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Allison Transmission Holdings Inc (ALSN)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered resilient profitability despite softer top-line: net sales $766M (-3% YoY), diluted EPS $2.23 (+17% YoY), Adjusted EBITDA margin 37.5% (+90 bps YoY), net income margin 25.1% (+370 bps YoY) .
  • Versus S&P Global consensus, EPS beat (actual $2.23 vs $2.05*) while revenue missed modestly (actual $766M vs $788M*); margins expanded on pricing and lapping prior-year UAW incentives; Global Off-Highway and Service Parts were headwinds . Values retrieved from S&P Global.
  • Guidance reaffirmed: FY25 net sales $3.2–$3.3B, net income $735–$785M, Adjusted EBITDA $1.17–$1.23B, operating cash flow $800–$860M, capex $165–$175M, adjusted free cash flow $635–$685M .
  • Capital allocation remains shareholder-friendly: sixth consecutive annual dividend increase and ~$150M repurchases in Q1 (nearly 2% of shares), with ~$1.4B remaining authorization; Q2 dividend declared at $0.27 per share .

What Went Well and What Went Wrong

What Went Well

  • Pricing and margin execution: gross margin expanded to 49.3% (from 46.4% in Q1 2024) with ~$39M price realization; Adjusted EBITDA margin rose 90 bps YoY to 37.5% .
  • North America On-Highway and Defense strength: NA On-Highway +$15M YoY on price and robust Class 8 vocational demand; Defense +$5M YoY with improved pricing .
  • Strategic positioning and supply chain resilience: “well‑positioned to navigate current trade uncertainties” via Made-in-USA for NA customers and production outside NA for ONA customers . “Over 85% of direct material spend… in North America” and commodity pass‑throughs (≈2/3 steel, ≈80% aluminum) mitigate cost swings .

What Went Wrong

  • Top-line softness in cyclical pockets: Global Off-Highway -61% YoY and Service Parts/Support Equipment & Other -8% YoY; Outside North America On-Highway -3% YoY (lower Europe demand) .
  • Medium-duty pressure in NA: market remains well supplied; continued softness consistent with OEM commentary and prior guide .
  • Revenue missed consensus: $766M vs $788M* as service parts and Global Off-Highway weakness offset NA vocational/Defense strength . Values retrieved from S&P Global.

Financial Results

Core P&L and Margin Progression (oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Net Sales ($USD Millions)$824 $796 $766
Diluted EPS ($USD)$2.27 $2.01 $2.23
Net Income ($USD Millions)$200 $175 $192
Gross Profit ($USD Millions)$396 $373 $378
Adjusted EBITDA ($USD Millions)$305 $270 $287
Adjusted EBITDA Margin (%)37.0% 33.9% 37.5%
Net Income Margin (%)24.3% 22.0% 25.1%

Q1 2025 vs S&P Global Consensus

MetricConsensusActualSurprise
Revenue ($USD Millions)787.8*766.0 -21.8 (≈-2.8%)*
Diluted EPS ($USD)2.052*2.23 +0.18*
EBITDA ($USD Millions)282.3*287 (Adjusted EBITDA) +4.7*
Values retrieved from S&P Global.

Segment/End-Market Net Sales

End MarketQ1 2024 ($M)Q1 2025 ($M)YoY Δ ($M)
North America On-Highway$420 $435 +$15
Outside North America On-Highway$115 $112 -$3
Global Off-Highway$46 $18 -$28
Defense$48 $53 +$5
Service Parts, Support Equipment & Other$160 $148 -$12
Total Net Sales$789 $766 -$23

Selected KPIs

KPIQ1 2024Q1 2025
Cash and Equivalents ($M)$551 $753
Net Cash from Operating Activities ($M)$173 $181
Additions of Long‑Lived Assets / Capex ($M)$11 $26
Adjusted Free Cash Flow ($M)$162 $155
Operating Income ($M)$234 $249
SG&A ($M)$86 $86
Engineering – R&D ($M)$46 $43

Guidance Changes

MetricPeriodPrevious Guidance (Feb 11, 2025)Current Guidance (May 1, 2025)Change
Net Sales ($B)FY 2025$3.2–$3.3 $3.2–$3.3 Maintained
Net Income ($M)FY 2025$735–$785 $735–$785 Maintained
Adjusted EBITDA ($B)FY 2025$1.17–$1.23 $1.17–$1.23 Maintained
Net Cash from Operating Activities ($M)FY 2025$800–$860 $800–$860 Maintained
Capital Expenditures ($M)FY 2025$165–$175 $165–$175 Maintained
Adjusted Free Cash Flow ($M)FY 2025$635–$685 $635–$685 Maintained
DividendQ2 2025N/A$0.27/share declared Increased vs prior year cadence

Earnings Call Themes & Trends

TopicQ3 2024Q4 2024Q1 2025Trend
Pricing realizationNegotiating LTAs; strong value prop; price tailwinds into 2025 Enterprise pricing ≈400 bps in FY25 guide Q1 realized ≈500 bps; FY likely “north of 400 bps” Strengthening price realization
NA vocational demandUnprecedented Class 8 vocational demand; capacity investments Expect robust demand into 2025 Demand remains robust; municipal demand supportive Sustained strength
Medium-duty trucksSoftness flagged into Q4 Expect medium-duty down in 2025 Medium-duty down; inventories well supplied Persistent headwind
Defense growthProgram wins; decade-high momentum Tracked vehicles driving increases; $80M Abrams contract FICV selection across Indian OEMs; long-tail revenue Positive trajectory
Tariffs/Section 232Monitoring trade dynamics Commodity pass-throughs mitigate costs Section 232 under review; footprint/local sourcing limit exposure Manageable risk
Outside NA On‑HighwayRecord Q3; Asia strength; Europe weaker Guiding flat for 2025; mixed geo backdrop -3% YoY in Q1; lower demand in Europe Mixed/flat
Cost & margin driversThroughput/capacity actions FY25 margin up ~80 bps at midpoint; purchase components cost pressure Gross margin up; $39M price; lapping UAW incentives; mix headwinds Margin management effective
Emissions (EPA 2027)Portfolio alignment; hybrid solutions Positioned for EPA’27; conventional tech upgrades Monitoring potential modifications; tech features (FuelSense) support efficiency Prepared/engaged

Management Commentary

  • “Allison is well‑positioned to navigate current trade uncertainties, utilizing our global footprint to provide our North American customers with Made in USA products while supplying our Outside North America customers with on‑highway products produced outside North America.” – CEO Dave Graziosi .
  • “Relative to the gross margin expansion… price was meaningful, $39 million in price in the quarter… EBITDA margins… 90 basis points of expansion.” – COO Fred Bohley .
  • “Over 85% of our direct material spend is with suppliers based in North America… we pass through approximately 2/3 of steel and 80% of aluminum cost.” – CEO Dave Graziosi .
  • “We secured a little more price in the first quarter, closer to 500 basis points… mid‑single digit possible for the year.” – COO Fred Bohley .

Q&A Highlights

  • Margin bridge: Gross margin up to 49.3% on ~$39M pricing; lapping UAW incentives; mix/volume headwinds offset by price; Adjusted EBITDA margin +90 bps YoY .
  • Demand signals: Vocational demand remains robust; municipalities provide insulation; medium-duty down as inventories normalize .
  • Tariff/Section 232 exposure: Localized sourcing and dual-footprint strategy mitigate risks; monitoring potential unintended consequences .
  • Operations levers: Overtime rollback first lever if demand softens; inventories elevated to support H2 defense ramp .
  • Pricing cadence: Achieved ~500 bps in Q1; FY likely above 400 bps; LTAs include commodity pass-throughs .

Estimates Context

  • EPS beat: $2.23 actual vs $2.05* consensus; driven by pricing and lower share count, with net income up 14% YoY . Values retrieved from S&P Global.
  • Revenue miss: $766M actual vs $788M* consensus; softness in Global Off‑Highway and Service Parts offset NA vocational/Defense strength . Values retrieved from S&P Global.
  • EBITDA vs consensus: S&P Global EBITDA consensus $282.3M* vs company-reported Adjusted EBITDA $287M; note definitional differences between EBITDA and company Adjusted EBITDA . Values retrieved from S&P Global.

Key Takeaways for Investors

  • Pricing power and cost pass‑throughs underpin margin resilience; expect mid‑single digit price realization in FY25, supporting margin expansion even with softer medium-duty volumes .
  • Mix headwinds (Global Off‑Highway, Service Parts) likely persist near term, but robust vocational and Defense provide offset; data points support continued EPS resilience .
  • Guidance held across all metrics; H2 defense ramp and ongoing vocational strength are key to achieving the midpoint; watch for tariff and EPA’27 developments .
  • Capital deployment remains a catalyst: increased buyback authorization, Q1 repurchases (~2% of shares), and rising dividend enhance per-share metrics and downside support .
  • Near-term trading setup: Expect support on margin beats and capital returns; caution on revenue prints where Off-Highway/Service Parts delta dominates—monitor Europe demand in Outside NA On‑Highway .
  • Medium-term thesis: Defense program wins (e.g., FICV, Abrams) and India capacity expansion should diversify growth and ease NA throughput constraints; outside NA automatic transmission adoption is a structural tailwind .
  • Risk watchlist: Section 232 outcomes, commodity trends, FX revaluations, and parts normalization; company’s pass‑throughs and local sourcing mitigate, but not eliminate, volatility .

S&P Global disclaimer: Asterisk-marked values above were retrieved from S&P Global (Capital IQ) consensus estimates.