Allison Transmission Earnings: Company Looks Well Protected From Tariff Uncertainties

Allison Transmission's good first quarter showed few signs of tariffs hurting its business. We keep our $99 fair value estimate. The stock increased over 3% in May 1 after-hours trading after Allison reported diluted EPS rising 17.4% year over year to $2.23, beating the $2.04 LSEG consensus, despite revenue falling 2.9%. Free cash flow fell 4.3% but remained healthy at $155 million. We think management did a great job containing overhead costs, which were flat at $86 million. Revenue did not decline due to the key North America on-highway segment, which rose 4%, while defense grew 10% on price increases. Outside North America, on-highway fell 3% on European weakness, which we suspect will not be isolated to the first quarter. The global off-highway business, although only 2.3% of revenue, saw sales fall 61% on poor demand from energy and mining customers outside North America.