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Why Is Allison Transmission (ALSN) Up 2.3% Since Last Earnings Report?

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A month has gone by since the last earnings report for Allison Transmission (ALSN). Shares have added about 2.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Allison Transmission due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Allison Beats on Q1 Earnings & Sales, Hikes Dividend

Allison Transmission Holdings posted first-quarter earnings of $1.30 a share, which beat the Zacks Consensus Estimate of $1.16 owing to higher-than-anticipated sales from all segments except Defense end market. The bottom line also increased 21.5% on a year-over-year basis. Quarterly revenues of $677 million grew 15.1% from the year-ago period and surpassed the consensus mark of $642 million.

Segmental Performance

Allison 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 jumped 8% year over year to $346 million amid continued robust customer demand for last mile delivery, regional haul and vocational trucks. The metric also topped the Zacks Consensus Estimate of $333 million.

Net sales in the North America Off-Highway end market catapulted 800% to $18 million from $2 million recorded in the year-ago period. The metric marginally outpaced the Zacks Consensus Estimate of $17.5 million.

In the first quarter, net sales in the Defense end market contracted 22% year over year to $35 million. The figure also lagged the consensus estimate of $41.4 million.

The Outside North America On-Highway end market’s net sales surged 30% year over year to $109 million in the quarter, courtesy of growth initiatives and recovery of customer demand in all regions. The figure also beat the consensus mark of $98 million.

Net sales in the Outside North America Off-Highway end market boomed 88% year over year to $30 million. The metric outpaced the consensus mark of $24 million.

Net sales in the Service Parts, Support Equipment & Other end market rose 14% year over year to $139 million in the quarter, owing to higher demand for North America service parts and global support equipment. Moreover, the figure crossed the consensus mark of $133 million.

Financial Position

Allison saw gross profit of $320 million, a 10% increase from $291 million for the same period in 2021, mainly driven by higher net sales and price increases on certain products.

Allison had cash and cash equivalents of $145 million on Mar 31, 2022, falling from $295 million as of 2021-end. Long-term debt was $2,503 million, marginally down from $2,504 million as of Dec 31, 2021. Adjusted free cash flow in the reported quarter was $143 million, up from the prior-year quarter’s $107 million on higher net cash provided by operating activities and lower capital expenditures. Selling, general and administrative expenses rose to $75 million from $73 million. Engineering – research and development expenses in the quarter increased to $43 million from $38 million in the year-ago quarter, primarily driven by higher product initiatives spending.

In the first quarter, Allison settled more than $81 million of share repurchases, representing 2% of shares. It increased the quarterly dividend for the third consecutive year, from 19 cents to 21 cents per share. In February, the company approved a $1 billion increase to its stock repurchase authorization, taking the total amount authorized under the program to $4 billion.

2022 Outlook

For 2022, Allison reaffirmed that it expects a demand boost in the Global On-Highway, Global Off-Highway and Service Parts, Support Equipment & Other end markets led by the ongoing global economic revival, strength in customer demand and price hike in certain products. Hence, it kept its 2022 projections unchanged. Its estimated net sales remain in the band of $2,625-$2,775 million. Net income and adjusted EBITDA are unchanged in the band of $430-$520 million and $865-$975 million, respectively. Adjusted free cash flow remains constant within $400-$500 million. It maintains its expected net cash provided by operating activities within $570-$680 million. Capex numbers are unchanged in the band of $170-$180 million.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

At this time, Allison Transmission has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Allison Transmission has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Allison Transmission is part of the Zacks Automotive - Original Equipment industry. Over the past month, Autoliv, Inc. (ALV), a stock from the same industry, has gained 3.7%. The company reported its results for the quarter ended March 2022 more than a month ago.

Autoliv, Inc. reported revenues of $2.12 billion in the last reported quarter, representing a year-over-year change of -5.3%. EPS of $0.45 for the same period compares with $1.79 a year ago.

For the current quarter, Autoliv, Inc. is expected to post earnings of $0.50 per share, indicating a change of -58.3% from the year-ago quarter. The Zacks Consensus Estimate has changed -9.1% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #5 (Strong Sell) for Autoliv, Inc. Also, the stock has a VGM Score of B.


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