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Executives

Charlie Szews - Chief Executive Officer

Dave Sagehorn - Executive Vice President & Chief Financial Officer

Wilson Jones - President & Chief Operating Officer

Patrick Davidson - Vice President of Investor Relations

Analysts

Steve Volkmann – Jefferies & Co.

Jamie Cook – Credit Suisse

Ann Duignan – JPMorgan

Andrew – BMO Capital Markets

Peter Skibitski – Drexel Hamilton LLC

Eli Lustgarten – Longbow Research

Jerry Revich – Goldman Sachs

Alexander Potter – Piper Jaffray

Walt Liptak – Barrington Research

Basili Alukos – Morningstar, Inc.

Steve Barger – KeyBanc Capital Markets

Alexander Blanton – Clear Harbor Asset Management

Oshkosh Corporation (OSK) F1Q13 Earnings Call January 25, 2013 9:00 AM ET

Operator

Greetings and welcome to the Oshkosh Corporation Reports Fiscal 2013 First Quarter Results. 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, Patrick Davidson, Vice President of Investor Relations for Oshkosh Corporation. Thank you, Mr. Davidson. You may now begin.

Patrick Davidson

Thanks Rob. Good morning everybody and thanks for joining us.

Earlier today we published strong first quarter results for fiscal 2013. 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 non-GAAP measures used during this call and which is also available on our website. The audio replay and slide presentation will be available on our website for approximately 12 months. Please refer now to slide two of that slide 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 other matters, 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 results stated on this call are for continuing operations attributable to Oshkosh Corporation, unless otherwise stated.

Our presenters today include Charlie Szews, Chief Executive Officer; Wilson Jones, President and Chief Operating Officer and Dave Sagehorn, Executive Vice President and Chief Financial Officer.

So, please turn to slide three and I’ll turn it over to you Charlie.

Charlie Szews

Thank you, Patrick and good morning. It is truly a pleasure to be speaking with all of you listening on our call today. I’m happy to kick off 2013 by announcing another quarter of strong performance for the company. This morning we’re reporting results that exceeded our expectations with revenues of $1.76 billion and adjusted EPS of $0.60 for the first quarter. We also generated $39 million of free cash flow in the quarter, which helped support a repurchase of approximately 4.25 million shares of Oshkosh common stock.

The momentum that we talked about in our last quarterly call has continued in our Access equipment and commercial segments as both businesses again delivered improved year-over-year performance. We also saw improved year-over-year performance in our fire and emergency segments and while margins in our defense segment are lower than the prior year period, the defense team still drove performance that led to margins in this segment that exceeded our expectations.

As a result of our strong first quarter performance, a positive outlook for the remainder of the year, first quarter share repurchases and the reinstatement of the R&D tax credit, we are raising our adjusted EPS estimates for fiscal 2013 to a range of $2.08 to $3.05. Dave will fill in the details on our estimates in a few minutes.

Please turn to slide 4. We continue to believe in our three year outlook for Oshkosh Corporation that we discussed last September in our Analyst Day. The building blocks for that outlook remain solid and we are progressing as expected. We’ve been talking about it for a while now and we’ll keep talking about it, MOVE. This strategy is simple, straightforward and easy to communicate. It provides us with a framework to improve our performance in all areas of the company, driving increased shareholder value. It’s a journey that we’ll be on for some time.

From a results perspective, we’re on schedule with all our principal MOVE initiatives and we’ll provide a scorecard for them at the end of fiscal 2013. In the meantime, we expect to continue to demonstrate the success of the MOVE strategy through improved earnings and increased shareholder value. We expect to achieve these goals through the focused efforts of each of our 13,000 employees. To borrow a phrase from football, we are currently doing a lot of blocking and tackling and striving for continuous improvement and it’s working.

It’s no secret that we’re experiencing recovery in the housing in the U.S. we see that data on a regular basis and it confirms that Americans are building more new homes. We directly benefit from these actions through stronger order flow for concrete mixer trucks and telehandlers, both of which are essentially equipment for new home construction. Indirectly, we expect increased housing starts to lead to higher tax receipts for municipalities and in turn stronger demand for new fire trucks and refuse collection vehicles in future years. Regardless of news from Washington, we believe that the U.S economy will power forward, albeit along a slow recovery consistent with our previous outlook.

We received some good news in our defense segment during the quarter as we secured large delivery orders from both the Family of Heavy Tactical Vehicles and Family of Medium Tactical Vehicles programs. These orders are important as we believe these funds are no longer susceptible to the impacts of sequestration and they fill out the backlog for our U.S defense vehicle sales expectations for fiscal 2013 and a large portion of our baseline view for fiscal 2014.

So please turn with me to slide 5. We had a strong quarter of execution in our defense segment leading to better than expected margins, but it is never easy. John Urias and his team are working diligently to serve our U.S government customer in expanding key international markets. At the same time, they’re proactively managing our operations to deal with the realities of future defense spending levels. As we noted in our last quarterly earnings call, we made a difficult decision to reduce our defense segment workforce by 490 people early this calendar year.

The defense team secured delivery orders for the Family of Heavy Tactical Vehicles and Family of Medium Tactical Vehicles programs that I just mentioned, totaling about $800 million in the quarter. These orders are in our backlog as of December 31, 2012. We’re also making very good progress in the production and delivery of M-ATV for the U.A.E. which we commence in the first quarter. M-ATV’s are performing extremely well on the battlefield for U.S forces and we believe the U.A.E. program is a great example of how the Oshkosh defense team can quickly meet the emerging needs of defense customers across the globe.

Lastly, we’re pleased with our progress in the JLTV EMD program. We are on or ahead of schedule with all our contract milestones and we recently completed successful design review with the U.S government. We are excited to deliver our test vehicles later this summer. As a reminder, we expect a request for proposal for the JLTV production contract to hit the streets in 2015. The lower rate initial production for the winning bidder expected to begin in calendar 2016.

So Wilson will now provide an update on our non-defense segments. Please turn to slide 6.

Wilson Jones

Thanks Charlie. Good morning everyone. I continue to share Charlie’s confidence and enthusiasm regarding our MOVE strategy. MOVE provides us with focus and we are progressing as planned to achieve our targets for our entire company.

Strength in the Access equipment market in North America continues to be led by replacement demand from our customers who rent these assets to builders, contractors and many other end users. The key metrics that we monitor and discuss with our customers, namely utilization, rental rates, fleet age and use equipment values, all continue to lead us to believe that North American demand for our equipment should remain strong for the foreseeable future. Plus we continue to experience an upturn in activity with our independent rental customers. We look forward to meeting all of our North American customers in two weeks at the rental show in Las Vegas. It will be a good opportunity to further gain sentiment in the industry and renew some relationships. All this gives us confidence as we look out to our fiscal 2015 targets.

Outside North America, we continue to experience mixed demand in Europe, where we’re experiencing strong demand in the East and certain markets in the North. However, in a number of the western and southern countries, we expect continued softness. Both Latin America and the Pacific Rim posted increases in equipment sales compared with last year’s quarter. Our sales in Latin America continue to benefit from demand for our equipment driven by infrastructure build-out.

When we announced our results from the last quarter conference call, we reported a significantly lower backlog in this segment as of September 30, 2012 versus the prior year. We told you that we saw a different pattern emerging regarding customer orders. We also told you that we’re in the process of discussing requirements with several of our larger national customers. We have largely completed those discussions and are pleased with the results and orders we received. Access equipment orders in the first quarter were the second highest quarterly order total for the segment since fiscal 2097. These orders were evident in the strong backlog we’re reporting today, which is up significantly since the end of September and just slightly below last December’s level. We believe the order performance in the first quarter further supports our outlook for this segment for the year.

Turning to our fire and emergency segment and to slide 7, we saw continued evidence this quarter that the municipal fire truck market in the U.S has stabilized. We view this as a positive because it is a base from which this market can recover in the coming years. We still expect federal spending on fire apparatus to decline in 2013. With this backdrop, we’re pleased with the improved results that we demonstrated this quarter in this segment. While the fire and emergency segment is still in the early stages of benefitting from our MOVE activities, we believe we’re all on the right path. We have the strongest fire apparatus data network in North America and we will continue to leverage these relationships to provide outstanding service to our customers.

The timing of international sales reported our fire and emergency first quarter results. We also experienced improvement in our forward operations as we wind down our ambulance production and focus that facility on building and delivering high quality fire trucks. We are still on track to complete the build-out of the ambulance backlog in our second fiscal quarter. Although there will likely be some lumpy quarters in this segment, I’m confident we’re headed in the right direction, both from a market standpoint and an operational standpoint.

Let’s turn to our commercial segment. Please turn to slide 8. As Charlie mentioned earlier in the call, U.S housing markets continue to show improvement. Housing stats data released just last week improved to a seasonally adjusted annual rate of 954,000, the highest level since June 2008. We see the impact of this improvement most intensively in our concrete mixer business. Most concrete ready mix suppliers in the United States essentially stopped buying mixers in 2008, largely remaining out in the market until just recently. As the market leader with our McNeilus rear discharge mixers and our Oshkosh branded front discharge mixers, the dearth of customer orders impacted our business immensely, but we persevere and improved our operations and are excited about the direction and the opportunities that we now face with an improved concrete mixer market.

The upturn in orders for concrete mixers that we mentioned in our last quarterly call continued this quarter as we saw orders up approximately two thirds from the prior year quarter. Further strength in the market is demonstrated by our sales of aftermarket parts for concrete mixers. We experienced continued improvement in part sales and service work in the quarter.

Turning to refuse collection vehicles, the market is generally stable to slightly down at levels significantly lower than historical levels. But we continue to remain energized by the growth in demand for our CNG powered units. McNeilus has been a leader in integrating clean burning fuel efficient CNG into refuse collection vehicles. For the quarter, approximately 40% of our units sold were CNG powered, up from about 5% just a few years ago.

Similar to the other segments, we remain focused on operational improvements in the commercial segment. We’ve made good progress addressing our cost structure in this segment and look forward to continued improvement as our end markets recover.

Now please turn to slide 9 and Dave will take us through a brief discussion of our financial performance for the quarter and our expectations for the remainder of fiscal 2013.

Dave Sagehorn

Thanks Wilson and good morning everyone. Consolidated net sales for our first fiscal quarter were $1.76 billion, a 6.1% decrease from the first quarter of fiscal 2012. Sales to external customers in each of the non-defense segments were higher than the prior year quarter. This continues a trend that we’ve seen in each of the last several quarters, reinforcing our belief that our non-defense markets remain on the road to recovery. Higher non-defense sales largely offset and expected year-over-year decline in defense segment sales of more than 20%.

Adjusted consolidated operating income for the quarter was $97.7 million or 5.6% of sales. This compared with adjusted operating income of $79.2 million or 4.2% of sales in the first quarter of fiscal 2012. Continued improved year-over-year performance in the non-defense segments drove the higher adjusted consolidated operating income margin. We’re especially pleased with the significant year-over-year improvements in the Access equipment and fire and emergency segment results.

Last year’s first quarter results in the Access equipment segment was significantly impacted by material cost increases. Price increases implemented in early calendar 2012 substantially addressed those material cost increases. And the fire and emergency segment benefited from both higher sales compared to the prior year quarter and a continued focus on improving its operational efficiencies. More information on our first quarter results by segment can be found in the appendix section of this morning’s slide deck.

Adjusted earnings per share from continuing operations for the quarter was $0.60. This compares to adjusted earnings per share of $0.39 in the first quarter of fiscal 2012. Our first quarter fiscal 2013 adjusted earnings per share reflects non-GAAP adjustments totaling $0.09 per share. These non-GAAP adjustments eliminate costs related to the recent tender offer and threatened proxy contest. Costs associated with the pension curtailment charge related to our defense workforce reduction, a favorable adjustment to restructuring charges related to shutting down our ambulance business and discrete tax benefits.

As you recall, during the quarter we announced a plan to repurchase up to $300 million of Oshkosh common stock over a 12 to 18 month period, with the target of repurchasing $75 million of shares by the end of December. Actual repurchases through the end of December were 4.25 million shares for a total cost of $125 million or an average of $29.43 per share. Due to the timing of the share repurchases throughout the quarter, the 4.6% reduction in outstanding shares will not fully benefit earnings per share until the second quarter.

Wrapping up my comments on our first quarter results, I will echo Charlie’s and Wilson’s comments. The Oshkosh team is focused on delighting our customers and driving increased shareholder value and our first quarter results are evidence of that focus.

Please turn to slide 10 for a review of our current outlook for fiscal 2013. We’re pleased to announce today higher expected results for full-year fiscal 2013. We are increasing our estimated adjusted earnings per share from a range of $2.35 to $2.60 to a range of $2.80 to $3.05. the increase in estimated full year results is largely due to the strong performance we experienced in our first fiscal quarter and our outlook for the remainder of the year, along with a lower share count and tax rate.

You’ll note on this slide that our sales estimates for the year are largely unchanged with the exception of the defense segment where we now believe that some sales are going to move out from this year to next year. You’ll also note that we’re increasing our adjusted operating income margin estimates in the Access equipment and defense segments, again reflecting the focus the entire Oshkosh team on driving improved performance.

We’ve updated our estimated corporate spend to reflect the impact of our higher stock price and stock based compensation and higher expected information technology spending this year. We also updated our tax rate, capital expenditure, free cash flow and share count assumptions. We reduced our expected tax rate to 32% from 33%, largely to reflect the recent reinstatement of the research and development tax credit in the U.S and our estimated full year share count of $89 million, down from our previous estimate of 91.5 million shares, reflects share repurchase activity through the end of our first quarter, but excludes the impact of any additional share repurchases.

I’ll close with a quick comment on our second quarter outlook. We expect to see typically seasonally higher sales versus the first fiscal quarter in our segments, with exposure to construction end markets. We also expected the defense segment to benefit from our ramp up in shipments of M-ATV’s to the U.A.E. Shipments of these outstanding vehicles will continue through the third fiscal quarter before winding down in the fourth fiscal quarter. As a result, we expect defense segment sales to increase marginally in the second and third fiscal quarters from previous sequential quarters. We then expect defense segment fourth quarter sales to decline approximately 25% from first fiscal quarter levels.

I’ll turn it back over now to Charlie for some closing comments.

Charlie Szews

Thanks Dave. Oshkosh’s non-defense markets are improving much as we discussed in our Analyst Day commentary last December. With the recent tender offer and threatened proxy contest behind us, we are now in a position to singularly focus our efforts and attention delivering against our market opportunities for the benefit of both customers and shareholders. We are confident that we have the right roadmap and the right team to meet our target of approximately doubling our earnings per share by fiscal 2015 to a range of $4 to $4.50.

That concludes our formal comments. We’re happy to answer your questions. So I’ll turn it back over to Patrick to get the Q&A started.

Patrick Davidson

Thanks Charlie. I’d like to remind everyone, please limit your questions to one plus a follow-up. After the follow-up we ask that you get back in queue to ask additional questions and we’ll do our best.

Rob, let’s please begin the question-and-answer period of this call.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Steve Volkmann of Jefferies & Co. please proceed with your question.

Steve Volkmann – Jefferies & Co.

Good morning guys. I was hoping to dig in just a little bit on Access and maybe I’ll ask both my questions at once here. Can you just give us a sense of how things broke down between the telehandlers and the core Access stuff versus your expectations? It looks like a lot of strength in telehandlers. What are you seeing in the orders? What are you seeing in the backlog? Is there any shift in that mix happening that we should know about? And then the second follow on is just on the margin. You obviously raised your margin target a bit here. Is that price related? Is it efficiency related? It’s obviously not volume related. So I’m just curious what’s driving that. Thanks.

Wilson Jones

Hi Steven. This is Wilson. I’ll take a run at the order mix that you’re asking and then maybe Dave you can follow behind on the margin question. We are seeing a good order pattern, Steven. Obviously telehandlers with housing construction, that continues to be a good mix of product for us. We were pleased with the performance in the quarter. If you look at the high number of telehandlers we had, to perform the way we did, we were pleased with that. But going forward, our forecast and what we’re hearing from our customers is we will have more favorable work platform throughout the rest of the year.

Dave Sagehorn

And Steve, then on your question on the margins increase versus our prior estimates. I think you’re going to hear this consistently across companies here, the focus on MOVE and just the MOVE strategy and the benefits that we think that can afford the company over time. I think we’re seeing the benefit of that specifically here in the Access segment. So that would be one piece. I think Wilson touched a little bit on the mix. I think -- we’re thinking that we’re probably going to see a little better mix than we might have thought previously as we go through the remaining quarters. And then also probably a little bit of price realization as well played into that.

Steve Volkmann – Jefferies & Co.

So better mix means more AWPs?

Dave Sagehorn

Yes.

Operator

Our next question is coming from the line of Jamie Cook of Credit Suisse. Please proceed with your question.

Jamie Cook – Credit Suisse

Good morning and congrats on a good quarter. Just wanted to drill down a little bit on the defense business. The margins there really surprised relative to what I was thinking and I was just wondering if you could quantify – you talked about favorable adjustments on some contracts and warranty, if you could quantify that. And then I guess ex that I would assume that the margins are probably even better than you thought. So if something structurally changed versus when you laid out your margin targets in defense back in September at your Analyst Day, if so what should we view this as a more of a onetime thing? And then my second question just on the cement mixer side. Can you give us a sense for where that – you mentioned the increase which is nice, but can you give us a sense of how big that business is and the profitability relative to prior piece so we can see what the potential upside is? Thanks and I’ll get back in queue.

Dave Sagehorn

Jamie, it’s Dave. I’ll take the question on defense and then turn it over to Wilson to talk about concrete mixers. In terms of the items in the quarter related to the digitization of contracts as well as warranty, that added about 80 basis points of margin to the segment in the quarter. So that is something that we were working through the quarter in terms of discussions with our government customer and we just – the timing was such that we finalized those in the quarter.

Jamie Cook – Credit Suisse

But even ex that your margins are pretty good.

Dave Sagehorn

Yeah and that’s a great point and I think some congratulations should go out to the defense segment team. Those guys have focused a lot on driving operational performance and improvements in that segment and they actually exceeded our expectations for the quarter in terms of what they’ve been able to deliver there.

Charlie Szews

Jamie, it’s Charlie. The assembly hours in our defense factories are much improved from a year ago and I think probably given your pregnancy you haven’t been in the plant in a while, but if you came for a tour now compared to a year, a year and a half ago, I think you’d see dramatic improvement and I think part of that is what you’re seeing in our results.

Jamie Cook – Credit Suisse

No, but I guess – but has anything structurally changed since when you laid out your margin targets for the Analyst Day in September?

Dave Sagehorn

Structurally I would say it’s the performance.

Jamie Cook – Credit Suisse

But you’re not feeling more bullish relative to where we were? If it seemed like underlying margin performance could be better relative to what you guys laid out unless I’m being too positive.

Charlie Szews

Well, we did take our guidance up on our margins and I think that we are feeling more confident in the performance in the segment, absolutely.

Jamie Cook – Credit Suisse

Okay. And then sorry if you…

Dave Sagehorn

Along those lines, Jamie, our outlook for the future and we’re competing and defense spending is coming down and our eyes are fully wide open on that.

Charlie Szews

Yeah. I think what we’re speaking to is 2013.

Dave Sagehorn

Yeah.

Jamie Cook – Credit Suisse

Okay, that’s fair. And then sorry on the cement mixer side?

Wilson Jones

Hi Jamie. It’s Wilson. Coming up from a very small base, we’re probably still in the 65% to 70% down from peak. I think we closely follow housing stats and so we’re seeing that come right up with the housing stats, which has been some good news. I think some of the smaller ready mix customers are still struggling along, but what we’re seeing is some of the bigger ready mix customers start to buy in volume.

Operator

Our next question is from the line of Ann Duignan of JPMorgan. Please proceed with your question.

Ann Duignan – JPMorgan

Good morning guys. Just back to the Access equipment, again on the telehandler side, very solid performance there. I often think of that product going into the agricultural sector. Are you seeing any strength or is that more of a European issue?

Charlie Szews

Ann, this continues to be mostly European issue where probably in Europe it’s 50% of the market. Here in the United States it’d be negligible.

Ann Duignan – JPMorgan

Okay. So it is all construction? I just wanted to clarify that.

Charlie Szews

Construction, industrial, but clearly it’s not an agricultural phenomenon here.

Ann Duignan – JPMorgan

Good. And then can you talk about, on the AWP is on the telehandler side, a lot of discussion about large rental companies versus small rental companies. Can you just talk about the mix both in your backlog and then also just in terms of the discussions you’ve been having with customers, large versus small?

Wilson Jones

Hi Ann. It’s Wilson. The talks continue as I said in my comments. They’re ongoing as you know throughout the year. We had good discussions and you’re seeing the fruits of that in our backlog now from the first wave of orders. Telehandlers, we expect to continue to be prominent in our mix just because construction, when some residential kicks in, then a small telehandler will come in. But overall I think the discussions continue to go well. When you ask about the smaller customers, I think everyone has a different definition of what an independent rental customer is, but I can tell you our backlog goes up and down two thirds of independent rental customers. It has gone up a little bit this past quarter. We are seeing some more activity out of the ROC’s which has been certainly good for our business.

Charlie Szews

And Ann I think it’s also fair to say that the independent rental companies are not back to where they were prior to the downturn. We think there’s still a significant amount of runway for them to come back and be a meaningful part of this market over time. Good point.

Ann Duignan – JPMorgan

That’s good color. And just really finally, just your ending diluted share count for the quarter just so we can model correctly?

Charlie Szews

For the year we’re $89 million.

Dave Sagehorn

$89 million. Order I think it was $91.1 million.

Ann Duignan – JPMorgan

But that’s the ending diluted?

Charlie Szews

That was the quarter average was $91 million.

Ann Duignan – JPMorgan

Right. Well, I guess we can figure that if we know how many bought that.

Charlie Szews

Yeah. Okay, let us look into that. In the 10-Q it have it in.

Operator

Our next question is from the line of Charley Brady of BMO Capital Markets. Please proceed with your question.

Andrew – BMO Capital Markets

Good morning. This is Andrew on for Charley Brady. I was hoping maybe you would clarify on the fire and emergency segment, just how much I guess was from the international order and how much was I guess not from that. And then on that second component, how do you see that growing?

Charlie Szews

On the second component being?

Andrew – BMO Capital Markets

Well, you mentioned broad based demand which I assume is not from the international order.

Charlie Szews

Sure. I think in the quarter it was probably around $10 million or so that we benefitted from increased international order. A little bit of that probably was timing between Q1 and Q2 as well. I think Wilson commented on the overall domestic fire market that the municipal market in the U.S we think has bottomed out based on the market data that we’ve seen. There is, does continue to be weakness from a federal government spending standpoint and as a result, we think that will make the market a little bit weaker in our fiscal 2013. But obviously then you have to add in the international piece and we think that there’s still significant opportunities out there.

Andrew – BMO Capital Markets

And the next question just is, what is for refuse collectors, when people are I guess converting to the CNG ones, is it more of like it’s time to replace and they’re replacing them or are people adding?

Charlie Szews

Right now I believe it’s more when people are replacing equipment, they’re installing CNG. There are some on the fringes they’re doing what you’re saying. They’re trying to convert some of the vehicles they have, but it’s 95% plus probably just new purchases they’re buying CNG.

Wilson Jones

Very small percent of refurbishment for CNG at this stage.

Operator

Our next question is coming from the line of Peter Skibitski of Drexel Hamilton. Please proceed with your question.

Peter Skibitski – Drexel Hamilton LLC

Good morning guys. Great quarter. On your outlook for Access, you kept the topline guidance intact despite really nice backlog increase. I guess that was what you planned, but I was just wondering if you’re any more bullish today, the res, the non-res construction outlook than you were one quarter ago.

Charlie Szews

Pete, we are optimistic, but we’d like to see a few more months pass before we lean out any further, okay?

Peter Skibitski – Drexel Hamilton LLC

Understood. And just one quick follow-up, the RCV volumes were down pretty sharply. Is that a timing thing or is that the level of the decline you’re expecting for the balance of the year?

Dave Sagehorn

No. Actually it’s a timing thing, Pete. We still have our outlook. It is a little later this year, but you’re right, it is a timing issue.

Charlie Szews

And Pete, you may recall in the December quarter last year we did experience some increased demand due to the expiration of some bonus depreciation rule.

Operator

The next question is from the line of Eli Lustgarten of Longbow Research. Please proceed with your question.

Eli Lustgarten – Longbow Research

Good morning everyone. Quick question. Our surveys indicate that there was a price increase at the beginning of the year, I think about 3%, 4% in Access that both you and sort of Terex. Can you talk about pricing in the industry and whether the upcoming price increase appear to have maybe brought some business forward into the December quarter combined with the fear that the bonus and depreciation in section 179 was going to expire. We heard some talk like that. I just wonder if you could comment on it.

Charlie Szews

No. Eli, I wouldn’t say to look forward. Our price increase wouldn’t affect anything shipped after January 1. So what you’re seeing performance in the last quarter is just some good work by our teams on the operational side and a little bit of price realization. But going forward, price wise I would say that we’re seeing some pricing discipline in North America. We are seeing some – unfortunately lack of discipline in some of the international markets that were related to pricing. But that’s something we battle every year.

Eli Lustgarten – Longbow Research

And the price increase was about 3% or 4% January 1 on everything?

Charlie Szews

Eli, it was actually 5% to 8%. It wasn’t – we just – it was on certain models where we had ups and downs. So it wasn’t just a standard across the board increase. It was a range of 5% to 8%.

Eli Lustgarten – Longbow Research

And the fact that you kept the topline forecast for Access unchanged with better margin maybe a tip towards conservatism. I’m not sure how everything looks there as opposed to realizing the strength of the December quarter.

Charlie Szews

Again it’s early in the year. I think we’ve been projecting North America would be up 68% this year and these estimates are pretty much in line with that. And if we get through the next two months with the federal spending to beat and things are looking good in the economy. Maybe our view of the outlook might change. But right now this is a good place to be.

Operator

Our next question is from the line of Jerry Revich of Goldman Sachs. Please proceed with your question.

Jerry Revich – Goldman Sachs

Good morning. Excellent margin performance in aerial this quarter, Dave. I’m wondering if you can just help us parse out a little bit on what proportion of the margin improvement was MOVE initiatives and what was the full contribution of pricing just to help us get a better feel for the underlying piece. That would be great.

Dave Sagehorn

Jerry, I don’t know if I’m going to go into the level of detail that you may want. I guess what I would point you to is the slide in the appendix where we talk about Access results where we did say margins year over year improved because the pricing realization, the less inter-segment sales between our Access and defense segment and we did have a negative margin impact from more telehandlers. Obviously the pricing impact that we put in place early in calendar 2012 to address the material cost increases that we had experienced was a big driver fo the year over year improvement in margin. But also just again the focus on the MOVE strategy driving the whole optimizing our cost structure, again the team at Access has done a very good job in terms of driving that and I think we’re going to continue to see that improvement as we move forward.

Jerry Revich – Goldman Sachs

Okay. And the efficiency improvement in defense, was that across the platform or was that more concentrated on the M-ATV side? And Charlie, can you comment on how you feel about potential incremental order outlook for foreign M-ATV’s from here?

Charlie Szews

Clearly it’s a cross the platforms. We’ve had very nice efficiency improvements across our Family of Heavy Tactical Vehicles, M-ATV’s, SMTVs really cross the board. In terms of international sales, we are making progress. We hope to have some opportunity to announce in the next few months. Most likely any of the international sales that we’re able to generate here will hit fiscal 2014 given where we are in the cycle of things. But we do have some nice opportunities to continue to move forward.

Operator

Our next question is from the line of Alex Potter with Piper Jaffray. Please proceed with your question.

Alexander Potter – Piper Jaffray

Great quarter. I just wanted to touch on the fire and emergency segment here. Pretty good margin performance there this quarter as well. But I noticed you didn’t take that up in terms of guidance for the full year. I was just wondering what you’re thinking is behind that. If that’s just because of mix international coming into the quarter benefiting you or what the thinking is there?

Dave Sagehorn

I think we’re going see – Wilson mentioned it a little bit in his comments, maybe a little bit of lumpiness in terms of the sales trends through the quarter here. I think we’re actually going to see sales down in that segment in the second quarter. So I think there will be some give and take and again for the full year I think we’re still looking at that 2% to 2.5% margin segment.

Alexander Potter – Piper Jaffray

Okay. But you’d say that the MOVE strategy and everything, as soon as you start getting volume trending the right direction, you ought to be able to squeeze some additional margin on that segment as well.

Dave Sagehorn

We would hope so. That’s our goal.

Operator

Our next question is from the line of Alex Blanton of Clear Harbor Asset Management. Please proceed with your question. We’ve lost Mr. Blanton’s line. We’ll move on. The question will be from Walt Liptak of Barrington Research. Please proceed with your question.

Walt Liptak – Barrington Research

Good morning and congratulations guys. Most of my questions have been asked, but did you mention what FMTV or what the mix of defense products were in the quarter again?

Charlie Szews

No, we didn’t. well, it was about 45% was FMTV in the quarter and that was consistent with what we saw for example in the fourth quarter of fiscal 2012.

Walt Liptak – Barrington Research

Okay. And you mentioned in an early question about margins picking up. Could you give us some idea of where margins are now with the FMTV?

Charlie Szews

We’re not going to go into that level of detail on the program other than the fact that we are seeing margin improvement and we’re very pleased with that.

Operator

Our next question is from the line of Basili Alukos of Morningstar, Inc. Please proceed with your question.

Basili Alukos – Morningstar, Inc.

Good morning. Just a question regarding defense going back to your analyst day and looking at your long term defense target. I think in 2015 you’re at $800 million. I saw a headline of a company that doesn’t really have much of a defense business with a contract. I’m just wondering if you guys have at all re-thought your baseline defense outlook on the topline and then of course you have the flow through on that then to the bottom line as far as operating margins.

Charlie Szews

Basili, it’s early. We haven’t updated our baselines here for FY’15 for defense or really any of our segments right now. Probably toward the end of this fiscal year, sometime next fiscal year we’ll give you some updates. But at this point it’s unchanged.

Basili Alukos – Morningstar, Inc.

Okay. As far as – like the whole fiscal cliff or anything that – the way that that’s been settled, that there’s no impact as of now or are you still trying to assess how that might affect the business long term?

Charlie Szews

It’s not completely settled. We still could have sequestration. The army put out some concerns the last couple of weeks in terms of having to do with maybe $16 billion of shortfalls and this and that. Having said that, for our programs we’re in very good shape through most of fiscal 2014 from a domestic sales outlook standpoint vis-à-vis our baseline view of sales. I think we’re in a good position, but the concerns are still there.

Operator

Our next question is from the line of Steve Barger of KeyBanc Capital Markets. Please proceed with your question.

Steve Barger – KeyBanc Capital Markets

Good morning guys. Of the $3.1 billion in the defense backlog, can you tell us what percentage is specifically slated to ship in the rest of the fiscal year?

Charlie Szews

Sure. About $2.1 billion of that Steve is for FY’13 and the remaining $1 billion would be for fiscal 2014.

Steve Barger – KeyBanc Capital Markets

Got it, thank you. And I want to ask you for your own deliveries, but do you have a forecast for industry deliveries for fire equipment in the U.S for 2013?

Charlie Szews

We don’t have a specific number, but again we did say at our Analyst Day and we’re reiterated that, we do think that the market will be down again in fiscal 2013. Municipals shipments probably up a little bit, but more than offset with lower demand from the federal government.

Operator

Our next question is from the line of Peter Skibitski of Drexel Hamilton. Please proceed with your question.

Peter Skibitski – Drexel Hamilton LLC

I guess maybe just for Charlie, can you guys maybe update us in terms of where you are on the MOVE initiative investments? I just wonder how many quarters are left before those investments are done and maybe what the total company investment was in Q1 or is it just de minimis at this point?

Charlie Szews

The numbers are not de minimis. We do expect to continue spending on the MOVE initiatives certainly through fiscal 2015 and actually I would expect that the spending will ramp up over FY’13. So underneath our guidance our investments are increasing. Our net savings are also increasing. But they will be significant for some period of time and we’re very excited about the opportunities from these investments and I think you’re seeing it in the result today.

Peter Skibitski – Drexel Hamilton LLC

And so we should just think though that the performance improvements from MOVE will outpace the investments in MOVE at least annually? Is that the way to think about it?

Charlie Szews

That’s our expectation.

Dave Sagehorn

Yeah. Pete, the numbers we shared with you at the Analyst Day from a MOVE factor were all net of any investment that we would be making in the MOVE strategy.

Peter Skibitski – Drexel Hamilton LLC

Okay. And then one quick follow up maybe for Dave. Just wondered what led to the reduction in the CapEx spend projected?

Dave Sagehorn

Just as we look out and we on regular basis look at the projects that we have out there, look at everything else that we have going on and just the timing is such that we don’t think we would have spent the $70 million that we originally anticipated for the year.

Peter Skibitski – Drexel Hamilton LLC

Okay. Nothing really cancelled or…?

Dave Sagehorn

Nothing significant.

Operator

Our next question is from Alex Blanton of Clear Harbor Asset Management. Please go ahead with your question.

Alexander Blanton – Clear Harbor Asset Management

Thanks. I got so excited you changed your policy and started calling the buy side and I pushed the wrong button on my phone before. I also got excited about the results here and this move in the stock was up more than $4 a few minutes ago. But I wanted to ask you about the continuing guidance for 2015 which is $4 to $4.50. When you originally issued that guidance, you said that you were making the draconian assumption that you would never get another order in the defense business or at least not in that period. And so that forecast included a decline in the defense business to $800 million annually which would represent what was currently in the backlog at that time, but nothing else. So now you’re saying that you did get additional orders for the defense business. I’m not sure whether they go out to 2015, but if they do then given that, why haven’t you raised the $4 to $4.50 estimate for 2015?

Charlie Szews

Alex, this is Charlie. We don’t have any or very little of 2015 in our backlog at the present time. We might have some FMTV sales or something, but for the most part it’s little. And what we’re saying is that those were programs of record that were continuing. That was our baseline estimate in 2015. We’ve been talking about our potential orders for 2014 but that wouldn’t impact the 2015 view. There are going to be a lot of factors that will go up and down over the course of next year I suppose relative to fiscal 2015 and I don’t really want to be changing the target every quarter. So at some point we will update our view on 2015 when it’s relevant. But I don’t think we’re going to be chasing every quarter new guidance for 2015.

Alexander Blanton – Clear Harbor Asset Management

Yeah, I can understand that, but you do agree with my assumption that it still assumes only $800 million in defense business for 2015 so that if defense business is more than that, it will add to that number.

Charlie Szews

That’s true, but we haven’t…

Alexander Blanton – Clear Harbor Asset Management

I know you haven’t quantified it, but…

Charlie Szews

Well, we don’t have anything to quantify at the present time.

Alexander Blanton – Clear Harbor Asset Management

I understand that, but it still is a very draconian assumption.

Charlie Szews

Alex, maybe just to provide a little more color on that is if you go back to the Analyst Day, the numbers that we put in there for ’14 and ’15 assumed – we used what the government had put out in February of 2012 for their budget request for ’13 as well as their view on the coming years of what orders they were going to place for our programs of record that we have, largely the Heavy Tactical Vehicles, the Medium Tactical Vehicles and a couple of smaller marine programs.

Operator

There are no future questions at this time. I would like to turn the floor back over to Charlie Szews for closing comments.

Charlie Szews

Thank you. For those of you still on the call, thanks for staying for us. We are energized and excited about the opportunities in front of us, in particular the recovery of the housing industry in the U.S provides a spark for improvement in several of our markets. We’ll be working diligently to take advantage of our opportunities to drive shareholder value. Have a great day everybody.

Operator

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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