New Military Contracts Limit Losses For Oshkosh

Oshkosh (OSK) released their results for Fiscal Year 2009 and they were pretty bad. The company who manufacture military vehicles as well as commercial equipment and trucks saw a loss of just over a billion dollars on $5.29 billion of sales. Good improvement in sales and net income in the last quarter were offset by the charge of over $1.2 billion from earlier in the year.

The future is looking a great deal better. Weakness in the civilian economy will be offset by the increased deliveries and sales of the companies M-ATV Mine Resistant Ambush Protected Vehicle (MRAP)-ATV for use in Afghanistan. The company has already been awarded several buys of this new lighter, more maneuverable combat vehicle by the Department of Defense. The first contract was worth over a billion dollars alone and two more buys have been made.

Oshkosh also won a contract to build trucks for the Army for several years. The Family of Medium Tactical Vehicles (FMTV) have been made by Armor Holdings recently purchased by BAE Systems (LSE:BA.L) for several years. The production contract transferring to Oshkosh is quite a deal and could be worth billions as the U.S. military replaces vehicles worn out or damaged in Iraq and Afghanistan. BAE Systems has protested the award so it is on hold right now until the Government resolves the protest.

If the company does lose this contract it still makes other vehicles and trailers for use by the military and these too will need to be replaced or repaired in the future. The ability to keep the FMTV contract, though, will significantly help revenue and earnings in the future.

To aid the company improve over the next few years it was able to erase a significant amount of debt. The company is also hiring previously laid off workers and restoring pay that had to be reduced due to the economy. Much of this is due to the new military contracts and the company has yet to provide guidance for next year due to worries that the civil economy will not pick up.

Like many heavy industrial companies in the United States the current economy looks fairly bleak with no real upturn expected for several months. For Oshkosh this means that the demand for cement mixers and fork lifts won’t be growing anytime soon. If this stretches out for several more months beyond the retention of the FMTV contract will become even more important to the company’s near term future.