Allison Transmission Raises 2026 Revenue Guidance After Q3 Sales Rise 121%

Allison Transmission (NYSE: ALSN ) reported third-quarter financial results on Monday. The transcript from the company's third-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

View the webcast at Summary Allison Transmission reported a 121% year-over-year increase in third-quarter net sales to $1.534 billion, driven by the integration of the Allison Off-Highway business unit and a 27% increase in Allison Transmission business unit sales. The company emphasized its transition to a full-scale integrated propulsion systems provider, focusing on capturing more content per vehicle and expanding value-selling opportunities across both conventional and electric platforms.

For 2026, Allison Transmission raised its full-year revenue guidance to between $5.975 billion and $6.075 billion, with adjusted EBITDA expected in the range of $1.530 billion to $1.580 billion. Operational highlights include significant demand in the North America On-Highway end market, particularly in Medium Duty and Class 8 Vocational Truck segments, contributing to a record quarterly revenue. Management highlighted the successful integration of the Allison Off-Highway business and noted positive trends in price/cost dynamics despite raw material cost pressures. Full Transcript Samantha (Operator) Good afternoon.

Thank you for standing by. Welcome to Allison's third quarter 2026 earnings conference call. My name is Samantha, and I will be your conference call operator today. At this time, all participants are in a listen-only mode.

After prepared remarks, Allison executives will conduct a question-and-answer session. Participants will be given instructions at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Jackie Bowles, Executive of Treasury and Investor Relations.

Please go ahead. Jackie Bowles (Executive of Treasury and Investor Relations) Thank you, Samantha. Good afternoon and thank you for joining us for our third quarter 2026 earnings conference call. With me this afternoon are Dave Graziosi, our Chair, President and Chief Executive Officer; Scott M., our Chief Financial Officer and Treasurer; Fred Bohley, Allison's Chief Operating Officer and Allison Transmission Business Unit Leader; and Craig Price, Allison Off-Highway Business Unit Leader.

As a reminder, this conference call, webcast and this afternoon's presentation are available on the Investor Relations section of allisontransmission.com. A replay of this call will be available through November 16th. As noted on Slide 2 of the presentation, many of our remarks today contain forward-looking statements based on current expectations. These forward-looking statements are subject to known and unknown risks, including those set forth in our annual report on Form 10-K for the year ended December 31, 2025.

Should one or more of these risks or uncertainties materialize, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those that we express today. In addition, as noted on Slide 3 of the presentation, some of our remarks today contain non-GAAP financial measures as defined by the SEC. You can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures attached in the appendix to the presentation and to our third quarter 2026 earnings press release. Today's call is set to end at 5:45 p.m.

Eastern Time. In order to maximize participation opportunities on the call, we'll take just one question from each analyst. Please turn to Slide 4 of the presentation for the call agenda. During today's call, Dave Graziosi will provide a business update, including recent announcements across Allison.

Dave will also provide detail on capabilities of the combined Allison product portfolio, a key piece of our growth strategy, before concluding with a brief review of the business units' net sales performance for the third quarter. Scott M. will then review Allison's third quarter 2026 financial performance and our full-year guidance update prior to commencing the Q&A. Now I'll turn the call over to Dave Graziosi.

Dave Graziosi (President, Chief Financial Officer & Treasurer) Thank you, Jackie. Good afternoon and thank you for joining us. Please turn to Slide 5 of the presentation for our third quarter business update. Before we begin, I would like to take a moment to reiterate our Go Forward brand architecture announced last month.

Under this structure, the Allison Transmission and Allison Off-Highway business units, along with their combined product portfolios, now operate under the unified Allison name. Our products have a long history, earning the trust of customers over many decades. Much of what they value about Allison is embodied in the product brands themselves. As we announced, trusted brands such as Allison Transmission, Spicer, Brevini, GWB, Fairfield and Graziano will be retained and will continue to be developed, sold and serviced as they have been.

Importantly, customers, distributors and dealers across both business units can continue to expect the high standards of the products and parts they rely on, now strengthened by the resources and global reach of the Allison enterprise. Moving on to a few articles that were recently posted on our Allison in Action page located in the newsroom on our corporate site, allisontransmission.com. First, I want to highlight a milestone from Japan that shows how the Allison value proposition delivers in real-world applications.

In August, we celebrated the delivery of our 20,000th Allison-equipped Isuzu Erga city bus to Keisei Bus Chiba West, which runs roughly 2,300 buses across Tokyo, Chiba and Ibaraki. This story highlights the structural megatrends shaping our end markets and positioning Allison for growth around the world. In Japan, where some of the world's most congested city roads meet a shrinking labor force and driver pool, operators are finding it increasingly difficult to recruit drivers for manual transmission vehicles because of the physical strain and skill required for manual transmission shifting under these conditions.

It's no surprise that Isuzu has moved entirely away from manual transmissions in its city buses, with Allison's fully automatic transmissions now found in over 70% of large city buses across Japan. Our second highlight comes from the UK with Supacat and their High Mobility Transporter (HMT), known within the British Army as the Jackal. The Jackal is a wheeled defense vehicle used for reconnaissance and long-range patrol, tasked with getting soldiers deep into hostile terrain and bringing them home safely.

More than 25 years after Supacat first integrated the Allison 2500 Series fully automatic transmission into the HMT platform, they continue to specify the same drivetrain, underscoring the durability and reliability of Allison products in demanding defense applications. The long service life of these vehicles and the trust we've built as a long-standing partner. Finally, showcasing the power of Allison from the harsh conditions of the Gobi Desert in Mongolia.

Vertex, an end user at the Mongolia Energy Resources coal mine, had been struggling with unusually high transmission failure rates across the wide-body mining dump trucks, and with no local service network, downtime and fleet availability became an even greater challenge. So when Vertex expanded its fleet of 100 trucks in 2025, choosing Allison was the clear decision. In addition to improving reliability of our products, our service network stands out, with our local presence allowing operators to cut troubleshooting repair times that once took weeks.

To experience the full testimonials, I encourage those of you that have not already done so to visit the Allison in Action page and subscribe to our email alerts by clicking the link at the top of the page. Before covering Allison's third quarter net sales performance, please turn to Slide 6 of the presentation for an outline of Allison's combined product portfolio opportunities, a key piece of our growth strategy. As a combined company, Allison is moving up the value chain, transitioning to a full-scale integrated propulsion systems provider capable of designing, validating and delivering complete optimized propulsion systems.

This improves performance, efficiency and time to market for OEMs and unlocks value for Allison and our shareholders. With an expanded product portfolio and a pipeline of combined drivetrain products in development, Allison has opportunities to capture more content, fundamentally changing our position in the end markets we serve. As we leverage our suite of capabilities, we believe we can capture more content per vehicle with an enhanced value-selling approach, leading to margin expansion opportunities across the business. Our expanded portfolio is energy agnostic, with solutions spanning conventional ICE platforms, hybrid, as well as advanced electric propulsion.

This portfolio reduces concentration risk, protects revenue streams through market transitions and enables Allison to meet customers wherever they are in their technology journey. Finally, with a combined global footprint, we can support our customers with local engineering, manufacturing, sales and service. This not only increases Allison's competitive position but also unlocks synergies and opportunities for margin expansion, scaling our profitability. Importantly, our combined product portfolio and our role as an integrated propulsion systems provider are only part of the story.

With our combined portfolio, we can provide complementary products to existing customers and unlock cross-selling opportunities. This positions us to capture additional value as customer needs evolve and further strengthens our long-term growth position. Turning to the right-hand side of the slide, you will see some representative applications utilizing Allison's developing product portfolio. To summarize, the Allison Off-Highway acquisition has transformed the Allison growth algorithm.

We are transitioning to a full-scale integrated propulsion systems provider, able to capture more content, expand value-selling opportunities and strengthen OEM relationships as a single-source offering energy-agnostic solutions. This transition positions us to win more programs, realize new growth opportunities and leverage our global capabilities and presence to unlock synergies and expand margin. The result is a strengthened position as a premier industrial asset. Moving now to Allison's third quarter net sales performance and end market outlook for both of our business units.

Please turn to Slide 7 of the presentation. Third quarter net sales were $1,534,000,000, an increase of 121% year over year. In addition to the $653,000,000 contributed by the newly acquired Allison Off-Highway business unit, revenue in the Allison Transmission business unit increased 27% year over year, reaching a quarterly record of $881 million. Within the Allison Transmission business unit, all five end markets were up year over year.

Demand accelerated for Medium Duty and Class 8 Vocational Truck, driving record quarterly revenue of $462 million for the North America On-Highway end market, an increase of 41% year over year. Within the Allison Off-Highway business unit, when we step back and take a look across our end markets, it's clear that demand patterns are not uniform. We continue to see strong momentum in mining, and the Construction and Material Handling end market accelerated year over year across every region, exceeding our expectations heading into 2026.

However, our industrial and agricultural end markets remain muted, as ongoing geopolitical developments continue to temper customer purchasing activity. You can find detailed breakdowns by end market for both business units on Slides 8 and 9 of the presentation. Now I'll turn the call over to Scott for a review of Allison's third quarter 2026 financial performance and full-year 2026 guidance update. Scott M.

(Chief Financial Officer) Thank you, Dave, and thanks to those of you joining us on the call. Please flip to Slide 10 of the presentation. As Dave covered in his prepared remarks, net sales in the third quarter increased 121% year over year to $1,534,000,000. The year-over-year increase was driven by the addition of the Allison Off-Highway business unit along with a 27% increase in the Allison Transmission business unit, with record quarterly net sales of $881 million.

Consolidated adjusted EBITDA for the quarter was $400 million, increasing 56% year over year, representing a 26.1% margin. Third quarter adjusted diluted EPS was $2.90, increasing 59% year over year. Favorable end-market demand conditions and operational execution drove strong cash generation in the third quarter. While capital expenditures increased $21 million year over year, adjusted free cash flow of $278 million increased $94 million, or 51%.

During the third quarter, we repurchased $57 million of our common stock and paid $23 million for our quarterly dividend. We also completed a partial redemption of $100 million of our 2027 notes, bringing total debt repayment year to date to over $400 million. Despite near-term headwinds from increased raw material costs and other inflationary pressures, our margin outlook remains positive, and Allison's ability to generate substantial cash flow is hard to overstate. Also, as a combined company, our top line growth opportunities have never been stronger.

You can find further detail on financial performance by segment on slide 11 of the presentation. There will also be more detail provided in our Form 10-Q to be published later this week. Please turn to slide 12 for our full year 2026 guidance update. Given our third quarter results and improved conditions across the majority of our key end markets, we are increasing our full year 2026 guidance for revenue, earnings, and cash flow for the second consecutive quarter.

For 2026 revenue, we expect consolidated net sales in the range of $5,975,000,000 to $6,075,000,000. For earnings, we expect consolidated net income in the range of $645 million to $685 million, subject to the completion of purchase price accounting associated with the acquisition of the Allison Off Highway Business Unit. Our net income guidance for 2026 includes approximately $125 million of one-time pre-tax expenses associated with the separation, integration, and restructuring of the Allison Off Highway Business Unit.

This includes restructuring charges related to manufacturing footprint optimization in our European operations and approximately $65 million of expenses related to the stepped-up basis in the inventory. Despite these one-time costs, we expect the Allison Off Highway acquisition to be accretive to net income and earnings per share in 2026. Further, we expect consolidated adjusted EBITDA in the range of $1,530,000,000 to $1,580,000,000. At the midpoint, this implies a 25.8% adjusted EBITDA margin.

For our 2026 cash flow guidance, we anticipate consolidated net cash provided by operating activities in the range of $1,110,000,000 to $1,140,000,000, consolidated capital expenditures in the range of $240,000,000 to $260,000,000, including one-time separation and integration spending of approximately $20,000,000, and consolidated adjusted free cash flow in the range of $850,000,000 to $900,000,000. Please note that our consolidated net cash provided by operating activities guidance includes approximately $60 million of one-time cash outlays associated with our acquisition of the Allison Off Highway Business Unit. This concludes our prepared remarks.

Samantha, please open the call for questions. Samantha (Operator) Thank you. We will now be conducting a question-and-answer session. We ask that you please limit yourself to one.

If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment please, while we poll for questions. Our first question is from Rob Wertheimer with Melius Research. Please proceed with your question. Rob Wertheimer (Analyst at Melius Research) Thanks.

A lot of numbers going up to ask about. I guess I'll pick a couple of the biggest in medium and vocational. Just one question on channel inventory there. I know there's some kind of flex and accordion kind of structures, bodybuilders, et cetera.

Could you remind us of where you think that stands right now? And then is it your view some of this demand is pre-buy related, or is it just that the market needs replacement and therefore could continue into next year? Fred Bohley (President and BU Leader, Allison Transmission and Allison Chief Operating Officer) Rob, this is Fred. Relative to the channel inventory, our checks would suggest there's not a significant number of trucks on the OEM dealer lots.

And then relative to bodybuilders, the vast majority of that's been worked through, so we would define that as somewhat normalized at this point. And then I think your second question was relative to demand in medium duty as well as for U.S. Class 8 vocational. So from a medium-duty standpoint, we've seen a gradual ramp throughout the year and talked about it on the Q1 and Q2 calls, but certainly saw a significant uptick in medium duty in the third quarter.

If you think about our end market, we're up 41% year over year. I think ACT has Class 6—7 up about 30% year over year and Class 8 straight truck up 29%, school bus relatively flat. So certainly some strong performance from our standpoint within the end market.