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Why Is Allison Transmission (ALSN) Down 27.3% 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 27.3% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.

Allison's Q4 Earnings Surpass Estimates, Decline Y/Y

Allison Transmission's fourth-quarter 2019 earnings came in at 85 cents per share, beating the Zacks Consensus Estimate of 72 cents. It delivered better-than-expected results on the back of higher-than-anticipated revenues from the North America On-Highway, Defense, and Service Parts, Support Equipment & Other end markets. The reported figure, however, comes in lower than the year-ago quarter’s $1.14.

Net income in the fourth quarter came in at $107 million compared with the $147 million recorded in the year-ago quarter. This downside primarily resulted from lower gross profit and elevated product-initiatives spending.

In the reported quarter, net sales declined 5% year over year to $617 million due to lower demand in the Service Parts, Support Equipment & Other and Global Off-Highway end markets. The figure, however, outpaced the Zacks Consensus Estimate of $597 million. Gross profit decreased 12% year over year to $298 million. Gross margin was 48.3% compared with the prior-year quarter’s 52.2%. This downside primarily stemmed from lower net sales and unfavorable mix, partially offset by price increases on certain products and favorable material costs.
CHART

Quarter in Detail

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

Net sales in the North America On-Highway end market increased 9% year over year to $330 million on stellar demand for rugged duty series, highway series and electric-hybrid propulsion models. This was led by the continued execution of growth initiatives and market-share gains. The reported figure also beat the Zacks Consensus Estimate of $304 million.

Net sales in the North America Off-Highway end market tanked 94% year over year to $1 million. In addition, the sales figure missed the Zacks Consensus Estimate of $6.37 million. Softer demand from hydraulic fracturing applications resulted in this decline.

Net sales in the Defense end market went climbed 17% to $42 million, owing to higher tracked vehicle demand. The figure also surpassed the Zacks Consensus Estimate of $35.33 million.

The Outside North America On-Highway end market net sales slid 4% to $91 million, thanks to bleak demand in Europe and Asia, partially offset by higher demand in South America. It also missed the Zacks Consensus Estimate of $98 million.

Net sales in the Outside North America Off-Highway end market plummeted 62% to $18 million in the final quarter of 2019 due to lower demand in the mining, energy and construction sectors. Moreover, the reported tally missed the Zacks Consensus Estimate of $37.68 million.

Net sales in the Service Parts, Support Equipment & Other end market fell 9% to $135 million, due to lackluster demand for North America Off-Highway service parts. However, it exceeded the Zacks Consensus Estimate of $123 million.

Financial Position

Allison had cash and cash equivalents of $192 million as of Dec 31, 2019 compared with $231 million as of Dec 31, 2018. Long-term debt was $2,512 million as of Dec 31, 2019, compared with the $2,523 million recorded on Dec 31, 2018. The debt-to-capital ratio stands at 76.33%.

In the December-end quarter, the company’s net cash provided by operating activities was $202 million compared with the year-ago quarter’s $232 million. Adjusted free cash flow (FCF) in the reported quarter was $121 million compared with the prior-year quarter’s $184 million.

2020 Outlook

For full-year 2020, Allison expects net sales of $2,375-$2,475 million. It anticipates net income of $425-$475 million and adjusted EBITDA is projected at $855-$915 million.

Net cash provided by operating activities is projected at $600-$640 million for the year, while adjusted FCF is expected in the range of $430 million to $480 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -7.08% due to these changes.

VGM Scores

Currently, Allison Transmission has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, 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 C. 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 #3 (Hold). We expect an in-line return from the stock in the next few months.


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