Technology

Allegion (ALLE) Down 2.2% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Allegion (ALLE). Shares have lost about 2.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Allegion due for a breakout? 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 drivers.

Allegion Q2 Earnings Surpass Estimates, Revenues Miss

Allegion has reported mixed results for second-quarter 2020, wherein its adjusted earnings surpassed the Zacks Consensus Estimate, while revenues missed the same.

Earnings & Revenues Declines

Quarterly adjusted earnings were 92 cents per share, beating the Zacks Consensus Estimate of 79 cents. Notably, the bottom line was 27% lower than the year-ago figure of $1.26. The decline can be primarily attributed to lower sales.

Revenues totaled $589.5 million, down 19.4% year over year. Also, the top line missed the consensus estimate of $600 million. Revenues fell 18.5% on an organic basis. The top-line performance was adversely impacted by operational shutdowns across all regions, owing to the coronavirus outbreak-related issues.

Segmental Breakup

Revenues in the Americas fell 18.5% year over year to $444.3 million, owing to softness in non-residential, residential and electronics businesses.

EMEIA (Europe, Middle East, India and Africa) revenues declined 21.9% to $111 million on soft end markets amid the pandemic, adverse impacts of divestitures, and unfavorable foreign exchange movements.

Revenues in the Asia Pacific fell 22.1% to $34.2 million in the quarter, reflecting weak end markets in Australia and the residential market in China as well as adverse impacts of unfavorable foreign exchange movements.

Costs & Margins Details

In the second quarter, Allegion’s cost of sales decreased 16.5% year over year to $342.9 million. Gross profit fell 23.1% to $246.6 million, while gross margin contracted 210 basis points (bps) to 41.8%.

Selling and administrative expenses decreased 14.2% year over year to $150.1 million.

Adjusted operating margin contracted 260 bps to 18.9%.

Balance Sheet & Cash Flow

As of Jun 30, 2020, Allegion had cash and cash equivalents of $302.4 million, down from $355.3 recorded on Dec 31, 2019.  Long-term debt was $1,428.5 million, up from $1,427.6 million recorded at the end of 2019.

In the first six months of 2020, the company generated net cash of $128 million from operating activities compared with $107 million generated in the year-ago comparable period. Capital expenditure totaled $24.4 million compared with $29.3 million in the year-ago period.

2020 Guidance

Allegion re-issued outlooks for 2020, assuming no further disruptions associated with the COVID-19 outbreak.

Adjusted earnings per share are expected to be $4.15 to $4.30, suggesting a year-over-year decline of 13.6% at the mid-point.

The company expects 2020 revenues to decline 9-10% on a reported basis, and 8-9% on an organic basis.

Adjusted effective tax rate is anticipated to be 13.5-14.5% for the year.

Available cash flow is expected to be $350-$370 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Allegion has a nice Growth Score of B, though it is lagging a bit 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

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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