August 1, 2017 | 9:38 AM by Jaguar | avo@jaguaranalytics.com

Allison Transmissions (ALSN) – 2Q17 Earnings Recap

Following their 1Q earnings and guidance beat in April, Allison Transmission (ALSN) reported a similarly successful 2Q period beating analyst expectations and coming in above the company’s projections.

By the numbers, the company reported:

  • 2Q EPS $0.63 versus $0.47 consensus estimate
  • 2Q Revenue $580 million versus $511.77 million consensus estimate

They also updated Full Year 2017 guidance:

  • FY2017 YoY Net Sales increase in the range of 15% – 17%
  • Adjusted EBITDA Margin in the range of 35.5% – 36.5%, raised from 34% – 36%
  • Adjusted FCF in the range of $485 million – $505 million, raised from $415 million – $455 million

Management commented that the improved 2017 guidance is in part from increased prices on some of their products as well as a reflection of stronger demand from North American Off-Highway service part and On-Highway products segments, and Global Off-Highway products. Additionally, without providing specific 3Q guidance, Allison anticipates the next quarter’s net sales to increase YoY, mainly from continued increase in demand from the same sectors mentioned above. The only division that saw a drop in net sales was their North American Hybrid-Propulsion Systems for Transit Bus market, which declined $1 million compared to the same quarter in 2016.

Within their divisions, items of note that affected the quarter’s results were as follows:

North America

  • Off-Highway: driven by higher demand from hydraulic fracturing applications
  • Defense: Driven by higher demand for tracked vehicles (i.e. tanks)
  • Service Parts & Support: Net sales increase of 53% YoY

Rest of the World

  • On-Highway: Net sales saw a 15% increase YoY and improved by 18% sequentially, both cases were due to higher demand from Asia and Europe
  • Off-Highway: Also saw a net sales increase YoY and QoQ, this segment was driven by China’s energy sector

Commercial Truck Orders

Truck orders continue to improve and are forecast to grown through the end of 2018. Below are the most current RBC Capital estimates for Class 6-7 and 8 builds, and NAFTA Class 6-7 Backlog update. It should be noted that in large part Allison deals with the Class 6-7 market.

Analyst Commentary

Stifel analyst points out that the magnitude of the beat indicates “strengthening end markets in the world” should give shares a boost in the short-term and paves the road for a good FY2017 for Allison. The analyst further comments that estimates will be taken up further on revenue growth, however as far as price target, at $41 it appears to be fully valued and therefore rates the shares as a Buy.

BofA reiterated their Buy rating with a $49 price target, commenting that 2Q results suggest further market penetration in North American On-Highway portion as sales showed an increase of 13%. The analyst believes that despite the company’s raised 2017 outlook, it still appears to be conservative.

RBC Capital maintains their Outperform rating with a $46 price target.

Company Description

With a 63% global market share, Allison remains the largest manufacturer of fully automatic transmissions for medium and heavy duty commercial vehicles, city buses and defense vehicles, with a reach in both on-highway and off-highway operations. Their range of transmissions are suitable for industries such as construction, mining & energy and services that include refuse removal, delivery & distribution, fire and emergency as well as transit buses. Allison was part of General Motors (GM) until its spinoff in 2007.

#ALSN#AXL#CAT#CMI#F#GM#JCI#LAD#MTOR#NAV#PCAR#SAH#WBC

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