Allegion Q1 2025 slides: Revenue up 5.4%, margins expand amid strategic acquisitions

Introduction & Market Context

Allegion (NYSE:ALLE) reported solid first-quarter 2025 results on April 24, showcasing revenue growth and margin expansion despite mixed performance across segments. The security products manufacturer delivered 5.4% revenue growth while expanding operating margins and significantly boosting available cash flow, all while navigating tariff challenges and varying market conditions across its business segments.

The company maintained its full-year adjusted EPS guidance of $7.65-$7.85 while continuing to execute on its capital allocation strategy through strategic acquisitions, dividend payments, and share repurchases.

Quarterly Performance Highlights

Allegion reported Q1 2025 revenue of $941.9 million, representing a 5.4% increase from $893.9 million in Q1 2024. This growth was driven by 4.0% organic growth, with acquisitions contributing 2.2%, partially offset by currency headwinds of 0.8%.

As shown in the following financial summary:

The company demonstrated strong profitability improvements, with adjusted operating income margin expanding 150 basis points to 22.7% and adjusted EBITDA margin increasing 140 basis points to 24.2%. Adjusted earnings per share reached $1.86, a 20.0% increase from $1.55 in the prior year, driven primarily by operating income growth ($0.22 contribution) and tax benefits ($0.08 contribution).

Available cash flow saw a dramatic improvement, increasing 249% to $83.4 million, driven by higher earnings, improved working capital management, and lower capital expenditures.

Segment Analysis

Allegion’s Americas segment, which accounts for approximately 80% of total revenue, delivered strong results with 6.8% revenue growth to $757.8 million. The segment’s adjusted operating income margin expanded 130 basis points to 29.2%.

The Americas performance was driven by:

• 4.9% organic growth
• High single-digit growth in non-residential markets
• Low double-digit growth in electronics products
• Mid single-digit decline in residential markets
• 1.1% price realization and 3.8% volume growth

As illustrated in the Americas segment results:

In contrast, Allegion’s International segment faced more challenges, with revenue declining slightly by 0.3% to $184.1 million. Adjusted operating income margin contracted 20 basis points to 10.2%.

The International segment was impacted by:

• Modest organic growth of 0.9%
• 1.0% price realization offset by 0.1% volume decline
• 1.8% benefit from acquisitions
• 3.0% currency headwind

The segment performance is detailed in the following chart:

Capital Allocation and Strategic Initiatives

Allegion maintained a balanced approach to capital allocation in Q1 2025, focusing on organic growth investments, strategic acquisitions, shareholder returns, and maintaining financial flexibility.

The company completed the acquisition of Trimco Hardware on April 1, 2025, adding to its earlier acquisitions of Next (LON:NXT) Door Company and Lemaar. These strategic acquisitions complement Allegion’s existing product portfolio and expand its market reach.

Allegion’s capital allocation strategy is illustrated below:

Shareholder returns remained a priority, with approximately $44 million paid in dividends ($0.51 per ordinary share) and $40 million deployed for share repurchases during the quarter.

Balance Sheet and Cash Flow

Allegion’s balance sheet remained solid despite increased leverage from recent acquisitions. The company reported gross debt to adjusted EBITDA of 2.4x, up from 1.9x in the prior year, and net debt to adjusted EBITDA of 2.1x, up from 1.6x.

Working capital efficiency improved, with working capital as a percentage of revenue decreasing from 10.0% to 9.0%, primarily driven by higher inventory turns. Capital expenditures decreased from $27.2 million to $21.1 million year-over-year.

The following chart details these financial health indicators:

Outlook and Guidance

Allegion affirmed its full-year 2025 adjusted EPS guidance of $7.65-$7.85 despite facing several market challenges and headwinds.

The company highlighted several key market dynamics affecting its outlook:

• U.S. non-residential markets showing late-cycle resiliency with growing specifications
• U.S. residential markets facing delayed recovery due to tariff and interest rate dynamics
• International markets experiencing flat demand with currency impacts on reported revenue

Notably, Allegion’s outlook incorporates the impact of enacted tariffs, estimated at approximately $80 million for fiscal year 2025. The company provided transparency on its sourcing exposure:

• 20-25% of enterprise cost of goods sold comes from Mexico, with the vast majority USMCA compliant
• Less than 5% of enterprise cost of goods sold comes from China
• 5-10% of enterprise cost of goods sold comes from other countries of import

These market dynamics and sourcing details are outlined below:

Strategic Initiatives

Allegion’s presentation emphasized its agility and resilience in navigating market challenges while executing on strategic priorities. The company highlighted its focus on solid execution, accelerated capital deployment, and maintaining financial discipline.

The breakdown of Allegion’s EPS performance provides additional insight into the drivers of its strong quarterly results:

The waterfall chart illustrates how operating income, tax rate changes, and other factors contributed to the 20% year-over-year increase in adjusted EPS, demonstrating the company’s ability to drive bottom-line growth despite mixed market conditions.

Forward-Looking Statements

Looking ahead, Allegion remains focused on navigating market challenges while executing its strategic priorities. The company’s ability to maintain its full-year guidance despite tariff headwinds and mixed market conditions reflects management’s confidence in its business model and operational execution.

The company’s emphasis on "Agile & Resilient" as a key theme underscores its approach to managing through current market dynamics while positioning for long-term growth through strategic investments and acquisitions.

Allegion’s balanced capital allocation strategy, focus on margin expansion, and strategic acquisitions suggest the company is well-positioned to navigate near-term challenges while building long-term shareholder value.

Full presentation:

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