DUBLIN (July 30, 2015):
Second-quarter net revenues decreased 2.3 percent compared to the prior year period (up 5.8 percent on an organic basis). The Americas segment increased total revenue by 0.3 percent (up 7.2 percent on an organic basis), driven by strong non-residential and residential growth, with overall electronics growth up double-digits. The Asia Pacific segment grew revenue 13.2 percent (up 7.7 percent on an organic basis) with strength in the hardware business and contributions from the acquisition of Brio completed in May 2015. The EMEIA segment revenues were down 17.1 percent (down 0.3 percent on an organic basis), reflecting soft markets and currency headwinds.
Second-quarter operating margin was 18.4 percent, compared with 16.8 percent in 2014. Second-quarter adjusted operating margin was 19.5 percent, compared with 19.1 percent in 2014. The 40 basis point improvement in adjusted operating margin was driven by favorable price, volume leverage and productivity that more than offset increased investments, inflation and currency exchange.
“Allegion delivered another strong quarter of performance with organic sales growth of nearly 6 percent and operating margin improvement in all regions,” said David D. Petratis, Allegion chairman, president and CEO. “Organic growth in the Americas has averaged more than 5 percent for the last five quarters with improved operating margins inclusive of incremental investments in new products and channel initiatives. Although there is still more work to be done, I am pleased with the continued progress of our EMEIA region as they undergo significant change in difficult markets.”
“Growth in the Americas was balanced across both non-residential and residential businesses,” Petratis added. “Institutional markets continue to grow slowly, driven by higher education, and the long-range outlook remains positive for this market. We are still focused on our growth strategies and continue to execute our balanced and flexible capital allocation plan with the announced acquisitions of SimonsVoss, Axa Stenman and Milre Systek.”
Interest expense for the second quarter of 2015 was $1.2 million lower than the prior year, as a result of the refinancing of the Company’s senior credit facility in 2014.
Other expense net items for the second quarter of 2015 were $1.4 million higher than the prior year, primarily due to unfavorable foreign exchange losses.
The Company's adjusted effective tax rate for the second quarter of 2015 was 22.3 percent. The comparable adjusted effective tax rate for the second quarter of 2014 was 30 percent. The decrease reflects the favorable changes in the Company’s mix of income earned in lower-rate jurisdictions.
Cash Flow and Liquidity
Year-to-date 2015 available cash flow was $14.8 million, down $24.6 million versus the prior year. The year-over-year decrease in available cash flow primarily reflects increases in working capital, mostly timing related, partially offset by a decrease in capital expenditures. The Company ended second-quarter 2015 with cash of $201 million and total debt of $1,252.3 million. The Company did not have any borrowings outstanding under its $500 million revolving credit facility as of June 30, 2015.
The Company is updating its guidance for reported EPS from continuing operations to a range of $2.51 to $2.63 and adjusted EPS of $2.70 to $2.80. Adjustments to EPS include the impact of the Venezuelan devaluation in first quarter, acquisition expenses in second quarter, and full-year expenses related to the Company’s previously announced restructuring plan in Italy. The updated guidance does not reflect announced acquisitions not yet closed.
The guidance assumes 2015 full-year organic revenue, which excludes currency and acquisitions, to increase in the range of 4 to 5 percent compared with 2014. The improvement in organic growth versus prior guidance is driven by stronger volume in the Americas. Full-year 2015 reported revenues are forecasted to decline 2.5 to 3.5 percent, reflecting unfavorable foreign exchange rates and the Venezuelan devaluation. The improvement in total revenue projections versus prior guidance reflects the stronger Americas organic volume and inclusion of the previously announced acquisition of Brio to the Asia Pacific outlook.
Furthermore, the guidance 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 operations given exchange rate volatility.
The Company continues to target available cash flow of approximately 95 percent of net earnings from continuing operations.
The Company has recently announced three acquisitions expected to close in the third quarter of this year, subject to regulatory approval. In June 2015, the Company signed a definitive agreement to acquire SimonsVoss Technologies GmbH, a leading electronic lock company based in Munich, Germany, which provides complementary products and technology. In July 2015, the Company signed a definitive agreement to acquire Milre Systek Co., LTD, a security solutions manufacturer in South Korea that provides high-quality and innovative electronic door locks. And in July 2015, the Company signed a definitive agreement to acquire AXA Stenman Holding, a European residential and portable security provider with high-quality products and extensive customer and channel relationships.
Conference Call Information
On Thursday, July 30, David D. Petratis, chairman, president and CEO, 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. EDT, 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® 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 almost 130 countries.
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, the performance of the markets in which the Company operates, the Company’s announced acquisitions, including the ability to timely close and the expected benefits and results of the acquisitions. 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, 2014, Form 10-Qs for the quarters ended March 31 and June 30, 2015, and in our other SEC filings. 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.
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