Allegion plc — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with the three months ended March 31, 2023 unless stated otherwise. Allegion is a global security products and solutions provider, reporting Allegion Americas and Allegion International segments. Amounts are in U.S. dollars.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net revenues | $893.9 million | $923.0 million |
| Operating income / margin | $172.1 million / 19.3% | $171.0 million / 18.5% |
| Net earnings attributable to Allegion | $123.8 million | $123.5 million |
| Diluted earnings per share | $1.41 | $1.40 |
| Operating cash flow | $51.1 million | $69.0 million |
| Capital expenditures | $27.2 million | $22.3 million |
Revenue declined 3.2%, as pricing contributed 4.2% while volume reduced revenue by 7.8%; acquisitions contributed 0.3% and currency 0.1%. Cost of goods sold was 56.2% of revenue, compared with 57.6%. The effective tax rate rose to 19.0% from 16.3%, primarily due to global minimum tax implementation and a less favorable geographic income mix, partly offset by share-based compensation deductions.
Operating cash flow less capital expenditures was $23.9 million, versus $46.7 million in Q1 2023. Management attributed the lower operating cash flow primarily to higher working capital use. Investing cash outflow was $43.4 million, including $19.3 million for acquisitions; financing cash outflow was $80.0 million, including $42.1 million of dividends and $40.0 million of share repurchases.
Segments and material changes
- Americas: Revenue fell 4.3% to $709.3 million; segment operating income was nearly flat at $187.0 million, while margin improved to 26.4% from 25.2%. Lower volume and mix more than offset pricing and productivity benefits.
- International: Revenue increased 1.4% to $184.6 million; segment operating income rose to $13.0 million from $10.6 million, and margin increased to 7.0% from 5.8%. Pricing, acquisitions, currency and lower acquisition/integration/restructuring expenses helped; lower volume was a partial offset.
- Consolidated operating income increased $1.1 million despite lower revenue, reflecting pricing and productivity gains in excess of inflation and investment spending. These were substantially offset by unfavorable volume and product mix.
- Q1 2023 was seasonally stronger than normal following prior supply-chain disruptions and recovery, making the year-over-year comparison less favorable.
Balance sheet, debt and liquidity
At March 31, 2024, cash was $391.8 million, down from $468.1 million at year-end 2023. Current assets were $1,338.3 million and current liabilities $1,025.4 million. Total debt was $2,013.3 million, including $413.2 million classified as current; long-term debt was $1,600.1 million. The $500 million revolving facility had no borrowings outstanding, with $18.3 million of letters of credit outstanding. Allegion reported compliance with applicable debt covenants.
The $400 million 3.200% Senior Notes mature October 1, 2024. Management expects cash on hand and revolving-facility availability to be sufficient to repay them if needed. About 89% of outstanding indebtedness carries fixed-rate interest. Management expects operating cash flows and available borrowing capacity to meet financing needs for at least the next 12 months and does not anticipate near-term covenant compliance challenges.
Outlook, risks and notable items
- Management expects a return to normal seasonality in 2024, continued positive price realization, and ongoing healthy demand for electronic security products. It expects continued softness in certain international markets and residential demand; it anticipates Americas non-residential revenue growth for the remainder of 2024. No quantified full-year earnings or revenue guidance is provided in the supplied filing text.
- Boss Door Controls (United Kingdom) and Dorcas (Spain) were acquired in Q1 and added to Allegion International. Combined consideration was approximately $19.3 million, net of cash acquired.
- The board declared a quarterly dividend of $0.48 per share, payable June 28, 2024. Allegion repurchased approximately 0.3 million shares for $40.0 million during Q1; approximately $420.0 million remained under its repurchase authorization.
- Environmental reserves were $19.6 million at March 31, 2024. Standard product warranty liabilities were $22.2 million, up from $18.5 million a year earlier. Management does not expect pending legal matters to have a material adverse effect; it notes that ultimate environmental compliance costs remain uncertain.
- Forward-looking risks include macroeconomic conditions, construction and remodeling demand, inflation, currency movements, competition and technology change, acquisition integration, cybersecurity and supply-chain disruptions, product quality claims, and tax and regulatory changes. Management reported no material change in risk factors from its 2023 Form 10-K.
Important facts for investors to verify
- How volume trends develop, particularly in Americas non-residential and residential markets and weaker international markets, against the unusually strong Q1 2023 comparison.
- Whether pricing and productivity continue to offset inflation, investment spending, and unfavorable product mix.
- Plans and financing for the $400 million October 2024 note maturity, and the resulting interest cost if refinanced.
- Working-capital conversion and operating cash flow recovery, alongside acquisition integration and returns from Boss Door Controls and Dorcas.
- Potential changes in environmental remediation, warranty claims, tax exposure, and other legal contingencies.