Allegion (ALLE) Q4 Earnings Beat, Surge Y/Y on Higher Sales
Allegion plc ALLE reported better-than-expected results for the fourth quarter of 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. Our estimate for fourth-quarter adjusted earnings was 48 cents. 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. Our estimate for net sales in the reported quarter was $846.9 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. Our estimate for segmental revenues was $681.4 million. 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. Our estimate for segmental revenues was $165.5 million.
Organic sales decreased 4.3% year over year, while foreign currency translation had a negative impact of 9.9% on sales.
Allegion PLC Price, Consensus and EPS Surprise
Allegion PLC price-consensus-eps-surprise-chart | Allegion PLC Quote
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%.
Zacks Rank & Other Stocks to Consider
ALLE currently has a Zacks Rank #2 (Buy). Some other top-ranked companies from the Industrial Products sector are discussed below:
MRC Global Inc. MRC presently has a Zacks Rank of 2. MRC’s earnings surprise in the last four quarters was 10.7%, on average. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks.
In the past 60 days, MRC Global’s earnings estimates have increased by a penny for 2023. The stock has rallied 16.6% in the past six months.
A. O. Smith Corporation AOS presently carries a Zacks Rank of 2 and a trailing four-quarter earnings surprise of 3.2%, on average.
AOS’ earnings estimates have increased 4.1% for 2023 in the past 60 days. Shares of A. O. Smith have risen 7.2% in the past six months.
Valmont Industries, Inc. VMI presently has a Zacks Rank of 2. VMI’s earnings surprise in the last four quarters was 12.5%, on average.
In the past 60 days, Valmont’s earnings estimates have remained steady for 2022. The stock has rallied 13.6% in the past six months.
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