Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement About Forward-Looking Statements

This Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Quarterly Report on Form 10-Q contain statements that the Company believes to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q, including, without limitation, statements regarding the Company's future financial position, business strategy, targets, projected sales, costs, earnings, capital expenditures, debt levels and cash flows, and plans and objectives of management for future operations, including those under the caption "Overview," are forward-looking statements. When used in this Quarterly Report on Form 10-Q, words such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "should," "project" or "plan" or the negative thereof or variations thereon or similar terminology are generally intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond the Company's control, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors include the cyclical nature of the Company's access equipment, fire apparatus, refuse and recycling collection and air transportation equipment markets, which are particularly impacted by the strength of U.S. and European economies and construction outlooks; the Company's estimates of access equipment demand which, among other factors, is influenced by historical customer buying patterns and rental company fleet replacement strategies; the Company's ability to predict the level and timing of orders and costs on the U.S. Postal Service contract; risks that trade wars and related tariffs could further reduce demand for or competitiveness of the Company's products or cause inefficiencies in the Company's supply chain; the Company's ability to increase prices to raise margins or to offset higher input costs; the Company's ability to achieve its projected material and manufacturing efficiency savings; the Company's ability to accurately predict future input costs associated with U.S. Department of Defense contracts; the Company's ability to attract and retain production labor in a timely manner; the Company's ability to increase production rates in its municipal fire apparatus and delivery businesses; the strength of the U.S. dollar and its impact on Company exports, translation of foreign sales and the cost of purchased materials; the impact of severe weather, war, natural disasters or pandemics that may affect the Company, its suppliers or its customers; budget uncertainty for the U.S. federal government, including risks of future budget cuts, the impact of continuing resolution funding mechanisms or a prolonged federal government shutdown; the impact of any U.S. Department of Defense solicitation for competition for future contracts to produce military vehicles; risks related to the collectability of receivables, particularly for those businesses with exposure to construction markets; the cost of any warranty campaigns related to the Company's products; risks associated with international operations and sales, including compliance with the Foreign Corrupt Practices Act; the Company's ability to comply with complex laws and regulations applicable to U.S. government contractors; cybersecurity risks and costs of defending against, mitigating and responding to data security threats and breaches impacting the Company; the Company's ability to successfully identify, complete and integrate acquisitions and to realize the anticipated benefits associated with the same; and risks related to the Company's ability to successfully execute on its strategic road map and meet its long-term financial goals. Additional information concerning these and other factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the Company's SEC filings, including, but not limited to, those described in the Company's most recent Annual Report on Form 10-K and Item 1A. of Part II of this Quarterly Report on Form 10-Q.

All forward-looking statements, including those under the caption "Overview," speak only as of the date the Company files this Quarterly Report on Form 10-Q with the SEC. The Company assumes no obligation, and disclaims any obligation, to update information contained in this Quarterly Report on Form 10-Q. Investors should be aware that the Company may not update such information until the Company's next quarterly earnings conference call, if at all.

All references herein to earnings per share refer to earnings per share assuming dilution.

General

Major products manufactured and marketed by each of the Company's segments are as follows:

Access - aerial work platforms and telehandlers used in a wide variety of construction, industrial, agricultural, vegetation management and maintenance applications to position workers and materials at elevated heights. Access customers include equipment rental companies, construction contractors and home improvement centers. The Access segment also manufactures carriers and wreckers sold to towing companies.

Vocational - custom and commercial firefighting vehicles and equipment sold to municipal fire departments; aviation ground support products, gate equipment and airport services sold to commercial airlines, airports, air-freight carriers, ground handling customers and the military; aircraft rescue and firefighting (ARFF) vehicles sold to airports and the U.S. military; refuse and recycling collection vehicles sold to commercial and municipal waste haulers; field service vehicles and truck-mounted cranes sold to mining, construction and equipment rental companies; simulators, mobile command vehicles and other emergency vehicles sold to fire departments and other governmental units; and front-discharge concrete mixers sold to ready-mix companies.

Transport - tactical vehicles, trailers and parts sold to the U.S. military and to other militaries around the world and delivery vehicles for the United States Postal Service (USPS).

Overview

Consolidated sales in the first quarter of 2026 of $2.32 billion were relatively flat compared to the first quarter of 2025 as improved pricing, favorable currency impacts and the impact of cumulative catch-up adjustments in the Transport segment were offset by lower sales volume. Consolidated operating income decreased to $82 million, or 3.5% of sales, compared to $175 million, or 7.6% of sales, in the first quarter of 2025. The decrease in consolidated operating income was primarily a result of unfavorable sales mix, higher manufacturing overhead costs and lower sales volume. The lower operating income led to earnings per share of $0.68 in the first quarter of 2026 compared to $1.72 in the first quarter of 2025. First quarter results fell short of the Company's expectations primarily as a result of lower sales in the Vocational segment and higher consolidated manufacturing costs. Municipal fire apparatus shipments were below the Company's expectations in the first quarter of 2026, primarily due to production throughput, compounded by weather- and travel-related disruptions.

In February 2026, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act (IEEPA) did not authorize the President to impose tariffs. In April 2026, U.S. Customs and Border Protection (CBP) implemented a process for claiming certain IEEPA tariff refunds. Based on the establishment of this refund process prior to the issuance of the Company's financial statements, the Company concluded that recovery of certain previously incurred IEEPA tariffs was probable under the loss recovery model. Accordingly, the Company recorded a receivable of $19.7 million as of March 31, 2026 for expected recoveries of certain IEEPA tariffs, of which $13.5 million was recognized in operating income in the first quarter of 2026.

In March 2026, the Company refinanced its revolving credit facility. The new five-year credit agreement for this facility has similar terms to the previous facility, with a capacity of $1.6 billion and a slightly lower interest rate.

The Company continued to repurchase shares of its Common Stock, repurchasing 303,592 shares during the first quarter of 2026 for approximately $47 million. Share repurchases during the previous twelve months benefited earnings per share during the first quarter of 2026 by $0.02 compared to the first quarter of 2025.

The Company continues to expect its 2026 earnings per share to be in the range of $10.90 on sales of approximately $11.0 billion. The earnings per share estimate includes after-tax charges of $0.60 per share related to amortization of intangible assets. Excluding amortization of intangible assets, the Company's 2026 adjusted earnings per share estimate is in the range of $11.50. The Company believes it is facing conditions that are more challenging and dynamic than it anticipated when it issued its 2026 guidance, and expects approximately 30 percent of its 2026 earnings in the first half of the year. The Company believes that the second half of 2026 will be stronger as a result of improved price-cost dynamics in the Access segment, higher fire apparatus and Next Generation Delivery Vehicle (NGDV) production, the expectation of an additional NGDV order and continued execution on new contracts with better pricing in the Transport segment.

The Company is not updating or reaffirming its 2026 expectations by segment, as the Company continues to manage its businesses in an evolving economic landscape. In the Access segment, the Company experienced promising order activity in the first quarter of 2026, which may result in a modestly greater contribution from the segment in 2026, whereas, in the Vocational segment, while growth and operating income margins are still expected to be robust, particularly for municipal fire apparatus, the Company's first quarter delivery shortfalls and delays in facility construction timing are likely to modestly reduce the contribution from the Vocational segment in 2026. The Company estimates that tariff impacts in 2026 will largely be in-line with its previous expectations, as the expected recovery of IEEPA tariffs is expected to be offset by other tariff impacts such as the expansion of Section 232 tariffs.

RESULTS OF OPERATIONS

CONSOLIDATED RESULTS

The following table presents consolidated results (in millions):

First Quarter 2026 Compared to 2025

Consolidated net sales increased primarily due to improved pricing ($36 million), favorable currency impacts ($18 million) and the impact of cumulative catch-up adjustments on contracts in the Transport segment ($10 million), offset by lower sales volume ($59 million).

The decrease in consolidated gross margin was primarily due to unfavorable sales mix (210 basis points), higher material costs (140 basis points) largely related to higher tariff costs and higher manufacturing overhead costs (140 basis points), offset in part by improved pricing (110 basis points).

The increase in selling, general and administrative expenses was primarily the result of higher employee compensation ($9 million), offset in part by a favorable resolution of a sales and use tax audit in Wisconsin ($3 million).

The decrease in consolidated operating income was primarily due to unfavorable sales mix ($47 million), higher material costs ($33 million) largely related to higher tariff costs, higher manufacturing overhead costs ($33 million) and the impact of lower gross margin associated with lower sales volume ($16 million), offset in part by improved pricing ($36 million).

The following table presents consolidated non-operating changes (in millions):

First Quarter 2026 Compared to 2025

Miscellaneous, net primarily relates to gains and losses on investments, foreign currency transaction gains and losses and non-service costs of the Company's pension plans. Results for the first three months of 2026 included losses related to investments of $3 million and income related to the non-service portion of the Company's pension plans of $2 million.

The effective tax rate in the first quarter of 2026 included net discrete tax benefits of $3 million, largely related to excess tax deductions on share-based compensation. The effective tax rate in the first quarter of 2025 included net discrete tax expense of $1 million, largely related to interest on uncertain tax positions.

SEGMENT RESULTS

Access

The following table presents the Access segment results (in millions):

First Quarter 2026 Compared to 2025

Access segment net sales decreased primarily due to lower sales volume ($34 million), offset in part by favorable currency ($18 million).

The decrease in gross margin in the Access segment was primarily due to adverse sales mix (270 basis points) and higher material costs (250 basis points) largely related to higher tariff costs.

The decrease in operating income in the Access segment was primarily due to adverse sales mix ($26 million), higher material costs ($23 million) largely related to higher tariff costs and the impact of lower gross margin associated with lower sales volume ($10 million).

Vocational

The following table presents the Vocational segment results (in millions):

First Quarter 2026 Compared to 2025

Vocational segment net sales decreased due to lower sales volume ($73 million), offset in part by improved pricing ($30 million). Refuse and recycling vehicle sales volume decreased $55 million due to soft market conditions and municipal fire apparatus sales volume decreased $25 million due to the timing of deliveries, which were impacted by weather- and travel-related disruptions.

The decrease in gross margin in the Vocational segment was primarily attributable to higher manufacturing overhead costs (280 basis points), adverse sales mix (120 basis points) and higher material costs (110 basis points), offset in part by improved pricing (260 basis points).

The decrease in operating income in the Vocational segment was largely a result of the impact of lower gross margin associated with lower sales volume ($22 million), higher manufacturing overhead costs ($22 million), adverse sales mix ($10 million) and higher material costs ($9 million), offset in part by improved pricing ($30 million).

Transport

The following table presents the Transport segment results (in millions):

First Quarter 2026 Compared to 2025

Transport segment net sales increased due to higher NGDV sales volume ($163 million) and the impact of cumulative catch-up adjustments ($10 million), offset in part by lower Joint Light Tactical Vehicle sales volume to the Department of Defense ($81 million), lower Family of Heavy Tactical Vehicles sales volume ($24 million) and lower aftermarket sales volume ($22 million).

The decrease in gross margin in the Transport segment was primarily due to higher manufacturing overhead costs (160 basis points), adverse sales mix (130 basis points) and higher material costs (30 basis points) largely related to higher tariff costs, offset in part by lower unfavorable cumulative catch-up adjustments (310 basis points).

The increase in operating income in the Transport segment was primarily due to lower unfavorable cumulative catch-up adjustments ($16 million) and the impact of higher gross margin associated with higher sales volume ($5 million), offset in part by higher manufacturing overhead costs ($9 million) and adverse sales mix ($6 million).

Corporate and other

The following table presents corporate and other results (in millions):

First Quarter 2026 Compared to 2025

Net operating costs for corporate and other decreased primarily due to improved operating results at the Company's Pratt Miller business unit ($5 million).

Liquidity and Capital Resources

The Company generates significant capital resources from operating activities, which is the expected primary source of funding for the Company. In addition to cash generated from operations, the Company had other sources of liquidity available at March 31, 2026, including $250.3 million of cash and cash equivalents and $1.54 billion of unused available capacity under the Revolving Credit Facility (as defined in "Liquidity"). Borrowings under the Revolving Credit Facility could, as discussed below, be limited by the financial covenants contained in the Credit Agreement (as defined in "Liquidity"). The Company was in compliance as of March 31, 2026 and expects to remain in compliance with the financial covenants contained in the Credit Agreement.

The Company continues to actively monitor its liquidity position and working capital needs and prioritizes capital expenditures related to capacity and strategic investments. The Company remains in a stable overall capital resources and liquidity position that the Company believes is adequate to meet its projected needs.

Financial Condition

The Company's cash and cash equivalents and capitalization were as follows (in millions):

The Company's ratio of debt to total capitalization of 20.4% at March 31, 2026 remained within its targeted range.

The Company's goal is to maintain an investment-grade credit rating. The rating agencies periodically update the Company's credit ratings as events or changes in economic conditions occur. At March 31, 2026, the long-term credit ratings assigned to the Company's senior debt securities by the credit rating agencies engaged by the Company were as follows:

Consolidated days sales outstanding (defined as "Trade Receivables" at quarter end divided by "Net Sales" for the most recent quarter multiplied by 90 days) increased from 43 days at December 31, 2025 to 53 days at March 31, 2026. Days sales outstanding for segments other than the Transport segment increased from 51 days at December 31, 2025 to 60 days at March 31, 2026 primarily due to extended payment terms in the Access segment on sales during the fourth quarter of 2025. Consolidated inventory turns (defined as "Cost of Sales" on an annualized basis, divided by the average "Inventory" at the past five quarter end periods) decreased from 3.6 times at December 31, 2025 to 3.2 times at March 31, 2026 due to increases in inventory levels in the Access and Vocational segments. Consolidated days payable outstanding (defined as "Accounts Payable" at quarter end divided by material costs of sales for the most recent quarter multiplied by 90 days) decreased from 65 days at December 31, 2025 to 64 days at March 31, 2026.

Cash Flows

Operating Cash Flows

Operating activities used cash of $161.0 million in the first three months of 2026 compared to $394.9 million during the first three months of 2025. The improvement in cash used for operating activities reflected more disciplined working capital management as the Company built inventory for the summer season, as well as higher customer advances. The Company continues to expect cash flow from operations to be between $750 million and $850 million in 2026.

Investing Cash Flows

Investing activities provided cash of $1.1 million in the first three months of 2026 compared to using $43.1 million of cash during the first three months of 2025. Through the first three months of 2026, the Company used $28.1 million for capital expenditures, a decrease of $12.2 million compared to the first three months of 2025. The Company continues to expect that it will invest $200 million on capital expenditures in 2026.

Financing Cash Flows

Financing activities used cash of $68.5 million in the first three months of 2026 compared to providing $438.1 million of cash during the first three months of 2025 primarily due to lower net borrowings. In March 2025, to provide additional liquidity, the Company entered into a credit agreement with various lenders to borrow funds under a $500 million unsecured term loan, which matures in March 2027. In the first three months of 2026, the Company repurchased 303,592 shares of its Common Stock at an aggregate cost of $47.3 million. As of March 31, 2026, the Company had approximately 7.6 million shares of Common Stock remaining under its repurchase authorization. In the first three months of 2025, the Company repurchased 287,552 shares of its Common Stock at an aggregate cost of $28.7 million.

Liquidity

Credit Agreements

On March 16, 2026, the Company entered into a Fourth Amended and Restated Credit Agreement with various lenders (the "Credit Agreement"). The Credit Agreement provides for an unsecured revolving credit facility (the "Revolving Credit Facility") with a maximum aggregate availability of $1.60 billion that matures in March 2031. At March 31, 2026, borrowings under the Revolving Credit Facility of $44.0 million and specified outstanding letters of credit of $18.5 million reduced available capacity under the Revolving Credit Facility to $1.54 billion.

Under the Credit Agreement, the Company is obligated to pay (i) an unused commitment fee ranging from 0.080% to 0.200% per annum of the average daily unused portion of the aggregate revolving credit commitments under the Credit Agreement and (ii) a fee ranging from 0.438% to 1.500% per annum of the maximum amount available to be drawn for each letter of credit issued and outstanding under the Credit Agreement.

In March 2025, the Company entered into a credit agreement with various lenders to borrow funds under a $500 million unsecured term loan (as amended, the "Term Loan") that matures in March 2027. In March 2026, the Company executed a First Amendment to the Term Loan credit agreement to conform certain defined terms of the Term Loan to those contained in the Credit Agreement.

Covenant Compliance

The Term Loan and the Credit Agreement contain various restrictions and covenants, including a requirement that the Company maintain a leverage ratio at certain levels, subject to certain exceptions, restrictions on the ability of the Company and certain of its subsidiaries to consolidate or merge, create liens, incur additional subsidiary indebtedness and consummate acquisitions and a restriction on the disposition of all or substantially all of the assets of the Company and its subsidiaries taken as a whole. The Company was in compliance with the financial covenants as of March 31, 2026 and expects to be able to meet the financial covenants contained in its credit agreements over the next twelve months.

Senior Notes

In May 2018, the Company issued $300 million of 4.60% unsecured senior notes due May 15, 2028 (the "2028 Senior Notes"). In February 2020, the Company issued $300 million of 3.10% unsecured senior notes due March 1, 2030 (the "2030 Senior Notes"). The 2028 Senior Notes and the 2030 Senior Notes were issued pursuant to an indenture (the "Indenture") between the Company and a trustee. The Indenture contains customary affirmative and negative covenants. The Company has the option to redeem the 2028 Senior Notes and the 2030 Senior Notes at any time for a premium.

Refer to Note 12 of the Notes to Condensed Consolidated Financial Statements for additional information regarding the Company's debt as of March 31, 2026.

Critical Accounting Estimates

The Company's disclosures of critical accounting estimates in its Annual Report on Form 10-K for the year ended December 31, 2025 have not materially changed since that report was filed.

New Accounting Pronouncements

See Note 2 of the Notes to Condensed Consolidated Financial Statements for a discussion of the impact of new accounting pronouncements.

Customers and Backlog

Sales to the U.S. government comprised approximately 22% of the Company's net sales in the first three months of 2026. No other single customer accounted for more than 10% of the Company's net sales for this period. A substantial majority of the Company's net sales are derived from the fulfillment of customer orders that are received prior to commencing production.

The Company's backlog at March 31, 2026 decreased 0.5% to $14.54 billion compared to $14.62 billion at March 31, 2025. Access segment backlog increased 1.9% to $1.84 billion at March 31, 2026 compared to $1.80 billion at March 31, 2025. Vocational segment backlog increased 4.5% to $6.63 billion at March 31, 2026 compared to $6.34 billion at March 31, 2025 due to higher pricing on future deliveries. Unit backlog for municipal fire apparatus as of March 31, 2026 was unchanged compared to March 31, 2025. Unit backlog for refuse and recycling collection vehicles as of March 31, 2026 was down 43.9% compared to March 31, 2025 as the Company believes customers have been cautious in the uncertain macroeconomic environment. Transport segment backlog decreased 6.9% to $5.96 billion at March 31, 2026 compared to $6.40 billion at March 31, 2025, primarily reflecting NGDV production.

Backlog represents the dollar amount of revenues that the Company anticipates from customer contracts that have been awarded and/or are in progress. Reported backlog includes the original contract amount and any contract modifications that have been agreed upon. Reported backlog excludes purchase options, orders for which definitive contracts have not been executed and any potential future contract modifications. Backlog is comprised of fixed and variable priced contracts that may be canceled, modified or otherwise changed in the future. As a result, backlog may not be indicative of future operating results. Backlog information and comparisons thereof as of different dates may not be accurate indicators of future sales. Approximately 56% of the Company's March 31, 2026 backlog is not expected to be filled in 2026.

Non-GAAP Financial Measures

The Company is forecasting earnings per share excluding items that affect comparability. When the Company forecasts earnings per share, excluding items, this is considered a non-GAAP financial measure. The Company believes excluding the impact of these items is useful to investors to allow a more accurate comparison of the Company's operating performance to prior year results. However, while forecasted adjusted earnings per share excludes amortization of purchased intangibles, revenue and earnings of acquired companies are reflected in forecasted adjusted earnings per share and intangible assets contribute to the generation of revenue and earnings. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's results or forecasts prepared in accordance with GAAP. The table below presents a reconciliation of the Company's presented non-GAAP measure to the most directly comparable GAAP measure: