Allison Transmission’s third quarter was marked by a significant year-over-year revenue decline and a negative market reaction, reflecting broader macroeconomic pressures and ongoing uncertainty in its largest end market, North America On-Highway. Management attributed the underperformance primarily to subdued commercial vehicle demand driven by external factors such as tariffs, changing trade policies, and upcoming emissions regulations. CEO David Graziosi described the environment as one of “extraordinary and volatile global macroeconomic factors,” noting that these challenges led end users to defer purchases and made demand visibility more difficult.
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Allison Transmission (ALSN) Q3 CY2025 Highlights:
- Revenue: $693 million vs analyst estimates of $764.1 million (15.9% year-on-year decline, 9.3% miss)
- Adjusted EPS: $1.75 vs analyst expectations of $1.94 (9.8% miss)
- Adjusted EBITDA: $256 million vs analyst estimates of $279 million (36.9% margin, 8.2% miss)
- The company dropped its revenue guidance for the full year to $3 billion at the midpoint from $3.13 billion, a 4% decrease
- EBITDA guidance for the full year is $1.11 billion at the midpoint, below analyst estimates of $1.13 billion
- Operating Margin: 29.4%, down from 31.6% in the same quarter last year
- Market Capitalization: $6.61 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Allison Transmission’s Q3 Earnings Call
- Robert Wertheimer (Melius Research) asked about the steepness of the sales decline versus prior downturns. CEO David Graziosi explained that high channel inventory and ongoing uncertainty among end users contributed to deferred purchases, with normalization only starting later in the quarter.
- Timothy Thein (Raymond James) questioned the implied sequential revenue improvement in Q4 despite OEM build plan softness. COO Fred Bohley pointed to aggressive inventory adjustments by OEMs in Q3 and a continued ramp in defense sales as factors supporting the outlook.
- Ian Zaffino (Oppenheimer & Company) probed when management first noticed the demand weakness and whether cost controls were reactive or preplanned. Graziosi clarified that management had anticipated volatility and implemented cost discipline throughout the year, not just in reaction to third quarter results.
- Tami Zakaria (JPMorgan) asked about the impact of new tariffs and the company’s ability to offset costs. Bohley responded that Allison’s U.S.-based manufacturing footprint and sourcing strategy minimize direct tariff impacts, but that broader vehicle pricing uncertainty could affect demand.
- Kyle Menges (Citigroup) inquired about prospects for international growth and the strategic rationale for the Dana acquisition. Graziosi emphasized low penetration opportunities outside North America and said the Dana deal would enhance Allison’s global footprint and resilience to trade policy shifts.
Catalysts in Upcoming Quarters
Looking ahead, the StockStory team will monitor (1) signs of stabilization or recovery in North America On-Highway truck demand, (2) continued execution and revenue contribution from international and defense growth initiatives, and (3) progress toward closing and integrating the Dana Off-Highway acquisition. We will also track Allison’s ability to deliver on pricing actions and cost discipline as key indicators of performance in a challenging environment.
Allison Transmission currently trades at $84, up from $81.55 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).
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