Oshkosh Stops Truckin'

By Rich Smith | More Articles
August 4, 2010 | Comments (4)

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Investors sold off Oshkosh (NYSE: OSK ) hard in the wake of Q2 earnings news Monday. Can you blame them? The news was truly awful:

Sales up 100% to $2.44 billion
$2.31 per share earned, versus a $0.28-per-share loss last year
Another $175 million in debt paid back, bring total debt-paydown to $1.5 billion over the past two years
And free cash flow that now stands at $889 million generated over the past 12 months.

Awful, awful news.

And by "awful," I mean "staggeringly successful"
CEO Robert Bohn cheerfully described a company going great guns and enjoying a "record" third quarter for "revenue, operating income, and EPS." In an industry where rivals Federal Signal (NYSE: FSS ) and Terex (NYSE: TEX ) are just getting by on single-digit operating margins, Oshkosh whomped past 'em both and now boasts operating margins in the 12.6% range.

So why are investors selling the stock?

All good things…
Alas, these happy times can't last. Oshkosh is enjoying profits this year almost entirely because of the M-ATV contract it won last year. When the Pentagon chose Oshkosh over rivals Force Protection (Nasdaq: FRPT ) , General Dynamics (NYSE: GD ) , and Navistar (NYSE: NAV ) last year, its contract to build a new generation of all-terrain MRAPS quite likely saved the company from bankruptcy.

Now, however, the Iraq war is winding down. Public support for the Afghan war is on the wane. In short, the market for M-ATVs will dry up, sooner rather than later. When that happens, Oshkosh will be right back where it started, staring the Great Recession in the face, trying to sell pricey fire trucks to cash-strapped municipalities, and watching the clock in hopes that federal stimulus funding comes through fast enough to bolster the market for its cement mixers, telehandlers, and aerial work platforms.

Foolish takeaway
Oshkosh bulls will say that the company's P/E ratio of less than five has all these troubles baked in already. They'll doubtless point out that with a price-to-free cash flow ratio of just 3.2, the company's being discounted like there's no tomorrow. I agree.

But on the other hand, I'm not convinced there will be a tomorrow for Oshkosh. Sometimes, a cheap stock is cheap for a reason.

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General Dynamics is a Motley Fool Inside Value selection, but Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (5)

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Report this Comment On August 04, 2010, at 5:05 PM, remotop wrote:

I am perplexed why you are not convince there will be a tomorrow for Oshkosh. Municipalities can delay the purchase of a fire engine, which they have been doing the last couple of years. But at some point, they have to replace it. The safety of the firemen and the public make it a necessity. The M-ATV project is giving them time for the economy to turn around allowing them to pay off the debt incurred in the JLG purchase. The defense business will slow, but it won't be going away. The garbage trucks, cement mixers, airport emergence vehicles, tow trucks, and ariel platforms are being used every day and will wear out. When the economy turns, Oshkosh will be there providing the equipment that will build the next American century.
Report this Comment On August 04, 2010, at 6:02 PM, BobMichigan wrote:

I worked for a heavy truck supplier and I can tell you that among my customers the one with the best engineering was Oshkosh. Long term those guys will win.
Report this Comment On August 05, 2010, at 11:57 PM, MRBillsnutjob wrote:

Well that explains why OSK is beat up but you know they are getting involved with a liquid NG pipeline project that is looking forward wouldn't you think.
If they hit their whooping 8+ dollars this year and average earnings of about 3+ dollars for the next few years I think they will do just fine.
Report this Comment On August 06, 2010, at 9:45 AM, MRBillsnutjob wrote:

sorry was misinformed they are in a deal to buy refuling stations I think

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