Allegion Raises Full-Year EPS Outlook; Reports Third-Quarter 2020 Financial Results
Allegion plc (the “company”), a leading global provider of security products and solutions, today reported third-quarter 2020 net revenues of $728.4 million and net earnings of $146.9 million, or $1.58 per share. Excluding charges related to restructuring and impairment, adjusted net earnings were $154.6 million, or $1.67 per share, up 13.6 percent when compared with third-quarter 2019 adjusted EPS of $1.47.
Third-quarter 2020 net revenues decreased 2.7 percent when compared to the prior-year period (down 3.4 percent on an organic basis). The organic revenue decline was driven by continued pressure related to the COVID-19 pandemic. Reported revenues were boosted by favorable impacts from foreign currency but continued to see headwinds related to divestitures.
Third-quarter 2020 operating income was $160.4 million, a decrease of $7.7 million or 4.6 percent compared to 2019. The decrease is related to reduced volume, driven by COVID-19, and restructuring and impairment charges taken during the quarter. Adjusted operating income in third-quarter 2020 was $169.4 million, representing a decrease of $3.6 million or 2.1 percent compared to 2019.
Third-quarter 2020 operating margin was 22 percent, compared with 22.5 percent in 2019. The adjusted operating margin in third-quarter 2020 was 23.3 percent, compared with 23.1 percent in 2019. The 20-basis-point increase in adjusted operating margin is primarily driven by price and productivity more than offsetting the impacts of COVID-19 related volume impacts and inflation.
“Despite the ongoing COVID-19 pandemic, the Allegion team showed outstanding resiliency throughout the third quarter,” Chairman, President and CEO David D. Petratis said. “We experienced sequential improvement and executed solid business performance as the cost actions we have instituted during the year have helped to minimize the pressures from volume declines. We were and remain ready to serve our customers and meet their new needs for touchless access and healthy environments.”
The Americas segment revenues decreased 5.1 percent (down 4.6 percent on an organic basis), driven by continued economic pressure on our non-residential business related to COVID-19. The Americas non-residential business experienced low double-digit revenue declines, while residential revenues delivered low double-digit growth. The Americas electronics revenue was down mid-single digits.
The EMEA segment revenues increased 7.7 percent (up 2.9 percent on an organic basis), reflecting positive price and volume during the quarter. Favorable foreign exchange more than offset the effects from the Turkey divestiture last year and also contributed to the total revenue increase.
The Asia-Pacific segment revenues decreased 4.2 percent (down 6.8 percent on an organic basis). The revenue decline in the quarter was driven by continued COVID-19 impacts and weakness in Korea, which were slightly offset by positive performance in Australia, despite poor markets, as well as favorable foreign currency effects.
Restructuring and Impairment
During the quarter, the company incurred restructuring expenses of $6.4 million across all regions and corporate functions. These charges are primarily related to workforce reductions, intended to optimize and simplify operations and cost structure. The company also incurred $2.6 million in non-cash charges related to intangible asset impairment in the Asia-Pacific region.
Interest expense for third-quarter 2020 was $12.9 million, down from $15.6 million for third-quarter 2019. The decrease is the result of a $2.7 million non-cash financing charge in the prior year, which did not recur in the current period.
Other income net for third-quarter 2020 was $12.2 million, compared to other expense net of $2 million in the same period of 2019. Other income was driven by a $14 million non-cash currency translation gain related to the liquidation of a legal entity in EMEA.
The company’s effective tax rate for third-quarter 2020 was 8 percent, compared with 12.5 percent in 2019. The company’s adjusted effective tax rate for third-quarter 2020 was 8.4 percent, compared with 12.4 percent in 2019.
Cash Flow and Liquidity
Year-to-date 2020 available cash flow was $256.1 million, an increase of $26.1 million versus the prior year. The year-over-year increase in available cash flow is due to improvements in net working capital along with lower capital expenditures offsetting lower net earnings.
The company ended third-quarter 2020 with cash and cash equivalents of $428.9 million, as well as $485 million of availability under its revolving credit facility.
The company is improving its full-year 2020 revenue outlook for total and organic decline to a range of 6 to 6.5 percent compared to 2019.
The company is raising its full-year 2020 outlook for reported EPS to a range of $3.40 to $3.50 and raising adjusted EPS to a range of $4.75 to $4.80. Adjustments to 2020 EPS include $1.04 per share related to non-cash charges for goodwill and intangible asset impairments, along with estimated impacts of $0.26 to $0.31 per share for restructuring and M&A costs. The outlook updates the full-year adjusted effective tax rate to approximately 13 percent and assumes an average diluted share count for the full year of approximately 93 million shares.
The company is raising its full-year available cash flow outlook to approximately $400 to $420 million.
“Our vision of seamless access and a safer world continues to be our guide, and we see long-term opportunities for innovation across the markets we serve,” Petratis added. “I’m proud of our resiliency and ability to execute even during these difficult and uncertain times. We remain focused on our growth strategy and very disciplined in addressing our expenses, adapting to demand and continuing effective capital deployment. Our focus and discipline, paired with strong underlying business fundamentals and market-leading brands, position us well for the remainder of 2020 and beyond.”
For the full third quarter results, click here.
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 $2.9 billion in revenue in 2019 and sells products in almost 130 countries. For more, visit www.allegion.com.
Tom Martineau – Vice President, Treasurer & Investor Relations – firstname.lastname@example.org – (317) 810-3759
Source: Allegion plc