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Allegion plc
CEO : Mr. John H. Stone

Quarterly earnings growth(YoY,%)

Period	Revenue	Operating Income	EPS	Release Date
2022 Q4	21.5% YoY	38.5%	22.2%	2023-02-22

Mike Wagnes says,

Q4 2022 Earnings Call Highlights

• Adjusted earnings per share for Q4 2022 was $1.60, a 44.1% increase compared to the previous year.
• Organic revenue growth for Q4 2022 was 11.4%.
• The Americas segment had an 18% organic growth in Q4 2022, driven by price and volume growth.
• Access Technologies integration contributed nearly 20% to the Americas reported growth number.
• Allegion International segment had a 4.3% organic decline in Q4 2022 due to reduced volumes from softening end markets.
• Available cash flow for 2022 was $395.5 million, down $47.7 million compared to the previous year.

John Stone says,

Market Dynamics

• Strong demand in the Americas non-residential segments and global electronics.
• Softness in residential markets due to inflation and higher interest rates.
• International end markets softening due to macroeconomic and geopolitical conditions.
• Engineering redesigns and alternate supply actions delivering results.

Financial Results

• Revenue for Q4 2022 was $861.5 million, an increase of 21.5% compared to 2021.
• Organic revenue growth was 11.4%, driven by strong price realization and volume in Americas non-residential business.
• Adjusted operating margin and adjusted EBITDA margins increased by 310 basis points each in the fourth quarter.
• Adjusted EPS of $1.60 increased $0.49 or approximately 44% versus the prior year.

2023 Outlook

• Revenue growth expected to be 9% to 10.5%, with organic growth of 2.5% to 4.5%.
• Adjusted EPS on a recast basis will be up 5% to 9%.

Supply Chain Resiliency

• Adding a 350,000 square foot manufacturing facility in Central Mexico to increase supply chain resiliency.
• Vertically integrated to build components and products in-house that were previously sourced.
• Expected to increase manufacturing capacity and improve future cost position.
• Production expected to start later this year.

Q & A sessions,

Expected Revenue Growth

• The company projects total revenue to be up between 9% and 10.5%, with organic revenue growth of 2.5% to 4.5% in 2023.
• In the Americas, total growth in the low to mid-teens is expected, with organic growth around 4% to 6%. Electronics growth is expected to be strong.
• Non-residential market demand in the Americas continues to be strong, with growth in the mid to high-teens for the non-res business (inclusive of the Access Technologies acquisition) and high single-digits organically.
• Residential markets have softened, and the residential business is expected to be down slightly, driven by the slowdown of single-family new construction.
• The international segment is expected to have relatively flat revenue as end markets continue to soften, with total revenue projected to be in the minus 1% to plus 1% range and organic revenue between minus 2% and flat.

Expected Earnings Per Share

• The outlook for adjusted earnings per share is expected to be between $6.30 and $6.50, inclusive of the reporting change effective January 1, 2023, to exclude all acquisition-related amortization.
• Reported EPS is projected to be between $5.70 and $5.90 and excludes approximately $0.40 per share for acquired intangible asset amortization.

Expected Cash Flow

• Available cash flow for 2023 is expected to be in the $470 million to $490 million range.

Electronics as a Growth Driver

• The electronics business is expected to be a double-digit growth driver for the company, and the company is continuing to invest and refresh the products.
• There is a long runway ahead for smart home ecosystems, and the functionality of phone-connected locks is quite attractive to a lot of people.

Supply Chain Challenges

• The constraint is the semiconductors themselves, microprocessors in particular, and the demand has still outstripped supply and capacity all the way back to the foundries.
• The company has been working to expand the quantity of supply, and while improvements have been seen, there is still supply constraint versus very strong demand.

Future Growth Strategies

• The company plans to continue investing in R&D for electromechanical products and building the portfolio.
• The company has acquired Plano in Germany, building more of the Software-as-a-Service business in the International segment.
• The company plans to be more acquisitive in the future, as the right asset comes available at the right price.
• The company is building a facility in Central Mexico, in-sourcing and near-shoring previously sourced product, and has a lot of expansion capability to it.