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Allegion (ALLE) Up 12.1% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Allegion (ALLE - Free Report) . Shares have added about 12.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Allegion due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Allegion Surpasses Q4 Earnings and Sales Estimates

Allegion reported impressive fourth-quarter 2020 results, with earnings surpassing estimates by 27.3%. This was the fourth consecutive quarter of better-than-expected bottom-line results. Also, sales surpassed estimates by 5.3%.

The company’s adjusted earnings in the quarter were $1.49 per share, surpassing the Zacks Consensus Estimate of $1.17. On a year-over-year basis, the bottom line jumped 16.4%.

In 2020, the company’s adjusted earnings were $5.11 per share, topping the consensus estimate of $4.80 and the year-ago figure of $4.89.

Revenue Details

In the reported quarter, Allegion’s net revenues were $727.3 million, up 1.1% year over year. The results were adversely impacted by a 0.6% fall in organic sales and a 0.2% adverse impact from acquisitions and divestitures, partially offset by a 1.9% positive impact of foreign currency translation.

Also, the company’s top line surpassed the Zacks Consensus Estimate of $690.9 million.

The company reported revenues under three segments. A brief discussion of the quarterly results is provided below:

Revenues in the Americas fell 1% year over year to $521.2 million owing to softness in non-residential business, partially offset by gains in residential business.

Organic sales fell 0.7% year over year while acquisitions and divestitures had an adverse impact of 0.3%.

EMEA (Europe, Middle East and Africa) revenues grew 10.5% to $165.3 million on the back of healthy Global Portable Security, SimonsVoss and Interflex businesses.

Organic sales in the quarter expanded 3.1% year over year and foreign currency translation had a positive impact of 7.4%.

Revenues in the Asia Pacific fell 6.4% to $40.8 million in the quarter, reflecting weak end markets in Korea.

Organic sales decreased 11.9% year over year while foreign currency translation had a positive impact of 5.5%.

In 2020, the company’s net revenues were $2.72 billion, down 4.7% year over year. Also, the top line exceeded the Zacks Consensus Estimate of $2.68 billion.

Margin Profile

In the reported quarter, Allegion’s cost of sales grew 1.8% year over year to $407.4 million. Cost of sales was 56% of the quarter’s net sales. Gross profit increased 0.2% year over year to $319.9 million, while gross margin fell 40 basis points (bps) to 44%.

Selling and administrative expenses decreased 5% year over year to $161.5 million. It represented 22.2% of net sales in the reported quarter versus 23.6% in the year-ago quarter. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $183.7 million, reflecting an increase of 7.7%. Margin grew 160 bps year over year to 25.3%.

Adjusted operating income in the quarter increased 8.3% year over year to $163.5 million. Also, adjusted margin was 22.5%, up from 21%. Interest expense was $12.3 million, down 7.5%.

Balance Sheet & Cash Flow

Exiting the fourth quarter, Allegion had cash and cash equivalents of $480.4 million, up 12% from $428.9 million recorded in the last reported quarter. Long-term debt was flat sequentially at $1,429.4 million.

It generated net cash of $490.3 million from operating activities in 2020, inching up 0.4% from the previous year. Capital expenditure totaled $47.1 million compared with $65.6 million invested in 2019. Free cash flow increased 4.9% to $443.2 million.

During the year, the company rewarded shareholders with a dividend payout of $117.3 million. The amount represents growth of 16.6% year over year. Amount spent on buying back shares totaled $208.8 million, down 7.6%.

Outlook

Effective Jan 1, 2021, the company’s operating segments are Allegion Americas and Allegion International — combining the results of the previous EMEA and Asia Pacific segments.

For 2021, the company predicts revenue to decline 0.5-1.5% year over year. Organic sales are expected to fall 1.5-2.5%. On a segmental basis, organic sales in residential business in Allegion Americas and Allegion International are likely to increase. However, organic sales in non-residential business of Allegion Americas might decline.

Adjusted earnings are expected to be $4.70-$4.85 per share. Free cash flow in the year is expected to be $400-$420 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

At this time, Allegion has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Allegion has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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