Q1 2024 Earnings Summary
- Allegion's electronics business is a long-term growth driver, expected to deliver high single-digit to low double-digit CAGR, indicating strong future prospects.
- The company is heavily weighted towards the stable institutional segment, which remains healthy and less affected by project delays, providing resilience and stability to their revenue.
- Allegion has improved its supply chain resiliency and flexibility, enabling it to navigate potential tariff changes or supply chain disruptions effectively.
- Exposure to Tariffs Could Hurt Supply Chain Resiliency: The CEO acknowledged that "tariffs of any kind are not helpful to a company like Allegion in terms of our supply chain" , indicating potential vulnerability to future tariff policies given the company's manufacturing footprint outside the U.S.
- Softening Demand in Electronics Segment: The Americas electronics business experienced a low single-digit decline in the quarter. While the company views this segment as a long-term growth driver, the recent decline may signal slowing demand in this key area.
- Project Delays and Softening Leading Indicators: The company admitted hearing about project delays in the commercial sector, with some "multifamily projects on hold for a little bit". Additionally, construction labor shortages are causing projects to take longer, potentially impacting future revenues.
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Americas Market Outlook
Q: Are you seeing project delays or worse market outlook?
A: Our business is heavily weighted towards institutional markets, which remain stable. While there are pockets of strength and weakness in commercial areas like office and multifamily, our broad portfolio provides a solid outlook for 2024. Bond issuance had a strong Q1 year-over-year, giving us confidence in our projections. We hear of some project delays but not many cancellations; institutional demand is stable. -
Leading Indicators vs. On-the-Ground Activity
Q: What is your perspective on softening lead indicators?
A: We monitor lead indicators like ABI and Dodge Momentum but caution against overinterpreting them. Over the past 18–20 months, institutional markets have been favorable compared to other commercial sectors, aligning with our experiences. Labor shortages are extending project timelines, which may affect these indicators. Our business remains heavily weighted towards stable institutional markets. -
Electronics Segment Growth
Q: Do you expect growth in Americas electronics?
A: Electronics is a long-term growth driver, delivering high single-digit to low double-digit CAGRs. Despite robust growth over the last two years due to supply chain catch-up, we anticipate continued above-market growth. -
Supply Chain Resilience amid Tariffs
Q: How nimble is your supply chain against potential tariffs?
A: Tariffs are not helpful, but we've improved our supply chain resiliency since 2022–2023. Managing a portfolio of several million SKUs in a made-to-order environment, we're confident in our capabilities regardless of tariff regimes or administrations. -
Return to Normal Seasonality
Q: Will seasonality be different this year?
A: We expect a return to normal seasonality in 2024. Last year was abnormal, but typically, we have higher revenues in the middle two quarters, with more in the back half of the year. Think of 2024 as returning to historic patterns.