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01/11 03:08
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlights strong performance in non-residential markets, robust acquisition strategy, and positive adjustments to EPS outlook. The Q&A session reveals management's confidence in organic growth and margin expansion, despite challenges in residential markets. The raised EPS outlook and positive acquisition impacts suggest a favorable stock price movement, likely in the 2% to 8% range.
Revenue for the third quarter over $1 billion, an increase of 10.7% compared to 2024. Organic revenue increased 5.9% in the quarter as a result of favorable price and volume led by our Americas nonresidential business, where demand remains healthy.
Q3 adjusted operating margin 24.1%, down 10 basis points compared to last year. Both segments had margin expansion which was offset by higher corporate expenses relative to the prior year comparable. Volume leverage and mix were accretive to margins.
Adjusted earnings per share (EPS) $2.30, increased $0.14 or 6.5% versus the prior year. Operational performance and accretive acquisitions contributed 10.6 points of EPS growth. This was partially offset by higher tax and interest and other.
Year-to-date available cash flow $485.2 million, up 25.1% as we continue to generate strong cash flow. This increase is driven by higher earnings, lower capital expenditures and improvements in working capital.
Americas segment revenue $844 million, up 7.9% on a reported basis and up 6.4% on an organic basis, led by our nonresidential business. Organic growth included both favorable price and volume in the quarter. Reported revenue includes 1.5 points of growth from acquisitions.
Electronics revenue up mid-teens and continues to be a long-term growth driver for Allegion.
Americas adjusted operating income $252 million, increased 9% versus the prior year. Adjusted operating margin was up 40 basis points as volume leverage and favorable mix were accretive to margins. Price and productivity, net of inflation and investments was a tailwind of $10.2 million.
International segment revenue $226 million, up 22.5% on a reported basis and up 3.6% organically, led by our electronics businesses. Acquisitions contributed 13.6% to segment revenue, consisting of the acquisitions net of the previously announced divestiture of API. Currency was also a tailwind, positively impacting reported revenue by 5.3%.
International adjusted operating income $32.3 million, increased 28.2% versus the prior year period. Adjusted operating margin for the quarter increased 70 basis points, driven by volume leverage and mix. Acquisitions were accretive to segment margin rates, although slightly dilutive to the enterprise rates.
Launch of new mid-tier commercial product line: Allegion introduced the Schlage Performance Series locks, targeting nonresidential applications at more price points.
New electronic product launches: Contributed to mid-single-digit growth in the residential business.
Acquisitions in the UK: Acquired UAP and Brisant, enhancing the product portfolio, including electronic locks, and improving cost position.
International market performance: International segment revenue grew 22.5% on a reported basis, with acquisitions contributing 13.6% to growth.
Revenue growth: Achieved 10.7% revenue growth compared to 2024, with organic revenue up 5.9%.
Adjusted operating margin: Q3 adjusted operating margin was 24.1%, with volume leverage and mix contributing positively.
Cash flow: Year-to-date available cash flow was $485.2 million, up 25.1% from the prior year.
Capital allocation: Allocated $600 million year-to-date for acquisitions and raised adjusted EPS outlook to $8.10-$8.20 for 2025.
Focus on electronics: Electronics revenue grew mid-teens, identified as a long-term growth driver.
Residential Market Demand: Residential market demand remains soft, which could impact revenue growth in this segment. Despite new product launches, the overall market conditions are not favorable.
Input Cost Environment: The input cost environment remains dynamic, with tariffs and inflation posing challenges. The company needs to continue driving price increases to offset these costs.
International Market Performance: International markets have been sluggish, with largely flat organic performance expected. This could limit growth opportunities outside the Americas.
Corporate Expenses: Higher corporate expenses have offset margin expansions in other segments, which could impact overall profitability.
Working Capital: Working capital as a percentage of revenue has increased due to acquired working capital, which could strain cash flow management.
2025 Adjusted EPS Outlook: The company has raised its 2025 full-year adjusted earnings per share (EPS) outlook to a range of $8.10 to $8.20, reflecting strong execution and recent acquisitions.
Preliminary 2026 Market Outlook: The company expects market conditions in 2026 to be similar to 2025. Nonresidential business in the Americas is expected to grow organically, supported by broad end-market coverage and spec activity. Residential markets are anticipated to remain soft, while international markets are expected to benefit from 2025 acquisition activity. The enterprise expects approximately 2 points of carryover revenue contribution from acquisitions closed in 2025.
Americas Nonresidential Market: The nonresidential market in the Americas remains resilient, with Allegion performing well in the aftermarket. Spec activity has grown over 2024 and year-to-date 2025, supporting the company's outlook.
Residential Market Conditions: Residential markets remain soft, with solid performance in Q3 driven primarily by new electronic product launches. This trend is expected to continue into 2026.
International Market Conditions: International markets have been sluggish year-to-date, with expectations of roughly flat organic performance in 2025. However, the company anticipates benefits from 2025 acquisition activity in 2026.
Input Cost Environment: The input cost environment remains dynamic, with tariffs being a significant factor. The company plans to continue driving price increases to offset inflation.
Electronics Growth: Electronics revenue grew mid-teens in Q3 2025 and continues to be a long-term growth driver for Allegion.
Capital Deployment and Acquisitions: The company has allocated approximately $600 million year-to-date for acquisitions in 2025, including UAP and Brisant, which strengthen the product portfolio and enhance cost positions. Allegion expects carryover revenue contributions from these acquisitions in 2026.
Dividend Payment: Allegion continues to be a dividend-paying stock, and in the third quarter, this amounted to $0.51 per share or approximately $44 million.
Share Repurchase: No shares were repurchased in the third quarter.
The earnings call highlights strong performance in non-residential markets, robust acquisition strategy, and positive adjustments to EPS outlook. The Q&A session reveals management's confidence in organic growth and margin expansion, despite challenges in residential markets. The raised EPS outlook and positive acquisition impacts suggest a favorable stock price movement, likely in the 2% to 8% range.
The earnings call shows strong financial performance with increased revenue, EPS, and cash flow. Margins remained stable despite increased expenses. The company has a positive outlook on nonresidential growth and expects improved margins due to tariff relief. Increased dividends and share repurchases also support a positive sentiment. The Q&A indicates confidence in overcoming tariff impacts and maintaining growth, with strong demand and acquisition contributions. Despite some international challenges, the overall sentiment is positive, predicting a stock price increase of 2% to 8%.
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