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Lee Ainslie’s Maverick Capital opens new position in Allison Transmission

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Sep. 26 2014, Updated 1:00 p.m. ET

Maverick Capital’s new positions

Lee Ainslie’s Maverick Capital added positions in Dollar General Corp. (DG), McKesson Corp. (MCK), Allison Transmission Holdings (ALSN), AbbVie Inc. (ABBV), and Sabre Corp (SABR). The fund’s notable exits during the quarter included Capital One Financial (COF), Catamaran Corp (CTRX), Citrix Systems (CTXS), and Monsanto (MON).

Maverick Capital added a new position in Allison Transmission Holdings (ALSN), which accounts for 2.85% of the fund’s second quarter portfolio.

ALSN

Allison Transmission Holdings overview

Allison Transmission Holdings designs and manufactures fully automatic transmissions for medium- and heavy-duty commercial vehicles, medium- and heavy-tactical U.S. defense vehicles, and hybrid-propulsion systems for transit buses. It has a market cap of ~$5.3 billion.

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Allison generates net sales primarily from the sale of transmissions, transmission parts, support equipment, defense kits, engineering services, and extended transmission coverage to a number of original equipment manufacturers (or OEMs), distributors, and the U.S. government. Although approximately 77% of its net sales were from North America in 2013, Allison has a global presence, serving customers in Europe, Asia, South America, and Africa.

Vehicle production drives sales

Indianapolis-based Allison stated in its 10Q filing that commercial vehicle production drives its net sales, and this correlates closely with macroeconomic conditions. In 2013, approximately 61% of all fully automatic transmissions for medium- and heavy-duty on-highway commercial vehicle applications resulted from global sales.

Sales grow from continued recoveries in North America’s on-highway and off-highway end markets

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Allison’s net sales for 2Q14 beat estimates and rose 5% to $536 million. The company said the growth resulted from continued recoveries in the North America on-highway and off-highway end markets, and higher demand in the service parts, support equipment and other end market. However, lower demand in markets outside of North America and reductions in U.S. defense spending had a negative impact on sales.

Allison said net sales from its on-highway end market outside North America were down 17%, reflecting weakness in China, Europe, and South America. Outside North America, the company’s off-highway end market net sales were down 33% due to weaker demand conditions in the energy sector.

Diluted earnings per share for the quarter were $0.31, up from $0.26 in the corresponding period a year ago. Gross profit for the quarter was $239 million, an increase of 5% driven by increased net sales and price increases on certain products. Adjusted EBITDA for the quarter was $186 million, or 34.7% of net sales, compared to $172 million, or 33.5% of net sales, for the corresponding period in 2013.

Allison updates its full year guidance

The company said it is increasing its full year net sales guidance in the range of 4% to 6% year-over-year. This update is “due to anticipated improvements in second half demand conditions in the North America on-highway and off-highway end markets.” The outlook also incorporates “weakness in the outside North America on-highway end market and previously contemplated reductions in U.S. defense spending.”

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