Allegion (NYSE:ALLE) Posts Q3 Sales In Line With Estimates

Security hardware provider Allegion (NYSE:ALLE) met Wall Street’s revenue expectations in Q3 CY2024, with sales up 5.4% year on year to $967.1 million. Its GAAP profit of $1.99 per share was 10.2% above analysts’ consensus estimates.

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“Q3 marks another quarter of strong results for Allegion. Our team continued to perform at a high level, driving revenue growth and margin expansion that demonstrate the resilience of our business model,” said Allegion President and CEO John H. Stone.

Company Overview

Allegion plc (NYSE:ALLE) is a provider of security products and solutions that keep people and assets safe and secure in various environments.

Electrical Systems

Like many equipment and component manufacturers, electrical systems companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include Internet of Things (IoT) connectivity and the 5G telecom upgrade cycle, which can benefit companies whose cables and conduits fit those needs. But like the broader industrials sector, these companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact projects that drive demand for these products.

Sales Growth

A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Allegion’s 5.6% annualized revenue growth over the last five years was tepid. This shows it failed to expand in any major way and is a rough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Allegion’s annualized revenue growth of 9.3% over the last two years is above its five-year trend, suggesting its demand recently accelerated. Allegion’s recent history shows it’s one of the better Electrical Systems businesses as many of its peers faced declining sales because of cyclical headwinds.

Allegion also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don’t accurately reflect its fundamentals. Over the last two years, Allegion’s organic revenue averaged 4.9% year-on-year growth. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline performance.

This quarter, Allegion grew its revenue by 5.4% year on year, and its $967.1 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 4.5% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and illustrates the market thinks its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

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Operating Margin

Allegion has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 18.5%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Allegion’s annual operating margin rose by 4.5 percentage points over the last five years, showing its efficiency has improved.

This quarter, Allegion generated an operating profit margin of 22.2%, up 1.2 percentage points year on year. The increase was encouraging, and since its operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as marketing, R&D, and administrative overhead.

Earnings Per Share

We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth was profitable.

Allegion’s unimpressive 6.3% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.

Like with revenue, we analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. Allegion’s two-year annual EPS growth of 15.1% was great and topped its 9.3% two-year revenue growth.

In Q3, Allegion reported EPS at $1.99, up from $1.77 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Allegion’s full-year EPS of $6.51 to grow by 5.8%.

Key Takeaways from Allegion’s Q3 Results

It was good to see Allegion beat analysts’ EPS expectations this quarter. On the other hand, its organic revenue fell short of Wall Street’s estimates, though its total revenue was in line. Overall, this quarter could have been better. The stock traded up 2.6% to $154.95 immediately following the results.

So do we think Allegion is an attractive buy at the current price?If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.