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Allegion (ALLE) Up 10.8% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
·3 min read

A month has gone by since the last earnings report for Allegion (ALLE). Shares have added about 10.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Allegion due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Allegion Earnings & Revenues Surpass Estimates in Q3

Allegion has reported better-than-expected results for third-quarter 2020, wherein both adjusted earnings and revenues surpassed the Zacks Consensus Estimate.

Earnings Rise, Revenues Decline

Quarterly adjusted earnings were $1.67 per share, beating the Zacks Consensus Estimate of $1.20. Notably, the bottom line was 13.6% higher than the year-ago figure of $1.47. The improvement was driven by lower operating expenses.

Revenues totaled $728.4 million, down 2.7% year over year. However, the top line beat the consensus estimate of $664 million. Revenues fell 3.4% on an organic basis. The top-line performance was adversely impacted by the coronavirus outbreak-related issues.

Segmental Breakup

Revenues in the Americas fell 5.1% year over year to $539.1 million, owing to softness in non-residential and electronics businesses.

EMEIA (Europe, Middle East, India and Africa) revenues grew 7.7% to $148.4 million on higher sales volume, partially offset by adverse impacts of divestitures.

Revenues in the Asia Pacific fell 4.2% to $40.9 million in the quarter, reflecting weak end markets in Korea, partially offset by positive market conditions in Australia.

Costs & Margins Details

In the third quarter, Allegion’s cost of sales decreased 0.9% year over year to $409.2 million. Gross profit fell 4.9% to $319.2 million, while gross margin contracted 100 basis points (bps) to 43.8%.

Selling and administrative expenses decreased 6.7% year over year to $156.2 million.

Adjusted operating margin expanded 20 bps to 23.3%.

Balance Sheet & Cash Flow

As of Sep 30, 2020, Allegion had cash and cash equivalents of $428.9 million, up from $355.3 recorded on Dec 31, 2019.  Long-term debt was $1,428.9 million, up from $1,427.6 million recorded at the end of 2019.

In the first nine months of 2020, the company generated net cash of $289.4 million from operating activities compared with $279.4 million in the year-ago comparable period. Capital expenditure totaled $33.3 million compared with $49.4 million in the year-ago period.

2020 Guidance

Allegion provided its financial outlook for 2020.

Adjusted earnings per share are expected to be $4.75 to $4.80 compared with $4.15-$4.30 guided earlier.

The company expects 2020 revenues to decline 6-6.5% on both reported and organic basis.

Adjusted effective tax rate is anticipated to be approximately 13% for the year.

Available cash flow is expected to be $400-$420 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Allegion has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Allegion has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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