The paragraph provides an introduction to Allegion's First Quarter 2025 Earnings Call. Josh Pokrzywinski, Vice President of Investor Relations, starts by welcoming participants and introducing John Stone, CEO, and Mike Wagnes, CFO. The call discusses Allegion's Q1 performance, emphasizing strong execution and resilience. It highlights the company’s ability to expand industry-leading margins, invest in growth, and return capital to shareholders. The call includes forward-looking statements and non-GAAP financial measures, with further details available on the company's website. John Stone expresses gratitude for the company's distribution partners.

The paragraph highlights the company's successful Q1 growth, particularly in the Americas' nonresidential business, noting mid-single-digit growth and margin expansion. The company's strong cash flow supports shareholder returns and accretive acquisitions, positioning it for further investments. The 2025 earnings per share outlook remains at $7.65 to $7.85. The company introduced the Schlage Sense Pro smart deadbolt at CES, featuring ultra-wideband technology for hands-free unlocking, voice control, and smart home integration, and is also set to release the Schlage Arrive Smart WiFi Deadbolt.

The paragraph discusses Allegion's recent activities and strategic growth efforts. It highlights the launch of new smart lock solutions, Sense Pro and Arrive, set to enter the U.S. market later this year, complementing the Schlage Encode family. It also details three recent acquisitions: Nextdoor Company in the Americas to enhance door solutions, Lamar in Australia to expand security and accessibility offerings, and Trimco to strengthen the non-residential Americas portfolio with premium door hardware. The company continues to explore inorganic growth opportunities. Financially, Allegion increased its dividend for the eleventh consecutive year and made significant share repurchases, reflecting a balanced approach to capital allocation and growth investment.

The paragraph outlines Allegion's positive financial performance in the first quarter of 2025. Mike Wagnes reports a 5.4% increase in revenue to $941.9 million, driven by strong execution, particularly in the Americas' nonresidential sector. The adjusted operating margin rose by 150 basis points, aided by volume leverage, favorable mix, and acquisitions. Adjusted earnings per share increased by 20% to $1.86. The company experienced significant cash flow growth, reaching $83.4 million, due to effective working capital management. Additionally, Allegion's tax rate was favorably impacted by discrete items, with expectations to maintain an annual rate between 17% and 18%. The quarter also saw 4% organic revenue growth, combining volume growth of 2.9% and price realization of 1.1%.

In the quarter, acquisitions contributed 2.2 points to the company's growth, while currency was a headwind, bringing total reported growth to 5.4%. The Americas segment had strong results with $757.8 million in revenue, up 6.8% reported and 4.9% organically, driven by favorable pricing and volume. Acquisitions added 2.3 points, and there was a slight currency headwind. Pricing rose by 1.1%, with multiple price increases expected to boost year-long price realization. The nonresidential business grew high single digits organically, while the residential business declined mid-single digits due to prior purchase pull-ahead. Electronics revenue rose low double digits, supporting long-term growth. Adjusted operating income in the Americas was $220.9 million, up 12%, with a 130 basis point margin increase due to favorable volume and mix. Transactional FX effects were net neutral, with positive impacts from cost declines due to the peso's devaluation against the U.S. Dollar. The International segment had revenues of $104.1 million, down 0.3% reported but up 0.9% organically.

In the paragraph, the company reported that acquisitions boosted revenue by 1.8%, while currency fluctuations negatively impacted it by 3%. International adjusted operating income declined by 2.6%. Operating margins decreased slightly due to minor setbacks from pricing and productivity costs. The first-quarter available cash flow significantly increased to $83 million, driven by higher earnings, lower capital expenditures, and improved working capital. Working capital efficiency improved with better inventory turnover. The balance sheet is strong with a net debt to adjusted EBITDA ratio of 1.6 times. The company expects cash flow conversion to be 85%-90% of adjusted net income for the year. Looking ahead, they maintain their 2025 outlook, supported by robust nonresidential markets in The Americas, despite anticipated residential sector softness and ongoing market uncertainties.

The paragraph discusses Allegion's sourcing practices, noting that their Americas residential business primarily produces and sources in Mexico, with most products being USMCA compliant. It mentions that sourcing from outside North America is minimal, with China making up less than 5% of the cost of goods sold. The company anticipates approximately $80 million in tariff costs for 2025 but expects to offset these with pricing strategies. The 2025 earnings per share (EPS) outlook includes current tariffs, with potential revenue upside if pricing actions and foreign exchange rates remain stable. Allegion is commended for receiving the Gallup Exceptional Workplace Award for the second year and highlights their team as a competitive advantage. As they approach the second quarter, they see positive indicators in the nonresidential business in the Americas. The paragraph concludes with an invitation to an upcoming Investor and Analyst Day event in New York.

In this paragraph, a conversation occurs during a Q&A session involving Joe Ritchie from Goldman Sachs and executives John Stone and Mike Wagnes. Joe inquires about the impact and timing of tariffs and surcharges on the company's pricing strategy. Mike explains that while tariffs were implemented in early April and took immediate effect, the company's pricing actions, which were announced in April, have about a month's lag. For the year, they expect to neutralize the tariff costs, though the second quarter might experience a slight headwind due to this lag. Joe further asks about the response to potential changes in tariff policies, and John acknowledges that this is a consideration on everyone's mind.

In the paragraph, John Stone explains that while they are carefully analyzing the effects of enacted tariffs and potential order shifts, they remain committed to their annual guidance for operating income (OI) and earnings per share (EPS). He clarifies that their earlier comments about order pull-ahead were specific to the residential sector, where they saw a mid-single-digit million pull ahead in Q4 due to customer ordering behavior. However, he notes that the non-residential (non-res) sector typically operates on a book-and-ship basis with short lead times and doesn't show significant evidence of large order pull-ahead, despite minor pre-price increase orders before the industry's usual annual price hike around March 1.

In the discussion, Tim Wojs from Baird inquires about changes in capital expenditure priorities within the institutional sectors, such as healthcare and government, in light of fiscal commentary from Washington. John Stone responds by emphasizing the late-cycle nature of their business involving doors, frames, and hardware, which remains steady once projects commence. He notes that sectors like healthcare and education have shown resilience and growth, highlighted by a record high issuance of municipal bonds in 2024 for educational projects. Stone underscores the importance of not overreacting to daily news headlines and points out the strength and resilience of institutional verticals and the aftermarket. He is confident in their performance and market share gains, supporting their positive outlook and guidance for the year.

The paragraph features a conversation between John Stone and others about the company's supply chain and sourcing strategies relative to its competitors. Stone notes that the industry largely imports, with his company primarily sourcing from Mexico and reducing its reliance on China by investing in a new plant in Querétaro, Mexico. He suggests their supply chain footprint is similar to their largest competitor, while smaller competitors might be more import-heavy. The discussion then shifts to questions from Jeffrey Sprague about the reliability of specifications as leading indicators, with Stone indicating strong specifications might not align with other indicators like the Architecture Billings Index (ABI).

In this excerpt from a discussion involving John Stone, Jeffrey Sprague, and Mike Wagnes, the focus is on interpreting market signals and managing revenue and margin expectations in a fluctuating economic environment. John Stone explains that they don't publicly disclose specific KPIs due to the variability in project timelines and specifications, but internally, it serves as an indicator of business activity. Jeffrey Sprague questions how they view revenue potentials and margin pressures, suggesting an upside in revenue but potential margin strain due to tariffs. Mike Wagnes responds by emphasizing their goal to offset tariffs on a dollar basis, indicating that while it might negatively impact margin rates, the overall financial outcome should remain stable at the operating income and earnings per share levels. They acknowledge the complexity of financial calculations involving revenue and margins.

In the paragraph, a discussion occurs about the strong margin performance in Q1, attributing it largely to improved productivity and a positive product mix, particularly in the nonresidential sector, which is more profitable than the residential side. Mike Wagnes highlights that the nonresidential business's growth and residential's decline have positively impacted margins. Joe O'Dea from Wells Fargo then inquires about expectations for Q2 and any potential impacts on earnings, asking for insights into demand and pricing, and seeking a framework for understanding performance between the first and second halves of the year. Mike Wagnes acknowledges the question but does not provide a detailed response, indicating a lack of guidance adjustment despite a strong Q1.

The paragraph discusses the strategies for modeling financial performance, emphasizing the importance of considering the full year before focusing on quarterly predictions. It highlights certain aspects like the month-long lag in price costs and unusual tax rates in Q1. Additionally, it delves into Allegion's go-to-market strategy, particularly in locks and contract hardware distribution. The company utilizes a demand generation approach through architectural design and end-user consulting, which helps pull products through the channel. The business operates on short lead times and employs a "book and ship" system, with a pull strategy being common among distribution partners.

The paragraph involves a discussion on inventory management and pricing strategies within a company. Joe O'Dea and Brett Linzey are engaging in a conversation about inventory levels on the non-residential side, noting no significant builds are observed. They also address pricing strategies concerning an $80 million offset due to tariffs, clarifying whether further pricing actions are required beyond those already announced in April. Mike Wagnes explains that any necessary pricing announcements have been made to the channel in line with current tariffs. Brett Linzey inquires about the use of list pricing versus surcharges, and John Stone clarifies that the company chose to implement surcharges rather than changing list prices.

The paragraph discusses the company's approach to managing tariff volatility by staying agile and working closely with channel partners, which has allowed them to maintain their guidance. It also includes a Q&A segment where Julian Mitchell from Barclays asks about the residential market demand in The Americas, specifically focusing on the replacement market. John Stone responds by explaining that despite earlier hopes for improvement, the U.S. residential market remains soft due to high mortgage rates, affordability issues, and uncertainties around tariffs and construction costs. They acknowledge a housing shortage but believe these challenges continue to affect the market.

The paragraph discusses the current state and outlook of a company's business operations. It mentions the distribution of their residential business between aftermarket and new builds, with an emphasis on the volatile tariff environment affecting imports and costs. The focus has been on innovation in electronic products, particularly front door locks. They aim to maintain a neutral profit outlook for the year, balancing price, productivity, inflation, and investment. Despite challenges in the previous quarter, they are confident in achieving this goal for the entire year.

The paragraph is a segment from a Q&A session with company executives and analysts. Christopher Snyder from Morgan Stanley seeks clarification on the company's guidance regarding revenue and operating profit, confirming that revenue projections do not include benefits from price actions or surcharges related to tariffs, though the operating profit projections do. John Stone responds to Snyder's concern about "project paralysis" due to pricing and cost uncertainties, noting that rising interest rates have delayed some privately financed projects. These projects might be postponed until a more favorable financing environment emerges, affecting future volumes rather than immediate ones. Interest rates are highlighted as a key factor in this dynamic.

In the paragraph, participants from a discussion are addressing questions about potential economic trends and their impacts on investment and market momentum. Christopher Snyder and John Stone respond to Andrew Obin from Bank of America about expectations for economic conditions, particularly regarding concerns about a recession and positive volume growth. John Stone emphasizes that their guidance covers quarters and reflects good momentum in the non-residential sector, supported by resilient institutional verticals and new products. The discussion then shifts to Europe, where there's optimism, particularly in Italy, and potential recovery in Germany in the second half of the year. John Stone acknowledges these insights but does not provide detailed specifics about their European operations or outlook.

The paragraph is from a conference call where John Stone discusses the performance of Allegion's international business unit, highlighting challenges and progress in specific markets like Germany and Italy. Despite political challenges in Germany, there is growing optimism with a new coalition, though it's still too early to adjust forecasts. In Italy, the team has been successful with self-improvement and market share growth, though macroeconomic conditions remain unchanged. Stone reiterates the company's full-year guidance and invites participants to an upcoming Investor Day in New York to learn more about Allegion's long-term strategy, emphasizing its focus on personal safety and security.

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