On Monday, Allison Transmission (NYSE:ALSN) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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View the webcast at https://edge.media-server.com/mmc/p/k2c6e7qr/
Summary
Allison Transmission reported a 4% year-over-year decrease in first-quarter net sales to $733 million, largely due to a strong prior year period.
The company’s Defense end market showed significant growth with a 64% revenue increase, contributing positively to overall performance.
The Allison Off Highway business unit generated $673 million in sales, driven by strong demand in mining and construction markets.
Allison Transmission is focused on realizing $120 million in annual run-rate synergies from the integration of its business units.
The company reaffirmed its full-year 2026 guidance, expecting consolidated net sales between $5.575 billion and $5.925 billion, and adjusted EBITDA margins in the range of 27% to 29% over the next few years.
Management emphasized the importance of disciplined execution and synergies to drive future margin improvements and underscored strong cash flow and capital allocation towards debt reduction and shareholder returns.
Full Transcript
OPERATOR
Good afternoon. Thank you for standing by. Welcome to Allison’s first quarter 2026 earnings conference call. My name is Shamali and I will be your conference call operator today. At this time, all participants are in a listen only mode. After prepared remarks, Allison executives will conduct a question and answer session and conference call. Participants will be given instructions at that time. As a reminder, this conference call is being recorded. If anyone should require operating assistance during the conference, please press Star 0 on your telephone keypad. I would now like to turn the conference call over to Jackie Bowles, Executive Director of Treasury and Investor Relations. Please go ahead. Jackie.
Jackie Bowles (Executive Director of Treasury and Investor Relations)
Thank you. Shamali. Good afternoon and thank you for joining us for our first quarter 2026 earnings conference call. With me this afternoon are Dave Graziosi, our Chair, President and Chief Executive Officer Scott Mel, our Chief Financial Officer and Treasurer Fred Boley, Allison’s Chief Operating Officer and Allison Transmission Business Unit Leader and Craig Price, Allison Off Highway Business Unit Leader. As a reminder, this conference call, webcast and this afternoon’s presentation are available on the Investor relations SECtion of allisontransmission.com A replay of this call will be available through May 18th. As noted on slide 2 of the presentation, many of our remarks today contain forward looking statements based on current expectations. These forward looking statements are subject to known and unknown risks, including those set forth in our annual report on Form 10K for the year ended December 31, 2025. Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those that we express today. In addition, as noted on slide three of the presentation, some of our remarks today contain non GAAP financial measures as defined by the SEC. You can find reconciliations of the non GAAP financial measures to the most comparable GAAP measures attached in this appendix to the presentation and to our first quarter 2026 earnings press release. Today’s call is set to end at 5:45pm Eastern Time. In order to maximize participation opportunities on the call, we’ll take just one question from each analyst. Please turn to Slide 4 of the presentation for the call agenda. During today’s call, Dave Graziosi will provide a business update and briefly review the company’s performance. Scott Mel will then discuss Allison’s segment reporting structure and Further review Allison’s first quarter 2026 financial performance and Allison’s full year guidance update prior to commencing the Q and A. Now I’ll turn the call over to Dave.
Dave Graziosi (Chair, President and Chief Executive Officer)
Thank you. Jackie, Good afternoon and thank you for joining us. Please turn to Slide 5 of the presentation for our first quarter business update. First, I want to recognize and thank our global employee base for all the work done so far this year. Our teams have been working diligently on integration and value capture within both Allison business units. Our execution has tracked closely with our planning and the integration process is proceeding in a disciplined and structured manner. Having said that, it has not been without a tremendous amount of effort by the Allison teams to arrive at where we are today. As our teams more closely coordinate efforts, we are beginning to see the initial phases of synergy realization take shape across several key areas and expect to begin to see financial benefits later in 2026. It’s been encouraging to see the groundwork laid prior to the transaction translate into real momentum and reaffirmed guidance in achieving our target of 120 million of annual run rates synergies. We remain confident in our acquisition thesis, accelerating sales growth through the strategic combination of the two business units, strengthening our localized production footprint and generating sustainable cost reductions that enhance long term shareholder value. Allison’s reach is now greatly expanded with our global operations, allowing for more localized production and opportunities for cost reductions. By leveraging increased purchasing scale and utilizing manufacturing in best cost countries, we expect to drive value creation and margin improvement across our business. I want to give another welcome to our new colleagues around the world and thank you for all that you do. It’s been a productive first quarter and exciting times for Allison as we enter this new chapter. Moving now to a brief update on first quarter sales, performance and end market outlooks for both of our business units, please turn to slide 6. Starting with our legacy Allison Transmission business first quarter net sales were $733 million a year over year decline of 4% when compared against a robust first quarter of 2025 for the North America on Highway end market. We continue to view the truck market with cautious optimism. Although order trends have shown strength and implies slight ramp throughout the year, we believe there is still uncertainty surrounding geopolitical impacts, including tariffs and final rulings on emissions regulations that are hindering end users new vehicle purchasing decisions. Continuing with the Allison Transmission business unit, the Defense end market had an extremely strong first quarter with revenue up 64% year over year. We continue to see strength from international customers primarily in track programs with both legacy and new products, including our 3040 MX cross drive transmission. We hold a favorable outlook for the Defense end market as national security becomes even more relevant to nations around the world, leading to increased budgets and new programs being funded. Please turn to Slide 7. The Allison Off highway business unit generated $673 million of sales in the first quarter with continued growth in the mining end market driven by elevated commodity prices including gold, copper and rare earth minerals. The construction and material handling end market also performed in the first quarter as global construction markets are seeing steadier investments and positive developments, particularly in Europe in the agriculture end market. While commodity prices remain a driving factor, there are early positive indicators in certain sub segments and regions, for example the low horsepower market in India, but overall a fairly muted environment even prior to the start of the conflict in the Middle East. On that topic, the conflict in the Middle east currently has undetermined impact and implications, both favorable and unfavorable for multiple end markets across Allison business units. While the duration of the conflict remains uncertain, we have not seen any material disruption to our business at this time. We recognize the potential for indirect impacts across our supply chains, energy markets and and broader macroeconomic conditions, and our teams are actively monitoring and maintaining close coordination. In summary, integration is progressing as expected and value capture is materializing. End markets, although impacted by uncertainty in some aspects, are steady if not showing signs of recovery. To everyone across our organization, thank you for the extraordinary commitment, resilience and teamwork you’ve shown. Your efforts have laid a strong foundation for Allison’s futures. To our investors, we are confidently positioned to unlock meaningful synergies, accelerate growth and create lasting value. Now I’ll pass the call over to Scott for a review of Allison’s segment reporting structure, first quarter 2026 financial performance and full year guidance update.
Scott Mel (Chief Financial Officer and Treasurer)
Scott, thank you Dave and thanks to those of you joining us on the call. Please turn to slide 8 of the presentation. Before we begin with segment and consolidated results, I want to quickly go over some housekeeping items and outline our new reporting structure. First quarter results now include segment reporting for Allison Transmission, Allison off highway and Allison Central Group. The Allison Transmission Business unit is the company’s legacy business excluding certain costs now accounted for within the Allison Central Group, while the Allison Off Highway Business unit reflects the business acquired from Dana at the beginning of the year. Allison Central Group is a centralized cost center which includes certain functional costs that support the Company’s global operations. Now on the left hand side of Slide 8, we provide sales, operating profit and adjusted EBITDA by segment. Segment operating income flows over to the consolidated table on the right with further detail down to net income and non GAAP financial measures of adjusted diluted EPS and consolidated adjusted ebitda. Please note that first quarter gross profit in the Allison off highway segment was negatively impacted by approximately $76 million of one time acquisition related purchase price accounting items on a consolidated basis. First quarter net income decreased year over year to $112 million driven by the addition of costs from the Allison off highway business unit including approximately $76 million of expenses related to the stepped up basis in inventory and incremental depreciation expense related to the stepped up basis in fixed assets and an additional $22 million of intangible asset amortization expense. The year over year decrease in net income was also driven by higher interest expense net along with approximately $17 million of one time acquisition related integration expenses. Moving down to per share earnings, first quarter diluted EPS was $1.33 when excluding the effect of non cash, non recurring, infrequent or unusual items. Including the costs associated with the acquisition of the Allison off highway business unit. Adjusted net income and adjusted diluted EPS were $216 million and $2.57 per share respectively. As a reminder, reconciliations for non GAAP financial measures can be found in the appendix of the first quarter earnings presentation and earnings press release. There will also be more detail provided in our 10Q to be published later this week. Please turn to Slide 9 of the presentation. First quarter adjusted diluted EPS of $2.57 increased 6% year over year and we expect the acquisition of the Allison off highway business unit to be accretive to earnings on a full year basis. Adjusted EBITDA for the first quarter was $362 million, increasing 22% year over year with adjusted EBITDA margin at 26% reflecting disciplined execution across our business units despite the less than ideal operating environment. As we have discussed previously, we believe that improving end market conditions in both business units will have a favorable impact on margins. Our value capture and synergy realization will also provide an uplift to our margins with our target for adjusted EBITDA margin in the 27 to 29% range. Cash generation continues to be a key attribute of Allison with the ability to generate substantial cash flow while successfully integrating the Allison off highway business unit and navigating uncertain end market environments including geopolitical policies and conflicts. Now I will briefly highlight our capital allocation priorities. We continue to invest for long term and sustainable growth across our business units with new products and initiatives targeting identified growth opportunities. We are also focused on debt reduction to achieve our near term leverage targets and while simultaneously returning capital to shareholders through share repurchases and our quarterly dividend. At the bottom of the slide you can see how we allocated capital in the first quarter during the quarter we repaid $150 million of the $300 million …
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