Allison Transmission Holdings, Inc. (ALSN) Earnings & Analysis

Latest quarter

Allison reported Q2 FY2026 revenue of $1.6 billion, above the $1.5 billion consensus. Adjusted earnings per share were $2.73, compared with the $2.60 consensus.

Revenue rose 92.4% from $814.0 million a year earlier. CFO Scott Mell attributed the increase to the addition of the Allison Off-Highway business and higher sales in the Allison Transmission business. The filing said Transmission’s defense sales rose on demand for tracked vehicle applications and price increases, while North American on-highway sales benefited from pricing. Sales outside North America fell as demand in Asia declined.

Gross margin fell to 32.9% from 49.5%; the filing attributed the decline principally to the addition of Off-Highway products, which have a lower average gross margin than Transmission products. Allison reported an operating margin of 18.6%, compared with 31.4% a year earlier. Diluted earnings per share fell to $2.15 from $2.29, while free cash flow rose to $281.0 million from $153.0 million.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO David Graziosi said defense demand continued to drive Transmission sales. He highlighted a $250 million contract to supply the 4040 MX transmission for the CV90 MkIV infantry fighting vehicle and an order for EAGLE armored vehicles, with deliveries expected to begin in 2027. He said the EAGLE order covers approximately 3,000 vehicles, with an option for up to an additional 2,000 units.

In Off-Highway, Graziosi said construction, material handling and mining demand had rebounded, while agriculture had yet to turn positive across the business. He said first-half program wins in those markets represented more than $50 million of annual run-rate net new business. For North American medium-duty and Class 8 vocational trucks, he expected volumes to improve sequentially in the second half of 2026.

Asked about transmission margins, CFO Scott Mell said material costs, particularly aluminum, had compressed them. Mell said Allison recovers a substantial portion of higher commodity costs from customers after a 6- to 12-month lag. Off-Highway leader Craig Price said pricing in his business was not meaningfully up or down year over year; Mell added that Off-Highway could pass material costs through more quickly than the transmission business.

On the second half, Mell said the transmission business should improve sequentially, while Off-Highway faces seasonal effects from European shutdowns and holidays. Graziosi said Allison was targeting $120 million in annual run-rate synergies, with approximately 40% realized by the end of 2027, another 40% by the end of 2028 and full realization by the end of 2029.

Asked about the EPA emissions proposal, Graziosi said manufacturers and suppliers were still assessing it. He said the trade-offs between potential noncompliance penalties and the expected cost of 2027 vehicles had yet to be fully understood.

Guidance

Mell said Allison raised its full-year 2026 guidance following its second-quarter results and improving end-market conditions. He said most of the increase in the outlook midpoint reflected a more optimistic view of the Transmission business; he described the Off-Highway outlook as about the same to slightly higher than its February guidance. Mell said the full-year adjusted EBITDA guidance included no material synergies and attributed the increase to incremental volume and operating cost management.