アリソン（ALSN）2026年第3四半期決算説明会：売上高が121%急増、ガイダンスを上方修正

主要ハイライト

• アリソンは、新規買収したアリソン・オフハイウェイ事業部門からの6億5,300万ドルを含め、2026年第3四半期の売上高が前年同期比121%増の15億3,400万ドルになったと発表しました。
• アリソン・トランスミッションの売上高は前年同期比27%増の8億8,100万ドルとなり、四半期として過去最高を記録しました。北米オンハイウェイの売上高は、中型トラックおよびクラス8作業用トラックの需要に支えられ、41%増の4億6,200万ドルと過去最高を更新しました。
• 調整後EBITDAは56%増の4億ドル、マージンは26.1%となりました。調整後希薄化後EPSは59%増の2.90ドルとなりました。
• 調整後フリー・キャッシュ・フローは51%増の2億7,800万ドルとなりました。当四半期中、アリソンは5,700万ドルの自社株買いを実施し、2,300万ドルの配当を支払ったほか、2027年期限の社債1億ドル分を償還しました。
• 経営陣は、通期（2026年）の売上高、利益、およびキャッシュ・フローの見通し（ガイダンス）を2四半期連続で上方修正しました。改定後の見通しでは、売上高を59億7,500万ドル〜60億7,500万ドル、調整後EBITDAを15億3,000万ドル〜15億8,000万ドルと予想しています。
• 経営陣は、統合されたエネルギーに依存しない推進システム、クロスセル、コストシナジーを通じて、オフハイウェイ部門の買収がアリソンの車両1台あたりの獲得可能市場（TAM）を拡大させると見込んでいます。

主要財務データ

事業および業績

アリソン・トランスミッションの全5つのエンドマーケットで前年同期比の売上増加となりました。中型トラック需要の加速とクラス8作業用トラック需要の堅調な推移を受け、北米オンハイウェイが主な成長ドライバーとなりました。

経営陣によると、チャネル在庫はほぼ正常化しました。OEMディーラーの敷地内に過剰なトラック在庫は見られず、架装メーカーにおける在庫の大部分も解消されています。同社は現在、中型トラックの好調さを主に駆け込み需要によるものとは捉えていません。代わりに、リースおよびレンタル用車両の老朽化と繰り延べされていた買い替え需要を挙げており、経営陣はこれが第4四半期から2027年にかけて需要を支えると考えています。

アリソン・オフハイウェイ内では、鉱業向けが引き続き堅調で、建設およびマテリアルハンドリング向けは全地域で前年同期比で加速し、2026年初頭の経営陣の予想を上回りました。産業用および農業用市場は、地政学的リスクの進展が引き続き購買活動を抑制したため、低調に推移しました。

今回の買収により、アリソンのポートフォリオは従来の内燃機関、ハイブリッド、電動推進システムへと広がりました。経営陣によると、統合後の会社は統合型推進システムに向かって進んでおり、車両1台あたりの製品コンテンツ供給量を増やし、既存顧客とのクロスセル機会を追求できるようになります。

電動化について、経営陣は現在の需要が低電圧用途に偏っていると述べました。統合されたポートフォリオにはeアクスル、eトランスミッション、eハブドライブが含まれていますが、アリソンは高電圧採用の加速を観察していません。投資は引き続き市場の動向と顧客需要に合わせて調整されます。

防衛需要は引き続き堅調で、北米以外からの成長が一段と増しています。生産能力投資は「eGen Force」ならびに「3040」「4040 MX」製品に集中しています。アリソンはまた、2026年はじめに発表されたBAEヘグランドからの受注についても強調しました。これは同社にとって過去最大の防衛受注であり、2億5,000万ドル超の売上高に相当します。

経営陣の業績予想（ガイダンス）

アリソンは、第3四半期の業績と主要なエンドマーケットの大半における環境改善を理由に、2026年通期の見通しを2四半期連続で上方修正しました。

純利益のガイダンスには、アリソン・オフハイウェイの分離、統合、再編に関連する一時的な税引前費用約1億2,500万ドルが含まれています。この合計には、欧州における製造拠点の最適化、および棚卸資産の評価引き上げに関連する約6,500万ドルが含まれます。

これらの費用にもかかわらず、経営陣は買収が2026年の純利益およびEPSにプラスに寄与すると予想しています。同社はまた、特定された1億2,000万ドルのシナジー効果の創出に自信を示し、追加のコスト削減プログラムが進行中であると述べました。

リスクと注視点

• 原材料インフレ、特に鉄鋼やアルミニウムの上昇は、依然として利益率の大きな逆風となっています。それにもかかわらず、経営陣はアリソンが連結ベースで価格コスト差益（プライス・コスト）をプラスに維持すると見込んでいます。
• 産業用および農業用のオフハイウェイ需要は引き続き低調であり、その一因は地政学的リスクの不確実性が顧客の購買活動を制限していることにあります。
• 高電圧電動化の採用は加速しておらず、同社は実際の市場の展開速度に合わせて投資のペースを調整する必要があります。
• 通期純利益は、オフハイウェイ買収に係る買収価格の配分会計処理の完了に左右されます。
• 統合、再編、製造拠点の最適化により、2026年には多額の一時的費用と現金支出が発生する見込みです。
• オフハイウェイ事業の業績には季節性があり、欧州の夏季休暇に伴う操業停止のため、通常第3四半期が最も低調な四半期となります。経営陣は、第4四半期の業績は概して好調な第2四半期と低調な第3四半期の中間程度になると述べました。

アナリスト質疑応答のハイライト

利益率および2027年の牽引要因： 経営陣は、利益率を支える要因として、販売量の増加、買収シナジー、プラスの価格コスト差、および商品（コモディティ）インフレの緩和可能性を挙げました。2027年のガイダンスは提示していないものの、農業分野の回復も新たな機会となり得るとしています。

コスト削減と販売管理費： 経営陣は、販売管理費（SG&A）がアリソン・トランスミッションの売上高の約7%程度になることが妥当な今後の見通しであると述べました。一部の企業本部サポート費用は中央グループ機能へと移行しています。同社はまた、バックオフィス業務の最適化を進めているほか、インド・チェンナイ工場の生産能力拡大を含め、部品調達、エンジニアリング、製造の効率化を追求しています。

防衛部門の生産能力： 投資は主に新製品の立ち上げを支援するためのものです。経営陣は、2025年から2026年にかけた大幅な増加により、2027年に予想される生産能力水準が概ね確保され、さらなる生産量増加の余地も残されていると述べました。ビジネスミックスは、欧州および韓国における新製品や新規顧客へと移行しつつあります。

オフハイウェイ部門の季節性： 経営陣は、主に販売量の増加により、第4四半期のオフハイウェイ部門の収益性が第3四半期から前四半期比で改善すると予想していますが、具体的な伸び幅の数値化はしませんでした。

決算説明会文字起こし全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good afternoon. Thank you for standing by. Welcome to Allison's Third Quarter 2026 Earnings Conference Call. My name is Samantha, and I will be your conference call operator today.

[Operator Instructions]

As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Jackie Bolles, Executive Director of Treasury and Investor Relations. Please go ahead, Jackie.

Jacalyn Bolles

Thank you, Samantha. Good afternoon, and thank you for joining us for our third quarter 2026 earnings conference call. With me this afternoon are Dave Graziosi, our Chair, President and Chief Executive Officer; Scott Mell, our Chief Financial Officer and Treasurer; Fred Bohley, Allison's Operating -- Chief Operating Officer and Allison Transmission Business Unit Leader; and Craig Price, Allison Off-Highway Business Unit Leader.

As a reminder, this conference call, webcast and this afternoon's presentation are available on the Investor Relations section of allisontransmission.com. A replay of this call will be available through November 16.

As noted on Slide 2 of the presentation, many of our remarks today contain forward-looking statements based on current expectations. These forward-looking statements are subject to known and unknown risks, including those set forth in our annual report on Form 10-K for the year ended December 31, 2025. Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those that we express today.

In addition, as noted on Slide 3 of the presentation, some of our remarks today contain non-GAAP financial measures as defined by the SEC. You can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures attached in the appendix to the presentation and to our third quarter 2026 earnings press release. Today's call is set to end at 5:45 p.m. Eastern Time. In order to maximize participation opportunities on the call, we'll take just one question from each analyst.

Please turn to Slide 4 of the presentation for the call agenda. During today's call, Dave Graziosi will provide a business update, including recent announcements across Allison. Dave will also provide detail on capabilities of the combined Allison product portfolio, a key piece of our growth strategy before concluding with a brief review of the business unit's net sales performance for the third quarter. Scott Mell will then review Allison's third quarter 2026 financial performance and our full year guidance update prior to commencing the Q&A.

Now I'll turn the call over to Dave Graziosi.

David Graziosi

Thank you, Jackie. Good afternoon, and thank you for joining us. Please turn to Slide 5 of the presentation for our third quarter business update. Before we begin, I would like to take a moment to reiterate our go-forward brand architecture announced last month. Under this structure, the Allison Transmission and Allison Off-Highway business units, along with their combined product portfolios now operate under the unified Allison name. Our products have a long history, earning the trust of customers over many decades. Much of what they value about Allison is embodied in the product brands themselves.

As we announced, trusted brands such as Allison Transmission, Spicer, Brevini, GWB, Fairfield and Graziano will be retained and will continue to be developed, sold and serviced as they have been. Importantly, customers, distributors and dealers across both business units can continue to expect the high standards of the products and parts they rely on, now strengthened by the resources and global reach of the Allison enterprise. Moving on to a few articles that were recently posted on our Allison in Action page located in the newsroom on our corporate site, allisontransmission.com. First, I want to highlight a milestone from Japan that shows how the Allison value proposition delivers in real-world applications.

In August, we celebrated the delivery of our 20,000 Allison equipped Isuzu Erga city bus to Keisei Bus Chiba West, which runs roughly 2,300 buses across Tokyo, Chiba and Ibaraki. This story highlights the structural megatrends shaping our end markets and positioning Allison for growth around the world. In Japan, where some of the world's most congested city roads meet a shrinking labor force and driver pool, operators are finding it increasingly difficult to recruit drivers for manual transmission vehicles because of the physical strain and skill required for manual transmission shifting. Under these conditions, it's no surprise that Isuzu has moved entirely away from manual transmissions in its city buses with Allison's fully automatic transmissions now found in over 70% of large city buses across Japan.

Our second highlight comes from the U.K. with Supacat and their high mobility transporter, HMT known within the British Army as the Jackal. The Jackal is a wheeled defense vehicle used for reconnaissance and long range patrol, tasked with getting soldiers deep into hostile terrain and bringing them home safely. More than 25 years after Supacat was first integrated with the Allison 2500 Series fully automatic transmission into the HMT platform, they continue to specify the same drivetrain, underscoring the durability and reliability of Allison products in demanding defense applications, the long service life of these vehicles and the trust we built as a long-standing partner.

Finally, showcasing the power of Allison from the harsh conditions of the Gobi Desert in Mongolia, Vertex, an end user at the Mongolia Energy Resources Coal Mine had been struggling with unusually high transmission failure rates across the wide-body mining dump trucks. And with no local service network, downtime and fleet availability became an even greater challenge. So when Vertex expanded its [ fleet by ] 100 trucks in 2025, choosing Allison was the clear decision. In addition to the proven reliability of our products, our service network stands out with our local presence allowing operators to cut troubleshooting repair times that once took weeks.

To experience the full testimonials, I encourage those of you that have not already done so to visit the Allison in Action page and subscribe to our e-mail alerts by clicking the link at the top of the page. Before covering Allison's third quarter net sales performance, please turn to Slide 6 of the presentation for an outline of Allison's combined product portfolio opportunities, a key piece of our growth strategy. As a combined company, Allison is moving up the value chain, transitioning to a full-scale integrated propulsion systems provider capable of designing, validating and delivering complete optimized propulsion systems. This improves performance, efficiency and time to market for OEMs and unlocks the value for Allison and our shareholders.

With an expanded product portfolio and a pipeline of combined drivetrain products in development, Allison has opportunities to capture more content, fundamentally changing our position in the end markets we serve. As we leverage our suite of capabilities, we believe we can capture more content per vehicle with an enhanced value-selling approach, leading to margin expansion opportunities across the business. Our expanded portfolio is energy agnostic with solutions spanning conventional ICE platforms, hybrid as well as advanced electric propulsion. This portfolio reduces concentration risk, protects revenue streams through market transitions and enables Allison to meet customers wherever they are in their technology journey.

Finally, with the combined global footprint, we can support our customers with local engineering, manufacturing, sales and service. This not only increases Allison's competitive position, but also unlock synergies and opportunities for margin expansion, scaling our profitability. Importantly, our combined product portfolio and our role as an integrated propulsion systems provider are only part of the story. With our combined portfolio, we can provide complementary products to existing customers and unlock cross-selling opportunities. This positions us to capture additional value as customer needs evolve and further strengthens our long-term growth potential. Turning to the right hand of the slide, you will see some representative applications utilizing Allison's developing product portfolio.

To summarize, the Allison Off-Highway acquisition has transformed the Allison growth algorithm. We are transitioning to a full-scale integrated propulsion systems provider, able to capture more content, expand value-selling opportunities and strengthen OEM relationships as a single source offering energy-agnostic solutions. This transition positions us to win more programs, realize new growth opportunities and leverage our global capabilities and presence to unlock synergies and expand margins. The result is a strengthened position as a premier industrial asset. Moving now to Allison's third quarter net sales performance and end market outlook for both of our business units.

Please turn to Slide 7 of the presentation. Third quarter net sales were $1.534 billion, an increase of 121% year-over-year. In addition to the $653 million contributed by the newly acquired Allison Off-Highway business unit, revenue in the Allison Transmission business unit increased 27% year-over-year, reaching a quarterly record of $881 million. Within the Allison Transmission business unit, all 5 end markets were up year-over-year. Demand accelerated for medium-duty and Class 8 vocational truck, driving record quarterly revenue of $462 million for the North America On-Highway end market, an increase of 41% year-over-year. Within the Allison Off-Highway business unit, when we step back and take a look across our end markets, it's clear that demand patterns are not uniform.

We continue to see strong momentum in mining and the construction and material handling end market accelerated year-over-year across every region, exceeding our expectations heading into 2026. However, our industrial and agricultural end markets remain muted as ongoing geopolitical developments continue to temper customer purchasing activity. You can find detailed breakdowns by end market for both business units on Slides 8 and 9 of the presentation.

Now I'll turn the call over to Scott for a review of Allison's third quarter 2026 financial performance and full year 2026 guidance update. Scott?

Scott Mell

Thank you, Dave, and thanks to those of you joining us on the call. Please flip to Slide 10 of the presentation. As Dave covered in his prepared remarks, net sales in the third quarter increased 121% year-over-year to $1.534 billion. The year-over-year increase was driven by the addition of the Allison Off-Highway business unit, along with a 27% increase in the Allison Transmission business unit with record quarterly net sales of $881 million. Consolidated adjusted EBITDA for the quarter was $400 million, increasing 56% year-over-year, representing a 26.1% margin. Third quarter adjusted diluted EPS was $2.90, increasing 59% year-over-year.

Favorable end market demand conditions and operational execution drove strong cash generation in the third quarter. While capital expenditures increased $21 million year-over-year, adjusted free cash flow of $278 million increased $94 million or 51%. During the third quarter, we repurchased $57 million of our common stock and paid $23 million for our quarterly dividend. We also completed a partial redemption of $100 million of our 2027 notes, bringing total debt repayment year-to-date to over $400 million. Despite near-term headwinds from increased raw material costs and other inflationary pressures, our margin outlook remains positive and Allison's ability to generate substantial cash flow is hard to overstate. Also, as a combined company, our top line growth opportunities have never been stronger.

You can find further detail on financial performance by segment on Slide 11 of the presentation. There will also be more detail provided in our Form 10-Q to be published later this week. Please turn to Slide 12 for our full year 2026 guidance update. Given our third quarter results and improved conditions across the majority of our key end markets, we are increasing our full year 2026 guidance for revenue, earnings and cash flow for the second consecutive quarter. For 2026 revenue, we expect consolidated net sales in the range of $5.975 billion to $6.075 billion. For earnings, we expect consolidated net income in the range of $645 million to $685 million, subject to the completion of purchase price accounting associated with the acquisition of the Allison Off-Highway business unit.

Our net income guidance for 2026 includes approximately $125 million of onetime pretax expenses associated with the separation, integration and restructuring of the Allison Off-Highway business unit. This includes restructuring charges related to manufacturing footprint optimization in our European operations and approximately $65 million of expenses related to the stepped-up basis in inventory. Despite these onetime costs, we expect the Allison Off-Highway acquisition to be accretive to net income and earnings per share in 2026. Further, we expect consolidated adjusted EBITDA in the range of $1.530 billion to $1.580 billion. At the midpoint, this implies a 25.8% adjusted EBITDA margin.

For our 2026 cash flow guidance, we anticipate consolidated net cash provided by operating activities in the range of $1.110 billion to $1.140 billion, consolidated capital expenditures in the range of $240 million to $260 million, including onetime separation and integration spending of approximately $20 million and consolidated adjusted free cash flow in the range of $850 million to $900 million. Please note that our consolidated net cash provided by operating activities guidance includes approximately $60 million of onetime cash outlays associated with our acquisition of the Allison Off-Highway business unit.

This concludes our prepared remarks. Samantha, please open the call for questions.

Operator

[Operator Instructions]

Our first question is from Rob Wertheimer with Melius Research.

質疑応答

Robert Wertheimer

A lot of numbers going up to ask about. I guess I'll pick a couple of the biggest in medium and vocational. Just one question on just channel inventory there. I know there's some kind of flex and accordion kind of structures at body builders, et cetera. Could you remind us of where you think that stands right now? And then is it your view some of this demand is prebuy related? Or is it just that the market needs replacement and therefore, continue into next year?

G. Bohley

Rob, this is Fred. Relative to the channel inventory, our checks would suggest there's not a significant number of trucks on the OEM dealer lots. And then relative to body builders, the vast majority of that's been worked through. So we would define that as somewhat normalized at this point. And then I think your second question was relative to demand in medium-duty as well as for us, Class 8 vocational. So from a medium-duty standpoint, we've seen a gradual ramp throughout the year and talked about it on the Q1 and Q2 call, but certainly saw a significant uptick in medium duty in the third quarter. If you think about our end market where we're up 41% year-over-year, I think ACT has Class 6, 7 up about 30% year-over-year and Class 8 straight truck up 29%, school bus relatively flat.

So certainly some strong performance from our standpoint within the end market. Specific to demand, we are starting to see the lease rentals guys lean into the medium-duty market. We really don't see this necessarily as a prebuy activity. Their fleets are very aged, and we think there's some element of pent-up demand in the market that should continue to drive things upward from where we sit into Q4 and on into 2027. And then with Class 8 vocational, I would just continue to describe it as robust, and it's been very steady and strong, primarily being driven by all the infrastructure spend going on. So again, from an outlook standpoint going into 2027, that feels good as well.

Operator

Our next question is from Tim Thein with Raymond James.

Timothy Thein

I'll ask one with a little bit more of a longer-term bent to it. And I'm just curious if we could speak to the margin profile of the business. Now that you've had a bit more time with the Off-Highway guys under your belt, you did 26% EBITDA margins in what is, I imagine the seasonally softest quarter of the year. So maybe speak to as you look beyond this year, obviously, synergies will play an important role. But just kind of how you would think about, again, looking out a bit longer term, kind of where you see the underlying margin performance of this newly configured asset.

Scott Mell

Yes. Tim, it's Scott. I'll take a shot at this one. I mean, I think, as you mentioned, we delivered 26% plus margins in the third quarter, recognizing that the third quarter is cyclically the softest quarter for the Off-Highway business unit given the holiday shutdowns in August. So I think the takeaway is we remain very positive relative to our ability to continue to grow the margin profile of the combined business.

We'll -- we've noted in the release that while we are price/cost positive on a consolidated basis in the quarter, we are seeing meaningful material cost increases impacting the margin profile, just given some of the cyclicality timing of getting those recoveries. So as we look forward, we think, to your point, volume growth will be incremental, the synergies that we continue to have high confidence in delivering as we get into next year. And then if we start to see some improvement relative to inflationary pressure, not only material, but otherwise, that's an upside opportunity for us as we look going forward.

Operator

Our next question is from Ian Zaffino with Oppenheimer & Co.

Ian Zaffino

On Slide 6, I found this very interesting. And maybe we could just get a little bit more color here. What are you seeing either from the market or your customers as it relates to transitioning to anything really to electrification? I know in the past, you talked about lack of standards and some other kind of difficulties there. But are you seeing any type of acceleration there or anything that kind of is driving calling it out in this slide? And then maybe talk about the cost you might have to incur to do any type of transition, whether it's dollars, margins, people or anything like that?

David Graziosi

Ian, it's Dave. I appreciate that question. So on electrification, as you know, post acquisition as part of bringing the Allison Off-Highway product portfolio in, what that did, amongst other things, is really allow our portfolio to expand from high voltage all the way back to low voltage. So I'm sure, as you know, low voltage continues to be, I would say, a much more mature adopting end market and space versus high voltage. The fact is, I think, putting -- if you look at the overall portfolio now with Allison Off-Highway, whether it's e-axle e-transmissions, e-Hub drives, et cetera, we have a pretty fulsome portfolio. It's also, I think, very much applicable or weighted to where you have adoption heavy, which is low voltage.

So for us, working across that spectrum from low to high, I think to your question, we are very much focused on the lower voltage range right now simply because that's where the demand is. And we've talked about that for a number of years, as you know, which is the right products at the right time. Clearly, the right products being more so in low voltage, we are not seeing much, I would tell you in terms of high-voltage adoption. We continue to stay close to our development work, our relationships with the OEMs, end users, et cetera, but we do not see that necessarily that adoption curve is accelerating on the high-voltage side. That being said, we're continuing to monitor overall developments in the technology.

And again, we'll stay close to that. And I would just offer, as you know, our strategy right along has been to really time our activities appropriate with market developments. And I think you've seen whether that's certainly North America On-Highway, quite a few things have really slowed down from some of the initial plans for the broader industry. So again, we're there, we're following the trends, and we'll continue to stay close. From an overall investment perspective, I would say our curve, just looking at the combination with the Off-Highway business has at some level, re-allowed us to combine and conquer, if you will. So the teams are working together very well and also looking at the application of the different teams, frankly, know-how and technology across that entire range, whether it be low voltage or high voltage. So again, we're excited about the opportunities that we have near term, but also continue to stay close to the overall market development.

Operator

Our next question is from Jerry Revich with Wells Fargo.

Jerry Revich

I'm wondering if we just have a high-level conversation around the moving pieces into margins overall for next year. And obviously, we can put a finer point on guidance in 3 months, but it sounds like pricing in the base business should be moving higher. We've got the synergies on the Off-Highway business coming in. Any other big ticket moving pieces that we should be keeping in mind as we think about '27 margins versus '26?

Scott Mell

Well, Jerry, it's Scott, thanks for the question. I mean, I think consistent with what I said on the previous question, I think we have incremental volume opportunities as we move into '27. We're not going to get into that conversation on this call, but certainly, I think we're optimistic '27 will continue some of the demand momentum that we've seen. Obviously, agriculture within the Off-Highway business unit has been very soft this year. To the extent you see fundamentals improving in agriculture, that's an opportunity as we get into '27. I think you mentioned pricing, we expect to continue to have positive price/cost on a consolidated basis for the enterprise.

So that's an expectation for next year. And then really, again, not to repeat myself, but to the extent that we see some softening stabilization as it relates to commodity costs, specifically steel and aluminum have been a meaningful headwind this year. If we start to see some resolution in the Middle East and some of the other geopolitical issues going on, we're hopeful that, that could be another tailwind as we get into next year.

G. Bohley

And Jerry, specific to the ATBU, I mean, we were clearly price/cost positive in the quarter. As Scott mentioned, some of the meaningful cost pressures, really the largest being raw material. As you know, we do have commodity pass-throughs, and you've seen some of that flow through. We initially talked about 325 basis points of price for the BU. We were 460 basis points year-over-year in Q3. Going forward, I mean, we have numerous cost reduction initiatives across the company above and beyond the $120 million of synergies that have been identified. And then as we talked about relative to the transmission business, when you have inflationary technology changes that drive up the price of the vehicles, that really just increases the value proposition that our products deliver.

And our products really improve the way the vehicles function, increased productivity, vehicle uptime, with more work completed with fewer vehicles, reduced maintenance costs, improved fuel economy, safety, driver retention. So again, as those things inflate up, which you're seeing, the vehicles, the maintenance cost, the drivers, the value of our product really shines. So for that reason, as Scott mentioned, we've got high level of confidence being able to price in an inflationary environment, and we clearly expect to be price/cost positive in 2027.

Operator

Our next question is from Angel Castillo with Morgan Stanley.

Angel Castillo Malpica

Just maybe I wanted to touch on a little bit on the margin and continue to unpack that a bit more. But specifically on the third quarter, your SG&A in the legacy Allison business is pretty low, around 7% of sales. Just -- could you just unpack that and to the extent that there was anything there that was onetime? Or should we think about that as kind of the right run rate going forward here? Just I think that was pretty solid performance and helps offset some of the cost inflation that you've been talking about. And -- maybe as a secondary or follow-on to that, if you could just also comment on -- you just mentioned numerous cost reduction initiatives beyond the $120 million in synergies.

Curious if any of that is initiatives that you have in flight that are maybe impacting that SG&A number? Any more color or kind of finer points that you can put on quantifying what those cost reduction initiatives might be? And maybe what segment do they hit? That would be helpful.

G. Bohley

Let me take the cost reduction initiatives and then throw it over to Scott for some commentary on SG&A. If you think about the investment that we made in our India plant in Chennai, doubling the size of that plant, that is going to allow us to reduce cost, probably more importantly, increase capacity. And then our sales team is actively out selling that capacity. Case in point, all 5 end markets up record quarterly revenue. Pre-transaction, we had a lot of activities in flight relative to purchase components and engineering and resourcing activities to take costs out of our product that way. Scott, do you want to speak a little bit to the SG&A?

Scott Mell

Yes. I mean I think a couple of things, Angel. One is, obviously, this year, we started reporting a central group function and we talked about it before, but essentially costs that kind of sit at the corporate level and support both business units. So number one, we've moved some costs out of the legacy Allison Transmission business unit. But specific to the question, I think the 7% number is probably a good estimate for you as you go forward. I will say that we are seeing some positive trends within the SG&A. To Fred's point, we are looking to optimize our cost structure now that we have a much broader global platform, and that includes where do we put SG&A and other type of back-office activities.

We're also seeing some positive warranty expense in the quarter. I think coming out of COVID, we, like many others, were challenged as it related to just the change in the labor force, and we saw some strength in the warranty expense in the quarter, which impacted that number as well. But I think going forward, to Fred's point, we're very focused on cost containment, I would say, just ensuring that we're taking advantage of the synergies from combining the 2 businesses, and that includes the SG&A side as well.

Operator

Our next question is from Kyle Menges with Citigroup.

Kyle Menges

I would love to hear a little bit more about defense and specifically just the capacity investments that you've been making and maybe plan to make over the next 12 months or maybe even beyond that? And on the order book as well, I noticed that there was a comment about the order book being nearly full for 2027. So would just love to understand maybe the investments in capacity that have already happened this year. And it sounds like I think there's some plan for next year. I'm not sure if there's anything with the -- any acquired Dana facilities that can help add some defense capacity. And I guess also what I'm trying to get at is if that order book for 2027 does end up filling completely, which it sounds like there's a good chance, just what that would mean for year-over-year volume growth in that business?

G. Bohley

Yes, Kyle, this is Fred. Let me first address the kind of demand. What -- obviously, clearly a very robust year. You've seen our business move from being predominantly to the U.S. government to much more exposure to outside North America. We're also launching 2 new products, the eGen Force and the 3040 and 4040 MX, with the 3040, 4040 MX primarily focused outside North America. So from a capacity standpoint, most of the investments have been to be positioned to ramp up those 2 products. Specific into 2027, we have pretty good line of sight at this point. And we'll need to see how we finish the year. But I think that the big step-up that you saw from '25 to '26, that pretty much kind of sets us to where we expect to be for 2027.

Again, there's still some room for more volume to come in, but it's more of a transition from the traditional business we sold to the U.S. government into new products and sales outside North America, into Europe, into Korea. We announced the BAE Hägglunds order back middle of the year, that was our largest defense order in history and over $250 million in revenue associated with that order. So the -- definitely, the -- as you asked, the order book is filling in nicely.

Operator

Our next question is from Tami Zakaria with JPMorgan.

Tami Zakaria

So I think I heard you mention the third quarter is seasonally the softest quarter. I think you said for Off-Highway as well. So your Off-Highway EBITDA margin was 12.7%. What's the typical sequential step-up in margins for that segment in the fourth quarter? Is it similar to what we saw in the first half or still below the first half, but better than 3Q?

Craig Price

Tami, this is Craig. So yes, as Scott said in the remarks, the third quarter for us, just given such a significant part of our business in Europe is typically our weakest quarter. The second quarter typically is our strongest. So the fourth is somewhere in between. So we would naturally see a step-up that's predominantly due to the increase in that volume.

Operator

We have reached the end of the question-and-answer session. I would like to turn the floor back over to David Graziosi for closing comments.

David Graziosi

Thank you, Samantha, and thank you for your continued interest in Allison and for participating on today's call. Enjoy your evening.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.