Dublin--(BUSINESS WIRE)-- Allegion plc (NYSE: ALLE), a leading global provider of security products and solutions, today reported fourth quarter 2013 net revenues of $550.6 million, up 0.8% compared to the prior year, and EPS from continuing operations of $0.10 per share.
Excluding the impact of one-time separation costs and other special items, adjusted net revenues increased 4.5% and adjusted EPS from continuing operations were $0.58 per share. For the fourth quarter of 2013, operating margin was 16.3% (17.4% on an adjusted basis). Operating margin in the fourth quarter of 2012 was 18.2% (18.9% on an adjusted basis). The decrease in adjusted operating margin from the fourth quarter of 2012 was primarily due to increased investments associated with new product development and channel and business mix.
Allegion's commercial and residential security businesses were spun off from Ingersoll-Rand plc on December 1, 2013. Allegion achieved solid operating performance in 2013, despite significant organizational change during the year, and is well-positioned for growth in 2014. U.S. institutional construction is expected to continue its recovery and continued improvement in residential market construction and strong performance in multi-family sector are anticipated. Since the completion of the spin-off, Allegion has begun to implement its growth initiatives by pursuing strategic expansion opportunities, including its recent acquisition of Schlage Lock de Colombia and fostering organic growth of its market-leading brands.
*Adjustments to GAAP revenue, operating margin, net earnings and EPS from continuing operations include items such as the impact of change in order flow through the Company's consolidated joint venture in Asia, restructuring charges, non-cash goodwill impairment charges, one-time separation costs related to the spin-off from Ingersoll Rand, gain on property sale in China and discrete tax items to better illustrate year over year performance. Please see the disclosure below and the supplemental schedules attached to this earnings release for additional information regarding adjusted revenue, operating margin, EBITDA, net earnings and EPS from continuing operations.
Full Year Results
For the full year 2013, net revenues were $2,093.5 million, an increase of 2.3% compared to the prior year (3.7% on an adjusted basis). Net earnings from continuing operations for the full year 2013 were $31.8 million, or $0.33 per share, compared to $222.3 million, or $2.32 per share, for the prior year. Adjusted net earnings from continuing operations were $205.0 million, or $2.13 per share for the year ended December 31, 2013, compared to adjusted net earnings from continuing operations of $228.0 million, or $2.38 per share for the prior year. Adjusted net earnings and adjusted EPS were lower compared to the prior year primarily due to higher interest expense, a higher effective tax rate, increased investment spending and an unfavorable impact of foreign currency exchange rates.
David D. Petratis, chairman, president and chief executive officer, said, “Allegion's operating performance was solid in a year of large change as we became a stand-alone public company, with adjusted revenue growth of 3.7%, adjusted operating margin of 17.8% and more than $400 million in adjusted EBITDA. We invested in our brands and grew our core business, continued our focus on operational excellence and developed new products in both our existing mechanical and new electronic product categories. We have come out of the spin-off with a good foundation to deliver sustainable value for our shareholders and will continue to realize strategic opportunities that further unlock our potential.”
Interest expense for the fourth quarter of 2013 was $8.4 million higher than the prior period due to $1.3 billion of additional indebtedness incurred as a result of the spin-off from Ingersoll Rand. The Company's effective tax rate for the fourth quarter of 2013 was 89.2%. Excluding one-time items, the adjusted effective tax rate was 33.9%. The comparable effective tax rate for the fourth quarter of 2012 was 37.3%.
Cash Flow and Liquidity
The Company generated cash from operating activities of $223.9 million and available cash flow of $203.7 million for full year 2013, which provides the Company with a solid financial position. The Company ended 2013 with unrestricted cash of $227.4 million and total debt of $1,343.9 million, of which $40.0 million is collateralized by $40.0 million of restricted cash. The Company did not have any borrowings outstanding under its $500 million revolving credit facility at December 31, 2013.
On February 11, 2014, Allegion's board of directors declared a quarterly dividend of $0.08 per ordinary share and approved a $200 million share repurchase program.
Patrick Shannon, senior vice president and chief financial officer, said, “We generated significant cash flow in 2013 and finished the year with additional liquidity, which will enable us to accelerate our organic growth initiatives and expand our portfolio of products and presence in emerging markets and technologies through our acquisition platform. In addition, we are committed to a balanced and flexible capital allocation program to provide returns to our shareholders through the previously announced quarterly dividend.”
For the full year 2014, the Company expects adjusted EPS from continuing operations of $2.25 to $2.40 per share and reported EPS from continuing operations of $1.95 to $2.15. This guidance assumes full-year revenue growth of 0.9% to 1.9%, adjusted revenue growth of 3.5% to 4.5%, and restructuring and spin-off costs of $0.25 to $0.30 per share, net of tax. This guidance includes additional interest expense of $0.27 per share, net of tax, representing the full year impact of the additional indebtedness associated with the spin-off from Ingersoll Rand and assumes an effective tax rate of approximately 31%. The Company's 2014 guidance assumes the current exchange rate for the Venezuelan bolivar and does not take into consideration the impact of a potential currency devaluation in Venezuela. The Company also anticipates to generate available cash flow that approximates net earnings from continuing operations.
“Allegion’s solid operational performance last year positions us well for 2014. We possess a strong portfolio of security brands and products and are building momentum as U.S. institutional construction shows early encouraging signs of recovery. We continue to invest in opportunities to diversify our security solutions business outside the U.S., where we see growth opportunities. In Europe, we have a clear vision for achieving solid profitability and improving operating margins in a continually challenging economic market by reducing barriers that separate us from our customers,” Petratis added.
Conference Call Information
On Thursday, February 20, 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 10:30 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 7,800 people and sells products in more than 120 countries across the world. Allegion comprises 23 global brands, including strategic brands CISA®, Interflex®, LCN®, Schlage® and Von Duprin®.
For more, visit http://www.allegion.com.
The Company has presented revenue, operating income, operating margin, earnings from continuing operations and diluted earnings per share (EPS) from continuing operations 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 2014 financial performance, the Company's growth strategy, the Company's capital allocation strategy, the Company's Europe, Middle East, India and Africa (EMEIA) strategy and the strength of the markets in which the Company operates. These forward-looking statements are based on the Company's current assumptions, expectations and beliefs and involve substantial risks and uncertainties that may cause results, performance or achievement to materially differ from those expressed or implied by these 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 Registration Statement on Form 10, as amended. The Company assumes no obligations to update these forward looking statements.