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Security hardware provider Allegion (NYSE:ALLE) reported Q2 CY2024 results beating Wall Street analysts' expectations, with revenue up 5.8% year on year to $965.6 million. It made a non-GAAP profit of $1.96 per share, improving from its profit of $1.76 per share in the same quarter last year.
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Allegion (ALLE) Q2 CY2024 Highlights:
- Revenue: $965.6 million vs analyst estimates of $955.2 million (1.1% beat)
- EPS (non-GAAP): $1.96 vs analyst estimates of $1.84 (6.3% beat)
- Gross Margin (GAAP): 44.4%, in line with the same quarter last year
- Free Cash Flow of $152.1 million, up from $23.9 million in the previous quarter
- Organic Revenue rose 5.2% year on year, in line with the same quarter last year
- Market Capitalization: $11.12 billion
Allegion plc (NYSE:ALLE) is a provider of security products and solutions that keep people and assets safe and secure in various environments.
Electrical SystemsLike 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 GrowthA company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Unfortunately, Allegion's 5.6% annualized revenue growth over the last five years was sluggish. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Allegion's annualized revenue growth of 12.1% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
Allegion also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don't accurately reflect its fundamentals. Over the last two years, Allegion's organic revenue averaged 6.8% 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 performance.
This quarter, Allegion reported solid year-on-year revenue growth of 5.8%, and its $965.6 million of revenue outperformed Wall Street's estimates by 1.1%. Looking ahead, Wall Street expects sales to grow 3.6% over the next 12 months, a deceleration from this quarter.
Operating MarginRead More Operating margin is an important measure of profitability. It’s the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. Operating margin is also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
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 18.4%. This isn't surprising as its high gross margin gives it a favorable starting point.
Looking at the trend in its profitability, Allegion's annual operating margin rose by 4 percentage points over the last five years, showing its efficiency has improved.
In Q2, Allegion generated an operating profit margin of 21.6%, up 1.4 percentage points year on year. This increase was encouraging, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with its general expenses like sales, marketing, and administrative overhead.
EPSRead MoreAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its 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 9.2% compounded annual growth rate over the last five years, higher than its 5.6% annualized revenue growth. This tells us the company became more profitable 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 4 percentage points over the last five years. On top of that, its share count shrank by 7.2%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Allegion, its two-year annual EPS growth of 15.9% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.
In Q2, Allegion reported EPS at $1.96, up from $1.76 in the same quarter last year. This print beat analysts' estimates by 6.3%. Over the next 12 months, Wall Street expects Allegion to grow its earnings. Analysts are projecting its EPS of $7.13 in the last year to climb by 2.9% to $7.34.
Key Takeaways from Allegion's Q2 ResultsIt was good to see Allegion beat analysts' revenue expectations this quarter. We were also glad its EPS outperformed Wall Street's estimates. Overall, this quarter seemed fairly positive and shareholders should feel optimistic. The stock remained flat at $127.30 immediately following the results.
