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Allison (ALSN) Down Despite Q1 Earnings Beat, Raised '21 View

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Allison Transmission’s (ALSN - Free Report) shares failed to gain despite first-quarter earnings beat, announced on Apr 28. In fact, over the past four trading sessions since its earnings release, the stock inched down 0.8%. Investors were most likely disappointed as the company’s profit and sales tailed off year over year.

The world's largest manufacturer of fully automatic commercial-duty transmissions posted first-quarter earnings of $1.07 a share, topping the Zacks Consensus Estimate of 90 cents. Higher-than-expected revenues from On-Highway segments and the Defense unit led to the outperformance. However, the bottom line declined 10.8% on a year-over-year basis. Quarterly revenues of $588 contracted 7.7% from the comparable year-ago period but managed to surpass the consensus mark of $571 million.

Segmental Performance

Allison segregates its revenues in terms of end markets served, which are as follows:

For the reported quarter, net sales in the North America On-Highway end market dipped 9% year over year to $319 million on dwindling demand for products amid coronavirus woes. Nonetheless, the metric beat the Zacks Consensus Estimate of $294 million.

For the January-March period, net sales in the North America Off-Highway end market plummeted 75% from the prior-year quarter to $2 million amid weakness in hydraulic fracturing applications.

For the first quarter, net sales in the Defense end market rose 13% year over year to $45 million on higher tracked vehicle demand. Further, the figure also surpassed the consensus estimate of $42 million.

The Outside North America On-Highway end market’s net sales increased 17% year on year to $84 million for the March-end quarter driven by robust demand in Asia. The metric also topped the consensus mark of $65 million.

Net sales in the Outside North America Off-Highway end market slumped 41% year on year to $16 million for the first quarter due to dismal demand in the energy sector.

Net sales in the Service Parts, Support Equipment & Other end market slipped 12% year on year to $122 million for the reported quarter, owing to shrinking demand for North America service parts and support equipment.

Financial Position & Updated ’21 View

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 $295 million on Mar 31, 2021 compared with $310 million as of 2020-end. As of Mar 31, long-term debt was $2,506 million, essentially unchanged from the 2020-end level. Adjusted free cash flow for the reported quarter was $107 million, down from the prior-year quarter’s $127 million.

Encouragingly, the Zacks Rank #2 (Buy) company raised its full-year guidance. Allison currently projects net sales in the band of $2,325-$2,475 million, up from the prior guided range of $2,265-$2,415 million. Net income and adjusted EBITDA are now envisioned in the band of $395-$465 million and $795-$885 million, up from $375-$445 million and $770-$860 million projected earlier, respectively. Adjusted free cash flow is expected within $415-$475 million, implying a year-over-year increase of 6% at the midpoint of the guided range. Capex projection remains unchanged between $170 million and $180 million.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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