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Allison Transmission (ALSN) Down 8.5% Since Q4 Earnings Miss

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Allison Transmission’s (ALSN - Free Report) shares declined 8.5% since it unveiled fourth-quarter results on Feb 17. Investors were left disappointed as the company’s earnings not just missed estimates but also tailed off year over year.

The world's largest manufacturer of fully automatic commercial-duty transmissions posted fourth-quarter earnings of 53 cents a share, lagging the Zacks Consensus Estimate of 61 cents. Lower-than-expected revenues from Defense and Service Parts, Support Equipment & Others segments led to the underperformance. The bottom line also declined 41.1% on a year-over-year basis. Quarterly revenues of $535 contracted 13.3% from the comparable year-ago period but managed to surpass the consensus mark of $510 million.

Segmental Performance

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

For the reported quarter, net sales in the North America On-Highway end market dipped 14% year over year to $284 million on dwindling demand for its products amid coronavirus woes.

For the October-December period, net sales in the North America Off-Highway end market remained flat year over year at $1 million amid persistent weakness in hydraulic fracturing applications.

For the fourth quarter, net sales in the Defense end market edged up 5% year over year to $44 million on higher tracked vehicle demand. The figure, however, fell short of the Zacks Consensus Estimate of $46.15 million.

The Outside North America On-Highway end market’s net sales fell 15% year on year to $77 million during the December-end quarter on soft global demand, particularly in Asia and South America, amid the pandemic.

Net sales in the Outside North America Off-Highway end market slumped 39% year on year to $11 million for the fourth quarter due to dismal demand in the energy sector.

Net sales in the Service Parts, Support Equipment & Other end market slipped 13% year on year to $118 million for the reported quarter, owing to shrinking demand for North America service parts and support equipment. The figure also missed the Zacks Consensus Estimate of $123 million.

Financial Position & Dividend

Allison Transmission — whose peers include Magna International (MGA - Free Report) , Adient plc (ADNT - Free Report) and Meritor (MTOR - Free Report) — had cash and cash equivalents of $310 million on Dec 31, 2020 compared with $192 million in the corresponding period of 2019. As of 2020-end, long-term debt was $2,507 million compared with $2,512 million as of Dec 31, 2019. Adjusted free cash flow for the reported quarter was $128 million, up from the prior-year quarter’s $121 million, thanks to reduced capital outlay, partly offset by lower operating cash flows.

Encouragingly, the Zacks Rank #3 (Hold) company hiked quarterly dividend from 17 cents a share to 19 cents. First-quarter 2021 dividend of 19 cents per share will be payable on Mar 5 to shareholders of record as of Feb 22. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2021 View

Allison Transmission projects net sales for 2021 in the range of $2,265-$2,415 million, indicating an increase from $2,081 million recorded in 2020 on the back of improving demand in global On-Highway and Service Parts, Support Equipment & Other end markets, along with price increases on certain products. Net income and adjusted EBITDA are envisioned in the band of $375-$445 million and $770-$860 million, respectively. Adjusted free cash flow is expected between $390 million and $450 million. Capital expenditure is projected between $170 million and $180 million.

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