Oshkosh Corporation, the Wisconsin-based manufacturer known for its rugged trucks and military vehicles, delivered a solid first quarter of 2024, exceeding expectations and raising its full-year outlook. The company touted its investments in new technology, the ramp-up of production for the USPS's Next Generation Delivery Vehicle (NGDV), and the benefits of recent acquisitions, particularly AeroTech, as key drivers of its success.

But buried within the transcript of Oshkosh's Q1 earnings call (link to transcript) lies a potential profit engine that seems to have slipped under the radar of analysts: the company's quiet dominance in the niche market of electric airport rescue and firefighting vehicles (ARFFs).

While Oshkosh highlighted orders for its Striker Volterra electric ARFFs from Japan and Paris as a testament to the company's electrification prowess, the true significance of these wins seems to have been overlooked. These are not merely symbolic victories in a small, albeit profitable market. They represent a potential gateway to exponential growth and margin expansion that could redefine Oshkosh's future.

Why Electric ARFFs Could Be a Game-Changer for Oshkosh

First-mover advantage: Oshkosh is establishing itself as the go-to provider for electric ARFFs at a time when airports worldwide are facing increasing pressure to decarbonize their operations. This early market leadership, combined with the superior performance and lower total cost of ownership offered by the Volterra ARFFs, positions Oshkosh to capture a significant share of this burgeoning market as it matures. Global airport expansion: The International Air Transport Association (IATA) projects that global passenger traffic will double over the next two decades, requiring massive investments in airport infrastructure. Every new runway, terminal, and gate necessitates additional ARFFs, creating a sustained demand tailwind for Oshkosh. Strict safety regulations: Airport safety regulations mandate the presence of ARFFs at all times, ensuring a stable and predictable demand stream for these vehicles. Unlike other equipment, ARFFs are not subject to the cyclical fluctuations of the construction or rental markets, providing a consistent source of revenue for Oshkosh. Limited competition: The ARFF market is highly specialized, with only a handful of established players. Oshkosh's acquisition of AeroTech, a leading provider of ground support equipment, further solidifies its position in this niche market and creates a formidable barrier to entry for potential competitors. High margins: ARFFs, particularly electric models, command premium pricing due to their advanced technology and critical safety function. This translates into robust margins for Oshkosh, far exceeding those of its traditional truck and military vehicle lines.

The Numbers Speak for Themselves

While the exact size of the Japan and Paris orders was not disclosed, consider this: a single Striker ARFF can cost upwards of $1 million. If these orders were for just a handful of units each, they would represent a multi-million dollar revenue stream. However, the potential for repeat orders and fleet expansions, coupled with the global airport expansion trend, could easily multiply these initial wins into a billion-dollar business line within a few years.

Moreover, the profitability of the electric ARFF business could significantly enhance Oshkosh's overall margins. While the company's consolidated adjusted operating margin for Q1 was a respectable 10.8%, Access, its most profitable segment, delivered a stellar 17% margin. This suggests that the electric ARFF business, with its premium pricing and limited competition, could boast even higher margins, driving a substantial upward re-rating of Oshkosh's earnings potential.

Analyzing Oshkosh's Segment Performance

The table below shows Oshkosh's reported segment sales and adjusted operating margins for Q1 2024, based on the Q1 2024 Earnings Call Transcript.

Hypothetical Revenue Projection for Electric ARFFs

The chart below presents a hypothetical projection of Oshkosh's electric ARFF revenue over the next few years, illustrating its potential to reach $1 billion.

Conclusion

Oshkosh's strategic focus on electrification and autonomy, coupled with its dominance in the niche market of electric ARFFs, presents a compelling investment thesis. While analysts have been fixated on the company's Access segment and the ramp-up of NGDV production, the unassuming airport fire truck could emerge as Oshkosh's silent profit champion, driving the company to new heights of success.

"Hypothesis: Oshkosh's electric ARFF business could become a billion-dollar revenue stream within a few years, boasting significantly higher margins than the company's consolidated average, and driving substantial upward re-rating of its earnings potential."

"Supporting Data: Global airport expansion is expected to drive significant demand for ARFFs over the next two decades. Oshkosh is establishing early market leadership in the electric ARFF segment. Electric ARFFs command premium pricing due to their advanced technology and critical safety function, translating into robust margins. Oshkosh's Access segment, which includes the electric ARFF business, delivered a 17% adjusted operating margin in Q1 2024, suggesting that the electric ARFF business could boast even higher margins."

"Fun Fact: Oshkosh Airport Products, the division responsible for Striker ARFFs, also produces the snow removal equipment used to keep runways clear during winter storms. So, Oshkosh helps ensure airports can operate safely and efficiently in all weather conditions!"