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Allison Transmission Holdings Inc (ALSN)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 net sales fell 16% year over year to $693M, with North America On‑Highway down 28% offset by Defense up 47%; adjusted EBITDA margin held at 36.9% and net income was $137M .
  • Allison missed Wall Street consensus: revenue $693M vs $754.7M estimate and Primary EPS $1.75 vs $1.80; reported diluted EPS was $1.63 (non-comparable to SPGI Primary EPS) ; estimates from S&P Global*.
  • FY25 guidance was lowered across net sales, net income, adjusted EBITDA, operating cash flow and adjusted free cash flow, while capex was maintained; management kept the midpoint of implied EBITDA margin .
  • Defense wins and product technology adoption were notable positives (e.g., $97M Abrams contract, expansion of Poland service network, PACCAR Neutral at Stop standardization, Cummins X15N pairing), while medium‑duty softness, tariffs/macro uncertainty, and OEM down days pressured on‑highway demand .
  • Potential stock catalysts: final regulatory approvals for the Dana Off‑Highway acquisition and financing milestones announced in November (notes and term loan), plus the Q4 dividend declaration .

What Went Well and What Went Wrong

What Went Well

  • Defense end market strength: Q3 Defense net sales rose 47% YoY to $78M, supported by tracked vehicle demand and pricing; management expects momentum to continue into Q4 .
  • Cash generation and margin resilience: Adjusted EBITDA margin held at 36.9% and adjusted free cash flow was $184M despite demand weakness; operating cash flow reached $228M .
  • Strategic and product wins: $97M Abrams transmission contract, Poland WZM service partner expansion, PACCAR standardizing Neutral at Stop, and Cummins X15N with Allison 4500 RDS integration, validating fuel‑agnostic strategy and driving adoption .

What Went Wrong

  • On‑highway demand decline: North America On‑Highway net sales fell $130M YoY; outside North America On‑Highway, Global Off‑Highway, and Service Parts were also down YoY, reflecting broad demand softness .
  • Earnings and guidance pressure: Net income fell to $137M (down $63M YoY) with ~$14M acquisition‑related SG&A; FY25 guidance was reduced across key metrics, signaling a tougher near‑term backdrop .
  • Tariffs/macro uncertainty: Management flagged Section 232/tariff impacts primarily via vehicle pricing and demand behavior; while direct cost exposure is limited, end‑market uncertainty weighed on visibility and modeled demand .

Financial Results

Quarterly Performance (actuals)

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$766 $814 $693
Net Income ($USD Millions)$192 $195 $137
Diluted EPS ($USD)$2.23 $2.29 $1.63
Adjusted EBITDA ($USD Millions)$287 $313 $256
Adjusted EBITDA Margin (%)37.5% 38.5% 36.9%
Cash from Operations ($USD Millions)$181 $184 $228
Adjusted Free Cash Flow ($USD Millions)$155 $153 $184

Q3 2025 Actual vs Wall Street Consensus (S&P Global)

MetricActualConsensusSurprise
Revenue ($USD Millions)$693 $754.7*-8.2%
Primary EPS ($USD)$1.7464*$1.80343*-3.2%

Values retrieved from S&P Global*
Note: Company‑reported diluted EPS was $1.63 (GAAP), which is not directly comparable to SPGI Primary EPS .

Segment Net Sales (Q3 2025 vs Q3 2024)

End MarketQ3 2025 ($M)Q3 2024 ($M)YoY ($M)
North America On‑Highway$327 $457 ($130)
Outside North America On‑Highway$122 $126 ($4)
Global Off‑Highway$7 $20 ($13)
Defense$78 $53 $25
Service Parts, Support Equipment & Other$159 $168 ($9)
Total Net Sales$693 $824 ($131)

KPIs and Balance Sheet

KPIQ1 2025Q2 2025Q3 2025
Net Leverage Ratio (x)1.43 1.38 1.33
Cash & Equivalents ($M)$753 $778 $902
Liquidity ($B)——$1.65
Share Repurchases ($M)$150 $102 $27
Dividend Payments ($M)——$23

Guidance Changes

MetricPeriodPrevious Guidance (Aug 4, 2025)Current Guidance (Oct 29, 2025)Change
Net Sales ($M)FY 2025$3,075 – $3,175 $2,975 – $3,025 Lowered
Net Income ($M)FY 2025$640 – $680 $620 – $650 Lowered
Adjusted EBITDA ($M)FY 2025$1,130 – $1,180 $1,090 – $1,125 Lowered; margin midpoint maintained
Net Cash from Operations ($M)FY 2025$785 – $835 $765 – $795 Lowered
Capital Expenditures ($M)FY 2025$165 – $175 $165 – $175 Maintained
Adjusted Free Cash Flow ($M)FY 2025$620 – $660 $600 – $620 Lowered

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Tariffs/macroWell‑positioned sourcing (85% NA), USMCA exemptions, pass‑throughs; minimal China; pricing mid‑single‑digits expected Section 232 impacts mainly via vehicle pricing/uncertainty vs direct costs; majority U.S. sourcing; limited material cost impact Elevated uncertainty; operational offset intact
North America On‑Highway demandVocational strong; medium‑duty softening; inventories elevated Down 28% YoY; OEM down days; demand deferrals until regulatory/economic clarity Deteriorated
Defense end market+10% YoY; India FICV selection; NGEV Phase II underway +47% YoY; Abrams $97M; Poland WZM; FNSS Kırkut program Strengthening
Product/technologyFuelSense Neutral at Stop adoption (DTNA); eGen Flex transit wins PACCAR standardizes Neutral at Stop; Cummins X15N + Allison 4500 RDS pairing Adoption broadening
Guidance trajectoryReaffirmed in Q1 Lowered in Q2 and Q3; EBITDA margin midpoint maintained Downward revisions
Capital allocation/liquidityDividend increase; $1B buyback authorization; strong cash Continued repurchases/dividends; $1.65B liquidity; notes/term loan for Dana acquisition Active; acquisition financing progressing

Management Commentary

  • “Throughout 2025, our largest end market, North America On‑Highway, has been negatively affected by global macroeconomic factors… We… continue to generate strong cash flow, enabling continued investment… including the repurchase of $27 million of our common stock and $23 million of dividend payments during the third quarter.” — CEO Dave Graziosi .
  • “We remain agile and responsive to evolving market dynamics… even in this challenging operating environment, we achieved an adjusted EBITDA margin of 37% and generated adjusted free cash flow of $184 million.” — CEO Dave Graziosi (prepared remarks) .
  • “We expect defense to continue to ramp into Q4.” — COO Fred Bohley on sequential outlook .
  • “85% of our components are purchased in the U.S., Mexico, and Canada… Section 232 will prioritize U.S.-made content, which positions us well.” — COO Fred Bohley on tariffs .
  • “We are maintaining the midpoint of the implied full‑year adjusted EBITDA margin guidance.” — CFO Scott Mell .

Q&A Highlights

  • Demand dynamics: Analysts probed the steepness of on‑highway decline; management cited continued OEM build rate reductions, elevated channel inventory, and end‑user deferrals until greater regulatory/economic certainty .
  • Sequential Q4 setup: Q4 implied revenue improvement offset by fewer work days; defense expected to continue ramping sequentially .
  • Tariffs impact: Section 232 affects demand/vehicle pricing more than direct costs; Allison’s U.S. manufacturing and NA sourcing mitigate material cost exposure .
  • Pricing carryover and margins: 2025 price >130bps (450+ bps price realization) with visibility into 2026 via LTAs; management aims to preserve margins amid demand uncertainty .
  • International growth & Dana acquisition: International on‑highway remains a significant opportunity; Dana footprint supports local‑for‑local content and expands customer access ahead of closing .

Estimates Context

  • Q3 2025 results missed consensus on both revenue and Primary EPS as above; EPS comparison uses SPGI Primary EPS, which differs from company‑reported diluted EPS $1.63 (GAAP) .
  • Estimate counts: 9 EPS estimates and 8 revenue estimates for Q3 2025*.
  • Implications: Consensus likely to reset lower for FY25/early FY26 on reduced guide and on‑highway softness; defense strength and pricing tailwinds may cushion EBITDA margins.

Values retrieved from S&P Global*

Key Takeaways for Investors

  • Defense strength is a key offset to on‑highway weakness; contract wins and global service expansion underpin momentum into Q4 .
  • The quarter was resilient on margins and cash generation despite topline pressure; FCF supports ongoing buybacks/dividends and acquisition financing .
  • Guidance reset lowers near‑term expectations; watch Q4 execution and any signs of medium‑duty/vocational stabilization .
  • Tariff/Section 232 and EPA‑27 clarity are pivotal demand drivers; Allison’s NA sourcing mitigates direct cost exposure but demand visibility remains constrained .
  • Product/technology adoption (Neutral at Stop, fuel‑agnostic integrations) enhances value proposition and may support pricing power into 2026 .
  • Acquisition of Dana’s Off‑Highway business has regulatory approvals and financing lined up; closing near year‑end could broaden footprint, customer access, and synergy realization .
  • Near‑term trading: Headline misses vs consensus and lowered FY guide are negatives; defense wins, acquisition progress, and margin resilience are supportive—monitor Q4 Defense sequential ramp and acquisition close as potential positive catalysts .