ALLE - Earnings call transcript Q2 2022

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Operator

Good morning, and welcome to the Allegion Q2 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note. this event is being recorded. I would now like to turn the conference over to Tom Martineau, Vice President of Investor Relations. ahead. go Please

Tom Martineau

Stone; Thank quarter everyone. Executive joining for Wagnes. Officer, us Dave Chief President Good Officer, Financial earnings you call. second Mike John Executive Chief XXXX President are Senior With Allegion's Vice Petratis; and morning, and for and me Chairman, today

Today's Our be at X in Slides facts to recent and provisions that X. go of are today's presentation, our measures. in SEC the commentary tables statements earnings details. some available Please issued obligation cause forward-looking description may recorded and investor.allegion.com. website. we which release for include our projections. to on reconciliation federal the that the presentation to differ historical morning which on in made factors of of this further not The was securities for and financial to call website law. statements. materially most This are and call, will non-GAAP the call will results today's and our our Harbor release, filings our earlier refer to press pursuant archived actual the refer Statements these assumes forward-looking from Safe are are update made company Please of see considered no financial to Please

themselves Please, short limit queue. We session. to the Q&A, the for to follow-up second followed XXXX quarter each and discuss would caller by will we question our reenter now a one results which Q&A and then ask be like to will one

Dave. the turn I'll over to Now, call

Dave Petratis

X. Slide today. and Please Thanks, joining to for morning us Tom. Good number thank you go

May, talent, few as for Allegion the to Allegion to And right right I two also by its Stone right a Before service to to a a and its from Army and access significant my our execute Allegion. announcements with to leading has in and about a West the new retire background his In we privilege to country start overview world Officer graduate, last I'm successfully you from the happy for quarter, profitable John's foundation It's Point say, our is Allegion CEO of take right and Veteran. I the vision plans as chapter. incoming under want provide leader John the a John and He seamless technology. business President acknowledging from been strategy, and into layering months. innovation core shared has and for announcing the by learn next you to know leadership. growth, of John record manufacturing business safer engineering building sustainable of and track on financial

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John Stone

has strong team visiting I'm products, more I know weeks, a the coming Thank I quarters. customers higher our everyone. highly better sites and our for access employees, our you in you, super deeper world. for and agree joining and our getting learning to by time. of lot business great that our foundation. Dave. customer to relationships I to test you to I'm brands, our alongside great motivated energized a it's forward the sound good strong morning looking investors, the of vision am really pioneering got a experts. of call. right that know Allegion. purpose here, culture, each exciting of Back Dave a a very by time Allegion coming to be Dave, We've the and to forward have and getting you, safer level looking to Yes. Thank motivated of seamless our with stood our at feel part over a safety of you be

Dave Petratis

part Access us gap Stone. to category quarter, Slide strategic a In more from portfolio. connected. we Allegion the our of to shared better intent a X, Technologies to number Allegion's We're business as an the more this a my announce innovation. of adding XX of incredible over of a the Thank Allegion John Please that go to second you, network in been high has a American leader acquire which you, North has and the access John. to happy years with one of that experiences and support portfolio, history entrance our now seamless will Access devices investment I'm of growth addresses career. Automatic turn Technology service position And proud reins organization the become professional honor strategy The and Stanley. bolsters Leading X. is is than Technology most Allegion's business I'm that family. market Access solutions rewarding to July

customers grow our we financial time, broader of deliver long-term Allegion with Simply half Access stronger over the now Access able to synergy go profile we for provides put, second services continuing Allegion, solutions incremental this our to expected a And offer as are impacts want Technology I Access for business At part for financial of to bringing Technology's creating a Importantly, and and the creation Allegion’s profitably. Technologies shareholders. XXXX. will value also we're that opportunities. revenue clear to company and long-term believe

top to business expect We Americas growth segment. the full-year for the number in the deliver X% line approximately

talent We Breaking further, impact business the deliver Access be a is amortization of X. intangible projecting the excited impact. our approximately share per business and to asset related go to organization. expected to bring $X.XX increased Americas I per expertise by $X.XX per to Access Allegion global – the to to dedicated who expense of negative share interest that drive earnings will safety, Please here. Technology’s adjusted to to our that diluted by negative team security, number service Slide employees welcome by Technology's the EPS well non-cash proud and you down $X.XX immense reiterate are in in as is We're is share share to operational expected $X.XX and per want also as segment, offset XXXX. the deal financing have

As showing non-residential indicators we demand conditions, expansionary strong very remains that American at business are market and readings. we look continue. Leading to expect

softening international, of we to see some we segment COVID that the the Americas zero levels. are impacted negatively are volume. side, seeing from have flip International the geopolitical China policies beginning instability and and impacts On markets tolerance in residential robust Allegion In previous in

redesigns actions, the us progress availability component have continue, in supply the Electronic actions of and for set We product alternative mechanical up improving taken and for chain our resulted have on challenges sourcing we products. better continue remainder XXXX. component however to the make which year

inflation. and entire in strong again quarter inflation across organic of the QX portfolio. remain we Price cost, we We need expect of versus to vigilant in quarter price at for increases. to that quarter. the Price the in the realization – for and assess accelerated will that in future continue price price ensure the exceeded price driver the productivity the the was to exceeds remainder year. delivered and Looking growth Allegion increase

headwinds the reported pressure strengthens. reflect to noted million revenues International Lastly, the of is full-year quarter, of related Allegion $X.XX pressure EPS business as to in exchange second significant our foreign our in share. And our are driving the per currency currency reduction release, outlook experiencing press a effect rates. XX as dollar currency In

EBITDA investments, increased you a negative productivity, share impacts Now, last the lockdowns XX Revenue was inflation, XXXX X% revenue include business, by realization year. X.X%. and softening second versus by respectively by and declines margins driven updated through Please income, second increase the cost, favorable the on impacted in go robust prior XXXX per favorable increase up more the The QX X. FX, driven points and Mike the to incremental rate. revenue more for or organic by will outlook. rate other markets. driven which electronic business quarter. catch associated was negative operating more European basis detail driven was America's margin Organic was an and the exceeding growth than quarter adjusted business driven of year It moment. Slide corporate by volume of basis in was Adjusted residential million, volume year will price by significant with and favorable and by performance XX X.X%. offset mix, growth was and segments more in shortages. points The a which performance also which X.X%, investments. in count for organic our $X.XX to operational details. tax volume $X.XX Strong of let's a backlog. Adjusted the prior the to of to than current but walk share comparing compared China Allegion increase the growth against was turn deleverage share that approximately from quarter earnings the XXX and impact year. were COVID-XX now The faced on financials Mike offset quarterly Allegion favorable price delivered parts COVID related International price, increased

Mike Wagnes

to and and John to want Thanks, new Slide go as morning, welcoming Technology per share for Please reconciliation CEO Access in Dave, Allegion. Dave's President reflects number earnings the to our good in our X. comments employees everyone. I welcoming slide quarter. second echo This and

$X.XX, Strong driven $X.XX related For net was the of share performance $X.XX the charges non-residential share business. and per the share business significant driven access $X.XX, prior business reported compared and year. reduced of second Favorable $X.XX. per we price, by a rate quarter which Americas share the per A the and on drove invest to drag share $X.XX. restructuring adjusted earnings strength tax $X.XX of XXXX, increased income per drove year-over-year by expand another The Investment pressure to share expenses, earnings quarter of increased $X.XX by earnings spending and higher earnings seamless was This our count share. in strategy. per X.X% earnings XXXX Adjusting earnings FX. increase the the share XXXX to other and share as $X.XX reduction. and capabilities, earnings combination was to per inflation operational of to exceeded per in acquisition related per interest per results divestitures our mix another acquisition drive fuel $X.XX by electronic long-term an continue $X.XX results of by and impact the share an growth, adjusted second $X.XX had of per or

a $X.XX. I’ll the $X.XX quarter. components Lastly, gains per items, these per related slide to total go we number the quarter and you giving to and This After share revenue the results at of of earnings share Please second the for reduction their debt had to non-operating respective Allegion net depicts from focus XXXX regions our financing on slides. on arrive Slide costs. cover X. performance the reported charges restructuring, effect acquisitions, and of

we growth the second strong indicated, revenue As price quarter, realization. X.X% driven in by experienced organic

is our company supply year. actions the volume which from the was Americas last see Although strength in we non-residential to our business, chain total did significant over starting down, benefit

X.X% were As There from reported small acquisitions reduced Please bringing currency previously, was a QX. reported significant go the mentioned to to in for and impact growth total Slide quarter XX. number X%. the headwinds by revenue

by QX. Both businesses non-residential the Pricing X.X% prior when down with quarter delivered at residential on volume the coming XXX.X The teens electronic in segment mid-teens component shortages XXX electronic up strong was basis pressure in adjusted single continued realization grow Americas primarily and availability. down helped by operating year XXX million, delivered X% the sequential down Americas a quarter. improvement were and and to ability revenue growth. Electronics revenue and from driven Second backlogs significant meet limit margin driven digits, adjusted our demand. EBITDA related The fully basis points, was combined reported for non-residential high was the segment business components for X.X% COVID up a respectively. and on margins was price basis that organically. catch-up low margin pricing. a points in performance Residential QX the quarter

go dilutive price margins. Please Slide to basis, For exceeded headwinds the inflation quarter, number a XX. productivity and on but dollar to operating were

experienced segment declines International driven up growth and revenues realization, in related U.S. a was shutdowns pressures The as by Allegion COVID has headwinds impact the as currency and volume by XXX.X revenue down The organically. price than geopolitical solid a in to other quarter the XX.X% against strengthened negative basis substantially result Second of offset our was Europe. reported for million, which China more dollar X.X% foreign organic on X.X% reduced reported currencies.

to year than quarter XXX Please down to adjusted decreased exceeding offset margins FX, international and was last a compared decrease compared historical price working unfavorable decline pandemic. the the EBITDA driven half to and flow year. year's points. for and more basis Second primarily of cash were of Year operating XX in favorable impact investments more date incremental due in-line basis to margins The XX.X the the XXX is The million million, and points, XX.X at from prior than came inflation. volume was lower XXXX cash XX. million, impacts which is go that of more Slide by Last with mix, adjusted levels. driven by available first capital, margin productivity to number flow

business, and full-year expected XXXX of to offset chain related This XXX cash due that cash inventory to transaction. entering The to related Technologies between revised serve flow position us of from ACF the The and million reduction to by projecting prior non-residential integration outlook to supply in create flow million. the outlook the available primarily operational includes be in customers. better XXX now are backlogs, is We investing our will to resiliency impact strong to acquisition costs inclusive which Access flows cash manage and elevated demand. the to are XXXX be

the on X. of business closed we issuing and revolver. of transaction utilization notes was funded on acquisition July Technologies earlier, discussed senior Access As our by The

on the our of in we the Consistent after number This from attention peaks. residential complete be dividends, announced year to positive, robust indicators markets leading Board strong. specifications be to which remainder Please we the expected paying to excess revenue revised COVID the industry, the to macro of pay continues turn We when now to the Slide remain go with debt we to taken cash to Non-residential mentioned use level during robust, to and level softening down Americas see the continues short-term transaction. are As outlook. to acquisition, expect beginning the generated broader of to subject be are would signs approval. XX.

the long-term undersupply However, we price result, remain in to positive solid opportunity the substantial more will to on the year homes price demand products electronic of than aggressive of inflationary growth the residential the headwinds. and and due as channels offset remainder deliver all been expect adoption. that and trend pursuing in for of a meet long-term realization We've to in

As the Technologies growth noted deliver previously, newly we Americas revenue. Access for expect approximately X% acquired full-year the business to reported

be XX%. and driven revenue organic up the in experienced to ongoing to the the XX% up these to to improvement price Americas be With The total in pressures. to organic Americas we increase Allegion XX% primarily revenue now projecting sequential outlook price place, is in for realization. are growth offset parameters by International inflationary XX%

we see markets and However, pressures to to are currency are beginning soften continue. anticipated

All X%. International, X% coming X% Slide we Allegion for the go to X% be Please XX% growth organic down XX. increasing to growth total Allegion, XX% in at with total revenue revenue a in organic in to revising outlook to expect For to with XX%. revenue to we our X% range to be are for

includes outlook, $X.XX. adjusted ranges be discussed from These This incremental per to into we share, and acquisition to negative reduction include approximately related between pressure. expecting per earlier. outlook $X.XX the EPS the The $X.XX per updated related prior range outlook Technologies Access XX% impact as also $X.XX outlook currency of approximately investments to come are to reported For EPS $X.XX the a our a $X.XX share share. to EPS assumes to of

Technologies outlook which incremental for negative remarks. This the related to some financing That the impact included investment and R&D slight our not impact rates per hand technology a include increase to to have per investments is expense will interest variable and on the accelerate seamless is base reminder, growth the the to to predominantly acquisition, Also secured Access is access driven share revised a an the included overall from in a related $X.XX increase As will in in Dave back does by $X.XX transaction. dilution close business. in we future strategy. acquisition. spend interest I the closing it share now support

Dave Petratis

the XX. seamless CEO. Slide welcome main and its Stone knowledge Mike. heard things number excited as help is up of today, Thank John to wealth you, He go and To Allegion a wrap journey. to Please access President on expertise will you Allegion that brings

supply still inflation a chain locations also backlog core be and questions. ongoing help strategic sitting supply near term excited Technologies is take welcome with healthy cycle chains to levels for plus the over now have indicators With nature your and would that future, be as been robust. for I normalize. in this fuel continue that, of growth should exceed productivity taken Leading actions Allegion. with to will Mike that are to a to positive. Americas markets business, positive on productivity has given realization we We inflation. bodes future turned efficiency the to to driving year price the happy Non-residential late the well a are and The we expands business. category pricing Allegion and realization have continue drive significant Access is dynamic price Globally, This price our investment manufacturing leader along that our and and productivity market in will

Operator

go Julian question line from the is of ahead. Please with Barclays. you. Thank first Mitchell Instructions] [Operator The

Julian Mitchell

all wish Thanks and help you thanks best much very Dave the and and to Hi, good working with look forward for your John. morning.

demand – you the a where U.S. year-on-year, on residential you've understand terms very ago. destock tough – second should question are sort the probably the the of happen, the maybe had to guess us worse help today, had first had, of around comp the in residential on business, you In comps I is probably of understand kind inventories, thought half a resi sort months on get but broader of easier few in channel? quarters that of and than be The would several backdrop

So, what the we residential of second year in behind of maybe get it? help slope the half understand, the revenue us growth should of kind and assumptions

Dave Petratis

positive Julian, So, you been back XX but there's chips. electronic of XXXX. on still R&R, in comments, undersupply support housing. moved of your some I went XX, When into and think to some see have through maybe residential the this hit the through market. we continue for dramatic softening your thank noise, which the build has lack residential. I We'll and over and an – over be half the second for supply chain, of this We because res the but pretty have over harder We last questions, been in about years. the We'll months. momentum

between I family think homes. to build nation's million the and a got single XXX,XXX

change. we think I at So, opportunity that's look net as the

Mike Wagnes

do guide second up think in give guides, And against but the quarter had that comp – Julian, the that prior we year. business. with year if for We you outlooks you. about just agree total, last in went Americas just don't I'll We residential

versus year. easier The comps for year is much this last half second

Julian Mitchell

terms the timing they retain how out you. gross those perhaps your have Thank thoughts savings the to margin of or of And back to I And the, margins then the those the see around when second in help through And commodity prices, just those my when of price on helpful. you around rolling spot the question can lower into they declines customer? Any starting costs based think gross passed be updated margin? you do recent would in do in That's dynamics. of be the back plays terms impact half? that suppose cost you to in come sort might

Dave Petratis

Yes.

we be slightly struggled would at that pressures as productivity prices to quarters continues half, that behind about do In So, have raise full-year cost, Like We in productivity QX. positive year. of look be that. and put in Julian, price the we price think half now to inflation. the both additional as last We to said, for in positive. taken to price the we inflationary efforts half positive. the and we QX, we substantial end and be actions for We inflation we back we've positive are the back get mitigate to back you pricing had got we'll improvement

price As back that the margin a result, half. in see productivity inflation as you'll as positive, well expansion

prices, If those are down. you think commodity spot coming about prices

commodity the is been still historic decrease norms. we from and to had you those that we've As something adequate that in meet inventory feel orders because parts XXXX demand versus, see public elevated putting prices that markets, we purchase have. they're ensure not say in Any we to

think we're productivity think back as you and in inflation, about price net plus full-year expanding margins. of as to So, half it back the a

Julian Mitchell

you. Thank Great.

Operator

Thank you.

of Next line Research. MacGregor sir. from ahead, Longbow the Please with question is go David

Joe Nolan

for Hi. Joe Nolan on quarter, guys. is David. Congrats nice a This on

Dave Petratis

Joe. Thanks. Hi,

Joe Nolan

So, or inventory increase And in cautious signs are macro that a wondering non-residential I you any wondering, seeing in business, order getting distributor holding slowing how you more inventories just talk can cancellations about also distributors look? was Americas just environment? the within about maybe just

Dave Petratis

to would back Remember say I big would COVID. XX normalized. I distributor as bring question. gain inventory it's was and I the they through, solid. wholesale intelligently. second the would in about second pull are which say the the of deficiencies a typically for we will play price orders say, of there we They'll say, portfolio, Wholesalers would but some as within months a I to increase pull are those think half I There earlier over our electronics, normalized. would be ago say ahead it's opportunity a price which of year. increase create themselves, half margin would improve entered

Mike Wagnes

last if we've – business, chain say think challenges you the had that year. such of Yes, supply I our would

looking So, move for is distribution to this product. base year, forward our we as

So, we backlogs. have backlog. very strong, Demand is healthy very elevated

we move the very confident we So, about feel as forward, non-residential business.

Dave Petratis

teams also a it. nine at good base on and suggest XX a not to XX indicators non-residential months work strong I our say, construction would with cancellations, right flow. months very There's product would the demand months touch for seeing of for backlog activity. There's in a

Joe Nolan

it. Got

Okay. Thank you. as can existing whether quick your And talk Access acquisition just adds be wise what you aftermarket on Thanks. business, a Technologies margins revenue business it then accretive the just the about to this would and on follow-up or to dilutive business?

Mike Wagnes

Yes.

think we was you announced business it about the Technologies, that Access XX% about talked April, revenue. in If when we of service

business don't to in level, Americas. Our a revenue the today, we especially have substantial service

in We we but have the in capability. international, out have that service some Americas, don't the

So, leverage portfolio existing our their a asset we Americas add strengths. our as with this great to to strengths Allegion is

Dave Petratis

the opportunity. I by add revenues recurring that and component and to service seamless access required on ability in vision smart customers would the through our our grow of like devices services, doors, connected the becomes edge we the

Mike Wagnes

you about Technologies, business is, margins. And of also some EBITDA in April we guidance it that a about how Access call, I When as think the think margin. asked gave mid-teen you think

Joe Nolan

it. Got

Okay. along. Thank much. it pass very I'll you

Operator

you. Thank

is with Mizuho. Linzey ahead, question Please line the Brett go from sir. Next of

Brett Linzey

Hi, to of luck, today, and John. good morning best and congrats welcome

John Stone

Thank you.

Dave Petratis

Thank you.

Brett Linzey

you snap product see for back as here still those to of redesigns in growth up new the these the to electronics uneven should suppliers chip some still of the the guess of few show and be work ramping kind or uneven we gotten come back to closer here, this activity electronic some continues just to the you through with next performance as quarters designs? wanted of here coming the to second expect mean constraints. you've kind new I Just I do half

Mike Wagnes

Brett, the has half as with about prior year. better so as the you comparable. a should growth growth, be prior much Electronics percentage from of back growth it you think about think in year revenue to do

In addition, product we of the driving signs activity been the redesign. related improvement to we've are on seeing

than half lead we the should those in areas what both second better half. experienced growth So, first to

Brett Linzey

one. ex-amortization? and big the so it. got just coming the a should be, second repeat, and year Okay, sort you within related to follow-up to moving integration guidance ownership? Access is number, time about about just the the now of anything framework, new reporting in to one be this And maybe there back are framework of have ever thinking the convention And mean, it Technologies, rolling any or considered question that that's items thinking half would I we don't

Mike Wagnes

Yes.

So, expense, With year, clearly the of if the bottom with the you think that we at the to we EPS we our XXXX, schedule. EPS, you have same our details. to that have going in those you show about it have future, of can So, and but We're respect to we're the in drag adjusted because to reported going you at get we right? XXXX to we can future, backed to tackle all amortization look clearly EPS, to the but out through you you adjusted think if guide, we presentation the With respect to when about this presentation. started amortization Access when identifying amortization the guide. it that get using we're Technologies. obviously year our significant have We're the for it that using that started but going one-timers is to that provide so

Brett Linzey

Okay, pass will it along. Thanks. great. I

Operator

Thank you.

ahead, from go Imperial Next line sir. Capital. Brian with Please of Rutenberg question the is

Brian Rutenberg

want better, Yes, A your supply very know chain Just get it are do? same? questions. the what for supply couple chain? XXXX, thank will assume quick around guidance much. your the are you assumptions Will the what you do to worse, In of

Mike Wagnes

Yes.

all improvement, the last As we've mechanical you taken space business. we year. to look in at our are This is guide attributable especially seeing for half the in the XXXX, sourcing of the actions back non-residential over the

supply to we as right, of that due that chain that non-res had, our is to part attributable a that we about better activity. So, teens growth, high think

[sea account taking have to. but our is can known [ph] change] as always what Our committed know, or us. don't chips a Chips sight of us that not we've into are half we've you and is done line this fragile, back we have seeing partners that improvement provided that get move, of to to

driven So, half, it about as customers' in we've needs. meet our if back ability of you the think think provide better activity helping confidence to our is

Dave Petratis

two. add would I

If of uncertainty factor I'd nicely strike, and of have mechanical a some the players the I'd done that all work to puts [Institutional across in. us the board say, Management] to you a look all the say that at port electronics two, We’d for [ph], system COVID macro Allegion surge, And manufacturers remain of level Supply numbers, grown the fragile, navigate, improved. it the industrial number positions has remains but we've extensive half. fragile. second on deliveries

for not flows I and will The components up Allegion is XXXX. steps other we're and that in benefit XXXX think chips improving and in alone. electronic nicely

Brian Rutenberg

Great. Thank you.

Operator

question-and-answer remarks. concludes This back would you. our Chairman, Petratis, conference to session. I like for the Executive any Dave turn closing now Thank to our

Dave Petratis

where has heartfelt Kirk has Kirk the Kirk want guide and people Allegion. Board. I concludes thank the I are balance The of to with support shareholders want and create Thank been opportunity CEO. Allegion. the I the worldwide. the a Board create also helped This to my day you. here the this This Peltz over thank their to my Lamach and today. earning a XXth will for Hachigian Allegion years. call community and for lead Allegion company Allegion thank to call. us want at likely and Nelson me last one. you as since to be the financial our Mike Last, and thank to we

great a John in Stone. leader have new You

great you. all work Allegion, best some days Be are your day. and done for together. safe, your have great be Have of ahead contributions. a thanks healthy, We

Operator

concluded. Thank you. you for Thank The presentation. now today's attending has conference

may You now disconnect.

Allegion (ALLE) 30 Jul 222022 Q2 Earnings call transcript