Some of the most advanced technology developed in the past 10 years has gone into improving industrial goods whose mechanical operations were long taken for granted. Leading the charge for commercial trucks has been little-known Allison Transmission Holdings (ALSN).
Allison Transmission is among a rare breed of older, well-established companies that delayed going public for a very long time. It finally launched an initial public offering in early 2012, and after trading lower for its first four months, pulled a u-turn that has seen shares climb steadily ever since. It now sports a $5.9 billion market cap and the shares have just emerged from a flattish campaign in most of 2014 to storm to a new all-time high.
|Allison is the world’s largest supplier of commercial-duty automatic transmissions.|
Allison is a U.S. manufacturer of commercial-duty automatic transmissions for medium and heavy-duty vehicles as well as heavy tactical military vehicles. It is the world’s largest supplier of automatic transmissions to the heavy-duty market, providing over 60 percent of all transmissions to this segment.
This is a segment that includes fire and emergency vehicles, highway trucks, school and transit buses, military vehicles, and energy and mining equipment.
The company has an interesting history, with roots dating back to 1909 when founder James Allison and three business partners created the Indianapolis Motor Speedway, hosting the first ever Indy 500 race. The founder entered several teams in the race before focusing on aviation engineering, which led General Motors (GM) to eventually purchase his company, known at the time as Allison Engine Co.
Although James Allison passed away in 1928, his group remained a part of GM for more than 50 years, focusing first on cars, and later developing the world’s first automatic transmission for heavy-duty vehicles in the 1940s war effort. GM eventually sold the division to two private equity groups in 2007 for $5.6 billion.
The company, headquartered in Indianapolis, now employs nearly 3,000 people with operations in 80 countries and over 1,500 dealers and distribution centers. Lawrence E. Dewey took over as chief executive in 2007, but has been with the firm since 1989. He has served in a number of capacities, including head of marketing, president and European division chief.
As a global market leader, about a third of its total revenues come from North America On-Highway vehicles, followed by Parts and Support, Military and North America Off-Highway vehicles. Currently Allison Transmission generates about 20 percent of total sales overseas, with continued global expansion as one of its primary goals. There’s very little adoption of automatic transmissions in heavy-duty vehicles internationally, with manual transmissions as the preferred choice due to their simplicity and cost savings.
Those that have adopted automatic transmissions by and large have chosen Allison and as the market shifts, the company is uniquely positioned to take advantage of that growth.
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Here in the United States, the company is considered the de facto standard in medium- and heavy-duty applications, with its automatic transmissions in over 90 percent of all school buses, 58 percent of motor homes, and 50 percent of class 8 straight trucks. Additionally, the company has virtually no exposure to class 8 line-haul tractor rigs, which are much more cyclical in nature and highly correlated to the economy
The company has been able to double its free cash flow in the past six years while reducing its debt. Net sales have climbed steadily in the past three years as the U.S. economy has improved.
Deutsche Bank(DB) helped the machinery industry in mid-December by publishing a positive outlook on 2015 for the group. Analysts said they expected global machinery volumes to increase by 4 percent next year, vs. -1 percent in 2014, and pointed to the trucking/engine sector as the key contributor. The firm raised its outlook for global trucking parts to 8 percent growth, from the low single digits.
Very few companies have a market share lock on their industry the way Allison Transmission does, and now with the recovery finally getting real traction and government coffers filling up from tax revenue, you can bet on more heavy duty truck sales from municipal governments as well as private industry.