DUBLIN (Feb. 9, 2017):
Allegion plc (NYSE: ALLE), a leading global provider of security products and solutions, today reported fourth-quarter 2016 net revenues of $569.7 million and net earnings of $74.8 million, or $0.77 per share. Excluding charges related to restructuring, acquisitions and divestitures, adjusted net earnings were $78.7 million, or $0.81 per share, down 9 percent when compared with fourth-quarter 2015 adjusted EPS of $0.89. Both reported and adjusted net earnings for fourth-quarter 2016 include an environmental remediation charge of $15 million or $0.10 per share.
Fourth-quarter 2016 net revenues increased 4.4 percent, when compared to the prior year period (up 5.2 percent on an organic basis). Reported revenues reflect positive organic growth that was offset slightly by foreign currency. The organic growth was driven by strong performance in the Americas segment, reflecting continued strength in the region’s channel initiatives, improving end markets, and growth from new product introductions associated with investments.
The Americas segment revenues increased 7 percent on both a reported and an organic basis. The region had strong growth in both mechanical and electronic product categories in the fourth quarter of 2016, off of a tough comparison from the prior year. The organic growth was driven by high-single digit non-residential and mid-single digit residential growth. Growth in both non-residential and residential markets continues to be favorable.
The EMEIA segment revenues increased 0.2 percent (up 1.4 percent on an organic basis), reflecting continued pricing performance offset by unfavorable foreign currency. The organic growth was driven by solid growth in portable security and steady growth in the SimonsVoss business.
The Asia Pacific segment revenues were down 8.5 percent, when compared to the prior year period (down 0.7 percent on an organic basis). Reported revenues were impacted by the divestiture of the system integration business. The decline in organic revenue was primarily due to timing of orders, as well as large non-recurring projects in the fourth quarter of 2015.
Fourth-quarter 2016 operating margin was 17.1 percent, compared with 14.9 percent in 2015. The adjusted operating margin in fourth-quarter 2016 was 17.9 percent, compared with 19 percent in 2015. The decline in adjusted operating margin is driven by a $15 million, or -260 basis point, environmental remediation charge during the quarter in the Americas segment. Excluding the environmental charge, the operational improvement reflects good leverage on incremental volume, productivity and continued progress in the EMEIA transformation. These benefits more than offset inflation and incremental investments.
“Allegion's fourth-quarter results show continued momentum in driving industry-leading organic revenue growth and operating performance,” said David D. Petratis, Allegion chairman, president and CEO. “We are well-positioned going into 2017 to drive strong organic growth, expand operating margins and continue to create value for our shareholders.”
Full-year 2016 net revenues of $2.24 billion increased 8.2 percent, when compared to the prior year period (up 5.8 percent on an organic basis). Reported revenues had positive organic growth and contribution from acquisitions that were offset slightly by divestitures. The organic growth reflects the continued execution of the company’s channel initiatives and the introduction of new products, as well as strong growth in the electronics portfolio.
Full-year 2016 operating margin was 19 percent, compared with 17.3 percent in 2015. The adjusted operating margin for full-year 2016 was 19.6 percent, compared with 19.2 percent in 2015 – an increase of 40 basis points. The 2016 adjusted operating margin includes a 70-basis-point reduction from a $15 million environmental remediation charge. All regions expanded adjusted operating margins in 2016. The adjusted operating margin improvement reflects strong leverage on incremental volume, favorable pricing and productivity. These benefits more than offset inflation and incremental investments.
Full-year 2016 net earnings from continuing operations were $229.1 million or $2.36 per share, compared to $154.3 million or $1.59 per share for the prior year. Full-year 2016 adjusted net earnings from continuing operations were $323.9 million or $3.34 per share, compared to $294 million or $3.03 per share for the prior year – a 10.2 percent increase. Both reported and adjusted EPS for full-year 2016 include a $15 million or $0.10 per share environmental remediation charge. Adjusted net earnings and adjusted EPS were better than prior year due to strong organic revenue growth, operating margin improvements and results from prior year acquisitions offsetting higher interest expense and a higher adjusted effective tax rate.
“Allegion’s full-year results highlight our company’s strength in driving both top-line growth and cash generation,” said Petratis. “In 2016, we continued making good progress on channel initiatives and sales of electronic products. We also delivered new and innovative products that increased our vitality index, while maintaining our exceptional safety record.
“We achieved record performance for Allegion in revenues, operating margins, EPS and available cash flows in 2016, which demonstrates solid execution on our strategy to drive shareholder value. This includes making progress on our EMEIA transformation and delivering significant margin improvement in the region,” added Petratis.
Interest expense for fourth-quarter 2016 was $15.9 million, down slightly from $16.3 million for fourth-quarter 2015.
Other income net for fourth-quarter 2016 was $1.2 million. Other income net for fourth-quarter 2015 was $8.1 million, which included contributions from the sale of non-strategic marketable securities.
The company's effective tax rate for fourth-quarter 2016 was 9.1 percent, compared with 5 percent in 2015. The company’s adjusted effective tax rate for fourth-quarter 2016 was 9.6 percent. The adjusted effective tax rate for fourth-quarter 2015 was 9 percent.
Cash Flow and Liquidity
Available cash flow for 2016 was $335 million, an increase of $112.8 million or 50.8 percent versus the prior year. The year-over-year increase in available cash flow is primarily driven by an increase in net earnings.
The company ended 2016 with cash of $312.4 million and total debt of $1,463.8 million. The company did not have any borrowings outstanding under its $500 million revolving credit facility at Dec. 31, 2016.
Dividends and Share Repurchase
As previously announced, Allegion's board of directors declared a quarterly dividend of $0.16 per ordinary share of the company, an increase of 33 percent over the prior dividend. The dividend is payable March 31, 2017, to shareholders of record on March 15, 2017. The board of directors also approved a replenished $500 million share repurchase program.
“Allegion’s dividend increase and share repurchase authorization represents our strong belief in Allegion’s long-term cash flow potential and support of our broader strategy to continue to build shareholder value by investing in our growth organically and through accretive acquisitions, and returning excess cash to shareholders,” said Patrick Shannon, Allegion senior vice president and chief financial officer (CFO).
During fourth-quarter 2016, Allegion repurchased 850,000 shares under its previously authorized share repurchase program for $55 million.
The company expects full-year 2017 reported and organic revenues to increase 5.5 to 6.5 percent when compared to 2016.
Petratis added, “In the Americas, we anticipate strong non-residential and residential growth as markets in both segments and underlying end markets remain solid. In the EMEIA markets, we see positive, albeit modest, growth. In Asia Pacific, we anticipate robust growth in our China, Australia and New Zealand businesses. Our guidance reflects these expectations and is supported by our organic investments in new products and channels.”
Full-year 2017 reported and adjusted EPS is expected to be in the range of $3.55 to $3.70. This reflects an increase of 6.3 to 10.8 percent versus adjusted 2016 EPS. The outlook includes incremental investment of $0.15 to $0.20 per share; assumes a full-year effective tax rate of 19 to 20 percent from continuing operations; and assumes an average diluted share count for the full-year of approximately 96 million shares.
The company is targeting available cash flow of approximately $300 to $320 million, inclusive of a $50 million discretionary pension contribution to its U.S. pension plan made in January 2017. This contribution significantly improved the plan’s funded status, reduced future cash payments to the pension plan and reduced anticipated increases in pension expense for future years.
Conference Call Information
On Thursday, Feb. 9, 2017, David D. Petratis, chairman, president and CEO, and Patrick Shannon, senior vice president and CFO, will conduct a conference call for analysts and investors, beginning at 8 a.m. ET, to review the company's results.
A real-time, listen-only webcast of the conference call will be broadcast live online. Individuals wishing to listen may access the call through the company's website at http://investor.allegion.com.
Allegion (NYSE: ALLE) is a global pioneer in safety and security, with leading brands like CISA®, Interflex®, LCN®, Schlage®, SimonsVoss® and Von Duprin®. Focusing on security around the door and adjacent areas, Allegion produces a range of solutions for homes, businesses, schools and other institutions. Allegion is a $2 billion company, with products sold in approximately 130 countries.
For more, visit www.allegion.com.
This news release also includes adjusted non-GAAP financial information which should be considered supplemental to, not a substitute for, or superior to, the financial measure calculated in accordance with GAAP. Further information about the adjusted non-GAAP financial tables is attached to this news 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 2017 financial performance, the Company’s growth strategy, the Company’s capital allocation strategy, the Company’s tax planning strategies, and the performance of the markets in which the Company operates. These forward-looking statements are based on the Company's current available information and its current assumptions, expectations and projections about future events. They are subject to future events, risks and uncertainties - many of which are beyond the Company’s 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 Dec. 31, 2015, Form 10-Qs for the quarters ended March 31, 2016, June 30, 2016, and Sept. 30, 2016, and in its other SEC filings. The Company assumes no obligations to update these forward-looking statements.
For more information and our financial tables, please download our full earnings release below.
To view the webcast, please see our investor relations events and presentations.