Allegion plc (ALLE Quick QuoteALLE - Free Report) reported better-than-expected results for third-quarter 2022. ALLE’s earnings surpassed the Zacks Consensus Estimate by 13% and sales beat the same by 4.7%.

Adjusted earnings in the quarter under review were $1.64 per share, surpassing the Zacks Consensus Estimate of $1.45. The bottom line increased 5.1% from the year-ago period’s $1.56.

Revenue Details

In the quarter under review, Allegion’s revenues were $913.7 million, reflecting growth of 27.4% from the year-ago quarter. Organic sales in the quarter increased 18.6% 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 12.4%. Forex woes left an adverse impact of 3.6% on revenues. Allegion’s revenues surpassed the Zacks Consensus Estimate of $873 million.

ALLE reported revenues under two segments. A brief discussion of the quarterly results is provided below:

Revenues from Allegion Americas increased 42.5% year over year to $747.2 million. It accounted for 81.8% of the quarter’s sales. Organic sales increased 25.8% year over year driven by strength in price realization and volume growth in both non-residential and residential businesses.

Access Technologies’ acquisition contributed 16.9% to the total sales growth. However, Forex woes left an adverse impact of 0.2% on revenues.

Revenues from Allegion International were $166.5 million in the quarter, decreasing 13.6% year over year. The metric accounted for 18.2% of the quarter’s sales.

Organic sales decreased 0.8% year over year, while foreign currency translation had a negative impact of 12.8% on sales.

Margin Profile

In the reported quarter, Allegion’s cost of sales grew 31% year over year to $545.7 million. The cost of sales was 59.7% of the quarter’s net sales. The gross profit increased 22.5% year over year to $368 million, while the gross margin contracted 160 basis points (bps) to 40.3%.

Selling and administrative expenses increased 26.5% year over year to $ 205.1 million. The metric represented 22.5% of net sales in the reported quarter compared with 22.6% in the year-ago period. Adjusted earnings before interest, tax, depreciation and amortization were $215.4 million, reflecting a year-over-year increase of 32.7%. The margin increased 100 bps year over year to 23.6%.

The adjusted operating income in the quarter increased 33.8% year over year to $191.6 million. The adjusted margin was 21%, up from 20% a year ago. The results were attributable to the favorable impact of price, productivity, inflation dynamic and positive business mix along with volume leverage associated with the growth of Allegion Americas.

Interest expenses were $23.1 million, up 87.8% year over year. The effective tax rate in the quarter was 14.3%, up from 2% in the year-ago quarter.

Balance Sheet and Cash Flow

While exiting the third quarter, Allegion had cash and cash equivalents of $282.2 million, down 29.1% from $397.9 million at the end of fourth-quarter 2021. Long-term debt increased 54.9% to $2,214.5 million from $1,429.5 million at the end of fourth-quarter 2021.

In the first nine months of 2022, ALLE generated net cash of $267.1 million from operating activities, decreasing 25.1% from the previous year’s level. Capital expenditure was $41.5 million, increasing 44.6% year over year. The free cash flow was $225.6 million for the first nine months of 2022.

In the same period, Allegion repurchased shares worth $61.0 million, decreasing 71.3% year over year. Dividends paid out totaled $107.9 million, reflecting an increase of 11.4% from the previous year’s level.

Outlook

For 2022, Allegion affirmed its full-year revenue outlook of 13-14%. However, the company now expects Organic sales to rise 9.5-10.5% from 9-10% projected earlier.

Earnings are predicted to be $4.90-$5.00 per share compared with $5.05-$5.15 projected earlier. The Zacks Consensus Estimate for 2022 earnings stands at $5.38. Adjusted earnings are likely to be $5.40-$5.50 per share compared with the earlier projection of $5.35-$5.45.

Incremental investment is expected to be 17 cents per share compared with 20 cents per share projected earlier. The company continues to expect a free cash flow of $420-$440 million. The tax rate in the year is expected to be 13.5% compared with 13% predicted earlier.

Zacks Rank & Stocks to Consider

Allegion currently carries a Zacks Rank #4 (Sell).

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