Allegion plc — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Allegion supplies security products and solutions through Allegion Americas and Allegion International. Comparatives are Q1 2020; the company combined its former EMEA and Asia Pacific operations into Allegion International effective January 1, 2021.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net revenues | $694.3 million | $674.7 million |
| Operating income / margin | $131.3 million / 18.9% | $28.9 million / 4.3% |
| Net earnings attributable to Allegion | $108.0 million | $0.4 million |
| Diluted EPS | $1.18 | Not clearly stated in the filing text |
| Operating cash flow | $111.8 million | $30.8 million |
| Capital expenditures | $6.3 million | $11.8 million |
| Cash and cash equivalents at period end | $394.3 million | $480.4 million at Dec. 31, 2020 |
| Total debt | $1,429.9 million | $1,429.6 million at Dec. 31, 2020 |
Revenue rose 2.9%. Foreign exchange contributed 2.8 percentage points and pricing 0.7 points; volume reduced growth by 0.2 points and divestitures by 0.4 points. Cost of goods sold increased to $396.9 million from $381.6 million, while selling and administrative expense declined to $166.1 million from $167.9 million.
Cash used in investing activities was $4.6 million; cash used in financing activities was $187.2 million, including $149.7 million of share repurchases and $32.5 million of dividends. Cash declined by $86.1 million during the quarter. The company reported $485.8 million of unused revolving-facility availability, with no revolving borrowings and $14.2 million of letters of credit outstanding. The term and revolving facilities mature September 12, 2022; the remaining term-facility balance is due then. The company was in compliance with credit covenants.
Material changes and segment results
- Reported operating income increased $102.4 million, principally because Q1 2020 included $96.3 million of goodwill and intangible-asset impairment charges that did not recur. The prior-year charges followed COVID-related impairment testing.
- Allegion Americas revenue declined 2.6% to $498.9 million and segment operating income fell 7.6% to $135.4 million. Non-residential product revenue declined low double digits, while residential revenue increased low twenties. Segment margin decreased to 27.1% from 28.6%.
- Allegion International revenue increased 20.2% to $195.4 million and segment operating income was $15.4 million, compared with a $96.8 million loss in Q1 2020. The improvement mainly reflects the nonrecurrence of prior-year impairment charges, alongside stronger volumes, pricing and currency effects. Segment margin was 7.9%, versus negative 59.5%.
- On February 28, 2021, Allegion completed the sale of Qatar Metal Industries. The divestiture had no material Q1 2021 financial-statement impact; a $37.9 million write-down had been recorded in Q4 2020.
Outlook, risks and unusual items
- No quantified full-year 2021 revenue or earnings guidance is provided in the filing text. Management expected residential strength to continue, but said its duration was uncertain; commercial and institutional market challenges were expected to persist in 2021.
- COVID-19-related uncertainty includes demand fluctuations, construction delays, supply-chain disruption, absenteeism and operational costs. All production and assembly facilities were operating at March 31, 2021, but continued operations depend on future conditions. The company highlighted a global shortage of electronic components emerging toward quarter-end.
- Management cited pricing and productivity gains, but reported unfavorable Americas volume/product mix and increased investment spending. International restructuring actions are intended to simplify and optimize operations; the company anticipated a further $5 million to $10 million in restructuring charges during 2021, mostly cash expenditures.
- The effective tax rate was 11.7%, compared with 95.8% in Q1 2020, primarily reflecting the prior-year impairment-related tax impact. Other income, net, included favorable unrealized investment gains versus losses in the prior-year quarter.
- Environmental reserves were $18.9 million at March 31, 2021. Allegion said pending legal matters were not expected to have a material adverse impact; it noted that environmental remediation estimates remain uncertain. The filing reported no material changes to the risk factors in its 2020 Form 10-K.
- The board declared a $0.36 per-share quarterly dividend payable June 30, 2021. Share repurchases totaled approximately 1.3 million shares for $149.7 million; $464.5 million remained under the authorization at quarter-end.
Important facts for investors to verify
- Separate underlying operating trends from the prior-year $96.3 million impairment comparison when assessing earnings growth.
- Track commercial and institutional demand, residential-market durability, and electronic-component availability and costs.
- Monitor International segment margins and the execution, cash costs and timing of the planned restructuring.
- Review liquidity and refinancing plans ahead of the September 2022 credit-facility maturity, alongside debt, buybacks and dividend commitments.
- Check subsequent filings for changes in COVID-19 impacts, environmental or other contingencies, and full-year guidance; this filing provides no quantified annual outlook.