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Oshkosh Profit Declines 68%, Shares Fall Most in 2 Years

Oshkosh Corp. (OSK), the U.S. military’s biggest supplier of armored trucks, said fiscal third-quarter earnings fell 68 percent on decreased defense sales and shares fell the most in more than two years.

Oshkosh fell $3.84, or 13 percent, to $24.96 in New York Stock Exchange composite trading, the most since April 30, 2009. The shares have declined 29 percent this year.

Oshkosh, based in the Wisconsin town of the same name, said net income for the quarter ended June 30 fell to $68.4 million, or 75 cents a share, from $211.2 million, or $2.31, in the year- earlier period. Analysts surveyed by Bloomberg expected profit of 73 cents a share. Sales fell 17 percent to $2.02 billion.

A slowdown in U.S. defense spending “has been on the radar screen for some time and shouldn’t be a surprise to any of us,” Chief Executive Officer Charles Szews said in a conference call.

“We plan to drive through the pending U.S. defense spending decline by capturing the full benefit of the economic recovery expected in our non-defense markets, continuing to pursue market share gains and expanding into emerging markets,” Szews said in a statement. “Already, we are executing on a facility optimization strategy to become more efficient across our entire company.”

In June, billionaire investor Carl Icahn declared a 9.5 percent stake in Oshkosh and has sought talks with the company management to enhance shareholder value.

Oshkosh’s earnings fell short of estimates “primarily on lower than expected defense margins, on worse defense profits than we anticipated,” Richard Tortoriello, an analyst at Standard & Poor’s Equity Research, wrote in a note to clients. He downgraded the rating on Oshkosh to “hold” from “strong buy.”

Tortoriello said the decision was based on lagging recovery in the residential housing and municipal markets, affecting demand for Oshkosh’s non-defense products such as fire trucks and concrete mixers. He also cited the company’s difficulties in ramping up production of the Army’s Family of Medium Tactical Vehicle, or FMTV, program. The fleet of 2.5-ton and 5-ton trucks is the company’s largest order worth $3 billion.

“I’m a little bit concerned that because of the tough defense environment, contractors are under-bidding for contracts in order to get business, and then the contracts turn out to be not very profitable,” Tortoriello said in a telephone interview.

In the conference call, Szews said he expects the FMTV program to become profitable in the second quarter of fiscal 2012, rather than the first quarter as anticipated. He said the company was poised to announce a $900 million Army order for 7,000 of the vehicles and trailers. The program is expected to account for 40 percent of defense sales by December.

Acquisitions Sought

Szews has said the company may seek acquisitions starting in 2012 to boost revenue as defense sales taper off. The company’s defense revenue nearly quadrupled to $7.2 billion last year from $1.9 billion in 2008 largely because of the U.S. military’s demand for mine-resistant trucks for use in Iraq and Afghanistan. Oshkosh is looking for international customers for the vehicles as the U.S. withdraws from those wars and its demand declines.

Oshkosh completed initial production of 8,079 Mine Resistant Ambush Protected All-Terrain Vehicles, or M-ATVs, in the first quarter of fiscal 2011. The company has struggled to increase production of Family of Medium Tactical Vehicles because of Pentagon-ordered engineering changes, Szews has said.

Oshkosh said defense revenue fell 35 percent to $1.11 billion, access equipment revenue 18 percent to $580.1 million, and fire and emergency vehicle revenue 2.7 percent to $216 million. Commercial revenue was flat at $158.5 million, according to the company.

To contact the reporters on this story: Gopal Ratnam in Washington at gratnam1@bloomberg.net; Brendan McGarry in Washington at bmcgarry2@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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