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October 29, 2020 6:00 PM, EDT

Defense Sales Brighten Allison Q3 Results

Allison Transmission workerAn employee works the assembly line at an Allison Transmission manufacturing plant. (Allison Transmission)

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Allison Transmission Holdings Inc. reported lower net income and revenue in the third quarter as its defense segment contributed higher sales.

For the period ended Sept. 30, it reported net income of $77 million, or 68 cents per diluted share, compared with $149 million, or $1.23 a year earlier.

Revenue fell to $532 million compared with $669 million in the 2019 period.

Allison CEO David Graziosi

Graziosi

Allison also noted a sequential improvement of 41% compared with the second quarter, when the novel coronavirus first severely disrupted the economy and public health.

“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,” Allison CEO David Graziosi said in a release.

Its North American on-highway segment sales fell 24% to $281 million compared with $369 million a year earlier, driven by lower demand for Rugged Duty Series and Highway Series models due to the effects of the pandemic.

READ MORE: Allison Gears Up for E-Axles

North American off-highway sales fell 83% to $1 million compared with $6 million a year earlier, driven by lower demand for hydraulic fracturing applications.

The service parts, support equipment and other segment sales fell 9% to $119 million compared with $131 million a year earlier, principally driven by lower North American demand.

That was partially offset by aluminum die-cast component volume associated with its acquisition of Walker Die Casting in September 2019, according to the Indianapolis-based company.

Defense segment sales rose 40% to $56 million compared with $40 million a year earlier, driven by Allison’s X1100 and X200 cross-drive transmissions in support of the U.S. Army’s long-term sustainment and combat readiness efforts.

Outside of North America, on-highway sales fell 28% to $71 million. Off-highway sales dropped 83% to $4 million.

Meanwhile, Graziosi said its electrification was on track.

“Several major global OEMs have chosen to integrate our eGen Power e-axles into their existing electric truck development and validation programs. In fact, we’re working on full electric vehicle initiatives with OEMs representing over 70% of our North America on-highway revenue. And we certainly plan on making consequent announcements at the appropriate time,” he said during the earnings call.

The payback expectations for electrification systems are the same as with conventional products, Allison Chief Financial Officer Frederick Bohley said.

“We target on the conventional side, two- to three-year payback on a premium product. And that’s what our end users demand. The electrification systems that we’re developing are for those users, and I think their expectations are the same.”

In both cases, payback rests on reliability and durability, he said.

“So I think, initially, any new product needs to prove itself, there’s an element of skepticism. It needs to prove that can go the life cycle. From where we sit today, you still need significant improvement in battery cost and capability to get anywhere close to the payback that the end users expect,” Bohley said.

RoadSigns

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In the quarter, research and development was $33 million compared with $39 million a year earlier.

The company reported it had $846 million in cash and available borrowing.

Allison provided a full-year outlook for revenue from $2.02 billion to $2.07 billion with net income of $285 million to $315 million.

The company noted the guidance reflects lower demand across all end markets except defense as a result of the pandemic, partially offset by price increases on certain products.

Allison is the world’s largest manufacturer of fully automatic transmissions for medium- and heavy-duty commercial vehicles and medium- and heavy-tactical U.S. defense vehicles. It also supplies commercial vehicle propulsion solutions, including electric hybrid and fully electric propulsion systems.

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