If you hear sirens around Oshkosh, Wis., this morning, don't worry -- it's just OshkoshTruck (NYSE:OSK) celebrating a great first quarter. Boosted by improved municipal and government spending, Oshkosh posted a 31% increase in sales to $645 million. This quarter was so strong for Oshkosh that even backing out more than $12 million in expense adjustments leaves it handily beating Wall Street's estimates ($1.11 reported, $0.90 net of adjustments, $0.75 estimated).
Sales were strong across the board as the fire/emergency, defense, and commercial segments all posted double-digit sales gains. Fire/emergency was clearly the leader, though; sales were boosted by a trio of increased municipal spending, spending attributed to homeland defense funding, and contributions from acquired companies.
What makes these results even better is that gross margins held stable and operating margins actually increased by 1% to 10.5%. Given the dramatic increases in steel and aluminum prices over the past year, maintaining stable gross margins is a testament to the company's pricing power and ability to pass costs on to the final buyer.
It may be that even better results are still to come. Backlog at the end of December was $1.87 billion -- up from $1.55 billion in September. Although a large chunk of that backlog is military, investors shouldn't need to worry too much about cancellations -- the U.S. appears committed to an ongoing military presence in Iraq and that will continue to require vehicle armoring, as well as parts and service. For a little added perspective on the backlog, consider this -- Oshkosh has backlogged orders for almost three quarters' worth of fire/emergency vehicles and nearly five quarters of orders for defense vehicles and parts.
Fools looking at the cash flow statement should not be overly concerned that the company posted negative operating cash flow. This company routinely posts negative operating cash flow in the December quarter (its first fiscal quarter), but reverses that later in the year as accounts receivable, inventory, and accounts payable work themselves through.
Trading at about 20 times trailing earnings, Oshkosh is bumping up against the ceiling of its valuation range over the past five years. Then again, sales have more than doubled over that time and net margins have climbed from under 3% to more than 6%. With strong returns on equity and assets and the ability to generate real free cash flow from the business, Oshkosh just might keep the sirens blowing for some time to come.
Fool contributor Stephen Simpson is a chartered financial analyst. He has no ownership interest in any stocks mentioned.
