DUBLIN (Feb. 20, 2018):
Allegion plc (NYSE: ALLE), a leading global provider of security products and solutions, today reported fourth-quarter 2017 net revenues of $623 million and net earnings of $9.6 million, or $0.10 per share. Excluding charges related to restructuring, acquisitions, tax reform and debt refinancing costs, adjusted net earnings were $106.1 million or $1.11 per share, up 37 percent when compared with fourth-quarter 2016 adjusted EPS of $0.81. Reported net earnings for fourth-quarter 2017 include a $53.5 million charge or $0.56 per share related to U.S. tax reform, as well as a $43.2 million charge or $0.40 per share related to debt refinancing costs. Reported and adjusted net earnings for fourth-quarter 2016 include a $15 million charge or $0.10 per share environmental remediation charge.
Fourth-quarter 2017 net revenues increased 9.4 percent, when compared to the prior year period (up 6.1 percent on an organic basis). Reported revenues reflect strong organic growth as well as benefits from foreign currency and acquisitions. The organic growth was driven by strong performance across all regions.
The Americas segment revenues increased 6.4 percent (up 4.8 percent on an organic basis). The region had solid growth in mechanical products and continued strength in electronic product categories in the fourth quarter of 2017. The organic growth was driven by mid-single digit growth in both non-residential and residential markets. Price realization continued to be strong.
The EMEIA segment revenues increased 16.5 percent (up 7.7 percent on an organic basis), reflecting solid growth across most business units and geographies. Pricing was positive in the quarter, contributing to the organic growth. Total revenue growth was supported by favorable currency impacts.
The Asia-Pacific segment revenues increased 19.1 percent (up 16.4 percent on an organic basis). Organic revenue growth was driven primarily by volume across most businesses and geographies. Favorable currency contributed to total revenue growth.
Fourth-quarter 2017 operating margin was 20.7 percent, compared with 17.1 percent in 2016. The adjusted operating margin in fourth-quarter 2017 was 21.7 percent, compared with 17.9 percent in 2016. Both reported and adjusted operating margin for fourth-quarter 2016 included a $15 million or 260-basis-point environmental remediation charge. Operating margins expanded – both including and excluding the environmental charge from the previous year – with the operational improvement reflecting good leverage on incremental volume combined with productivity, which more than offset inflation and incremental investments.
“Allegion's fourth-quarter results capped off a very strong year of solid performance in all regions, both on the top-line growth and operating performance,” said David D. Petratis, Allegion chairman, president and CEO. “With projected favorable market trends and continued execution of our growth initiatives, we are poised for further success in 2018. Additionally, our recently announced accretive acquisitions demonstrate our commitment to deploy capital to drive shareholder value.”
Full-year 2017 net revenues of $2.41 billion increased 7.6 percent, when compared to the prior year period (up 5.7 percent on an organic basis). Reported revenues had positive organic growth along with contributions from acquisitions and favorable currency. The organic growth reflects the continued execution of the company’s channel initiatives and the introduction of new products, as well as strong growth in the electronics portfolio.
Full-year 2017 operating margin was 20.3 percent, compared with 19 percent in 2016. The adjusted operating margin for full-year 2017 was 21 percent, compared with 19.6 percent in 2016 – an increase of 140 basis points. Both reported and adjusted operating margin for 2016 included a 70-basis-point reduction from a $15 million environmental remediation charge. All regions expanded adjusted operating margins in 2017, both including and excluding the impact from the prior year environmental charge. The adjusted operating margin improvement reflects strong leverage on incremental volume, favorable pricing and productivity. These benefits more than offset inflation and incremental investments.
Full-year 2017 net earnings were $273.3 million or $2.85 per share, compared to $229.1 million or $2.36 per share for the prior year. Full-year 2017 adjusted net earnings were $380 million or $3.96 per share, compared to $323.9 million or $3.34 per share for the prior year – an increase of 18.6 percent. Reported EPS for 2017 includes a $53.5 million charge or $0.56 per share related to U.S. tax reform, as well as a $44.7 million charge or $0.41 per share related to debt refinancing costs. Both reported and adjusted EPS for the prior year include a $15 million or $0.10 per share environmental remediation charge. Reported EPS for the prior year includes an $84.4 million or $0.87 per share impairment charge related to the previously divested system integration business located in China. Adjusted net earnings and adjusted EPS were better than prior year due to strong organic revenue growth, operating margin improvements and a lower adjusted effective tax rate that offset lower other income.
“Allegion’s full-year results again reflect solid performance in revenue, operating margins and EPS,” said Petratis. “In 2017, we continued making good progress on channel initiatives, sales of electronic products and increasing our vitality index by delivering new and innovative products, all while maintaining our exceptional safety record.”
Interest expense for fourth-quarter 2017 was $56 million, up from $15.9 million for fourth-quarter 2016. The fourth-quarter 2017 included a charge of $43.2 million related to debt refinancing costs.
Other income net for fourth-quarter 2017 was $5 million. Other income net for fourth-quarter 2016 was $1.2 million.
The company's effective tax rate for fourth-quarter 2017 was 84.5 percent, compared with 9.1 percent in 2016. The fourth-quarter 2017 included a charge of $53.5 million related to U.S. tax reform. The company’s adjusted effective tax rate for fourth-quarter 2017 was 14.9 percent. The adjusted effective tax rate for fourth-quarter 2016 was 9.6 percent.
Cash Flow and Liquidity
Available cash flow for 2017 was $297.9 million, a decrease of $37.1 million versus the prior year. The year-over-year decrease in available cash flow is driven by a $50 million discretionary pension payment made earlier in the year offset by an increase in net earnings.
The company ended 2017 with cash of $466.2 million and total debt of $1,477.3 million.
As previously announced, Allegion's board of directors declared a quarterly dividend of $0.21 per ordinary share of the company, an increase of 31 percent over the prior dividend. The dividend is payable March 29, 2018, to shareholders of record on March 15, 2018.
In January 2018, the company completed the acquisition of Technical Glass Products (TGP). TGP is a leading U.S. manufacturer of advanced fire-rated entrance and curtain walls for institutions and non-residential buildings. TGP generated approximately $80 million in net sales in 2017.
In February 2018, the company completed the acquisition of Qatar Metal Industries (QMI). QMI is one of the Middle East’s largest manufacturers of commercial steel and wood doors and frames. QMI generated approximately $25 million in net sales in 2017.
Also in February 2018, the company announced that it has agreed to acquire Aurora Systems, Inc. (AD Systems). AD Systems designs and manufactures high-performance interior and healthcare door systems, specializing in sliding and acoustic solutions. The acquisition is expected to close in the first quarter of this year, subject to customary closing conditions. AD Systems generated approximately $18 million in net sales in 2017.
The company expects full-year 2018 revenues to increase 10.5 to 11.5 percent, as organic growth, acquisitions and favorable currency contribute to growth. Full-year 2018 organic revenues, which exclude currency and acquisitions, are forecasted to increase in the range of 4 to 5 percent, when compared to 2017.
Petratis added, “In the Americas, we anticipate solid non-residential and residential growth as markets in both segments and the underlying verticals continue to expand. We expect the electromechanical products to continue to outpace mechanical. In EMEIA, we see positive trends in our core markets. In Asia Pacific, we anticipate robust growth, with particularly strong growth in our China business.”
Full-year 2018 reported EPS is expected to be in the range of $4.20 to $4.35 or $4.35 to $4.50 on an adjusted basis. This reflects an increase of 9.8 to 13.6 percent versus adjusted 2017 EPS. The outlook includes incremental investment of $0.10 per share; assumes a full-year effective tax rate of approximately 16 percent; and assumes an average diluted share count for the full year of approximately 96 million shares.
The company is targeting available cash flow of approximately $380 to $400 million.
Conference Call Information
On Tuesday, Feb. 20, 2018, David D. Petratis, chairman, president and CEO, and Patrick Shannon, senior vice president and CFO, 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 almost 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 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 are 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.
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