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Allison Transmission Holdings Inc (ALSN)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 results were solid: revenue was $814M (flat YoY), diluted EPS hit a quarterly record $2.29, and Adjusted EBITDA margin expanded 160 bps YoY to 38.5% .
  • Versus S&P Global consensus, Allison delivered a modest beat: revenue $814M vs $805.4M, and EPS $2.29 vs ~$2.22; strength in Defense and record Outside North America On-Highway offset softness in North America On-Highway; management also repurchased $102M of stock in the quarter .
  • Full-year 2025 guidance was lowered largely on weaker North America On-Highway build rates and acquisition-related costs, while maintaining the midpoint of implied Adjusted EBITDA margin; the announced $2.7B acquisition of Dana’s Off-Highway business is expected to close in late Q4’25 and is framed as transformational with identified $120M annual run-rate synergies by year 4 .
  • Management emphasized deferral (not destruction) of North America demand into 2026 amid OEM inventory realignment and macro/regulatory uncertainty, while citing Defense strength and stability outside North America; tariffs are a 2H headwind but viewed as largely recoverable through customer pass-throughs .

What Went Well and What Went Wrong

What Went Well

  • Record EPS and margin resilience: “Delivering record quarterly earnings per share… Adjusted EBITDA of $313 million increased 4% year over year… Adjusted EBITDA margin… 38.5%” .
  • End-market diversification: Defense grew $20M YoY; Outside North America On-Highway set a quarterly record at $142M; Service Parts & Other grew $10M YoY .
  • Capital returns and balance sheet: $102M buybacks (over 1% of shares) during Q2; cash from ops rose to $184M; cash balance $778M at quarter-end .

What Went Wrong

  • North America On-Highway softness: sales -$39M YoY on weaker medium-duty demand; OEMs reduced shifts/days to normalize inventories; mix moderated Class 8 vocational, pressuring 2H volume .
  • Global Off-Highway demand weak: -$7M YoY on energy/mining/construction outside North America .
  • Higher SG&A from deal costs: SG&A +$20M YoY, including $15M acquisition-related expenses; 2025 guide lowered on end-market conditions and acquisition costs, despite maintaining implied EBITDA margin midpoint .

Financial Results

Headline Metrics (YoY and QoQ)

MetricQ2 2024Q1 2025Q2 2025
Revenue ($USD Millions)$816 $766 $814
Diluted EPS ($)$2.13 $2.23 $2.29
Net Income ($M)$187 $192 $195
Gross Profit ($M)$394 $378 $402
Adjusted EBITDA ($M)$301 $287 $313
Adjusted EBITDA Margin (%)36.9% 37.5% 38.5%
Cash from Operations ($M)$171 $181 $184
Adjusted Free Cash Flow ($M)$150 $155 $153

Segment (End Market) Breakdown

End MarketQ2 2024 ($M)Q2 2025 ($M)Variance ($M)
North America On-Highway$456 $417 ($39)
Outside North America On-Highway$128 $142 $14
Global Off-Highway$23 $16 ($7)
Defense$43 $63 $20
Service Parts, Support Equipment & Other$166 $176 $10
Total Net Sales$816 $814 ($2)

Actual vs S&P Global Consensus

MetricQ1 2025 ActualQ1 2025 S&P ConsensusQ2 2025 ActualQ2 2025 S&P Consensus
Revenue ($USD Millions)$766 $787.8*$814 $805.4*
EPS ($)$2.23 $2.052*$2.29 $2.225*

Values retrieved from S&P Global.
Notes: Q2’25 revenue beat by ~$8.6M (~1.1%); EPS beat by ~$0.03. Q1’25 revenue missed, while EPS beat vs consensus.*

Guidance Changes

MetricPeriodPrevious Guidance (May 1, 2025)Current Guidance (Aug 4, 2025)Change
Net Sales ($M)FY 2025$3,200 – $3,300 $3,075 – $3,175 Lowered
Net Income ($M)FY 2025$735 – $785 $640 – $680 Lowered
Adjusted EBITDA ($M)FY 2025$1,170 – $1,230 $1,130 – $1,180 Lowered
Net Cash from Ops ($M)FY 2025$800 – $860 $785 – $835 Lowered
Capital Expenditures ($M)FY 2025$165 – $175 $165 – $175 Maintained
Adjusted Free Cash Flow ($M)FY 2025$635 – $685 $620 – $660 Lowered
Implied Adj. EBITDA MarginFY 2025—Midpoint maintained Maintained
Quarterly Dividend/ShareQ3 2025—$0.27 (declared) Declared

Drivers cited: weaker North America On-Highway build rates, acquisition-related expenses, and favorable cash tax benefits from the One Big Beautiful Bill Act (OBUBA) offsetting part of the pressure .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’24 and Q1’25)Current Period (Q2’25)Trend
North America On-Highway demand/mixQ4’24: “Unprecedented” Class 8 vocational demand; FY24 NA On-Highway +$223M YoY . Q1’25: strength in NA On-Highway, offset by medium-duty softness .Medium-duty softness and OEM production cuts; inventories elevated; some moderation in vocational; deferral vs destruction of demand into 2026 .Soft near term; deferral into 2026.
DefenseQ4’24: decade-high FY Defense; Q4 +8% YoY . Q1’25: Defense +$5M YoY .Q2 Defense +$20M YoY; incremental awards (eGenForce/NGEV Phase 2; Poland 3040MX) .Strengthening tailwind.
Outside North America On-HighwayQ4’24: outside NA up for FY . Q1’25: Europe weaker .Record $142M; strength in South America/Europe .Improving.
Pricing/Costs/TariffsQ1’25: pricing tailwind YoY .Q2 pricing >400 bps; 2H tariff headwinds but largely recoverable via pass-throughs; volume/mix drives 2H decrementals .Pricing positive; tariffs manageable.
Supply chain/backlogsPrior: normalization through 2024.Bodybuilder constraints remain; OEMs lowering build rates to avoid oversupply into 2026 .Normalizing with residual bottlenecks.
Regulatory—EPA rule uncertainty; Allison compliant; CARB low-NOx pairing with PACCAR MX-13 via Allison 4000 Series .Regulatory clarity pending; tech-ready.
Technology/Electrified—eGen Flex adoption in transit; eGenForce (NGEV) moving to Phase 2; electrification centers support .Progressing.
M&A (Dana Off-Highway)—Transformational $2.7B deal; 6.8x 2024 EBITDA pre-synergy; $120M run-rate synergies by year 4; close late Q4’25 .Platform expansion; integration ahead.

Management Commentary

  • “Delivering record quarterly earnings per share… is a clear reflection of the Allison team’s continued focus on execution… continued growth in the Defense end market and a record $142 million of quarterly net sales in the Outside North America On-Highway end market” .
  • On guidance drivers: “Revisions in North America On-Highway build rates are significant… OEMs are responding to near-term market demand conditions… we view current conditions as a deferral versus any type of real permanent change in demand” .
  • On tariffs and costs: “Pricing in the quarter… was north of 400 bps… we do anticipate some meaningful impact from tariffs in the second half… [but] plan to offset the impact” .
  • On 2026 setup: “OEMs… better position the overall industry going into 2026… our products… are very well placed to be compliant [with future regulations]” .
  • On the Dana Off-Highway acquisition: “Purchase price… ~$2.7 billion… 6.8x 2024 Adjusted EBITDA; with $120 million synergies… 5.2x; full synergy realization by year 4” .

Q&A Highlights

  • Guidance reduction concentrated in North America On-Highway: OEM build cuts, dealer inventory normalization, medium-duty weakness; management emphasizes demand deferral and readiness to flex operations .
  • Margins in 2H: pricing tailwinds continue; tariffs a headwind but largely recoverable; volume/mix deterioration the key margin pressure .
  • Capital allocation: continued dividends and opportunistic buybacks alongside M&A and deleveraging; repurchased >$100M shares in Q2; intent to manage to ~2x net leverage over time post-closing .
  • 2026 outlook: industry entering 2026 better balanced; EPA and tariff uncertainties noted; Allison’s compliance readiness and USMCA sourcing give relative positioning advantage .
  • Taxes (OBUBA): mid–double-digit millions cash tax benefit in 2025 (catch-up on R&D amortization and other items), then mid-to-upper teens annually near term .

Estimates Context

  • Q2 2025: Revenue $814M vs $805.4M S&P consensus (beat); EPS $2.29 vs ~$2.22 S&P consensus (beat) .
  • Q1 2025: Revenue $766M vs $787.8M S&P consensus (miss); EPS $2.23 vs ~$2.05 S&P consensus (beat) .

See “Actual vs S&P Global Consensus” table for detail. Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Mix-resilient quarter: defense strength and Outside NA record helped offset North America On-Highway softness; margins expanded despite deal costs .
  • Guidance reset largely reflects near-term North America normalization and acquisition expenses; implied EBITDA margin midpoint maintained, underscoring pricing power and cost control .
  • 2H watch items: tariffs (mostly pass-through), vocational mix, and medium-duty demand; management framing weakness as deferral into 2026 rather than structural .
  • Strategic catalyst: Dana Off-Highway acquisition expands global footprint, product scope, and electrified capabilities; $120M run-rate synergies by year 4 provide medium-term EPS/FCF uplift potential .
  • Capital allocation remains shareholder-friendly with ongoing dividend and opportunistic buybacks even through M&A integration, supported by strong cash generation .
  • Regulatory readiness (EPA/CARB) and electrified programs (eGen Flex/eGenForce) support competitive positioning through the next emission cycles and defense modernization .

Appendix: Additional Data and Disclosures

  • Q2 2025 cash flow and balance sheet: CFO of $184M; Adjusted FCF $153M; cash $778M at quarter-end; leverage flexible/long-dated with earliest maturity Oct 2027 .
  • Share repurchases: $102M in Q2; YTD ~3% of outstanding shares repurchased .
  • 2025 guidance bridge includes ~$70M acquisition-related expenses in the EBITDA reconciliation for the year .
  • Q2 2025 non-GAAP reconciliations and additional financial statements are provided in the press release .

Footnote on estimates: Asterisks (*) denote S&P Global consensus/actuals used solely for estimate comparisons. Values retrieved from S&P Global.