Assessing ValueAct Capital Management's fourth quarter positions (Part 6 of 8)
ValueAct Capital and Allison Transmission Holdings
ValueAct initiated a new position in Dresser-Rand Group, Inc. (DRC). It sold its stakes in CF Industries (CF), The Mosaic Company (MOS), and Valero Energy Corporation (VLO). The fund increased positions in Allison Transmission Holding (ALSN) and MSCI Inc. (MSCI). It reduced its stake in Adobe Systems Incorporated (ADBE).
ValueAct Capital, co-founded by Jeffrey Ubben, upped its stake in Allison Transmission Holding (ALSN) from 4,625,204 shares to 18,025,204 shares, last quarter. The shares account for a 9.9% of the company’s outstanding common stock. The position was initiated in 3Q and currently accounts for 4.18% of the fund’s fourth quarter portfolio.
For the fourth quarter of 2013, Allison Transmission’s results missed earnings estimates but beat on revenue. The company reported net sales for the quarter of $491 million, a 1% increase from the same period in 2012. Profit for the quarter increased to $78 million, compared to $46 million for the same period in 2012. Earnings per share for the quarter was $0.23 cents compared with $11.2 million or $0.06 a share, a year ago.
The management said that net sales stabilized in the fourth quarter on a year-over-year basis, an improvement relative to the sales declines experienced through the first three quarters of the year. The growth was driven by higher demand in the Service Parts, Support Equipment & Other end market, and continued recovery in the North America On-Highway end market. Improved demand conditions in the Outside North America On-Highway end market largely offset by previously contemplated reductions in U.S. defense spending, and weakness in the Outside North America Off-Highway end market. Its North America Off-Highway end market continues to be weak, but experienced some modest sequential improvement.
Allison saw strong operating margins and cash flow during the fourth quarter by executing initiatives designed to align costs and programs across its business with end markets demand conditions while continuing to invest in growth opportunities. Selling, general and administrative expenses for the quarter were $87 million, a decrease of 22% from $112 million for the same period in 2012.
Allison has also factored into its guidance a slowly emerging improvement in demand from the North America energy sector’s hydraulic fracturing market, and previously considered reductions in U.S. defense spending to longer term averages experienced during periods without active conflicts. It expects growth in the Outside North America On-Highway end market, moderately improved second half demand conditions in the Outside North America Off-Highway end market, and higher demand in the Service Parts, Support Equipment & Other end market.
Browse this series on Market Realist:
- Part 1 - Assessing ValueAct Capital Management’s fourth quarter positions
- Part 2 - Why ValueAct Capital increased its stake in Dresser-Rand Group
- Part 3 - Why did ValueAct Capital exit its position in CF Industries?
- Investment & Company Information
- Allison Transmission
- North America