DUBLIN (Oct. 26, 2017):
Allegion plc (NYSE: ALLE), a leading global provider of security products and solutions, today reported third-quarter 2017 net revenues of $609.4 million and net earnings of $89.8 million, or $0.94 per share, up $0.92 per share when compared with third-quarter 2016 EPS of $0.02. Third-quarter 2016 EPS included a $0.87 per share reduction from a loss on divestiture. Excluding charges related to restructuring and acquisitions as well as charges related to the refinancing of the company’s credit facility, third-quarter 2017 adjusted net earnings were $97.4 million, or $1.02 per share, up 9.7 percent when compared with third-quarter 2016 adjusted EPS of $0.93.
Third-quarter net revenues increased 4.9 percent, when compared to the prior year period (up 2.7 percent on an organic basis). Reported revenues reflect continued organic growth, contribution from acquisitions and benefits from foreign currency.
“I am pleased with our performance so far this year that has resulted in strong organic growth, led by our Americas region,” said David D. Petratis, Allegion chairman, president and CEO. “Organic growth in the third quarter was modest, as European markets rebound, and Americas’ end-market fundamentals continue to remain solid, including electronics growth. However, constraints across the construction supply chain, including labor, continue to impact the completion of projects and, therefore, the timing of our revenue.”
The Americas segment revenue increased 4.4 percent (up 2.8 percent on an organic basis). The revenue growth was driven by favorable price and mid-teens growth in electronics, which offset the impact of timing of orders that was a positive benefit in the second quarter. Revenues from acquisitions and the impact of favorable foreign currency also added to overall growth.
The EMEIA segment revenues were up 7.5 percent (up 3.1 percent on an organic basis), reflecting solid pricing in the quarter along with favorable currency impacts. Strong growth in the portable security and SimonsVoss businesses also contributed to the organic growth.
The Asia-Pacific segment revenues increased 2.1 percent, when compared to the prior year period (up 0.4 percent on an organic basis). Favorable price and currency impacts drove the revenue growth for the quarter.
Third-quarter 2017 operating income was $126.1 million, an increase of $4.6 million or 3.8 percent over 2016. Adjusted operating income in third-quarter 2017 was $134.6 million, representing an increase of $7.9 million or 6.2 percent compared to 2016.
Third-quarter 2017 operating margin was 20.7 percent, compared with 20.9 percent in 2016. The adjusted operating margin in third-quarter 2017 was 22.1 percent, compared with 21.8 percent in 2016. The 30-basis-point improvement in adjusted operating margin was driven by strong price performance, volume leverage and productivity, which more than offset unfavorable product mix, increased investments and inflation.
“Overall margins continue to expand even while we invest in the business,” Petratis added. “I am particularly pleased with the pricing performance in a rising inflationary environment and with the margin performance of the EMEIA region, which saw substantial improvement versus the comparable quarter last year.”
Interest expense for third-quarter 2017 was $17.8 million, up from the $15.6 million for third-quarter 2016. Expense in 2017 included $1.6 million of costs associated with the company’s refinancing of its credit facility, which closed in September. As a result of the recently completed debt refinancing, the company expects to see annualized interest savings of approximately $13 million ($0.09 per share), which will commence in the fourth quarter of 2017, where the company will see a quarter’s worth of that savings.
Other income net for third-quarter 2017 was $3.7 million, driven by non-operating gains. This compares to other expense net for third-quarter 2016 of $0.4 million.
The third-quarter 2016 also included a loss on divestiture in the amount of $84.4 million related to the divested system integration business located in China.
The company’s effective tax rate for third-quarter 2017 was 19.6 percent, compared with 90.5 percent in 2016. The company’s adjusted effective tax rate for third-quarter 2017 was 20 percent, compared with 18.4 percent in 2016. The increase in the adjusted effective tax rate is primarily due to the mix of income earned in higher tax rate jurisdictions.
Cash Flow and Liquidity
Year-to-date 2017 available cash flow was $136.3 million, down $15.7 million versus the prior year. The year-over-year decrease in available cash flow is primarily due to a previously announced $50 million discretionary pension funding payment, in the first quarter, partially offset by increased earnings.
The company ended third-quarter 2017 with cash of $334.9 million and total debt of $1,447 million.
The company updated full-year 2017 reported revenue growth guidance to a range of 6.5 to 7 percent compared to 2016. Organic revenue growth is updated to a range of 5 to 5.5 percent.
The company updated the full-year 2017 reported EPS with a range of $3.21 to $3.26, or $3.75 to $3.80 on an adjusted basis. Adjustments to 2017 EPS include estimated impacts for debt refinancing and for restructuring and acquisition activities. The guidance assumes a full-year adjusted effective tax rate of approximately 18 to 18.5 percent, as well as an average diluted share count for the full year of approximately 96 million shares.
The company is targeting full-year available cash flow of approximately $300 million (inclusive of the $50 million discretionary pension funding payment).
Conference Call Information
On Thursday, Oct. 26, 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 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 $2.2 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, which 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, 2016, Form 10-Qs for the quarters ended March 31, 2017, June 30, 2017, and Sept. 30, 2017, 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.
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