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Allison Transmission (ALSN) Up 6% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Allison Transmission (ALSN - Free Report) . Shares have added about 6% 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 the most recent earnings report in order to get a better handle on the important drivers.

Allison Beats on Q3 Earnings, Raises 2018 Guidance

Allison Transmission’s third-quarter 2018 adjusted earnings were $1.27 per share, beating the Zacks Consensus Estimate of $1.09. In the year-ago quarter, the bottom line was 75 cents. Net income was $167 million compared with $111 million in third-quarter 2017.

In the reported quarter, net sales rose 16% to $692 million from $595 million a year ago. Moreover, it outpaced the Zacks Consensus Estimate of $652 million. Favorable demand in the end market — including global On-highway, Outside North America Off-Highway, and Service Parts, Support Equipment & Other —led to rise in sales.

During the reported quarter, gross profit was $368 million compared with $302 million in the year-ago quarter. Gross margin was 53.2% compared with 50.8% recorded in the same period of 2017. This rise was primarily driven by improved net sales and price increases on certain products and positive material costs. However, this was partly offset by high manufacturing costs.

Quarter in Detail

Allison has segregated revenues by the end markets it provides its services to, which are as follows:

Net sales for the North America On-Highway end market increased 10% to $332 million, driven by higher demand for rugged duty series models.

Net sales for the North America Off-Highway end market declined 29% to $12 million. The fall was due to lower demand from hydraulic fracturing applications.

Net sales for the Defense end market went up 20% to $42 million, driven by elevated Tracked and Wheeled demand.

Outside North America On-Highway end market net sales moved up 8% to $96 million, driven by higher demand in Asia. This figure was partly offset by lower demand in Europe.

Net sales for the Outside North America Off-Highway end market jumped to $46 million compared with $14 million in third-quarter 2017, driven by improved demand in energy, mining and construction sectors.

Net sales from the Service Parts, Support Equipment & Other end market were up 18% to $164 million, primarily due to higher demand for North America service parts and global support equipment.

Financial Details

Allison had cash and cash equivalents of $221 million as of Sep 30, 2018, compared with $199 million as of Dec 31, 2017. Long-term debt was $2.52 billion as of Sep 30, 2018, almost in line with the figure recorded on Dec 31, 2017.

In third-quarter 2018, Allison’s net cash provided by operating activities was $239 million compared with $215 million a year ago.

2018 Outlook Update

For 2018, the company anticipates net sales to increase by 18-19% from $2.3 billion recorded in 2017. The prior expectation was of 15-18% 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. Further, net income is estimated to be $600-$620 million compared with $570-$600 million stated earlier.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Allison Transmission has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile 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 broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Allison Transmission has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.




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