Allegion Reports Fourth-Quarter, Full-Year 2022 Financial Results, Introduces 2023 Outlook

Allegion plc (“Allegion” or the “Company”), a leading global provider of security products and solutions, today reported fourth-quarter 2022 net revenues of $861.5 million and net earnings of $135.3 million, or $1.53 per share. Excluding charges related to restructuring, acquisition and integration costs, amortization expense related to acquired backlog and a fair value of inventory step-up, and a non-operating investment gain, adjusted net earnings were $141 million, or $1.60 per share, up 44.1 percent when compared with fourth-quarter 2021 adjusted EPS of $1.11.

Fourth-quarter 2022 net revenues increased 21.5 percent when compared to the prior-year period. Excluding impacts of acquisitions, divestitures and foreign currency movements, net revenues increased 11.4 percent on an organic basis. The organic revenue increase was driven by strong price realization across the portfolio to address ongoing inflationary pressure along with strong volume in the Allegion Americas non-residential business offsetting weakness experienced in Americas residential and Allegion International businesses. The reported revenue growth was also driven by the acquisition of Access Technologies in July and was partially offset by foreign currency exchange rate headwinds.

“The Allegion team delivered another quarter of excellent operational performance,” said John H. Stone, Allegion president and CEO. “I’m very pleased with the performance and integration of our Access Technologies acquisition. In addition, our supply chain actions are achieving positive results and lead times for our mechanical products are normalizing. While strong global demand for our electronic products is still outpacing supply, component availability has improved, and we expect this progress to continue.”

The Americas segment revenues increased 36.9 percent (up 18 percent on an organic basis). The organic increase was driven by continued strength in price realization and strong volume growth in the non-residential business. The Access Technologies acquisition contributed 19.5 percent to total segment growth. The non-residential business was up mid-twenties percent on an organic basis, and the residential business was up low-single digits percent. Electronics growth for the segment came in at nearly 50 percent for the quarter, against significant supply chain headwinds in the prior year.

The International segment revenues declined 15.3 percent (down 4.3 percent on an organic basis). Macroeconomic conditions and softening end markets in the region resulted in lower volumes, partially offset by positive price realization. The reported revenue reflects the negative impact of foreign currency.

Fourth-quarter 2022 operating income was $159.4 million, an increase of $44.3 million or 38.5 percent compared to 2021. Adjusted operating income in fourth-quarter 2022 was $167.6 million, an increase of $51.3 million or 44.1 percent compared to 2021.

Fourth-quarter 2022 operating margin was 18.5 percent, compared with 16.2 percent in 2021. The adjusted operating margin in fourth-quarter 2022 was 19.5 percent, compared with 16.4 percent in 2021. The 310-basis-point increase in adjusted operating margin is attributable to positive price, productivity net of inflation, favorable business mix and volume leverage from the Americas non-residential business, offset by the dilutive impact of the Access Technologies acquisition, foreign currency pressure and investments.

Full-year Results

Full-year 2022 net revenues of $3.27 billion increased 14.1 percent, compared with the prior year (up 10.7 percent on an organic basis). The Access Technologies acquisition contributed 6.5 percent to total growth. The organic revenue increase was primarily driven by strong price across all regions as well as volume growth in Americas non-residential, offset by pressures on residential in the Americas segment and International volume.

Full-year 2022 net earnings were $458 million or $5.19 per share, compared with $483 million or $5.34 per share for the prior year. Full-year 2022 adjusted net earnings were $502 million or $5.69 per share, compared with $469.4 million or $5.19 per share in 2021. Reported EPS for 2022 includes $0.37 per share of charges related to the Access Technologies acquisition. Reported EPS for 2021 includes $0.24 per share of gains related to equity method and other investments during the year.

Full-year 2022 operating margin was 17.9 percent, compared with 18.5 percent in 2021. The adjusted operating margin for full-year 2022 was 19.5 percent, compared with 18.8 percent in 2021. The 70-basis-point increase was driven primarily by price and productivity exceeding inflation as well as favorable mix, offset by the dilutive impact of the Access Technologies acquisition, foreign currency pressure and investments.

Additional Items

Interest expense for fourth-quarter 2022 was $23.7 million, compared to $13.2 million for fourth-quarter 2021. This was driven primarily by increased debt as a result of the Access Technologies acquisition along with an increase in variable interest rates.

Other income net for fourth-quarter 2022 was $4.5 million, compared to other income net of $22.6 million in the same period of 2021. The 2021 figure included $20.7 million for the investment gains discussed above, which was excluded from fourth-quarter 2021 adjusted net earnings and adjusted EPS.

The effective tax rate for fourth-quarter 2022 was 3.4 percent, compared with 9.5 percent in 2021. The adjusted effective tax rate for fourth-quarter 2022 was 4.9 percent, compared with 6.1 percent in 2021.

Cash Flow and Liquidity

Available cash flow for 2022 was $395.5 million, versus $443.2 million in the prior year. The reduction from the prior year was driven by an investment in inventory to protect customers and to improve product lead times. The reduced available cash flow associated with increased inventory is expected to be short term. The company ended 2022 with cash and cash equivalents of $288 million, as well as total debt of $2,094.5 million.

Share Repurchase and Dividends

For the year, the company repurchased approximately 0.5 million shares for approximately $61 million. As announced on Feb. 9, 2023, Allegion’s board of directors declared a quarterly dividend of $0.45 per ordinary share of the company, an increase of 10 percent over the prior dividend. The dividend is payable March 31, 2023, to shareholders of record on March 15, 2023.

2023 Outlook

The company expects full-year 2023 revenues to increase 9 to 10.5 percent on a reported basis and increase 2.5 to 4.5 percent organically, when compared with 2022, after excluding the expected impacts of acquisitions, divestitures and foreign currency movements.

Following the recent Access Technologies acquisition and the resulting increase in amortization expense, effective Jan. 1, 2023, adjusted operating income, adjusted operating margin, adjusted net earnings and adjusted EPS will exclude amortization expense related to acquired intangible assets. Amortization of acquired intangible assets is a non-cash expense, which the company does not believe is reflective of its core operating performance. Amortization of acquired intangible assets can also vary significantly depending on the number, timing and size of acquisitions. Accordingly, the company believes this adjustment will provide investors a more useful perspective of its underlying business results and trends, as well as a more comparable measure of period-over-period results. See Schedules 6 and 7 accompanying this press release, showing the unaudited, pro forma impact of this adjustment to the company’s non-GAAP reported results for the years ended Dec. 31, 2022, and 2021, including the quarterly results therein, as if this adjustment had been in effect during each of these periods.

Full-year 2023 reported EPS is expected to be in the range of $5.70 to $5.90, or $6.30 to $6.50 on an adjusted basis, up 5 to 9 percent when compared to 2022 adjusted EPS of $5.99, which excludes acquisition-related amortization of $0.30. 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 approximately a $0.29 headwind for interest and other income, a full-year adjusted effective tax rate of approximately 15 to 15.5 percent and an average diluted share count for the full year of approximately 88.3 million shares.

The company expects full-year available cash flow of approximately $470 to $490 million.

“Our focus on operational excellence and investing for growth – paired with healthy demand in electronics and non-residential markets – gives Allegion strong momentum as we enter 2023,” Stone said. “We’re accelerating investments in new product development, software capabilities and supply chain resiliency, all of which support the health of our business and long-term shareholder value.”

For the full fourth 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.

Contact:

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

Source: Allegion plc