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Allegion (ALLE) Down 10.9% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Allegion (ALLE). Shares have lost about 10.9% 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 Q2 Earnings and Revenues Miss Estimates

Allegion reported disappointing results for second-quarter 2019, wherein adjusted earnings and revenues lagged the Zacks Consensus Estimate.

Earnings/Revenues

Quarterly adjusted earnings came in at $1.26 per share, missing the Zacks Consensus Estimate of $1.31. However, the bottom line was 0.8% higher than the year-ago figure. The upside can be primarily attributed to solid sales growth and improved operating income.

Revenues came in at $731.2 million, up 3.8% year over year. However, the top line missed the consensus estimate of $743.7 million. Revenues improved 3% on an organic basis. The rise was backed by strength in Americas non-residential business, strong pricing and acquisition benefits, partially offset by adverse impacts of unfavorable foreign exchange movements.

Revenues in the Americas rose 3.5% year over year to $545.1 million. EMEIA (Europe, Middle East, India and Africa) revenues declined 3.8% to $142.2 million. Revenues in the Asia-Pacific surged 45.8% to $43.9 million in the reported quarter.

Costs/Margins

In the second quarter, Allegion’s cost of sales escalated 2.9% year over year to $410.5 million. Gross profit grew 4.9% to $320.7 million while gross margin improved 50 basis points (bps) to 43.9%.

Selling and administrative expenses jumped 7.9% year over year to $175 million.

Adjusted operating margin expanded 20 bps to 21.5%.

Balance Sheet/Cash Flow

As of Jun 30, 2019, Allegion had cash and cash equivalents of $157.8 million, down from $283.8 recorded on Dec 31, 2018.  Long-term debt was $1,393.1 million, down from $1,409.5 million recorded at the end of 2018.

In the first six months of 2019, the company generated net cash of $107 million from operating activities, down 9.9% from the year-ago period. Capital expenditures totaled $29.3 million compared with $20.9 million a year ago.

2019 Guidance

Adjusted earnings per share are now expected in the range of $4.80 to $4.90 compared with $4.75 to $4.90 guided earlier.

The company expects full-year 2019 revenue growth on both reported and organic basis in the band of 4.5-5.5%.

Full-year adjusted effective tax rate is anticipated to be 16%.

Available cash flow is targeted to be approximately $410-$430 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

Currently, Allegion has a strong Growth Score of A, though it is lagging a lot 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 trending upward for the stock, and the magnitude of this revision has been net zero. Notably, Allegion has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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