Oshkosh Truck Corp: Excellent Results, A Very Different Company

Oshkosh (OSK) reported some excellent results for its fiscal year ended September 30, 2007. EPS increased 29.7 percent to $3.58 on sales of $6.3 billion and net income of $268.1 million. These results compare with EPS of $2.76 on sales of $3.4 billion and net income of $205.5 million in fiscal 2006. Oshkosh’s EPS exceeded the Company’s most recent earnings estimate range for fiscal 2007 of $3.35 - $3.40. Oshkosh also reaffirmed its estimate range for fiscal 2008 EPS of $4.15 - $4.35.

The results are primarily attributable to the new access equipment division. This truly outstanding performance by JLG during the quarter propelled Oshkosh to another all-time record according to Robert G. Bohn, chairman and chief executive officer.

Here is what is different. They have added $3.1 Billion of long term debt. Debt to equity used to be minuscule in this company. Long term debt to equity is now in excess of 200%. The gearing ratio is very high. Management needs to crank out a lot of profit margin just to feed the bank.

Usually when profits are up management starts to reward shareholders with a dividend increase. The dividend of ten cents has been declared and is unchanged for the quarter. The yield is a paltry 0.74%. Management is holding their breath waiting to see how the acquisition digests.

Also, goodwill valuations are now valued at $2.5 billion which is almost 200% of the company's equity. Goodwill in the past was much less prominent on the balance sheet. Finally purchased intangibles went up by 500%. Purchased intangibles are now almost equal to the equity position, yet in the past it was down around 20% of equity.

It's early days of course for the acquisition. But Oshkosh is a very different company. When you gear up this high, what used to be ranked as minor problem may now have major impact.