Financial Trends -- 6/10
Revenue declined 6.7% in 2025 -- the first annual decline since the 2020 COVID trough -- driven by
a cyclical downturn in North America On-Highway (medium-duty collapse, Class 8 vocational softening).
Despite the revenue headwind, EBITDA margin expanded +140 bps to 37.5%, demonstrating exceptional
pricing power and cost discipline. FCF remained rock-solid at $661M (22% margin). Defense revenue
surged +26% to $267M, and outside NA On-Highway hit a record $507M. EPS fell 11.8% partly on
acquisition-related charges. Aggressive buybacks (-3.4% share count) cushioned per-share economics.
Weight: 25%
FY25 Revenue
$3,010M
-6.7% YoY | First decline since COVID
FY25 Adj EBITDA
$1,130M
37.5% margin | +140 bps on declining rev
FY25 Adj FCF
$661M
22% margin | Flat YoY despite -7% rev
FY25 Diluted EPS
$7.33
-11.8% YoY | Partly acquisition charges
Annual Financial Summary ($M, FY ends December)
| Metric | FY2020 | FY2021 | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|---|---|
| Net Sales | $2,081M | $2,402M | $2,769M | $3,035M | $3,225M | $3,010M |
| Rev YoY | — | +15.4% | +15.3% | +9.6% | +6.3% | -6.7% |
| Rev Accel (bps) | — | — | -10 bps | -570 bps | -330 bps | -1,300 bps |
| Cost of Sales | $1,083M | $1,257M | $1,472M | $1,565M | $1,696M | $1,547M |
| Gross Profit | $998M | $1,145M | $1,297M | $1,470M | $1,529M | $1,463M |
| Gross Margin | 48.0% | 47.7% | 46.8% | 48.4% | 47.4% | 48.6% |
| Adj EBITDA | $732M | $844M | $961M | $1,108M | $1,165M | $1,130M |
| EBITDA Margin | 35.2% | 35.1% | 34.7% | 36.5% | 36.1% | 37.5% |
| Net Income | $299M | $442M | $531M | $673M | $731M | $623M |
| Net Margin | 14.4% | 18.4% | 19.2% | 22.2% | 22.7% | 20.7% |
| Diluted EPS | $2.62 | $4.13 | $5.53 | $7.40 | $8.31 | $7.33 |
| EPS YoY | — | +57.6% | +33.9% | +33.8% | +12.3% | -11.8% |
| Adj FCF | $458M | $460M | $490M | $659M | $658M | $661M |
| FCF Margin | 22.0% | 19.2% | 17.7% | 21.7% | 20.4% | 22.0% |
| Diluted Shares (M) | 114 | 107 | 96 | 91 | 88 | 85 |
| Share Count YoY | — | -6.1% | -10.3% | -5.2% | -3.3% | -3.4% |
Note: 2025 net income and EPS impacted by $60M+ Dana acquisition-related expenses and $29M
electrification impairment in Q4. Adjusted Q4 EPS was ~$1.68 per management.
EBITDA margin expanded +140 bps to
37.5% despite a 7% revenue decline
-- a strong demonstration of pricing power and cost discipline.
Annual pricing of 400-500 bps more than offset volume decrementals. Gross margin at 48.6%
was the best since 2020. Management sees a path back to 40% EBITDA margins once volumes recover.
Revenue by End Market ($M, Annual)
| Metric | FY2020 | FY2021 | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|---|---|
| NA On-Highway | $1,081M | $1,177M | $1,359M | $1,529M | $1,752M | $1,540M |
| NA On-Hwy YoY | — | +8.9% | +15.5% | +12.5% | +14.6% | -12.1% |
| Defense | $182M | $186M | $146M | $166M | $212M | $267M |
| Defense YoY | — | +2.2% | -21.5% | +13.7% | +27.7% | +25.9% |
| Outside NA On-Hwy | $280M | $381M | $463M | $477M | $493M | $507M |
| Intl On-Hwy YoY | — | +36.1% | +21.5% | +3.0% | +3.4% | +2.8% |
| Service Parts & Other | $464M | $517M | $588M | $696M | $663M | $643M |
| Svc Parts YoY | — | +11.4% | +13.7% | +18.4% | -4.7% | -3.0% |
| Global Off-Highway | — | — | — | — | — | $53M |
NA On-Highway (51% of 2025 revenue) fell 12.1% to
$1,540M -- the primary drag on the
business. Medium-duty was extremely weak; Class 8 vocational lost momentum in H2 2025.
Management is modeling no meaningful Class 8 recovery in 2026 guidance.
Quarterly Trends (8 Quarters)
| Metric | Q1 2024 | Q2 2024 | Q3 2024 | Q4 2024 | Q1 2025 | Q2 2025 | Q3 2025 | Q4 2025 |
|---|---|---|---|---|---|---|---|---|
| Revenue | $789M | $816M | $824M | $796M | $766M | $814M | $693M | $737M |
| Revenue YoY | +6.5% | +4.2% | +12.0% | +2.7% | -2.9% | -0.2% | -15.9% | -7.4% |
| Gross Profit | $366M | $394M | $396M | $373M | $378M | $402M | $329M | $354M |
| Adj EBITDA | $289M | $301M | $305M | $270M | $287M | $313M | $256M | $265M |
| EBITDA Margin | 36.6% | 36.9% | 37.0% | 33.9% | 37.5% | 38.5% | 36.9% | 36.0% |
| EBITDA Mgn YoY chg | — | — | — | — | +90bp | +160bp | -10bp | +210bp |
| Diluted EPS | $1.90 | $2.13 | $2.27 | $2.01 | $2.23 | $2.29 | $1.63 | $1.18 |
| EPS YoY | +2.7% | +10.9% | +29.0% | +5.2% | +17.4% | +7.5% | -28.2% | -41.3% |
| Adj FCF | $162M | $150M | $210M | $136M | $155M | $153M | $184M | $169M |
Margin and Profitability Assessment
- Gross margin: 48.6% in FY2025, the best since 2020. Pricing of $2+ per $1 of cost increase on a per-unit basis
- Adj EBITDA margin: Expanded from 36.1% to 37.5% (+140 bps) through a revenue downturn. Exceptional cost control. Management COO: would not rule out returning to 40% peak margins
- Net margin: Fell from 22.7% to 20.7% due to acquisition-related and impairment charges. Excluding those, adjusted net income performance was resilient
- EBITDA margin acceleration: +180 bps (2023), -40 bps (2024), +140 bps (2025) -- resilient and expanding even through a downturn
Pricing power is exceptional: 400-500 bps annual pricing in
2025 via long-term agreements; 2026 guided to 250-400 bps. This is 3-5x the
pre-pandemic norm of 50-100 bps. The combination of pricing discipline, cost control, and
mix shift toward higher-margin defense/international is driving margin expansion through
a cyclical downturn -- a rare positive differentiator among industrials.
Free Cash Flow ($M, Annual)
Share Count and Capital Return (Annual)
- Since 2012 IPO, ALSN has repurchased 63%+ of shares outstanding -- one of the most aggressive buyback programs in industrials
- 2025 buybacks of $328M (+29% vs 2024) despite closing a $2.7B Dana acquisition -- reflects strong FCF and management conviction
- Diluted shares down from 114M (2020) to 85M (2025), a 25% reduction in 5 years
- Buybacks are supporting EPS through the cycle: -3.4% share count partially cushions the -11.8% EPS decline
2026 Guidance (Consolidated -- includes Dana Off-Highway acquisition)
| Metric | 2026 Guidance (Midpoint) | Detail |
|---|---|---|
| Consolidated Revenue | $5.75B | Transmission: $3.1B, Off-Highway: $2.65B |
| Consolidated Adj EBITDA | $1.44B | 25% margin (vs 37.5% legacy -- significant dilution) |
| Consolidated Adj FCF | $730M | +10% vs 2025 legacy FCF of $661M |
| Legacy Transmission Revenue | $3.025-3.175B | Flat to +5.5% vs 2025; no meaningful Class 8 recovery |
The Dana Off-Highway acquisition adds complexity: accretive to
EPS but significantly margin-dilutive (consolidated EBITDA margin drops to 25% from 37.5%).
No synergies are baked into 2026 guidance; the $120M synergy target is multi-year. Defense is
expected to accelerate further. Legacy transmission segment guided flat to modestly higher.
Penalty / Modifier Assessment
| Factor | Impact | Detail |
|---|---|---|
| Revenue decline in 2025 (-6.7%) | -1.0 | First annual decline since 2020 COVID year |
| EPS decline (-11.8%) | -0.5 | Partially driven by onetime items; adjusted was less severe |
| Revenue deceleration (4 consecutive years) | -0.5 | Clear multi-year deceleration trend from +15.4% to -6.7% |
| Margin expansion through downturn (+140 bps) | +0.5 | Exceptional cost control and pricing power |
| FCF stability ($661M, flat YoY) | +0.5 | Elite 22% FCF conversion despite revenue contraction |
| Defense acceleration (+26%) | +0.5 | Structural growth driver; international programs ramping |
| Share count reduction (-3.4%) | +0.5 | Consistent, aggressive buyback program (63%+ since IPO) |
Net penalty impact: 0 pts (3 negatives totaling -2.0 offset
by 4 positives totaling +2.0). The cyclical revenue and EPS decline are real headwinds,
but the margin resilience, FCF stability, defense growth, and capital return discipline are
equally real positives that differentiate ALSN from typical industrials in a downturn.
Transcript Context
Pricing power: 400-500 bps annual pricing in 2025 via long-term agreements;
2026 guided to 250-400 bps. This is 3-5x the pre-pandemic norm. Pricing generates $2+ per $1
of cost increase on a per-unit basis. Defense momentum: $267M in 2025 (+26%),
with Hanwha (Korea), Poland Borsuk, Turkey Korkut, India FICV all generating revenue. Management
confirmed they achieved the $100M incremental defense revenue target.
International records: Outside NA On-Highway hit $507M record despite
choppy end markets (Japan weakness offset by South America and Europe). School bus penetration
in South America, wide-body dump in China/India, wheeled defense in Europe all driving growth.
Data center opportunity: Management highlighted AI/data center infrastructure
driving demand for vocational vehicles and backup power gensets using Allison transmissions.
COO Fred Bohley: "I certainly would not rule out returning to those peak
margins, 40%."
Score Rationale
Score of 6/10 reflects a high-quality industrial compounder navigating a cyclical downturn in its largest end market.
Positives (supporting 6):
- Strong multi-year growth record: revenue from $2.1B to $3.2B (2020-2024), 5yr CAGR +7.7%
- EBITDA margin expansion through a downturn (+140 bps to 37.5%) -- best-in-class
- FCF stability at $661M (22% margin) -- elite for an industrial
- Defense and international providing structural diversification
- Aggressive buyback program: 25% share reduction over 5 years
Factors preventing a higher score:
- Revenue declined 6.7% -- first annual decline since COVID
- Multi-year revenue deceleration pattern (+15.4% to -6.7% over 4 years)
- EPS fell 11.8% for the first time in 5 years
- NA On-Highway in cyclical downturn with no meaningful recovery modeled in 2026
- Dana Off-Highway acquisition adds complexity and margin dilution near-term
Data sourced from Daloopa (company_id: 9173) and Allison Transmission earnings releases (FY2020 through Q4 2025). All financials in USD. Fiscal year ends December.