A month has gone by since the last earnings report for Allison Transmission (ALSN). Shares have added about 7.8% 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 its most recent earnings report in order to get a better handle on the important drivers.
Allison Q4 Earnings Top Estimates
Allison delivered fourth-quarter 2023 earnings of $1.91 per share, which rose 25.6% year over year and topped the Zacks Consensus Estimate of $1.42. The outperformance can be attributed to higher-than-expected sales from North America On-Highway, Defense and Outside North America Off-Highway end markets. Record quarterly revenues of $775 million grew 8% from the year-ago period and outpaced the Zacks Consensus Estimate of $755 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 rose 14% year over year to $380 million and surpassed the Zacks Consensus Estimate of $358 million. High demand for Class 8 vocational medium-duty trucks resulted in sales outperformance.
Net sales in the North America Off-Highway end market tanked 79% to $5 million from the year-ago period and lagged the consensus mark of $18.77 million.
In the reported quarter, net sales in the Defense end market rose 34% year over year to $63 million and beat the Zacks Consensus Estimate of $51 million, driven by higher demand for Tracked and Wheeled vehicle applications.
The Outside North America On-Highway end market’s net sales of $128 million declined from $131 million generated in the corresponding quarter of 2022. The reported figure also fell short of the consensus mark of $138 million.
Net sales in the Outside North America Off-Highway end market surged 31% year over year to $38 million and surpassed the Zacks Consensus Estimate of $29.10 million thanks to high demand in the mining sector.
Net sales in the Service Parts, Support Equipment & Other end markets grew 4.5% year over year to $161 million in the quarter and came in line with the consensus estimate.
Financial Position
Allison saw a gross profit of $371 million, an increase from $338 million for the same period in 2022, mainly driven by price increases in certain products.
Adjusted EBITDA in the quarter came in at $277 million, an increase from $245 million a year ago. The growth was led by higher gross profit.
Selling, general and administrative expenses in the quarter decreased to $92 million from $97 million for the same period in 2022. Engineering – research and development expenses were $54 million compared with $49 million recorded in the corresponding quarter of 2022.
Allison had cash and cash equivalents of $555 million on Dec 31, 2023, up from $232 million as of Dec 31, 2022. Long-term debt was $2,497 million compared with $2,501 million as of Dec 31, 2022.
Net cash provided by operating activities totaled $238 million. Adjusted free cash flow in the reported quarter was $186 million, up from $132 million generated in the year-ago period.
During the fourth quarter, the company paid out a quarterly dividend of 23 cents/share and repurchased shares worth $105 million.
2024 Outlook
Allison’s full-year 2024 net sales are estimated in the band of $3.05-$3.15 billion. Net income is expected in the band of $635-$685 million. Adjusted EBITDA is estimated within $1.07-$1,13 billion. It expects net cash provided by operating activities between $700 million and $760 million. Capex is expected in the band of $125-$135 million. Adjusted free cash flow is estimated within $575-$625 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
The consensus estimate has shifted 11.86% due to these changes.
VGM Scores
Currently, Allison Transmission has an average Growth Score of C, though it is lagging a bit 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 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Allison Transmission has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Allison Transmission belongs to the Zacks Automotive - Original Equipment industry. Another stock from the same industry, Lear (LEA), has gained 6.5% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.
Lear reported revenues of $5.84 billion in the last reported quarter, representing a year-over-year change of +8.8%. EPS of $3.03 for the same period compares with $2.81 a year ago.
For the current quarter, Lear is expected to post earnings of $3.19 per share, indicating a change of +14.8% from the year-ago quarter. The Zacks Consensus Estimate has changed -3.1% over the last 30 days.
Lear has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.
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