Allison Transmission repays $69 million debt, ends Q4 with $263 million cash

By Lisa Kerner

Charlotte, N.C., Feb. 10 – Allison Transmission Holdings Inc.’s fourth-quarter results exceeded guidance ranges the company provided in late October, said chairman, president and chief executive officer Larry Dewey.

“Net sales improved on a year-over-year basis for the fifth consecutive quarter led by the continued recoveries in the North American on-highway and off-highway end markets and higher demand in the service parts, support equipment & other end market, partially offset by lower demand in the outside North America on-highway and North America hybrid propulsion systems for transit bus end markets,” Dewey noted during the company’s earnings call on Tuesday.

Fourth-quarter net sales were up 10.9% year over year at $544 million. Gross margin for the period was 47%, an improvement of 390 basis points from the prior-year period.

Allison had adjusted net income of $117 million for the quarter and adjusted free cash flow of $129 million. This compares to $78 million and $109 million, respectively, for the fourth quarter of 2013.

For the full year, Allison had net sales of $2.13 billion, adjusted net income of $479 million and adjusted free cash flow of $524 million, or $2.87 per diluted share.

Stock repurchases and debt

“During the fourth quarter, we continued to demonstrate strong operating margins and free cash flow conversion while investing in growth opportunities despite challenging conditions in the outside North America end markets,” said chief financial officer David Graziosi on the call.

Allison’s board of directors authorized a stock repurchase program for up to $500 million of common stock and increased the dividend to $0.15 from $0.12.

Graziosi said there is no sense of urgency regarding the share buyback that runs to the end of next year and that the authorization will be executed based on market conditions.

“We maintained our prudent approach to capital allocation by repaying $69 million of debt and ended the quarter with $263 million of cash, $455 million of revolver availability and net leverage of 3.03,” Graziosi said.

Looking ahead, Allison expects 2015 net sales to be in the range of flat to down 5%, adjusted EBITDA margin in the range of 34% to 35.5%, and adjusted free cash flow in the range of $475 million to $525 million, or $2.60 to $2.90 per diluted share.

Allison Transmission is an Indianapolis-based manufacturer of automatic transmissions for medium- and heavy-duty trucks, tractors, buses and military vehicles.

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