INDIANAPOLIS, Oct. 27, 2014 /PRNewswire/ -- Allison Transmission Holdings Inc.(NYSE: ALSN), the largest global provider of commercial duty fully-automatic transmissions, today reported net sales for the quarter of $553 million, a 19 percent increase from the same period in 2013. Adjusted Net Income, a non-GAAP financial measure, for the quarter was $138 million, compared to Adjusted Net Income of $101 million for the same period in 2013, an increase of $37 million. Diluted earnings per share for the quarter were $0.38, a 58 percent increase from the same period in 2013.

The increase in net sales was principally driven by the continued recoveries in the North America On-Highway and Off-Highway end markets, and higher demand in the Service Parts, Support Equipment & Other end market partially offset by previously contemplated reductions in U.S. defense spending.

Adjusted EBITDA, a non-GAAP financial measure, for the quarter was $202 million, or 36.5 percent of net sales, compared to $162 million, or 34.7 percent of net sales, for the same period in 2013. Adjusted Free Cash Flow, also a non-GAAP financial measure, for the quarter was $159 million, or $0.88 per diluted share, compared to $116 million for the same period in 2013.

Lawrence E. Dewey, Chairman, President and Chief Executive Officer of Allison Transmission commented, "Our third quarter 2014 results exceed the full year guidance ranges we affirmed on July 23. Net sales improved on a year-over-year basis for the fourth consecutive quarter led by the continued recoveries in the North America On-Highway and Off-Highway end markets, and higher demand in the Service Parts, Support Equipment & Other end market partially offset by previously contemplated reductions in U.S. defense spending. We are also pleased with the strong operating margins, level of Adjusted Free Cash Flow and net leverage reduction while Allison continued to invest in growth opportunities. During the quarter, we continued our prudent and well-defined approach to capital allocation by paying a quarterly dividend of $0.12 per share and repaying $80 million of debt. Allison is updating its full year net sales guidance to an increase in the range of 7.5 to 9 percent year-over-year, incorporating the robust third quarter results and anticipated improvements in fourth quarter demand conditions in the North America On-Highway and Off-Highway end markets partially offset by lower demand in the Outside North America On-Highway and North America Hybrid-Propulsion Systems for Transit Bus end markets."

Third Quarter Net Sales by End Market

Third Quarter Highlights

North America On-Highway end market net sales were up 21 percent from the same period in 2013 and up 5 percent on a sequential basis principally driven by higher demand for Rugged Duty Series models.

North America Hybrid-Propulsion Systems for Transit Bus end market net sales were up 53 percent from the same period in 2013 principally driven by intra-year movement in the timing of orders, and down 18 percent sequentially.

North America Off-Highway end market net sales were up 233 percent from the same period in 2013 and up 30 percent on a sequential basis principally driven by higher demand from hydraulic fracturing applications.

Defense end market net sales were down 33 percent from the same period in 2013 principally driven by previously considered reductions in U.S. defense spending to longer term averages experienced during periods without active conflicts, and down 29 percent sequentially principally driven by the recognition of previously deferred revenue commensurate with the shipment of certain tracked transmissions at the request of the U.S. government in the second quarter of 2014.

Outside North America On-Highway end market net sales were up 4 percent from the same period in 2013 reflecting improved demand in all regions other than Europe, and up 18 percent on a sequential basis reflecting improved demand in China and Japan.

Outside North America Off-Highway end market net sales were up 13 percent from the same period in 2013 principally driven by improved demand in the China energy sector, and down 25 percent sequentially principally driven by weak demand from the mining sector partially offset by improved demand in the China energy sector.

Service Parts, Support Equipment & Other end market net sales were up 28 percent from the same period in 2013 and up 10 percent on a sequential basis principally driven by higher demand for North America service parts, and global On-Highway support equipment commensurate with increased transmission unit volumes.

Gross profit for the quarter was $259 million, an increase of 26 percent from $206 million for the same period in 2013. Gross margin for the quarter was 46.9 percent, an increase of 270 basis points from a gross margin of 44.2 percent for the same period in 2013. The increase in gross profit from the same period in 2013 was principally driven by increased net sales and price increases on certain products partially offset by higher manufacturing expense commensurate with increased sales.

Selling, general and administrative expenses for the quarter were $88 million, an increase of 18 percent from $74 million for the same period in 2013, principally driven by favorable product warranty expense adjustments in 2013 and increased global commercial spending activities.

Engineering – research and development expenses for the quarter were $25 million, an increase of 17 percent from $21 million for the same period in 2013, principally driven by increased product initiatives spending.

Third Quarter Non-GAAP Financial Measures

Adjusted EBITDA for the quarter was $202 million, or 36.5 percent of net sales, compared to $162 million, or 34.7 percent of net sales, for the same period in 2013. The increase in Adjusted EBITDA from the same period in 2013 was principally driven by increased net sales and price increases on certain products partially offset by higher manufacturing expense, favorable product warranty expense adjustments in 2013, increased global commercial spending activities and increased product initiatives spending.

Adjusted Net Income for the quarter was $138 million compared to $101 million for the same period in 2013. The increase was principally driven by increased Adjusted EBITDA.

Adjusted Free Cash Flow for the quarter was $159 million compared to $116 million for the same period in 2013. The increase was principally driven by increased net cash provided by operating activities.

Full Year 2014 Guidance Update

Our updated full year 2014 guidance includes a year-over-year net sales increase in the range of 7.5 to 9 percent, an Adjusted EBITDA margin excluding technology-related license expenses in the range of 33.5 to 35 percent, an Adjusted Free Cash Flow in the range of $445 to $470 million, capital expenditures in the range of $60 to $70 million and cash income taxes in the range of $10 to $15 million.

In the fourth quarter of 2014, Allison expects net sales to be higher than the same period in 2013. The anticipated year-over-year increase in fourth quarter net sales is expected to be principally driven by higher demand in the North America On-Highway and Off-Highway end markets partially offset by lower demand in the Outside North America On-Highway and North America Hybrid-Propulsion Systems for Transit Bus end markets.

Conference Call and Webcast
The company will host a conference call at 8:00 a.m. ET on Tuesday, October 28 to discuss its third quarter 2014 results. Dial-in number is 1-201-689-8470 and the U.S. toll-free dial-in number is 1-877-407-9039. A live webcast of the conference call will also be available online at http://ir.allisontransmission.com.

For those unable to participate in the conference call, a replay will be available from 11:00 a.m. ET on October 28 until 11:59 p.m. ET on November 4. The replay dial-in number is 1-858-384-5517 and the U.S. toll-free replay dial-in number is 1-877-870-5176. The replay passcode is 13592697.

About Allison Transmission
Allison Transmission (NYSE: ALSN) is the world's largest manufacturer of fully automatic transmissions for medium- and heavy-duty commercial vehicles and is a leader in hybrid-propulsion systems for city buses. Allison transmissions are used in a variety of applications including refuse, construction, fire, distribution, bus, motorhomes, defense and energy. Founded in 1915, the company is headquartered in Indianapolis, Indiana, USA and employs approximately 2,700 people worldwide. With a market presence in more than 80 countries, Allison has regional headquarters in the Netherlands, China and Brazil with manufacturing facilities in the U.S., Hungary and India. Allison also has approximately 1,400 independent distributor and dealer locations worldwide. For more information, visit allisontransmission.com.

Forward-Looking Statements
This press release contains forward-looking statements. All statements other than statements of historical fact contained in this press release are forward-looking statements, including all statements regarding future financial results. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plans," "project," "anticipate," "believe," "estimate," "predict," "intend," "forecast," "could," "potential," "continue" or the negative of these terms or other similar terms or phrases. Forward-looking statements are not guarantees of future performance and involve known and unknown risks. Factors which may cause the actual results to differ materially from those anticipated at the time the forward-looking statements are made include, but are not limited to: risks related to our substantial indebtedness; our participation in markets that are competitive; the highly cyclical industries in which certain of our end users operate; the failure of markets outside North America to increase adoption of fully-automatic transmissions; the concentration of our net sales in our top five customers and the loss of any one of these; future reductions or changes in government subsidies for hybrid vehicles, U.S. defense spending; general economic and industry conditions; the discovery of defects in our products, resulting in delays in new model launches, recall campaigns and/or increased warranty costs and reduction in future sales or damage to our brand and reputation; our ability to prepare for, respond to and successfully achieve our objectives relating to technological and market developments and changing customer needs; risks associated with our international operations; labor strikes, work stoppages or similar labor disputes, which could significantly disrupt our operations or those of our principal customers; and other risks and uncertainties associated with our business described in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that the expectations will be attained or that any deviation will not be material. All information is as of the date of this press release, and we undertake no obligation to update any forward-looking statement to conform the statement to actual results or changes in expectations.

Use of Non-GAAP Financial Measures
This press release contains information about Allison's financial results which are not presented in accordance with accounting principles generally accepted in the United States ("GAAP"). Such non-GAAP financial measures are reconciled to their closest GAAP financial measures at the end of this press release. Non-GAAP financial measures should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP and, as calculated, may not be comparable to other similarly titled measures of other companies.

Attachment

• Condensed Consolidated Statements of Operations
• Condensed Consolidated Balance Sheets
• Condensed Consolidated Statements of Cash Flows
• Reconciliation of GAAP to Non-GAAP Financial Measures

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SOURCE Allison Transmission Holdings Inc.

Investor Relations, (317) 242-3078, ir@allisontransmission.com; Media Relations, (317) 242-5000, media@allisontransmission.com