03.11.2008

JLG profits halved

JLG has reported a 12% fall in revenues and a 56% fall in profits for its fourth quarter to the end of September.

The full year numbers look good on paper, with sales up over 20 percent and profits up by more than 35 percent, however they are not comparable, as JLG did not join Oshkosh until late in the first quarter of fiscal 2007.

So looking at the quarterly results, revenues fell 11.7 percent to $742.1 million, The largest factor were sales in North America, which declined more than 20 percent on significantly lower aerial work platform shipments, a result says the company, of weak U.S. construction markets.

Sales in Europe held up a little better, declining just under five percent, while Sales in emerging markets continued to grow, and favourable foreign currency exchange rates also helped.

Operating income fell 56.2 percent to $50.2 million, or 6.8 percent of sales, compared to 13.6 percent of sales during the same period in 2007. The company says that the lower operating income was primarily the result of lower volume, higher raw material costs, in particular steel, and adverse product mix, offset in part by the favourable exchange rates to the dollar.

The order book at the end September also reflected the slow down, dropping 61 percent to $330 million.

Parent company Oshkosh saw sales exceed $7 billion for the first time, thanks to a larger contribution form JLG and strong defence sales, profitability was hit though by a number of factors, including some goodwill write downs. The company is predicting a fall in revenue for fiscal 2009 to between $6.3 to $6.7 billion.

It says that it expects continued weakness in economies worldwide to significantly affect sales at JLG and in its commercial segment. It expects though that this will be partially offset by an increase in defence segment sales due to U.S. government requirements for new heavy-payload tactical vehicles.

Oshkosh also expects margins to suffer as a result of lower sales volumes and further increases in raw material costs at JLG,

The company is also proceeding with a plan to avoid seeking an amendment of its credit agreement by maintaining compliance with its financial covenants or at least delay seeking an amendment to mitigate the financial impact it would have. The plan involves targeting $500 million reduction in its debt during 2009, as if it does not meet the higher end of its earnings projections it will need to request an amendment to its credit agreement, which is likely to incur substantial fees and significantly higher interest costs.

The Company says that it believes that an amendment could be obtained if ultimately necessary and believes that it has adequate liquidity to operate its business.

Vertikal Comment

TThis is an interesting result from JLG, sadly we cannot see any further detail than that we have published, it seems though that the sharp drop in US sales is related to aerial lift sales rather than telescopic handlers - surprising given the latters relationship to residential construction.

The less significant fall-off in European revenues is partially due to the exchange rate to the dollar, the dollars climb over the past four to six weeks will change this for the company’s first quarter results.

In order to put the result into some perspective, the current quarters revenues are almost 40 percent higher than JLG’s first quarter in fiscal 2007, its last as an independent company, revenues then were just $539 million. Operating income though has fallen back further to the first quarter 2006 levels.

At the time those results set new records and were celebrated, and yet JLG as a company is not significantly bigger in terms of facilities and overhead than what it was then. The key difference of course is the ongoing rise in material and energy costs, which are begining to show signs of easing. They were though an issue back then too.

Compared to arch rival Genie, JLG sales, while suffering a slightly higher percentage drop this quarter, are now almost 45 percent higher than its rivals, probably due to its large share of the US telehandler market.

Its operating income while appearing dire in terms of the speed of its decline, is also better at 6.8 percent of sales compared to Genie’s 4.1 percent of sales. While making such comparisons is not exactly fair without the full details from each company, it highlights a couple of points.

One is that JLG might be faring better than its principal competitor and two that both companies probably need to make at least a portion of their declared price increases begin to stick in the new year so that they can pass on at least some of the raw material cost increases they have absorbed.

Until rental companies begin to get a feel for where the current economic slowdown is heading, such as into a normal recession rather than a global financial meltdown, they will be reluctant to release anything but essential capital expenditure. Extra discounts therefor are unlikely to so successful.

However one factor the aerial lift manufacturers have in their favour is that the market for their products is no where near mature. While safety and efficiency might not be on the top of most contractors minds at the moment, it is important that the both manufacturers and rental companies do all they can to keep promoting these these themes while continuing to push the concept in the Western and the developing world.