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Allison (ALSN) Beats Earnings and Revenue Estimates in Q3

Zacks Equity Research

Allison Transmission Holdings Inc.’s ALSN third-quarter 2019 earnings came in at $1.23 per share, beating the Zacks Consensus Estimate of $1.13. It delivered better-than-expected results on the back of higher-than-anticipated revenues of $369 million from the North America On Highway end market, outpacing the Zacks Consensus Estimate of $349 million. The reported figure, however, comes in lower than the year-ago quarter’s $1.27.

Net income in the third quarter declined to $149 million compared with the $167 million recorded in the year-ago quarter. This downside primarily resulted from lower gross profit, increased product-initiatives spending and elevatedinterest expense.

In the reported quarter, net sales declined 3% year over year to $669 million due to lower demand in the Service Parts, Support Equipment & Other and Global Off-Highway end markets.However, the figure outpaced the Zacks Consensus Estimate of $664 million. Gross profit decreased5% year over year to $348 million. Gross margin was 52% compared with 53.2% recorded in the prior-year quarter. This downside primarily stemmed from lower net sales and higher manufacturing expenses.

Allison Transmission Holdings, Inc. Price and Consensus

Allison Transmission Holdings, Inc. Price and Consensus

Allison Transmission Holdings, Inc. price-consensus-chart | Allison Transmission Holdings, Inc. Quote

Quarter in Detail

Allison segregates itsrevenues by the end markets served, which are as follows:

Net sales in the North America On-Highway end market increased 11% year over year to $369 million, driven by stellardemand for rugged duty series and highway series models. This wasled by the continued execution of growth initiatives and market-share gains in the company’s Class 4/5 truck.

Net sales in the North America Off-Highway end market tanked50% year over year to $6 million. Thisdownside was caused by lower demand from hydraulic fracturing applications.

Net sales in the Defense end market went down 5% to $40 million, due to lower demand for Wheeled vehicle.

The Outside North America On-Highway end market’s net sales increased 3% to $99 million, owing to higher demand in Europe and South America, partially offset by lower demand in Asia.

Net sales in the Outside North America Off-Highway end market plummeted48% to $24 million in third-quarter 2019 on lower demand in the mining and energy sectors.

Net sales in the Service Parts, Support Equipment & Other end market fell 20% to $131 million, due to lower demand for North America service parts.

Financial Position

Allison had cash and cash equivalents of $152 million as of Sep 30, 2019 compared with $231 million as of Dec 31, 2018. Long-term debt was $2,513 million as of Sep 30, 2019, compared with the $2,523 million recorded on Dec 31, 2018. The debt-to-capital ratio stands at 77.2%.

In third-quarter 2019, the company’s net cash provided by operating activities was $212 million compared with the year-ago quarter’s $239 million. Adjusted free cash flow (FCF) in the reported quarter was $165 million compared with the prior-year quarter’s $216 million.

2019 Outlook

Allison reiterated its guidance for 2019. For the year, it anticipates net sales in the range of $2.65-$2.7 billion. Further, net income is estimated to be $555-$575 million and adjusted EBITDA is projected at $1.03-$1.07 billion.

For full-year 2019, net cash provided by operating activities is projected at $745-$775 million, while adjusted FCF is expected in the range of $570-$610 million.

Zacks Rank & Stocks to Consider

Currently, Allison carriesa Zacks Rank #4 (Sell).

A few better-ranked stocks worth considering are Kinross Gold Corporation KGC, sporting a Zacks Rank #1 (Strong Buy), and Aaron's, Inc. AAN and Alamos Gold Inc. AGI, both carrying a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinross Gold has an expected earnings growth rate of 210% for 2019. The company’s shares have soared 85.3% in the past year.

Aaron's has an estimated earnings growth rate of 17.56% for the ongoing year. The company’s shares have surged roughly 62.6% in a year’s time.

Alamos Gold has a projected earnings growth rate of a whopping 340% for the current year. Its shares have gained around 27% over the past year.

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