A month has gone by since the last earnings report for Allison Transmission (ALSN). Shares have added about 4.8% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Allison Transmission due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Allison Q3 Earnings Top Estimates, Sales Miss
Allison delivered third-quarter 2023 earnings of $1.76 per share, which rose 21% year over year and topped the Zacks Consensus Estimate of $1.72. Quarterly revenues of $736 million grew 4% from the year-ago period but missed the Zacks Consensus Estimate of $764 million.
Segmental Performance
Allison segregates revenues in terms of end markets served, which are as follows:
In the reported quarter, net sales in the North America On-Highway end market rose 11% year over year to $376 million and surpassed the Zacks Consensus Estimate of $363 million. High demand for medium-duty and Class 8 vocational trucks and price increases on certain products resulted in the sales outperformance.
Net sales in the North America Off-Highway end market tanked 63% to $9 million from the year-ago period and lagged the consensus mark of $26.51 million.
In the reported quarter, net sales in the Defense end market rose 23% year over year to $43 million and beat the Zacks Consensus Estimate of $40.08 million, driven by higher demand for Tracked and Wheeled vehicle applications.
The Outside North America On-Highway end market’s net sales remained unchanged from prior-year quarter levels at $118 million and fell short of the consensus mark of $127 million.
Net sales in the Outside North America Off-Highway end market contracted 47% year over year to $19 million and lagged the Zacks Consensus Estimate of $33.02 million.
Net sales in the Service Parts, Support Equipment & Other end markets grew 9% year over year to $171 million in the quarter and crossed our estimate of $168 million. The outperformance was driven by high demand for North America On-Highway service parts and support equipment along with price increases on certain products.
Financial Position
Allison saw a gross profit of $357 million, an increase from $328 million for the same period in 2022, mainly driven by price increases on certain products.
Adjusted EBITDA in the quarter came in at $267 million, an increase from $245 million a year ago. The growth was led by higher gross profit.
Selling, general and administrative expenses in the quarter increased to $86 million from $78 million for the same period in 2022. Engineering – research and development expenses were $49 million compared with $47 million recorded in the corresponding quarter of 2022.
Allison had cash and cash equivalents of $501 million on Sep 30, 2023, up from $232 million as of Dec 31, 2022. Long-term debt was $2,498 million compared with $2,501 million as of Dec 31, 2022.
Net cash provided by operating activities increased to $212 million from $207 million in the same period in 2022. Adjusted free cash flow in the reported quarter was $182 million, flat from the year-ago period levels.
During the third quarter, the company paid a quarterly dividend of 23 cents/share and repurchased $20 million shares.
2023 Outlook Reaffirmed
Allison’s full-year 2023 net sales are estimated in the band of $2,960-$3,040 million. Net income is expected in the band of $575-$625 million. Adjusted EBITDA is estimated within $1,050-$1,110 million. It expects net cash provided by operating activities between $675 million and $725 million. Capex is expected in the band of $125-$135 million. Adjusted free cash flow is estimated within $550-$590 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
Currently, Allison Transmission has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Allison Transmission has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Allison Transmission is part of the Zacks Automotive – Original Equipment industry. Over the past month, Autoliv, Inc. (ALV), a stock from the same industry, has gained 6.7%. The company reported its results for the quarter ended September 2023 more than a month ago.
Autoliv, Inc. reported revenues of $2.6 billion in the last reported quarter, representing a year-over-year change of +12.8%. EPS of $1.66 for the same period compares with $1.23 a year ago.
For the current quarter, Autoliv, Inc. is expected to post earnings of $2.74 per share, indicating a change of +49.7% from the year-ago quarter. The Zacks Consensus Estimate has changed +13.2% over the last 30 days.
Autoliv, Inc. has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.
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Allison Transmission Holdings, Inc. (ALSN) : Free Stock Analysis Report
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