Allegion (ALLE) Down 26.3% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Allegion (ALLE). Shares have lost about 26.3% in that time frame, outperforming 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 catalysts.

Allegion Q4 Earnings Meet Estimates, Revenues Miss

Allegion fourth-quarter 2019 adjusted earnings came in line with estimates, while revenues missed the same.

Earnings/Revenues

Quarterly adjusted earnings came in at $1.28 per share, meeting the Zacks Consensus Estimate. Notably, the bottom line was 4.9% higher than the year-ago figure of $1.22. The upside can be primarily attributed to solid sales growth and improved operating income.

In full-year 2019, Allegion’s adjusted earnings came in at $4.89 per share, up 8.7% on a year-over-year basis.

Revenues totaled $719.5 million, up 2.4% year over year. However, the top line missed the consensus estimate of $740 million. Revenues jumped 3.5% on an organic basis. The rise was backed by strength in businesses in the Americas region and strong pricing benefits, partially offset by adverse impact of unfavorable foreign exchange movements.

In 2019, Allegion generated revenues of $2,854 million, up 4.5% on a year-over-year basis.

Segmental Breakup

Revenues in the Americas rose 6.8% year over year to $526.3 million, driven by strength in non-residential and residential businesses. EMEIA (Europe, Middle East, India and Africa) revenues declined 5% to $149.6 million, on account of adverse impacts of divestitures and unfavorable foreign exchange movements. Revenues in Asia-Pacific fell 16.6% to $43.6 million in the quarter, reflecting weak residential end markets in Australia and market softness in China.

Costs/Margins

In the fourth quarter, Allegion’s cost of sales decreased 0.4% year over year to $400.3 million. Gross profit grew 6.2% to $319.2 million while gross margin improved 160 basis points (bps) to 44.4%.

Selling and administrative expenses increased 10.6% year over year to $175.9 million.

Adjusted operating margin expanded 30 bps to 21%.

Balance Sheet/Cash Flow

As of Dec 31, 2019, Allegion had cash and cash equivalents of $355.3 million, up from $283.8 recorded on Dec 31, 2018. Long-term debt was $1,427.6 million, up from $1,409.5 million recorded at the end of 2018.

In 2019, the company generated net cash of $488.2 million from operating activities, up 6.6% on a year-over-year basis. Capital expenditures totaled $65.6 million compared with $49.1 million a year ago.

2020 Guidance

Adjusted earnings per share are expected in the range of $5.10 to $5.20, reflecting an increase of 5.3% on a year-over-year basis.

The company expects full-year 2020 revenue growth in the band of 3-4% on reported basis, and 3.5-4.5% on an organic basis.

Full-year adjusted effective tax rate is anticipated to be 16.5-17%.

Available cash flow is expected to be $450-$470 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -7.19% due to these changes.

VGM Scores

At this time, Allegion has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, 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.