Allegion plc (ALLE) Bundle
Understanding Allegion plc (ALLE) Revenue Streams
Understanding Allegion plc’s Revenue Streams
Allegion plc generates revenue through a diverse range of products and services primarily in the security sector. The company's revenue streams can be categorized into two main segments: Allegion Americas and Allegion International.
Breakdown of Primary Revenue Sources
The following table outlines the net revenues for Allegion plc for the three months and nine months ended September 30, 2024, and 2023, detailing revenue from products and services across both segments:
| Segment | Revenue from Products (2024) | Revenue from Services (2024) | Total Revenue (2024) | Revenue from Products (2023) | Revenue from Services (2023) | Total Revenue (2023) |
|---|---|---|---|---|---|---|
| Allegion Americas | $744.6 million | $37.8 million | $782.4 million | $703.4 million | $37.5 million | $740.9 million |
| Allegion International | $175.6 million | $9.1 million | $184.7 million | $167.1 million | $9.9 million | $177.0 million |
| Total | $920.2 million | $46.9 million | $967.1 million | $870.5 million | $47.4 million | $917.9 million |
For the nine months ended September 30, 2024, the total net revenues were:
| Segment | Revenue from Products (2024) | Revenue from Services (2024) | Total Revenue (2024) | Revenue from Products (2023) | Revenue from Services (2023) | Total Revenue (2023) |
|---|---|---|---|---|---|---|
| Allegion Americas | $2,144.4 million | $118.0 million | $2,262.4 million | $2,090.5 million | $118.5 million | $2,209.0 million |
| Allegion International | $542.5 million | $21.7 million | $564.2 million | $521.8 million | $22.6 million | $544.4 million |
| Total | $2,686.9 million | $139.7 million | $2,826.6 million | $2,612.3 million | $141.1 million | $2,753.4 million |
Year-over-Year Revenue Growth Rate
For the three months ended September 30, 2024, the total revenue increased by 5.4% compared to the same period in 2023. This growth was driven by:
- Pricing: 1.8%
- Volume: 1.5%
- Acquisitions: 1.9%
- Currency exchange rates: 0.2%
For the nine months ended September 30, 2024, the total revenue increased by 2.7% compared to the same period in 2023, attributed to:
- Pricing: 2.9%
- Volume: (1.3%)
- Acquisitions: 1.0%
- Currency exchange rates: 0.1%
Contribution of Different Business Segments to Overall Revenue
For the three months ended September 30, 2024, the Allegion Americas segment contributed 80.9% to total revenue, while the Allegion International segment contributed 19.1%. For the nine months ended September 30, 2024, the contributions were 80.0% and 20.0%, respectively.
Analysis of Significant Changes in Revenue Streams
In the Americas segment, net revenues for the three months ended September 30, 2024, increased by 5.6% compared to the same period in 2023, attributed to:
- Pricing: 2.0%
- Volume: 2.1%
- Acquisitions: 1.6%
- Currency exchange rates: (0.1%)
For the International segment, net revenues increased by 4.4%, primarily due to improved pricing and acquisitions.
Overall, the revenue growth reflects a combination of pricing power, strategic acquisitions, and a favorable foreign exchange environment, despite challenges related to volume fluctuations.
A Deep Dive into Allegion plc (ALLE) Profitability
Profitability Metrics
The profitability of the company can be assessed through various metrics including gross profit, operating profit, and net profit margins. Here are the key insights for 2024:
Gross Profit Margin
For the nine months ended September 30, 2024, the gross profit margin was calculated as follows:
| Metric | 2024 | 2023 |
|---|---|---|
| Net Revenues | $2,826.6 million | $2,753.4 million |
| Cost of Goods Sold | $1,574.8 million | $1,557.2 million |
| Gross Profit | $1,251.8 million | $1,196.2 million |
| Gross Profit Margin | 44.3% | 43.4% |
Operating Profit and Operating Margin
The operating income and operating margin for the same period were:
| Metric | 2024 | 2023 |
|---|---|---|
| Operating Income | $596.1 million | $548.7 million |
| Operating Margin | 21.1% | 19.9% |
Net Profit Margin
The net profit margin is another critical profitability metric:
| Metric | 2024 | 2023 |
|---|---|---|
| Net Earnings | $453.4 million | $422.0 million |
| Net Profit Margin | 16.0% | 15.3% |
Trends in Profitability Over Time
Comparing the profitability metrics over time shows a consistent upward trend:
- Gross profit margin improved from 43.4% in 2023 to 44.3% in 2024.
- Operating margin increased from 19.9% in 2023 to 21.1% in 2024.
- Net profit margin rose from 15.3% in 2023 to 16.0% in 2024.
Comparison with Industry Averages
When comparing these profitability ratios with industry averages:
- Industry average gross profit margin: 40%
- Industry average operating margin: 18%
- Industry average net profit margin: 12%
This comparison indicates that the company is performing significantly better than its peers in the industry.
Operational Efficiency Analysis
Operational efficiency can be gauged through cost management and gross margin trends:
- Cost of goods sold as a percentage of net revenues decreased from 56.6% in 2023 to 55.7% in 2024.
- Selling and administrative expenses slightly decreased from 23.5% in 2023 to 23.2% in 2024.
These figures reflect effective cost management strategies that have contributed positively to overall profitability.
Debt vs. Equity: How Allegion plc (ALLE) Finances Its Growth
Debt vs. Equity: How Allegion plc Finances Its Growth
As of September 30, 2024, Allegion plc's total debt stood at $2,402.1 million, an increase from $2,015.0 million at the end of 2023. This total includes long-term debt of $1,983.2 million and short-term debt of $418.9 million.
The company’s debt-to-equity ratio is approximately 1.52, highlighting a significant reliance on debt financing compared to equity. Industry standards typically vary, but a ratio above 1.0 is often considered higher risk, suggesting that Allegion may be more leveraged than some of its peers.
Recent debt issuances include:
- 5.600% Senior Notes due 2034: $400.0 million issued in 2024
- 3.200% Senior Notes due 2024: $400.0 million (repaid on October 1, 2024)
- 3.550% Senior Notes due 2027: $400.0 million
- 3.500% Senior Notes due 2029: $400.0 million
- 5.411% Senior Notes due 2032: $600.0 million
Allegion’s credit ratings have remained stable, with a current rating of Baa3 from Moody’s and BBB- from S&P, indicating a moderate level of credit risk. The company has engaged in refinancing activities, notably using proceeds from the issuance of the 5.600% Senior Notes to repay the 3.200% Senior Notes.
The balance between debt financing and equity funding is maintained through careful management of cash flows and capital structure. The company reported net cash provided by financing activities of $147.3 million for the nine months ended September 30, 2024, which included proceeds from recent debt issuances.
| Debt Type | Outstanding Amount (in millions) | Interest Rate | Due Date |
|---|---|---|---|
| Term Facility | $215.6 | N/A | November 18, 2026 |
| 3.200% Senior Notes | $400.0 | 3.200% | October 1, 2024 |
| 3.550% Senior Notes | $400.0 | 3.550% | October 1, 2027 |
| 3.500% Senior Notes | $400.0 | 3.500% | October 1, 2029 |
| 5.411% Senior Notes | $600.0 | 5.411% | July 1, 2032 |
| 5.600% Senior Notes | $400.0 | 5.600% | May 29, 2034 |
Overall, Allegion plc’s capital structure reflects a strategic approach to financing, balancing debt and equity to support its growth initiatives while managing associated risks.
Assessing Allegion plc (ALLE) Liquidity
Assessing Liquidity and Solvency
Current and Quick Ratios
The current ratio for the company as of September 30, 2024, is 1.71, calculated by dividing total current assets of $1,862.4 million by total current liabilities of $1,091.5 million. The quick ratio, which excludes inventories from current assets, is 1.43, derived from $1,412.5 million in liquid assets divided by current liabilities.
Analysis of Working Capital Trends
The working capital, defined as current assets minus current liabilities, stands at $770.9 million as of September 30, 2024, compared to $281.2 million at December 31, 2023. This significant increase indicates improved liquidity and financial flexibility.
Cash Flow Statements Overview
The cash flow from operating activities for the nine months ended September 30, 2024, is $456.0 million, compared to $381.1 million for the same period in 2023. This increase is attributed to higher net earnings and reduced cash used for working capital.
Cash flows from investing activities show a net cash outflow of $(190.2 million) in 2024, up from $(83.4 million) in 2023, primarily due to cash used for acquisitions and increased capital expenditures.
In terms of financing activities, the net cash provided is $147.3 million in 2024, compared to a net cash outflow of $(219.9 million) in 2023, mainly due to proceeds from the issuance of senior notes .
Potential Liquidity Concerns or Strengths
As of September 30, 2024, the company has cash and cash equivalents of $878.9 million, indicating a strong liquidity position. Additionally, the company has access to a $750 million revolving credit facility, with no outstanding balance, further enhancing its liquidity .
| Liquidity Metric | Value |
|---|---|
| Current Assets | $1,862.4 million |
| Current Liabilities | $1,091.5 million |
| Current Ratio | 1.71 |
| Quick Ratio | 1.43 |
| Working Capital | $770.9 million |
| Cash Flow from Operating Activities | $456.0 million |
| Cash Flow from Investing Activities | $(190.2 million) |
| Cash Flow from Financing Activities | $147.3 million |
| Cash and Cash Equivalents | $878.9 million |
| Revolving Credit Facility | $750 million |
Is Allegion plc (ALLE) Overvalued or Undervalued?
Valuation Analysis
Investors often look at various financial ratios to determine whether a company is overvalued or undervalued. For Allegion plc (ALLE), key ratios like the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) provide insight into its valuation.
Price-to-Earnings (P/E) Ratio
As of September 30, 2024, Allegion's diluted net earnings per share was $1.99, while the stock price was approximately $94.00. This results in a P/E ratio of:
P/E Ratio = Stock Price / Earnings per Share = $94.00 / $1.99 ≈ 47.24
Price-to-Book (P/B) Ratio
The company's book value per share was reported at $22.00 as of September 30, 2024. Consequently, the P/B ratio is:
P/B Ratio = Stock Price / Book Value per Share = $94.00 / $22.00 ≈ 4.27
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value of Allegion is calculated as follows:
- Total Debt: $2,402.1 million
- Cash and Cash Equivalents: $50.0 million (approx.)
- Market Capitalization: $5.3 billion (approx.)
Thus, the enterprise value is:
EV = Market Cap + Total Debt - Cash = $5,300 million + $2,402.1 million - $50 million ≈ $7,652.1 million
For the EBITDA, the company reported operating income of $215.0 million for Q3 2024, with a nine-month EBITDA of $596.1 million. Therefore, the EV/EBITDA ratio is:
EV/EBITDA = Enterprise Value / EBITDA = $7,652.1 million / $596.1 million ≈ 12.84
Stock Price Trends
Over the past 12 months, Allegion's stock price has exhibited the following trends:
- 12 months ago: $85.00
- 6 months ago: $90.00
- Current price: $94.00
The stock has appreciated approximately 10.59% over the past year.
Dividend Yield and Payout Ratio
Allegion has a quarterly dividend of $0.48 per share. With a current stock price of $94.00, the dividend yield is:
Dividend Yield = Annual Dividend / Stock Price = ($0.48 4) / $94.00 ≈ 2.04%
The payout ratio based on the most recent earnings per share is:
Payout Ratio = Annual Dividend / Earnings per Share = ($0.48 4) / $1.99 ≈ 0.97 or 97%
Analyst Consensus
As of October 2024, the consensus among analysts is:
- Buy: 8
- Hold: 4
- Sell: 1
The consensus rating is Buy with a target price of approximately $100.00.
Summary Table of Key Valuation Metrics
| Metric | Value |
|---|---|
| P/E Ratio | 47.24 |
| P/B Ratio | 4.27 |
| EV/EBITDA | 12.84 |
| One-Year Stock Price Change | 10.59% |
| Dividend Yield | 2.04% |
| Payout Ratio | 97% |
| Analyst Consensus | Buy |
| Target Price | $100.00 |
Key Risks Facing Allegion plc (ALLE)
Key Risks Facing Allegion plc
Industry Competition: The security products industry is highly competitive, with numerous players vying for market share. The company's net revenues for the three months ended September 30, 2024, were $967.1 million, an increase of 5.4% compared to the same period in 2023, primarily driven by improved pricing and acquisition activity. However, maintaining market position amid competitive pressures remains a risk.
Regulatory Changes: The effective income tax rates for the three months ended September 30, 2024, and 2023, were 10.5% and 8.1%, respectively. The increase is attributed to the enactment of a global minimum tax in 2024. Such regulatory changes can impact financial forecasts and operational strategies.
Market Conditions: Economic downturns can negatively affect demand for security products, particularly in the non-residential sector, which saw only low-single digit growth expectations for 2024. The company reported net revenues from non-residential products for the nine months ended September 30, 2024, increased by a low-single digits percent.
Operational Risks: The company has significant operational expenses, with selling and administrative expenses amounting to $655.7 million for the nine months ended September 30, 2024, representing 23.2% of revenues. Cost management remains critical in a fluctuating economic environment.
Financial Risks: As of September 30, 2024, total borrowings outstanding were $2.415 billion, with an interest expense of $76.8 million reported for the nine months. Rising interest rates could further increase financial costs, affecting profitability.
Debt Obligations: The company has several senior notes outstanding, including $400 million of 3.200% Senior Notes due 2024 and $600 million of 5.411% Senior Notes due 2032. The repayment obligations pose a risk if cash flows do not meet expectations.
Mitigation Strategies: The company has a robust credit facility of $750 million to support liquidity needs. As of September 30, 2024, the company reported $878.9 million in cash and cash equivalents, indicating a strong liquidity position to navigate potential downturns.
| Risk Factor | Description | Financial Impact |
|---|---|---|
| Industry Competition | High competition in security products | Net revenues increased by 5.4% to $967.1 million |
| Regulatory Changes | Global minimum tax enacted | Effective tax rate increased to 10.5% |
| Market Conditions | Economic downturn affecting demand | Low-single digit growth expected in non-residential products |
| Operational Risks | High selling and administrative expenses | Expenses of $655.7 million (23.2% of revenues) |
| Financial Risks | Significant debt obligations | Total borrowings of $2.415 billion |
| Debt Obligations | Senior notes repayment schedule | $400 million due in 2024, $600 million due in 2032 |
| Mitigation Strategies | Robust credit facility | Liquidity position of $878.9 million in cash |
Future Growth Prospects for Allegion plc (ALLE)
Future Growth Prospects for Allegion plc
Key Growth Drivers
- Product Innovations: The company is focusing on enhancing its electronic security product offerings. For the three months ended September 30, 2024, net revenues from electronic security products in the Allegion Americas segment decreased by a high-single digits percent compared to the same period in the prior year, following a high-teens percent growth in the previous year.
- Market Expansions: The Allegion International segment reported net revenues of $184.7 million for the three months ended September 30, 2024, an increase of 4.4% compared to $177.0 million in the same period of 2023. This growth is attributed to acquisitions and favorable currency exchange rates.
- Acquisitions: In 2024, Allegion acquired several companies including Boss Door Controls in the UK, Montajes electronicos Dorcas in Spain, Krieger Specialty Products in the US, and Unicel Architectural Corp. in Canada, which are expected to enhance product offerings and market reach.
Future Revenue Growth Projections
For the nine months ended September 30, 2024, net revenues increased by 2.7%, or $73.2 million, compared to the same period in 2023. This growth was driven by:
| Growth Driver | Impact on Revenue |
|---|---|
| Pricing | 2.9% |
| Volume | (1.3%) |
| Acquisitions | 1.0% |
| Currency Exchange Rates | 0.1% |
Net revenues for the three months ended September 30, 2024, were $967.1 million, reflecting a 5.4% increase from $917.9 million in the same period in 2023.
Strategic Initiatives and Partnerships
Allegion's strategic initiatives focus on enhancing operational efficiency and expanding its product portfolio through technology-driven solutions. The company is also exploring partnerships that leverage its technological capabilities to streamline integration with existing systems. This is evident in their push towards electronic and electrified locks, which are gaining traction in both residential and commercial markets.
Competitive Advantages
- Brand Recognition: Allegion's established brands such as Schlage and Von Duprin maintain strong market positions across various sectors, including residential, commercial, and institutional markets.
- Global Footprint: With operations in over 130 countries, Allegion's extensive distribution network allows for significant market penetration and customer reach.
- Innovation and R&D: The commitment to innovation is reflected in the company’s R&D expenditures, which are focused on developing next-generation security solutions that meet evolving customer needs.
Overall, Allegion is strategically positioned to capitalize on growth opportunities through continuous innovation, market expansion, and targeted acquisitions, which are expected to enhance its financial performance in the upcoming years.
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Article updated on 8 Nov 2024
Resources:
- Allegion plc (ALLE) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Allegion plc (ALLE)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Allegion plc (ALLE)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.