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    ALSN
    Earnings call· Dec 2025(Q4 FY25)

    Allison Transmission Holdings Q4 FY25 earnings call ALSN

    Feb 23, 2026 Source

    Executive summary

    Allison Transmission Q4 FY25 — Acquisition Integration and Prudent 2026 Outlook

    Allison Transmission completed its acquisition of Dana's Off-Highway business, establishing a new reporting structure with two distinct business units. Despite a challenging 2025 for the legacy Allison Transmission business, marked by a 7% revenue decline, the company demonstrated strong adjusted EBITDA margin expansion and robust cash flow, enabling significant capital returns. The 2026 outlook is prudent, anticipating continued softness in key end markets, with no acquisition synergies embedded in the current year's guidance, as the focus remains on seamless integration and execution.

    Highlights

    4

    • Allison Transmission's full year adjusted EBITDA margin increased by 140 basis points year-over-year to 37.5%.

    • Defense end market revenue increased by 26% to $267 million for the full year, achieving the $100 million incremental annual revenue objective.

    • The company repurchased $328 million of common stock, representing 4% of outstanding shares, and increased its quarterly dividend to $0.27 per share.

    • Net cash provided by operating activities for Q4 FY25 was $243 million, an increase of $32 million from the prior year.

    Concerns

    4

    • Allison Transmission's full year revenue was down 7% year-over-year.

    • Fourth quarter net sales were down 7% year-over-year to $737 million.

    • Net income for Q4 FY25 decreased by $76 million to $99 million, impacted by a $29 million impairment and $26 million in acquisition-related expenses.

    • The 2026 guidance assumes continued softness in the North America On-Highway end market and Off-Highway end markets remaining at or near trough levels.

    Guidance & targets

    10
    CategoryTargetConfidence
    Consolidated net sales
    $5.575 billion to $5.925 billion
    high materiality
    High
    Allison Transmission segment net sales
    $3.025 billion to $3.175 billion
    medium materiality
    High
    Allison Off-Highway Drive and Motion Systems segment net sales
    $2.550 billion to $2.750 billion
    medium materiality
    High
    Consolidated net income
    $600 million to $750 million
    high materiality
    High
    Consolidated adjusted EBITDA
    $1.365 billion to $1.515 billion
    high materiality
    High
    Consolidated adjusted EBITDA margin
    27% to 29%
    high materiality
    Medium
    Consolidated net cash provided by operating activities
    $970 million to $1.100 billion
    high materiality
    High
    Consolidated capital expenditures
    $295 million to $315 million
    medium materiality
    High
    Consolidated adjusted free cash flow
    $655 million to $805 million
    high materiality
    High
    Annual run rate synergies
    $120 million
    high materiality
    High

    Segment performance

    8
    SegmentRevenueYoYQoQMargin
    Allison Transmission
    Q4 FY25 net sales. Adjusted EBITDA margin increased over 200 basis points year-over-year.
    		$737 milliondown 7%—36% adjusted EBITDA margin
    Allison Transmission - Defense
    Q4 FY25 net sales, continuing growth initiatives.
    		$73 millionup 7%——
    Allison Transmission - Outside North American On-Highway
    Achieved record revenue in Q4 FY25 and for the full year.
    Record fourth quarter revenueRecord full year revenue: $507 million
    		————
    Allison Transmission - North America On-Highway
    Sequential improvement from the trough in Q3 FY25, demonstrating positive impact of improved clarity on purchasing decisions.
    		—down year-over-yearup 10% sequentially—
    Allison Transmission (Full Year)
    Full year revenue was down, but adjusted EBITDA margin increased by 140 basis points year-over-year.
    		—down 7%—37.5% adjusted EBITDA margin
    Allison Transmission - Defense (Full Year)
    Achieved the $100 million incremental annual revenue objective for this end market.
    Incremental annual revenue objective: $100 million achieved
    		$267 millionup 26%——
    Allison Transmission (FY26 Guidance)
    Net sales guidance for the Allison Transmission business unit for full year 2026.
    		$3.025 billion to $3.175 billion———
    Allison Off-Highway Drive and Motion Systems (FY26 Guidance)
    Net sales guidance for the newly acquired Off-Highway business unit for full year 2026, with like-for-like top line growth.
    		$2.550 billion to $2.750 billionmid-plus single-digit rate——

    Operational metrics

    14
    Adjusted EBITDA margin
    37.5%up 140 bps YoY
    Full Year 2025

    Increased despite full year revenue being down 7%.

    Adjusted EBITDA margin
    36%up 200 bps YoY
    Q4 2025

    Increased despite Q4 net sales decrease of 7% year-over-year.

    Net cash provided by operating activities
    $243 millionup $32 million YoY
    Q4 2025

    Reflects strong cash generation and disciplined cost management.

    Common stock repurchased
    $328 million
    Full Year 2025

    Part of shareholder-aligned capital allocation priorities.

    Quarterly dividend
    $0.27 per shareincreased
    Q1 2025

    Increased in Q1 2025 as part of capital allocation strategy.

    Net income decrease
    $76 millionYoY decrease
    Q4 2025

    Net income for the quarter was $99 million, down from $175 million in Q4 2024.

    Adjusted net income
    $141 million
    Q4 2025

    Net income adjusted for one-time items.

    Diluted earnings per share (adjusted)
    $1.68
    Q4 2025

    Diluted EPS adjusted for one-time items.

    Pricing expectations
    250-400 bps
    2026

    Expected year-over-year pricing, potentially lower than recent years but still meaningful.

    Inflationary pressure
    substantial
    2026

    Company is experiencing substantial inflationary pressure.

    Tariff impact
    net drag on margins
    2026

    Expected to be a net drag on margins on a year-over-year basis despite recovery efforts through pricing actions.

    One-time pretax expenses (acquisition-related)
    $70 million
    2026

    Included in consolidated net income guidance for 2026.

    One-time cash outlays (acquisition-related)
    $55 million
    2026

    Included in consolidated net cash provided by operating activities guidance for 2026.

    Class 8 straight truck share
    up 1%
    Last year

    Indicates ability to pass on price and increase share in the largest end market.

    Deals & partnerships

    2
    Dana IncorporatedAcquisition of the Off-Highway Drive & Motion Systems business

    The acquisition was announced in January 2026, creating a combined company with expanded market reach and product portfolio. It brings together 14,000 employees operating in 25 countries.

    Armoured Vehicles Nigam LimitedMemorandum of Understanding for defense MRO center in India

    A multiphase agreement to establish a maintenance, repair, and overhaul center in India to service current and future Allison cross-drive transmission programs, aligning with India's defense modernization efforts.

    Capital programs

    1
    India Chennai facility expansionoperational
    Start: late 2024

    Benefit: full capacity

    The state-of-the-art facility expansion in Chennai is operational and will ramp to full capacity in 2027, supporting strategic investments in the region.

    Risks & headwinds

    7
    Broader macroeconomic factors and global trade policies2025

    Negatively impacted 2025 performance, with full year revenue down 7%.

    Mitigation: Disciplined cost control and execution.

    Continued softness in North America On-Highway end market2026

    Particularly for medium-duty trucks, with no meaningful recovery modeled for Class 8 vocational trucks.

    Mitigation: Focus on other growth areas like defense and outside North America markets.

    Key Allison Off-Highway end markets at or near trough2026

    Construction, material handling, agriculture, industrial, and mining markets are expected to remain challenged.

    Mitigation: Prudent guidance and focus on execution across the combined business.

    Residential construction weaknessOngoing

    Relatively weak due to rate sensitivity.

    Mitigation: Diversified end market exposure.

    Challenged commodity prices for agricultureOngoing

    Impacting farming margins.

    Mitigation: Considered in prudent market outlook.

    Tariff impact on margins2026

    Expected to be a net drag on margins on a year-over-year basis.

    Mitigation: Pricing actions to recover a meaningful amount of tariffs.

    Uncertainty regarding Class 8 truck pre-buyH2 2026

    Uncertainty as to whether there's going to be a pre-buy in the second half of the year; not modeled in guidance.

    Mitigation: Prudent guidance not assuming a pre-buy.

    What to watch in Q1 FY26

    5

    North America On-Highway demand recovery

    H2 2026
    Currentcontinued softness, particularly for medium-duty trucks with no meaningful recovery model for Class 8 vocational trucks
    TargetMeaningful improvement in medium-duty and Class 8 vocational demand

    Why it matters

    This is a key driver for the Allison Transmission segment's revenue and margin performance, especially given the cautious 2026 outlook.

    Our adjusted EBITDA margin guidance assumes continued softness in the North America On-Highway end market, particularly for medium-duty trucks with no meaningful recovery model for Class 8 vocational trucks.

    Q&A highlights

    6

    What are the pricing expectations for 2026, how do inflation and tariffs factor in, and what level of detail will be provided for segment reporting (EBITDA/Op Income)?

    Management expects 250-400 basis points of pricing in 2026, facing substantial inflationary pressure. Tariffs are anticipated to be a net drag on margins despite recovery efforts. Segment reporting will include net sales down through operating profit, with enough detail to derive EBITDA.

    “I think somewhere between 250 and 400 basis points of pricing is probably directionally where we'll end up.”

    asked by Rob Wertheimer · answered by Scott Mell

    2 min read6 chapters

    Detailed Narrative

    01

    Strategic Acquisition and Integration

    Allison Transmission announced the completion of its acquisition of Dana Incorporated's Off-Highway Drive & Motion Systems business in January 2026. This acquisition significantly expands Allison's market reach and product portfolio, creating a global leader with 14,000 employees across 25 countries. The company plans to leverage an expanded global footprint for local-for-local production, utilize global technology centers for development, and achieve cost synergies through combined engineering, R&D, and purchasing scale. The integration process is underway, with a focus on synergy capture and growth initiatives.

    02

    New Reporting Structure and Leadership

    Following the acquisition, Allison will operate with a new reporting structure comprising two business units: Allison Transmission, led by Fred Bohley (who also remains COO), and Allison Off-Highway Drive and Motion Systems, led by Craig Price. Both business unit leaders report directly to CEO Dave Graziosi. This structure aims to provide clearer financial reporting and operational focus for each segment, with detailed segment reporting expected to begin in Q1 2026.

    03

    Allison Transmission's 2025 Performance Highlights

    Despite a 7% year-over-year decline in full year revenue for the legacy Allison Transmission business, the company demonstrated strong operational efficiency, increasing its full year adjusted EBITDA margin by 140 basis points to 37.5%. The defense end market was a notable strength, with revenue growing 26% to $267 million, achieving the $100 million incremental annual revenue objective. The North America On-Highway market showed sequential improvement in Q4 from a Q3 trough, indicating early signs of demand recovery.

    04

    Robust Capital Allocation and Financial Strength

    Allison maintained its shareholder-aligned capital allocation priorities throughout 2025. The company repurchased $328 million of common stock, reducing outstanding shares by 4%, and increased its quarterly dividend to $0.27 per share. This ability to complete a significant acquisition while simultaneously returning capital to shareholders underscores the strength of Allison's balance sheet and the resilience of its cash flow generation, with Q4 net cash from operating activities increasing by $32 million to $243 million.

    05

    Strategic Investments and Expansion in India

    Allison is expanding its footprint and investment in India, signing a memorandum of understanding with Armoured Vehicles Nigam Limited for a defense maintenance, repair, and overhaul center. The company is also seeing increased adoption of its 4800 Series transmissions in the Indian mining sector and 3000 Series transmissions being exported from Daimler India. The state-of-the-art facility expansion in Chennai, announced in late 2024, is now operational and is expected to ramp to full capacity in 2027, reinforcing local production and partnerships.

    06

    Prudent 2026 Outlook Amidst Market Softness

    The 2026 guidance reflects a prudent approach, assuming continued softness in the North America On-Highway end market, particularly for medium-duty trucks, and no meaningful recovery for Class 8 vocational trucks. Key Allison Off-Highway end markets are also expected to remain at or near trough levels. Management emphasized that no acquisition synergies are embedded in the 2026 financial guidance, with the focus on disciplined execution and integration during this period of market uncertainty🌐.

    AI-generated summary of the company’s earnings call. Not investment advice.