Allegion plc — 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter report. Allegion supplies mechanical and electronic security, access-control, automatic-entrance, service and software solutions through its Americas and International segments.
Financial performance
| Metric | 2022 | 2021 | Change / context |
|---|---|---|---|
| Revenue | $3,271.9 million | $2,867.4 million | Up 14.1%; pricing contributed 9.8 percentage points, acquisition/divestiture effects 6.4 points, volume 0.9 points, partly offset by currency (-3.0 points). |
| Operating income / margin | $586.4 million / 17.9% | $530.2 million / 18.5% | Income rose; margin declined 0.6 percentage point. |
| Net earnings attributable to Allegion | $458.0 million | $483.0 million | Down 5.2%. |
| Diluted EPS | $5.19 | $5.34 | Down 2.8%. |
| Operating cash flow | $459.5 million | $488.6 million | Down $29.1 million, primarily due to working-capital changes. |
| Cash and cash equivalents | $288.0 million | $397.9 million | Down $109.9 million. |
| Total debt | $2,094.5 million | $1,442.1 million | Debt increased, principally reflecting acquisition financing. |
Margins, segments and balance sheet
- Cost of goods sold rose to 59.6% of revenue from 58.0%, as inflation, acquisition mix, investment spending and acquisition-related costs outweighed pricing and productivity benefits. Selling and administrative expense fell to 22.5% from 23.5% of revenue.
- Americas revenue increased 23.1% to $2,551.6 million; segment operating income was $613.3 million and margin was 24.0%, versus 25.3% in 2021. Growth reflected pricing, non-residential demand and the acquisition; margin faced acquisition costs and dilution.
- International revenue decreased 9.4% to $720.3 million; segment operating income fell to $68.3 million and margin to 9.5% from 10.4%, reflecting lower volumes and unfavorable currency, partly offset by pricing and productivity.
- Current assets were $1,214.6 million and current liabilities $703.6 million at year-end. The filing reports $417.8 million of unused revolving-facility availability; management expected operating cash flow, cash and credit availability to cover needs for at least 12 months.
- Approximately 85% of debt bore fixed interest. Variable-rate borrowings under the credit facilities totaled $306.5 million and carried a 5.498% rate at year-end. The reported leverage ratio was approximately 2.5, below the credit-agreement maximum.
Material changes and notable items
- On July 5, 2022, Allegion acquired Stanley Access Technologies for $923.1 million. From acquisition through year-end, it contributed $185.9 million of revenue and $1.5 million of pretax earnings, including acquired-intangible amortization and inventory step-up amortization but excluding acquisition/integration costs and acquisition financing interest.
- The acquisition was funded with $600 million of 5.411% senior notes due 2032 and revolving-credit borrowing. Year-end gross borrowings were $2,106.7 million; the 2021 revolving facility had $69 million drawn and $13.2 million of letters of credit outstanding.
- Acquisition and integration expenses were $30.5 million in 2022, versus $4.4 million in 2021. Interest expense increased to $75.9 million from $50.2 million.
- Allegion sold Milre in South Korea for an immaterial amount and recorded a $7.6 million loss. No goodwill or intangible impairment charges were recorded in 2022.
- Net earnings declined despite higher operating income, in part because 2021 included sizable investment-related gains that did not recur; the 2022 effective tax rate rose to 10.9% from 7.8%.
Outlook, risks and contingencies
- The filing provides no consolidated numerical revenue or earnings guidance. Management expected pricing momentum to support revenue and help offset inflation in 2023; it also anticipated continued growth in electronic products, while warning that electronic-component shortages could constrain supply.
- Management expected residential demand softness in the Americas to continue into 2023. It also described weaker demand across parts of the Eurozone and said International volume growth could remain tempered until macroeconomic and geopolitical conditions improve.
- Supply-chain constraints and inflation had improved in some areas during the second half of 2022, but electronic-component shortages persisted. Risks include weaker construction/remodeling markets, further cost inflation, currency movements, higher interest rates, competition and execution/integration risks.
- Environmental remediation reserves were $24.1 million at year-end, including $13.8 million related to previously disposed sites. The company also reported product, environmental and other legal contingencies; management did not expect pending legal matters to materially affect results, liquidity or cash flows.
- Unrecognized tax benefits were $45.2 million, with $11.0 million of related accrued interest and penalties. The company noted tax-authority, transfer-pricing and potential global minimum-tax uncertainties.
- Management and the auditor concluded that financial reporting controls were effective; the Access Technologies business was excluded from the 2022 internal-control assessment and audit due to its recent acquisition.
Key facts investors should verify
- Whether pricing can continue to offset inflation without weakening demand, and whether gross and operating margins recover from 2022 levels.
- Whether the Access Technologies business delivers expected strategic and financial benefits after integration, given its reported $1.5 million pretax contribution for the partial year and acquisition-related costs.
- How residential and International demand, electronic-component availability and foreign-exchange movements affect 2023 results.
- Debt-service capacity and refinancing needs, particularly the $400 million of senior notes due in 2024, variable-rate exposure and the company’s capital-return plans.
- Developments in environmental remediation, uncertain tax positions and the final purchase-price allocation for the acquisition.