Allegion plc Q2 FY2025 earnings call

• Q2 was a strong quarter with revenue over $1 billion for the first time. Americas nonres organic growth was high single-digit with segment margin expansion. - Capital allocation included investments for organic growth, such as SimonsVoss's FORTLOX product. - Announced 4 additional acquisitions since Q1 earnings, including Novas, ELATEC, Gatewise, and Waitwhile. - Paid dividends of $0.51 per share ($44 million) and repurchased approximately $40 million in shares. - Americas nonresidential markets remain resilient with strong spec activity, and residential markets are soft due to high interest rates. - Electronics continue to be a long-term growth driver.

Americas segment: Revenue of $821.5 million, up 6.6% on a reported basis and 4.5% organically. Organic growth included favorable price and volume. Nonresidential business had high single-digit organic growth. Residential business declined mid-single digits. Electronics revenue up low double digits. Adjusted operating income of $245.6 million increased 8.6% with adjusted operating margin up 50 basis points. International segment: Revenue of $200.5 million, up 2.9% on a reported basis and down 2.2% organically. Electronic businesses grew organically but offset by mechanical portfolio pressure. Acquisitions contributed 1.1% to international revenue. Adjusted operating income of $26.2 million increased 11% with adjusted operating margin up 100 basis points.

• Raised 2025 full year adjusted earnings per share to $8 to $8.15 based on strong operational execution, continued strong demand in nonresidential, accretive acquisitions, and updated foreign exchange rates. - Anticipate full year tax rate in range of 17% to 18%. - $40 million of tariff surcharge revenue included in the outlook, with nonresidential expected to drive growth in the back half of the year.

Q: Just a little bit of a 2-part question in terms of activity levels in nonres and Americas, including signs of pull forward due to tariffs and spec activity comparison between Q2 and Q1.

A: No evidence of pull ahead due to tariffs on nonres side. Spec activity continued to grow and was strong, supporting the outlook.

Q: Talked about Americas margin, timing of price cost with tariffs and mix in Q2.

A: Tariffs were updated from $80 million to $40 million, with $5 million a month expected. Mix was favorable due to nonresidential growth being stronger and more profitable than residential.

Q: Thinking about moving pieces like deals negative to margin rate and surcharge negative to margin rate, and what's supporting margin performance.

A: Segment margin performance was positive with strong incrementals driven by mix, price and productivity covering inflation and investments, and slight tailwind from transactional FX. Acquisitions are accretive in international but not enough to call out for Americas in first half.

Q: Squaring spec activity with weak ABI and other indicators, and whether gaining share.

A: ABI has been depressed, disrupted by pandemic, labor shortages, and inflation. Construction backlog high, projects delayed. Institutional, health care, education, and data center verticals are positive. Allegion is gaining share at expense of smaller players due to better supply chain and operational performance.

Q: Understand EPS guide raise, biggest pieces moved around, and FX effects versus previous.

A: FX swing impacting international business, acquisitions adding to EPS, and first half strong performance driving the raise. The raise is due to a combination of FX, acquisitions, and first half strong performance.

Q: Revisit organic sales outlook, $40 million surcharge revenue contribution, and surcharge rollbacks.

A: $40 million surcharge is part of the outlook, with surcharges adjusted flexibly to offset inflationary pressures. Expect PPII to be breakeven to slightly positive at enterprise level.

Q: Revisit organic sales outlook, surcharge netting basis, and balance of year coverage.

A: Surcharges are adjusted flexibly, and the company is set to cover inflationary pressures with a combination of pricing and productivity. Still well covered for the balance of the year.

Q: Acquisition pipeline, scope, size, and upside to target.

A: Acquisitions came in a tight time window, pipeline remains active in both segments and product areas. Integration muscle and synergy capture are accelerating, indicating continued profitable growth.

Q: Price/cost in quarter, view into second half, and demand elasticity related to tariff surcharges.

A: Price/cost remained modestly positive. Look for continued pricing actions to cover inflationary pressures. No demand elasticity seen due to tariff surcharges as project activity in non-res space remains strong.

Q: International business second half outlook, volume decline, and margin from recent acquisitions.

A: International business seasonally strong in fourth quarter. Outlook is around flat organic with benefit of currency rates and acquisitions. Recent acquisitions like ELATEC are margin accretive for international, with margins expected to be mid-20s percent.

Q: Price trajectory intra-quarter Q2 and into back half, and realization of surcharges at $80 million level in Q2.

A: Tariffs are 25% of $40 million in Q2, remaining 75% even over last 6 months. The company adjusted surcharges immediately after government policy change to offset inflationary pressures.