What happened
AM General beat out Oshkosh (OSK -0.87%) for an $8.66 billion U.S. Army contract to build the new Joint Light Tactical Vehicle (JLTV). The decision was unexpected and caused Oshkosh shares to fall as much as 14% on Friday.
So what
Oshkosh manufactures a wide range of specialized military and commercial trucks. The company won the original JLTV contract back in 2015 -- an initial $6.7 billion low-rate initial production contract. But the contract was open to recompete, and the Army has changed vendors for the second round of Humvee replacements.
Terms of the new deal call for AM General to receive $230.8 million for initial production, with options for up to 20,682 JLTVs and 9,883 trailers that could push the total award to more than $8 billion.
"We are humbled and honored to receive this contract and continue our strong partnership with the US Armed Forces," AM General CEO Jim Cannon said in a statement. "It was with the warfighters in mind that we set out to not only demonstrate our world-class manufacturing capabilities, but also to integrate innovative solutions into the JLTV so they receive the best product for their mission."
Now what
The deal is not a fatal blow to Oshkosh, and it is possible the Army could reopen it again in the years to come and reverse once again as technology and needs change. But for a company that prides itself as the leader in U.S. Army truck manufacturing, it is a tough loss to take.
The program shift will take time and will not likely impact Oshkosh's earnings in 2023 or even 2024. But it does give the company a $1 billion revenue hole to fill by 2025. If Oshkosh can't find new work to replace the lost JLTV sales, there could eventually be a need for some restructuring of operations.
Large U.S. Army contracts are hard to come by. It is no surprise investors are disappointed Oshkosh couldn't hold on to the JLTV.
