Oshkosh Corp

NYSE:OSK

Earnings Call Analysis

Oshkosh Achieves Strong Q2, Raises Full-Year EPS Outlook

Oshkosh Corporation reported a robust second quarter, with revenues increasing by 18% to $2.85 billion and a 36% rise in adjusted operating income. This led to an adjusted EPS of $3.34. A significant highlight was the commencement of deliveries of next-generation delivery vehicles to the U.S. Postal Service, expected to drive growth through the decade. Based on these results, Oshkosh raised its full-year adjusted EPS outlook to $11.75 per share. The company forecasts continued success in 2025, with stable access equipment demand and transitioning defense revenues from JLTVs to NGDVs.

Impressive Quarter and Improved Forecasts

Oshkosh Corporation had a remarkable second quarter, achieving an 18% increase in revenue and a 36% boost in adjusted operating income, leading to an adjusted operating margin of 11.5% and an adjusted EPS of $3.34. The company’s success can be attributed to strong execution across all its segments, with broad-based revenue growth particularly shining in North America【7:0†source】.

Significant Milestones and Future Outlook

One of the notable achievements this quarter was the commencement of deliveries of next-generation delivery vehicles (NGDVs) to the United States Postal Service. This milestone marks a significant step forward for Oshkosh and is expected to be a major contributor to profitable growth through the decade. Based on these robust results and superior execution, Oshkosh raised its full-year outlook for adjusted EPS to be in the range of $11.75 per share from the previous $11.25【7:0†source】【7:1†source】【7:3†source】.

Access Equipment Segment Performance

The Access segment had a noteworthy quarter, with revenue growth of 6% and an adjusted operating margin of 17.7%. This is especially impressive considering significant investments in new products, technologies, and production capacity. These results are driven by strong market dynamics in North America and a substantial backlog of $3.3 billion, which is expected to cover requirements into 2025【7:1†source】【7:1†source】【7:0†source】.

Defense Segment and NGDV Contributions

In the Defense segment, Oshkosh began delivering NGDVs, and despite a declining revenue from the Joint Light Tactical Vehicle (JLTV) program, NGDV is expected to more than offset this decline in 2025. This shift will support a smooth transition and ensure steady revenue growth. Additionally, Oshkosh is anticipating a 5-year contract extension for the Family of Heavy Tactical Vehicles (FHTVs), which will further bolster the segment’s profitability【7:0†source】【7:2†source】【7:5†source】.

Vocational Segment Growth and Future Plans

The Vocational segment exhibited significant growth, including a 44% revenue increase with a 14.1% adjusted operating margin. This was supported by strong demand for products like Pierce fire trucks and McNeilus refuse and recycling trucks. Oshkosh continues to focus on increasing production capacity to meet this demand and expects to maintain this growth trajectory. The segment also benefits from the robust order activity in AeroTech, driven by global air cargo demand and airport expansions【7:2†source】【7:4†source】.

Guidance and Expectations for 2025

Looking ahead to 2025, Oshkosh expects the Access equipment market in North America to remain relatively stable, supported by ongoing infrastructure investments and aging fleets. The company remains confident in delivering exceptional performance in the segment. Furthermore, the transition from JLTV to NGDV production in the Defense segment is anticipated to stabilize revenue streams. With solid backlogs and strong pricing strategies in place, Oshkosh's Vocational segment also looks forward to continued revenue and margin growth in the coming years【7:7†source】【7:1†source】.

Earnings Call Transcript 2024-Q2

[Operator]

Greetings, and welcome to the Oshkosh Corporation Second Quarter 2024 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Pat Davidson, Senior Vice President of Investor Relations. Thank you, sir. You may begin.

[Patrick Davidson, executive]

Good morning, and thanks for joining us. Earlier today, we published our second quarter 2024 results. A copy of that release is available on our website at oshkoshcorp.com. Today's call is being webcast and is accompanied by a slide presentation, which includes a reconciliation of GAAP to non-GAAP financial measures that we will use during this call and is also available on our website. The audio replay and slide presentation will be available on our website for approximately 12 months.

Please refer now to Slide 2 of that presentation. Our remarks that follow, including answers to your questions, contain statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act.

These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we have described in our Form 8-K filed with the SEC this morning and other filings we make with the SEC.

We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all.

Our presenters today include John Pfeifer, President and Chief Executive Officer; and Mike Pack, Executive Vice President and Chief Financial Officer; as well as the recently named President of our vocational segment.

Please turn to Slide 3, and I'll turn it over to you, John.

[John Pfeifer, executive]

Thank you, Pat, and good morning, everyone. I'm pleased to announce another strong quarter with notable year-over-year growth in revenue and earnings. Our innovate, serve advance strategy continues to drive profitable growth and strong shareholder returns. Furthermore, we expect our investments in market-leading products and technologies that provide our customers with productivity and safety benefits will support attractive growth well into the future.

This success is a testament to the passion and dedication of approximately 18,000 Oshkosh team members. For the second quarter, we grew revenue by 18% and achieved a 36% increase in adjusted operating income, leading to an adjusted operating margin of 11.5% and adjusted EPS of $3.34. Our strong results were enabled by broad-based revenue growth and outstanding execution across our businesses.

During the second quarter, we began delivering next-generation delivery vehicles or NGDVs, to the United States Postal Service. This is a significant milestone for both our customer and our team. We expect that the NGDV program will be a meaningful contributor to our profitable growth for the remainder of the decade and will provide the United States postal service with state-of-the-art, purpose-built delivery vehicles that modernize and decarbonize their fleet. This program exemplifies our ability to collaborate with customers and leverage our innovation capabilities to deliver differentiated value and address complex challenges.

Based on our strong second quarter results and solid execution, we are raising our full year outlook for adjusted EPS to be in the range of $11.75 per share.

Please turn to Slide 4, and we'll get started on our segment updates. Our access team executed exceptionally well in the second quarter, delivering revenue growth of 6% and achieving an adjusted operating margin of 17.7%. These results are even more impressive when considering the significant investments we made during the quarter for new products, technologies and production capacity that we believe will contribute to our long-term success.

Sales growth was driven primarily by North America, where we continue to see healthy market dynamics. Orders in the quarter were lower than last year as we expected, and discussed on our last earnings call. As a reminder, we entered 2024 largely booked for new equipment for the year, so we expected lower orders in the second and third quarters relative to 2023. With improved equipment availability and a $3.3 billion backlog covering customer requirements into 2025, we expect that customers will return to more typical ordering patterns and place meaningful orders for 2025 requirements beginning in the fourth quarter of 2024 with some carryover into the first quarter of 2025.

We anticipate that the access equipment market in North America will remain relatively stable in 2025, similar to 2024. This outlook is based on discussions with customers and our expectations for ongoing infrastructure investments, mega projects, industrial onshoring and aging fleets. We remain confident that we can deliver solid performance in the segment.

During the quarter, we announced plans to acquire AUSA, a leading European manufacturer of specialty equipment, including wheeled dumpers, rough terrain forklifts and telehandlers located near Barcelona. AUSA is a high-performing business with products in attractive growth categories as well as channel synergies. When AUSA joins the family, we will be better positioned to serve customers across geographies and drive targeted growth. We expect that the transaction will close during the third quarter of this year.

Please turn to Slide 5, and I'll review our Defense segment. As I mentioned earlier, we are proud that we commenced deliveries of the United States Postal Service next-generation delivery vehicles. We look forward to a long and successful partnership with the U.S. Postal Service as we modernize their fleet. We are currently in production in our Spartanburg, South Carolina facility. We expect to ramp up NGDV production through 2025 and exit 2025 at full rate production, leading to strong revenue expectations for 2026.

As a reminder, we expect NGDV revenue in 2025 to exceed the decline of JLTV revenue from 2024 to 2025. While domestic JLTV production will wind down in early 2025, we continue to supply the DoD on many important programs, including FHTV and FMTV programs. During the second quarter, we received orders valued at $232 million for FHTVs, which are the last orders on the current contract. We expect to complete a 5-year contract extension for the FHTV program in early August and an FMTV contract extension in the first half of 2025. We believe these key programs as well as a number of other programs, such as Stryker MCWS and the Rogue Fire Family of Carriers provide enhanced profitability and important visibility for the business into the future.

Before I leave Defense, I want to share some news regarding Pratt Miller. Today, we are announcing the move of reporting responsibility of the Pratt Miller business to our Chief Technology Officer, Jay Iyengar. Pratt Miller has outstanding capabilities to rapidly develop proof-of-concept technologies. We believe this change will enable us to better leverage their new product development capabilities across our entire enterprise.

Let's turn to Slide 6 for a discussion of the Vocational segment. Our Vocational segment achieved strong year-over-year organic revenue growth of 11% in the second quarter. Including AeroTech revenues of $192 million, we delivered revenue growth of 44% with an impressive adjusted operating margin of 14.1%. Our backlog for Pierce fire trucks continues to grow. Meeting this demand represents a significant opportunity to drive long-term growth in the Vocational segment.

In the near term, we are focused on achieving incremental throughput in our existing facilities. In the longer term, we expect to make additional investments to increase production capacity, which we expect will drive strong revenue and margin growth well into the future. We also continue to see robust demand for our McNeilus refuse and recycling trucks as well as AeroTech equipment. Our new purpose-built zero-emission electric Volterra SL refuse and recycling trucks continue to generate strong interest with pilot units performing well in early customer field testing.

We are encouraged by the productivity benefits and strong operational performance that our customer is experiencing while the trucks are operating on daily routes, including considerable fuel cost savings. This is an important part of our future as fleet operators migrate to these transformational vehicles over time.

We are in the process of transitioning our refuse and recycling vehicle business from factory direct sales and service to a dealer network for non-fleet sales. much like we've demonstrated with our Pierce fire truck business, we believe that a dealer network will provide broader and more comprehensive coverage for a wider array of customers across North America including municipalities and small- and medium-sized refuse and recycling haulers.

In particular, we believe our dealer network approach will lead to a stronger life cycle business. There are several strong dealerships already operating, and we expect to have complete dealer coverage across North America by the end of the year. Before I leave this segment, I'd like to comment on AeroTech. Our outlook for both near- and long-term opportunities as part of our company is strong. Order activity continues to be solid, driven by airport expansions and aged equipment replacements, supported by continued growth in worldwide passenger travel and global air cargo demand.

We continue to be pleased with the integration progress. In particular, we are benefiting from supply chain synergies, commercial synergies with other businesses throughout the Oshkosh family and technology synergies in the areas of electrification, autonomy and intelligent connected products.

With that, I'll turn it over to Mike to discuss our results in more detail and our updated expectations for 2024.

[Michael Pack, executive]

Thanks, John. Please turn to Slide 7. We Consolidated sales for the second quarter were $2.85 billion, an increase of $434 million or 18% over the prior year quarter. The increase was driven primarily by increased organic volume in all 3 segments, the benefit of $192 million of AeroTech sales in the Vocational segment and the benefits of improved pricing. We recognize intangible asset impairments of $51.6 million during the quarter as market conditions at Pratt Miller resulted in a downward revision of anticipated cash flows. .

Consolidated and Defense segment adjusted operating income results exclude the impacts of these noncash impairment charges. Adjusted operating income increased $87 million over the prior year quarter to $328 million or 11.5% of sales, a 150 basis point improvement. The improvement in adjusted operating income was largely driven by improved price/cost dynamics, increased volume and the benefit of AeroTech results, offset in part by higher engineering investments and operating costs.

Adjusted operating income exceeded our most recent expectations primarily due to improved price cost dynamics, higher volume at Defense and Vocational and favorable customer mix at access. Adjusted earnings per share was $3.34 in the second quarter versus $2.74 in the prior year. During the quarter, we repurchased approximately 335,000 shares of stock for a total of $39 million.

Please turn to Slide 8 for a review of our updated expectations for 2024. With the change in Pratt Miller's reporting relationship, the results will be combined and reported together with corporate. The following guidance reflects this change. Building on a robust first half of 2024, solid visibility with our backlogs and favorable execution, we are raising our full year adjusted earnings outlook.

On a consolidated basis, we continue to estimate 2024 sales to be in the range of $10.7 billion. We are estimating adjusted operating income to be in a range of $1.14 billion, up from our prior estimate of $1.075 billion, and we are now estimating that adjusted earnings per share will be in the range of $11.75 versus our prior estimate of $11.25.

At a segment level, we are estimating Access sales and adjusted operating margin to be in the range of $5.3 billion and 16.5% compared to our prior expectations of $5.4 billion and 15.5%, respectively. Reduced revenue expectation is a result of more expected sales outside North America while the improved margin comes from expected favorable sales mix.

For Defense, we are maintaining our sales guidance of approximately $2.1 billion reflecting an increase of $100 million from improved throughput, offset by the transfer of Pratt Miller to corporate. Our expectations for adjusted operating margin are now approximately 2.25%. We expect Vocational sales to remain in the range of $3.2 billion, and we are increasing our expectations for adjusted operating margin to be 12.75%, up from our prior expectations of 11.5%. Expected improved price cost dynamics and better manufacturing efficiencies are contributing to the improved outlook for margins.

Our estimate for corporate and other is approximately $190 million, consistent with our prior expectations. Our expectation for tax rate is still 24%. Our expectation per share count is also unchanged at 65.8 million shares, and we are maintaining our target of $300 million for CapEx. We are reducing our estimate for free cash flow by $50 million to $375 million as a result of expected higher working capital at year-end.

Looking to the third quarter, we expect adjusted EPS in the range of $3 per share, in line with the prior year. We expect sales to be up approximately 10% versus the prior year. This implies a slightly lower margin, which stems from expected less favorable sales mix, higher anticipated material costs, higher new product development investments as well as plant start-up costs.

I'll turn it back over to John now for some closing comments.

[John Pfeifer, executive]

We reported another strong quarter and raised our expectations for 2024 adjusted EPS with today's earnings announcement. Of course, many of you on this call are seeking information regarding next year. While it is still early, I'd like to share some of our thoughts on 2025. For our Access segment, strong demand drivers like mega projects and infrastructure investments, along with discussions with key customers, lead us to expect that sales will be in the range of 2024. We remain confident that we can deliver solid performance in the segment.

In our Defense segment, we are winding down sales of JLTVs to the U.S. DoD and are ramping up NGDV production. We expect 2025 NGDV revenue will more than offset the decline of JLTV revenue from 2024 to 2025. And our Vocational segment has excellent visibility with a large backlog and strong pricing, which we believe supports continued revenue and margin growth. For these reasons, we are positive as we look to 2025. This is an exciting time for Oshkosh, and we look forward to executing our growth strategy to drive shareholder value.

I'll turn it back to you, Pat, for the Q&A.

[Patrick Davidson, executive]

Thanks, John. [Operator Instructions] Operator, please begin the Q&A session. .

[Operator]

[Operator Instructions] Our first question comes from the line of Tim Thein with Raymond James. .

[Timothy Thein, analyst]

The first question is on the access outlook here in the second half. I'm just hoping to get some color. It seems like in the first half, customer mix maybe a bigger benefit than anticipated, which, I guess, drives somewhat with some of the more cautious commentary that we've heard from some of the big public players with respect to some softening in the gen rent market. So -- and obviously, there's product mix and geography and a lot of other things that impact that. But maybe just talk to the extent that as we think about first half versus second half kind of the interplay there from a customer mix standpoint and maybe quantify that benefit in the first half and what that maybe assumes in the second half, if possible.

[Michael Pack, executive]

Yes. I can start and certainly, John can add anything at the end. I wouldn't read -- certainly, the mix is a little less favorable in the second half. Some of it's customer, but some of it's products. So I wouldn't read -- I very much view it as a timing situation. It's not -- there's nothing to be read into it from a demand perspective that based on what we produced and delivered, it ended up that the mix was somewhat favorable both product and customer.

So you see a little bit of -- we obviously know what our backlog is. for the rest of the year. So the mix really -- our revenue assumption is really aligned with that mix. So that's a bit of an impact in the second half. I think the other piece to remember is the fourth quarter is always a seasonably lower quarter because you have fewer production days. So then you have some absorption headwind. So I think that's part of it, if you look at the implied first half versus second half margins. And I would also say that we do have a little bit higher NPD and plant start-up costs related to Jefferson City in the second half of the year. So again, I don't really view that as a demand driver, a commentary on demand. It's really just purely timing.

[John Pfeifer, executive]

Good to hear from you. Let me just kind of add to that in addition to -- we take a conservative view on customer mix, which is, as Mike said, that's a little bit of it. But I want to talk about the revenue and make sure it's clear this is related to your question. So you see in our guide, we took Access revenue down just a little bit, and I want to be clear what that's related to. So you may have heard there's pending tariffs for the European market. And we believe in the near term, there could be some impact to us because of those tariffs, and we also see some conditions outside the U.S. that caused us to take that revenue forecast down a little bit. But that has nothing to do with North America and the general market environment that we see. So just making sure that's clear.

[Timothy Thein, analyst]

Got it. Got it. And then, Mike, just I don't let them accuse you of sandbagging a setup for Vocational as you transition over to running sector. But yes, I guess a similar question. You mentioned the strength in backlog actually grew sequentially, and you called out strength in Pierce as well as the price cost dynamics, I would assume that remains a tailwind for you. So anything that we should be mindful of as we think about kind of the margin trajectory in the back half of the year, just given what you've delivered thus far in the first half.

[Michael Pack, executive]

Yes. I would say very similar commentary to Access that we're very excited about the future of Vocational with strong backlog. It's a great team in place. You -- we've talked about the strong price in backlog. So we expect to deliver very solid margins. When I -- again, when I think of the first half versus second half, price/cost continues to be a tailwind. I would say we expect with our [indiscernible] plant. We'll have a little bit higher start-up in the first half versus second half and a little bit higher NPD, and again, that fourth quarter comes into play again because you have fewer production days and some absorption impact of that, which we typically have every year. But overall, like the margin trajectory in the business and certainly like the prospects to continue to grow the business through more capacity over time.

[Operator]

Our next question comes from the line of Jamie Cook with Truist. .

[Jamie Cook, analyst]

Congratulations on the quarter. I guess two questions. The margins in Access has been very impressive. And I think the guide is -- in terms of margins is like a record for the quarter. So John, in an environment where you're talking about potentially a stable market or, let's say, flattish revenues in 2025. Like to what degree is the margin improvement structural and/or do we need to start worrying about giving price back on the Access equipment side, you're starting to hear price deterioration in other markets. I'm wondering if that's a risk for Oshkosh over the longer term?

And then my second question, just on defense, understanding what you said in terms of how you're thinking about revenue with NGDV ramping and JLTV going down. How are we thinking about the margin cadence for Defense going forward? Like is 2025, while margins are improving still very much a transition margin year and you think about more normalized margins more so in 2026 and 2027. Just concerned on like the ramp of inefficiencies on the ramp of NGDV.

[John Pfeifer, executive]

Yes. Thanks for your question, Jamie. I'll take the first one on Access and Mike will comment on the NGDV program and the Defense business. So let me talk about Access because we've been very, very purposeful about driving resiliency and sustainability into our Access business. And I think we've been doing a lot of great work. Our team is executing well right now across the board. You see that in today's margin performance. And we're always focused on driving value for our customers and also the company, of course. And we believe that this focus and this purpose around resiliency is going to lead to a lot of long-term success.

So we want to be resilient no matter what the market conditions are. So if 2025 is flat, we expect to perform exceptionally well. A lot -- some of you, Jamie, I'm not sure if you were there, you visited our Shippensburg facility recently. And you saw some very innovative manufacturing investments that have been going into place. That's one of many examples as to how we're driving resiliency into the business no matter what the market conditions are, our ability to adjust to market conditions. So I can't forecast long-term margins on this call. We'll do that at an Analyst Day upcoming, but we do expect to continue to deliver strong margins in this business year-over-year as the market evolves. Mike, do you want to talk about NGDV?

[Michael Pack, executive]

Defense and NGDV. So what our expectation is revenue is going to be relatively low for NGDV. We talked about we'll have just some start-up costs this year, that revenue grows throughout next year as we ramp production and ultimately exit 2025 at [indiscernible] rate production. So from a margin perspective, so first of all, revenue is going to be growing significantly. We expect that will offset the decline of domestic JLTV. The margin will continue to grow too as we ramp up. And so by the time we get to 2026, we'll be delivering that we've talked about the attractive margins at the program has, and that's what we expect by 2026. And that will be growing over the course of next year.

I think the other thing just in terms of -- just in general, margins with Defense, I think John mentioned in his prepared remarks, the FM or FHTV extension that we expect will be completed in the near future here. That's another one of the pieces that we've talked about that are going to help the Defense margins over time. That reflects updated pricing and there's economic price adjustments. So Keep in mind, that's another one of the levers that will continue to improve Defense's margins in the coming years. We'll start delivering those units under the new contract in early 2026.

[John Pfeifer, executive]

Another comment on that, Jamie. Our lower defense margins were a phenomena as a result of fixed price contracts that we entered into prior to the inflationary period. So we expect that we'll come back to profitable growth as we get fixed sole-source contracts. We just announced one for the FHTV and there's others coming. And that's going to help us drive much better margins in the core defense programs that we have going forward. So that's a -- that will be a big evolution over the next 18 months. .

[Operator]

Our next question comes from the line of Kyle Menges with Citi.

[Kyle Menges, analyst]

I hope to dive a little bit deeper into the outlook for Access next year. The flattish year-over-year sale is pretty good. I guess, what conversations with customers are giving you confidence that sales can remain flat year-over-year, and how much of an impact is the ramp-up of telehandlers production in that equation?

[John Pfeifer, executive]

Yes. So thanks for your question, Kyle. When we -- when you look at the Q2 orders that we had, they were lower and that's as we had expected. And I want to make sure it's clear that we're talking about a change in order timing, we're not talking about a change in demand. that we're experiencing right now. It's an order timing change, not a change in demand.

So we talk with our customers all the time. and they continue to have a healthy outlook for their business and even for our equipment. That's probably the best data point that we look at. If you look at what is happening in the market itself, you see positive rental pricing, you see strong fleet utilization. Now you might say, well, fleet utilization has come down a little bit, but it was at historic highs when there was a lot of supply chain constraints. So if you look where it is today, it's a very, very healthy rate. And we see good prices on used equipment.

The used equipment was also very constrained the last 2 or 3 years because there was no supply of used equipment. Now there's more supply. So used equipment has come down a bit, but when you look at what it is, it still is at a healthy rate. And I think if you ask our customers, they would tell you the same thing. So those are the types of of things that we see right now in the market today. But we're really in unique times right now. We have aged fleets still. We have lots of megaprojects and unprecedented government spending with IIJA, the IRA, the CHIPS Act, these all continue to be meaningful drivers of demand. And with some commercial construction, of course, mostly buildings under some pressure due to interest rates, I think that all these big projects and big trends, at this point in time, they're able to offset some of the weakness in general construction that we're seeing.

I'll give you a little bit more detail. If you look at the Dodge Momentum Index, it was up 10.4% in June, near historic highs. They cited data centers as an ongoing driving force. It's 43% ahead of 2019, that signals fairly strong construction spending in 2025. On the other hand, you look at the ABI, the Architectural Billings Index, and it's been below 50 for more than a year, almost 1.5 years, and that's due to impacts of interest rates on general construction activity. But even so, a lot of firms are continuing to remain optimistic that rate cuts, which will eventually come, we'll find out a little bit more later today, will improve those conditions.

So all of these -- when we add all that up and we review this with our customers, it gives us the outlook that we talk about today in terms of 2025. But I do want to go back to the point that I made earlier, we're talking about a change -- when you look at our order rates, we're talking about a change in order timing [indiscernible] change in demand.

[Kyle Menges, analyst]

That's helpful. And then I was curious, just any impact from the telehandlers ramp and how you're thinking about 2025, like some of the puts and takes there? .

[Michael Pack, executive]

From a telehandler perspective, really, the ramp impact is this year as you see the investments, and that's one of the items we called out for back half margin impact to Access. We don't see that carrying into next year. .

[Operator]

Our next question comes from the line of Angel Castillo with Morgan Stanley.

[Brendan Shea, analyst]

This is Brendan on for Angel. So in your vocational segment, you noted the strong backlog in Pierce. Just curious, we've seen revenue accelerate sequentially there for the past couple of quarters. Are you seeing material changes in demand? Or is that more attributable to some of what you're doing to improve throughput at the manufacturing side of things? .

[Michael Pack, executive]

Yes. I'd say overall demand still remains very strong. The last couple of years were really the highest couple of years on record for fire trucks. We still see the market at above -- well above normal levels this year. So demand continues to be very robust. And that's why we called out. I think in the short term, we're highly focused right now and making incremental gains in our ability to produce more fire trucks, but in the longer term, I would expect that we'll continue to make some investments in capacity because we see more growth opportunity given the market dynamics, the backlog. And of course, this is all in a strong pricing environment as well.

[Brendan Shea, analyst]

Got it. And then you mentioned price cost a couple of times driving some of the solid results here. I was wondering if you could quantify that and then provide any color on expectations as that goes out throughout the remainder of this year.

[Michael Pack, executive]

Sure. Again, price cost was in the quarter was, call it, about $0.60. It was a good driver year-over-year. One thing to remember is a piece that is we were still sort of lapping some of the price -- or weren't hadn't fully lapped some of the price increases that access last year. And so -- and then the bigger piece of it is Vocational, they were a few quarters behind Access and the price cost benefits. So again, going forward, it's going to be now that we're sort of lapping the Access piece of that. Price/cost is still going to be a meaningful driver, may not be quite to the same level as we look to Q3, and we did note that material costs will be a little bit of an impact with -- in Q3. .

[Operator]

Our next question comes from the line of Mig Dobre with Baird.

[Unknown Analyst]

It's Joe Grabowski on for Mig this morning. I guess I also wanted to ask about Access equipment demand and Access equipment order progression. When you talk about Q4 orders, I expect to see a significant increase, I assume that means versus Q2 and Q3. But how do you think Q4 orders just directionally will compare to the prior 3 December quarters, each of which were very strong compared to historical orders for the segment?

[John Pfeifer, executive]

Well, so the short answer to your question is I think they'll compare favorably to what you've seen in the past year-over-year. That's the expectation. Remember, we've got a $3.3 billion backlog. We have -- the industry is less constrained than it was when we saw unseasonal order patterns. So that's why customers are comfortable going back to more seasonal order patterns.

So we have a $3.3 billion backlog today in Access Equipment. That's unusually high, still. It's come down from where it was a quarter ago, but it's unusually high. Some of that backlog is already for 2025. Orders that we're receiving a lot of those are essentially for 2025. And as we get into Q4, that's the normal time when you look at normal order patterns when customers really plan for the following year, and we typically have a 3- to 6-month backlog in normal seasonality. So that's why we expect in Q4 we'll see significant orders for what customers are expecting in 2025.

[Patrick Davidson, executive]

Joe, I'd say -- this is Pat. I'd say we're not going to forecast Q4 orders on this call, but clearly, they'll be over $1 billion, right? I mean that kind of thing. You've seen that the last couple of years, but to get too precise, that's not something we would do on this call. We do expect lower orders in Q3, right? As John said, because a lot is in backlog already.

[Unknown Analyst]

So Pat, that's lower year-over-year, right, lower year-over-year in Q3. I just want to make sure that not lower versus Q2, but lower year-over-year.

[Patrick Davidson, executive]

Q3 last year was what do we have here? We've got $930 million, right, $930 million. I think we're going to be lower than that confidently.

[John Pfeifer, executive]

I wouldn't read too much. I wouldn't read too much into what the orders are in Q3. I don't think it's a significant data point to pay attention to.

[Unknown Analyst]

Fair enough. I appreciate the color. And then a quick follow-up. I was intrigued to see that you're now recognizing revenue for the delivery vehicle, $36 million in the second quarter. Curious if that was kind of a partial quarter, how it kind of ramped in the quarter? And kind of any early learnings as you're starting to ship the vehicles?

[Michael Pack, executive]

Yes. We're at lower rate production. That's going to continue to ramp up over -- really through the end of 2025 where we exit at full rate. I think you -- the $36 million of revenue, remember, we're at overtime recognition. So I wouldn't get too wrapped up and trying to correlate that to an exact number of units because you have early units, you're going to have more costs incurred upfront. I think as we get into higher production, you're going to have a little bit better correlation to units produced. But we'll continue to be ramping up over the course of the year. So we would expect to continue to see some revenue growth on a quarter-to-quarter basis. .

[Operator]

Our next question comes from the line of Jerry Revich with Goldman Sachs.

[Jerry Revich, analyst]

John, I'm wondering if you could just expand on your comments earlier about the tariff implementation in Europe and your views on how that's going to impact the competitive landscape feels like it's hitting everybody across the board outside of maybe [1 French] manufacturer, but I'm wondering if you just step us through how do you think that impacts the competitive landscape and opportunities for your business? .

[John Pfeifer, executive]

Yes. So it is hitting everybody across the board. And essentially, what the tariffs are, is there are tariffs on product that's manufactured China coming into the European Union, just to clarify that. So as far as we are concerned, we supply European markets with production from within Europe. We've got plants in Europe. We supply from the U.S. We supply from China, and we even supply Europe from Mexico. It depends on the category of product really in terms of where the supply is coming from for us.

So there's going to be some impact because we do bring -- we do export from our operations in China to Europe. And that is, by the way, Jerry, that's contemplated in our updated 2024 guidance, the impact. And as I talked about, it's one of the reasons that you saw a little bit of revenue change in the guidance. So Chinese-made JLG goods will be subject to some tariff. It's not perfectly finalized yet. We expect it to be finalized. So we are evaluating the strategies that we have and that we believe will help us mitigate the impact. Recently, you've seen for example, that we've made a couple of acquisitions in Europe, one in Italy, one in Spain, that's going to close soon. When we made those acquisitions, one of several things that we considered in terms of synergies with localization of product. And so we feel good, even better now about making those acquisitions because we believe that it gives us a little bit of optionality as to how we can make sure that we can still be very, very competitive in Europe amongst some tariffs that are coming in play. And just to put this in perspective for you, Jerry, and for everybody, our European business for access is about 10% of total revenue. So just putting that in perspective as well. That's what I can tell you about it. .

[Jerry Revich, analyst]

Sure. And China shipments are a portion of that as well. So that's clear. And can I ask a U.S. Postal contract, the revenue number was higher than what you thought in the quarter? It sounds like based on comments, there's good momentum. Can we just put a final point on the '25 comments? I think JLTV was set to be about a $600 million drag '25 versus '24 and you mentioned that USPS would more than offset that. Can we maybe put a finer point on what your current expectations are for USPS revenue relative to that roughly $600 million JLTV drawdown?

[Michael Pack, executive]

Sure. Actually, I think the JLTV is probably going to be a bit more than that. It's about $700 million. So we do expect that NGDV will exceed that next year.

[Jerry Revich, analyst]

Any comments? .

[Michael Pack, executive]

What was that?

[Jerry Revich, analyst]

I'm sorry. Would you be willing to provide order of magnitude relative to the $700 million when you say .

[Michael Pack, executive]

Yes, it could be, I would say, there's definitely a gap there. You could -- so you're thinking probably $100 million plus.

[Operator]

Our next question comes from the line of Chad Dillard with Bernstein.

[Charles Albert Dillard, analyst]

So a question for you on Access. So just following on the thread about flat demand in '25. Just curious like how you think about like the mix -- and like what sort of margins that potentially implied? And then if demand is flat in access, can you still underwrite that $12 earnings target that you put out in the past? .

[John Pfeifer, executive]

Well, I'll give you a general comment. When we look at mix in our business, we typically plan for mix to be somewhere in line with what it normally is. So we talked about our short-term 2024 guide. We've had benefits from mix to this point in the year, but we -- when we talk about what's the second half, what we assume second half will look like it normally does historically. We do the same thing when we think about '25 and beyond.

With regard to the resilience of the business, the answer to your question is yes, we expect 2025 sales to be in line or in the range of 2024 and the business will perform well. And -- so the answer to that is a simple yes.

[Charles Albert Dillard, analyst]

Great. That's helpful. And then you mentioned in your prepared remarks a distribution channel shift in [indiscernible] how much revenue will that impact? Can you talk a little bit more about how they expand your market and maybe a little bit about the process of finding dealers and kind of getting to the finish line there.

[Michael Pack, executive]

Sure. Yes. It's an exciting change, and it's particularly important when you think about how the rough use market is changing with our fully electric chassis that you're going to -- that being a proprietary chassis for us. But as we think about it, the move to dealers really allows for those non-fleet customers, better penetration for new sales as well as aftermarket, better aftermarket penetration, and that's -- in terms of identifying dealers, a number of them are -- we're quite familiar with. They've been long time dealers on the peer side of our business. And as we've talked about, we view that's a competitive advantage. It's one of the -- it is the best dealer network in the industry in North America.

So really excited to be able to partner with those great dealers to help drive growth. In terms of the exact quantification, we're not to a point yet where we're going to -- we can continue to provide more color on that over time, but we do see it as a growth opportunity.

[Operator]

Our next question comes from the line of Steve Barger with KeyBanc.

[Unknown Analyst]

This is Jacob Moore on for Steve today. First one for me, following up to a few questions on vocational and the net effect from AeroTech. I heard you say that orders and demand are strong, John. And I know you gave the backlog contribution, but can you help us get an understanding of what organic orders looked like in the quarter, separating AeroTech from the equation? I'm just trying to get a sense of potential for future organic production streams like you put up today.

[Michael Pack, executive]

Yes. We don't really break our orders down in that level of granularity. But I would say just in general, AeroTech orders were strong year-over-year. So we still see strong demand dynamics there. I would say just dissecting on the rough use and recycling business. a little bit of timing from quarter-to-quarter based on larger fleet orders, but generally, demand dynamics very, very strong in that business. And I would likewise I've made some comments on fire earlier. We have clearly, a very large backlog that's going out several years, market conditions. We're still at not quite to the market size the last 2 years that well elevated among more levels that we've seen over the past decade, 1.5 decades. So in general, we're continuing to see strong demand across all 3 of our big businesses there.

[John Pfeifer, executive]

Yes. Let me comment on that. Thanks for the question. We acquired AeroTech because of the strong synergies with our business and because we believe that, that market is in secular growth and will be for the foreseeable future. And everything we've learned in the first year of ownership indicates that to be true. So we expect healthy demand year-over-year going forward. Our ability to work collaboratively as with AeroTech as part of our family now and applying technology where it matters with autonomous functionality, electrification is really meaningful. And our ability to then go and continue to enhance our capacity so we can deliver as that market continues to progress with strong order rates.

That's a really good dynamic for us. And this is a very healthy business, and we're very positive about it.

[Unknown Analyst]

Understood. And that leads nicely into my follow-up. Can you tell us what AeroTech's historical backlog coverage of forward sales looks like? I'm just trying to get a sense of how much visibility that business has today versus historically? And then how that compares to both Pierce and Refuse.

[Michael Pack, executive]

I would just say, in general, that we have a year plus of visibility in the business that's elevated versus traditional levels, but it's emblematic of the market conditions that we're in with a lot of airport growth, passenger travel growth, all the dynamics that John was just talking about. As we look to McNelis or McNeil, refuse and recycling business typically we have around 6 months to a year of visibility, that's trending to the higher end of that range right now and peers, our backlog goes out a few years. .

[Operator]

Our next question comes from the line of Tami Zakaria with JPMorgan.

[Tami Zakaria, analyst]

I have 2 quick clarification questions on topics discussed so far. So the first question is the JLTV versus NGDV ramp down, ramp up next year. should we expect a net headwind in the first half of next year and then a net tailwind in the back half? Or should we just expect NGDV offsetting the JLTV relatively throughout the year?

[Michael Pack, executive]

It's going to be a ramp up, Tami. So I'm not -- it's too early to start breaking out, but you can generally expect that as volume increases, the margin profile is going to increase. So I think the way you're thinking about it makes sense with that ramp-up. But in terms of breaking it exactly between first and second half, it's too early at this point.

[Tami Zakaria, analyst]

Got it. That's fair. And then the other question is free cash flow. I think you lowered the guide and you said higher working capital is the reason. Can you just elaborate on that a little bit?

[Michael Pack, executive]

Yes. It's really -- as we look, Tami. Right now, it's just -- we have a number of new product development programs going on right now that are larger and we have 3 different facilities start-ups. And just as we map out to the end of the year, it looks like we're going to have a bit more working capital on the balance sheet. It's very much a temporary phenomenon. We believe that unwinds fairly quickly in 2025.

So I view it as a very much a short-term phenomenon, and we expect to be a strong free cash flow generator well into the future.

[Operator]

Our final question comes from the line of Michael Feniger with Bank of America.

[Michael Feniger, analyst]

Just forgive me if you touched on this, the acquisition there, the Spanish equipment maker, if that closes in the back half, do you have a sense of how much fleet or backlog that kind of adds?

[Michael Pack, executive]

It's not going to be significant for the acquisition because it's a business that has -- in 2023, had about $140 million of revenue. So if you think of similar type backlogs that to Access you can kind of do some math around that. So it's not going to be a material driver of backlog as we exit the year. But it's -- of course, it's a great business, strong margins, and we're clearly very excited about it.

[Michael Feniger, analyst]

Perfect. And John, as you said, it's kind of a unique time of cycle with some of these indicators kind of in different directions. When you think of that flat range for '25 versus '24 with [indiscernible], just big picture, does the first half look very different from the second half. I know it's been kind of weird with seasonality. I guess the question is, as we see a Fed easing cycle, depending on the timing there, does it maybe become a little bit more second half weighted to get to that flat for '25, '24? Or do you think it's kind of fairly even or in line with seasonality? Just big picture thoughts around that.

[John Pfeifer, executive]

It's too early for me to get into the kind of the quarter-over-quarter first half, second half timing of what to expect. We're going to, as I said, we're going to find -- we're all going to find out something later today when the Fed talks about interest rates and that could impact it itself. So I don't want to go out and say how we expect first half, second half or quarter-over-quarter to evolve in 2025. We'll get to that point in another quarter or two, but I can't go there right now. It would be too speculative. That's why, it would be too speculative.

[Operator]

Mr. Davidson, I would now like to turn the floor back over to you for closing comments.

[Patrick Davidson, executive]

Great. Thanks, and thanks, everybody, for joining us today. I know it's a busy day. We're pleased to enter the back half of 2024 with momentum. We look forward to speaking with you at upcoming conferences or trade shows where we will be showcasing our technology and please reach out if you have follow-up questions. Have a great day. .

[Operator]

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.