Allegion Reports Third-Quarter 2022 Financial Results, Revises Full-Year 2022 Outlook
Allegion plc, a leading global provider of security products and solutions, today reported third-quarter 2022 net revenues of $913.7 million and net earnings of $114.6 million, or $1.30 per share. Excluding charges related to restructuring, acquisition and integration costs, amortization expense related to acquired backlog revenue and a fair value of inventory step-up, and a loss on the sale of a business, adjusted net earnings were $144.7 million, or $1.64 per share, up 5.1 percent when compared with third-quarter 2021 adjusted EPS of $1.56.
- Third-quarter 2022 net earnings per share (EPS) of $1.30, compared with 2021 EPS of $1.59; Third-quarter 2022 adjusted EPS of $1.64, up 5.1 percent compared with 2021 adjusted EPS of $1.56
- Third-quarter 2022 revenues of $913.7 million, up 27.4 percent on a reported basis and up 18.6 percent on an organic basis
- Third-quarter 2022 operating margin of 17.8 percent, compared with 2021 operating margin of 19.3 percent; Adjusted operating margin of 21 percent, up 100 basis points compared with 2021 adjusted operating margin of 20 percent
- Affirming full-year 2022 reported revenue growth outlook of 13 to 14 percent; Increasing full-year 2022 organic revenue growth outlook to a range of 9.5 to 10.5 percent
- Revising full-year 2022 EPS outlook to a range of $4.90 to $5.00 and adjusted EPS outlook to a range of $5.40 to $5.50
Third-quarter 2022 net revenues increased 27.4 percent when compared to the prior-year period (up 18.6 percent on an organic basis). The organic revenue increase was driven by robust price realization and strong volume in the Allegion Americas businesses offsetting weakness experienced in the Allegion International businesses. Foreign currency exchange rate headwinds continued with a nearly $26 million impact on reported revenues.
“I am extremely impressed with the resilience of our people and the strong customer relationships we have built over many years,” said John H. Stone, Allegion president and CEO. “The hard work by the entire Allegion team delivered outstanding operational performance in the quarter, and we look to build on this momentum going forward, creating seamless access and a safer world.”
The Allegion Americas segment revenues increased 42.5 percent (up 25.8 percent on an organic basis). The organic increase was driven by continued strength in price realization and volume growth in both the non-residential and residential businesses. The Access Technologies acquisition contributed 16.9 percent to total growth. The non-residential business grew approximately 30 percent, excluding Access Technologies, and the residential business grew mid-teens percent. Electronics growth for the segment came in at nearly 30 percent.
The Allegion International segment revenues declined 13.6 percent (down 0.8 percent on an organic basis). The organic decrease was driven by softening markets in the region, particularly in mechanical products, nearly offset by price realization. The reported revenue reflects the negative impact of currency movements in the region.
Third-quarter 2022 operating income was $162.9 million, an increase of $24.5 million or 17.7 percent compared to 2021. Adjusted operating income in third-quarter 2022 was $191.6 million, an increase of $48.4 million or 33.8 percent compared to 2021.
Third-quarter 2022 operating margin was 17.8 percent, compared with 19.3 percent in 2021. Acquisition expenses were a 330-basis-point headwind in the quarter. The adjusted operating margin in third-quarter 2022 was 21 percent, compared with 20 percent in 2021. The 100-basis-point increase in adjusted operating margin is attributable to a favorable price, productivity, inflation dynamic and positive business mix along with volume leverage associated with the Allegion Americas growth.
Interest expense for third-quarter 2022 was $23.1 million, an increase from $12.3 million for third-quarter 2021. This was driven by increased debt as a result of the Access Technologies acquisition along with an increase in variable interest rates.
In the third quarter, the company recorded a $7.6 million loss ($0.10 per share) on the divestiture of Milre Systek Co. Ltd. (“Milre”) in South Korea that is excluded from adjusted EPS.
Other income net for third-quarter 2022 was $1.5 million, compared to other income net of $14.7 million in the same period of 2021. The 2021 figure includes a $6.4 million gain on the sale of an equity method investment that is excluded from adjusted EPS.
The company’s effective tax rate for third-quarter 2022 was 14.3 percent, compared with negative 2 percent in 2021. The company’s adjusted effective tax rate for third-quarter 2022 was 14.9 percent, compared with negative 1.1 percent in 2021. The negative 2021 tax rates were driven by favorable resolution of uncertain tax positions and a benefit related to the mix of income earned in lower tax jurisdictions.
Cash Flow and Liquidity
Year-to-date available cash flow for 2022 was $225.6 million, a decrease of $102.1 million versus the prior year. The year-over-year decrease in available cash flow is due to increases in net working capital and lower year-to-date net earnings. Available cash flow continues to be consistent with pre-pandemic trends.
The company ended third-quarter 2022 with cash and cash equivalents of $282.2 million, as well as total debt of $2,227.1 million. These amounts are inclusive of the July 2022 draw on the company’s revolving facility that, along with the issuance of $600 million of senior notes in June, funded its acquisition of Access Technologies in July. Further, as of Sept. 30, 2022, approximately 80 percent of the company’s debt has fixed interest rates and is, therefore, not exposed to the risk of variable interest rates.
Updated 2022 Outlook
The company is affirming its full-year 2022 revenue growth outlook of 13 to 14 percent and increasing its organic revenue growth outlook to 9.5 to 10.5 percent, which excludes the expected impacts of acquisitions, divestitures and foreign currency movements. The increase in the organic outlook is driven primarily by strength in Allegion Americas offset by weakness in Allegion International.
The company is revising its full-year 2022 reported EPS to be in the $4.90 to $5.00 range, with adjusted EPS between $5.40 to $5.50. The revised outlook now assumes approximately negative $0.05 adjusted EPS impact related to Access Technologies and associated costs of the acquisition, with the $0.05 improvement to prior outlook driven by lower intangible asset amortization.
Adjustments to 2022 EPS of approximately $0.50 per share include expected charges for restructuring, acquisition and integration expenses, amortization expense related to acquired backlog revenue and a fair value of inventory step-up, debt financing costs, a loss on the sale of a business, as well as non-operating investment gains and losses. The increase in adjustments versus prior outlook reflects the loss on the divestiture of Milre and purchase accounting updates related to the recently acquired Access Technologies business.
The outlook includes incremental investment of approximately $0.17 per share; assumes a full-year adjusted effective tax rate of approximately 13.5 percent; and assumes an average diluted share count for the full year of approximately 88.3 million shares.
The company continues to expect full-year 2022 available cash flow of approximately $420 to $440 million.
“Our team is motivated by and proud of the performance in Q3 – and we are committed to delivering our full-year results and long-term shareholder return,” Stone added. “We will continue driving price to offset inflationary impacts and making organic and inorganic investments to support our seamless access strategy and technology-led solutions.”
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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 $2.9 billion in revenue in 2021, and its security products are sold around the world.
For more, visit www.allegion.com.
Tom Martineau – Vice President, Investor Relations, and Treasurer – Tom.Martineau@allegion.com – (317) 810-3759
Source: Allegion plc