Transmission provider Allison Transmission (NYSE: ALSN) beat Wall Street’s revenue expectations in Q2 CY2025, but sales were flat year on year at $814 million. On the other hand, the company’s full-year revenue guidance of $3.13 billion at the midpoint came in 1.3% below analysts’ estimates. Its GAAP profit of $2.29 per share was 2.9% above analysts’ consensus estimates.

Is now the time to buy Allison Transmission? Find out by accessing our full research report, it’s free.

David S. Graziosi, Chair and Chief Executive Officer of Allison Transmission commented, "Delivering record quarterly earnings per share, while incurring one-time costs associated with our recently announced acquisition of the Dana Off-Highway business, is a clear reflection of the Allison team's continued focus on execution and delivering strong financial performance. Our second quarter results, highlighted by continued growth in the Defense end market and a record $142 million of quarterly net sales in the Outside North America On-Highway end market, demonstrate the diversity of Allison's end markets and the incremental sales opportunities available from growth initiatives."

Company Overview

Helping build race cars at one point, Allison Transmission (NYSE: ALSN) offers transmissions to original equipment manufacturers and fleet operators.

Revenue Growth

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Allison Transmission’s sales grew at a mediocre 6.8% compounded annual growth rate over the last five years. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about Allison Transmission.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Allison Transmission’s recent performance shows its demand has slowed as its annualized revenue growth of 4.1% over the last two years was below its five-year trend. We also note many other Heavy Transportation Equipment businesses have faced declining sales because of cyclical headwinds. While Allison Transmission grew slower than we’d like, it did do better than its peers.

Allison Transmission also breaks out the revenue for its three most important segments: North America On-Highway, International On-Highway, and Service and Support, which are 51.2%, 17.4%, and 21.6% of revenue. Over the last two years, Allison Transmission’s North America On-Highway (propulsion solutions) and International On-Highway (propulsion solutions) revenues averaged year-on-year growth of 9.8% and 2.5% while its Service and Support revenue (parts and equipment) was flat.

This quarter, Allison Transmission’s $814 million of revenue was flat year on year but beat Wall Street’s estimates by 1.7%.

Looking ahead, sell-side analysts expect revenue to grow 2.9% over the next 12 months, similar to its two-year rate. This projection is underwhelming and indicates its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.

Here at StockStory, we certainly understand the potential of thematic investing. Diverse winners from Microsoft (MSFT) to Alphabet (GOOG), Coca-Cola (KO) to Monster Beverage (MNST) could all have been identified as promising growth stories with a megatrend driving the growth. So, in that spirit, we’ve identified a relatively under-the-radar profitable growth stock benefiting from the rise of AI, available to you FREE via this link.

Operating Margin

Allison Transmission has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 29.3%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Allison Transmission’s operating margin rose by 4.3 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q2, Allison Transmission generated an operating margin profit margin of 31.4%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Allison Transmission’s EPS grew at an astounding 20% compounded annual growth rate over the last five years, higher than its 6.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into Allison Transmission’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Allison Transmission’s operating margin was flat this quarter but expanded by 4.3 percentage points over the last five years. On top of that, its share count shrank by 25.3%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Allison Transmission, its two-year annual EPS growth of 14.3% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q2, Allison Transmission reported EPS at $2.29, up from $2.13 in the same quarter last year. This print beat analysts’ estimates by 2.9%. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

Key Takeaways from Allison Transmission’s Q2 Results

We enjoyed seeing Allison Transmission beat analysts’ EBITDA expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. On the other hand, its full-year revenue guidance slightly missed and its full-year EBITDA guidance fell slightly short of Wall Street’s estimates. Zooming out, we think this was a mixed quarter. The stock remained flat at $88 immediately after reporting.

So do we think Allison Transmission is an attractive buy at the current price? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.