year's earnings are the M-ATV, right? So, next year, if no new orders come in, you only have about a 100 left to ship next year, so you're kind of from $1 to $0.10, let's call it on M-ATV, so to makeup that $0.90 and I appreciate, you don't want to give the FHTV margins on the new contract, but can you help us, maybe, allay some concerns about how do I make up for that M-ATV year-over-year decline of, say, call it $0.90, if I don't get any more M-ATV orders..

Yeah, well, we're not going to go into a lot of detail at this time, David.

I'll keep going back to what we said at the Analyst Day and we still feel I think very comfortable with that that we believe this segment can deliver, call it, high single-digit operating income margins for the next few years, the 2017 through 2019 time period that we've talked about at the Analyst Day.

There's a lot of moving pieces and it's not all just M-ATV..

And to that end, is there an update on the M-ATV negotiations or potential new orders that you can provide for us?.

What we said David is, we have not booked any new orders, and it's more than M-ATVs in the international community. There's other mediums and heavies that are in play here, but we like our position. We've had good discussions going forward, and we believe we're in good shape, but just haven't booked those orders yet..

Okay. I appreciate it. Thank you very much..

Thanks, David..

Thanks..

Thank you. The next question is from Steve Barger of KeyBanc. Please go ahead..

Hey, good morning, guys. Ken Newman on for Steve..

Hi Ken..

First question is on Defense margins. It does look like you're implying flat margins in the second half versus pretty strong margins in the second quarter, but with M-ATVs ramping, shouldn't mix be getting better? Just curious if you can square that with your guidance..

Sure. As I said I think on one of the earlier questions, we still have about 60% of the sales to secure or deliver in the second half of the year, and it's really going to come down to execution. So, we have brought on a fair number of new employees as we've gone through the first two quarters of the year here.

Part of that is to help the ramp up of JLTV. Part of that is to deliver the M-ATV order. So, I'll go back and say, it's not again all just M-ATVs. We are seeing a meaningful ramp in the JLTV program as well.

And if you think about the second half of the year, we're probably going to have a little lower absorption than in the first half, because we were quite busy in this first half building M-ATVs to sell in the second half of the year.

But if the team executes, there is an opportunity to do a little bit better than we're probably guiding to for the year..

Understood. And then, I wanted to go back to I think a previous question that was asked, but I'll ask it in a different way. Second half Access sales are implied to be down, call it 8% or 9%, but backlog in the quarter was up 11% year-over-year. And you'd mentioned that lead times seem pretty flexible.

So, can you, again, just help me square the math there in terms of how we should be thinking about the guidance versus the strong backlog number this quarter?.

Well, we have had a great backlog. We said we performed a little bit better than we expected in the first half. It goes back a little bit to what Dave was talking on Defense on execution. We've said it many times, May and June really determine where Access will finish.

And if May and June are stronger, then that should lead us to a better finish at Access. But we want to be patient, we want to work through that. The Access team is on point, and working the market very well.

And again, we're certainly cheering that they achieve that, but today, we're going out with the guidance as we see it, and we don't want to get ahead of ourselves..

All right. And then, I guess, a follow-up to that.

I mean with AWP decremental margins at 53% in the quarter, can you just explain why you have the confidence that second half sees margin growth despite maybe some conservatism on the sales side?.

I guess, I would caution you a little bit from looking at just a quarter decrementals. If you look at the first half, as an example, I think the first half decrementals are 17%. So, significantly better than what you're seeing in the second quarter. Couple of things driving the second quarter decrementals, one is incentive compensation.

So, taking up the outlook for the fiscal year in that segment, we actually had a little bit of a catch-up from the incentive compensation that we recorded in the first quarter. And if you dial back to last year, we were going the other way. So, that kind of magnifies the impact of the incentive compensation adjustment.

In addition, with CONEXPO this year, we did have some higher trade show costs. The other item I would add is looking at the second half of the fiscal year, volumes certainly do pick-up just from a seasonality standpoint. So, we'll benefit there from an absorption standpoint as well.

So, overall, I would say we do feel good about the margin expectations for that segment..

Perfect, thanks..

Thank you..

Thank you. The next question is from Seth Weber of RBC Capital Markets. Please go ahead..

Hey, good morning, guys..

Hey, Seth..

I wanted to go back to Charley's question on Fire & Emergency. It looks like second half revenue should be up year-over-year, but pretty modest margin improvement for the segment on a year-over-year basis, something like a mid-teen incremental margin.

I mean is there some conservatism based in your 8.5% margin outlook for Fire & Emergency for this year, given what you've been talking about with better pricing year-over-year and what not?.

Seth, I guess, a couple of things would come to mind. One is, we do have some international orders that probably had a little bit of a different margin dynamic than we typically would expect, and we'll need to work through that here in the second half of the year, that's probably the big one.

And then, we were already making progress last year, so I think, just I'll call it the comps maybe start to get a little tougher in terms of the leap and improvement that we're making. But I don't want to get the focus off of the improvement that the segment is making overall.

They've had some very nice margin improvements in the last few years and we're confident that they are on the path that they need to be to hit that double-digit margin in the future..

Okay. Thanks, Dave. And then, I guess, just a bigger picture.

I know it's early days on the JLTV, but conceptually, can you help us maybe think about how much experience with the program do you need to at some point go back and revisit your margin targets, your internal margin targets?.

Sure..

I mean, is that eight quarter event, I'm just trying to handicap how much experience you really need on that?.

Yeah. I think, as we sit here today, we look at it every quarter, we're required to do that from a GAAP standpoint. But I don't think we've seen enough yet to make any moves.

And if I had to put a date on it, I would say, probably late in fiscal 2018, we probably would be the time when we may have enough experience under our belt to have some confidence to make a move if we felt necessary..

Perfect. That's very helpful. Thanks, guys..

Thank you..

Thanks Seth..

Thank you. The next question is from Ross Gilardi of Bank of America Merrill Lynch. Please go ahead..

Hey. Good morning, guys. Thanks for fitting me in..

Hey, Ross..

I just want to ask just back on Access in the competitive environment. Clearly there has been some other competitors really more active, well one or the other in particular over the last year and clearly we're getting a lot of questions on JCB and what they're up to and the national rental companies and so forth.

But I just wanted to get your general view on your ability to sustain market share over the next several years in this market, and perhaps a slightly more crowded space? And we get that pickup in replacement demand in 2018, and it's more modest kind of maybe in the single-digit range.

How comfortable are you that you can still grow with that type of trajectory?.

Well, I'll talk about the competitive environment a little bit Ross, and then Dave, if you want to talk about the growth environment on the margin side. We have seen more entrants come in Ross that you're very familiar with.

I would say that, we believe if we keep doing but what we do best at JLG and that's really the customer experience, our Online Express with that electronic connection with our customers, and then performing with quality products on time, helping them to do the important things they need to do in their business, we believe will keep us in a good position.

Again, it's always about continuous improvement and executing to please those customers. But there's going to be a lot of pressure on supporting products in the marketplace, especially, if it ticks up and some growth and replacement goes in.

We believe that helps to sustain the competitive advantages because of our service footprint, our parts support and again those relationships that we built over many years at JLG..

And Ross, in terms of an outlook, I think you described it as a flattish market next year, is that....

Slight growth, Dave, just kind of like 5-ish percentage, just a hypothetical number, but a 5-ish percentage type growth here next year. If you got a modest bump in replacement demand, do you get your fair share, how confident are you that you can kind of sustain market share with more competitors in the....

I believe we do get our fair share. The team at Access, there is a lot of pride, there is a lot of competitiveness there. And they are ready for the challenge, I guess, I would say and I'm sure they would say, bring it on, but we're not going to get into specifics around 2018, we're going to have to see how things play out here.

But overall, yes, we do believe we would hold our fair share..

Okay.

Just lastly, steel, is there anything you could say on that, did you see more pressure come through in Q2? Do you feel any more kind of comfortable with the second half outlook relative to how you felt three months ago or any commentary would be helpful?.

Yeah. We saw it continue to move up a little bit through the quarter. I think you read various views on where it's headed. I think our expectation for now is that it may not increase a lot through the remainder of this fiscal year, but it's probably not going to come down a lot either.

And as we get another quarter down the road here, we'll have an assessment of whether we think it's going to start to drift back down in 2018. I think there were some expectations that we're going to start to see it drift back down in the summer, maybe later summer, but I think it seems like that maybe pushing out a little bit..

Got it. Thanks very much..

Thank you..

Thanks, Ross..

Thank you. At this point, I'd like to turn the conference back over to management for closing remarks..

I'd like to thank all of you for participating on our call today. We're proud of our 100 years strong company and the efforts of our people. We look forward to speaking with you on the road in Oshkosh or during an Investor Conference. Thanks again for your time. Have a good day, everyone..

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. And thank you for your participation..