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Why Is Allegion (ALLE) Down 0.9% Since Last Earnings Report?

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Zacks Equity Research
·3 min read
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A month has gone by since the last earnings report for Allegion (ALLE). Shares have lost about 0.9% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Allegion Q1 Earnings & Revenues Surpass Estimates

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

Earnings & Revenues Rise

Quarterly adjusted earnings were $1.04 per share, beating the Zacks Consensus Estimate of 91 cents. Notably, the bottom line was 18.2% higher than the year-ago figure of 88 cents. The upside can be primarily attributed to solid sales growth.

Revenues totaled $674.7 million, up 3% year over year. Moreover, the top line surpassed the consensus estimate of $670 million. Revenues rose 4.3% on an organic basis. The rise was backed by strength in businesses in the Americas region, partially offset by weakness in end markets in the EMEIA and Asia Pacific regions as well as the initial impact of coronavirus-led issues.

Segmental Breakup

Revenues in the Americas rose 7.7% year over year to $512.1 million, driven by growth in non-residential and residential businesses as well as strength in the electronics business. EMEIA (Europe, Middle East, India and Africa) revenues declined 9.1% to $129.9 million on account of soft end markets, coronavirus related issues, adverse impacts of divestitures, and unfavorable foreign exchange movements. Revenues in the Asia Pacific fell 11.1% to $32.7 million in the quarter, reflecting weak end markets in Australia and adverse impacts of unfavorable foreign exchange movements.

Costs Increase, Margins Improve

In the first quarter, Allegion’s cost of sales increased 0.9% year over year to $381.6 million. Gross profit grew 5.9% to $293.1 million, while gross margin improved 110 basis points (bps) to 43.4%.

Selling and administrative expenses decreased 0.6% year over year to $167.9 million.

Adjusted operating margin expanded 190 bps to 19%.

Balance Sheet & Cash Flow

As of Mar 31, 2020, Allegion had cash and cash equivalents of $245.3 million, down from $355.3 recorded on Dec 31, 2019.  Long-term debt was $1,428 million, slightly up from $1,427.6 million recorded at the end of 2019.

In the first three months of 2020, the company generated net cash of $30.8 million from operating activities compared with $12.6 million used in the year-ago comparable period. Capital expenditure totaled $11.8 million compared with $12.3 million in the year-ago comparable period.

2020 Guidance

On uncertainties, regarding the impacts of the coronavirus outbreak on financial and operating results, Allegion has withdrawn its revenue and earnings guidance for 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -38.4% due to these changes.

VGM Scores

Currently, Allegion has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 C. 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 this revision indicates a downward shift. 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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