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Why Is Allison Transmission (ALSN) Down 0.6% Since Last Earnings Report?

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It has been about a month since the last earnings report for Allison Transmission (ALSN - Free Report) . Shares have lost about 0.6% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Allison's Earnings & Sales Fall Y/Y in Q2

Allison second-quarter 2020 earnings came in at 20 cents per share, marginally beating the Zacks Consensus Estimate of 19 cents. It delivered better-than-expected results on higher-than-expected revenues from the North America Off-Highway, Defense, Outside North America On-Highway and Outside North America Off-Highway end markets.

The bottom line, however, is lower than the year-ago quarter’s earnings of $1.46 per share.

Net income in the second quarter was $23 million compared with the $181 million recorded in the year-ago quarter. This downside primarily resulted from lower gross profit and restructuring charges.

In the reported quarter, net sales plunged 49% year over year to $377 million on bleak demand across all end markets, except for Defense, amid the coronavirus crisis. The figure also missed the Zacks Consensus Estimate of $410 million. Gross profit plummeted 58% year over year to $165 million. Gross margin was 43.8% compared with the prior-year quarter’s 52.8%. Thisdownside primarily stemmed from lower net sales and restructuring charges, partially offset by favorable material costs.

Quarter in Detail

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

Net sales in the North America On-Highway end market dipped 59% year over year to $164 million on waning demand for Rugged Duty series and Highway series models. The reported figure also missed the Zacks Consensus Estimate of $189 million.

Net sales in the North America Off-Highway end market tanked 67% year over year to $3 million.Fluctuations in the demand for hydraulic fracturing applications resulted in thisdecline. However, the sales figure surpassed the Zacks Consensus Estimate of $0.9 million.

Net sales in the Defense end market climbed 14% to $42 million on higher tracked vehicle demand. The figure also outpaced the Zacks Consensus Estimate of $40.8 million.

The Outside North America On-Highway end market’s net sales slid 43% to $60 million, thanks to soft global demand amid the pandemic. The figure, however, beat the Zacks Consensus Estimate of $54 million.

Net sales in the Outside North America Off-Highway end market dropped 53% to $19 million, due to lackluster demand in the energy, mining and construction sectors. The reported figure, however, beat the Zacks Consensus Estimate of $18.67 million.

Net sales in the Service Parts, Support Equipment & Other end market slipped 39% to $89 million, due to dismal demand for North America service parts and support equipment. It, however, missed the Zacks Consensus Estimate of $112 million.

Financial Position

Allison had cash and cash equivalents of $434 million as of Jun 30, 2020, compared with $192 million as of Dec 31, 2019. As of Jun 30, 2020, long-term debt stood at $2,786 million, as compared to $2,512 million as ofDec 31,2019.

In the June-end quarter, the company’s net cash provided by operating activities was $92 million compared with the year-ago quarter’s $239million. Adjusted free cash flow in the reported quarter was $67 million compared with the prior-year quarter’s $214million.

2020 Outlook

Allison scrapped the previously-issued 2020 guidance as it expects that the pandemic’s impactto strain its operations in the days to come.

For 2020, the company has lowered the capital expenditure target by approximately 35% from the one reported in 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 7.89% due to these changes.

VGM Scores

Currently, Allison Transmission has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. 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 C. 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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