Allegion Reports Q2-2023 Financial Results

Allegion plc, a leading global security products and solutions provider, reported financial results for its second quarter (ended June 30, 2023).

“Allegion delivered another quarter of outstanding operational performance, margin expansion and increased cash flow,” said President and CEO John H. Stone. “Q2 revenue growth was fueled by electronics, as we continue to shape the transformation taking place in our industry with our vision of enabling seamless access and a safer world.

“On July 5, we passed the one-year milestone of acquiring Stanley Access Technologies. Our teams have integrated very well together, taking good care of our customers while delivering on the business plan. This acquisition is accretive to adjusted EPS in its first year.

“As we think about the second half of the year, we expect end markets will be stable with continued strong demand for our electronic solutions. We are raising Allegion’s full-year EPS guidance. I’m confident in our outlook and very proud of the Allegion team.”

Company Results

(All comparisons against the second quarter of 2022, unless otherwise noted)

Allegion reported second-quarter 2023 net revenues of $912.5 million and net earnings of $142.0 million, or $1.61 per share. Excluding charges related to restructuring, acquisition and integration costs, as well as amortization expense related to acquired intangible assets, adjusted net earnings were $155.4 million, or $1.76 per share, up 23.1%.

Second-quarter 2023 net revenues increased 18.0%. Excluding impacts of acquisitions, divestitures and foreign currency movements, net revenues increased 5.6% on an organic basis. This organic revenue increase was driven by price realization, along with strong growth in electronics offsetting lower volumes experienced in the mechanical portfolio. Foreign currency exchange rate impact was relatively flat.

Second-quarter 2023 operating income was $184.6 million, an increase of $37.5 million or 25.5%. Adjusted operating income in second-quarter 2023 was $202.6 million, an increase of $41.1 million or 25.4%.

Second-quarter 2023 operating margin was 20.2%, compared with 19.0%. The adjusted operating margin in second-quarter 2023 was 22.2%, compared with 20.9%. The 130-basis-point increase in adjusted operating margin is attributable to positive price and productivity net of inflation and investments. These increases were partially offset by lower volumes, as well as the dilutive impact of the Access Technologies acquisition.

Segment Results

(All comparisons against the second quarter of 2022, unless otherwise noted)

The Americas segment revenues increased 23.8% (up 7.7% on an organic basis). The organic increase was driven by price realization across all businesses. The Access Technologies acquisition contributed $96.1 million or more than 16% to total Americas growth. The non-residential and residential businesses both grew high-single digit percent, showcasing strength in electronics volume partially offset by lower mechanical volume, as customers adjust their ordering patterns to the company’s reduced lead times due to its improved supply chain and operational execution.

The International segment revenues were down 1.0% on an organic basis. Strength in electronics and software solutions, as well as positive price realization, were more than offset by soft end markets, especially in the Global Portable Security business. The reported revenue reflects a slight positive impact from foreign currency.

Additional Items

(All comparisons against the second quarter of 2022, unless otherwise noted)

Interest expense for second-quarter 2023 was $23.7 million, an increase of $6.5 million. This was driven by increased debt from the Access Technologies acquisition along with an increase in variable interest rates. Interest expense in the prior year included $4.3 million of debt financing fees related to the Access Technologies acquisition, which was excluded from adjusted EPS.

Other income net for second-quarter 2023 was $1.6 million, compared to other income net of $3.4 million.

The company’s effective tax rate for second-quarter 2023 was 12.6%, compared with 13.6%. The company’s adjusted effective tax rate for second-quarter 2023 was 13.9%, compared with 14.7%.

Cash Flow and Liquidity

Year-to-date available cash flow for 2023 was $190.1 million, an increase of $105.6 million versus the prior-year period. The year-over-year increase in available cash flow is due to increased year-to-date net earnings and lower cash used for net working capital, partially offset by higher capital expenditures. The company ended second-quarter 2023 with cash and cash equivalents of $322.6 million, as well as total debt of $2,059.3 million. The company repaid $60.0 million of borrowings on its revolving credit facility during the second quarter of 2023 and ended the period with a balance of $39.0 million outstanding on the facility, which it repaid in July 2023.

During second-quarter 2023, the company repurchased approximately 0.2 million shares for $19.9 million under its previously authorized share repurchase program.

Updated Full-Year Outlook

The company is tightening its full-year 2023 revenue growth outlook and expects it to be 11.5% to 12.5%, while also updating its organic revenue growth outlook and expects it to be 5.5% to 6.5%, excluding the expected impacts of acquisitions, divestitures and foreign currency movements.

The company is increasing its full-year 2023 reported EPS outlook and expects it to be in the $6.10 to $6.20 range, with adjusted EPS expected to be between $6.70 to $6.80.

Adjustments to 2023 EPS include estimated impacts of approximately $0.40 per share for acquisition-related amortization, as well as $0.20 per share for restructuring, M&A and amortization expense related to acquired backlog (approximately $9 million pre-tax).

The outlook assumes a headwind of approximately $0.29 for interest and other income, a full-year adjusted effective tax rate of approximately 15% to 15.5% and an average diluted share count for the full year of approximately 88.3 million shares.

The company increases expectations for full-year 2023 available cash flow to approximately $500 to $520 million.

For the full second quarter results, click here.

About Allegion

Allegion (NYSE: ALLE) is a global pioneer in seamless access, with leading brands like CISA^®, Interflex^®, LCN^®, Schlage^®, SimonsVoss^® and Von Duprin^®. Focusing on security around the door and adjacent areas, Allegion secures people and assets with a range of solutions for homes, businesses, schools and institutions. Allegion had $3.3 billion in revenue in 2022, and its security products are sold around the world. For more, visit www.allegion.com.

Contact:

Whitney Moorman – Reputation Management Leader – Whitney.Moorman@allegion.com – (317) 810-3241

Source: Allegion plc