Allison Transmission: Great Results, But No Skin In The Game

Company Overview - Allison Transmission Holdings, Inc. is based in Indianapolis and specializes in designing and manufacturing vehicle propulsion systems, primarily fully automatic transmissions and electric hybrid systems [3] - The company generates revenue mainly from North America, with additional income from off-highway applications and the defense sector, indicating a diversified revenue stream [3][4] Q2 Earnings Results - In Q2, Allison reported record net sales of $816 million, a 4% year-over-year increase, driven by strong performance in the North American On-Highway segment, which saw a 15% increase to $456 million [8] - The defense market experienced a 30% year-over-year increase in net sales, attributed to heightened demand for tracked vehicle applications [8] - Earnings per share (EPS) rose 11% year-over-year to $2.13, surpassing the consensus estimate of $2.03 [8] Revenue Breakdown - For 2023, revenue from different segments includes: - North America On-highway: $1.53 billion - Service Parts, Support Equipment and Other: $696 million - Outside North America On-highway: $477 million - Defense: $166 million - Outside North America Off-highway: $104 million - North America Off-highway: $63 million [4] Market Challenges - The European market faced revenue declines due to price pressures from competitors like ZF, Voith, and Shaanxi Fast Gear, with the latter being a significant player due to lower manufacturing costs [7] - Supply chain disruptions, particularly in securing materials for transmission systems, were noted, with management citing geopolitical factors as contributing to these challenges [7] - The North American Off-Highway segment did not perform as well, experiencing a year-over-year decline of $24 million [7] Management Outlook - Management raised their 2024 guidance for revenue, earnings, and cash flow, indicating optimism despite current challenges [9] - However, concerns were raised regarding the lack of insider buying activity, which may suggest management's uncertainty about the current share price [9][10] - The company is currently trading at a price-to-earnings ratio of 11.51x, which is 50% below the industrials sector average, indicating attractive valuation ratios [10]