Allegion plc Ordinary Shares
), a leading provider of security products and solutions for homes
and businesses, reported dismal second-quarter results, as both
earnings as well as revenues missed the Zacks consensus Estimate.
Adjusted earnings of 61 cents per share missed the Zacks Consensus
Estimate as well as the prior-year quarter figure of 64 cents by
4.7%. The downside reflects lower-than-expected revenues and weak
Quarterly revenues of $531.5 million missed the Zacks Consensus
Estimate of $544 million by 2.3%. In our view, the slowdown in the
U.S. housing market in the second half of 2013 and early 2014 hurt
the company's revenues in the quarter.
Allegion primarily relies on the commercial and residential
construction and remodeling markets which has been tepid of late.
However, adjusted revenues rose 4% year over year. The increase was
primarily due to strong residential volume in international markets
and modest commercial volume growth which offset the unfavorable
timing of Asia Pacific system integration projects.
However, revenues were up 2.9% on an organic basis.
Adjusted operating margin was 19.1%, down 50 basis points year over
year. The decline reflected increased investments, inflation and
one-time bad debt adjustment in Asia Pacific, which were partially
offset by favorable price, currency exchange and productivity.
Restructuring in Europe, Middle East, India and Africa
In the second quarter of 2014, management announced its plans to
restructure the EMEIA segment to improve its operational
efficiencies and the cost structure. In keeping with this, the
company incurred severance and other restructuring charges of $4.4
million in the quarter. Out of this, $1.0 million is recorded in
cost of goods sold and the remaining $3.4 million is recorded in
selling and administrative expenses.
During the second quarter of 2014, the company repurchased
approximately 0.6 million shares for approximately $30.3 million,
under its $200 million share repurchase program.
Allegion continues to forecast full-year revenues to increase 3.5%
to 4.5% year over year on an adjusted basis.
The company has, however increased its adjusted earnings per share
guidance, and expects it to range between $2.30 and $2.40, up from
the previous guidance of $2.25 to $2.40 per share. Restructuring
and spin-off costs are expected in the range of 25 to 30 cents per
share. Including these costs, earnings per share for 2014
continuing operations are expected to be in the range of $2.00 to
The forecast includes a full-year tax assumption of roughly 30% for
continuing operations. The updated forecast assumes the official
exchange rate for the Venezuelan bolivar but does not take into
consideration the impact of potential currency devaluation in
We are encouraged by Allegion's strong and diverse brand portfolio
and leading market share position. Further, the company is trying
to improve long-term results by focusing on opportunistic
acquisitions, brand support via strong advertising, regular
innovations and strong cash generation. However, the recent
sluggishness in the housing market in the U.S. may hurt demand for
Allegion's products and services in the near future. Also, the
global macroeconomic uncertainties remain a concern.
Allegion currently carries a Zacks Rank #3 (Hold). Better-ranked
stocks in the same sector include Brady Corp. (
), Net 1 Ueps Technologies Inc. (
). Both these stocks carry a Zacks Rank #2 (Buy). However, in the
broader industrial products sector, Caterpillar Inc. (
), which also sports a Zacks Rank #2, can also be considered.
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
CATERPILLAR INC (CAT): Free Stock Analysis
ALLEGION PLC (ALLE): Free Stock Analysis Report
BRADY CORP CL A (BRC): Free Stock Analysis
NET 1 UEPS TECH (UEPS): Free Stock Analysis
To read this article on Zacks.com click here.