Allison Transmission Q4 Earnings Call Highlights

Key Points

• Allison closed the Dana Off‑Highway Drive & Motion Systems acquisition in January, expanding to roughly 14,000 employees across 25 countries and reorganizing into two reporting segments—Allison Transmission and Allison Off‑Highway Drive & Motion Systems—led by Fred Bohley and Craig Price.
• For 2025 (excluding the acquired business) revenue declined 7% while adjusted EBITDA margin improved 140 bps to 37.5%; defense revenue rose 26% to $267 million, and management returned cash via $328 million of buybacks and a higher dividend.
• 2026 consolidated guidance targets net sales $5.575–5.925 billion, adjusted EBITDA $1.364–1.515 billion (about 25% margin at midpoint) and adjusted free cash flow $655–805 million, but includes roughly $70 million of one‑time integration costs and explicitly assumes no synergies in the outlook while aiming to capture ~$120 million of run‑rate synergies over time.

Allison Transmission NYSE: ALSN executives used the company’s fourth-quarter 2025 earnings call to highlight the recent close of its acquisition of Dana Incorporated’s Off-Highway Drive & Motion Systems business, outline a new two-segment reporting structure, and provide consolidated guidance for 2026 that incorporates the newly acquired operations.

Acquisition close and new operating structure

Chair, President and CEO David Graziosi said Allison completed the Dana off-highway acquisition in January and is now operating with roughly 14,000 employees across 25 countries. Graziosi said the combination expands Allison’s market reach and product portfolio and creates what he described as a “platform” for organic and inorganic growth.

Graziosi also detailed the company’s go-forward reporting structure: two business units, Allison Transmission and Allison Off-Highway Drive & Motion Systems. Allison Transmission will be led by Fred Bohley, who will continue as chief operating officer, and the off-highway business will be led by Craig Price, who was introduced on the call as president and business unit leader for the newly acquired segment.

Price said his priorities are “seamless integration while maintaining disciplined execution,” adding that the combined organization has “highly complementary strengths” and is positioned to leverage scale and global platforms to accelerate growth opportunities.

2025 performance: revenue down, margins up; defense growth and shareholder returns

Graziosi emphasized that the company’s 2025 results discussed on the call do not include the acquired off-highway business, which was purchased effective January 1. He said the year began with strong momentum but was later pressured by macroeconomic factors including global trade policies, uncertainty, and sluggish growth across many regions.

For the full year, management said revenue declined 7% year over year, but adjusted EBITDA margin improved by 140 basis points to 37.5%, citing disciplined cost control and execution. The company also said it is seeing early signs of improving demand in North America on-highway, rebounding from what it called a trough in the third quarter of 2025 as there is “improved clarity” around tariffs and emissions regulations.

Defense was a key bright spot. Graziosi said defense revenue increased 26% for the year to $267 million, noting the company has achieved its objective of $100 million in incremental annual defense revenue and sees further growth opportunities amid increased global defense spending commitments.

On capital allocation, management said Allison repurchased $328 million of common stock during 2025 (about 4% of shares outstanding) and increased its quarterly dividend in the first quarter of 2025 to $0.27 per share.

Operational updates, including India investments

Bohley discussed initiatives in India spanning defense, mining, and exports. He said Allison signed a memorandum of understanding with Armored Vehicles Nigam Limited to establish a multi-phase plan toward a maintenance, repair, and overhaul center in India for current and future cross-drive transmission programs, including the 3040 MX cross-drive transmission referenced for India’s Future Infantry Combat Vehicle program.

In India’s mining market, Bohley said end users are expanding fleets of wide-body dump trucks equipped with Allison’s 4800 Series fully automatic transmissions, citing reliability in challenging environments.

He also said Daimler India Commercial Vehicles has begun shipments of Allison 3000 Series transmissions integrated into Fuso medium-duty trucks exported to South Africa. Bohley noted the company’s Chennai facility expansion announced in late 2024 is now operational and is expected to ramp to full capacity in 2027.

With the acquisition, Bohley added that Allison now has an expanded footprint in India, including four manufacturing plants and around 4,000 employees joining from the Off-Highway team.

Fourth-quarter results: one-time items weighed on GAAP net income

Chief Financial Officer Scott Mell reported fourth-quarter 2025 net sales of $737 million, down 7% from the prior-year period. Mell said revenue outside North America on-highway reached a record for the fourth quarter and helped produce record full-year revenue of $507 million for that end market.

Defense net sales in the quarter were $73 million, up 7% year over year. In North America on-highway, net sales were down year over year, but Mell highlighted a sequential improvement of 10% from the third quarter, which management described as a trough.

Quarterly net income was $99 million, down from $175 million a year earlier. Mell attributed the decline largely to two “meaningful one-time items”:

• A $29 million impairment related to Allison’s investment in electrification
• Approximately $26 million of expenses related to the Dana off-highway acquisition

Adjusting for those items, Mell said fourth-quarter net income was $141 million and diluted earnings per share was $1.68. Adjusted EBITDA margin increased by more than 200 basis points year over year to 36% despite the sales decline.

Net cash provided by operating activities was $243 million, up $32 million year over year, driven primarily by lower cash income taxes, reduced engineering R&D spending, and lower working capital funding needs. Adjusted free cash flow was $169 million for the quarter. Mell said Allison has already started paying down debt incurred for the off-highway acquisition and remains committed to share repurchases and dividends.

2026 guidance: consolidated outlook and cautious end-market assumptions

Mell said Allison will begin reporting two segments starting with its first-quarter 2026 Form 10-Q: the historical Allison Transmission business and the acquired Allison Off-Highway Drive & Motion Systems business. He said segment reporting will run from net sales through operating profit and include sufficient detail (including depreciation and amortization) to derive EBITDA, along with certain cash flow metrics.

For full-year 2026, Allison provided consolidated guidance of:

• Net sales: $5.575 billion to $5.925 billion (Transmission: $3.025 billion to $3.175 billion; Off-Highway: $2.55 billion to $2.75 billion)
• Net income: $600 million to $750 million (subject to completion of purchase price accounting)
• Adjusted EBITDA: $1.364 billion to $1.515 billion (25% margin at the midpoint)
• Operating cash flow: $970 million to $1.1 billion
• Capital expenditures: $295 million to $315 million (including about $45 million of one-time separation and integration CapEx)
• Adjusted free cash flow: $655 million to $805 million

Mell said the 2026 net income outlook includes approximately $70 million of one-time pre-tax expenses tied to integration and restructuring of the off-highway segment, yet management expects the acquisition to be accretive to net income and earnings per share in 2026.

The adjusted EBITDA margin guidance assumes continued softness in North America on-highway—particularly medium-duty—with “no meaningful recovery” modeled for Class 8 vocational trucks. Mell also said key off-highway end markets are expected to remain at or near trough levels.

Management reiterated an expectation to capture approximately $120 million of annual run-rate synergies “over the next few years,” and Mell said full capture plus moderate end-market improvement could support consolidated adjusted EBITDA margins in the 27% to 29% range. However, Graziosi and Mell both stated the 2026 guidance does not assume any synergies.

On pricing, Mell said Allison Transmission expects “meaningful year-over-year pricing,” estimating 250 to 400 basis points, though not at the pace of recent years. He said the company is facing inflation pressure in labor and materials and expects to recover a “meaningful amount” of tariff impacts through pricing actions, though tariffs are expected to be a net drag on margins year over year. For the acquired off-highway business, Graziosi said pricing is expected to be “relatively neutral” year over year aside from tariff-related actions.

About Allison Transmission NYSE: ALSN

Allison Transmission Holdings Inc is a global designer, manufacturer and seller of fully automatic transmissions and hybrid propulsion systems for commercial duty vehicles and off-highway equipment. The company's products are engineered to improve fuel efficiency, reduce emissions and enhance performance across a broad range of industries. Allison's core transmission portfolio serves applications such as on-highway trucks and buses, medium- and heavy-duty commercial vehicles, and military ground vehicles.

In addition to conventional automatic transmissions, Allison offers advanced hybrid systems that integrate electric motors with mechanical transmission components.

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