With a name like Dlugosch you can bet I took much ribbing as a child. It’s a last name that is simply quite difficult to pronounce, and it’s different. Even worse, it rhymes with goulash, that wondrous Hungarian treat.
Fortunately for me Dlugosch also rhymes with Oshkosh, a small town in neighbor state Wisconsin, and that more user friendly name stuck as a nickname. Needless to say, I have always had an affinity for anything associated with Oshkosh.
That’s why on Friday, in the midst of all of craziness with regard to the government bailout and credit crisis, I was pleased to see specialty truck maker, Oshkosh Corporation (OSK) in the news in a positive way.
In a press release the company stated that its results for its fiscal fourth quarter ending on September 30 would be better than previously expected. OSK now expects earnings to meet or exceed the range of $0.50 to $0.65 per share. In addition, the company expects to reduce its debt load as a result of cash flow and working capital initiatives.
The news was a sigh of relief in a difficult market and was welcomed by investors with a move of 15% to the upside. Now granted, it has been a difficult year for OSK, but its results in a difficult period are encouraging.
Going further, OSK’s CEO, Robert Bohn, stated "with a defense business that we believe will grow, and a sharper focus on cash flow generation, we expect to drive significant cash flow and debt reduction in fiscal 2009 in spite of challenging market conditions and exit fiscal 2009 with a stronger balance sheet.”
It has been a horrific year for OSK. A year ago its stock was trading near $60 per share. Before the news on Friday OSK traded in the single digits. What happened?
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As a company that builds products for the defense industry, OSK was relatively insulated from the huge increase in oil prices. Defense spending with two wars and concern over national security ensured a steady flow of orders.
The problem for OSK was a large impairment charge incurred in the third quarter and announced in late June of 2008. Expectations for a foreign acquisition were reduced as the world economy started to slow.
Add in rising manufacturing costs, and the ingredients were in place for a substantial miss. The market reacted quite harshly to the miss, some would say too much so. Shares fell precipitously.
The good news was that much of the miss was a reduction in assets on the balance sheet. Expectations needed to be adjusted to a world of slowing economic growth, and that is exactly what OSK did.
The company acted quite rationally if you ask me, and while they were doing so orders continued to flow. Since the announcement of an earnings miss in the third quarter, the company received millions of dollars in orders from the military.
The biggest positive I can see with OSK is the performance of its management. They were unfairly punished for doing nothing more than to rationally value an asset on its balance sheet. In this environment, OSK should be applauded.
Now, one quarter does not necessarily translate into better performance down the road, but it is a start. I look for more good things from OSK down the road as they navigate this difficult period.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, check out:
