As the old saw tells it, when you owe the bank $10,000, you have a problem. When you owe the bank $10 million dollars, the bank has a problem. And Fools, Oshkosh's (NYSE:OSK) bankers have a problem.
This maker of heavy trucks -- everything from armored vehicles that compete against General Dynamics (NYSE:GD) and Force Protection (NASDAQ:FRPT), to garbage scows populating fleets at Republic and Waste Management (NYSE:WMI), to the fire engines at your local fire department -- reported its fiscal Q1 2009 earnings yesterday.
The news wasn't great -- sales down 7% year over year, and a $0.28-per-share loss -- but I submit to you that no one was expecting great news. Not with fellow industrialists like Caterpillar (NYSE:CAT) and Boeing (NYSE:BA) laying off tens of thousands of employees, and Textron's (NYSE:TXT) CEO calling 2009 "the most challenging year ever for most manufacturing companies." The loss may have been bigger than we hoped, but it wasn't big enough to explain the 30% sell-off that Oshkosh suffered.
Deep in (emotional) depression already, it takes more than a mere $21 million loss to spook investors. No, sparking a panic of this magnitude requires:
- An admission that management's grasp of its finances has become so tenuous that it's "withdrawing its previous earnings estimates and will not be issuing new earnings estimates."
- And a warning that: "continued deteriorating business conditions ... caused the Company to believe it would likely be in violation of one or more of the financial covenants under its credit agreement at the end of the second quarter of fiscal 2009 ... As a result, the Company is proceeding with a plan to seek an amendment of its credit agreement."
Cut through the corporate-speak, and Oshkosh basically admitted that: (a) it has no clue what it will earn (or lose) this year, and (b) business is so bad that its bankers will soon be able to demand early payment on an unknown portion of Oshkosh's $2.6 billion in long-term debt.
Someone has a problem
Needless to say, Oshkosh doesn't have $2.6 billion; it actually has barely a tenth of that. Which means that in the best case, it must beg its bankers for leniency, incurring "upfront fees and higher interest costs as a result of the amendment." In the worst case, the bankers could say "no," and Oshkosh could need to explore bankruptcy options.
Hearkening back to the quip with which we began this column, I personally think that "no" isn't an option for the bankers here. But it's a sad state of affairs when a company's best-case scenario is just avoiding bankruptcy.
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