DUBLIN (July 26, 2018):
Allegion plc (NYSE: ALLE), a leading global provider of security products and solutions, today reported second-quarter 2018 net revenues of $704.7 million and net earnings of $113.9 million, or $1.19 per share. Excluding charges related to restructuring and acquisitions, adjusted net earnings were $119.1 million, or $1.25 per share, up 12.6 percent when compared with second-quarter 2017 adjusted EPS of $1.11.
Second-quarter net revenues increased 12.4 percent, when compared to the prior year period (up 5.2 percent on an organic basis). Reported revenues reflect solid organic growth as well as benefits from acquisitions and foreign currency.
Second-quarter 2018 operating income was $143.4 million, an increase of $8.4 million or 6.2 percent compared to 2017. Adjusted operating income in second-quarter 2018 was $150.1 million, representing an increase of $13.2 million or 9.6 percent compared to 2017.
Second-quarter 2018 operating margin was 20.3 percent, compared with 21.5 percent in 2017. The adjusted operating margin in second-quarter 2018 was 21.3 percent, compared with 21.8 percent in 2017. The 50-basis-point decline in adjusted operating margin is attributable to the dilutive nature of the acquisitions.
“We are pleased to report another quarter of solid performance highlighted by growth in revenue, adjusted operating income and adjusted EPS,” said David D. Petratis, Allegion chairman, president and CEO. “We delivered double-digit top-line revenue growth, and saw organic growth rebound nicely back into the mid-single digits. The solid organic growth for the company was driven by strong Americas performance. End-market fundamentals remain positive, and we continue to be led by high-teens electronics growth in the Americas.
“I am also pleased with the nearly 13-percent increase in adjusted EPS during a high inflationary environment, highlighting our focus to drive increased shareholder returns. Inflationary pressures continued to challenge operating margins in the quarter. Excluding the acquisitions, the base business margins were flat year over year, as the global team drove price, productivity and other cost savings to combat the significant inflation headwinds,” Petratis added.
The Americas segment revenue increased 12.4 percent (up 6.6 percent on an organic basis). The revenue growth was driven by high-teens growth in electronics, solid volume in both the non-residential and residential businesses and favorable price. The recently acquired TGP and AD Systems businesses contributed 5.6 percent to the overall growth.
The EMEIA segment revenues were up 14.4 percent (up 1.4 percent on an organic basis), reflecting solid pricing, favorable foreign currency and contributions from the QMI acquisition. Second-quarter 2018 revenue for EMEIA had a tough comparable from the second quarter of last year, which drove the modest organic number.
The Asia-Pacific segment revenues increased 3.1 percent (up 0.7 percent on an organic basis). Favorable currency drove the revenue growth in the quarter.
Interest expense for second-quarter 2018 was $13.4 million, down from the $16.1 million for second-quarter 2017. The decrease is driven by the refinancing of the company’s debt completed in 2017.
Other income net for second-quarter 2018 was $1.6 million. This compares to other income net for second-quarter 2017 of $4.3 million. Prior year included a gain related to the sale of an equity investment.
The company’s effective tax rate for second-quarter 2018 was 13.4 percent, compared with 14.1 percent in 2017. The company’s adjusted effective tax rate for second-quarter 2018 was 13.8 percent, compared with 14.4 percent in 2017. The decrease in the adjusted effective tax rate is primarily due to decreased tax rates related to U.S. tax reform.
Cash Flow and Liquidity
Year-to-date 2018 available cash flow was $97.8 million, up $55.2 million versus the prior year. The year-over-year improvement in available cash flow is primarily due to the non-recurring $50 million discretionary pension funding payment in the prior year along with higher earnings, partially offset by payments related to acquisitions.
The company ended second-quarter 2018 with cash of $189.6 million and total debt of $1,461.1 million.
The company is updating the full-year 2018 revenue outlook to reflect total growth of 12.5 to 13.5 percent and confirming organic growth of 4 to 5 percent compared to 2017.
The company is updating full-year 2018 reported EPS to a range of $4.15 to $4.35, and adjusted EPS remains at $4.35 to $4.50 per share. Adjustments to 2018 EPS include estimated impacts for restructuring and acquisition activities. The outlook assumes investment spend at approximately $0.15 per share, a full-year adjusted effective tax rate of approximately 15 to 16 percent, as well as an average diluted share count for the full year of approximately 96 million shares.
The company continues to target full-year available cash flow of approximately $380 to $400 million.
Conference Call Information
On Thursday, July 26, 2018, 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 $2.4 billion company, with products sold in approximately 130 countries.
For more, visit www.allegion.com.
Adoption of New Accounting Standard
During the first quarter, the company adopted ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” ASU 2017-07 requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the statement of comprehensive income separately from the service cost component and outside of a subtotal of operating income. The company has applied ASU 2017-07 retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost and prospectively for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. As a result of adopting the new accounting standard, there is a minor restatement within the prior year P&L with no impact on revenue, net earnings or earnings per share. Schedule 6, accompanying this press release, summarizes the impact to prior periods.
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 2018 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, 2017, Form 10-Qs for the quarter ended March 31, 2018, and June 30, 2018, and in its other SEC filings. The company assumes no obligations to update these forward-looking statements.
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For the financial tables associated with this press release, please download the pdf below.