Allegion plc (ALLE) on Q1 2021 Results - Earnings Call Transcript

Operator: Good morning and welcome to the Allegion First Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Tom Martineau, Vice President, Investor Relations and Treasurer. Please go ahead. Tom Martineau: Thank you, Andrew. Good morning, everyone. Welcome and thank you for joining us for Allegion's first quarter 2021 earnings call. With me today are Dave Petratis, Chairman, President and Chief Executive Officer; and Patrick Shannon, Senior Vice President and Chief Financial Officer of Allegion. Our earnings release which was issued earlier this morning and a presentation, which we will refer to in today's call are available on our website at investor.allegion.com. This call will be recorded and archived on our website. Please go to Slides 2 and 3. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities law. Please see our most recent SEC filings for description of some of the factors that may cause actual results to differ materially from our projections. The company assumes no obligation to update these forward-looking statements. Today's presentation and commentary include non-GAAP financial measures, please refer to the reconciliation in the financial tables of our press release for further details. Dave and Patrick will now discuss our first quarter 2021 results, which will be followed by a Q&A session. Please, for the Q&A, we would like to ask each caller to limit themselves to one question and one short follow-up and then reenter the queue. We would like to give everyone an opportunity given the time allotted. Please go to Slide 4. And I'll turn the call over to Dave. Dave Petratis: Thanks, Tom. Good morning and thank you for joining us today. I'm pleased with the company's first quarter performance. We delivered revenue growth, margin expansion, double digit earnings growth and strong available cash flow, it gets a tough prior year comparable. We continue to make progress on our seamless access strategy, while maintaining the focus on keeping our employees safe and serving our customers efficiently. Let's begin by walking through the first quarter financial summary. Revenue for the first quarter was $694.3 million, an increase of 2.9% or 0.5% organically. The organic revenue increase was driven by strength in the Americas' residential and Allegion's international businesses, offsetting continued softness in Americas' non-residential. Currency tailwinds provided a boost to total revenue and more than offset the impact of divestitures. Patrick will share more detail on the regions in a moment. Adjusted operating margin increased by 30 basis points in the first quarter. We executed extremely well, and the restructuring and cost management actions taken during 2020 along with the volume leverage on the businesses that grew. Offset the next headwinds we are experiencing. Patrick Shannon: Thanks, Dave and good morning, everyone. Thank you for joining today's call. If you would, please go to Slide number 6. This slide reflects our earnings per share reconciliation for the first quarter. For the first quarter 2020, reported earnings per share was zero, adjusting $1.04 for charges related to intangible asset impairments, restructuring expenses and integration costs related acquisitions, the 2020 adjusted earnings per share was $1.04. Dave Petratis: Thank you, Patrick. Please go to Slide 11. We have more visibility into our markets and I am increasingly optimistic on the economic recovery. The American - the Americas residential business continues to be hot and is expected to grow in 2021. We anticipate strength at residential - to persist for the foreseeable future. DIY demand remained strong and the construction market is strengthened by a shortage of available new homes, continued low mortgage rates and improved trends in permits and starts. However, completion rates have been lagging starts due to labor and supply shortages, which should improve as we move further past the pandemic. Operator: We will now begin the question-and-answer session. The first question comes from Julian Mitchell with Barclays. Please go ahead. Julian Mitchell: Hi, good morning. Maybe just wanted to dial in on the revised Americas organic sales growth outlook. Maybe just help us understand you know how that guidance increase was split between your residential and your non-residential assumptions changing? And then within non-residential specifically, how should we think about that slope of decline shrinking over the balance of this year as you've been running at a sort of down low double-digit rate for four quarters in a row now? Patrick Shannon: Yeah. Julian so I would characterize it this way. You know, first of all, you know, during the course of the quarter, you know, things progressively got better, particularly as we looked at our non-residential business. And by that, I mean just kind of the level of activity orders, you know, customer enthusiasm, specifically related to discretionary projects. And so that piece of information plus with the improvement and uncertain indices leading indicators relative to our business, i.e., ABI new construction starts those types of things, which I'll remind you relative to new construction, it doesn't necessarily mean it's going to be incremental business this year, but continued improvement, particularly as we look out beyond 2021. With the improvement in non-resi, you know, really relates to discretionary projects, you know are continuing to be favorable more than what we had originally anticipated. Last time, we were on the conference call, residential continues its strength really across the board. You know, just really seeing good improvement in DIY, new build construction, et cetera, we expect that strength to continue. I would just, you know, remind you, you know, keep in mind that last year as we're coming, exiting out of Q2 after the plant shutdowns, demand started to surge, we were kind of catching our feet relative to production and kind of keeping up with demand. We didn't start kind of filling channel inventory until late Q3, Q4, that will be non-recurring right this year. And so you get into a tougher comp, if you will, in the back half of this year as it relates to the residential business, but still growth on a normalized basis. Julian Mitchell: Thank you. And then my follow-up would be switching to the Americas margin outlook. So if I look in the 10-Q, you have that pricing and productivity in excess of inflation line, you know, that was only about a 20 bps tailwind to margins in the first quarter? How should we think about that playing out over the balance of the year, you know, both in terms of sort of what's happening with inflation and also your pricing measures? Patrick Shannon: It's going to be more difficult. And, you know, the reason being is the inflationary item will step up, it's going to be worse as we progress kind of throughout the course of the year. Why, because of the input costs, you know, specific to commodities and material components. The other thing I would remind you of is, remember, we talked last year about some of the boomerang effect of the cost kind of coming back in into 2021, that was not there in 2020. So that's another item, plus, you know, we're going to have incremental investments, so all those are going to weigh a little bit more on margin. And will put a, you know, more pressure, if you will, on margins in the back half of the year that, you know, for '21 that we didn't experience in 2020. But let me just add something else. I think the - on the non-resi side of things is you know, relative to the reduced volume, even though things were getting better as we progress throughout the year, we do have volume deleverage. We have taken the necessary actions to extract variable costs, okay. So it's really a volume deleverage issue. It's not a permanent item when volumes come back, margins will accelerate. And because we've taken the necessary cost control actions. Dave Petratis: I'd add one other dimension and that would just be a slight mix shift as this - as the discretionary small project comes back and we're seeing that and applauding it, it tends to have more mid price point products versus our new build supply that's, you know, heavy in our premium products. Julian Mitchell: Great, thank you. Operator: The next question comes from Colton West of Longbow Research. Please go ahead. Colton West: Hi, good morning and thanks for taking my question. It looks like some great progress was made this quarter. I guess firstly, you know, as we speak to contacts and we hear of a pickup in non-res quoting activity and in the prepared remarks, you called out an acceleration on the R&R side. With where conditions stand today, are you able to give us a more concrete sense of when we start to see orders and then the corresponding top line growth? And this is something you know, do we start to see quotes turn into orders as early as 2Q? Or is this - does this not materialize until maybe the back half for next year? Dave Petratis: You know, we see some favorable indicators, one, the broader indicators that you all see, ABI, Dodge, you know, it's, you know, starts, not Dodge starts. But momentum. So we like what we see there too. Our own specification is up. The challenge was that a specification doesn't mean orders tomorrow or next week or even next quarter, you know, we would see that, you know, gaining momentum as we exit '21 and then into '22. I also like the, you know, where the investment is going in terms of our mix and strengths of the company, as we see end markets dynamics, you know, in major projects and in construction, hospitals, K through 12, college campuses and institutions, that's where the market is rebounding and it attends to complement the strengths of the company. Colton West: Okay. And then my next is from sort of a 30,000 foot view. Would you consider the current level of earnings to be trough earnings? And if so, can you walk us through the moving parts that will push earnings to the next peak? Patrick Shannon: Yeah, so, you know, I would characterize, you know, the earnings, you know, really good performance, obviously in Q1. You know, if we look at the full year guide, you know, kind of in line with last year, in terms of where we ended up. You know, I would expect, you know, what the improvement in terms of our outlook, particularly on the non-residential business gaining momentum that will hopefully continue to accelerate in 2022. As I mentioned before, you would see continuous improvement in margins relative to that business, with the continuation of residential in the strength of the end markets, would expect growth there. So, yeah, I would characterize, you know, as long as the end markets continue to be favorable, you know, we'll see, you know, earnings growth, you know, accelerate, you know, from '22 and beyond. Colton West: Okay, great. That's all I had. Thank you. Operator: The next question comes from Andrew Obin of Bank of America. Please go ahead. Andrew Obin: Yes. Good morning. Dave Petratis: Good morning, Andrew. Andrew Obin: Yeah, so a question in the last stimulus bill, and I think HVAC companies had been talking about it and also electrical companies have been talking about it. There's a lot of money allocated for schools. And I think, if you look in the last stimulus, I think 70% of the money was spent on capital improvement project, right. And the money seems to be like sort of $67 billion a year for the next three years. So, you know, I think HVAC companies and electrical companies are talking about the fact that they'll see an impact from this in next quarter, right, because you do a school remodeling in the summer. So institutional vertical is quite a big deal for you guys. Are you going to see any impact from it? And what's your assessment of the impact of this portion of the stimulus on your business this year and next year? Thank you. Dave Petratis: So thanks for your question. You know we absolutely see the billions of dollars that are being allocated into K through 12's campuses. We will see benefit from that, hard to quantify each project, you know, we'll have different attributes, but it's clear, school security remains on the minds of Americans. And I think to the rise in violence, which is disturbing across the country, you know, will coupled with the stimulus, school security will get a portion of that investment and benefit Allegion. Andrew Obin: Great. But is it in your guidance here or is it just too hard to quantify at this point? Patrick Shannon: You know, I would say, Andrew, a little bit too hard to quantify at this point. However, you know, as we talked about earlier, a step up in terms of order activity relative to discretionary projects, we did see and that will turn into we'll call it, new business, you know, Q2, Q3 type of timeframe. But I think trying to kind of quantify a larger impact specific to the stimulus bill right now is probably premature. Dave Petratis: I would just add, we will capture a large percentage of that security spent and we should be able to have visibility that in our spec and quotation activity in which we also see a very large part of the market. Andrew Obin: Got you. And just a follow-up question on international sort of starting to build impressive momentum there in terms of operating turnaround. Can you just give us more granularity you know, what's driving it? Is it Italy? Is it Poland? Is it Korea? Is it Australia? As I said, it's been all of a sudden, there's real momentum, just would love to get a better sense of what's happening there. Thank you. Dave Petratis: So, one, remember the pandemic started, you know, internationally before it started here. So you know, Asia Pacific, particularly Italy hit hard early. So we're seeing that recovery, even though the pandemic continues to move. Number two, our continued investment in electronics and software, our Interflex and SimonsVoss businesses are performing extremely well and quite proud of the work. The leverage of investment to drive top line which we will continue. Third, success in our GPS business, you know, for those of you that have gone to try and buy a bike, there's no inventory, and we made supply chain changes that gives us some advantages versus importers. We like that. And then we're beginning to see early recovery as well, Australia, New Zealand, remember, our Gainsborough acquisition as residential recovery drives in Australia we'll do extremely well there. I'd add something else. Over the last four to five quarters, we've been working hard to reposition that. We collapsed, you know, three divisions into two that gave us some cost efficiencies, driving more accountability down and the ability to invest back in those businesses for future growth. I like our position and the future's bright as we move through recovery. Andrew Obin: Thank you. Really appreciate it. Operator: The next question comes from Tim Wojs with Baird. Please go ahead. Tim Wojs: Hey, everybody. Good morning. Nice work. Patrick Shannon: Thanks, Tim. Dave Petratis: Thank you, Tim. Tim Wojs: Maybe just a bigger picture question for you guys. Just as you're seeing buildings reopened. Where in the budget stack is security from a priority perspective? And I guess I'm just kind of wondering if you're seeing other areas within buildings like HVAC taking focus away from security? Are you seeing kind of the interest in the budget priorities, you know, relatively unchanged relative to where they were pre-COVID? Dave Petratis: I would describe it as this, and I think it's consistent as I have painted it. I think over the last 12 months, there's been absence of any type of preventive maintenance and small project work because the focus was on the health and safety of the occupants of buildings. I believe what we saw strongly, you know, beginning mid-March and continues on is the return of that, people going after those projects, those small projects preventive maintenance activity, particularly if it's security related, carry a pretty high priority versus other preventive maintenance aspects. Let's say the door doesn't show up properly, it's not locking, I have a security breach. You know, maintenance people are always making tradeoffs as we move into the air-conditioning season, where we don't have a heat, those tends to be a, you know, a red priority, we could fall into yellow. But, Tim, I believe there's an absence - there have been an absence of preventive maintenance, the small projects and those are moving in, I believe the budgets are there. I've also been refreshed that in larger projects that have - that were delayed, those are coming back, you know, in the mid price project level. An example would be the University of Tennessee, they had a project, you know, that was, you know, slated to go in '20, that's come back on. So, you know, was fully budgeted. I think, again, what that will naturally occur and we'll get our share of that wallet and as the new construction comes back, it will add more momentum to Allegion. Tim Wojs: Okay. Okay, great, that's good to hear. And then maybe just my second question, just on the M&A side of things. How would you kind of characterize the development in the pipeline over the last three months to six months? And any sort of increased, you know, kind of activity or actionability there, you know, just given you know, like more of a meeting of the minds in terms of, you know, people's perspective on the end market? Dave Petratis: I would say, the attention of the leadership team has never been stronger. You know, focused on, you know, moves that can help improve the scale of Allegion. We believe as we move harder in seamless access scale matters, we're pushing hard on moves that we think would help us participate in the - connection of access, seamless access at a faster pace. I'd say less time spent on you know, smaller projects and deals. But you know, we've been working on this now for seven, eight years and we're pushing on those relationships. We believe there's further consolidation opportunities within the market. And the faster that we, you know, accelerate this convergence - it's going to force some action. Tim Wojs: Okay. Okay, great. Well, good luck on the rest of year guys. Thank you. Dave Petratis: Thank you. Good to hear from you. Operator: The next question comes from John Walsh with Credit Suisse. Please go ahead. John Walsh: Hi, good morning and really impressive execution in the international business. Wanted to actually ask you about where you see the margins going for that segment now? I mean, really strong out of the gate here with that kind of high end of upper single-digits performance? What should we kind of be thinking about for the full year there in terms of margins? Patrick Shannon: Yeah, John. So, you know, again, as you indicated, really strong performance, you know, both top line and you know, margin, you know, rates, particularly relative compared to prior year. Just as a reminder, you may recall last year, we were pretty quick out of the gate in terms of implementing cost control measures, you know, going in with the restructuring programs across the board, in Asia as well as Europe. And so you're seeing kind of the full benefit of that, if you will, reflected in the '21 results. So the restructuring actions taken last year begin to lap in the back half of the year. So you're not going to see kind of a step up in the margin performance that you saw in Q1. However, I would suggest that margins will continue to improve year-over-year, you know, as we continue throughout the year, and we should finish on an aggregate basis, i.e. the consolidation of Asia and Europe together, that kind of a record performance in terms of margin percent. And that's really reflective as Dave kind of highlighted earlier, the continued strength in electronics, which has a higher margin profile, the - all the cost reduction actions that we've taken will continue to manifest itself and the collapse and consolidation of the two segments together, we're seeing the benefits of that as well. I feel like we're in a really good position kind of going forward, not only to drive top line, but then sure that we do it in a profitable basis and we continue from here on out getting margin accretion as the business continues to grow. John Walsh: Great, thank you. And then just as a follow-up, I think it was in response to Julian's question about residential, you've called out kind of some stock orders in Q3, Q4, just curious here in Q1, if you were still seeing those stock orders or if kind of sell in is equal to sell out at this point? Yeah. Patrick Shannon: Yeah, so we did experience some of that, not to the magnitude that we did in the latter half of last year. And I would say too, you know, quite frankly, if you kind of look at inventory levels in the channel, you know, particularly a big box like that on like a trailing kind of 12-month basis, basis of future demand, still probably lower than where it needs to be. So it's a matter of kind of, you know, trying to produce at a higher level, which is difficult right now, kind of given some of the supply constraints in our business. So there is maybe a little bit more that we could put into the channel. But you know, right now as that we're kind of assuming we're more on a normalized basis, producing, you know, basis of demand type of thing. John Walsh: Great. Appreciate taking the questions. Thank you. Operator: The next question comes from Jeff Sprague with Vertical Research. Please go ahead. Jeff Sprague: Thank you. Good morning, everyone. Dave Petratis: Good morning, Jeff. Jeff Sprague: Yeah, I just wanted to put my finger a little bit more on kind of the cyclical trajectory also. And I thought maybe it'd be helpful to kind of discuss things a little bit sequentially, given how wild some of the year-over-year comps are with COVID and the like. Just thinking about Americas in aggregate, right, with commercial coming off the bottom and resi still strong? I mean, is there any reason to think you don't have your normal sequential lift in revenues there from Q1 to Q2? Dave Petratis: I think, you know, first, let's look at the lay of the land, you know, backwards. You know, we had the rupture of the pandemic, then let's go even back, we had a record Q1, we had the rupture of the pandemic, but as we compare to competition, I believe we were stronger, you know, quarter in, quarter out over several of the last quarter. So, you know, whether it was up or down the sequential nature of it, remember, we talked about, you know, plowing through our backlog. So with that as a backdrop, as we move through, we should expect some lift in the second and third quarters that we would normally see. I think that's why we highlight the return of the discretionary and small projects, which I think will certainly be better than it was a year ago. The but is, you know, that new construction demand is not as robust as it was going into the pandemic. So I think it takes '21 to normalize itself. And we'll see, probably a truer picture of what the markets going to be and we believe better as we go into '22. Jeff Sprague: Yeah, the nature of my question is really, you know, I hate to just kind of play math exercise with you, right. But, you know, Q2 sales typically rise 15% to 20% sequentially, right. For that to happen, you know, you need almost 30% organic growth in Q2. And if you do 30% organic growth in Q2, you know, you're implying kind of negative 10% in the back half to get to your guide. Dave Petratis: The math, I would suggest, and we are suggesting a forecast that's not going to happen. And I think one of the key drivers is new - non-residential construction starts. They had been down 28% for the last four quarters. And that is clearly a driver of our business that's got to be in place to get that type of ramp. Patrick Shannon: So, Jeff, keep in mind, going into Q2 last year, we're coming off a record quarter Q1 2020. Backlogs were really, really healthy both on discretionary, new construction you know, projects that were started were kind of still being completed some of them may have been delayed and pushed out during the back half of the year. So you still have a real tough comp on non-res, okay, new construction, it begins to improve year-over-year and sequentially, but by Q2 is still going to be, you know, a non-resi now, okay, non-residential, a non-resi still kind of be tough, okay. We didn't have plant shutdowns like we did in residential business in Q2. Jeff Sprague: Right, thank you. Operator: The next question comes from Josh Pokrzywinski with Morgan Stanley. Please go ahead. Josh Pokrzywinski: Hey, good morning, guys. Dave Petratis: Good morning, Josh. Patrick Shannon: Hi, Josh. Josh Pokrzywinski: Dave, just on a bit of a snap the line update versus where you were in kind of three months or six months ago. I think the expectation was that when we get into the second half, of course, we'll be back in, you know, some of these institutions or offices and we'll drive some retrofit activity. It sounds like some of that is starting to percolate a bit quicker. But I guess one, am I reading that right? And two is that something that could show up as soon as 2Q. I know, there's still plenty of chop in the new side of the market, but you know just versus that prior expectation of a second half improvement in non-resi retrofit. Dave Petratis: I want to be very clear. Beginning mid-March and through today, we saw an uplift in wholesale and CHD demand that we believe is part of you know, an air pocket that we saw 12 months earlier, preventive maintenance, small projects were delayed. And that's come back and we're very pleased to see that. It was a little earlier, I think the results of the vaccination success we're having here in the US has driven that and overall confidence. So you know, feel good about that. We added to Allegion's commercial - or commercial and institutional backyard - backlog in the Americas during the period. And we continue to believe that will - that demand will continue. I think the challenge is that new construction backlog which you know, the projects are complete, I think it's evident in the starts data that comes out of Dodge, and we just got to work through that. I think we've got a reasonable view on it. Again, market demand was better than we anticipated in Q1, reasonably better, it's still softer than it was a year ago. Josh Pokrzywinski: Got it. That's helpful and maybe that just to follow-up on that. And I think this sort of gets to what Jeff was asking as well. I get the - there's still plenty of uncertainty on new construction. And you just sort of prefaced that with your answer just now that the non-res new backlog is still lower. But, is it lower than what you would have thought a few months ago? I guess that was sort of implies some higher level of conversion. So I guess that's always possible. But it sounds like the market itself is doing better from an orders' perspective just trying to balance that, you know, maybe heightened caution on the back on comment even though I don't know if anything's really changed for you. Dave Petratis: I would say you know, the new construction activity is, you know, performing as we would anticipate and we see the benefits of that really rolling in into '22. And it's the nature of the beast. I would also emphasize this. However the market performs, on the retrofits small project and new construction, I believe that we've made the investments here that will continue to beat the market. Josh Pokrzywinski: Great. That's helpful color and congrats on a good quarter. Dave Petratis: Thank you. Operator: The next question comes from Chris Snyder with UBS. Please go ahead. Chris Snyder: Thank you. Just following-up a little bit more on the non-res comments. It starts Interflex positive here shortly. When could we expect the new construction business to bottom? And then just any color you could provide on the R&R trajectory embedded in the 2021 guidance? Dave Petratis: I would say, it starts Interflex and we believe they'll gain momentum as we go through the year. You really see the benefits of that in '22, because they're in the ground today does not mean revenues for Allegion tomorrow, this is a long cycle nature, most building projects that, you know, have a 12 month to 18-month duration, especially in our sweet spots. And that's how I'd paint it. I'm extremely encouraged by the uplift of our specification activity and the broader indices. And I think, coupled that with the stimulus, you know, we feel good about where this business is going. Chris Snyder: Appreciate that - all that color. And then, you know, just kind of following up. So non-res has been running at a low double-digit or down low double-digits for the last three quarters. Can you provide any color on the under the surface movements between new construction, which kind of based on your last comment seems like it would be continually getting worse through at least Q1, and just, you know, any mix there between new construction or not just the under the surface movements? Patrick Shannon: As you know, we don't really give specific guidance associated with a breakdown in those, you know, kind of end markets, but, you know, I would, you know, characterize it this way that, you know, continued, you know, pressure as we kind of continue to go through '21, relative to new construction, year-over-year, but getting sequentially better in the back half of the year, i.e. as we progress, the rate of decline becomes less. The repair and retrofit was the first area that kind of saw the decline, you know, last year and that will start to hopefully improve in the back half of the year, you know, year-over-year, but keep in mind, the new construction part of our non-residential business is roughly 65% relative to or compared to the discretionary total. Dave Petratis: I would also - Chris Snyder: Appreciate that - Dave Petratis: Suggest you know, just a little bit more color on that. The range of capabilities that Allegion has today, opening price point, mid price point and full price point in terms of our commercial and institution offerings is it significantly better than it was in the last downturn. We're seeing that growth, we're flexing, you know, our strength in the channel to make sure if that dollars available for revenue, that we get more than our fair share of that. Chris Snyder: Thank you. Operator: The next question comes from Ryan Merkel with William Blair. Please go ahead. Ryan Merkel: Hey, everyone. First off, can you just talk about the supply chain pressures you're seeing? And is this risk manageable? Or are you expecting to see a revenue impact in '21? Dave Petratis: So, you know, our record speaks for itself here, I think the Allegion's supply chain has performed exceptionally you know, through the last five quarters. You know, it's because of this, you know, strategic choice that we make to produce, you know, in region and it's benefiting us in a lot of ways. There are clear and obvious pressures, particularly on electronics and we're certainly adapting to those. You know, there could be, you know, some shutdowns in terms of we're not able to produce specific products. With that in mind, we were very aggressive early to put in long-term orders to secure our supply chains, we've got tight, you know, you know, vendor relations. And again, my confidence is, you know, yes, we can be affected, but we will navigate it better than the competition. Patrick Shannon: And I would add that, you know, the current guide assumes that we're going to help mitigate the impact of the inefficiencies. You know, I feel good about that, where we stand today. However, you know, continued pressure there does create inefficiencies, you know, to the extent, you know, we're unable to procure the appropriate supplies needed to produce the products. And so kind of remains to be seen, but we're managing through it. Some of our product lines, you know particularly electronics are hand to mouth and it does create, you know, inefficiencies, but we're working through those issues. Ryan Merkel: That's helpful - Dave Petratis: I would also, you know - 40 years of dealing with this type of thing we made moves early, you know, that will help us. And we're extremely proud of our supply team. And you know, what they've done to mitigate a variety of issues and we were well out ahead of this, and I think we'll come out of it stronger. Ryan Merkel: Got it. All right and then just quickly, you know, great to hear the non-res rhinos coming back. Is that a broad-based comment? Or is it just happening in certain sectors today? Dave Petratis: So, you know, I think if you go across the geographies, you know, we see stronger activity, particularly, you know, in the South, East Texas, you can kind of look at where COVIDs come, you know, had harder hits or, you know, where shutdowns have been harder, you know, it reflects the strength as you go into the different segments, think about, were you completing your preventive maintenance list at any hospital in the United States over the last, you know, 15 months? I would suggest the answer is no. College campuses are similar and we see confidence in our wholesale distribution orders, incoming orders. And it's going into those segments that have really been, you know, battered in their ability just to, you know, meet the needs of their customers. Ryan Merkel: Perfect, thanks. Dave Petratis: Thank you. Operator: The next question comes from Jeff Kessler with Imperial Capital. Please go ahead - Jeff Kessler: Thank you and thank you for taking the question. First, just quickly on international, again, congratulations on the numbers. You've explained them. I'd love to give Tim all the credit. But of course, I won't yet. But I do want to know, what his game plan is or what's the game plan is for getting what in general for getting International, essentially moving so that the - so that currency and other factors are not what we're going to be talking about in two or three years. But the - but gains in market share, et cetera. Because obviously, having international move forward is just another quiver in your growth cap. Dave Petratis: So, you know, Tim does have a lot of instant talent. And, you know, we give him you know, great kudos in the first 90 days. Jeff, there - there's been a tremendous amount of work that's gone on in that business over the last couple of years. And one is, you know, I talked about the restructuring, significant investment in prioritization around Interflex and SimonsVoss really nice growth over the last six quarters, the Interflex and SimonsVoss performed exceptionally during the pandemic. And I think that momentum will continue. As you think about strategic priorities for Tim. It's, to continue that growth and expand the cloud and technical capabilities, you know, better than others that SimonsVoss really thrives on what we call active technologies. Driving more investment that goes into some of the passive areas will help fuel those - their growth which could include also acquisition. But we like that SimonsVoss Interflex. I think, second important for Tim, is, we acquired this the Gainsborough asset that's well positioned. We launched the first electronic trial lock in the region. And we think we're well positioned to be with new - in the new build and the DIY to see nice growth as that residential market recovers in Gainsborough. I think third what has been surprising to Tim in his first 90 days, is the opportunity to - export more capability from the Americas which he has more knowledge than anybody in the company and you know, so looking forward to taking the you know, some of the real strengths we have here in the Americas and helping our international partners grow even faster. Jeff Kessler: Okay. My follow-up question quickly is and maybe the answer may not be so quick, is, just underneath your level, I would say we're perhaps down level from where you folks operate, we're seeing a shift some - a small shift in growth from away from video and toward we'll call it, you want to call it software-based access control everything from obviously NFC to Bluetooth to ultrahigh frequency as well as, you know, as - just as well as the just power, you know, Power over Ethernet, which you folks know a little bit about. And what we're also seeing - is simply put a gain in software as the driver as opposed to hardware as a driver in getting into access control. And with the access control, let's say becoming a faster growth area than even video. And we've seen some crazy valuations in the venture and private equity markets for some of these companies that are getting involved in areas that are either adjacent to you or actually may compete with you from intercoms all the way to you know to SaaS-based things. What is the company looking at in terms of, you know, trying to make sure that both protects its flank and grow this business? Dave Petratis: So, I would describe it as one of the most exciting opportunities that I've seen in you know my 40 years of industrial participation. The company has been invested heavily and increased our investment as we went through the pandemic, you know, the, Yonomi acquisition would be reflective. But if you looked under the covers and saw the growth of our investments in Bangalore and our engineering capabilities, since I created - since we created Allegion, we tripled the feet on the street there to be able to position ourselves more strongly in the connectivity and the software elements. Third, Jeff, would be the venture activity you know, and you see some of the investments Kasa, Mint House, Openpath, I don't believe we - our strategy has been to be in the fast lanes to you know with new technology to be observe, learn, partner, invest potentially on, Yonomi went through that entire cycle. I think we continue to sharpen our position and I like our opportunities to be able to participate in the world of seamless access that you described. Jeff Kessler: All right, great. Look forward to interacting with you guys in the future. Thank you. Dave Petratis: We're always a leader in this and we appreciate your thought leadership, Jeff. Thank you. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Tom Martineau for any closing remarks. Tom Martineau: We'd like to thank everybody for participating in today's call and have a safe day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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Allegion plc (NYSE:ALLE) Earnings Report Highlights

  • Allegion reported an EPS of $1.64, missing the estimated $1.75.
  • The company's revenue for the quarter ending December 2024 was $945.6 million, surpassing the estimated $938.9 million and demonstrating strong revenue-generating capabilities.
  • Financial metrics reveal a P/E ratio of 18.58 and a debt-to-equity ratio of approximately 1.10, indicating a balanced financial leverage and a solid investment opportunity.

Allegion plc (NYSE:ALLE) is a leading global provider of security products and solutions. The company is known for its innovative approach to safety and security, offering a wide range of products that cater to both residential and commercial markets. Allegion operates within the Zacks Security and Safety Services industry, competing with other major players in the sector.

On February 18, 2025, Allegion reported earnings per share (EPS) of $1.64, which fell short of the estimated $1.75. Despite this, the company has a history of outperforming expectations. Allegion's revenue for the quarter ending December 2024 was $945.6 million, exceeding the estimated $938.9 million. This represents a 0.68% increase over the Zacks Consensus Estimate and a significant rise from the $897.4 million reported in the same period the previous year. The company has consistently surpassed consensus revenue estimates in three of the last four quarters, demonstrating its robust revenue-generating capabilities.

The company's financial metrics provide further insight into its market valuation. Allegion's price-to-earnings (P/E) ratio is approximately 18.58, indicating how the market values its earnings. The price-to-sales ratio stands at about 2.93, reflecting the market's valuation of its revenue. Additionally, the enterprise value to sales ratio is around 3.33, suggesting the market's valuation of the company relative to its sales, including debt and excluding cash.

Allegion's financial health is further supported by its debt-to-equity ratio of approximately 1.10, indicating a balanced approach to financial leverage. The company maintains a current ratio of about 2.04, showcasing its ability to cover short-term liabilities with short-term assets. With an earnings yield of about 5.38%, Allegion offers a return on investment based on its earnings, highlighting its potential as a solid investment opportunity.

Allegion plc (NYSE: ALLE) Surpasses Earnings Expectations

  • Allegion plc (NYSE:ALLE) reported an EPS of $1.99, exceeding estimates and showcasing its ability to surpass market expectations.
  • The company's adjusted net earnings rose to $2.16 per share, indicating an 11.3% increase from the previous year and highlighting Allegion's growth trajectory.
  • Despite a slight shortfall in revenue, Allegion's strong financial performance is evident with net earnings reaching $174 million and a healthy price-to-earnings (P/E) ratio of approximately 22.22.

Allegion plc (NYSE:ALLE) is a global leader in security products and solutions, offering a wide range of products that include locks, door closers, and other security devices. The company operates in a competitive market, with key competitors such as Assa Abloy and Dormakaba. Allegion's focus on innovation and customer satisfaction has helped it maintain a strong market position.

On October 24, 2024, Allegion reported earnings per share (EPS) of $1.99, exceeding the estimated $1.93. This performance highlights the company's ability to surpass market expectations, as also noted by the Zacks Consensus Estimate of $1.93 per share. The adjusted net earnings rose to $2.16 per share, marking an 11.3% increase from the previous year, showcasing Allegion's growth trajectory.

Despite generating revenue of approximately $967.1 million, slightly below the estimated $970.89 million, Allegion's net revenues for the third quarter of 2024 were reported at $967 million. This slight shortfall in revenue did not deter the company's overall financial performance, as net earnings reached $174 million. The company's focus on revenue growth and margin expansion is evident in its financial results.

Allegion's financial metrics provide further insight into its market valuation. With a price-to-earnings (P/E) ratio of approximately 22.22, investors are willing to pay $22.22 for every dollar of earnings. The price-to-sales ratio of about 3.41 and enterprise value to sales ratio of around 3.82 reflect the market's valuation of Allegion's revenue and total worth, respectively.

The company's financial health is also indicated by its debt-to-equity ratio of roughly 1.53, showing a balanced approach to financing its assets. A current ratio of approximately 1.71 suggests Allegion's capability to cover short-term liabilities with its short-term assets. The earnings yield of about 4.50% provides insight into the return on investment for shareholders.

Allegion Stock Falls After Barclays Downgrade

Allegion (NYSE:ALLE) shares fell more than 2% intra-day today after Barclays analysts downgraded the company to Underweight from Equalweight, reducing their price target to $116 from $122.

The analysts cited concerns over Allegion's significant exposure to the US greenfield commercial construction market, which they believe will impact the company's top-line performance. Stable trends in the institutional segment may not be sufficient to offset this impact.

Additionally, the analysts anticipate that margin tailwinds from pricing and cost initiatives will ease, and a potential residential recovery in 2025 could lead to a margin mix headwind.

The lack of secular growth drivers is expected to prevent a re-rating of Allegion's valuation multiple.