DUBLIN (July 25, 2019):
Allegion plc (NYSE: ALLE), a leading global provider of security products and solutions, today reported second-quarter 2019 net revenues of $731.2 million and net earnings of $109.3 million, or $1.16 per share. Excluding charges related to restructuring and acquisitions, adjusted net earnings were $119.2 million, or $1.26 per share, up 0.8 percent when compared with second-quarter 2018 adjusted EPS of $1.25.
Second-quarter 2019 net revenues increased 3.8 percent when compared to the prior-year period (up 3 percent on an organic basis). Reported revenues reflect strong pricing, modest volume and benefits from acquisitions that more than offset foreign currency impacts.
Second-quarter 2019 operating income was $145.7 million, an increase of $2.3 million or 1.6 percent compared to 2018. Adjusted operating income in second-quarter 2019 was $157.3 million, an increase of $7.2 million or 4.8 percent compared to 2018.
Second-quarter 2019 operating margin was 19.9 percent, compared with 20.3 percent in 2018. The adjusted operating margin in second-quarter 2019 was 21.5 percent, compared with 21.3 percent in 2018. The 20-basis-point increase in adjusted operating margin is attributable to strong price and productivity offsetting a combination of inflation, currency pressures, investment spending and regional mix driven by acquisitions.
“Total and organic growth in the quarter was modest,” said David D. Petratis, Allegion chairman, president and CEO. “We continue to see currency pressures impact total growth, especially in EMEIA and Asia Pacific. Organic growth was lower than expected; however, we continue to see healthy fundamentals, particularly in Americas non-residential end markets. During the first half of 2019, Americas growth was 5.7 percent, and we expect growth in the second half to rebound to similar levels.
“I am pleased with the 20-basis-point margin expansion, as we continue to navigate through inflationary pressures. The team implemented successful price realization and productivity actions to drive the increase in year-over-year margins. Inflationary pressures are expected to ease in the second half of 2019, which should position us for increased margin expansion throughout the remainder of the year.”
The Americas segment revenues increased 3.5 percent (up 3.3 percent on an organic basis). The revenue growth was driven by strong pricing, which drove mid-single-digit growth in the non-residential business. The Americas residential business revenues were flat in the quarter.
The EMEIA segment revenues were down 3.8 percent (up 1.7 percent on an organic basis), reflecting unfavorable foreign currency effects that were partially offset by modest organic growth.
The Asia-Pacific segment revenues increased 45.8 percent (up 4.7 percent on an organic basis). The revenue growth in the quarter was driven by the 2018 acquisition of the Gainsborough business paired with good organic revenue growth that was offset slightly by unfavorable currency effects.
During the second quarter, the company closed its production facility in Turkey. Some products formerly produced at the site for brands in the EMEIA region are in the process of being transferred to other manufacturing locations in Europe. Associated with this closure, we incurred restructuring expenses of $6.3 million in the quarter, relating to employee separation and other costs directly attributable to the closure of the facility. These costs are included in reported EPS but excluded from adjusted EPS.
“We’re continuously looking for ways to improve Allegion’s supply chain,” said Petratis. “This closure will help us to streamline our operational footprint in EMEIA, which is necessary to maintain sustainable, profitable long-term growth in the region.”
Interest expense for second-quarter 2019 was $13.4 million, which equaled second-quarter 2018.
Other expense net for second-quarter 2019 was $0.7 million, compared to other income net of $1.6 million in the same period of 2018.
The company’s effective tax rate for second-quarter 2019 was 16.9 percent, compared with 13.4 percent in 2018. The company’s adjusted effective tax rate for second-quarter 2019 was 16.7 percent, compared with 13.8 percent in 2018. The increase in the adjusted effective tax rate is primarily related to the unfavorable mix of income earned in higher tax rate jurisdictions.
Cash Flow and Liquidity
Year-to-date 2019 available cash flow was $77.7 million, a decrease of $20.1 million versus the prior year. The year-over-year decrease in available cash flow is primarily due to increased capital expenditures and higher working capital to build inventory in anticipation of the production closure in Turkey.
The company ended second-quarter 2019 with cash and cash equivalents of $157.8 million as well as total debt of $1,428.2 million.
During second-quarter 2019, the company repurchased approximately 0.7 million shares for approximately $69.8 million under its previously authorized share-repurchase program approved by the company's board of directors in February 2017.
The company is updating its full-year 2019 revenue outlook for total and organic growth to a range of 4.5 to 5.5 percent compared to 2018. Americas organic revenue outlook is tightening to a range of 5.5 to 6 percent. EMEIA organic revenue outlook is being updated to 2 to 3 percent, which includes the reduction in revenue associated with the closure of the Turkey operations. Asia-Pacific organic revenue outlook remains unchanged at 4 to 6 percent.
The company is updating its full-year 2019 outlook for reported EPS to a range of $4.50 to $4.65, reflecting the increased restructuring expenses related to the Turkey closure. The company is tightening adjusted EPS to a range of $4.80 to $4.90. Adjustments to 2019 EPS include estimated impacts for restructuring as well as the impact of acquisition and integration activities. The outlook assumes no change to investment spend, which continues to be approximately $0.15 per share; no change to the full-year adjusted effective tax rate of approximately 16 percent; and an average diluted share count for the full year of approximately 94 million shares, inclusive of anticipated share repurchases in the back half of the year.
The company is also updating its full-year available cash flow outlook to approximately $410 to $430 million, inclusive of the reduction of available cash flow associated with the closure of operations in Turkey.
Conference Call Information
On Thursday, July 25, 2019, David D. Petratis, chairman, president and CEO, and Patrick Shannon, senior vice president and chief financial officer, will conduct a conference call for analysts and investors, beginning at 8 a.m. ET, to review the company's results.
A real-time, listen-only webcast of the conference call will be broadcast live online. Individuals wishing to listen may access the call through the company's website at https://investor.allegion.com.
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 other institutions. Allegion had $2.7 billion in revenue in 2018, and sells products in almost 130 countries.
For more, visit www.allegion.com.
This news release also includes adjusted non-GAAP financial information which should be considered supplemental to, not a substitute for or superior to, the financial measure calculated in accordance with GAAP. The company presents operating income, operating margin, net earnings and diluted earnings per share (EPS) on both a U.S. GAAP basis and on an adjusted (non-GAAP) basis, revenue growth on a U.S. GAAP basis and organic revenue growth on a non-GAAP basis, and adjusted EBITDA and adjusted EBITDA margin (both non-GAAP measures). The company presents these non-GAAP measures because management believes they provide useful perspective of the company’s underlying business results, trends and a more comparable measure of period-over-period results. These measures are also used to evaluate senior management and are a factor in determining at-risk compensation. Investors should not consider non-GAAP measures as alternatives to the related GAAP measures. Further information about the adjusted non-GAAP financial tables is attached to this news release.
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