Between 2012 and 2021, there were 353,000 fires in homes
across America.
Another 117,000 in other buildings, and hundreds of
thousands of vehicle fires and fires outdoors.
During that time, home fires alone caused nearly 3000
deaths, more than 11,000 injuries and over $8
trillion in damage.
There are roughly 27,000 fire departments across the
country, with about 52,000 stations among them.
In these station garages are estimated to be an array
of about 200,000 fire fighting trucks.
A single fire truck can cost up to $2.5 million, and
in the US, this company is the biggest maker of them.
The Wisconsin based brand is a subsidiary of Oshkosh
Corporation, a sort of superstore of purpose built
vehicles. Need a news van?
Mail truck?
Garbage truck?
Construction lift?
Oshkosh makes all of them.
We serve people in our communities who are doing
the toughest work.
Really hard work, dangerous work.
Now the company is electrifying, but that comes
as the company faces severe failures elsewhere.
Defense makes up a quarter of its revenue, and the
company recently lost a $9 billion contract that made
up more than half of that.
Probably makes sense for them to de-emphasize
defense, because, quite frankly, the people who want
to invest in electrification and
decarbonization generally don't love defense
businesses.
As the leading maker of the 28 companies that belong to
the Fire Apparatus Manufacturers Association,
Pierce has been making fire trucks since 1939.
Its designs and innovations are largely responsible for
the modern fire engine as we know it.
The chevron striping you see on the back of fire
trucks was first featured in an early Pierce product.
In 1958, the company made the first fire truck with an
articulating boom, called a snorkel.
The following year, sales topped $1 million for the
first time. Over the decades, the company has
made key innovations in every part of the vehicle.
Now, Pierce has made what it says is North America's
first zero emission fire truck - no mean feat, given
the fact that large vehicles are considered the
toughest to electrify due to the sheer size of the
battery needed.
What we're addressing u niquely with the electric
vehicle space with our solution is it's a North
American style fire apparatus that doesn't
change the way in which the trucks operate, the way
they're used, and largely the way they're serviced.
Each fire truck is custom-made.
Depending on the type, a single vehicle can take
about 11 to 14 weeks to build, from the time the
factory first starts cutting sheet metal to the
time it is ready for customer pickup.
The total paint catalog numbers 987 different
colors, including more than 300 shades of red.
There is a multitude of custom chassis and a complex
supply chain that can offer all kinds of options in
drivetrains, axles, pumps, lighting systems and
whatever else.
The amount of variability: it does create a uniqueness
to our business and how we have to operate, how we have
to design, how we have to manufacture, as well as how
we have to service those apparatus in the field.
Oshkosh was founded by two entrepreneurs in 1917.
They patented inventions for four wheel drive
vehicles, but continuous rejection by automakers
forced the two to go into business for themselves.
More than 100 years later, Oshkosh Corporation still
makes vehicles.
A few key pieces of technology tie a lot of its
various product lines together. For example, most
of the products it sells make use of hydraulic lifts
in one way or another.
While serving about 20 different end markets makes
the business more complex, it has advantages.
The company can use the same piece of
electrification technology on a postal vehicle that it
uses on a construction lift. It can use autonomous
tech on an airport vehicle or a garbage or recycling
truck. Between 2002 and 2022, company sales grew
from $1.7 billion to 8.3 billion.
Its biggest customers are primarily municipal
governments, but it also serves airports, the
Department of Defense, large industrial companies,
universities and international markets.
We deal with so many various suppliers that that we still
stumble across those one offs, so we still muscle
through those things. The strategies which we're
employing are things like dual sourcing, where we're
promoting those suppliers ourselves that actually have
a consistent delivery schedule.
You know, we know which suppliers are going to
create problems for us. We know which ones are going to
help us.
Despite high inflation and supply chain shortages
resulting from the pandemic, the company is
confident about its prospects.
In 2022, it had a record order backlog worth $14.1
billion. It is expecting close to $10 billion in
revenue in 2023.
We've shown that we've gotten through the supply
chain difficulties. The throughputs in our plants
are much better. Our earnings this year our
current guidance is $8 per share.
It was a tough situation, but we've proven we could
get through it and that'll continue.
Oshkosh has four segments: the access equipment,
business construction, lifts and telescoping,
forklifts, and towing and recovery vehicles.
It made up nearly half of net sales in 2022.
Defense makes up the second biggest chunk of the
business. And then there is the commercial segment.
Dump trucks, garbage trucks, cement mixers, and
others. At the same time, Oshkosh has suffered some
setbacks. Most recently, it lost a $9 billion contract
to make the Next Generation Joint Light Tactical
Vehicle, or JLTV, a kind of multi-purpose military
vehicle. The JLTV program comprised more than half of
Oshkosh's annual defense revenues.
Production is expected to end in 2024.
We weren't willing to supply the contract at zero or
negative margin.
That's not the type of business that we run, and
that's why we we didn't win the contract.
The US government says shrinking portion of our of
our revenue right now, purely because presidential
budgets are not appropriating as much money
as they had been before to core tactical wheeled
vehicles that the Department of Defense buys.
Its defense programs have single digit operating
margins, making them the least profitable portion of
Oshkosh's portfolio, and a reason why some investors
think defense isn't worth holding on to anymore.
The investors who value decarbonization and
sustainability are looking for electric vehicle plays,
but those are not generally the same people who want to
make investments in defense businesses.
You're working at cross purposes here where you have
something that sustainability investors
really value highly, paired with something that they
actually try to avoid.
The company says it plans on bidding on government
contracts coming out of the Infrastructure Investment
and Jobs Act, signed into law by President Biden in
2022. These have boosted demand for the company's
purpose built construction lifts and other vehicles.
That new technology, and especially in our space, you
have your traditionalist and then you have your early
adopters. We're going through that early adopter
phase, but the demand is strong. The interest is
high.
Oshkosh is spreading electrification to areas of
its portfolio beyond the Pierce brand and the postal
delivery vehicles.
One example is the electrified version of the
Stryker, an airport rescue and fire fighting vehicle.
Nobody ever thought you could electrify an 80 zero
zero 0 pound vehicle.
We've done it. We're taking orders for it right now, all
over the world.
Offsetting some of the lost business in the defense
sector is the contract the company won to produce the
Usps's next generation delivery vehicle.
It is planning for a production ramp in the
second half of 2024.
The total contract is for up to 165,000 units.
Any company trying to electrify will face the
usual challenges, such as figuring out how their
customers are going to charge. Construction sites,
for example, tend not to have a lot of spare
electricity supplies, so the company is developing
mobile recharging equipment that can be brought to a
work site. Pierce's Volterra fire truck has a
backup diesel engine, but is designed to meet its
daily duty cycle on electric power.
We've had multiple in-service.
We've had one in service for over two years in
Madison, Wisconsin.
That truck has gone on thousands of calls, and the
battery life has never been an issue.
They've operated it under full battery that entire two
years, essentially was never dropping below 40%.
There's a fair amount of their served end markets
that are going to electrify over the next 10 or 15
years. They're fairly well positioned to make that
transition because they don't have a ton of really
big global competitors.
They're very nichey end markets that they operate
in. They tend to be the market leader in most of
those. Those end markets electrify.
Think these guys have an interesting opportunity to
lead that charge.