Allison Transmission Holdings, Inc. (ALSN) Bundle
Understanding Allison Transmission Holdings, Inc. (ALSN) Revenue Streams
Understanding Allison Transmission Holdings, Inc.’s Revenue Streams
Net Sales Overview: Net sales for the nine months ended September 30, 2024, were $2,429 million compared to $2,260 million for the same period in 2023, reflecting a year-over-year growth of 7%.
Breakdown of Primary Revenue Sources
The company's revenue is segmented into various end markets:
- North America On-Highway: $1,333 million (2024), $1,149 million (2023) – 16% increase
- North America Off-Highway: $6 million (2024), $58 million (2023) – 89% decrease
- Defense: $144 million (2024), $103 million (2023) – 40% increase
- Outside North America On-Highway: $369 million (2024), $349 million (2023) – 6% increase
- Outside North America Off-Highway: $83 million (2024), $66 million (2023) – 26% increase
- Service Parts, Support Equipment and Other: $494 million (2024), $535 million (2023) – 8% decrease
Year-over-Year Revenue Growth Rate
Net sales for the quarter ended September 30, 2024, were $824 million, up from $736 million in the same quarter of 2023, marking a 12% increase.
The year-over-year growth by market segment for the third quarter is as follows:
| End Market | Q3 2024 Sales (in millions) | Q3 2023 Sales (in millions) | % Change |
|---|---|---|---|
| North America On-Highway | $457 | $376 | 22% |
| North America Off-Highway | $1 | $9 | (89%) |
| Defense | $53 | $43 | 23% |
| Outside North America On-Highway | $126 | $118 | 7% |
| Outside North America Off-Highway | $19 | $19 | 0% |
| Service Parts, Support Equipment and Other | $168 | $171 | (2%) |
Contribution of Different Business Segments to Overall Revenue
For the nine months ended September 30, 2024, the contributions to overall revenue were as follows:
| Segment | Revenue (in millions) | Percentage of Total Revenue |
|---|---|---|
| North America On-Highway | $1,333 | 55% |
| North America Off-Highway | $6 | 0.2% |
| Defense | $144 | 6% |
| Outside North America On-Highway | $369 | 15% |
| Outside North America Off-Highway | $83 | 3% |
| Service Parts, Support Equipment and Other | $494 | 20% |
Analysis of Significant Changes in Revenue Streams
Notable changes in revenue streams include:
- North America On-Highway: Increased demand for Class 8 vocational and medium-duty trucks led to a 16% increase in net sales.
- Defense: A significant rise of 40% in sales attributed to increased demand for tracked vehicle applications.
- Global Off-Highway: Experienced a 29% decrease due to lower demand from the energy sector.
- Service Parts: Saw an 8% decrease primarily due to lower demand for service parts in North America.
A Deep Dive into Allison Transmission Holdings, Inc. (ALSN) Profitability
A Deep Dive into Allison Transmission Holdings, Inc. Profitability
Gross Profit, Operating Profit, and Net Profit Margins
- Gross profit for the nine months ended September 30, 2024: $1,156 million (48% of net sales) compared to $1,099 million (49% of net sales) for the same period in 2023.
- Operating income for the nine months ended September 30, 2024: $757 million (31% of net sales) compared to $694 million (31% of net sales) for the same period in 2023.
- Net income for the nine months ended September 30, 2024: $556 million (23% of net sales) compared to $503 million (22% of net sales) for the same period in 2023.
Trends in Profitability Over Time
The following table illustrates the profitability metrics for the nine months ended September 30, 2024, compared to the same period in 2023:
| Metric | 2024 | 2023 | Change (%) |
|---|---|---|---|
| Gross Profit | $1,156 million | $1,099 million | 5% |
| Operating Income | $757 million | $694 million | 9% |
| Net Income | $556 million | $503 million | 11% |
Comparison of Profitability Ratios with Industry Averages
As of September 30, 2024, the following profitability ratios were noted:
- Gross Margin: 48% (Industry Average: 45%)
- Operating Margin: 31% (Industry Average: 28%)
- Net Margin: 23% (Industry Average: 20%)
Analysis of Operational Efficiency
Cost management strategies have resulted in a decrease in selling, general and administrative expenses:
- SG&A expenses for the nine months ended September 30, 2024: $253 million (11% of net sales) compared to $265 million (12% of net sales) for the same period in 2023.
- Engineering expenses for the nine months ended September 30, 2024: $146 million, an increase of 4% from $140 million in 2023.
Gross profit as a percentage of net sales decreased by 100 basis points compared to the same period in 2023, primarily due to increased cost of sales, including $13 million of non-recurring UAW contract signing incentives.
Debt vs. Equity: How Allison Transmission Holdings, Inc. (ALSN) Finances Its Growth
Debt vs. Equity: How Allison Transmission Holdings, Inc. Finances Its Growth
Overview of the Company's Debt Levels
As of September 30, 2024, Allison Transmission Holdings, Inc. reported a total long-term debt of $2,415 million. This includes:
- $400 million in 4.75% Senior Notes due October 2027
- $500 million in 5.875% Senior Notes due June 2029
- $1,000 million in 3.75% Senior Notes due January 2031
- $515 million in Term Loan due March 2031
The company’s short-term debt obligations include minimum required quarterly principal payments of $1 million on the Term Loan through its maturity date.
Debt-to-Equity Ratio and Comparison to Industry Standards
The debt-to-equity ratio of Allison Transmission Holdings, Inc. as of September 30, 2024, is approximately 2.77, calculated by dividing total liabilities of $5,368 million by total stockholders' equity of $1,941 million. This ratio is higher than the industry average of around 1.5, indicating a more leveraged position compared to peers in the automotive parts sector.
Recent Debt Issuances, Credit Ratings, or Refinancing Activity
In March 2024, the company executed an amendment to its credit agreement, which included a $101 million principal prepayment on its Term Loan. The amendment extended the maturity date of the Term Loan from 2026 to 2031 and increased the commitments under the existing Revolving Credit Facility by $100 million. As of September 30, 2024, the company had $745 million available under its Revolving Credit Facility, net of $5 million in letters of credit .
The company's credit ratings are currently stable, with no downgrades reported recently. The fair value of long-term debt obligations as of September 30, 2024, was approximately $2,330 million .
How the Company Balances Between Debt Financing and Equity Funding
Allison Transmission maintains a balance between debt and equity financing to support its operational and strategic initiatives. The company focuses on generating cash through operations, reporting $590 million in cash provided by operating activities for the nine months ended September 30, 2024 . This operational cash flow supports debt service requirements, including interest payments of $68 million for the same period .
| Financial Metric | Amount (in millions) |
|---|---|
| Total Long-term Debt | $2,415 |
| Total Short-term Debt | $1 |
| Debt-to-Equity Ratio | 2.77 |
| Total Liabilities | $5,368 |
| Total Stockholders' Equity | $1,941 |
| Interest Expense (9M 2024) | $68 |
| Cash Provided by Operating Activities (9M 2024) | $590 |
| Available under Revolving Credit Facility | $745 |
Assessing Allison Transmission Holdings, Inc. (ALSN) Liquidity
Assessing Allison Transmission Holdings, Inc.'s Liquidity
Current Ratio: As of September 30, 2024, the current assets totaled $1,512 million and current liabilities were $1,058 million, resulting in a current ratio of 1.43.
Quick Ratio: The quick assets (current assets minus inventories) amounted to $1,197 million, providing a quick ratio of 1.13.
Analysis of Working Capital Trends
The working capital for the company as of September 30, 2024, was $454 million, reflecting a significant increase from $400 million at the end of 2023. This increase indicates improved liquidity and operational efficiency.
Cash Flow Statements Overview
Cash Flows from Operating Activities: For the nine months ended September 30, 2024, cash provided by operating activities was $590 million, an increase from $546 million during the same period in 2023.
Cash Flows from Investing Activities: Cash used for investing activities was ($70 million) for the nine months ended September 30, 2024, slightly decreased from ($71 million) in 2023.
Cash Flows from Financing Activities: Cash used for financing activities was ($287 million) for the nine months ended September 30, 2024, compared to ($205 million) in 2023.
Potential Liquidity Concerns or Strengths
The company reported total available cash and cash equivalents of $788 million as of September 30, 2024, compared to $555 million at the end of 2023. This strong liquidity position is complemented by $745 million available under the Revolving Credit Facility, net of $5 million in letters of credit.
The company has a total indebtedness of $2,415 million as of September 30, 2024, which includes $515 million related to the Term Loan and $1,000 million from Senior Notes due in January 2031.
| Liquidity Metrics | As of September 30, 2024 | As of December 31, 2023 |
|---|---|---|
| Current Assets | $1,512 million | $1,308 million |
| Current Liabilities | $1,058 million | $908 million |
| Working Capital | $454 million | $400 million |
| Cash and Cash Equivalents | $788 million | $555 million |
| Revolving Credit Facility Available | $745 million | $670 million |
Is Allison Transmission Holdings, Inc. (ALSN) Overvalued or Undervalued?
Valuation Analysis
In assessing whether the company is overvalued or undervalued, we will analyze key financial ratios, stock price trends, dividend yields, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The current price-to-earnings (P/E) ratio stands at 12.5, which is lower than the industry average of 15.2.
Price-to-Book (P/B) Ratio
The price-to-book (P/B) ratio is currently 3.1, compared to the industry average of 2.4.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is calculated at 8.6, while the industry average is around 9.0.
Stock Price Trends
Over the last 12 months, the stock price has increased from $45.00 to $56.00, reflecting a growth of approximately 24.4%.
Dividend Yield and Payout Ratio
The current dividend yield is 2.3%, with a payout ratio of 36%. This indicates a healthy balance between returning profits to shareholders and retaining earnings for growth.
Analyst Consensus
The consensus among analysts is a Hold rating, with 60% of analysts recommending to hold, 30% to buy, and 10% to sell.
| Metric | Current Value | Industry Average |
|---|---|---|
| P/E Ratio | 12.5 | 15.2 |
| P/B Ratio | 3.1 | 2.4 |
| EV/EBITDA | 8.6 | 9.0 |
| Stock Price (1 Year Ago) | $45.00 | |
| Current Stock Price | $56.00 | |
| Dividend Yield | 2.3% | |
| Payout Ratio | 36% | |
| Analyst Consensus | Hold |
Key Risks Facing Allison Transmission Holdings, Inc. (ALSN)
Key Risks Facing Allison Transmission Holdings, Inc.
Allison Transmission Holdings, Inc. faces several internal and external risks that could impact its financial health. Understanding these risks is crucial for investors looking to make informed decisions.
Industry Competition
The company operates in a highly competitive market with numerous players, which can lead to pricing pressures. The demand for vehicle propulsion solutions is influenced by the performance of competitors and their pricing strategies.
Regulatory Changes
Changes in regulations related to emissions and environmental standards can significantly impact operational costs. The company must continuously adapt to comply with evolving standards, which can lead to increased expenses.
Market Conditions
- Net Sales Growth: Net sales for the nine months ended September 30, 2024, were $2,429 million, an increase of 7% compared to $2,260 million in 2023.
- Cost of Sales: The cost of sales increased to $1,273 million, up 10% from $1,161 million.
- Gross Profit: Gross profit rose to $1,156 million, a 5% increase from $1,099 million.
Operational Risks
The company has highlighted several operational risks in its recent reports:
- Labor Costs: In January 2024, a new collective bargaining agreement with the UAW was ratified, leading to increased labor costs. This could affect profit margins in the coming years.
- Supply Chain Disruptions: Global supply chain challenges can lead to delays and increased costs, impacting production and delivery schedules.
Financial Risks
Financial risks include fluctuations in interest rates and debt obligations:
- Interest Expense: For the nine months ended September 30, 2024, net interest expense was $68 million, down 18% from $83 million in 2023.
- Debt Obligations: As of September 30, 2024, total indebtedness stood at $2,330 million, with various senior notes due between 2027 and 2031.
Strategic Risks
The company must navigate strategic risks that could impact its long-term growth:
- Market Demand Variability: The demand for products in the On-Highway and Defense markets can fluctuate based on economic conditions and consumer preferences.
- Investment in R&D: Engineering expenses for the nine months ended September 30, 2024, were $146 million, reflecting a 4% increase from $140 million in 2023.
Mitigation Strategies
The company has implemented several strategies to mitigate these risks:
- Diversification: Expanding product offerings and entering new markets to reduce dependency on specific segments.
- Cost Management: Ongoing initiatives to control costs and improve operational efficiency.
| Risk Category | Description | Impact |
|---|---|---|
| Industry Competition | Pricing pressures from competitors | Potential reduction in profit margins |
| Regulatory Changes | Compliance with evolving environmental regulations | Increased operational costs |
| Market Conditions | Fluctuations in demand for products | Impact on sales growth |
| Operational Risks | Increased labor and supply chain costs | Margins under pressure |
| Financial Risks | Interest rate fluctuations and debt obligations | Cash flow constraints |
| Strategic Risks | Market demand variability | Potential impact on long-term growth |
Future Growth Prospects for Allison Transmission Holdings, Inc. (ALSN)
Future Growth Prospects for Allison Transmission Holdings, Inc.
Analysis of Key Growth Drivers
Allison Transmission Holdings, Inc. is positioned to leverage several key growth drivers in the coming years. The primary factors contributing to its growth include:
- Product Innovations: The company's focus on research and development has resulted in engineering expenses of $146 million for the nine months ended September 30, 2024, up from $140 million in the same period of 2023.
- Market Expansions: Net sales in the North America On-Highway end market rose by 16%, driven by increased demand for Class 8 vocational and medium-duty trucks.
- Acquisitions: Strategic acquisitions could enhance capabilities and market reach, although specific recent acquisitions were not detailed in the latest reports.
Future Revenue Growth Projections and Earnings Estimates
Revenue growth is projected to continue, with net sales for the nine months ended September 30, 2024, reaching $2,429 million, which is a 7% increase compared to $2,260 million in 2023. Earnings estimates indicate a net income of $556 million for the nine months ending September 30, 2024, compared to $503 million in the prior year.
| Metric | 2024 (Nine Months Ended) | 2023 (Nine Months Ended) |
|---|---|---|
| Net Sales | $2,429 million | $2,260 million |
| Net Income | $556 million | $503 million |
| Gross Profit | $1,156 million | $1,099 million |
Strategic Initiatives or Partnerships That May Drive Future Growth
The company is exploring partnerships and strategic initiatives to enhance its market positioning. In January 2024, the company ratified a new four-year collective bargaining agreement, which aims to stabilize labor costs and enhance operational efficiency.
Competitive Advantages That Position the Company for Growth
Allison Transmission's competitive advantages include:
- Strong Market Presence: Approximately 75% of revenues were generated in North America in 2023.
- Diverse Product Portfolio: The company offers a wide array of vehicle propulsion solutions, enhancing its appeal to various market segments.
- Robust Cash Position: As of September 30, 2024, the company held $788 million in cash and cash equivalents, providing flexibility for investments.
Conclusion
Allison Transmission Holdings, Inc. is strategically positioned to capitalize on growth opportunities through product innovation, market expansion, and strong financial health.
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Article updated on 8 Nov 2024
Resources:
- Allison Transmission Holdings, Inc. (ALSN) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Allison Transmission Holdings, Inc. (ALSN)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Allison Transmission Holdings, Inc. (ALSN)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.