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Why Is Allison Transmission (ALSN) Down 10.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Allison Transmission (ALSN - Free Report) . Shares have lost about 10.2% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Allison Q1 Earnings Drive Past Estimates, Rise Y/Y

Allison’s first-quarter 2019 earnings were $1.32 per share, beating the Zacks Consensus Estimate of $1.11. In the year-ago quarter, the bottom line was $1.08. Net income in the quarter under review was $167 million compared with $151 million in first-quarter 2018.

In the reported quarter, net sales rose 2% year over year to $675 million. Moreover, it outpaced the Zacks Consensus Estimate of $646 million. Favorable demand outside North America Off-Highway and North America On-Highway end markets led to rise in sales.

Gross profit increased 5% year over year to $359 million while gross margin was 53.2% compared with 51.6% recorded in the same period of 2018. This rise in gross profit was primarily driven by reduction in expenses related to the retirement incentive program, improved net sales, price increases on certain products and lower incentive compensation expenses.

Quarter in Detail

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

Net sales for the North America On-Highway end market increased 11% to $377 million, driven by higher demand for rugged duty series and highway series models.

Net sales for the North America Off-Highway end market declined $19 million to $14 million. The fall was due to lower demand from hydraulic fracturing applications.

Net sales for the Defense end market declined 14% to $32 million, driven by lowered tracked vehicle demand.

The Outside North America On-Highway end market’s net sales increased 3% to $94 million, owing to higher demand in Europe.

Net sales for the Outside North America Off-Highway end market increased $15 million to $27 million in first-quarter 2019, driven by improved demand in the energy sector.

Net sales for the Service Parts, Support Equipment & Other end market decreased 13% to $131 million, owing to lower demand for North America service parts.

Financial Details

Allison had cash and cash equivalents of $324 million as of Mar 31, 2019, compared with $231 million as of Dec 31, 2018. Long-term debt was $2.5 billion as of Mar 31, 2019, almost in line with the figure recorded on Dec 31, 2018.

In first-quarter 2019, the company’s net cash provided by operating activities was $194 million compared with $153 million a year ago. Adjusted free cash flow for the reported quarter was $175 million compared with $143 million in the prior-year quarter.

2019 Outlook

Allison reiterated its guidance for 2019. For the year, it anticipates net sales of $2.58-$2.68 billion. Further, net income is estimated to be $525-$575 million and adjusted EBITDA is likely to be $1-$1.06 billion.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Allison Transmission has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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 looks promising. Notably, Allison Transmission has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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