Allison Transmission NYSE: ALSN reported record third-quarter sales in its legacy transmission business and raised its full-year 2026 outlook for revenue, earnings and cash flow for a second consecutive quarter, citing strong demand in several end markets and contributions from its newly acquired Allison Off-Highway business.
Third-quarter consolidated net sales rose 121% year over year to $1.53 billion. The Allison Off-Highway business contributed $653 million in revenue, while revenue in the Allison Transmission business increased 27% to a quarterly record of $881 million, Chief Executive Officer Dave Graziosi said.
Consolidated adjusted EBITDA increased 56% from the prior-year period to $400 million, representing a 26.1% margin. Adjusted diluted earnings per share rose 59% to $2.90, while adjusted free cash flow increased 51% to $278 million.
On-Highway Demand Drives Record Legacy Sales
All five Allison Transmission end markets recorded year-over-year growth during the third quarter. North America on-highway revenue reached a quarterly record of $462 million, up 41% year over year, as demand accelerated for medium-duty and Class 8 vocational trucks.
During the question-and-answer session, Chief Operating Officer Fred Bohley said channel checks indicated there were not significant numbers of trucks sitting on OEM dealer lots, while inventories at body builders had largely normalized.
Bohley said the company does not view recent medium-duty demand as primarily pre-buy activity. Instead, he pointed to aging fleets, pent-up replacement needs and increased activity from lease-rental operators. He said Allison expects those conditions to support demand into the fourth quarter and 2027.
“With Class 8 vocational, I would just continue to describe it as robust,” Bohley said, attributing demand principally to infrastructure spending.
The company also highlighted international examples of its transmission business. Graziosi said Allison’s fully automatic transmissions are installed in more than 70% of large city buses in Japan, where operators face congested roads and a shrinking driver pool. The company also pointed to its longstanding role in Supacat’s High Mobility Transporter defense platform in the U.K. and to service-network support for mining trucks in Mongolia.
Off-Highway Results Mixed Across End Markets
Allison said demand trends within its Off-Highway business were uneven. Mining and construction and material-handling markets showed strong momentum and accelerated year-over-year growth across regions, exceeding the company’s expectations entering 2026.
However, industrial and agricultural end markets remained muted, Graziosi said, as geopolitical developments continued to weigh on customer purchasing activity. Chief Financial Officer Scott Mell said a recovery in agricultural fundamentals could represent an opportunity in 2027.
Craig Price, leader of the Allison Off-Highway Business Unit, said the third quarter is typically the segment’s weakest seasonal period because of European holiday shutdowns. He said the fourth quarter generally sees a sequential improvement in volume, though the second quarter is typically the business’s strongest period.
Allison is also expanding defense capacity as it launches the eGen Force and 3040 and 4040 MX products. Bohley said the 3040 and 4040 MX products are primarily aimed at markets outside North America. He said the company’s 2027 defense outlook is expected to be broadly consistent with the level established by the step-up from 2025 to 2026, with remaining capacity for additional volume.
Among recent defense wins, Bohley cited a BAE Hägglunds order announced earlier in the year that he described as Allison’s largest defense order in its history, representing more than $250 million in revenue.
Company Emphasizes Combined Portfolio and Margin Opportunities
Graziosi said the company’s “Go Forward” brand architecture now brings the Allison Transmission and Allison Off-Highway business units under the unified Allison name, while retaining product brands including Allison Transmission, Spicer, Brevini, GWB, Fairfield and Graziano.
The company said the acquired off-highway portfolio expands its ability to provide integrated propulsion systems, including conventional internal-combustion, hybrid and electric solutions. Graziosi said the portfolio is energy agnostic and provides opportunities to capture more content per vehicle, cross-sell products and expand margins.
On electrification, Graziosi said Allison’s focus is currently more heavily weighted toward lower-voltage applications, where adoption is more mature. He said the company has not seen a significant acceleration in high-voltage adoption, although it continues to monitor technology developments and work with OEMs and end users.
Mell said Allison remains optimistic about expanding margins in the combined business through volume growth, synergies and cost initiatives. The company cited $120 million of identified synergies, while Bohley said additional efforts include expanding the Chennai, India, facility and pursuing purchasing, engineering and product-resourcing cost reductions.
Management said raw-material inflation, particularly for steel and aluminum, remained a pressure point. Still, the company said it was price-cost positive on a consolidated basis during the quarter and expects to remain price-cost positive in 2027.
Full-Year Guidance Raised
Allison increased its 2026 consolidated net-sales guidance to a range of $5.98 billion to $6.08 billion. It now expects net income of $645 million to $685 million, subject to completion of purchase-price accounting related to the Allison Off-Highway acquisition.
The outlook includes approximately $125 million of one-time pre-tax separation, integration and restructuring expenses associated with the acquisition. These costs include European manufacturing-footprint optimization charges and roughly $65 million related to stepped-up inventory basis. The company said the acquisition is still expected to be accretive to net income and earnings per share in 2026.
- Adjusted EBITDA is projected at $1.53 billion to $1.58 billion.
- Operating cash flow is expected to be $1.11 billion to $1.14 billion.
- Capital expenditures are projected at $240 million to $260 million, including about $20 million in one-time separation and integration spending.
- Adjusted free cash flow is forecast at $850 million to $900 million.
During the third quarter, Allison repurchased $57 million of common stock, paid $23 million in quarterly dividends and redeemed $100 million of its 2027 notes. Total debt repayment year to date exceeded $400 million, Mell said.
About Allison Transmission (NYSE:ALSN)
Allison Transmission, Inc designs and manufactures propulsion solutions for commercial, defense and off-highway vehicles. The company is best known for its fully automatic transmissions, which are used in applications including refuse collection, construction, distribution, emergency services, public transportation and mining.
Its product portfolio also includes electric and hybrid-electric propulsion systems, including the eGen Power electric axle and other electrification technologies.
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