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First quarter performance was impacted by shipment delays in the Vocational segment, primarily due to weather and travel disruptions affecting customer fire truck pickups.
Access segment demand remains robust, particularly driven by mega projects like data centers, resulting in a strong 1.6 book-to-bill ratio.
Management attributes the year-over-year operating income decline to unfavorable product and channel mix, alongside higher manufacturing overhead from capacity investments.
The company is actively managing a dynamic cost environment, utilizing supply chain actions and pricing to mitigate the impact of tariffs and geopolitical inflation.
Strategic focus remains on modernizing production flow and removing bottlenecks in fire truck and jet bridge manufacturing to reduce extended lead times.
The Transport segment is successfully ramping the Next Generation Delivery Vehicle (NGDV) program, which has now surpassed 20 million operational miles.
Full year adjusted EPS guidance of $11.50 is maintained, with approximately 70% of earnings expected in the second half of the year.
Second half strength is predicated on improved price-cost dynamics in Access and higher production throughput in the Vocational segment.
Transport segment margins are expected to expand in the latter half of 2026 as the company transitions out of legacy fixed-price contracts.
Guidance assumes a new NGDV order in the second half of the year, which would positively impact margins under A606 accounting.
Management remains committed to 2028 targets, supported by a $6.6 billion vocational backlog and ongoing capacity expansions.
The company recorded a $13 million benefit from IEEPA refunds in Q1, with a total of $23 million expected for the full year.
Tariff impacts from the Section 232 expansion are expected to be largely offset by EPA tariff recoveries, resulting in a negligible net impact.
Investments in Pierce fire truck facilities are ongoing, with the bulk of the $150 million capital program expected to be completed by year-end.
Geopolitical conflicts are cited as a primary driver of inflationary pressure on raw materials like steel and aluminum.
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Management explained that while Q1 shipments were light due to weather, the ramp will be sequential throughout the year as new capacity comes online.
Delays in facility construction timing have pushed some production capacity later into the year than originally anticipated.
The current guidance does not count on significant pre-buy activity for refuse vehicles, though management views it as potential upside if it occurs.
Refuse vehicle volumes are currently expected to be down 25% to 30% for the full year due to cautious customer capital outlays.
Management expects price-cost to turn increasingly favorable from Q2 onward as higher-priced contracts begin to ship.
Cost reduction initiatives are being prioritized to minimize the amount of additional pricing required from customers despite rising material costs.
Telematics data and customer feedback indicate that equipment utilization is tightening and the used market remains healthy.
Demand is heavily weighted toward National Rental Companies (NRCs) involved in large-scale infrastructure and data center projects.
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