DUBLIN, IRELAND (Feb. 18, 2015) —
Allegion plc (NYSE: ALLE), a leading global provider of security products and solutions, today reported fourth-quarter 2014 net revenues of $573.5 million and net earnings of $35.6 million, or $0.37 per share from continuing operations. These results include charges related to Venezuela currency devaluation, restructuring and one-time separation costs. Excluding these items, adjusted net earnings were $73.2 million, or $0.76 per share, up 26.7 percent compared with 2013 adjusted EPS.
Fourth-quarter net revenues increased 5.5 percent compared to the prior year period (up 7.6 percent on an organic basis). The Americas segment increased total revenue by 8.4 percent, driven by low single-digit non-residential growth, mid-single-digit residential growth, Venezuela pricing actions and acquisition revenue offsetting Canadian dollar currency headwinds. The Asia Pacific segment grew revenue 17.0 percent, due to strength in the system integration and mechanical hardware businesses. The EMEIA segment revenues were down 10.3 percent, predominately driven by unfavorable currency exchange.
Fourth-quarter operating margin was 11.0 percent, compared with 16.9 percent in 2013. Fourth-quarter adjusted operating margin was 18.6 percent, compared with 18.0 percent in 2013 – an increase of 60 basis points. Adjusted operating margin was up year-over-year as favorable price, volume leverage and productivity more than offset increased investments and inflation.
Full-year 2014 net revenues were $2,118.3 million, an increase of 2.4 percent compared to the prior year (5.0 percent on an adjusted basis). Full-year 2014 operating margin was 15.4 percent, compared with 11.6 percent in 2013. Full-year 2014 adjusted operating margin was 18.7 percent, compared with 18.3 percent in 2013 – an increase of 40 basis points. The improvement in operating margin reflects operating leverage on revenue growth that offsets incremental investments predominately in new product development.
Net earnings from continuing operations for the full-year 2014 were $186.3 million, or $1.92 per share, compared to $35.9 million, or $0.37 per share, for the prior year. Adjusted net earnings from continuing operations were $241.8 million, or $2.49 per share for the year ended December 31, 2014, compared to adjusted net earnings from continuing operations of $209.0 million, or $2.18 per share for the prior year reflecting a 14.2 percent increase. Adjusted net earnings and adjusted EPS were better than the prior year, reflecting operational improvement net of investments and a lower effective tax rate offsetting share dilution and higher interest expense.
“In our first year of operation as a stand-alone public company, we made significant progress on new product introductions, improved EMEIA margin performance, realized a reduction in the effective tax rate, and continued to focus on providing a safe environment for our employees. I am proud of the Allegion team and the execution and results achieved in a challenging environment,” said David D. Petratis, chairman, president and chief executive officer. “We are well-positioned to actively participate in the recovering commercial construction markets with our focus on products and solutions to better serve the customer.”
Given the accelerated deterioration in economic conditions driven by a significant drop in the price of oil and no expectation of improvement for the foreseeable future, the Company concluded that the SICAD II exchange rate was the most appropriate rate at which to value bolivar denominated assets and liabilities.
As a result, on December 31, 2014, the Company moved the exchange rate applied to bolivars from 6.3 bolivars per U.S. dollar to the SICAD II rate of 50 bolivars per U.S. dollar. The Company recorded a charge of $45.4 million (before tax and non-controlling interest), or $0.28 per diluted share. The charge includes remeasurement of net monetary assets ($12.1 million) and a non-cash impairment charge to adjust Venezuelan inventory balances ($33.3 million).
The devaluation and resulting translation effect will significantly reduce the future results of the Venezuela business. Included in the Company’s 2014 results, the Venezuela business reported full-year revenues of $106.4 million, or EPS of $0.13 (excluding the one-time charges previously mentioned).
On February 9, 2015, the Venezuelan government announced changes to its exchange rate system that included the launch of a new, market-based system called the Marginal Currency System, or “Simadi,” that will replace the SICAD II rate. The Company is currently evaluating this announcement. Adoption of the Simadi rate would result in additional charges to remeasure the net monetary assets and impair other assets.
Interest expense for the fourth quarter of 2014 was $6.7 million higher than prior year and reflects a non-cash charge of approximately $4.5 million to write-off unamortized debt issuance costs as part of the October amendment and extension of the Company’s senior credit facility.
Other expense net items for the fourth quarter of 2014 were $7.4 million worse than prior year and reflects the previously mentioned Venezuelan asset remeasurement charge partially offset by other favorable currency gains.
The Company's adjusted effective tax rate for the fourth quarter of 2014 was 26.3 percent. The comparable adjusted effective tax rate for the fourth quarter of 2013 was 33.3 percent. The decrease reflects the results of the Company’s ongoing tax planning strategies.
Cash Flow and Liquidity
Full-year 2014 available cash flow was $207.5 million, down $1.6 million versus prior year. The year-over-year decrease in available cash flow reflects spin costs and increased capital expenditures related to new product development and information system projects, mostly offset by improved working capital. The Company ended the fourth quarter of 2014 with cash of $290.5 million and total debt of $1,264.6 million. The Company did not have any borrowings outstanding under its $500 million revolving credit facility at December 31, 2014.
As previously announced, Allegion's board of directors declared a quarterly dividend of $0.10 per ordinary share of the company, an increase of 25 percent over the prior dividend. The dividend is payable March 31, 2015, to shareholders of record on March 17, 2015.
The Company expects full-year 2015 organic revenues, which exclude currency and acquisitions, to increase in the range of 3 to 4 percent compared with 2014. This is based on an expectation for slow and steady improvement in U.S. non-residential construction markets, flat to negative EMEIA markets and continued Asia Pacific growth. Full-year 2015 reported revenues are forecasted to decline 3 to 4 percent primarily due to the Venezuelan devaluation and other currency headwinds.
Full-year 2015 EPS from continuing operations is expected to be in the range of $2.65 to $2.75 per share, an increase of 12 to 17 percent versus adjusted 2014 EPS excluding Venezuela. The outlook includes incremental investment of $0.15 to $0.20 per share and assumes a full-year effective tax rate of approximately 22 percent from continuing operations as well as an average diluted share count for the full-year of approximately 97 million shares. This guidance assumes minimal earnings contribution from the Company’s Venezuela ongoing operations given exchange rate volatility.
The Company is targeting available cash flow of approximately 95 percent of net earnings from continuing operations.
Petratis added, “Although faced with currency headwinds, we will continue to focus on the investments in the business that create shareholder value. In 2015, we will drive opportunities in our core and emerging markets, while generating consistent cash flow and executing a balanced and flexible capital allocation strategy.”
Conference Call Information
On Wednesday, February 18, David D. Petratis, chairman, president and chief executive officer, and Patrick Shannon, senior vice president and chief financial officer, will conduct a conference call for analysts and investors, beginning at 8:30 a.m. E.T., to review the Company's results.
A real-time, listen-only webcast of the conference call will be broadcast live over the Internet. Individuals wishing to listen can access the call through the Company's website at http://investor.allegion.com.
Allegion (NYSE: ALLE) creates peace of mind by pioneering safety and security. As a $2 billion provider of security solutions for homes and businesses, Allegion employs more than 8,000 people and sells products in more than 120 countries across the world. Allegion has more than 25 global brands, including strategic brands CISA®, Interflex®, LCN®, Schlage® and Von Duprin®.
For more, visit www.allegion.com.
The Company has presented revenue, operating income, operating margin, EBITDA, EBITDA margin, earnings from continuing operations, diluted earnings per share (EPS) from continuing operations and effective tax rate on both a U.S. GAAP basis and on an adjusted basis because the Company's management believes it may assist investors in evaluating the Company's on-going operations as a standalone company. The Company believes these non-GAAP disclosures provide important supplemental information to management and investors regarding financial and business trends relating to the Company's financial condition and results of operations. Investors should not consider these non-GAAP measures as alternatives to the related GAAP measures. A reconciliation of the non-GAAP measures used to their most directly comparable GAAP measure is presented as a supplemental schedule to this earnings release.
This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the Company's 2015 financial performance, the Company's growth strategy, the Company's capital allocation strategy, the Company’s tax planning strategies, the Company's Europe, Middle East, India and Africa (EMEIA) strategy and the performance of the markets in which the Company operates. These forward-looking statements are based on the Company's currently available information and our current assumptions, expectations and projections about future events. They are subject to future events, risks and uncertainties – many of which are beyond our control – as well as potentially inaccurate assumptions, that could cause actual results to differ materially from those in the forward-looking statements. Further information on these factors and other risks that may affect the Company's business is included in filings it makes with the Securities and Exchange Commission from time to time, including its Form 10-K for the year ended December 31, 2013, Form 10-Qs for the quarters ended March 31, 2014, June 30, 2014 and September 30, 2014. The Company assumes no obligations to update these forward looking statements.
For more information and our financial tables, please see our full earnings release.
To view the webcast, please see our investor relations events and presentations.