Allison Transmission Holdings Inc., one of the largest global providers of commercial duty fully automatic transmissions, has reported net sales for the fourth quarter of $588 million, a 25 percent increase from the same period in 2016. The company said the increase in net sales was principally driven by higher demand in the North America on-highway, service parts, support equipment and other, North America off-highway and outside North America on-highway end markets.

Net income for the quarter was $215 million compared to $61 million for the same period in 2016. Adjusted EBITDA, a non-GAAP financial measure, for the quarter was $210 million, or 35.7 percent of net sales, compared to $158 million, or 33.8 percent of net sales, for the same period in 2016.

Lawrence Dewey, chairman and CEO of Allison Transmission, said, “2017 was a noteworthy year at Allison. Full year results exceeded our initial net sales guidance ranges across all of our end-markets. Furthermore, Allison achieved record levels of net sales, gross margin and net cash provided by operating activities, and realized its second consecutive year of double-digit growth in the outside North America on-highway end market.

Dewey continued, “Throughout the year, we continued our well-defined approach to capital structure and allocation. During the fourth quarter, we paid a dividend of 15 cents per share and settled $106 million of share repurchases, resulting in $885 million of total share repurchases in 2017.”

Fourth Quarter Highlights

North America on-highway end market net sales were up 24 percent from the same period in 2016 principally driven by higher demand for Rugged Duty Series models and down 4 percent on a sequential basis principally driven by lower demand for Pupil Transport/Shuttle Series, Transit/Other Bus and Highway Series models.

Gross profit for the quarter was $288 million, an increase of 32 percent from $218 million for the same period in 2016. Gross margin for the quarter was 49 percent, an increase of 260 basis points from a gross margin of 46.4 percent for the same period in 2016. The increase in gross profit from the same period in 2016 was principally driven by favorable net sales and price increases on certain products partially offset by $9 million of cost in connection with the ratification of a six-year collective bargaining agreement with UAW Local 933, higher manufacturing expense commensurate with increased net sales and unfavorable material cost.

Selling, general and administrative expenses for the quarter were $97 million, an increase of $13 million from $84 million for the same period in 2016. The increase was principally driven by unfavorable product warranty adjustments and increased commercial activities spending partially offset by lower incentive compensation expense.

As a result of events and circumstances in the fourth quarter of 2017, the company reviewed certain of the long-lived assets related to the production of the TC10 transmission, and recorded an impairment charge of $32 million. The company said continued weak demand conditions for this product contributed to the future cash flows of the related long-lived assets being less than the carrying value of those assets.

Net income for the quarter was $215 million compared to $61 million for the same period in 2016. The increase was principally driven by the enactment of the U.S. Tax Cuts and Jobs Act, increased gross profit and lower incentive compensation expense partially offset by a loss associated with the impairment of long-lived assets, increased technology-related investment expense, unfavorable product warranty adjustments, increased product initiatives spending, increased interest expense and increased commercial activities spending.

Adjusted EBITDA for the quarter was $210 million, or 35.7 percent of net sales, compared to $158 million, or 33.8 percent of net sales, for the same period in 2016. The increase was principally driven by increased net sales, price increases on certain products and lower incentive compensation expense partially offset by unfavorable product warranty adjustments, increased product initiatives spending, higher manufacturing expense commensurate with increased net sales, increased commercial activities spending and unfavorable material cost.

2018 Guidance

Allison expects 2018 net sales to be in the range of up 3 to 7 percent compared to 2017, an Adjusted EBITDA margin in the range of 37.5 to 39.5 percent and an Adjusted Free Cash Flow in the range of $550 million to $600 million.

Although Allison is not providing specific first quarter 2018 guidance, the company does expect first quarter net sales to be up from the same period in 2017 principally driven by increased demand expected in the North America on-highway and North America off-highway end markets.