It has been about a month since the last earnings report for Allison Transmission (ALSN - Free Report) . Shares have added about 4.8% 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 Transmission Surpasses Q2 Earnings Estimates
Allison Transmission’ssecond-quarter 2018 adjusted earnings were $1.29 per share, beating the Zacks Consensus Estimate of $1. In the year-ago quarter, the bottom line was 63 cents. Net income was $174 million compared with $95 million in second-quarter 2017.
In the reported quarter, net sales rose 23% to $711 million from $580 million a year ago. Moreover, it outpaced the Zacks Consensus Estimate of $652 million. Favorable demand in the global on- and off-highway, and service parts, support equipment & other end markets led to rise in sales.
During the reported quarter, gross profit was $374 million compared with $290 million in the year-ago quarter. Gross margin was 52.6% compared with 50% recorded in the same period of 2017. This rise was primarily driven by improved net sales and price increases on certain products, partly offset by higher manufacturing costs, increased volume sales and expenses along with unfavorable material costs.
Quarter in Details
The company has segregated revenues by the end markets it caters, which are as follows:
Net sales of North America On-Highway end market increased 9% to $343 million, driven by a higher demand for rugged duty series models. The segment also includes sales for North America Electric Hybrid-Propulsion Systems for Transit Bus.
Net sales for the North America Off-Highway end market jumped to $31 million compared with the prior-year quarter’s figure of $5 million. The rise was driven by a higher demand for hydraulic fracturing applications.
Net sales for the Defense end market went up 43% to $43 million, driven by higher tracked and wheeled demand.
Outside North America On-Highway end market net sales moved up 19% to $101 million, driven by the higher demand in Europe and Asia.
Net sales for the Outside North America Off-Highway end market jumped to $24 million compared with $10 million in second-quarter 2017, driven by improved demand in energy, mining and construction sectors.
Service Parts, Support Equipment and Other end market net sales were up 24% to $169 million, primarily due to the higher demand for global service parts and support equipment.
Allison had cash and cash equivalents of $96 million as of Jun 30, 2018, compared with $199 million as of Dec 31, 2017. The company’s long-term debt was $2.52 billion as of Jun 30, 2018, almost in line with the figure recorded on Dec 31, 2017.
In the first half of 2018, Allison’s net cash provided by operating activities was $366 million compared with $277 million a year ago.
Share Buyback Update
During the first quarter, the company bought shares for $244 million and repaid $25 million of long-term debt. Further, Allison’s board has raised the current stock repurchase program by $500 million. Prior to this, the company had a repurchase authorization of approximately $184 million as of Jun 30, 2018.
2018 Outlook Update
For 2018, the company anticipates net sales to increase 15-18% from $2.3 billion, recorded in 2017 compared with the prior expectation of a 10-14% rise. This anticipation is encouraged by an augmented demand for global on- and off-highway products, price increases on few products and Allison’s continued growth initiatives. However, for third-quarter 2018, net sales are expected to be in the same level as the prior-year quarter.
Further, in 2018, net income is estimated to be $570-$600 million compared with the prior guidance of $515-$550 million. Also, adjusted EBITDA is anticipated to be $1.4-$1.08 billion, witnessing an increase from the initial guidance of $975-$1.03 billion.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 9.58% due to these changes.
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 B on the value side, putting it in the top 40% 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.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
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.