The Allegion Second Quarter 2024 Earnings Call began with a welcome from the operator and a reminder that the call was being recorded. Josh Pokrzywinski, Vice President of Investor Relations, then introduced the speakers, John Stone, President and CEO, and Mike Wagnes, Senior Vice President and CFO. Stone summarized the quarter as having stable markets and strong execution, resulting in record Q2 results. He mentioned that the entire team and distribution channel partners contributed to this success. Stone then briefly highlighted some of the quarter's achievements and updated the full year outlook. More details would be shared later in the presentation.

Allegion's Q2 revenue growth and margin expansion demonstrate the resilience of their business model, with stability in demand and strength in institutional markets and data centers. They have announced four acquisitions this year and are accelerating capital deployment, returning cash to shareholders and investing in new product development. The company's balanced capital allocation strategy aims to benefit shareholders and take advantage of strong cash generation. They are also investing in organic growth, with the introduction of new Schlage indication solutions specifically designed for the education sector.

Allegion's features for securing doors provide peace of mind and save valuable time for teachers and administrators. The company also continues to pay dividends to shareholders and has recently made two acquisitions, Krieger Specialty Products and Unicel Architectural, which complement their existing portfolio and are expected to contribute to overall growth. These acquisitions were made at a favorable valuation and the company is pleased with the cultural fit and management teams of the acquired businesses. Additionally, Allegion has made $40 million in share repurchases in the quarter.

In the fourth paragraph, the speaker expresses satisfaction with the company's balanced and shareholder-friendly capital allocation. They then introduce Mike Wagnes, who will present the second quarter financial results. These results show solid performance from the entire Allegion team, with mid-single-digit top-line growth driven by both price and volume. The adjusted operating margin and adjusted EBITDA margin also saw significant increases. Adjusted earnings per share increased by 11.4% compared to the previous year. The available cash flow for the year so far has decreased by 7.4%. The following slide provides an overview of the quarterly revenue, with organic revenue growing by 5.2% due to both price realization and volume growth.

The business is returning to expected seasonality in 2024 and capital deployment is being accelerated through investments in inorganic growth. Acquisitions drove almost a point of growth in the quarter, with currency being a slight headwind. The Americas segment saw strong operating results, with revenue up 6% on a reported basis and 5.7% organically. The non-residential and residential businesses both showed improvements, while demand for electronics remained strong. The International segment also had a solid quarter, with revenues up 5.2% on a reported basis and 3.1% organically, driven by price realization and strength in the electronics business.

In the sixth paragraph, the company discusses the impact of acquisitions and currency on reported revenues, as well as the growth in international adjusted operating income and margins. The company also mentions year-to-date available cash flow, working capital, and net debt to adjusted EBITDA. They reiterate their strong cash flow and balance sheet and state that they are on track for record full-year results, increasing their outlook for reported revenue and adjusted EPS.

The Americas segment is expected to have a 2.5% to 3.5% growth, with a 2% to 3% organic growth led by the non-residential business. The International segment is expected to have a 3% to 4% growth, including a 0.5% to 1.5% organic growth. The company is raising its total growth outlook to 2.5% to 3.5% and tightening the range for organic growth to 1.5% to 2.5%. The adjusted earnings per share outlook has been increased by $0.15 to a range of $7.15 to $7.30. The company has successfully overcome supply chain and inflationary disruptions and has earned the Gallup Exceptional Workplace Award. The business model is resilient and offers opportunities for growth and shareholder rewards. The spec engine is always running and solving complex problems for end-user customers in all non-residential segments.

In this paragraph, the speaker discusses the value that is created by adding bolt-ons like Krieger and Unicel to the spec engine, as well as the company's strong culture of execution and track record of success. They also mention their broad portfolio and end-market exposure, which adds to the resiliency of the business. The company's consistent framework for capital allocation has allowed for significant cash flow deployment, leading to record Q2 revenue and earnings per share results. The speaker then turns to Q&A, where the first question is about the spec side of the business in the Americas, specifically around quoting and releases and any variations in new construction and remodeling activity.

The speaker discusses recent channel checks and states that the demand environment is stable, with institutional segments driving demand. They also mention that there are pockets of strength and weakness in different verticals, but overall the demand is stable. The speaker also mentions their capability to adapt to different verticals and their confidence in outperforming the market. In terms of M&A, the speaker states that they have closed four acquisitions this year and are pleased with the results, but does not indicate a change in the pace of M&A going forward.

The speaker discusses the company's recent valuation and its focus on growth and strategic acquisitions. They mention the positive environment for companies like Allegion and their strong pipeline of opportunities. The speaker also addresses a question about the sustainability of the company's margins in the Americas region, attributing it to their management strategies of driving pricing and productivity.

The company is confident in its ability to maintain and expand margins through its price and productivity investments. The volatility in commodities has stabilized and the company has several productivity projects in the pipeline to further improve margins.

John Stone, CEO of the company, discusses the growth in the International side of the business and attributes it to intentional pruning of underperforming businesses and recent acquisitions. He also mentions strong demand for electronics and software solutions, as well as a positive turn in volume for Portable Security. Stone also mentions self-help work being done in the mechanical side of the International business. Joe O’Dea, an analyst, asks about the performance of institutional business in the Americas, citing contrasting data points. Stone responds by mentioning the AIA's forecast for a 4% growth in institutional business by 2025.

John Stone and Joe O'Dea discuss institutional activity and potential tailwinds and headwinds for Dodge Momentum. Stone mentions that they monitor leading indicators, which have been volatile and negative for a while. He also notes that the institutional segment is more stable than commercial segments and points to an increase in municipal bond issuance as a potential driver of activity. Overall, Stone says that demand is stable and the company is executing well. Julian Mitchell asks about the increase in the EPS tailwind in the operations guidance, and Mike Wagnes explains that the organic growth guide is unchanged, but the company may have been more conservative in their initial guidance.

The company is performing well on the margin front and has made good progress in driving prices and productivity. They have tightened their guidance for the year, but are confident in their margin performance. The residential market has been surprising, with a positive result in the second quarter, but there is still some caution for the future. The company's resi business has executed well and they are waiting for any relief in the interest rate environment. A question was asked about the outlook for the residential market and the company responded that they are expecting a flattish outlook with potential for improvement if interest rates decrease. Another question was asked about the company's margin performance and they mentioned that they have raised their operational performance by $0.05.

John Stone, the speaker, is answering a question about the performance of electronic locks. He attributes the acceleration in the two-year stack to a mix of end-markets, including multifamily, commercial, and institutional. He also notes that the demand for electronic locks is broad-based and driven by the adoption of smartphone wallets and digital credentials. Stone believes that Allegion is in a leading position in this space and can continue to drive growth. He also mentions that the company is seeing strong demand for both new and aftermarket sales.

John Stone is asked about the breakdown of new construction versus aftermarket sales and he estimates that it is roughly a 50-50 mix, with some variation depending on location. He also mentions that once a customer installs their locks, they often stick with the same brand for replacements, which is a positive for the company. The operator then mentions tariffs and John Stone says they will likely be discussed more in the coming months.

John Stone and Mike Wagnes of Allegion discuss the impact of tariffs on the company's earnings and supply chain. They mention the investment in a new factory in Mexico as a way to derisk the supply chain and increase flexibility. They also note that the company tends to manufacture in the region where they sell, with most of their non-residential business being produced in the United States. They refrain from speculating on future tariff policies.

In this paragraph, John Stone discusses Allegion's operations in Mexico and their supply chain, stating that they tend to manufacture and sell products in the US. He also mentions that their distribution channel operates in a made-to-order environment and does not hold much inventory. Stone believes that their inventory and ordering patterns have adjusted well and their channel is back to a more normal environment. He concludes by stating that Allegion's demand is stable and their team has executed well.

The speaker praises their company's field sales and marketing team and distribution channel organization, and expresses pride in their Q2 revenue and EPS results. They believe that Allegion's future looks bright. The operator then concludes the conference.

This summary was generated with AI and may contain some inaccuracies.