Transmission provider Allison Transmission (NYSE: ALSN) fell short of the markets revenue expectations in Q3 CY2025, with sales falling 15.9% year on year to $693 million. The company’s full-year revenue guidance of $3 billion at the midpoint came in 2.2% below analysts’ estimates. Its GAAP profit of $1.63 per share was 11.5% below analysts’ consensus estimates.
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Allison Transmission (ALSN) Q3 CY2025 Highlights:
- Revenue: $693 million vs analyst estimates of $764.1 million (15.9% year-on-year decline, 9.3% miss)
- EPS (GAAP): $1.63 vs analyst expectations of $1.84 (11.5% miss)
- Adjusted EBITDA: $256 million vs analyst estimates of $279 million (36.9% margin, 8.2% miss)
- The company dropped its revenue guidance for the full year to $3 billion at the midpoint from $3.13 billion, a 4% decrease
- EBITDA guidance for the full year is $1.11 billion at the midpoint, below analyst estimates of $1.13 billion
- Operating Margin: 29.4%, down from 31.6% in the same quarter last year
- Free Cash Flow Margin: 26.6%, up from 25.5% in the same quarter last year
- Market Capitalization: $6.87 billion
David S. Graziosi, Chair and Chief Executive Officer of Allison Transmission commented, "Throughout 2025, our largest end market, North America On-Highway, has been negatively affected by global macroeconomic factors leading to demand uncertainty and shifting customer behaviors. During this period, we are fully focused on the things we can control, including our commitment to operational excellence, quality, customer service and maintaining strong execution across our business. We also continue to work diligently on closing the acquisition of Dana's Off-Highway business and are pleased with the progress to date."
Company Overview
Helping build race cars at one point, Allison Transmission (NYSE: ALSN) offers transmissions to original equipment manufacturers and fleet operators.
Revenue Growth
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Allison Transmission grew its sales at a mediocre 7.2% compounded annual growth rate. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about Allison Transmission.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Allison Transmission’s recent performance shows its demand has slowed as its annualized revenue growth of 1.5% over the last two years was below its five-year trend. We also note many other Heavy Transportation Equipment businesses have faced declining sales because of cyclical headwinds. While Allison Transmission grew slower than we’d like, it did do better than its peers. 
We can dig further into the company’s revenue dynamics by analyzing its three most important segments: North America On-Highway, International On-Highway, and Service and Support, which are 47.2%, 17.6%, and 22.9% of revenue. Over the last two years, Allison Transmission’s North America On-Highway (propulsion solutions) and International On-Highway (propulsion solutions) revenues averaged year-on-year growth of 4.9% and 2.1% while its Service and Support revenue (parts and equipment) averaged 2.5% declines. 
This quarter, Allison Transmission missed Wall Street’s estimates and reported a rather uninspiring 15.9% year-on-year revenue decline, generating $693 million of revenue.
Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. This projection doesn't excite us and indicates its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.
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Operating Margin
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Allison Transmission has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 29.5%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Looking at the trend in its profitability, Allison Transmission’s operating margin rose by 3.5 percentage points over the last five years, as its sales growth gave it operating leverage.
In Q3, Allison Transmission generated an operating margin profit margin of 29.4%, down 2.1 percentage points year on year. Since Allison Transmission’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Allison Transmission’s EPS grew at an astounding 22.4% compounded annual growth rate over the last five years, higher than its 7.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
We can take a deeper look into Allison Transmission’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Allison Transmission’s operating margin declined this quarter but expanded by 3.5 percentage points over the last five years. Its share count also shrank by 26.3%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth. 
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For Allison Transmission, its two-year annual EPS growth of 7.7% was lower than its five-year trend. This wasn’t great, but at least the company was successful in other measures of financial health.
In Q3, Allison Transmission reported EPS of $1.63, down from $2.27 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Allison Transmission’s full-year EPS of $8.17 to shrink by 1.5%.
Key Takeaways from Allison Transmission’s Q3 Results
We struggled to find many positives in these results. Its revenue and EPS both missed. To add insult to injury, Allison Transmission lowered its full-year revenue guidance. Overall, this was a weaker quarter. The stock traded down 5.2% to $77.32 immediately following the results.
The latest quarter from Allison Transmission’s wasn’t that good. One earnings report doesn’t define a company’s quality, though, so let’s explore whether the stock is a buy at the current price. What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.
