Oshkosh 4th quarter strong as it fights for truck contract

In making their case for an Army contract worth an estimated $3 billion, BAE Systems and its congressional supporters have argued that Oshkosh’s financial condition is “shaky.” Oshkosh was awarded the contract to build military trucks known as the Family of Medium Tactical Vehicles (FMTV), but BAE, the incumbent contractor, has filed a protest with the Government Accountability Office (GAO).

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Oshkosh’s profit for its fourth quarter ending on Sept. 30 defied projections by Wall Street analysts. The Wisconsin-based specialty truck maker posted a profit for the quarter that nearly tripled that of the same period last year. A divestiture and strong military sales spurred the higher profit of $140.3 million, or $1.68 a share, up from $53.7 million, or 72 cents a share, last year.

But despite the strong fourth quarter, Oshkosh shows a net income loss of $1.1 billion for the year. Overall losses were attributed to weak construction and access equipment sales as the company continued to deal with the downturn in the world construction market caused by the recession and credit crisis.

Oshkosh has an all-time high order backlog of $4.9 billion in its defense segment, said CEO Robert Bohn. That backlog takes into account the Army’s first $280.9 million delivery order for the protested FMTV contract award, but company officials expressed confidence that the GAO will rule in the Army’s and Oshkosh’s favor.

“We continue to lean forward on the FMTV program, as we believe that the U.S. Army conducted a fair and objective source selection process and that the outcome of the pending protests will uphold our award,” said Oshkosh Chief Operating Officer Charlie Szews.

“We bid the multiyear FMTV program to be profitable, based on our many years of experience building more complex tactical wheeled vehicles with many of the same suppliers utilized by the incumbent supplier. Our vertical integration and purchasing power permit us to be very cost-competitive.”

BAE Systems argued that Oshkosh’s proposed price for the FMTV came in almost $1 billion lower than the Army’s overall funding estimate of $3.9 billion, according to a supplement BAE filed to its original protest. The GAO made a redacted copy public Oct. 29.

“Oshkosh’s proposal to perform the FMTV contract underscores how badly it needed this contract to keep its doors open,” BAE alleged in the supplemental protest.

But Oshkosh insisted Tuesday that its finances are on solid ground.

“While we aren’t providing quantitative guidance for fiscal 2010, we do believe that we will be solidly profitable in fiscal 2010,” said Dave Sagehorn, Oshkosh executive vice president and chief financial officer.

“For defense, our factories are operating efficiently and we expect significant sales growth in fiscal 2010.”

The company has a strong backlog for a military contract for heavy trucks as well as an all-terrain mine resistant ambush protected vehicle for Afghanistan and service parts, he said.

“We expect minimal FMTV sales volume in fiscal 2010 as that program will begin to ramp up in earnest early in our fiscal 2011, assuming a successful resolution of the protests,” Sagehorn added. “We are, however, incurring costs on the FMTV program during the protest phase so that we are ready to move forward quickly if, as we expect, the GAO denies the protests.”

Sagehorn also said that Standard & Poor’s recently upgraded the company’s credit rating to B+/Stable, “acknowledging our improved financial outlook.”

Oshkosh is poised to launch a major ad campaign in Washington to boost its image as a military contractor and fend off what Oshkosh officials see as unfair attacks from BAE over the FMTV contract.

Chris Chambers, BAE’s vice president and general manager of its Sealy, Texas, plant, where the FMTV is built, said in an interview with The Hill on Tuesday that his company is “certain” Oshkosh’s bid for the FMTV is “unrealistic,” because BAE had “a very aggressive bid, based on in-depth knowledge of the product and the government-directed supply chain.”

“We came in significantly less than current price,” he said. Chambers said BAE bid more than 20 percent below the price it currently receives from the Army on the FMTV, while Oshkosh came in 13 percent below BAE’s new bid.

Chambers said that his company was able to bid much lower this time around because BAE was awarded the current FMTV contract in early 2008 during a period of “huge inflation” when the cost of raw materials was rising significantly. But those costs have now fallen and have been stabilized, Chambers said.

Chambers said BAE is behind in delivering 800 FMTV trucks to the Army, a delay that has prompted the military service to withhold some performance payments on those trucks.

“We are actually producing 44 vehicles a day. We are less than a month behind contract,” Chambers said.