Q4 2024 Earnings Summary
- Allegion anticipates continued growth in its nonresidential business, especially within institutional sectors like education and healthcare, supported by strong municipal bond issuance in 2024; this is favorable due to the company's heavy weighting in these areas.
- The electronics segment is expected to return to growth in 2025, outpacing mechanical growth and contributing positively to the overall Americas growth.
- Margins are projected to expand across the organization in 2025, with stronger margin expansion in the Americas and expected improvement in international margins, leading to enhanced profitability.
- Weakness in the residential market expected in 2025: The company anticipates that the residential side "will not be as strong as the nonresidential side," suggesting potential softness in residential sales.
- Continued softness in commercial office and multifamily sectors: In the commercial verticals, "multifamily, obviously rather soft on the new construction side. On commercial office, major metro areas...still a bit soft," which could negatively impact growth in these segments.
- Potential risks from tariff uncertainties: The company's guidance does not include potential tariffs on imports from Mexico, which accounts for 20% to 25% of cost of goods sold. If tariffs are enacted, they would need to implement pricing actions to offset the higher costs, potentially impacting operating income and earnings per share. , ,
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +5.4% | Q4 2024 total revenue reached $945.6 million, up from $897.4 million in Q4 2023. This improvement builds on previous period trends where enhanced price realization, favorable volume performance, and contributions from acquisitions helped offset prior volume declines, leading to a consistent upward revenue trajectory. |
Operating Income | +15.5% | Operating Income increased to $184.6 million from $159.7 million in Q4 2023. This gain is largely attributable to improved operational execution and margin expansion—factors such as pricing and productivity improvements that had already started to yield benefits in prior periods further bolstering Q4 performance. |
Net Income | +21% | Net Income rose to $144.1 million from $118.6 million in Q4 2023. The increase reflects strong operational efficiency, improved revenue mix, and favorable tax impacts that compounded earlier gains from previous quarters, enhancing profitability even as underlying revenue and margin drivers continued to perform well. |
Earnings Per Share (EPS) | +23% | EPS improved to $1.66 (both Basic and Diluted) from $1.35 in Q4 2023. This significant EPS growth is a direct result of the net income boost and operating margin expansion, echoing the upward earnings trends established during prior quarters through effective cost management and revenue enhancements. |
SG&A Expenses | +6.3% | SG&A expenses increased to $232.1 million from $218.1 million in Q4 2023. The rise reflects rising operating costs as the company scales its business, which, while higher, has been managed in the context of overall revenue and operational improvements, continuing a trend seen in earlier periods. |
Interest Expense | +10.5% | Interest Expense increased to $25.2 million from $22.9 million in Q4 2023. This uptick is primarily due to higher outstanding indebtedness, a challenge that persisted from previous quarters, with added pressure likely due to the higher interest rate environment. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Total Reported Revenue Growth | FY 2024 | 2.5% to 3.5% | no current guidance | no current guidance |
Total Organic Revenue Growth | FY 2024 | 1.5% to 2.5% | no current guidance | no current guidance |
Adjusted EPS | FY 2024 | $7.35 to $7.45 | no current guidance | no current guidance |
Available Cash Flow | FY 2024 | $540 million to $570 million | no current guidance | no current guidance |
Total Revenue Growth | FY 2025 | no prior guidance | 1% to 3% | no prior guidance |
Organic Revenue Growth | FY 2025 | no prior guidance | 1.5% to 3.5% | no prior guidance |
Americas Segment Organic Revenue | FY 2025 | no prior guidance | low to mid-single digits | no prior guidance |
International Segment Organic Revenue | FY 2025 | no prior guidance | remains relatively flat | no prior guidance |
Adjusted EPS | FY 2025 | no prior guidance | $7.65 to $7.85 | no prior guidance |
Tax Rate | FY 2025 | no prior guidance | 17.5% | no prior guidance |
Available Cash Flow | FY 2025 | no prior guidance | 85% to 90% of adjusted net income | no prior guidance |
Share Repurchases | FY 2025 | no prior guidance | $86.7 million | no prior guidance |
Tariffs | FY 2025 | no prior guidance | Less than 5% of cost of goods sold from China | no prior guidance |
Margin Expansion | FY 2025 | no prior guidance | 50 to 100 basis points | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Total Reported Revenue Growth | Q4 2024 yoy | 2.5% to 3.5% | 5.37% yoy (from 897.4To 945.6) | Beat |
Adjusted EPS | FY 2024 | $7.35 to $7.45 | $6.85 total (sum of Q1: $1.41, Q2: $1.78, Q3: $2.00, Q4: $1.66) | Missed |
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Margin Expansion Guidance
Q: What is the margin expansion outlook for 2025?
A: Management expects margin expansion in 2025, at the lower end of the 50 to 100 basis points framework previously provided. Both the Americas and International segments are anticipated to contribute to this expansion, with the Americas leading. Seasonal patterns are expected to be similar to 2024. -
Nonresidential Market Outlook
Q: How is the nonresidential business expected to perform in 2025?
A: The nonresidential business accelerated at the end of 2024, and this momentum is expected to continue into 2025. Strong performance is anticipated in institutional verticals like education and healthcare, supported by robust issuance of municipal bonds in 2024. Data centers are also experiencing rapid growth, benefiting the company. -
Residential Market Expectations
Q: What is the outlook for the residential business in 2025?
A: The residential business is expected to be less strong than the nonresidential segment in 2025. However, if the residential market performs better than anticipated, it could positively impact revenues. -
Electronics Growth Predictions
Q: Will electronics sales improve in 2025?
A: Electronics growth is expected to outpace mechanical sales and be better than overall Americas growth in 2025, returning to normal comparisons after a low single-digit decline in 2024. -
Tariff Impact and Pricing Actions
Q: How will tariffs affect the company, and what are the mitigation plans?
A: The impact of steel and aluminum tariffs is very small, with no significant effect anticipated due to sourcing and production largely in the United States. Regarding potential tariffs from Mexico, management would implement pricing actions if necessary but will evaluate specifics once implemented. -
M&A Pipeline Outlook
Q: What is the status of the M&A pipeline for 2025?
A: The M&A environment is healthy, with a pipeline of high-quality targets. While not all acquisitions may be immediately accretive to margins, management expects to remain disciplined and is optimistic about M&A progress in 2025. -
Q4 Tariff Pull-Forward Effect
Q: Did tariff concerns affect Q4 results, and will this impact Q1?
A: There was a mid-single-digit millions pull-forward in residential sales in Q4 due to tariff concerns. This is expected to be a headwind to Q1 residential sales, but not significant for total Americas. -
China Exit Financial Impact
Q: What is the impact of exiting the China market?
A: Revenue from China was only $5 million in 2024, so the headwind for 2025 is small. -
Government Funding Exposure
Q: How reliant is the company on federal government funding?
A: The majority of project work is funded by local sources like municipal bonds and property taxes, particularly in K-12 education, reducing reliance on federal funding.