Allegion’s (NYSE:ALLE) Q4 Sales Top Estimates

Security hardware provider Allegion (NYSE:ALLE) reported Q4 CY2024 results exceeding the market’s revenue expectations, with sales up 5.4% year on year to $945.6 million. Its non-GAAP profit of $1.86 per share was 6.3% above analysts’ consensus estimates.

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“Allegion delivered a record year in 2024 – a year marked by consistent, strong execution, solid margin expansion and balanced capital deployment,” said Allegion President and CEO John H. Stone.

Company Overview

Allegion plc (NYSE:ALLE) is a provider of security products and solutions that keep people and assets safe and secure in various environments.

Electrical Systems

Like many equipment and component manufacturers, electrical systems companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include Internet of Things (IoT) connectivity and the 5G telecom upgrade cycle, which can benefit companies whose cables and conduits fit those needs. But like the broader industrials sector, these companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact projects that drive demand for these products.

Sales Growth

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Allegion grew its sales at a tepid 5.7% compounded annual growth rate. This fell short of our benchmark for the industrials sector, but there are still things to like about Allegion.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Allegion’s annualized revenue growth of 7.4% over the last two years is above its five-year trend, but we were still disappointed by the results.

We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Allegion’s organic revenue averaged 3.9% year-on-year growth. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, Allegion reported year-on-year revenue growth of 5.4%, and its $945.6 million of revenue exceeded Wall Street’s estimates by 0.8%.

Looking ahead, sell-side analysts expect revenue to grow 2.8% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and indicates its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

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Operating Margin

Allegion has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 18.5%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Allegion’s operating margin rose by 5.9 percentage points over the last five years, showing its efficiency has meaningfully improved.

This quarter, Allegion generated an operating profit margin of 19.5%, up 1.7 percentage points year on year. The increase was encouraging, and since its operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as marketing, R&D, and administrative overhead.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Allegion’s EPS grew at a decent 9% compounded annual growth rate over the last five years, higher than its 5.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Allegion’s earnings to better understand the drivers of its performance. As we mentioned earlier, Allegion’s operating margin expanded by 5.9 percentage points over the last five years. On top of that, its share count shrank by 6.9%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Allegion, its two-year annual EPS growth of 12.2% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q4, Allegion reported EPS at $1.86, up from $1.68 in the same quarter last year. This print beat analysts’ estimates by 6.3%. Over the next 12 months, Wall Street expects Allegion’s full-year EPS of $7.53 to grow 2.7%.

Key Takeaways from Allegion’s Q4 Results

It was encouraging to see Allegion beat analysts’ revenue and EPS expectations this quarter. Full-year EPS guidance was in line, providing no surprises. Overall, this was a fine quarter. The stock remained flat at $133.39 immediately following the results.

Is Allegion an attractive investment opportunity right now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.