30.01.2009

JLG down 40%

JLG has reported a 40 percent drop in revenues during its first fiscal quarter 2008/09, to the end of December, compared to the same period last year.

Total revenues for the three months were $368.4 million, reflecting substantially lower demand in North America and Europe. The company blamed the fall on customers holding off on spending along with tightening credit markets and the impact of slowing economies on construction of new residential and non-residential projects.

European equipment sales declined 51 percent while North American equipment sales were down 45 percent compared to the first quarter of fiscal 2007/2008. The company’s order book at the end of December was just under $140 million, compared to $923 million, at the end of December 2007.

JLG made an operating loss of $47 million during the quarter compared to operating profit of $61 million in the same period last year. The loss was largely attributed to the lower sales volume compounded by substantially higher raw material costs, an adverse product mix and provisions for credit losses totalling $13.6 million as a result of the deteriorating worldwide business climate.

Oshkosh as a whole fared better with revenues for the quarter down just eight percent to just under $1.4 billion. The group reported a Pre-Tax loss of $23.1 million compared to a Pre-Tax profit of $53.3 million last year.

In spite of the result Oshkosh generated $280 million of cash from operating activities during the first quarter. In spite of this the company believe it is still likely be in violation of one or more of the financial covenants by the end of the second quarter at the end of March. As a result it is proceeding with a plan to seek an amendment of its credit agreement. The indications are that an amendment will be agreed by its banks in late February or March. However this will result in a charge for upfront fees along with higher interest costs as a result of the amendment.

Outlook

As a result of the highly volatile economic situation Oshkosh has withdrawn its previous forecasts for 2009 and will not be issuing any new forecasts until some sort of stability returns.

Robert G. Bohn, Oshkosh chairman and chief executive said: “We are obviously disappointed in the overall performance we are reporting today. It has been widely reported that global manufacturing orders and activity fell sharply in November and December 2008. Certain of our businesses shared this experience, which led to our weak performance in our first quarter. Fortunately, our defence, fire apparatus and domestic refuse collection vehicle businesses continued to report solid results,”

“Our defence segment secured $1.6 billion of orders in the first quarter for our medium and heavy tactical vehicles. In addition, Pierce continued to experience market share gains and strong order flow as fire departments across the U.S. have responded positively to its robust line up of safety-conscious, high performance fire trucks. Our strong outlook for these businesses, supported by significant backlog, will help us navigate through this recession and emerge as a stronger company.”

“While we generated strong operating cash flow in the quarter, order activity slowed more sharply than we had expected in access equipment and other businesses. As a result, we do not expect that earnings for the remainder of the fiscal year will be sufficient for us to avoid violating a financial covenant in our credit agreement. We have commenced discussions with our lead banks to seek an amendment to our credit agreement in the second quarter of fiscal 2009. We believe that we will be successful in finalising an amendment that will provide us with financial covenant relief. We anticipate that the amendment will entail upfront fees and higher interest costs than under our current credit agreement,”

“In response to the weaker economic outlook, we have taken further measures to reduce our costs. These actions include a reduction in workforce of seven percent, which is in addition to the workforce reduction concluded in the summer of 2008. Additionally, we have further reduced production, announced closures of a number of underutilised facilities and slashed spending in general. We understand these decisions will have wide-ranging effects on our employees, their families and the communities in which we operate, but we believe they are necessary in the current environment.”

Vertikal Comment

The last three months of 2008 were a horrible period for a company to kick off its new financial year and a significant drop was predictable for JLG, with similar fourth quarter activity expected from Genie and Haulotte when they report their fourth quarter numbers.

Oshkosh has fortunately a good blend of businesses with Defence up over 36 percent while Commercial vehicles and Fire & Emergency were flat to marginally up on last year, offsetting a good deal of the fall off in the access business.
It will be a shame if Oshkosh does break its covenants as ludicrously this will generate fees for its bankers and less attractive interest rates at a time when it can least afford it, but an agreement is an agreement and this is where the banks make some of their best profits.

JLG has made significant progress under Oshkosh and won market share from its competitors in many parts of the world. While the company will need to reduce headcount and overheads, if it is careful and manages to keep its cuts to fat, rather than muscle and bone, it is well placed to come out of the recession as the clear market leader.

The top four aerial lift manufacturers – JLG, Genie, Haulotte and Skyjack will all be looking to manage their way though the next 12 months in a way that keeps losses to a minimum while keeping the company as fit and healthy as possible, ready to bounce back as demand picks up, which it will begin to do in 2010.

During times like this opportunities to leap ahead are far more abundant than when times are good. It is all down to strategy and leadership with particular focus on how you handle the downsizing and what you do to maintain brand awareness and loyalty when funds are tight.

There is still business out there, you just have to work much harder to find and extract it. Who will do best during this period? JLG so far looks as though it will at least be a candidate.