Replies to post #684 on Oshkosh Truck Corporation (OSK)

[Investorman]

Show Me the Money, Oshkosh
http://www.fool.com/investing/general/2010/10/11/show-me-the-money-oshkosh.aspx

Seth Jayson
October 11, 2010


Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.

Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the latest batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.

[Investorman]

Oshkosh Corporation Announces Grand Opening of Tianjin, China Plant
Monday October 25, 2010, 6:00 am EDT

OSHKOSH, Wis.--(BUSINESS WIRE)-- Oshkosh Corporation (NYSE:OSK - News) announced today the grand opening of its new manufacturing plant in Tianjin, China. This state-of-the-art facility is producing JLG access equipment for China and other Asian markets. The new factory marks yet another milestone in the Oshkosh commitment to the important Far East markets and further enhances the Corporation’s international presence.



“The completion of the Tianjin facility gives Oshkosh Corporation and JLG, our access equipment business and the world leader in aerial access equipment, a strategic advantage to better serve our Asian customers,” said Charles L. Szews, Oshkosh Corporation president and chief operating officer. “It allows us to quickly respond to customer requirements in this very important market.”



Construction on the Tianjin plant was completed in the spring of 2010. Since then, JLG has gradually introduced additional product models into the plant for local fabrication and assembly. The facility utilizes the latest in manufacturing, subassembly, fabrication and paint technologies.



“With the Tianjin plant, we have brought together the most advanced manufacturing processes to continue our long, proud tradition of building the best access equipment in the world,” said Szews. “Producing in the region will allow rapid product delivery to customers, and complement our other manufacturing locations.”



Oshkosh has a rich history in China. The Company first entered the Chinese market in 1982, when it began supplying Aircraft Rescue and Fire Fighting (ARFF) vehicles. In 2002, a JLG sales office was opened in Hong Kong, followed in 2006 with an Oshkosh corporate office in Beijing. In 2008, Oshkosh opened an additional corporate office in Shanghai, primarily dedicated to sourcing parts and components for the manufacturing of Oshkosh and JLG products. Tianjin is a municipality located in northeast China, two hours from Beijing.



Today, many different Oshkosh Corporation products are in use throughout China, including ARFF and snow removal vehicles, fire trucks, tow trucks, mobile communications vehicles and access equipment. JLG equipment is in use at some of the largest and busiest shipyards, construction, building maintenance, and aviation and aerospace sectors. More than 100 Oshkosh ARFF products are in operation at major airports such as Shanghai Pudong Airport, Hangzhou Airport, Quzhou Airport, Ningbo Airport, Beijing Capital International Airport and Tibet Lasha International Airport, the worlds’ highest airport at 4,500 meters. In 2010, Pierce Manufacturing, a subsidiary of Oshkosh Corporation, received delivery orders for new fire trucks from the Nanjing, Jiangsu Province Fire Bureau.



In addition to China, Oshkosh has manufacturing operations in nine countries including Australia, Belgium, Brazil, Canada, France, Mexico, Netherlands, Romania and the United States. Sales and service centers are strategically located throughout the world.

[Investorman]

Don't Get Too Worked Up Over Oshkosh's Earnings http://www.fool.com/investing/general/2010/11/29/dont-get-too-worked-up-over-oshkoshs-earnings.aspx

Seth Jayson
November 29, 2010


Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.

Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.

Calling all cash flows
When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow (FCF) once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That brings us to Oshkosh (NYSE: OSK), whose recent revenue and earnings are plotted below.



Source: Capital IQ, a division of Standard & Poor's. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. FY = fiscal year. TTM = trailing 12 months.

Over the past 12 months, Oshkosh generated $530.2 million in FCF on net income of $790.0 million. That means it turned 5.4% of its revenue into FCF. That sounds OK. Still, it always pays to compare that figure to sector and industry peers and competitors, to see how your company stacks up.

Company
TTM Revenue
TTM FCF
TTM FCF Margin

Oshkosh $9,842 $530 5.4%
Honeywell International (NYSE: HON) $32,401 $3,881 12.0%
Navistar International (NYSE: NAV) $12,058 $737 6.1%
Terex (NYSE: TEX) $4,288 ($599) (14.0%)


Source: Capital IQ, a division of Standard & Poor's. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. TTM = trailing 12 months.

All cash is not equal
Unfortunately, the cash flow statement isn't immune from nonsense, either. That's why it pays to take a close look at the components of cash flow from operations, to make sure that the cash comes from high-quality sources. They need to be real and replicable in the upcoming quarters, rather than being offset by continual cash outflows that don't appear on the income statement (such as major capital expenditures).

For instance, cash flow based on cash net income and adjustments for non-cash income-statement expenses (like depreciation) is generally favorable. An increase in cash flow based on stiffing your suppliers (by increasing accounts payable) or shortchanging Uncle Sam on taxes will come back to bite investors later. The same goes for decreasing accounts receivable; this is good to see, but it's ordinary in recessionary times, and you can only increase collections so much.

So how does the cash flow at Oshkosh look? Take a peek at the chart below, which flags questionable cash flow sources with a red bar.



Source: Capital IQ, a division of Standard & Poor's. Data is current as of last fully reported fiscal quarter. Dollar values in millions. TTM = trailing 12 months.

When I say "questionable cash flow sources," I mean items such as changes in taxes payable, tax benefits from stock options, and asset sales, among others. That's not to say that companies booking these as sources of cash flow are weak, or are engaging in any sort of wrongdoing, or that everything that comes up questionable in my graph is automatically bad news. But whenever a company is getting more than, say, 10% of its cash from operations from these dubious sources, investors ought to make sure to refer to the filings and dig in.

With questionable cash flows amounting to only (0.6%) of operating cash flow, Oshkosh's cash flows look clean. Within the questionable cash flow figure plotted in the TTM period above, changes in taxes payable provided the biggest boost, at 3.4% of cash flow from operations. Overall, the biggest drag on FCF came from changes in accounts receivable, which consumed 54.8% of cash from operations.