Allegion plc — FY2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. This is an annual report; the supplied filing text does not provide a standalone fourth-quarter income statement. Allegion is an Ireland-incorporated global security and access-control products and solutions provider, reporting Allegion Americas and Allegion International segments.
Financial performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net revenue | $3,650.8 million | $3,271.9 million | +11.6% |
| Operating income | $708.4 million | $586.4 million | +$122.0 million |
| Operating margin | 19.4% | 17.9% | +1.5 percentage points |
| Net earnings attributable to Allegion | $540.4 million | $458.0 million | +$82.4 million |
| Diluted earnings per share | $6.12 | $5.19 | +$0.93 |
| Cash from operating activities | $600.6 million | $459.5 million | +$141.1 million |
| Capital expenditures | $84.2 million | $64.0 million | +$20.2 million |
- Revenue growth reflected pricing (+7.5 percentage points), acquisitions and divestitures (+6.2 points), and currency (+0.2 points), partly offset by lower volume (-2.3 points). The Access Technologies acquisition contributed substantially to Americas results.
- Cost of goods sold was 56.7% of revenue, versus 59.6%; calculated gross margin was 43.3%, versus 40.4%. Management attributed improvement primarily to pricing and productivity gains exceeding inflation and investment spending.
- Selling and administrative expenses rose to 23.7% of revenue from 22.5%, reflecting inflation, weaker volume leverage and higher acquisition/integration costs. Interest expense increased to $93.1 million from $75.9 million, chiefly due to the full-year impact of 2022 notes issuance and higher variable rates.
- Calculated operating cash flow less capital expenditures was $516.4 million, versus $395.5 million in 2022. Cash and equivalents were $468.1 million at year-end, up from $288.0 million.
- Debt totaled $2,025.1 million in borrowings ($2,015.0 million net of discounts and issuance costs), compared with $2,106.7 million in borrowings at year-end 2022. Approximately 89% of debt carried fixed rates. The $412.6 million current portion includes $400 million of 3.200% notes maturing October 2024.
- Current assets were $1,360.9 million and current liabilities $1,079.7 million at year-end. Allegion reported $481.6 million of unused revolving-credit availability, net of $18.4 million in letters of credit, and said cash flows and available facilities should meet needs for at least 12 months. Its leverage ratio was approximately 2.0, below the credit agreement limit.
Segments and material changes
- Allegion Americas: Revenue increased 15.1% to $2,913.6 million; segment operating income rose 23.9% to $757.2 million and margin increased to 26.0% from 24.2%. Pricing and Access Technologies contributed to growth. Residential revenue declined by a low-single-digit percentage amid weak demand; non-residential demand was stable, although ordering patterns shifted as lead times improved.
- Allegion International: Revenue decreased 0.5% to $737.2 million; segment operating income fell 17.5% to $58.1 million and margin declined to 7.9% from 9.5%. Lower volumes, particularly in Global Portable Security, and a $7.5 million intangible-asset impairment weighed on results.
- Electronic-product revenue increased to $1,022.9 million from $857.5 million; services and software revenue increased to $191.6 million from $112.1 million. Management said electronic security products continued to outperform mechanical products.
- Allegion acquired German SaaS workforce-management provider plano for $36.6 million in January 2023. In 2022 it acquired Access Technologies for $915.2 million and sold Milre, recording a $7.6 million divestiture loss. Two International segment trade names were impaired in 2023, generating a $7.5 million charge; no reporting units had goodwill impairment.
- The effective tax rate rose to 12.4% from 10.9%, mainly due to earnings mix in higher-tax jurisdictions, partly offset by favorable resolutions of uncertain tax positions.
Outlook, risks and other disclosures
- Management expects residential-product demand softness in the Americas to continue into 2024. It anticipates continued electronic-product growth in the Americas, supported by stable demand and pricing initiatives. International volume growth may remain subdued until macroeconomic and geopolitical conditions improve. The filing gives no numeric 2024 revenue or earnings guidance.
- Management identified construction and remodeling demand, inflation and pricing execution, foreign exchange, supply chains, competition and technology adoption as significant business sensitivities. Other highlighted risks include cybersecurity and third-party IT dependence, product quality and liability, acquisitions and integration, interest rates, refinancing, taxes, and environmental remediation.
- Ireland’s global minimum tax legislation is expected by the company to increase its effective tax rate beginning in 2024; the impact was still being assessed. The company reported $45.1 million of unrecognized tax benefits and $9.0 million of related accrued interest and penalties at year-end.
- Environmental reserves were $20.2 million at year-end. The company said pending legal matters were not expected to materially adversely affect results, financial condition, liquidity or cash flows, while noting uncertainty inherent in estimating contingencies.
- The board declared a $0.48-per-share quarterly dividend in February 2024, payable March 29, 2024. Allegion paid $158.7 million in dividends and repurchased $59.9 million of shares during 2023. It acquired UK door-solutions provider Boss Door Controls on February 1, 2024.
- PwC issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded internal controls were effective as of December 31, 2023.
Investor verification checklist
- Review the standalone fourth-quarter results and any subsequent 2024 updates; they are not clearly provided in this annual filing text.
- Assess the 2024 refinancing or repayment plan for the $400 million notes due October 2024 and the effect of variable-rate debt on interest expense.
- Test whether Americas residential weakness and International volume softness persist, and whether pricing and productivity continue to offset inflation and mix pressure.
- Examine the sustainability of margins and cash conversion, including acquisition-related costs, Access Technologies’ margin contribution and elevated capital expenditures.
- Monitor the impact of Ireland’s global minimum tax rules, uncertain tax positions, and the company’s environmental and other contingency exposures.