Allison (ALSN) Earnings & Revenues Surpass Estimates In Q4

Allison Transmission Holdings Inc.’s (NYSE:ALSN) fourth-quarter 2018 earnings were $1.14 per share, beating the Zacks Consensus Estimate of 95 cents. In the year-ago quarter, the bottom line was $1.51. Net income was $147 million compared with $215 million in fourth-quarter 2017.

In the reported quarter, net sales rose 10% year over year to $647 million. Moreover, it outpaced the Zacks Consensus Estimate of $629 million. Favorable demand outside North America Off-Highway and On-Highway end markets led to rise in sales.

Gross profit increased 17% year over year to $338 million while gross margin was 52.2% compared with 49% recorded in the same period of 2017. This rise was primarily driven by improved net sales, price increases on certain products and positive material costs.

2018 Results

In 2018, the company’s net income increased 27% year over year to $639 million. Further, earnings per share increased 42% to $4.78.

The company’s net sales rose 20% year over year to $2.71 billion.

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 6% to $303 million, driven by higher demand for rugged duty series models and highway series models.

Net sales for the North America Off-Highway end market declined 39% to $17 million. The fall was due to fluctuating demand for hydraulic fracturing applications.

Net sales for the Defense end market went up 44% to $36 million, driven by elevated tracked demand.

Outside North America On-Highway end market’s net sales declined 3% to $95 million, owing to lower demand in South America and Asia.

Net sales for the Outside North America Off-Highway end market increased to $47 million from $11 million in fourth-quarter 2017, driven by improved demand in energy, mining and construction sectors.

Net sales for the Service Parts, Support Equipment & Other end market increased 7% to $149 million primarily due to higher demand for North America service parts and global support equipment.

Financial Details

Allison had cash and cash equivalents of $231 million as of Dec 31, 2018, compared with $199 million as of Dec 31, 2017. Long-term debt was $2.52 billion as of Dec 31, 2018, almost in line with the figure recorded on Dec 31, 2017.

In fourth-quarter 2018, Allison’s net cash provided by operating activities was $232 million compared with $166 million a year ago. Adjusted free cash flow for the reported quarter was $184 million compared with $115 million in the prior-year quarter.

2019 Outlook

For 2019, the company anticipates net sales of $2.58-$2.68 billion, driven by price increases on certain products, growth initiatives and increased demand in the North America On-Highway end market. Further, net income is estimated to be $535-$585 million and adjusted EBITDA is likely to be $1-$1.06 billion.

Zacks Rank & Stocks to Consider

Allison currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader auto sector are General Motors Company (NYSE:GM) , Honda Motor Co., Ltd. (NYSE:HMC) and Oshkosh Corporation (NYSE:OSK) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

General Motors has an expected long-term growth rate of 8.5%. The company’s stock has seen the Zacks Consensus Estimate for earnings in 2019 being revised 3.7% upward over the past 30 days.

Honda has an expected long-term growth rate of 2.9%. The company’s stock has seen the Zacks Consensus Estimate for earnings in fiscal 2019 being revised 4.3% upward over the past 30 days.

Oshkosh has an expected growth rate of 11.3%. The company’s stock has seen the Zacks Consensus Estimate for earnings in fiscal 2019 being revised 5.8% upward over the past 30 days.

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