Allison Transmission Holdings Inc., the largest global provider of commercial duty fully-automatic transmissions, reports net sales for the second quarter of $737 million, a 4% increase from the same period in 2018. The increase in net sales was principally driven by higher demand in the North America On-Highway and Outside North America Off-Highway end markets partially offset by lower demand in the North America Off-Highway and Service Parts, Support Equipment & Other end markets.
Net Income for the quarter was $181 million compared to $174 million for the same period in 2018. Adjusted EBITDA, a non-GAAP financial measure, for the quarter was $308 million compared to $297 million for the same period in 2018. Net Cash Provided by Operating Activities for the quarter was $239 million compared to $213 million for the same period in 2018. Adjusted Free Cash Flow, a non-GAAP financial measure, for the quarter was $214 million compared to $194 million for the same period in 2018.
David S. Graziosi, President and Chief Executive Officer of Allison Transmission comments, “We are pleased to report that Allison’s second quarter 2019 results exceeded our expectations and the guidance ranges provided to the market on April 23, led by year-over year net sales growth of 4%t, to a record $737 million. Furthermore, Allison continues its well-defined approach to capital structure and allocation, settling $235 million of share repurchases and paying a dividend of $0.15 per share during the second quarter. In May, the Board of Directors approved a $1 billion increase to the existing stock repurchase authorization, resulting in $1.16 billion of remaining authorized share repurchase capacity as of the end of the quarter. Finally, given second quarter 2019 results and current end markets conditions, we are raising our full year 2019 guidance for Net Sales, Net Income, Adjusted EBITDA, Net Cash Provided by Operating Activities and Adjusted Free Cash Flow.”
Second Quarter Highlights
North America On-Highway end market net sales were up 16% from the same period in 2018 principally driven by higher demand led by the continued execution of our growth initiatives and market share gains in Class 4/5 truck and up 5% on a sequential basis principally driven by higher demand for Rugged Duty Series and Highway Series models.
North America Off-Highway end market net sales were down $22 million from the same period in 2018 and down $5 million sequentially, in both cases principally driven by lower demand from hydraulic fracturing applications.
Defense end market net sales were down 14% from the same period in 2018 and up 16% on a sequential basis, in both cases principally driven by intra-year movement in the timing of Tracked vehicle demand.
Outside North America On-Highway end market net sales were up 5% from the same period in 2018 principally driven by higher demand in Europe and South America partially offset by lower demand in Asia and up 13% sequentially principally driven by higher demand in South America, Asia and Europe.
Outside North America Off-Highway end market net sales were up $16 million from the same period in 2018 and up $13 million on a sequential basis principally driven by higher demand in the energy sector.
Service Parts, Support Equipment & Other end market net sales were down 13% from the same period in 2018 principally driven by lower demand for North America service parts and up 12% sequentially principally driven by higher demand for Global support equipment and Outside North America service parts.
Gross profit for the quarter was $389 million, an increase of 4% from $374 million for the same period in 2018. Gross margin for the quarter was 52.8%, an increase of 20 basis points from a gross margin of 52.6% for the same period in 2018. The increase in gross profit from the same period in 2018 was principally driven by increased net sales and price increases on certain products.
Selling, general and administrative expenses for the quarter were $93 million, flat from the same period in 2018 principally driven by lower 2019 product warranty expense and favorable 2019 product warranty adjustments offset by increased commercial activities spending.
Engineering – research and development expenses for the quarter were $37 million, an increase of $4 million from $33 million for the same period in 2018. The increase was principally driven by increased product initiatives spending.
Interest expense for the quarter was $33 million, an increase of $3 million from $30 million for the same period in 2018. The increase was principally driven by higher interest rates related to long-term debt refinancing that extended maturities at fixed interest rates.
Net income for the quarter was $181 million, an increase of $7 million from $174 million for the same period in 2018. The increase was principally driven by increased gross profit partially offset by increased product initiatives spending and increased interest expense.
Net cash provided by operating activities was $239 million, an increase of $26 million from $213 million for the same period in 2018. The increase was principally driven by increased gross profit, lower operating working capital requirements and decreased cash interest expense partially offset by increased cash income taxes.
Second Quarter Non-GAAP Financial Measures
Adjusted EBITDA for the quarter was $308 million, an increase of $11 million from $297 million for the same period in 2018. The increase in Adjusted EBITDA was principally driven by increased gross profit partially offset by increased product initiatives spending.
Adjusted Free Cash Flow for the quarter was $214 million, an increase of $20 million from $194 million for the same period in 2018. The increase was principally driven by increased cash provided by operating activities partially offset by increased capital expenditures.
Full Year 2019 Guidance Update
Given second quarter 2019 results and current end markets conditions, we are raising the full year 2019 guidance ranges released to the market on April 23. Updated full year 2019 guidance includes Net Sales in the range of $2,635 to $2,715 million, Net Income in the range of $545 to $585 million, Adjusted EBITDA in the range of $1,025 to $1,075 million, Net Cash Provided by Operating Activities in the range of $735 to $765 million, Adjusted Free Cash Flow in the range of $570 to $610 million and Cash Income Taxes in the range of $105 to $115 million.
The company's 2019 net sales guidance reflects lower demand in the Service Parts, Support Equipment & Other and North America Off-Highway end markets principally driven by lower demand from hydraulic fracturing applications partially offset by increased demand in the North America On-Highway end market, price increases on certain products and continued execution of our growth initiatives.
