Allison Transmission Profit Slips as Off-Highway Deal Reshapes Sales
Allison Transmission Holdings (ALSN) posted net sales of $1,566 million in the second quarter, up 92% from a year earlier, even as net income fell for a second straight quarter on acquisition-related costs.
Allison Transmission Holdings (ALSN) reported second-quarter net sales of $1,566 million, up 92% from a year earlier and an acceleration from 84% growth in the first quarter, as the maker of commercial-vehicle transmissions absorbed a full quarter of its Allison Off-Highway acquisition, which closed January 1, 2026.
The deal has reset the scale of the business but has also weighed on profitability. Net income fell to $181 million from $195 million a year earlier, a smaller decline than the $80 million drop the company posted in the first quarter, when net income fell to $112 million. Both periods were driven by acquisition costs and higher interest expense, but the pressure eased as one-time items ran off: net income rose 62% sequentially from the first quarter, and consolidated gross margin recovered to 33% in the second quarter from 29% in the first, after roughly $76 million of inventory step-up and depreciation charges tied to the deal hit first-quarter cost of sales.
Adjusted measures showed the same pattern of improvement. Adjusted diluted earnings per share rose 8% year over year to $2.73, up from 6% growth to $2.57 in the first quarter, while adjusted EBITDA growth accelerated to 29% to $404 million from 22% in the prior quarter, with margin holding steady at 26% of net sales in both periods.
The legacy Allison Transmission segment posted record quarterly net sales of $860 million, up 6% from a year earlier, though segment gross profit slipped $6 million to $397 million on unfavorable direct material costs and higher manufacturing expense, pushing segment gross margin down to 46%. The newer Allison Off-Highway segment contributed $706 million in net sales, up from $673 million in the first quarter, but ran at a 15% adjusted EBITDA margin and 7% operating margin, well below the legacy segment's 37% adjusted EBITDA margin, in the second full quarter the company has broken out Off-Highway results separately.
Interest expense more than doubled to $54 million from $22 million a year earlier as acquisition-related debt built up, and total debt climbed to $4,114 million from $2,885 million in long-term debt at the end of 2025. The company nonetheless repaid the remaining $150 million on its revolving credit facility during the quarter, following a similar $150 million paydown in the first quarter.
Cash generation improved alongside the margin recovery. Net cash from operating activities rose 70% year over year to $312 million, up from $156 million in the first quarter, and adjusted free cash flow rose 84% to a record $281 million. Allison Transmission also disclosed a new $2 million impairment charge on long-lived assets tied to electrified products in its adjusted EBITDA reconciliation, a line not present in the first-quarter release.
Share repurchases slowed to $46 million in the quarter from more than $20 million in the first quarter, leaving $1,125 million of authorization outstanding.
Allison Transmission raised its full-year 2026 guidance from the range issued with first-quarter results on May 4, 2026, lifting the net sales outlook to $5,800 million to $6,000 million, adjusted EBITDA to $1,465 million to $1,575 million, and adjusted free cash flow to $745 million to $865 million, citing improving end-market conditions.