Allison Quarterly Profit Rises

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Indianapolis-based Allison Transmission Holdings Inc. (NYSE: ALSN) is reporting fourth quarter net income of $42.9 million, up from $11.2 million during the same period the previous year. The company says 2013 full-year profit decreased compared to 2012.

February 13, 2014

News Release

Indianapolis, Ind. -- Allison Transmission Holdings Inc. (NYSE: ALSN), the largest global provider of commercial duty fully-automatic transmissions and hybrid-propulsion systems, today reported net sales for the quarter of $491 million, a 1 percent increase from the same period in 2012. Adjusted Net Income, a non-GAAP financial measure, for the quarter was $78 million, compared to Adjusted Net Income of $46 million for the same period in 2012, an increase of $32 million. Diluted earnings per share for the quarter were $0.23.

The increase in net sales was principally driven by higher demand in the Service Parts, Support Equipment & Other end market, continued recovery in the North America On-Highway end market, our largest, and improved demand conditions in the Outside North America On-Highway end market largely offset by previously contemplated reductions in U.S. defense spending, and weakness in the Outside North America Off-Highway end market. Our North America Off-Highway end market continues to be weak, but experienced some modest sequential improvement.

Adjusted EBITDA, a non-GAAP financial measure, for the quarter was $153 million, or 31.1 percent of net sales, compared to $132 million, or 27.1 percent of net sales, for the same period in 2012. Excluding costs ($7 million) to conclude a new five-year labor agreement and a product warranty charge ($9 million) for specific product issues, Adjusted EBITDA for the fourth quarter of 2012 was $148 million, or 30.4 percent of net sales. Adjusted Free Cash Flow, also a non-GAAP financial measure, for the quarter was $105 million compared to $82 million for the same period in 2012.

Lawrence E. Dewey, Chairman, President and Chief Executive Officer of Allison Transmission commented, "Our fourth quarter 2013 results are within the guidance ranges we provided to the market on October 28. Net sales stabilized in the fourth quarter on a year-over-year basis, an improvement relative to the sales declines experienced through the first three quarters of the year. We are encouraged by growth in the North American On-Highway end market and improved demand conditions in the Outside North America On-Highway end market. Allison continued to demonstrate strong operating margins and cash flow during the fourth quarter by executing initiatives to align costs and programs across our business with end markets demand conditions while investing in growth opportunities. Maintaining our prudent approach to capital allocation we refinanced $650 million of our Senior Secured Credit Facility Term B-2 Loan due in 2017, extended the maturity of our revolving credit facility to 2019, repaid $53 million of debt and paid a quarterly dividend of $0.12 per share."

Fourth Quarter Highlights

North America On-Highway end market net sales were up 12 percent from the same period in 2012 principally driven by higher demand for Rugged Duty Series, Highway Series and Bus Series models, and essentially flat on a sequential basis principally driven by higher demand for Bus Series models offset by lower demand for Pupil Transport/Shuttle Series and Rugged Duty Series models.

North America Hybrid-Propulsion Systems for Transit Bus end market net sales were flat with the same period in 2012, and up 113 percent on a sequential basis principally driven by intra-year movement in the timing of orders.

North America Off-Highway end market net sales were down 18 percent from the same period in 2012 principally driven by lower demand from hydraulic fracturing applications, and up 56 percent on a sequential basis, the first sequential increase since the first quarter of 2012, principally driven by higher demand from hydraulic fracturing applications.

Defense end market net sales were down 53 percent from the same period in 2012 and 33 percent sequentially principally driven by previously considered reductions in U.S. defense spending to longer term averages experienced during periods without active conflicts.

Outside North America On-Highway end market net sales were up 18 percent from the same period in 2012 reflecting strength in China bus and Europe truck, partially offset by weakness in Japan truck, and up 23 percent on a sequential basis principally driven by China bus tenders timing.

Outside North America Off-Highway end market net sales were down 53 percent from the same period in 2012 principally driven by weakness in the mining and energy sectors, and down 13 percent on a sequential basis principally driven by weakness in the energy sector.

Service Parts, Support Equipment & Other end market net sales were up 37 percent from the same period in 2012 principally driven by higher demand for North America service parts, and global On-Highway support equipment commensurate with increased transmission unit volumes, and up 9 percent on a sequential basis principally driven by higher demand for global service parts and support equipment.

Gross profit for the quarter was $211 million, an increase of 9 percent from gross profit of $194 million for the same period in 2012. Gross margin for the quarter was 43.1 percent, an increase of 320 basis points from a gross margin of 39.9 percent for the same period in 2012. The increase in gross profit from the same period in 2012 was principally driven by costs ($7 million) and charges ($8 million) to conclude a new five-year labor agreement in 2012.

Selling, general and administrative expenses for the quarter were $87 million, a decrease of 22 percent from $112 million for the same period in 2012. The decrease was principally driven by $12 million of lower intangible asset amortization, a product warranty charge ($9 million) for specific product issues in 2012 and charge ($1 million) to conclude a new five-year labor agreement in 2012.

Engineering – research and development expenses for the quarter were $24 million, a decrease of 13 percent from $28 million for the same period in 2012. The decrease was principally driven by reduced product initiatives spending.

Fourth Quarter Non-GAAP Financial Measures

Adjusted EBITDA for the quarter was $153 million, or 31.1 percent of net sales, compared to $132 million, or 27.1 percent of net sales, for the same period in 2012. The increase was principally driven by costs ($7 million) to conclude a new five-year labor agreement in 2012, a product warranty charge ($9 million) for specific product issues in 2012 and reduced product initiatives spending.

Adjusted Net Income for the quarter was $78 million compared to $46 million for the same period in 2012. The increase was principally driven by increased Adjusted EBITDA and charges ($9 million) to conclude a new five-year labor agreement in 2012.

Adjusted Free Cash Flow for the quarter was $105 million compared to $82 million for the same period in 2012. The increase was principally driven by increased net cash provided by operating activities partially offset by increased capital expenditures. The increase in capital expenditures was principally driven by increased investments in productivity and replacement programs partially offset by lower product initiatives spending.

2014 Guidance

Allison expects 2014 net sales to increase in the range of 3 to 6 percent, an Adjusted EBITDA margin in the range of 32 to 34 percent, and an Adjusted Free Cash Flow in the range of $375 to $425 million, or $2.00 to $2.25 per diluted share. Capital expenditures are expected to be in the range of $60 to $70 million, which includes maintenance spending of approximately $60 million. Cash income taxes are expected to be in the range of $10 to $15 million.

Our 2014 net sales guidance assumes