Allegion plc Ordinary Shares (ALLE), a leading provider of security products and solutions for homes and businesses, reported solid third-quarter results, as both earnings as well as revenues beat the Zacks consensus Estimate.
Adjusted earnings of 68 cents per share beat the Zacks Consensus Estimate of 64 cents by 6.3%. Earnings also surpassed the prior-year quarter figure of 48 cents by 41.7%. The upside reflects higher-than-expected revenues and strong margins.
Quarterly revenues of $546.7 million beat the Zacks Consensus Estimate of $531 million by 3%. We believe solid revenue growth in the Americas and the Asia Pacific segments were the primary factors behind the revenue beat.
While the Asia Pacific segment delivered modest volume growth and gained from a previously announced acquisition, the revenue growth in the Americas segment was driven by mid single-digit volume increases in both the non-residential and residential segments.
Allegion primarily relies on the commercial and residential construction and remodeling markets which have been picking up momentum of late, especially in the U.S.
However, adjusted revenues rose 6.8% year over year. The increase in revenues is primarily due to strength in the Americas and Asia Pacific segments which offset lower EMEIA revenues. Revenues were up 6.4% on an organic basis.
Margins
Adjusted operating margin was 20.2%, up 150 basis points year over year. Operating margin increased in all the company’s markets as favorable price, volume leverage and higher productivity were partly offset by increased investments and inflation.
Share Repurchase
During the third quarter of 2014, the company repurchased approximately 0.4 million shares for nearly $20 million under its $200 million share repurchase program.
Outlook
Allegion expects full-year revenues to increase 4.5% in 2014, as against the prior forecasted increase of 3.5% to 4.5% year over year on an adjusted basis. The company expects modest market growth in the Americas and favorable timing of system integration revenues in Asia Pacific, offsetting weakness in the EMEIA region.
The company has, however, increased its adjusted earnings per share guidance,to a range of $2.37–$2.42 from $2.30 to $2.40 per share. Restructuring, spin-off costs and the write-off of unamortized debt issuance costs are expected to be 30 cents per share. Including these costs, earnings per share for 2014 continuing operations are expected in the range of $2.07 to $2.12.
The forecast includes a full-year tax assumption of roughly 28% for continuing operations. The updated forecast assumes the official exchange rate for the Venezuelan bolivar, but excludes the impact of potential currency devaluation in the country.
Our Viewpoint
We are encouraged by Allegion’s strong and diverse brand portfolio and leading market share position and the moderate recovery in the U.S. housing market. Further, the company is trying to improve the long-term results by focusing on opportunistic acquisitions, brand support via strong advertising, regular innovations and strong cash generation. However, we remain aware of the global macroeconomic uncertainties, which might hurt the demand for the company’s products.
Allegion currently carries a Zacks Rank #2 (Buy). Another stock in the same sector is Net 1 Ueps Technologies Inc. (UEPS), with a Zacks Rank #2. However, in the broader industrial products sector, Briggs & Stratton Corp. (BGG) and iRobot Corp. (IRBT), sporting a Zacks Rank #1 (Strong Buy), may also be considered.
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