Why Is Allison Transmission (ALSN) Down 13.2% Since Last Earnings Report?
It has been about a month since the last earnings report for Allison Transmission (ALSN). Shares have lost about 13.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Allison Transmission due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Allison Q4 Earnings and Sales Top
Allison Transmission posted fourth-quarter earnings of $1.52 a share, which topped the Zacks Consensus Estimate of $1.21 owing to higher-than-anticipated sales from North America On-Highway, North America Off-Highway, Defense, Outside North America On-Highway and Service Parts, Support Equipment & Other end markets. The bottom line increased 32% on a year-over-year basis from $1.15 per share. Quarterly revenues of $718 million grew 11% from the year-ago period and crossed the consensus mark of $676 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 19% year over year to $333 million amid continued robust customer demand for last-mile delivery, regional haul and vocational trucks. Also, the metric surpassed the Zacks Consensus Estimate of $327 million.
Net sales in the North America Off-Highway end market declined 11% to $24 million from the year-ago period but crossed the Zacks Consensus Estimate of $23.96 million.
In the reported quarter, net sales in the Defense end market declined 13% year over year to $47 million. However, the figure topped the consensus estimate of $41.15 million.
The Outside North America On-Highway end market’s net sales rose 24% year over year to $131 million in the quarter, led by improved demand in Europe, Asia and South America and outpaced the consensus mark of $105 million.
Net sales in the Outside North America Off-Highway end market declined 17% year over year to $29 million and lagged the consensus mark of $31.5 million.
Net sales in the Service Parts, Support Equipment & Other end markets rose 9% year over year to $154 million in the quarter, owing to higher demand for global service parts and support equipment and aluminum die-cast components. Moreover, the figure crossed the consensus mark of $142 million.
Financial Position
Allison saw a gross profit of $338 million, an 11% increase from $305 million for the same period in 2021, mainly driven by higher net sales and price increases on certain products.
Adjusted EBITDA in the quarter came in at $245 million, an increase of 11% from $220 million a year ago. The growth was led by higher gross profit.
Selling, general and administrative expenses in the quarter increased to $97 million from $79 million for the same period in 2021, driven by higher commercial activity expenses. Engineering – research and development expenses were $49 million, almost at the same level as the fourth quarter of 2021.
Allison had cash and cash equivalents of $232 million on Dec 31, 2022, up from $127 million as of Dec 31, 2021. Long-term debt was $2,501 million, marginally down from $2,504 million as of Dec 31, 2021.
Net cash provided by operating activities increased to $224 million from $168 million for the same period in 2021, owing to a lower working capital requirement and a higher gross profit. Adjusted free cash flow in the reported quarter was $132 million, an increase from $105 million a year ago due to higher gross profit and higher net cash provided by operating activities.
In the fourth quarter, Allison repurchased $55 million of its common stock.
2023 Outlook
Allison’s full-year 2023 estimated net sales are in the band of $2,825-$2,925 million. Net income is expected in the band of $500-$550 million, and adjusted EBITDA is estimated within $965-$1,025 million. Adjusted free cash flow is estimated within $480-$530 million. Its expected net cash provided by operating activities is between $605 and $665 million. Capex numbers are in the band of $125-$135 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
Currently, Allison Transmission has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, 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
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Allison Transmission has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Allison Transmission Holdings, Inc. (ALSN) : Free Stock Analysis Report
