Core Insights - Allison Transmission Holdings, Inc. expands its partnership with Daimler Truck North America to introduce advanced automatic transmission solutions for the Freightliner M2 106 Plus medium-duty truck [1] Company Developments - The Allison 3414 Regional Haul Series (RHS) transmission will be paired with the Cummins X10 diesel engine and is set to enter production in January 2027 [1] - The Allison 9-Speed transmission will be paired with the Cummins B6.7 Octane engine and is scheduled for production in July 2026 [1] Product Features - The Allison 3414 RHS transmission offers a lighter automatic option, enhancing vehicle handling and providing 25% faster acceleration compared to competitive automated manual transmissions (AMTs) [1] - The Allison 9-Speed transmission is designed to balance torque delivery and fuel-saving capabilities for commercial truck applications [1] Strategic Goals - The partnership aims to deliver powertrain solutions that meet customer needs, enhancing productivity, efficiency, and long-term value [1] - Both companies emphasize their commitment to providing purpose-built technology for the commercial transportation industry [1]

Group 1 - Allison Transmission (ALSN) is currently performing well in the Auto-Tires-Trucks sector, with a year-to-date return of approximately 28%, significantly outperforming the sector average loss of 4.2% [4] - The Zacks Consensus Estimate for ALSN's full-year earnings has increased by 8.3% over the past quarter, indicating improved analyst sentiment and a more positive earnings outlook [4] - Allison Transmission holds a Zacks Rank of 2 (Buy), suggesting it is poised to outperform the broader market in the near term [3] Group 2 - The Auto-Tires-Trucks sector, which includes 103 individual stocks, ranks 8 in the Zacks Sector Rank, indicating a relatively strong performance compared to other sectors [2] - Within the Automotive - Original Equipment industry, which consists of 54 stocks, Allison Transmission is outperforming the industry with a year-to-date return that exceeds the industry's average gain of 7.3% [6] - Another notable performer in the Auto-Tires-Trucks sector is China Yuchai (CYD), which has achieved a year-to-date return of 41.6% and has a Zacks Rank of 1 (Strong Buy) [5]

Core Insights - Allison Transmission Holdings (ALSN) announced a 7% increase in its quarterly dividend to 29 cents per share, marking the seventh consecutive year of dividend increases, reflecting a commitment to capital allocation and shareholder returns [1][7] Financial Performance - In Q4 2025, Allison reported earnings of $1.70 per share, a decline of 15.4% year over year, with total revenues decreasing by 7.4% to $737 million [2] - The company projects 2026 net sales between $5.575 billion and $5.925 billion, significantly up from $3.01 billion in 2025, with consolidated adjusted EBITDA expected to be between $1.365 billion and $1.515 billion, compared to $1.130 billion in 2025 [6][8] Growth Opportunities - Defense sales increased by 26% year over year in 2025, driven by expanding programs in the U.S. and internationally, with the 3040MX platform identified as a key growth driver [3] - International expansion is a major long-term growth opportunity, particularly in the On-Highway segment, where the company achieved record revenues of $507 million in Q4 [4] - The acquisition of Dana's Off-Highway Drive & Motion Systems Business enhances Allison's global footprint and access to new markets [4][8] Technological Advancements - The company is focused on advanced technology and innovation, with customer wins such as PACCAR standardizing Allison's fuel-saving features [5] - The eGen Power portfolio, including various e-axles, positions Allison to adapt to changing industry dynamics, with significant contracts like the eGen Force selected for the Optionally Manned Fighting Vehicle program [5] Market Outlook - Management's optimistic outlook for 2026, with expectations of higher sales and improved profitability, supports the growth narrative [9] - The combination of dependable dividends, defense market exposure, and expanding international opportunities positions Allison as a solid addition to a diversified long-term investment portfolio [7][9]

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Core Insights - Investors are optimistic about Nvidia's upcoming Q4 results, while several other Zacks-rated stocks have exceeded EPS expectations, indicating strong growth trajectories and potential for portfolio diversification [1] Group 1: Allison Transmission Holdings (ALSN) - Allison Transmission Holdings reported Q4 EPS of $1.70, surpassing expectations of $1.56 by 9%, although it decreased from $2.01 per share a year ago [2] - The full-year EPS for FY25 was slightly down to $8.21, but it is projected to rebound with an 18% increase to $9.68 this year [2] - ALSN trades at an attractive 12X forward earnings multiple and offers a respectable annual dividend yield nearing 1% [3] Group 2: BWX Technologies (BWXT) - BWX Technologies achieved Q4 EPS of $1.08, beating estimates of $0.91 by nearly 19% and increasing from $0.92 per share in the same quarter last year [4] - The full-year EPS rose 20% to $4.01, with annual earnings expected to increase another 6% in FY26 [6] - BWXT has a forward P/E multiple of 46X, reflecting high investor sentiment in the aerospace and defense sector amid geopolitical tensions [5] Group 3: Telefonica Brasil (VIV) - Telefonica Brasil reported Q4 EPS of $0.22, exceeding expectations of $0.17 and up from $0.18 per share last year [9] - As the largest wireless provider in Brazil, it offers a 2.49% annual dividend yield, with annual earnings up 8% and FY26 EPS forecasted to spike 26% to $0.86 [10] Group 4: V2X Inc (VVX) - V2X Inc posted Q4 EPS of $1.56, beating estimates of $1.33 by 17% and showing a 21% increase in FY25 EPS to $5.24 [11] - The company does not offer a dividend but trades at a relatively low 12X forward earnings multiple, indicating improving growth prospects [12]

Core Insights - Allison Transmission Holdings (ALSN) reported Q4 2025 earnings of $1.70 per share, exceeding the Zacks Consensus Estimate of $1.56, but down 15.4% year over year. Quarterly revenues were $737 million, a decline of 7.4% year over year, yet surpassing the Zacks Consensus Estimate of $722 million [1][10]. Segmental Performance - In the North America On-Highway end market, net sales fell 13.8% year over year to $361 million, but exceeded the Zacks Consensus Estimate of $335 million [2]. - The Outside North America On-Highway end market saw net sales of $131 million, an increase of 5.7% year over year, driven by higher demand in Europe, and also beat the Zacks Consensus Estimate of $125 million [2]. - Global Off-Highway end market net sales dropped to $12 million from $16 million year over year, yet surpassed the Zacks Consensus Estimate of $11.57 million [3]. - Defense end market net sales increased 7.4% year over year to $73 million, although it missed the Zacks Consensus Estimate of $86 million [3]. - Service Parts, Support Equipment & Other end markets experienced a 5.3% year-over-year decline in net sales to $160 million, missing the Zacks Consensus Estimate of $167 million [4]. Financial Position - Gross profit for the quarter was $354 million, down from $373 million in the previous year due to lower volumes and unfavorable direct material costs [5]. - Adjusted EBITDA was $265 million, a decrease from $270 million reported a year ago [5]. - Selling, general and administrative expenses rose to $110 million, a 31% increase year over year [6]. - Engineering, research and development expenses decreased to $44 million from $54 million in Q4 2024 due to cost adjustments [6]. - As of December 31, 2025, cash and cash equivalents were $1.5 billion, up from $781 million a year earlier, while long-term debt increased to $2.89 billion from $2.4 billion [7]. 2026 Outlook - For full-year 2026, Allison Transmission expects net sales between $3,025 million and $3,175 million, compared to $3,010 million in 2025. Net income is projected to be in the range of $600-$750 million, compared to $623 million in 2025 [8]. - Adjusted EBITDA is anticipated to be between $1,365 million and $1,515 million, up from $1,130 million in 2025 [8]. - Net cash provided by operating activities is expected to range from $970 million to $1,100 million, compared to $836 million in 2025 [9]. - Capital expenditures are projected to be between $295 million and $315 million [9]. - Adjusted free cash flow is now expected to be between $655 million and $805 million, compared to $661 million a year ago [11].

Financial Performance - In 2025, total net sales decreased by 7% to $3,010 million compared to $3,225 million in 2024[209] - North America On-Highway net sales fell by 12% to $1,540 million in 2025, primarily due to lower demand for medium-duty and class 8 vocational trucks[209] - Defense end market net sales increased by 26% to $267 million in 2025, driven by higher demand for tracked vehicle applications[212] - Adjusted EBITDA for 2025 was $1,130 million, representing 37.5% of net sales, compared to 36.1% in 2024[221] - Gross profit for 2025 was $1,463 million, down 4% from $1,529 million in 2024, with gross profit as a percentage of net sales increasing by 120 basis points[226] - Operating income for 2025 was $880 million, representing 29% of net sales, compared to $992 million or 31% in 2024[223] - Net income for 2025 was $623 million, accounting for 21% of net sales, compared to $731 million or 23% in 2024[223] - Adjusted free cash flow for 2025 was $661 million, slightly up from $658 million in 2024[221] Cash Flow and Liquidity - The company generated $836 million in net cash provided by operating activities for the year ended December 31, 2025[221] - Total available cash and cash equivalents increased to $1,495 million in 2025 from $781 million in 2024[233] - Cash flows from operating activities for the year ended December 31, 2025, were $836 million, an increase of 4.4% from $801 million in 2024[250] - Cash used for investing activities increased to $184 million in 2025 from $147 million in 2024, primarily due to a $32 million rise in capital expenditures[251] - Financing activities provided $57 million in cash in 2025, a significant recovery from a cash usage of $427 million in 2024, driven by $500 million from the issuance of Senior Notes[252] - As of December 31, 2025, the company had $1,495 million in cash and cash equivalents and $745 million available under the Revolving Credit Facility[1] Expenses and Costs - The cost of sales for 2025 consisted of approximately 66% direct material costs, 26% overhead costs, and 8% direct labor costs[215] - Selling, general and administrative expenses increased by 13% to $380 million in 2025, driven by $64 million related to the Acquisition[227] - Engineering expenses decreased by 13% to $174 million in 2025, reflecting reduced spending on product initiatives[228] - Interest expense for 2025 was $92 million, an increase of 3% from $89 million in 2024[230] Debt and Financing - As of December 31, 2025, total indebtedness included $509 million from ATI's Term Loan and $1,000 million from 3.75% Senior Notes due January 2031[236] - The company authorized an additional $1,000 million for its stock repurchase program, totaling $5,000 million, with $328 million repurchased in 2025[246] - The company made $5 million and $104 million of principal payments on the Term Loan during the years ended December 31, 2025 and 2024, respectively[239] - On January 2, 2026, the company entered into an amendment to increase the Revolving Credit Facility commitments by $250 million to a total of $1,000 million[241] - The company had no amounts outstanding under the Revolving Credit Facility as of December 31, 2025[240] Impairment and Valuation - An impairment analysis in Q4 2025 resulted in an $8 million loss for tangible assets and a $21 million loss for intangible assets due to deteriorating market conditions[268] - The company performed a quantitative impairment analysis of goodwill in 2025, indicating no impairment as the fair value exceeded carrying value[262] - The company recorded $29 million in losses associated with the impairment of long-lived assets in 2025[229] - The company evaluates the carrying value of long-lived assets whenever events indicate that the carrying value may not be recoverable, with impairment recognized when future cash flows are less than carrying value[266] - The company utilizes a market approach for impairment analysis, reflecting the complexity of determining fair values[268] Future Outlook and Assumptions - The company believes that cash provided by operating activities and available liquidity will meet cash requirements for the next twelve months[248] - The company anticipates increased capital expenditures and cash income taxes in 2026 compared to 2025[245] - A 10% change in sales incentives could impact earnings by approximately $8 million, highlighting the sensitivity of revenue recognition estimates[254] - Assumptions and estimates regarding future cash flows and market conditions are complex and subjective, potentially impacting reported financial results[267] Other Considerations - Provisions for estimated warranty expenses are made at the time of product sale, with adjustments based on historical claims and repair costs[269] - The company assesses the need for a valuation allowance against deferred tax assets quarterly, considering various factors including recent losses and forecasts of future profitability[274] - A one percentage point decrease in the assumed discount rate would increase the defined benefit pension plans obligation by approximately $13 million and the OPEB obligation by approximately $6 million as of December 31, 2025[271][272] - The acquisition method is used for business combinations, with assets and liabilities recorded at estimated fair value at acquisition date, and excess purchase price recorded as goodwill[276] - The company reviews the useful lives of intangible assets periodically to determine if revisions are warranted based on events or circumstances[264] - Warranty costs may differ from estimates if actual claim rates are higher or lower than historical rates[269]

Core Viewpoint - Allison Transmission reported quarterly earnings of $1.7 per share, exceeding the Zacks Consensus Estimate of $1.56 per share, but down from $2.01 per share a year ago, indicating an earnings surprise of +8.97% [1] Financial Performance - The company achieved revenues of $737 million for the quarter ended December 2025, surpassing the Zacks Consensus Estimate by 2.01%, although this is a decrease from year-ago revenues of $796 million [2] - Over the last four quarters, Allison Transmission has surpassed consensus EPS estimates three times and topped consensus revenue estimates two times [2] Stock Performance - Allison Transmission shares have increased approximately 21.4% since the beginning of the year, significantly outperforming the S&P 500's gain of 0.9% [3] Future Outlook - The company's earnings outlook is crucial for assessing future stock performance, with current consensus EPS estimates at $2.38 for the coming quarter and $9.68 for the current fiscal year, alongside projected revenues of $1.35 billion and $5.67 billion respectively [7] - The Zacks Rank for Allison Transmission is currently 2 (Buy), indicating expectations for the stock to outperform the market in the near future [6] Industry Context - The Automotive - Original Equipment industry, to which Allison Transmission belongs, is currently ranked in the top 35% of over 250 Zacks industries, suggesting a favorable environment for stock performance [8]

Financial Data and Key Metrics Changes - Full year revenue decreased by 7% year-over-year, with adjusted EBITDA margin increasing by 140 basis points to 37.5% [12][14] - Net income for Q4 was $99 million, down from $175 million in the same period in 2024, primarily due to a $29 million impairment and $26 million in acquisition-related expenses [21][22] - Adjusted net income for Q4 was $141 million, with diluted earnings per share of $1.68 [21] Business Line Data and Key Metrics Changes - North American on-highway end market saw a sequential improvement of 10% from Q3 to Q4, despite year-over-year declines [20] - Defense end market revenue increased by 26% to $267 million for the full year, achieving the $100 million incremental annual revenue objective [13] - Record revenue of $507 million was achieved in the outside North American on-highway end market for the full year [20] Market Data and Key Metrics Changes - The defense end market showed strong growth, while the North American on-highway market remained soft, particularly in medium-duty trucks [20][72] - The company noted sluggish economic growth and uncertainties in global trade policies affecting performance [12] Company Strategy and Development Direction - The acquisition of Dana's Off-Highway Drive & Motion Systems business is expected to create a global leader with expanded market reach and product portfolio [6][7] - The company aims to leverage synergies from the acquisition, focusing on cost reduction and operational efficiencies [8][9] - Strategic investments in India are being made to support local production and partnerships, aligning with the Make in India framework [16][17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating ongoing uncertainties and highlighted early signs of demand improvements in North America [13] - The company is focused on maintaining disciplined execution and seamless integration of the acquired business [10][60] - Management acknowledged the challenges posed by macroeconomic factors but remains optimistic about long-term growth opportunities [12][14] Other Important Information - The company repurchased $328 million of common stock, representing 4% of outstanding shares, and increased its quarterly dividend to $0.27 per share [14] - For 2026, the company provided guidance of consolidated net sales between $5.575 billion and $5.925 billion, with net income expected to range from $600 million to $750 million [25][26] Q&A Session Summary Question: Pricing expectations for 2026 and inflation impact - Management expects meaningful year-over-year pricing increases between 250 and 400 basis points, despite inflationary pressures [32][33] Question: EBITDA margin expectations for the acquired Off-Highway business - Management indicated that the Off-Highway business is expected to have an EBITDA margin of 11%-12% on $2.6 billion in revenues, with no one-time items assumed in guidance [38][39] Question: Synergies from the acquisition - Management confirmed that no synergies are embedded in the 2026 guidance, but they are confident in achieving the $120 million annual run rate of synergies over the next few years [48][88] Question: Margin profile for the legacy Allison business - Management believes that returning to peak EBITDA margins of 40% is feasible, depending on top-line growth and cost management [57][59] Question: End market guidance and recovery assumptions - Management remains cautious about recovery in Class 8 trucks and expects continued softness in the North American on-highway market [70][72]

Financial Data and Key Metrics Changes - Full year revenue decreased by 7% year-over-year, with adjusted EBITDA margin increasing by 140 basis points to 37.5% [12] - Net income for Q4 was $99 million, down from $175 million in the same period last year, primarily due to a $29 million impairment and $26 million in acquisition-related expenses [21] - Adjusted EBITDA margin for Q4 increased over 200 basis points to 36% despite a 7% decrease in net sales year-over-year [22] Business Line Data and Key Metrics Changes - Record revenue of $507 million achieved in the outside North American On-Highway end market for the full year [20] - Defense end market revenue increased by 26% to $267 million for the year, achieving the $100 million incremental annual revenue objective [13] - Q4 net sales in the defense end market were $73 million, up 7% year-over-year [20] Market Data and Key Metrics Changes - North America On-Highway end market showed a sequential improvement of 10% from the trough in Q3 2025, although year-over-year sales were down [20] - The company noted ongoing softness in the North American On-Highway market, particularly for medium-duty trucks, with no meaningful recovery expected for Class 8 vocational trucks [26] - The Off-Highway market is expected to remain at or near trough levels, with cautious optimism for gradual improvements [26] Company Strategy and Development Direction - The acquisition of Dana's Off-Highway business is expected to create a global leader with expanded market reach and a broader product portfolio [6][7] - The company aims to leverage its global footprint for local production and enhance product innovation through combined engineering capabilities [8] - Focus on seamless integration of the acquired business while maintaining disciplined execution and long-term value creation [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating ongoing uncertainties and highlighted early signs of demand improvements in North America [13] - The company remains focused on cost control and execution despite external macroeconomic headwinds [12] - Management anticipates capturing approximately $120 million in annual run rate synergies over the next few years [26] Other Important Information - The company repurchased $328 million of common stock, representing 4% of outstanding shares, and increased its quarterly dividend to $0.27 per share [14] - The 2026 guidance includes consolidated net sales in the range of $5.575 billion to $5.925 billion, with net income expected between $600 million and $750 million [25] Q&A Session Summary Question: Pricing expectations for 2026 and inflation impact - Management expects meaningful year-over-year pricing between 250 and 400 basis points, while facing substantial inflationary pressures [31][32] Question: EBITDA margin expectations for the acquired Off-Highway business - Management indicated that the Off-Highway business is expected to have an EBITDA margin of 11%-12% on $2.6 billion in revenues, with no one-time items assumed in the guidance [37][38] Question: Synergies from the acquisition - Management confirmed that no synergies are embedded in the 2026 guidance, with a focus on delivering the $120 million annual run rate of synergies over the next few years [46][85] Question: Margin profile for the legacy Allison business - Management believes that returning to peak EBITDA margins of 40% is achievable, contingent on top-line growth and cost management [54][56] Question: End market guidance and recovery expectations - Management remains cautious about recovery in Class 8 trucks and expects continued softness in the North American On-Highway market, while seeing growth in defense and international markets [68][70]