Core Thesis - Allison Transmission (ALSN) remains a strong investment opportunity despite missing top-line estimates in 1Q25, with expectations for stock outperformance continuing [2] Business Overview - Allison Transmission operates a diversified business model with revenue streams from various segments, including 55% from North America on-highway, 20% from parts and support, 15% from international on-highway, 7% from defense, and 3% from global off-highway [4][3] - The company benefits from municipal spending, which constitutes 30% to 40% of its North America on-highway revenue, reducing end-market volatility [3] Market Position - Allison Transmission holds a majority market share in its core addressable market for class 4 through 8 vehicles in North America, with projected production growth of 1% annually through 2030 [5][6] Growth Opportunities - Management identified four opportunities expected to generate an additional $100 million in annual revenue each, totaling a potential $400 million [7] - The company is well-positioned to capitalize on the electric vehicle transition, with significant growth in its electric hybrid propulsion systems for buses, having delivered nearly 9,800 systems and generated over $1.5 billion in revenue since 2003 [9][8] Financial Performance - Allison Transmission has demonstrated strong fundamentals, with revenue and net operating profit after tax (NOPAT) growing at compounded annual rates of 4% and 9% since 2014 [12] - The NOPAT margin improved from 15% in 2014 to 25% in the TTM, with return on invested capital (ROIC) rising from 8% to 19% over the same period [13] Shareholder Returns - The company has returned $506 million in dividends since 2019 and increased quarterly dividends from $0.15/share in 1Q19 to $0.27/share in 1Q25, providing a current yield of 1.0% [16] - Share repurchases totaled $150 million in 1Q25, with $1.4 billion remaining under the current authorization, potentially yielding a combined dividend and repurchase yield of 7.9% [18][20] Cash Flow Generation - Allison Transmission has generated positive free cash flow (FCF) every year since 2013, totaling $3.4 billion from 2019 to 1Q25, which covers its dividend and share repurchase commitments [20][21] Competitive Positioning - The company maintains the highest profit margins in the industry, with the highest NOPAT margin and third-highest ROIC among competitors [24][23] Market Cyclicality - Despite long-term growth projections, the company acknowledges the cyclical nature of its markets, particularly in mining and construction [25][26] - Diversification across end markets helps mitigate overall business cyclicality [28] Valuation Insights - At a current price of $105/share, the market implies no profit growth, contrasting with historical growth rates of 4% and 9% for NOPAT [29] - If NOPAT grows at historical rates, the stock could be valued at least $129/share, indicating a potential upside of 23% [31]

The outlook for the Zacks Automotive - Original Equipment industry remains challenged, weighed down by macroeconomic headwinds and tariff-related demand volatility. The pull-forward in vehicle sales earlier this year, driven by tariff fears, is expected to result in a slowdown in the coming months, pressuring order volumes for equipment suppliers. While the shift toward electric and autonomous vehicles offers long-term growth potential, it also demands heavy investments in R&D, which may strain margins, esp ...

Allison Transmission Holdings (NYSE: ALSN ) may not garner the same level of recognition compared to technology giants, but its engineering works are critical to the streamlined transportation of goods, military assets and people across the globe.Volatility and Reason (V&R) is a space for clear-headed market commentary. No hot takes, no blind optimism, and no empty noise. I explore business, economics, and investing with a simple principle: logic over sentiment, curiosity over distraction.My goal? To cut th ...

Group 1 - The company anticipates continued growth and claims to be mostly insulated from external effects [1] - Robert F. Abbott has been managing investments since 1995 and has incorporated options strategies since 2010 [1] Group 2 - No stock or derivative positions are held by the analyst in the companies mentioned [2] - The article reflects the author's opinions and is not influenced by compensation [2]

Core Viewpoint - Allison Transmission Holdings Inc. has declared a cash dividend of $0.27 per share for the second quarter of 2025, with payment scheduled for May 30, 2025, to stockholders of record as of May 19, 2025 [1][2]. Company Overview - Allison Transmission is a leading designer and manufacturer of propulsion solutions for commercial and defense vehicles, recognized as the largest global manufacturer of medium- and heavy-duty fully automatic transmissions [3]. - The company was founded in 1915 and is headquartered in Indianapolis, Indiana, USA, with a presence in over 150 countries and regional headquarters in the Netherlands, China, and Brazil [3]. - Manufacturing facilities are located in the USA, Hungary, and India, and the company has more than 1,600 independent distributor and dealer locations worldwide [3].

Allison Transmission Holdings (ALSN) delivered first-quarter 2024 earnings of $2.23 per share, which beat the Zacks Consensus Estimate of $1.97 and rose 17% year over year. Quarterly revenues of $766 million fell 3% from the year-ago period's level and fell short of the Zacks Consensus Estimate of $775 million.Segmental PerformanceAllison Transmission 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 3. ...

Financial Performance - Net sales for the first quarter of 2025 were $766 million, a decrease of 3% compared to $789 million in the first quarter of 2024[105] - Gross profit for the first quarter of 2025 was $378 million, an increase of 3% from $366 million in the same period of 2024, with gross profit as a percentage of net sales rising to 49%[107] - Adjusted EBITDA for the first quarter of 2025 was $287 million, representing 37.5% of net sales, compared to $289 million and 36.6% in the first quarter of 2024[101] - Net income for the first quarter of 2025 was $192 million, or 25.1% of net sales, compared to $169 million, or 21.4% in the first quarter of 2024[104] - Adjusted free cash flow for Q1 2025 was $155 million, down from $162 million in Q1 2024[101] Market Performance - North America On-Highway end market net sales increased by 4% to $435 million, driven by price increases and strong demand for Class 8 vocational trucks[92] - Global Off-Highway end market net sales decreased by 61% to $18 million, primarily due to lower demand from the energy, mining, and construction sectors outside of North America[92] - The company expects higher net sales in 2025, driven by price increases and increased demand in the Defense end market[91] Expenses and Costs - Engineering expenses decreased by 7% to $43 million in the first quarter of 2025, down from $46 million in the same period of 2024[109] - Interest expense decreased by 16% to $21 million in the first quarter of 2025, primarily due to lower variable interest rates on the Term Loan[110] - Direct material costs accounted for approximately 66% of the cost of sales for the three months ended March 31, 2025[132] Cash Flow and Liquidity - Cash flows provided by operating activities for the three months ended March 31, 2025, were $181 million, compared to $173 million for the same period in 2024, reflecting a year-over-year increase of approximately 4.6%[124] - Cash used for investing activities increased to $26 million for the three months ended March 31, 2025, from $12 million in the same period of 2024, primarily due to a $15 million increase in capital expenditures[125] - Cash used for financing activities was $184 million for the three months ended March 31, 2025, compared to $164 million in 2024, driven by $98 million higher stock repurchases[126] - As of March 31, 2025, the company had total available cash and cash equivalents of $753 million, a decrease from $781 million as of December 31, 2024[114] - The company had $744 million available under the Revolving Credit Facility as of March 31, 2025, with no amounts outstanding[119] Debt and Taxation - As of March 31, 2025, the company had $513 million of indebtedness associated with its Term Loan and $1,000 million associated with its 3.75% Senior Notes due January 2031[117] - The effective tax rate for the first quarter of 2025 was 18%, compared to 17% in the same period of 2024, driven by higher taxable income[112] - The company recorded a deferred tax liability of $3 million for its subsidiary in China, with no other deferred tax liabilities recognized for foreign subsidiaries[116] Stock Repurchase and Shareholder Returns - The company repurchased $154 million of its common stock under the Repurchase Program during the three months ended March 31, 2025, with approximately $1,366 million remaining available under the program[121] - The first lien net leverage ratio was (0.21x) as of March 31, 2025, indicating strong liquidity management[119] Risks and Future Outlook - The company is subject to various legal actions and administrative proceedings, which may impact future financial performance[127] - The company faces numerous risks, including competitive market conditions and potential disruptions in supply chains[130] - The company anticipates that its cash flows and liquidity will be sufficient to meet known and anticipated cash requirements for the next twelve months[123] - The company is focused on technological developments, including electric hybrid and fully electric commercial vehicles, to meet changing customer needs[130]

Core Insights - Allison Transmission reported $766 million in revenue for Q1 2025, a year-over-year decline of 2.9% [1] - The EPS for the same period was $2.23, up from $1.90 a year ago, representing a surprise of +13.20% over the consensus estimate of $1.97 [1] Financial Performance - Revenue was below the Zacks Consensus Estimate of $775.11 million, resulting in a surprise of -1.18% [1] - The stock has returned -6.7% over the past month, compared to the Zacks S&P 500 composite's -0.7% change, indicating underperformance [3] Net Sales by End Market - North America On-Highway: $435 million, exceeding the average estimate of $406.42 million, with a year-over-year increase of +3.6% [4] - Service Parts, Support Equipment & Other: $148 million, below the estimated $159.20 million, reflecting a year-over-year decline of -7.5% [4] - Defense: $53 million, slightly below the average estimate of $53.76 million, but showing a year-over-year increase of +10.4% [4] - Outside North America On-Highway: $112 million, below the average estimate of $116.73 million, with a year-over-year decline of -2.6% [4]

Company Performance - Allison Transmission reported quarterly earnings of $2.23 per share, exceeding the Zacks Consensus Estimate of $1.97 per share, and up from $1.90 per share a year ago, representing an earnings surprise of 13.20% [1] - The company posted revenues of $766 million for the quarter ended March 2025, which missed the Zacks Consensus Estimate by 1.18% and decreased from $789 million year-over-year [2] - Over the last four quarters, Allison Transmission has surpassed consensus EPS estimates four times and topped consensus revenue estimates three times [2] Future Outlook - The current consensus EPS estimate for the upcoming quarter is $2.12 on revenues of $794.34 million, and for the current fiscal year, it is $8.29 on revenues of $3.15 billion [7] - The estimate revisions trend for Allison Transmission is mixed, leading to a Zacks Rank 3 (Hold), indicating expected performance in line with the market in the near future [6] Industry Context - The Automotive - Original Equipment industry, to which Allison Transmission belongs, is currently in the bottom 30% of over 250 Zacks industries, suggesting potential challenges ahead [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which could impact Allison Transmission's stock performance [5]

Allison Transmission (ALSN) Q1 2025 Earnings Call May 01, 2025 05:00 PM ET Company Participants Jacalyn Bolles - Executive Director of Treasury & IRDavid Graziosi - Chairman and CEOScott Mell - CFO & TreasurerG. Frederick Bohley - COOIsaac Sellhausen - Director - Equity ResearchTami Zakaria - Executive Director Conference Call Participants Kyle Menges - Vice President & Equity Research AnalystTim Thein - Managing Director & Research AnalystRob Wertheimer - AnalystAngel Castillo - AnalystLuke Junk - Senior R ...