Stock Story -
Transmission provider Allison Transmission (NYSE:ALSN) reported results ahead of analysts' expectations in Q2 CY2024, with revenue up 4.2% year on year to $816 million. The company expects the full year's revenue to be around $3.13 billion, in line with analysts' estimates. It made a GAAP profit of $2.13 per share, improving from its profit of $1.92 per share in the same quarter last year.
Is now the time to buy Allison Transmission? Find out by reading the original article on StockStory, it's free.
Allison Transmission (ALSN) Q2 CY2024 Highlights:
- Revenue: $816 million vs analyst estimates of $799.4 million (2.1% beat)
- EPS: $2.13 vs analyst estimates of $2.03 (5.1% beat)
- The company lifted its revenue guidance for the full year from $3.1 billion to $3.13 billion at the midpoint, a 1% increase
- The company lifted its EBITDA guidance for the full year to $1.12 billion at the midpoint, in line with analysts' expectations
- Gross Margin (GAAP): 48.3%, in line with the same quarter last year
- Free Cash Flow of $150 million, similar to the previous quarter
- Market Capitalization: $7.23 billion
Helping build race cars at one point, Allison Transmission (NYSE:ALSN) offers transmissions to original equipment manufacturers and fleet operators.
Heavy Transportation EquipmentHeavy transportation equipment companies are investing in automated vehicles that increase efficiencies and connected machinery that collects actionable data. Some are also developing electric vehicles and mobility solutions to address customers’ concerns about carbon emissions, creating new sales opportunities. Additionally, they are increasingly offering automated equipment that increases efficiencies and connected machinery that collects actionable data. On the other hand, heavy transportation equipment companies are at the whim of economic cycles. Interest rates, for example, can greatly impact the construction and transport volumes that drive demand for these companies’ offerings.
Sales GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Regrettably, Allison Transmission's sales grew at a weak 2.5% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Allison Transmission's annualized revenue growth of 10.5% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
We can dig further into the company's revenue dynamics by analyzing its three most important segments: North America On-Highway, International On-Highway, and Service and Support, which are 55.9%, 15.7%, and 20.3% of revenue. Over the last two years, Allison Transmission's revenues in all three segments increased. Its North America On-Highway revenue (propulsion solutions) averaged year-on-year growth of 14.9% while its International On-Highway (propulsion solutions) and Service and Support (parts and equipment) revenues averaged 9.4% and 11.2%.
This quarter, Allison Transmission reported reasonable year-on-year revenue growth of 4.2%, and its $816 million of revenue topped Wall Street's estimates by 2.1%. We also like to judge companies based on their projected revenue growth, but not enough Wall Street analysts cover the company for it to have reliable consensus estimates. This signals Allison Transmission could be a hidden gem because it doesn't get attention from professional brokers.
Operating Margin
Allison Transmission has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 28.8%. This result isn't surprising as its high gross margin gives it a favorable starting point.
Analyzing the trend in its profitability, Allison Transmission's annual operating margin rose by 1.5 percentage points over the last five years, showing its efficiency has improved.
In Q2, Allison Transmission generated an operating profit margin of 32.2%, up 1.3 percentage points year on year. This increase was encouraging, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as sales, marketing, R&D, and administrative overhead.
EPSAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Allison Transmission's EPS grew at a decent 8.2% compounded annual growth rate over the last five years, higher than its 2.5% annualized revenue growth. This tells us the company became more profitable as it expanded.
Diving into Allison Transmission's quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Allison Transmission's operating margin expanded by 1.5 percentage points over the last five years. On top of that, its share count shrank by 29.2%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Allison Transmission, its two-year annual EPS growth of 29.4% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.
In Q2, Allison Transmission reported EPS at $2.13, up from $1.92 in the same quarter last year. This print beat analysts' estimates by 5.1%. Over the next 12 months, Wall Street expects Allison Transmission to grow its earnings. Analysts are projecting its EPS of $7.69 in the last year to climb by 9.1% to $8.40.
Key Takeaways from Allison Transmission's Q2 Results This was a beat and raise quarter. We enjoyed seeing Allison Transmission exceed analysts' revenue expectations this quarter. We were also glad its EPS outperformed Wall Street's estimates. On the other hand, its North America On-Highway segment revenue missed. Looking ahead, the company raised full year revenue and adjusted EBITDA guidance. The only downside of this raise was that these figures are only in line with expectations. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on track. The stock remained flat at $84.41 immediately after reporting.
