Allegion Reports Q3-2023 Financial Results

Strong execution drives third-quarter results, company raises full-year adjusted EPS outlook

Allegion plc (NYSE: ALLE), a leading global security products and solutions provider, today reported financial results for its third quarter (ended Sept. 30, 2023).

Quarterly Financial Highlights

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

• Net earnings per share (EPS) of $1.77, up 36.2% compared with $1.30; Adjusted EPS of $1.94, up 12.1% compared with $1.73
• Revenues of $917.9 million, up 0.5% on a reported basis and down 0.6% on an organic basis
• Operating margin of 21.0%, compared with 17.8%; Adjusted operating margin of 23.2%, up 110 basis points compared with 22.1%
• Mid-teens organic growth for electronics and software solutions

Full-Year Outlook Highlights

• Raising full-year adjusted EPS outlook to a range of $6.80 to $6.90
• Affirming full-year 2023 revenue, reported EPS and available cash flow outlook

“Allegion’s third-quarter results were driven by our team’s outstanding operational execution. We continued to expand margins, strengthened our balance sheet and significantly increased our year-to-date cash flow,” said President and CEO John H. Stone.

“Demand for our electronics solutions remains strong. We delivered mid-teens organic growth in electronics and software solutions in the quarter, and we continue to see a long runway for further adoption.”

“Overall, Allegion is on track for a record year of revenue, adjusted operating income and adjusted EPS results. We are raising our full-year adjusted EPS outlook, while affirming our full-year revenue and available cash flow guidance.”

Company Results

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

Allegion reported third-quarter 2023 net revenues of $917.9 million and net earnings of $156.3 million, or $1.77 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 $171.5 million, or $1.94 per share, up 12.1%.

Third-quarter 2023 net revenues increased 0.5%. Excluding impacts of acquisitions, divestitures and foreign currency movements, net revenues decreased 0.6% on an organic basis against a tough comparable of 18.6% organic revenue growth in the prior-year quarter. Favorable price was more than offset by lower volumes experienced in the mechanical portfolio. The company had mid-teens global organic growth in electronics and software solutions in the quarter. The reported revenue reflects the positive impact of foreign currency of approximately $8 million.

Third-quarter 2023 operating income was $193.1 million, an increase of $30.2 million or 18.5%. Adjusted operating income in third-quarter 2023 was $213.4 million, an increase of $11.1 million or 5.5%.

Third-quarter 2023 operating margin was 21.0%, compared with 17.8%. The adjusted operating margin in third-quarter 2023 was 23.2%, compared with 22.1%. The 110-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.

The company’s sustained focus on improving operational execution has yielded the highest year-to-date adjusted operating margins in its history.

Segment Results

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

The Americas segment revenues were down 0.1% (flat on an organic basis). Favorable price was more than offset by lower volumes experienced in the mechanical portfolio. The segment had high-teens organic growth in electronics in the third quarter. The America’s non-residential business grew low-single digits, and the Access Technologies business was up mid-teens. The residential business continues to be soft and experienced a low-teens decline. The segment’s results are up against a tough prior-year comparison, as the non-residential business had organic growth of approximately 30% in the third quarter last year.

The International segment revenues increased 3.0% (down 2.8% on an organic basis). Soft end markets, especially in the Global Portable Security business and China, more than offset strength in electronics and software solutions and positive price realization. The reported revenue reflects a positive impact from foreign currency of approximately $9 million.

Additional Items

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

Interest expense for third-quarter 2023 was $22.9 million, a decrease of $0.2 million.

Other expense net for third-quarter 2023 was $0.1 million, compared to other income net of $1.5 million. In addition, the prior year included a $7.6 million loss related to a divestiture, which was excluded from adjusted EPS.

The company’s effective tax rate for third-quarter 2023 was 8.1%, compared with 14.3%. The company’s adjusted effective tax rate for third-quarter 2023 was 9.9%, compared with 15.4%, driven by timing of discrete items.

Cash Flow and Liquidity

Year-to-date available cash flow for 2023 was $320.4 million, an increase of $94.8 million versus the prior-year period. The year-over-year increase in available cash flow is due to increased year-to-date net earnings, partially offset by higher capital expenditures. The company ended third-quarter 2023 with cash and cash equivalents of $364.3 million, as well as total debt of $2,017.7 million. The company repaid the remaining $39.0 million of borrowings on its revolving credit facility in July of 2023.

Updated Full-Year Outlook

The company affirms its revenue growth for full-year 2023, which is expected to be 11.5% to 12.5%, with organic revenue growth expected to be 5.5% to 6.5%, excluding the expected impacts of acquisitions, divestitures and foreign currency movements.

The company is raising the outlook for full-year 2023 adjusted EPS and expects it to be in the $6.80 to $6.90 range. Reported EPS is expected to be within the previously stated range of $6.10 to $6.20.

Adjustments to 2023 EPS include estimated impacts of approximately $0.40 per share for acquisition-related amortization, as well as $0.30 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% and an average diluted share count for the full year of approximately 88.3 million shares.

The company affirms its full-year 2023 available cash flow outlook, which is expected to be approximately $500 to $520 million.

For the complete press release, 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