Security hardware provider Allegion (NYSE:ALLE) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 5.4% year on year to $941.9 million. Its non-GAAP profit of $1.86 per share was 11.2% above analysts’ consensus estimates.
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Allegion (ALLE) Q1 CY2025 Highlights:
- Revenue: $941.9 million vs analyst estimates of $923.1 million (5.4% year-on-year growth, 2% beat)
- Adjusted EPS: $1.86 vs analyst estimates of $1.67 (11.2% beat)
- Adjusted EBITDA: $228 million vs analyst estimates of $215.6 million (24.2% margin, 5.8% beat)
- Management reiterated its full-year Adjusted EPS guidance of $7.75 at the midpoint
- Operating Margin: 20.9%, up from 19.3% in the same quarter last year
- Free Cash Flow Margin: 8.9%, up from 2.7% in the same quarter last year
- Organic Revenue rose 4% year on year (-3.6% in the same quarter last year)
- Market Capitalization: $12.21 billion
StockStory’s Take
Allegion reported a first quarter driven by continued strength in its Americas nonresidential segment and positive momentum in electronics, according to management. CEO John Stone attributed the quarter’s performance to favorable pricing, volume growth, and contributions from recent acquisitions, while highlighting solid aftermarket demand and successful execution of the company’s capital allocation strategy. Stone noted, “We expanded our industry-leading margins and continued to invest in our business while returning capital to shareholders.”
For its full-year outlook, Allegion reaffirmed its adjusted EPS guidance, emphasizing resilience in institutional markets and agility in managing external headwinds. Management identified tariffs, foreign exchange volatility, and persistent softness in residential construction as key watchpoints for the remainder of the year. Stone stated, “We remain agile in a very dynamic environment,” underscoring the company’s commitment to offset tariff costs through pricing and surcharges while monitoring supply chain impacts and market conditions.
Key Insights from Management’s Remarks
Allegion’s leadership detailed how business mix, acquisitions, and pricing actions shaped first quarter results, with particular focus on nonresidential demand and electronic product growth.
- Nonresidential Americas Strength: Management cited solid growth in nonresidential markets, especially institutional verticals like healthcare and education, which benefited from late-cycle project completions and resilient aftermarket demand.
- Electronics Segment Momentum: The company’s electronics revenue grew in the low double digits, driven by increased adoption of smart locks and new product launches, positioning electronics as a long-term growth driver.
- Residential Softness and Tariffs: The residential segment declined mid-single digits, which management linked to high mortgage rates and customer purchasing patterns. Tariff uncertainty and construction costs remain challenges, with management expecting residential softness to persist until broader catalysts emerge.
- Acquisitions Bolster Portfolio: Allegion completed three bolt-on acquisitions, expanding offerings in specialty door solutions and digital locks in the Americas and Australia, and reinforcing its nonresidential hardware portfolio with the addition of Trimco.
- Pricing Actions and Surcharges: In response to recent tariff increases, Allegion implemented price increases and surcharges, aiming to fully offset the estimated $80 million in tariff costs at the operating profit and EPS level for the full year. Management expects a short-term lag in recovering these costs during Q2.
Drivers of Future Performance
Looking ahead, management expects the business to be shaped by ongoing pricing actions, product innovation, and external market pressures such as tariffs and interest rates.
- Tariff Management and Pricing: Allegion will use pricing and surcharges to offset tariff impacts, but expects a short-term lag in margin recovery in Q2 before neutralizing the effect by year end.
- Institutional and Aftermarket Demand: The company’s outlook counts on continued resilience in institutional nonresidential markets and a healthy aftermarket, supported by specification activity and municipal bond-funded projects.
- Residential and International Uncertainties: Persistent softness in residential construction and uncertain macroeconomic trends in international markets may limit upside, with management monitoring for catalysts such as lower mortgage rates or improved European economic conditions.
Top Analyst Questions
- Joe Ritchie (Goldman Sachs): Asked about timing mismatches between tariff costs and pricing actions; management acknowledged a potential one-month lag in Q2 but expects full-year cost recovery through surcharges.
- Timothy Wojs (Baird): Inquired about Allegion’s sourcing exposure compared to competitors; CEO John Stone noted reduced China exposure due to expanded Mexican manufacturing, with most U.S. residential products USMCA compliant.
- Jeffrey Sprague (Vertical Research): Questioned the interplay between revenue upside from pricing and potential margin rate compression due to tariffs; CFO Mike Wagnes explained that cost offsets are targeted at the operating income dollar level, which could pressure margin rate.
- Julian Mitchell (Barclays): Asked about residential replacement market fundamentals and the potential for market share gains; management cited ongoing softness due to high mortgage rates and uncertainty, with a focus on driving growth through electronics.
- Christopher Snyder (Morgan Stanley): Sought clarification on whether tariff-related price actions are reflected in revenue guidance; management confirmed the operating profit outlook incorporates these actions but revenue guidance does not assume additional uplift.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will be monitoring (1) the effectiveness and pace of Allegion’s tariff-related pricing actions and their impact on margins, (2) continued momentum in nonresidential institutional and aftermarket segments, and (3) the contribution of recent acquisitions to both portfolio breadth and growth. Progress in residential market stabilization and further smart lock adoption will also be key indicators of business trajectory.
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