Allegion Reports Third-quarter 2016 Financial Results

DUBLIN (Oct. 27, 2016):

  • Third-quarter 2016 net earnings per diluted share (EPS) from continuing operations of $0.02 inclusive of impairment charge of ($0.87), compared with 2015 EPS loss of ($0.28) inclusive of loss on divestiture charges of ($1.14); Adjusted 2016 EPS of $0.93, up slightly compared with adjusted 2015 EPS of $0.92
  • Third-quarter 2016 revenue of $581.1 million, up 6.7 percent compared to 2015, up 5 percent on an organic basis
  • Third-quarter 2016 operating margin of 20.9 percent, compared with 2015 operating margin of 20.3 percent; Adjusted operating margin of 21.8 percent, improved 30 basis points compared with 2015 adjusted operating margin of 21.5 percent
  • Reaffirming 2016 full-year revenue guidance and updating full-year EPS outlook; Full-year 2016 reported revenue growth up 8 to 9 percent, and up 5 to 6 percent on an organic basis; Full-year 2016 EPS from continuing operations of $2.40 to $2.45 on a reported basis and $3.38 to $3.43 on an adjusted basis (inclusive of $0.03 associated with expected fourth quarter benefit related to adoption of new accounting standard on stock-based compensation)

Allegion plc (NYSE: ALLE), a leading global provider of security products and solutions, today reported third-quarter 2016 net revenues of $581.1 million and net earnings of $1.6 million, or $0.02 per share from continuing operations. Excluding charges related to impairment, restructuring and acquisitions, adjusted net earnings were $89.9 million, or $0.93 per share, up slightly when compared with third-quarter 2015 adjusted EPS of $0.92.

Third-quarter net revenues increased 6.7 percent, when compared to the prior year period (up 5 percent on an organic basis). Reported revenues reflect positive organic growth and contribution from acquisitions that were partially offset by prior year divestitures and foreign currency. All regions delivered organic growth reflecting stable markets and the benefit of investments in new products and channel strategies.

The Americas segment revenue increased 4.1 percent (up 5.6 percent on an organic basis). The strong growth in the quarter reflects continued growth in non-residential markets, offsetting the impact of the divestiture of the Venezuelan business in 2015.  On a year-to-date basis, Americas revenue is up 5.1 percent (up 6.4 percent on an organic basis), reflecting continued demand for our industry-leading products.

The EMEIA segment revenues increased 27.2 percent (up 1.6 percent on an organic basis), reflecting acquisitions and improved pricing that offset unfavorable foreign currency. Acquisitions contributed revenue of approximately $25 million in the quarter.

The Asia Pacific segment revenues were down 16.4 percent, when compared to the prior year period (up 7.3 percent on an organic basis). Excluding the previously divested system integration business from prior year results, organic growth was 10.6 percent. The strong growth reflects strength across the region, especially in Australia and New Zealand.

Third-quarter reported operating margin was 20.9 percent, compared with 20.3 percent in 2015. The third-quarter adjusted operating margin was 21.8 percent, compared with 21.5 percent in 2015. The 30-basis-point improvement in adjusted operating margin was driven by favorable price, material deflation, productivity, product mix and volume leverage that more than offset increased investments and inflation.

“We continue to deliver on our strategy and drive organic growth, which is evident in our third-quarter results,” said David D. Petratis, Allegion chairman, president and CEO.  “We are committed to continuing to perform at a high level to enhance value to both our customers and shareholders,” Petratis added.

Additional Items

Interest expense for the third quarter of 2016 was $1.9 million higher than the prior year, primarily due to the issuance of $300 million of senior notes in 2015.

Third-quarter 2016 results included a loss on divestiture charge of $84.4 million ($0.87 per share), primarily due to the impairment of a receivable, which was consideration for the previously divested system integration business located in China. The company determined this receivable was impaired due to deteriorating business conditions associated with the previously divested system integration business. The third-quarter 2015 results included a loss of $80.6 million associated with the sale of the system integration business and a loss of $26.1 million associated with the divestiture of the Venezuelan business.

“Divesting the system integration business was an important step in pruning the Allegion portfolio to drive profitability and return on capital in the Asia Pacific region,” Petratis said. “This reduced long-term risk in a challenging environment and enables us to focus on our core business in the region.”

The company’s effective tax rate for the third quarter of 2016 was 90.5 percent, compared with negative 285.3 percent in 2015. These rates reflect the impact the impairment and loss on divestitures had on the tax rates in their respective periods. The company’s adjusted effective tax rate for the third quarter of 2016 was 18.4 percent, compared with 15.1 percent in 2015. The increase in the adjusted effective tax rate is primarily due to the favorable resolution to uncertain tax positions in 2015, partially offset by favorable changes in the mix of income earned in lower tax rate jurisdictions.

Cash Flow and Liquidity

Year-to-date 2016 net cash provided by operating activities was $178.4 million, an increase of $52.9 million versus the prior year.  Available cash flow was $152 million, an increase of $53.3 million versus the prior year. The company ended third-quarter 2016 with cash of $214.5 million and total debt of $1,473.6 million. The company did not have any borrowings outstanding under its $500 million revolving credit facility at Sept. 30, 2016.

2016 Outlook

The company reaffirms full-year 2016 revenue guidance with year-over-year growth of 8 to 9 percent, and organic growth of 5 to 6 percent.

The company updated the full-year 2016 reported EPS with a range of $2.40 to $2.45, or $3.38 to $3.43 per share on an adjusted basis. Adjustments to 2016 EPS include estimated impacts for known impairment, restructuring and acquisition activities. The guidance assumes a full-year adjusted effective tax rate of approximately 18 percent from continuing operations, as well as an average diluted share count for the full year of approximately 97 million shares.

The full-year guidance also includes $0.03 per share associated with the benefit the company expects to record in the fourth quarter related to a new accounting standard on stock-based compensation.  This amount is included in the tax rate assumption above.

The company increased its full-year available cash flow guidance to approximately $300 million.

Conference Call Information

On Thursday, Oct. 27, 2016, 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. 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.

About Allegion™

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 almost 130 countries.

For more, visit www.allegion.com.

Non-GAAP Measures

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.

Forward-Looking Statements

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 2016 financial performance, the Company’s growth strategy, the Company’s capital allocation strategy, the Company’s tax planning strategies, the Company’s ability to successfully implement new information technology systems, 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.


Maria Pia Tamburri - Director, Public Affairs

Mike Wagnes - Vice President, Treasurer and Investor Relations

Source: Allegion plc

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