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Allegion reports second-quarter 2018 financial results

Allegion reports second-quarter 2018 financial results
Allegion, a global provider of security products and solutions, reported second-quarter 2018 net revenues of $704.7 million and net earnings of $113.9 million, or $1.19 per share.
  • Second-quarter 2018 net earnings per share (EPS) of $1.19, compared with 2017 EPS of $1.10; Adjusted 2018 EPS of $1.25, up 12.6 percent compared with 2017 adjusted EPS of $1.11
  • Second-quarter 2018 revenue of $704.7 million, up 12.4 percent compared to 2017, up 5.2 percent on an organic basis
  • Second-quarter 2018 operating margin of 20.3 percent, compared with 2017 operating margin of 21.5 percent; Adjusted operating margin of 21.3 percent, declined 50 basis points compared with 2017 adjusted operating margin of 21.8 percent due to dilution from acquisitions
  • Updating outlook for 2018 full-year revenue and full-year EPS; Full-year 2018 reported revenue growth of 12.5 to 13.5 percent and organic revenue growth of 4 to 5 percent; Full-year 2018 EPS outlook of $4.15 to $4.35 and $4.35 to $4.50 per share on an adjusted basis

Allegion, a global provider of security products and solutions, reported second-quarter 2018 net revenues of $704.7 million and net earnings of $113.9 million, or $1.19 per share. Excluding charges related to restructuring and acquisitions, adjusted net earnings were $119.1 million, or $1.25 per share, up 12.6 percent when compared with second-quarter 2017 adjusted EPS of $1.11.

Second-quarter net revenues increased 12.4 percent, when compared to the prior year period (up 5.2 percent on an organic basis). Reported revenues reflect solid organic growth as well as benefits from acquisitions and foreign currency.

Second-quarter 2018 operating income was $143.4 million, an increase of $8.4 million or 6.2 percent compared to 2017. Adjusted operating income in second-quarter 2018 was $150.1 million, representing an increase of $13.2 million or 9.6 percent compared to 2017.

Second-quarter 2018 operating margin was 20.3 percent, compared with 21.5 percent in 2017. The adjusted operating margin in second-quarter 2018 was 21.3 percent, compared with 21.8 percent in 2017. The 50-basis-point decline in adjusted operating margin is attributable to the dilutive nature of the acquisitions.

“We are pleased to report another quarter of solid performance highlighted by growth in revenue, adjusted operating income and adjusted EPS,” said David D. Petratis, Allegion chairman, president and CEO. “We delivered double-digit top-line revenue growth, and saw organic growth rebound nicely back into the mid-single digits. The solid organic growth for the company was driven by strong Americas performance. End-market fundamentals remain positive, and we continue to be led by high-teens electronics growth in the Americas.

“I am also pleased with the nearly 13-percent increase in adjusted EPS during a high inflationary environment, highlighting our focus to drive increased shareholder returns. Inflationary pressures continued to challenge operating margins in the quarter. Excluding the acquisitions, the base business margins were flat year over year, as the global team drove price, productivity and other cost savings to combat the significant inflation headwinds,” Petratis added.

The Americas segment revenue increased 12.4 percent (up 6.6 percent on an organic basis). The revenue growth was driven by high-teens growth in electronics, solid volume in both the non-residential and residential businesses and favorable price. The recently acquired TGP and AD Systems businesses contributed 5.6 percent to the overall growth.

The EMEIA segment revenues were up 14.4 percent (up 1.4 percent on an organic basis), reflecting solid pricing, favorable foreign currency and contributions from the QMI acquisition. Second-quarter 2018 revenue for EMEIA had a tough comparable from the second quarter of last year, which drove the modest organic number.

The Asia-Pacific segment revenues increased 3.1 percent (up 0.7 percent on an organic basis). Favorable currency drove the revenue growth in the quarter.

Additional items

Interest expense for second-quarter 2018 was $13.4 million, down from the $16.1 million for second-quarter 2017. The decrease is driven by the refinancing of the company’s debt completed in 2017.

Other income net for second-quarter 2018 was $1.6 million. This compares to other income net for second-quarter 2017 of $4.3 million. Prior year included a gain related to the sale of an equity investment.

The company’s effective tax rate for second-quarter 2018 was 13.4 percent, compared with 14.1 percent in 2017. The company’s adjusted effective tax rate for second-quarter 2018 was 13.8 percent, compared with 14.4 percent in 2017. The decrease in the adjusted effective tax rate is primarily due to decreased tax rates related to U.S. tax reform.

Cash flow and liquidity

Year-to-date 2018 available cash flow was $97.8 million, up $55.2 million versus the prior year. The year-over-year improvement in available cash flow is primarily due to the non-recurring $50 million discretionary pension funding payment in the prior year along with higher earnings, partially offset by payments related to acquisitions.

The company ended second-quarter 2018 with cash of $189.6 million and total debt of $1,461.1 million.

2018 outlook

The company is updating the full-year 2018 revenue outlook to reflect total growth of 12.5 to 13.5 percent and confirming organic growth of 4 to 5 percent compared to 2017.

The company is updating full-year 2018 reported EPS to a range of $4.15 to $4.35, and adjusted EPS remains at $4.35 to $4.50 per share. Adjustments to 2018 EPS include estimated impacts for restructuring and acquisition activities. The outlook assumes investment spend at approximately $0.15 per share, a full-year adjusted effective tax rate of approximately 15 to 16 percent, as well as an average diluted share count for the full year of approximately 96 million shares.

The company continues to target full-year available cash flow of approximately $380 to $400 million.
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