DUBLIN (Oct. 25, 2018):
Allegion plc (NYSE: ALLE), a leading global provider of security products and solutions, today reported third-quarter 2018 net revenues of $711.5 million and net earnings of $116 million, or $1.21 per share. Excluding charges related to restructuring, acquisitions and adjustments to provisional amounts related to the enactment of tax reform, adjusted net earnings were $117.9 million, or $1.23 per share, up 20.6 percent when compared with third-quarter 2017 adjusted EPS of $1.02.
Third-quarter net revenues increased 16.8 percent when compared to the prior year period (up 8.5 percent on an organic basis). Reported revenues reflect strong organic growth across all regions, as well as benefits from acquisitions offsetting foreign currency impacts.
Third-quarter 2018 operating income was $142.3 million, an increase of $15.2 million or 12 percent compared to 2017. Adjusted operating income in third-quarter 2018 was $149 million, representing an increase of $13.4 million or 9.9 percent compared to 2017.
Third-quarter 2018 operating margin was 20 percent, compared with 20.9 percent in 2017. The adjusted operating margin in third-quarter 2018 was 20.9 percent, compared with 22.3 percent in 2017. The 140-basis-point decline in adjusted operating margin is attributable to dilution from the 2018 acquisitions.
“I am pleased with our performance as we delivered another quarter of double-digit top-line revenue growth, with organic growth rates in the high-single digits,” said David D. Petratis, Allegion chairman, president and CEO. “Robust electronics growth as well as solid top-line performance across all three regions drove that strong organic growth, and end-market fundamentals remain healthy.
“I am also very pleased with the more than 20-percent increase in adjusted EPS as inflationary pressures continued to challenge operating margins. Excluding acquisitions, the base business margins were flat year over year, as the global team continues to drive price realization, productivity and other cost savings to mitigate significant inflationary pressures,” Petratis added.
The Americas segment revenue increased 16.5 percent (up 10.1 percent on an organic basis). The revenue growth was driven by robust growth in electronics (nearly 30 percent), very strong pricing and solid volume in both the non-residential and residential businesses. Acquisitions contributed 6.6 percent to the overall growth.
The EMEIA segment revenues were up 7.4 percent (up 3.4 percent on an organic basis), reflecting solid pricing, modest volume and contributions from acquisitions partially offset by unfavorable foreign currency.
The Asia-Pacific segment revenues increased 61.5 percent (up 5.9 percent on an organic basis). The revenue growth in the quarter was driven by the recently acquired Gainsborough Hardware and API Locksmiths business as well as solid volume partially offset by unfavorable currency.
Interest expense for third-quarter 2018 was $14 million, down from the $17.8 million for third-quarter 2017. The decrease is driven by the refinancing of the company’s debt completed in 2017.
Other income net for third-quarter 2018 was $1.9 million. This compares to other income net for third-quarter 2017 of $2.7 million.
The company’s effective tax rate for third-quarter 2018 was 10.8 percent, compared with 19.6 percent in 2017. The company’s adjusted effective tax rate for third-quarter 2018 was 13.8 percent, compared with 20 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 $228.6 million, up $92.3 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 and favorable working capital.
The company ended third-quarter 2018 with cash of $189.7 million and total debt of $1,452.7 million.
The company is updating the full-year 2018 revenue outlook to reflect total growth of 13 to 13.5 percent and organic growth of 5 to 5.5 percent compared to 2017.
The company is updating full-year 2018 reported EPS to a range of $4.23 to $4.35, and adjusted EPS to a range of $4.43 to $4.50 per share. Adjustments to 2018 EPS include estimated impacts for restructuring and acquisition activities as well as adjustments to provisional amounts related to the enactment of tax reform. The outlook assumes no change to investment spend, which continues to be approximately $0.15 per share; a full-year adjusted effective tax rate of approximately 14.5 percent; and 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, Oct. 25, 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. The company presents operating income, operating margin, net earnings, diluted earnings per share (EPS), on both a U.S. GAAP basis and on an adjusted (non-GAAP) basis, revenue growth on a U.S. GAAP basis and organic revenue growth (non-GAAP), and also presents adjusted (non-GAAP) EBITDA and EBITDA margin. The company presents these non-GAAP measures because management believes they provide useful perspective of the company’s underlying business results, trends and a more comparable measure of period-over-period results. These measures are also used to evaluate senior management and are a factor in determining at-risk compensation. Investors should not consider non-GAAP measures as alternatives to the related GAAP measures. 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, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, 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 generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “forecast,” “outlook,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result” or the negative thereof or variations thereon or similar expressions generally intended to identify forward-looking statements. 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 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-Q for the quarters ended March 31, 2018, June 30, 2018, and Sept. 30, 2018, and in its other SEC filings. The company undertakes no obligation to update these forward-looking statements.
To view the webcast, please see our investor relations events and presentations.
For the financial tables associated with this press release, please download the pdf below.