Lower demand in the global off-highway partly offset by continued recovery in the North American on-highway market

Allison Transmission announced disappointing second-quarter 2015 results yesterday (27 July), with sales declining 5% year on year (y/y) to USD511 million. Gross profit decreased by a smaller 1% y/y, to USD236 million, delivering gross margin for the quarter of 46.2%. The company's decline in gross profit was driven by decreased sales, but also offset by price increases on some products, favourable materials costs, and lower incentives. Allison attributes the decrease principally to lower demand in the global off-highway (down 67% to USD8 million) and defence (down 41%, to USD29 million) end-markets, though the decline was partly offset by continued recovery in the North American on-highway end-market, which was up 14% y/y to USD277 million. The on-highway end-segment's net sales outside of North America gained 18% y/y to USD73 million, on higher demand in Europe, Japan, and India. In addition, the company said that it experienced an unfavourable impact of lower energy and commodity prices in the global off-highway and service parts, support equipment and other sectors. In North America, sales of hybrid-propulsion systems for transit buses were down 29%, though sales of rugged duty and highway series models increased. Off-highway results for North America were also impacted by reduced fracking, as oil prices remain low, and net sales were down 57%. Allison's adjusted net income for the second quarter was USD98 million, down from USD117 million in the same period last year. Meanwhile, the adjusted EBITDA margin increased to 36.3%, compared with 34.7% in the same period last year, and adjusted free cash flow increased to USD140 million.
 

Significance: Allison Transmission also updated its full-year 2015 guidance. Its expectations for a full-year year-on-year decline have been increased to 6−8%, compared with earlier guidance of 4−8%. The supplier also expects the adjusted EBITDA margin to increase to 34.75−35.75%, up slightly from previous guidance. Allison's results for the second quarter were in line with a general company expectations for a year-on-year sales decline, and the supplier also confirmed it expects to see another decline in the third quarter.

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