Allegion (ALLE) Down 10.1% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Allegion (ALLE). Shares have lost about 10.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Allegion due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Allegion Q4 Earnings Beat, Surge Y/Y on Higher Sales
Allegion reported better-than-expected results for fourth-quarter 2022. ALLE’s earnings surpassed the Zacks Consensus Estimate by 16.8% and sales beat the same by 1.5%.
Adjusted earnings in the quarter under review were $1.60 per share, surpassing the Zacks Consensus Estimate of $1.37. The bottom line increased 44.1% from the year-ago period’s $1.11.
Revenue Details
In the quarter under review, Allegion’s revenues were $861.5 million, reflecting growth of 21.5% from the year-ago quarter. Organic sales in the quarter increased 11.4% driven by robust price realization and strong volume in the Allegion Americas businesses.
However, the result was partially affected by weakness in the Allegion International businesses. Acquired assets boosted sales by 13.4%. Forex woes left an adverse impact of 3.3% on revenues. Allegion’s revenues surpassed the Zacks Consensus Estimate of $849 million.
ALLE reported revenues under two segments. A brief discussion of the quarterly results is provided below:
Revenues from Allegion Americas increased 36.9% year over year to $683.9 million. It accounted for 79.4% of the quarter’s sales. Organic sales increased 18% year over year driven by strength in price realization and volume growth in non-residential businesses.
The acquisition contributed 19.5% to the total sales growth. However, forex woes left an adverse impact of 0.6% on revenues.
Revenues from Allegion International were $177.6 million in the quarter, decreasing 15.3% year over year. The metric accounted for 20.6% of the quarter’s sales.
Organic sales decreased 4.3% year over year, while foreign currency translation had a negative impact of 9.9% on sales.
Margin Profile
In the reported quarter, Allegion’s cost of sales grew 20.8% year over year to $510.8 million. The cost of sales was 59.3% of the quarter’s net sales. The gross profit increased 22.4% year over year to $286.5 million, while the gross margin jumped 30 basis points (bps) to 40.7%.
Selling and administrative expenses increased 11.6% year over year to $191.3 million. The metric represented 22.2% of net sales in the reported quarter compared with 24.2% in the year-ago period. Adjusted earnings before interest, tax, depreciation and amortization were $191.7 million, reflecting a year-over-year increase of 40.6%. The margin increased 310 bps year over year to 22.3%.
The adjusted operating income in the quarter increased 44.1% year over year to $167.6 million. The adjusted margin was 19.5%, up from 16.4% a year ago. The results were attributable to the favorable impact of price, productivity, inflation dynamic and positive business mix.
Interest expenses were $23.6 million, up 79.5% year over year due to increased debt as a result of the Access Technologies acquisition along with an increase in variable interest rates. The effective tax rate in the quarter was 3.4%, down from 9.5% in the year-ago quarter.
Balance Sheet and Cash Flow
While exiting the fourth quarter, Allegion had cash and cash equivalents of $288 million, down 27.6% from $397.9 million at the end of fourth-quarter 2021. Long-term debt increased 45.6% to $2,081.9 million from $1,429.5 million at the end of fourth-quarter 2021.
In 2022, ALLE generated net cash of $459.5 million from operating activities, decreasing 6.3% from the previous year’s level. Capital expenditure was $64 million, increasing 41% year over year. The free cash flow was $395.5 million for 2022.
In the same period, Allegion repurchased shares worth $61.0 million, decreasing 85.2% year over year. Dividends paid out totaled $143.9 million, reflecting an increase of 11.6% from the previous year’s level.
Outlook
For 2023, Allegion expects full-year revenue in the range of 9-10.5%. However, the company anticipates organic sales to rise in the range of 2.5-4.5%.
Earnings are predicted to be $5.70-$5.90 per share. Adjusted earnings are likely to be $6.30-$6.50 per share, up 5-9% compared with 2022 adjusted earnings of $5.99.
The company continues to expect a free cash flow of $470-$490 million. The tax rate in the year is expected to be 15-15.5%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
VGM Scores
At this time, Allegion has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise 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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Allegion PLC (ALLE) : Free Stock Analysis Report
