Press release

Allegion Reports First-Quarter 2019 Financial Results

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Allegion
plc
(NYSE: ALLE), a leading global provider of security products and
solutions, today reported first-quarter 2019 net revenues of $655
million and net earnings of $80.2 million, or $0.84 per share. Excluding
charges related to restructuring and acquisitions, adjusted net earnings
were $83.5 million, or $0.88 per share, up 10 percent when compared with
first-quarter 2018 adjusted EPS of $0.80.

First-quarter net revenues increased 6.8 percent when compared to the
prior-year period (up 5.8 percent on an organic basis). Reported
revenues reflect solid organic growth, particularly in the Americas, as
well as benefits from acquisitions that more than offset foreign
currency impacts.

First-quarter 2019 operating income was $108 million, an increase of
$9.3 million or 9.4 percent compared to 2018. Adjusted operating income
in first-quarter 2019 was $112.1 million, representing an increase of
$7.9 million or 7.6 percent compared to 2018.

First-quarter 2019 operating margin was 16.5 percent, compared with 16.1
percent in 2018. The adjusted operating margin in first-quarter 2019 was
17.1 percent, compared with 17 percent in 2018. The 10-basis-point
increase in adjusted operating margin is attributable to strong price
and volume leverage offsetting a combination of inflation, investment
spending and regional mix driven by acquisitions.

“Allegion had a good start to 2019,” said David D. Petratis, Allegion
chairman, president and CEO. “I am pleased with the solid top-line
growth in the first quarter led by the Americas non-residential
business, which continues to see strong end markets.

“I am also pleased with the 10-percent increase in adjusted EPS, as we
drove margin expansion in all regions, even with significant carryover
inflationary pressures. The team did a nice job of driving price
realization and productivity actions globally to propel the increase in
year-over-year margins,” Petratis added.

The Americas segment revenues increased 8.2 percent (up 7.6 percent on
an organic basis). The revenue growth was driven by strong pricing and
volume, particularly in the non-residential business, which saw low
double-digit growth. The Americas residential business growth was flat
in the quarter.

The EMEIA segment revenues were down 4.9 percent (up 1.7 percent on an
organic basis), reflecting unfavorable foreign currency effects,
partially offset by modest organic growth and contributions from
acquisitions.

The Asia-Pacific segment revenues increased 55.3 percent (down 2.2
percent on an organic basis). The revenue growth in the quarter was
driven by the 2018 acquisition of the Gainsborough business and was
partially offset by organic revenue decline as well as unfavorable
currency effects. The organic revenue decline was the result of a $1.5
million transfer of revenue previously managed in Asia Pacific that’s
now managed in the Americas and EMEIA regions.

Additional Items

Interest expense for first-quarter 2019 was $13.7 million, up from $12.9
million for first-quarter 2018.

Other income net for first-quarter 2019 was $1.1 million, compared to
$0.4 million in the same period of 2018.

The company’s effective tax rate for first-quarter 2019 was 15.8
percent, compared with 16 percent in 2018. The company’s adjusted
effective tax rate for first-quarter 2019 was 16 percent, compared with
16.2 percent in 2018.

Cash Flow and Liquidity

Year-to-date 2019 available cash flow was negative $24.9 million, a
decrease of $6.1 million versus the prior year. The
year-over-year decrease in available cash flow is primarily due to
higher working capital and increased capital expenditures, which were
partially offset by increased earnings.

The company ended first-quarter 2019 with cash and cash equivalents of
$153.8 million as well as total debt of $1,436.4 million.

Share Repurchase

During first-quarter 2019, the company repurchased approximately 0.7
million shares for approximately $63.8 million under its previously
authorized share-repurchase program approved by the company’s board of
directors in February 2017.

2019 Outlook

The company is affirming its full-year 2019 revenue outlook of total and
organic growth of 5 to 6 percent compared to 2018.

The company is affirming its full-year 2019 outlook for reported EPS in
the range of $4.60 to $4.75, and adjusted EPS in the range of $4.75 to
$4.90. Adjustments to 2019 EPS include estimated impacts for
restructuring, along with acquisition and integration activities. The
outlook assumes no change to investment spend, which continues to be
approximately $0.15 per share; no change to the full-year adjusted
effective tax rate of approximately 16 percent; and an average diluted
share count for the full year of approximately 95 million shares.

The company also affirms its full-year available cash flow outlook of
approximately $430 to $450 million.

Conference Call Information

On Thursday, April 25, 2019, 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.

About Allegion™

Allegion (NYSE: ALLE) is a global pioneer in seamless access, with
leading brands like CISA®, Interflex®, LCN®,
Schlage®, SimonsVoss® and Von Duprin®. Focusing
on security around the door and adjacent areas, Allegion secures people
and assets with a range of solutions for homes, businesses, schools and
other institutions. Allegion had $2.7 billion in revenue in 2018, and
sells products in almost 130 countries.

For more, visit www.allegion.com.

Non-GAAP Measures

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
and 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 on a non-GAAP basis, and adjusted EBITDA and
adjusted EBITDA margin (both non-GAAP measures). 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.

Forward-Looking Statements

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 2019
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, 2018, Form 10-Q for the quarter
ended March 31, 2019, and in its other SEC filings. The company
undertakes no obligation to update these forward-looking statements.

 
ALLEGION PLC
Condensed and Consolidated Income Statements
(in millions, except per share data)
 

UNAUDITED

 
Three Months Ended March 31,
2019   2018
 
Net revenues $ 655.0 $ 613.1
Cost of goods sold 378.1   355.3  
Gross profit 276.9 257.8
 
Selling and administrative expenses 168.9   159.1  
Operating income 108.0 98.7
 
Interest expense 13.7 12.9
Other income, net (1.1 ) (0.4 )
Earnings before income taxes 95.4 86.2
 
Provision for income taxes 15.1   13.8  
 
Net earnings 80.3 72.4
 
Less: Net earnings attributable to noncontrolling interests 0.1   0.2  
 
Net earnings attributable to Allegion plc $ 80.2   $ 72.2  
 

Basic earnings per ordinary share attributable to Allegion plc
shareholders:

   
Net earnings $ 0.85   $ 0.76  
 

Diluted earnings per ordinary share attributable to Allegion
plc shareholders:

   
Net earnings $ 0.84   $ 0.75  
 
Shares outstanding – basic 94.5 95.1
Shares outstanding – diluted 95.1 95.8
 
   
ALLEGION PLC
Condensed and Consolidated Balance Sheets
(in millions)
 

UNAUDITED

 
March 31, 2019 December 31, 2018
ASSETS
Cash and cash equivalents $ 153.8 $ 283.8
Restricted cash 6.8 6.8
Accounts and notes receivables, net 359.6 324.9
Inventories 296.8 280.3
Other current assets 33.2   35.8
Total current assets 850.2 931.6
Property, plant and equipment, net 275.1 276.7
Goodwill 878.7 883.0
Intangible assets, net 536.3 547.1
Other noncurrent assets 260.5   171.8
Total assets $ 2,800.8   $ 2,810.2
 
LIABILITIES AND EQUITY
Accounts payable $ 198.3 $ 235.0
Accrued expenses and other current liabilities 252.0 250.5
Short-term borrowings and current maturities of long-term debt 35.1   35.3
Total current liabilities 485.4 520.8
Long-term debt 1,401.3 1,409.5
Other noncurrent liabilities 276.7   225.9
Equity 637.4   654.0
Total liabilities and equity $ 2,800.8   $ 2,810.2
 
 
ALLEGION PLC
Condensed and Consolidated Cash Flows
(in millions)
 

UNAUDITED

 

Three Months Ended March 31,
2019   2018
Operating Activities
Net earnings $ 80.3 $ 72.4
Depreciation and amortization 20.7 22.5
Changes in assets and liabilities and other non-cash items (113.6 ) (105.0 )
Net cash used in operating activities (12.6 ) (10.1 )
 
Investing Activities
Capital expenditures (12.3 ) (8.7 )
Acquisition of and equity investments in businesses, net of cash
acquired
(4.6 ) (276.3 )
Other investing activities, net (0.8 ) 0.1  
Net cash used in investing activities (17.7 ) (284.9 )
 
Financing Activities
Net debt (repayments) proceeds (9.0 ) 31.2
Dividends paid to ordinary shareholders (25.2 ) (19.7 )
Repurchase of ordinary shares (63.8 ) (30.0 )
Other financing activities, net (1.2 ) (2.4 )
Net cash used in financing activities (99.2 ) (20.9 )
 
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
(0.5 ) 1.5  
Net decrease in cash, cash equivalents and restricted cash (130.0 ) (314.4 )
Cash, cash equivalents and restricted cash – beginning of period 290.6   466.2  
Cash, cash equivalents and restricted cash – end of period $ 160.6   $ 151.8  
 

SUPPLEMENTAL SCHEDULES

 

ALLEGION PLC

SCHEDULE 1

 
SELECTED OPERATING SEGMENT INFORMATION
(in millions)
 
Three months ended
March 31,
2019   2018
Net revenues
Americas $ 475.3 $ 439.1
EMEIA 142.9 150.3
Asia Pacific 36.8   23.7  
Total net revenues $ 655.0   $ 613.1  
 
Operating income (loss)
Americas $ 120.9 $ 109.7
EMEIA 10.8 8.5
Asia Pacific (1.5 ) (1.5 )
Corporate unallocated (22.2 ) (18.0 )
Total operating income $ 108.0   $ 98.7  
 
       

ALLEGION PLC

SCHEDULE 2
 

The Company presents operating income, operating margin, net
earnings and 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 on a non-GAAP basis,
and adjusted EBITDA and adjusted EBITDA margin (both non-GAAP
measures). The Company presents these non-GAAP measures because
management believes they provide useful perspective of the
Company’s underlying business results and 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 U.S. GAAP
measures.

 
The Company defines the presented non-GAAP measures as follows:

Adjustments to operating income, operating margin, net earnings,
EPS and EBITDA include items such as goodwill impairment charges,
restructuring charges, asset impairments, acquisition and
integration costs, debt refinancing costs, amounts related to U.S.
Tax Reform (2018 only) and charges related to the divestiture of
businesses;

Organic revenue growth is defined as U.S. GAAP revenue growth
excluding the impact of divestitures, acquisitions and currency
effects; and

Available cash flow is defined as U.S. GAAP net cash from
operating activities less capital expenditures.

 

These non-GAAP measures may not be defined and calculated the same
as similar measures used by other companies.

   
RECONCILIATION OF GAAP TO NON-GAAP NET EARNINGS
 
(in millions, except per share data)
 
Three months ended March 31, 2019 Three months ended March 31, 2018
  Adjusted   Adjusted
Reported Adjustments (non-GAAP) Reported Adjustments (non-GAAP)
Net revenues $ 655.0 $ $ 655.0 $ 613.1 $ $ 613.1
 
Operating income 108.0 4.1 (1) 112.1 98.7 5.5 (1) 104.2
Operating margin 16.5 % 17.1 % 16.1 % 17.0 %
 
Earnings before income taxes 95.4 4.1 (2) 99.5 86.2 5.5 (2) 91.7
Provision for income taxes 15.1 0.8 (3) 15.9 13.8 1.1 (3) 14.9
Effective income tax rate 15.8 %   16.0 % 16.0 %   16.2 %
Net earnings 80.3 3.3 83.6 72.4 4.4 76.8
 
Non-controlling interest 0.1     0.1   0.2     0.2  
 
Net earnings attributable to Allegion plc $ 80.2   $ 3.3   $ 83.5   $ 72.2   $ 4.4   $ 76.6  

 

           

Diluted earnings per ordinary share attributable to Allegion plc
shareholders:

$ 0.84   $ 0.04   $ 0.88   $ 0.75   $ 0.05   $ 0.80  
(1)   Adjustments to operating income for the three months ended March 31,
2019 consist of $4.1 million of restructuring charges and
acquisition and integration expenses. Adjustments to operating
income for the three months ended March 31, 2018 consist of $5.5
million of restructuring charges, acquisition and integration
expenses and backlog amortization related to an acquisition.
(2) Adjustments to earnings before income taxes for the three months
ended March 31, 2019 and 2018 consist of the adjustments to
operating income discussed above.
(3) Adjustments to the provision for income taxes for the three months
ended March 31, 2019 and 2018 consist of $0.8 million and $1.1
million, respectively, of tax expense related to the excluded items
discussed above.
 
 

ALLEGION PLC

SCHEDULE 3

 
RECONCILIATION OF GAAP TO NON-GAAP REVENUE AND OPERATING INCOME
BY REGION
(in millions)
 
Three months ended March 31, 2019 Three months ended March 31, 2018
As Reported   Margin As Reported   Margin
Americas
Net revenues (GAAP) $ 475.3 $ 439.1
 
Operating income (GAAP) $ 120.9 25.4 % $ 109.7 25.0 %
Restructuring charges 1.8 0.4 % %
Acquisition and integration costs 0.4 0.1 % 0.9 0.2 %
Backlog amortization   % 2.9   0.6 %
Adjusted operating income 123.1 25.9 % 113.5 25.8 %
Depreciation and amortization 9.1   1.9 % 8.6   2.0 %
Adjusted EBITDA $ 132.2   27.8 % $ 122.1   27.8 %
 
EMEIA
Net revenues (GAAP) $ 142.9 $ 150.3
 
Operating income (GAAP) $ 10.8 7.6 % $ 8.5 5.7 %
Restructuring charges 0.8 0.5 % 0.2 0.1 %
Acquisition and integration costs 0.1   0.1 % 0.3   0.2 %
Adjusted operating income 11.7 8.2 % 9.0 6.0 %
Depreciation and amortization 8.3   5.8 % 8.4   5.6 %
Adjusted EBITDA $ 20.0   14.0 % $ 17.4   11.6 %
 
Asia Pacific
Net revenues (GAAP) $ 36.8 $ 23.7
 
Operating loss (GAAP) (1.5 ) (4.1 )% (1.5 ) (6.3 )%
Restructuring charges 0.5 1.4 % 0.5 2.1 %
Acquisition and integration costs 0.3   0.8 %   %
Adjusted operating loss (0.7 ) (1.9 )% (1.0 ) (4.2 )%
Depreciation and amortization 1.2   3.3 % 0.7   3.0 %
Adjusted EBITDA $ 0.5   1.4 % $ (0.3 ) (1.2 )%
 
Corporate
Operating loss (GAAP) $ (22.2 ) $ (18.0 )
Acquisition and integration costs 0.2   0.7  
Adjusted operating loss (22.0 ) (17.3 )
Depreciation and amortization 1.1   1.0  
Adjusted EBITDA $ (20.9 ) $ (16.3 )
 
Total
Net revenues $ 655.0 $ 613.1
 
Adjusted operating income 112.1 17.1 % 104.2 17.0 %
Depreciation and amortization 19.7   3.0 % 18.7   3.0 %
Adjusted EBITDA $ 131.8   20.1 % $ 122.9   20.0 %
 
 

ALLEGION PLC

SCHEDULE 4

 
RECONCILIATION OF CASH USED IN OPERATING ACTIVITIES TO AVAILABLE
CASH FLOW AND NET EARNINGS TO

ADJUSTED EBITDA

(in millions)
 
Three months ended March 31,
2019 2018
Net cash used in operating activities $ (12.6 ) $ (10.1 )
Capital expenditures (12.3 ) (8.7 )
Available cash flow $ (24.9 ) $ (18.8 )
 
Three months ended March 31,
2019 2018
Net earnings (GAAP) $ 80.3 $ 72.4
Provision for income taxes 15.1 13.8
Interest expense 13.7 12.9
Depreciation and amortization 19.7 18.7
Backlog amortization   2.9  
EBITDA 128.8 120.7
 
Other income, net (1.1 ) (0.4 )
Acquisition and integration costs and restructuring charges 4.1   2.6  
Adjusted EBITDA $ 131.8   $ 122.9  
 
   
ALLEGION PLC

SCHEDULE 5

 
RECONCILIATION OF GAAP REVENUE GROWTH TO NON-GAAP ORGANIC REVENUE
GROWTH BY REGION
 
Three Months Ended
March 31,

2019

2018

Americas
Revenue growth (GAAP) 8.2 % 7.7 %
Acquisitions and divestitures (0.9 )% (4.7 )%
Currency translation effects 0.3 % (0.3 )%
Organic growth (non-GAAP) 7.6 % 2.7 %
 
EMEIA
Revenue growth (GAAP) (4.9 )% 26.9 %
Acquisitions and divestitures (0.9 )% (5.6 )%
Currency translation effects 7.5 % (15.4 )%
Organic growth (non-GAAP) 1.7 % 5.9 %
 
Asia Pacific
Revenue growth (GAAP) 55.3 % 3.9 %
Acquisitions and divestitures (63.2 )% %
Currency translation effects 5.7 % (3.7 )%
Organic growth (non-GAAP) (2.2 )% 0.2 %
 
Total
Revenue growth (GAAP) 6.8 % 11.7 %
Acquisitions and divestitures (3.3 )% (4.7 )%
Currency translation effects 2.3 % (3.7 )%
Organic growth (non-GAAP) 5.8 % 3.3 %