Investment Thesis - Allison Transmission Holdings, Inc. has achieved annual compounded double-digit profit growth over the past decade despite modest revenue growth, indicating strong operational and capital efficiencies [2] - The company is financially sound with a solid capital allocation plan, presenting a valuation with more than a 30% margin of safety at the current market price [2] Business Background - Allison is the largest manufacturer of fully automatic transmissions for medium and heavy-duty commercial and U.S. defense vehicles, also leading in electrified propulsion systems [3] - In 2023, service parts and support equipment sales accounted for 23% of net sales, with North America representing about 52% of total net sales [3] - The global automotive transmission market was valued at USD 62.4 billion in 2023, expected to grow at a CAGR of 6.2% by 2028 [3] Operating Trends - Revenue grew at a 4% CAGR over the past decade, while profit after tax (PAT) grew at 12.7% CAGR, driven by higher revenue and lower Selling, General, and Administration (SGA) margins [5] - SGA margin reduced from 16% in 2014 to 11% in 2023, indicating improved cost control [5] - Operating return averaged 17% compared to a WACC of 9%, and ROE averaged 52% against a cost of equity of 11% [6] Financial Position - As of December 2023, Allison had USD 562 million in cash, representing about 11% of total assets, and a Debt Capital ratio of 0.59, down from 0.73 [12] - The company generated USD 6.7 billion in cash flow from operations over the past decade, with a positive cash flow every year [12] Capital Allocation - The company has a low CAPEX relative to cash flow from operations, returning a substantial portion of funds to shareholders [13] - USD 4.0 billion spent on share buybacks boosted the 2023 EPS to USD 7.48 per share, significantly enhancing shareholder value [13] Valuation - Using a single-stage valuation model, the intrinsic value of Allison is estimated at USD 104 per share, compared to a market price of USD 75 per share, indicating a 30% margin of safety [14] - The valuation assumes a conservative 4% growth rate, with the market pricing based on past revenue averages, suggesting potential upside in intrinsic value [14][19]

Core Viewpoint - Allison Transmission has been experiencing a decline in stock performance, with a return of -10.3% over the past month, compared to the Zacks S&P 500 composite's -4.2% and the Zacks Automotive - Original Equipment industry's -8.1% [1] Earnings Estimates - The expected earnings for Allison Transmission for the current quarter is $2.02 per share, reflecting a year-over-year increase of +5.2% [3] - The consensus earnings estimate for the current fiscal year is $7.56, indicating a year-over-year change of +2.2%, with a recent decrease of -1.1% over the last 30 days [3] - For the next fiscal year, the consensus estimate is $8.62, showing a change of +13.9% from the previous year, with a recent increase of +2.8% [3] Revenue Growth - The consensus sales estimate for the current quarter is $791.4 million, indicating a year-over-year change of +1.1% [6] - The sales estimates for the current and next fiscal years are $3.13 billion and $3.32 billion, reflecting changes of +3.1% and +6.2%, respectively [6] Recent Performance - In the last reported quarter, Allison Transmission achieved revenues of $789 million, a year-over-year increase of +6.5%, and an EPS of $1.90 compared to $1.85 a year ago [7] - The company exceeded the Zacks Consensus Estimate for revenues by +4.02% and for EPS by +1.06% [7] - Allison Transmission has consistently beaten consensus EPS estimates in the last four quarters and topped revenue estimates three times [7] Valuation Metrics - The Zacks Value Style Score indicates that Allison Transmission is graded B, suggesting it is trading at a discount to its peers [10] - Valuation multiples such as price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF) are essential for assessing whether the stock is fairly valued [8][9]

Allison Transmission Holdings (ALSN) delivered first-quarter 2024 earnings of $1.90 per share, which rose 2.7% year over year and beat the Zacks Consensus Estimate of $1.88. Record quarterly revenues of $789 million grew 6.5% from the year-ago period's level and outpaced the Zacks Consensus Estimate of $759 million.Segmental PerformanceAllison 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 11.7% year ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Allison Transmission reported Q1 2024 net sales of **$789 million** (up 6%), with net income stable at **$169 million** and total assets at **$5.06 billion** Q1 2024 Key Financial Performance (vs. Q1 2023) (in millions) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Sales | $789M | $741M | | Gross Profit | $366M | $361M | | Operating Income | $234M | $230M | | Net Income | $169M | $170M | | Diluted EPS | $1.90 | $1.85 | Condensed Balance Sheet Summary (as of March 31, 2024) (in millions) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $1,300M | $1,250M | | Total Assets | $5,056M | $5,025M | | Total Current Liabilities | $518M | $501M | | Total Liabilities | $3,714M | $3,792M | | Total Stockholders' Equity | $1,342M | $1,233M | Condensed Cash Flow Summary (Q1 2024 vs. Q1 2023) (in millions) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $173M | $193M | | Net cash used for investing activities | ($12M) | ($22M) | | Net cash used for financing activities | ($164M) | ($59M) | | Net (decrease) increase in cash | ($4M) | $112M | [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets grew to **$5.056 billion** by March 31, 2024, with liabilities decreasing due to reduced long-term debt, increasing equity - Cash and cash equivalents decreased slightly to **$551 million** from **$555 million** at the end of 2023[13](index=13&type=chunk) - Long-term debt decreased from **$2.497 billion** at year-end 2023 to **$2.398 billion** as of March 31, 2024[13](index=13&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Q1 2024 net sales rose **6.5%** to **$789 million**, gross profit increased to **$366 million**, but net income remained flat at **$169 million** due to higher costs Q1 2024 Income Statement Highlights (in millions) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Sales | $789M | $741M | | Gross Profit | $366M | $361M | | Operating Income | $234M | $230M | | Net Income | $169M | $170M | | Diluted EPS | $1.90 | $1.85 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Q1 2024 operating cash flow was **$173 million**, with increased debt repayments and stock repurchases resulting in a **$4 million** net cash decrease - Payments on long-term debt increased to **$101 million** in Q1 2024 from just **$1 million** in Q1 2023[18](index=18&type=chunk) - Repurchases of common stock increased to **$52 million** from **$40 million** in the prior-year quarter[18](index=18&type=chunk) - Additions of long-lived assets (capital expenditures) were reduced to **$11 million** from **$24 million** year-over-year[18](index=18&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail revenue by market, a March 2024 credit facility amendment extending maturities and increasing revolver commitment, and a lower effective tax rate Disaggregated Revenue by Market (Q1 2024 vs Q1 2023) (in millions) | Market | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | North America On-Highway | $420M | $376M | | North America Off-Highway | $4M | $24M | | Defense | $48M | $27M | | Outside North America On-Highway | $115M | $108M | | Outside North America Off-Highway | $42M | $23M | | Service Parts, Support Equipment and Other | $160M | $183M | | **Total Net Sales** | **$789M** | **$741M** | - In March 2024, the company amended its Credit Agreement, extending the term loan maturity to 2031 and the revolving credit facility to 2029, while also increasing the revolver commitment by **$100 million** to **$750 million**[47](index=47&type=chunk) - The effective tax rate for Q1 2024 was **17%**, a decrease from **20%** in Q1 2023, primarily due to increased estimated U.S. federal income tax deductions[71](index=71&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Q1 2024 revenue grew **6%** driven by North America On-Highway and Defense, offset by lower service parts and off-highway demand, with gross margin declining due to UAW incentives [First Quarter Net Sales by End Market](index=24&type=section&id=First%20Quarter%20Net%20Sales%20by%20End%20Market) Total net sales increased **6%** in Q1 2024, led by strong growth in Defense and North America On-Highway, partially offset by a significant decline in North America Off-Highway Q1 Net Sales by End Market (YoY % Change) (in millions) | End Market | Q1 2024 Sales | Q1 2023 Sales | % Variance | | :--- | :--- | :--- | :--- | | North America On-Highway | $420M | $376M | 12% | | North America Off-Highway | $4M | $24M | (83%) | | Defense | $48M | $27M | 78% | | Outside North America On-Highway | $115M | $108M | 6% | | Outside North America Off-Highway | $42M | $23M | 83% | | Service Parts, Support Equipment and Other | $160M | $183M | (13%) | | **Total Net Sales** | **$789M** | **$741M** | **6%** | [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Q1 2024 net sales increased **6%** to **$789 million**, but gross margin declined **230 basis points** due to higher manufacturing costs and UAW incentives, keeping net income flat - Gross profit increase of **$5 million** was driven by higher net sales (**$20 million**) and price increases (**$14 million**), but offset by higher manufacturing expense (**$13 million**), non-recurring UAW incentives (**$13 million**), and higher material costs (**$4 million**)[100](index=100&type=chunk) - Other expense was **$5 million** in Q1 2024 compared to other income of **$10 million** in Q1 2023, a change driven by unrealized losses on marketable securities and unfavorable foreign exchange[105](index=105&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$551 million** cash and **$745 million** revolver availability, using **$101 million** for debt and **$52 million** for stock repurchases in Q1 2024 - Total available liquidity as of March 31, 2024, was approximately **$1.3 billion**, consisting of **$551 million** in cash and **$745 million** in revolver availability[107](index=107&type=chunk)[112](index=112&type=chunk)[116](index=116&type=chunk) - Cash from operating activities decreased by **$20 million** YoY, primarily due to higher cash incentive compensation payments and non-recurring UAW contract signing incentive payments[117](index=117&type=chunk) - Financing activities used **$164 million**, a significant increase from **$59 million** YoY, driven by a **$100 million** increase in debt payments and **$12 million** more in stock repurchases[119](index=119&type=chunk) [Non-GAAP Financial Measures](index=26&type=section&id=Non-GAAP%20Financial%20Measures) Q1 2024 Adjusted EBITDA increased to **$289 million**, with margin slightly decreasing, while Adjusted Free Cash Flow was **$162 million** Reconciliation of Non-GAAP Measures (Q1 2024 vs Q1 2023) (in millions) | Metric (in millions) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Income (GAAP) | $169 | $170 | | **Adjusted EBITDA (Non-GAAP)** | **$289** | **$276** | | Net cash from operating activities (GAAP) | $173 | $193 | | **Adjusted free cash flow (Non-GAAP)** | **$162** | **$169** | - Adjustments to calculate Adjusted EBITDA include adding back items such as **$14 million** for UAW contract signing incentives and a **$7 million** unrealized loss on marketable securities[92](index=92&type=chunk)[94](index=94&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risks include interest rate fluctuations, foreign currency volatility, and commodity price changes, with sensitivity analyses provided - **Interest Rate Risk:** A **0.125%** change in interest rates on the fully drawn Senior Secured Credit Facility would impact annual interest expense by approximately **$1 million**; the company hedges **$500 million** of its variable-rate term loan[126](index=126&type=chunk) - **Exchange Rate Risk:** A **10%** aggregate change in the Chinese Yuan, Euro, Indian Rupee, and Japanese Yen would change net earnings by an estimated **$8 million** per year[127](index=127&type=chunk) - **Commodity Price Risk:** A **10%** change in the price of aluminum and steel would impact annual earnings by approximately **$8 million** and **$13 million**, respectively[128](index=128&type=chunk) [Controls and Procedures](index=35&type=section&id=Controls%20and%20Procedures) CEO and CFO concluded disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal controls - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[130](index=130&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[131](index=131&type=chunk) [PART II. OTHER INFORMATION](index=36&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal actions not expected to materially affect its financial position, results, or cash flows - The company is party to various legal actions in the normal course of business, which are not expected to have a material adverse effect[133](index=133&type=chunk) [Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes from the risk factors reported in the Annual Report on Form 10-K for the year ended December 31, 2023[134](index=134&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **819,812** shares for **$52 million** in Q1 2024, with **$721 million** remaining under the repurchase program Common Stock Repurchases in Q1 2024 (in millions) | Period | Total Shares Purchased | Average Price Paid | Approx. Value Remaining Under Program | | :--- | :--- | :--- | :--- | | Jan 2024 | 425,645 | $57.50 | $748.2M | | Feb 2024 | 264,189 | $66.24 | $730.7M | | Mar 2024 | 129,978 | $76.92 | $720.7M | | **Total Q1** | **819,812** | **$63.40** | **$720.7M** | - The stock repurchase program, with an aggregate authorization of **$4 billion**, has no termination date[79](index=79&type=chunk)[136](index=136&type=chunk) [Other Information](index=37&type=section&id=Item%205.%20Other%20Information) Two company officers adopted Rule 10b5-1 trading arrangements for securities sales during Q1 2024 - Two officers adopted Rule 10b5-1 trading plans in Q1 2024: Ryan A. Milburn for **5,231 shares** and Rafael Basso for **12,624 shares**[139](index=139&type=chunk) [Exhibits](index=38&type=section&id=Item%206.%20Exhibits) The report includes Amendment No. 4 to the Credit Agreement, updated equity incentive forms, and required CEO and CFO certifications - Filed Amendment No. 4 to the Credit Agreement, dated March 13, 2024[140](index=140&type=chunk) - Filed required CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[144](index=144&type=chunk)[145](index=145&type=chunk)[146](index=146&type=chunk)

Allison Transmission Holdings, Inc. (NYSE:ALSN) Q1 2024 Earnings Conference Call April 25, 2024 5:00 PM ET Company Participants Jackie Bolles - Executive Director, Treasury and IR Dave Graziosi - Chairman and CEO Fred Bohley - Senior Vice President, Chief Financial Officer and Treasurer Conference Call Participants Ian Zaffino - Oppenheimer Justin Pellegrino - Melius Research Tami Zakaria - JPMorgan Angel Castillo - Morgan Stanley Jerry Revich - Goldman Sachs Operator Good afternoon. Thank you for standing ...

For the quarter ended March 2024, Allison Transmission (ALSN) reported revenue of $789 million, up 6.5% over the same period last year. EPS came in at $1.90, compared to $1.85 in the year-ago quarter.The reported revenue represents a surprise of +4.02% over the Zacks Consensus Estimate of $758.53 million. With the consensus EPS estimate being $1.88, the EPS surprise was +1.06%.While investors scrutinize revenue and earnings changes year-over-year and how they compare with Wall Street expectations to determi ...

Allison Transmission (ALSN) came out with quarterly earnings of $1.90 per share, beating the Zacks Consensus Estimate of $1.88 per share. This compares to earnings of $1.85 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 1.06%. A quarter ago, it was expected that this automatic transmission maker would post earnings of $1.42 per share when it actually produced earnings of $1.91, delivering a surprise of 34.51%.Over the last fo ...

Exhibit 99.1 Allison Transmission Announces First Quarter 2024 Results * Record net sales of $789 million * Diluted EPS of $1.90, which includes $0.13 impact from $14 Million of Non-Recurring UAW Contract Signing Incentives incurred in the quarter * Refinanced Revolving Credit Facility and Term Loan, Paying Down $101 Million of Outstanding Debt INDIANAPOLIS, April 25, 2024 – Allison Transmission Holdings Inc. (NYSE: ALSN), today reported first quarter net sales of $789 million and first quarter diluted EPS ...

Allison 3414 Regional Haul Series™ (RHS) and 4000 Series™ now available to order as the exclusive fully automatic in International RH and HX Series trucks, respectively.INDIANAPOLIS, April 24, 2024 /PRNewswire/ -- Allison Transmission announced today that International Truck, a Navistar brand, has integrated Allison fully automatic transmissions into S13-equipped trucks. Through the partnership's continued collaboration, the award-winning Allison 3414 Regional Haul Series™ (RHS) is now available to order in ...

Efficiency level measures a company’s capability to transform available input into output and is often considered an important parameter for gauging its potential to make profits. A company with a favorable efficiency level is expected to provide stellar returns as it is believed to be positively correlated with price performance.However, at times, it becomes difficult to measure the efficiency level of a company. This is why one must consider popular efficiency ratios while selecting stocks. These efficien ...