Q3 2024 Earnings Summary
- Allegion is increasing its adjusted earnings per share outlook to a range of $7.35 to $7.45, reflecting strong operational performance in the third quarter.
- The company is accelerating capital deployment, including the acquisition of SOSS Door Hardware, which is expected to deliver solid returns and be accretive to EPS in 2025.
- Allegion anticipates organic growth in 2025, particularly in stable institutional markets showing signs of modest growth, and has a healthy balance sheet and strong cash generation to support future capital deployment and shareholder returns.
- Allegion's international specification business has historically been weak, and improvements are still in early stages, potentially limiting growth in this segment.
- Electronics revenue declined high single digits compared to Q3 last year, indicating challenges in a key growth driver for Allegion.
- The company expects the multifamily market to be soft for a while, suggesting ongoing weakness in this commercial vertical.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +5% (from $917.9M to $967.1M ) | Improved pricing and steady demand (especially in non-residential and electronics) carried over from prior quarters, offset slightly by currency headwinds. Acquisition contributions also supported revenue growth, continuing the momentum from earlier periods. |
Allegion Americas | +6% (from $740.9M to $782.4M ) | Electronics demand remained strong YoY, following robust growth in Q2 2023 and Q2 2024. Favorable pricing and stable supply chain conditions further boosted non-residential sales. Recent acquisitions contributed to segment expansion, building on the prior year’s Access Technologies integration. |
Allegion International | +4% (from $177.0M to $184.7M ) | Ongoing price realization and continued growth in electronics were key drivers, consistent with the segment’s focus in Q2 2023 and Q2 2024. Acquisitions (e.g., DORCAS, Boss Door Controls) aided moderate revenue gains, while foreign exchange provided a partial headwind. |
Americas Services | -8% (from $9.9M to $9.1M ) | Primary factors include variable project timing and a dip in service volumes compared to strong prior-year activity, partially offset by continued demand for large-scale installation and maintenance contracts. This moderates the high growth seen immediately after adding service offerings in Q2 2023. |
Cash & Equivalents | +141% (from $364.3M to $878.9M ) | The significant YoY jump reflects the issuance of $400M in 5.600% Senior Notes in mid-2024 and continued solid operating cash flows, building on the cash flow improvements noted in Q2 2023 and Q2 2024. Disciplined capital management further bolstered liquidity. |
Short-Term Debt | +3,225% (from $12.6M to $418.9M ) | The large increase is tied to short-term financing activities and reclassification of certain debt maturities, reflecting strategic debt management. Although some existing term debt was repaid, the shift in obligations since Q2 2023 and Q2 2024 translated into a higher short-term balance. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Total Reported Revenue Growth | FY 2024 | 2.5% to 3.5% | 2.5% to 3.5% | no change |
Total Organic Revenue Growth | FY 2024 | 1.5% to 2.5% | 1.5% to 2.5% | no change |
Adjusted EPS | FY 2024 | $7.15 to $7.30 | $7.35 to $7.45 | raised |
Available Cash Flow | FY 2024 | $540 million to $570 million | $540 million to $570 million | no change |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Americas Segment YoY Growth | Q3 2024 | 2.5% to 3.5% | 5.60% growth (from 740.9MTo 782.4M) | Beat |
International Segment YoY Growth | Q3 2024 | 3% to 4% | 4.35% growth (from 177.0MTo 184.7M) | Beat |
Total Revenue YoY Growth | Q3 2024 | 2.5% to 3.5% | 5.36% growth (from 917.9MTo 967.1M) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Consistent emphasis on institutional markets (particularly K-12) underpinned by municipal bond issuance | Q2: Bond issuance up ~30%; K-12 stability emphasized. Q1: Institutions remain stable, bond issuance supports outlook. Q4: Education vertical ~45% of Americas business, stable demand. | Allegion notes stable institutional demand, especially K-12, aided by bond issuance up ~30%. | Consistently highlighted with ongoing positive sentiment. |
Electronics segment as a recurring long-term growth engine, with shifting sentiment and ongoing supply chain challenges | Q2: Broad-based demand from education, healthcare, etc.. Q1: Revenue down low-single digits, but nearly 30% growth over two years. Q4: 20% organic growth in 2023, supply chain normalized. | Q3 volume down high-single digits year-over-year, but flat vs. Q2; remains a core growth driver. | Key focus with near-term headwinds but bullish outlook long term. |
Residential and multifamily softness noted across periods, linked to high mortgage rates and expected future slowdown | Q2: Cautious outlook due to high mortgage rates and depressed secondary sales. Q1: Residential down low-single digits, interest rates impacting new/existing sales. Q4: Low single-digit declines, cautious on 2024. | Residential shows low single-digit growth; multifamily remains soft amid high rates. | Continued headwinds, no near-term recovery signaled. |
Pricing strategies to offset inflation appearing frequently, now raising concerns about potential customer fatigue | Q2: Ongoing pricing to offset inflation, no specific fatigue concerns. Q1: Price + productivity > inflation, no fatigue mentioned. Q4: Pricing described as sticky, minimal pushback. | Continues to drive pricing to cover inflation; no explicit mention of fatigue. | Persisting approach, still no broad fatigue reported. |
Strategic acquisitions and capital deployment | Q2: Krieger, Unicel acquisitions cited, strong M&A pipeline. Q1: Boss Door Controls, Dorcas deals. Q4: Focus on bolt-ons (Boss, plano) to fill gaps. | SOSS Door Hardware acquisition enhances mechanical portfolio; continued share repurchases. | Key growth lever, consistently executed. |
Access Technologies margin dilution | Q2: Cited margin dilution in Americas segment. Q1: Not mentioned. Q4: Not mentioned as a dilution factor. | No mention in Q3 2024. | Dropped after Q2 with no further updates. |
Tariff risk | Q2: Not revisited; near-shoring mitigates supply chain risk. Q1: Tariffs “not helpful,” but supply chain more resilient. Q4: No mention. | No mention this quarter. | No longer a focus after Q1. |
Margin expansion repeatedly discussed, though sustainability is tied to volume growth | Q2: Gains from price + productivity, deemed sustainable. Q1: Expanded despite lower volumes, driven by price and productivity. Q4: Emphasized dependence on volume for long-term viability. | Expanded via price, productivity, slight volume; reliant on further demand. | Ongoing improvement, still tied to volume for durability. |
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Market Outlook for 2025
Q: What's the outlook for residential and nonresidential markets next year?
A: We see overall stable markets with signs of Americas residential improving. Institutional verticals will continue to lead nonresidential growth, supported by strong municipal bond issuance, especially in the K-12 education sector where we're strong. Multifamily remains soft, but data centers are exceptionally strong, and we participate well there. We still expect organic growth in this stable environment. -
Pricing Strategy Amidst Inflation
Q: How are you approaching pricing in the current inflationary environment?
A: We're still in an inflationary environment and will drive pricing to cover inflationary pressures. We'll announce any pricing changes to the channel before an earnings call, but you can expect us to manage profitability by ensuring pricing covers inflation. -
Electronics Growth Expectations
Q: What's the medium-term growth outlook for electronics globally?
A: Despite challenging comps in 2023, we anticipate a more normal comp environment in 2025. Electronics adoption is still growing, and the replacement cycle is just starting. We view electronics as a high single to low double-digit growth driver over the cycle. -
M&A Activity and Pipeline
Q: How does the acquisition of SOSS impact your business, and what's your M&A outlook?
A: We're excited about the SOSS acquisition, which complements an existing business unit and primarily serves the nonresidential markets in the Americas. Overall, we're excited about our M&A pipeline; the environment is better than in '22 and '23. We'll continue to deploy cash in the best interest of shareholders, pursuing accretive acquisitions and share repurchases when appropriate. -
Productivity Improvements and Margins
Q: Where are you in your productivity journey versus pre-COVID levels?
A: We're really pleased with our productivity. After supply chain challenges in '21 and early '22 that caused inefficiencies, we've become much more efficient in '23 and '24, driving productivity. We've achieved margin expansion this year and will continue to drive price and productivity to cover inflation and fund investments. -
Share Gains and Competition
Q: Are you seeing any share gains in institutional verticals?
A: We don't disclose specific details, but any share gain likely came at the expense of short-line suppliers during our supply chain issues. Overall, we feel good about the institutional verticals and see them leading the way in the near term. -
International Spec Activity
Q: How is international spec activity trending?
A: Historically, spec activity hasn't been our strength, but we're investing in capability. The acquisition of Boss Door Controls earlier this year enhances our spec-driven business in the U.K.. We're building out human capital, and while it's early days, it's becoming an important part of our international business. -
Demand Related to ESSER Funding
Q: Has the sunsetting of ESSER funding impacted demand?
A: ESSER funding wasn't much of a tailwind for us, and we don't see much change due to its sunsetting. Safety and security remain priorities for schools, and our new products have hit a sweet spot in the market, adding value to faculty and teachers.