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The company's full year 2020 Net Sales guidance reflects lower demand across all end markets except for the Defense end market as a result of the pandemic, partially offset by price increases on certain products.
The company's full year 2020 Net Sales guidance reflects lower demand across all end markets except for the Defense end market as a result of the pandemic, partially offset by price increases on certain products.
( Source: gemeinfrei / Unsplash)

BUSINESS REPORT Sales decrease at automotive supplier

Editor: Nicole Kareta

Allison Transmission Holdings Inc., a global manufacturer of medium- and heavy-duty fully automatic transmissions and a supplier of commercial vehicle propulsion solutions, reported net sales for the third quarter of USD532 million, a 20 % decrease from the same period in 2019 and a 41 % increase from the second quarter of 2020.

Allison Transmission reports a net income of USD77 million for the third quarter 2020. Adjusted EBITDA, a non-GAAP financial measure, for the quarter was USD174 million. Net cash provided by operating activities for the quarter was USD158 million. Adjusted free cash flow, a non-GAAP financial measure, for the quarter was USD136 million.

David S. Graziosi, President and Chief Executive Officer of Allison Transmission commented, “Despite the challenges presented by the pandemic, third quarter results improved significantly, as customer demand and the global economy continued to recover, following the severe disruptions experienced in the second quarter. Furthermore, the commitment, dedication and resilience of Allison’s employees, customers and suppliers have enabled the uninterrupted delivery of our products, and the continued generation of earnings and positive cash flow.”

Graziosi continued, “We will continue to prioritize the health and well-being of Allison’s extended family and align our operations, programs and spending with current end market conditions, while mitigating the risks that we anticipate will persist for the foreseeable future and maintaining the flexibility to respond quickly and appropriately. During the third quarter, we settled USD16 million in share repurchases and paid a dividend of USD0.17 per share. Allison remains well capitalized and positioned to realize future growth opportunities, due to our long-standing commitment to prudent balance sheet management, ample liquidity and profitable operations.”

Third quarter highlights

North America On-Highway end market net sales were down 24 % from the same period in 2019 principally driven by lower demand for Rugged Duty Series and Highway Series models as a result of the effects of the pandemic, and up 71 % on a sequential basis as the severe economic weakness and customer shutdowns experienced during the second quarter abated and a rebound in relevant business activity generated improved demand for both Medium Duty and Class 8 Straight trucks.

North America Off-Highway end market net sales were down USD5 million from the same period in 2019 and down USD2 million sequentially, in both cases principally driven by lower demand for hydraulic fracturing applications.

Defense end market net sales were up 40 % from the same period in 2019 and up 33 % on a sequential basis, in both cases principally driven by tracked vehicle applications, including contracts announced earlier this year for Allison’s X1100 and X200 cross-drive transmissions in support of the U.S. Army’s long-term sustainment and combat readiness efforts.

Outside North America On-Highway end market net sales were down 28 % from the same period in 2019 principally driven by lower global demand due to the effects of the pandemic and up 18 % sequentially as global customers resumed production following shutdowns implemented in the second quarter.

Outside North America Off-Highway end market net sales were down USD20 million from the same period in 2019 and down USD15 million on a sequential basis, in both cases principally driven by lower demand in the energy, mining and construction sectors.

Service Parts, Support Equipment & Other end market net sales were down 9 % from the same period in 2019 principally driven by lower demand for North America service parts and support equipment partially offset by aluminum die cast component volume associated with the acquisition of Walker Die Casting in September 2019, and up 34 % sequentially principally driven by higher demand for aluminum die cast component volume, North America On-Highway service parts and support equipment.

Gross profit for the quarter was USD254 million, a decrease of 27 % from USD348 million for the same period in 2019. Gross margin for the quarter was 47.7 %, a decrease of 430 basis points from a gross margin of 52.0 % for the same period in 2019. The decrease in gross profit was principally driven by lower net sales partially offset by lower manufacturing expense commensurate with decreased net sales, price increases on certain products and lower incentive compensation expense.

Selling, general and administrative expenses for the quarter were USD93 million, an increase of USD8 million from USD85 million for the same period in 2019. The increase was principally driven by unfavorable product warranty adjustments partially offset by lower intangible amortization expense, lower commercial activities spending and lower incentive compensation expense.

During the third quarter, a USD23 million product warranty adjustment was recorded to address a transmission performance issue associated with shift quality in a defined population of products.

Engineering – research and development expenses for the quarter were USD33 million, a decrease of USD6 million from USD39 million for the same period in 2019. The decrease was principally driven by the intra-year timing of product initiatives spending.

Net income for the quarter was USD77 million, a decrease of USD72 million from USD149 million for the same period in 2019. The decrease was principally driven by lower net sales and higher selling, general and administrative expenses partially offset by lower manufacturing expense, price increases on certain products and the intra-year timing of product initiatives spending.

Net cash provided by operating activities was USD158 million, a decrease of USD54 million from USD212 million for the same period in 2019. The decrease was principally driven by lower gross profit partially offset by reductions in cash income taxes, operating working capital requirements and commercial activities spending, and the intra-year timing of product initiatives spending.

Third quarter non-GAAP financial measures

Adjusted EBITDA for the quarter was USD174 million, a decrease of USD95 million from USD269 million for the same period in 2019. The decrease in Adjusted EBITDA was principally driven by lower gross profit and unfavorable product warranty adjustments partially offset by lower commercial activities spending and the intra-year timing of product initiatives spending.

Adjusted free cash flow for the quarter was USD136 million, a decrease of USD29 million from USD165 million for the same period in 2019. The decrease was principally driven by lower net cash provided by operating activities partially offset by lower capital expenditures and the exclusion of cash restructuring charges.

Full year 2020 guidance

Allison expects 2020 Net Sales in the range of USD2,025 to USD2,075 million, Net Income in the range of USD285 to USD315 million, Adjusted EBITDA in the range of USD690 to USD730 million, Net Cash Provided by Operating Activities in the range of USD490 to USD520 million, Adjusted Free Cash Flow in the range of USD385 to USD425 million and Capital Expenditures in the range of USD107 to USD117 million.

The company's full year 2020 Net Sales guidance reflects lower demand across all end markets except for the Defense end market as a result of the pandemic, partially offset by price increases on certain products.

(ID:46962322)