Allegion Q1 2025 Earnings Report

Allegion EPS Results

• Actual EPS: $1.86
• Consensus EPS: $1.68
• Beat/Miss: Beat by +$0.18
• One Year Ago EPS: $1.55

Allegion Revenue Results

• Actual Revenue: $941.90 million
• Expected Revenue: $918.53 million
• Beat/Miss: Beat by +$23.37 million
• YoY Revenue Growth: +5.40%

Allegion Announcement Details

• Quarter: Q1 2025
• Date: 4/24/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, April 24, 2025
• Conference Call Time: 8:00AM ET

Allegion (NYSE:ALLE) manufactures and sells mechanical and electronic security products and solutions worldwide. The company offers door controls and systems and exit devices; locks, locksets, portable locks, and key systems and services; electronic security products and access control systems; time, attendance, and workforce productivity systems; doors, accessories, and other. It also provides services and software, which includes inspection, maintenance, and repair services for its automatic entrance solutions; and software as a service, including access control, IoT integration, and workforce management solutions, as well as aftermarket services, design and installation offerings, and locksmith services. The company sells its products and solutions to end-users in commercial, institutional, and residential facilities, including education, healthcare, government, hospitality, retail, commercial office, and single and multi-family residential markets under the CISA, Interflex, LCN, Schlage, SimonsVoss, and Von Duprin brands. It sells its products and solutions through distribution and retail channels, such as specialty distribution, e-commerce, and wholesalers, as well as through various retail channels comprising do-it-yourself home improvement centers, online and e-commerce platforms, and small specialty showroom outlets. Allegion plc was incorporated in 2013 and is headquartered in Dublin, Ireland.

Allegion Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Please note this event is being recorded. I would now like to turn the conference over to Josh Pokowinski, Vice President of Investor Relations. Please go ahead.

[Josh Pokrzywinski, Vice President of Investor Relations at Allegion]

Thank you, Jason. Good morning, everyone. Thank you for joining us for Allegion's first quarter twenty twenty five earnings call. With me today are John Stone, President and Chief Executive Officer and Mike Wagnus, Senior Vice President and Chief Financial Officer of Allegion. Our earnings release, which was issued earlier this morning, and the presentation, which we will refer to in today's call, are available on our website at investor.allegion.com.

[Josh Pokrzywinski, Vice President of Investor Relations at Allegion]

This call will be recorded and archived on our website. Please go to slide two. Statements made in today's call that are not historical facts are considered forward looking statements and are made pursuant to the Safe Harbor provisions of federal securities law. Please see our most recent SEC filings for a description of some of the factors that may cause actual results to differ materially from our projections. The company assumes no obligation to update these forward looking statements.

[Josh Pokrzywinski, Vice President of Investor Relations at Allegion]

Today's presentation and commentary include non GAAP financial measures. Please refer to the reconciliation in the financial tables of our press release for further details. Please go to slide three and I'll turn the call over to John.

[John Stone, President & CEO at Allegion]

Thanks Josh. Good morning everyone and thanks for joining us. Q1 was a strong start to our year, and I am proud of the execution of the Allegion team and grateful for the long standing partnership with the finest distribution channel partners in the industry. This was another demonstration of the resilience of our business model as we expanded our industry leading margins and continued to invest in our business while returning capital to shareholders. I'm pleased with the top line growth in Q1, especially in The Americas driven by the nonresidential business.

[John Stone, President & CEO at Allegion]

Over the past year, the Americas team produced mid single digit growth and solid margin expansion, which we believe speaks to the resiliency of the model, our broad end market exposure and the depth of our relationships with channel partners and end users. We continue to take advantage of our business' strong cash generation, returning cash to shareholders and growing through accretive acquisitions. Our consistent cash flow and pipeline of opportunities positions us well for additional capital deployment that creates long term value for our shareholders and drives performance through the cycle. We're exiting Q1 with solid momentum and we're executing our long term growth strategy while remaining agile. We are affirming our twenty twenty five full year outlook for adjusted earnings per share of $7.65 to $7.85 and I'll be back later to provide more color on our markets and outlook.

[John Stone, President & CEO at Allegion]

Please go to slide four. Let's take a look at capital allocation for the first quarter, starting with investments for organic growth. As you may have seen from our Consumer Electronics Show announcements earlier this year, Schlage recently unveiled its first ultra wideband solution. The Schlage Sense Pro smart deadbolt is set to transform home access, delivering a hands free unlocking experience that combines ultimate convenience with trusted security for homeowners. Paired with a personal phone, its ultra wideband technology can understand intent to enter and unlock a door for an authorized user precisely as they approach it.

[John Stone, President & CEO at Allegion]

The Schlage Sense Pro will also allow homeowners to voice control the lock and set up automated routines via smart home platforms and devices. We are set to release the Schlage Arrive Smart WiFi Deadbolt, our first push button keypad deadbolt equipped with built in WiFi. It provides a simple and secure connected solution that is an easy upgrade for first time smart lock users and those looking to add smart security to more doors throughout their home at a more affordable price point. Both of these innovative new offerings complement our leading Schlage Encode family of smart locks and are also backed by the Schlage name, which just earned the title of America's most trusted lock brand for the sixth year in a row. Sense Pro and Arrive are expected to hit U.

[John Stone, President & CEO at Allegion]

S. Markets later this year. Turning to M and A. Allegion has closed three bolt on acquisitions since the start of 2025. In The Americas, we acquired the Nextdoor Company in February, growing our specialty door solutions portfolio to include new custom configurations for industrial, commercial and institutional buildings.

[John Stone, President & CEO at Allegion]

In Elysian International, we acquired Lamar, expanding our security and accessibility solutions in Australia. Lamar offers door entry systems, handles and digital locks for residential and multifamily markets, and its channels and go to market approach complement our own, offering new opportunities to scale. On April 1, we acquired Trimco, which bolsters our nonresidential Americas portfolio with premium and patented door hardware solutions that are highly specifiable ranging from architectural pulls to mechanical locks, latches and strikes. We see continued opportunities to grow inorganically this year as our pipeline remains active with companies that align to our core and can leverage our channel strengths. As you heard from us on the call in February, Allegion continues to be a dividend paying stock.

[John Stone, President & CEO at Allegion]

We announced our eleventh consecutive increase to our dividend at the beginning of the year. And in Q1, this dividend amounted to approximately $44,000,000 Lastly, we made share repurchases in the quarter of approximately $40,000,000 We remain committed to balanced, consistent capital allocation with a clear priority of investing for growth. I look forward to updating you as we progress through 2025. Mike will now walk you through first quarter financial results.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Thanks John and good morning everyone. Thank you for joining today's call. Please go to slide number five. As John shared our Q1 results reflect strong execution from the Allegion team delivering another quarter of margin expansion with mid single digit top line growth. Revenue for the first quarter was $941,900,000 an increase of 5.4% compared to 2024.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Organic revenue increased 4% in the quarter as a result of favorable price and volume led by our non residential business in The Americas. Q1 adjusted operating margin increased by 150 basis points as volume leverage, favorable mix and acquisitions were accretive to margins. Pricing productivity net of inflation and investments and inclusive of transactional FX was a slight margin tailwind in the quarter. Adjusted earnings per share of $1.86 increased $0.31 or 20% versus the prior year. Operational performance, favorable tax and accretive capital deployment more than offset a slight headwind from interest and other.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Our Q1 tax rate benefited from discrete items that historically occur in the back half of the year. We still anticipate the full year tax rate to be in the range of 17% to 18% with the first half rate being similar to the second half rate. Finally, year to date available cash flow was $83,400,000 which was up nearly 250% versus last year. We continue to effectively manage working capital and generate strong cash flow. I will provide more details on our balance sheet and cash flow a little later in the presentation.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Please go to slide number six. This slide provides an overview of our quarterly revenue. I will review our enterprise results here before turning to our respective regions. Organic revenue grew 4% in the quarter which included volume growth of 2.9% and price realization of 1.1. Acquisitions drove 2.2 points of growth in the quarter primarily related to businesses we acquired in 2024.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Currency was a headwind in Q1 of eight tenths of a point bringing the total reported growth to 5.4%. Please go to slide number seven. Our Americas segment delivered strong operating results in Q1. Revenue of $757,800,000 was up 6.8% on a reported basis and up 4.9% on an organic basis. Organic growth included both favorable price and volume in the quarter.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Reported revenue includes 2.3 points of growth from acquisitions and a slight currency headwind. Pricing in our Americas business was 1.1% in the quarter. The company has taken multiple price increases and surcharges beginning at the February and continuing into April. And as a result, we expect price realization to accelerate through the year. Our non residential business increased high single digits organically as demand for our products remains healthy.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Our residential business declined mid single digits in the quarter. As we previously mentioned on our year end 2024 earnings call, we did expect Q1 to be impacted by some pull ahead of purchases by customers into Q4 last year. Electronics revenue was up low double digits and continues to be a long term growth driver for Allegion. Americas adjusted operating income of $220,900,000 increased 12% versus the prior year. Adjusted operating margin was up 130 basis points as favorable volume leverage and mix were accretive to margins.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Price and productivity net of inflation and investments and inclusive of transactional FX were neutral to margin rates. The tailwind from transactional FX is primarily related to our Mexican operations where a portion of our local costs were favorably impacted by the year over year decline in the peso compared to the U. S. Dollar. Please go to slide number eight.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Our International segment delivered revenues of $184,100,000 which was down 03% on a reported basis and up 09% organically. Acquisitions were a tailwind this quarter positively impacting reported revenues by 1.8%. Currency was a headwind in the quarter negatively impacted reported revenues by three percent. International adjusted operating income of 18,800,000.0 decreased 2.6% versus the prior year period. Adjusted operating margins for the quarter decreased 20 basis points as we had a slight headwind from price and productivity net of inflation and investments.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Please go to slide number nine and I will provide an overview of our cash flow and balance sheet. First quarter available cash flow was approximately $83,000,000 up $59,500,000 versus the prior year. This increase is driven by higher earnings, lower capital expenditures and improvements in working capital. I'm pleased with the strong start to the year. And we continue to expect available cash flow conversion to be 85% to 90% of adjusted net income for the full year.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Next, capital as a percent of revenue improved primarily due to increased inventory turns as we continue to focus on working capital efficiency to convert earnings to cash. Finally, our balance sheet remains strong and our net debt to adjusted EBITDA is at a healthy ratio of 1.6 times. Our business continues to generate strong cash flow and our balance sheet supports continued capital deployment. I will now hand the call back over to John.

[John Stone, President & CEO at Allegion]

Thanks Mike.

[John Stone, President & CEO at Allegion]

Please go to slide 10.

[John Stone, President & CEO at Allegion]

We are reiterating the 2025 outlook we introduced last quarter as we still see the same fundamental outlook led by our nonresidential business in the Americas region. Nonresidential markets, particularly the institutional verticals, remain resilient. The late cycle nature of our business, along with our backlog and specification activity, continue to support our outlook. As Mike noted, we did expect some residential softness following the stronger Q4 and see markets remaining soft given uncertainty on tariffs and interest rates. As we said in the past, our Americas sourcing practices are largely in region, While our Americas residential business primarily produces and sources in Mexico, the vast majority of these products are USMCA compliant.

[John Stone, President & CEO at Allegion]

Americas sourcing from outside North America is relatively small, with China at less than 5% of COGS and a collection of smaller exposures from all other countries cumulatively at 5% to 10% of enterprise COGS. Our company estimates tariff costs of approximately $80,000,000 in 2025, and we expect to offset tariffs at the operating profit and EPS level on a full year basis, primarily through pricing actions. Accordingly, our 2025 full year EPS outlook includes the impact from tariffs enacted as of the April 22. Given recent volatility in tariffs and foreign exchange rates, we're not updating our revenue outlook for those assumptions. However, we see potential upside to our revenue outlook if current tariff related pricing actions and foreign exchange rates persist.

[John Stone, President & CEO at Allegion]

Please go to slide 11. In summary, Allegion is off to a strong start in 2025. I'm proud of our team's execution as we remain agile in a very dynamic environment. Notably, we were honored in the quarter with the Gallup Exceptional Workplace Award for the second consecutive year. Our leaders and our team of highly engaged experts drive our culture forward, creating a solid foundation to deliver exceptional results for our customers and our shareholders.

[John Stone, President & CEO at Allegion]

Our people are a key differentiator for this company. As we move into Q2, we see positive internal indicators in The Americas nonresidential business and we will remain agile should conditions change. One final note, Allegion has an upcoming Investor and Analyst Day in New York to share more on our growth strategy. If you're interested in attending our May 6 event, please contact Josh or Joby to register as soon as possible. With that, we'll take your questions.

[Operator]

And our first question comes from Joe Ritchie from Goldman Sachs. Please go ahead.

[Joe Ritchie, Managing Director at Goldman Sachs]

Hey, good morning guys.

[John Stone, President & CEO at Allegion]

Good morning, Joe.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Hey, Joe.

[Joe Ritchie, Managing Director at Goldman Sachs]

So I guess I'll start with the tariff question. So thank you for giving all the details. Great that it's included in your guidance for the year. I was just wondering, as you kind of think about the progression of those tariffs and the surcharges that you mentioned, is there any kind of mismatch we should be thinking about where either you're putting through pricing ahead of some of the tariff impact or vice versa? Just anything around those dynamics would be very helpful.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Yes. Thanks for the question Joe. As you know the tariffs went into effect the largest ones early April and they were effective immediately. We took actions in the month of April. Those are announced and in the marketplace.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

We announced them earlier this week and they're effective here in April at the April. You can consider if you think about a lag you could see a month ish of a lag between the tariff impacts which were immediate and our pricing actions. We still expect for the full year, and this is the important thing, for a full year, we'll cover those costs of the tariffs. But as you think about the second quarter, there could be a little headwind. We talked about that month ish of that lag.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

So as you think about this for the year, think of it as neutral, but think the second quarter could have that month impact.

[Joe Ritchie, Managing Director at Goldman Sachs]

Okay, great. That's helpful, Mike. And I guess just the following to just the tariff discussion, if in fact something changes and I think things are changing by the day, How do we then think about the pricing actions that you're taking? And then do they just immediately come off? Like how are you guys thinking about that dynamic as well?

[John Stone, President & CEO at Allegion]

Yes. Joe, this is John. I think that's on everyone's mind. And given the volatility just like Mike mentioned, we take our time to analyze each one of these enacted tariffs. It's a lot of detail and a lot of information to sift through.

[John Stone, President & CEO at Allegion]

And so we'll remain agile and we stay committed to affirming the full year guide that we just shared with you. That's the best way to think about it. It's anybody's guess on which way things go from here, but we'll remain agile as we have so far and remain committed to covering any costs at the OI and the EPS level.

[Joe Ritchie, Managing Director at Goldman Sachs]

That's great, John. If I could just sneak one more in just on non res. Great to see the growth this quarter. You did call out that there was potentially a pull ahead in the fourth quarter. I just I'm wondering like was there could you guys determine whether there was any kind of like pull ahead in 1Q as well just from like the fact that these tariffs were going into place and so maybe there were some orders that were placed.

[Joe Ritchie, Managing Director at Goldman Sachs]

I'm just trying to understand like how you felt about the growth that you saw this quarter and then the outlook going forward?

[John Stone, President & CEO at Allegion]

Yes. Joe, let me wind the clock back. The Q4 comment was specific to residential not non res. And the dynamics there with the customer concentration on the residential side and we watch their ordering behavior very closely. It was our own speculation that there was probably a mid single digit million pull ahead in Q4 on the resi side.

[John Stone, President & CEO at Allegion]

Non res is a book and ship business with pretty short lead times. We've been watching like hawks to see evidence of pull ahead. The whole industry does typically an annual price increase right around the March 1. So do some people get some orders in before the price increase? Yes, of course.

[John Stone, President & CEO at Allegion]

That happens every single year. But we're watching very carefully on the nonres side, and we just don't see a lot of evidence for any large pull ahead at this point.

[Joe Ritchie, Managing Director at Goldman Sachs]

Okay. Great. Thanks, guys.

[Operator]

The next question comes from Tim Wojs from Baird. Please go ahead.

[Timothy Wojs, Senior Research Analyst at Robert W. Baird & Co]

Yes, everybody. Good morning. Thanks for the time and details. Maybe just kind of the first question, just on the institutional side. Have you seen any sort of changes in how certain verticals have been institutional, call it healthcare, government those types of areas have kind of changed CapEx priorities or kind of thought about kind of funding just given some of the commentary coming out of Washington in those areas?

[John Stone, President & CEO at Allegion]

Yes. I think Tim it's important it's a good question. And I think it's important to remember doors, frames, locks, door hardware this is late cycle business. Once a project starts, it tends to finish. And so I'd say that those verticals, health care and education, have still been growing.

[John Stone, President & CEO at Allegion]

They've been resilient. We still see that. And again, I think the late cycle nature of our business continues to support our outlook. If you look back to 2024, particularly for the education vertical, new issuances of municipal bonds was at a record high, very strong growth. Those bonds now take a couple of years honestly to work their way through shovel ready projects and things.

[John Stone, President & CEO at Allegion]

So I think that those bonds tend to have a pretty long tail. And again, I think we can't just react to every single headline that pops up day to day. And again, I would highlight what we see in the non res space right now. Again, the institutional verticals are resilient. The aftermarket is very resilient.

[John Stone, President & CEO at Allegion]

And I'm proud of our performance in the aftermarket. I think we have been gaining some share there just with better performance and a better product portfolio. So that's what's all coming together from our view to reinforce the guide this year.

[Timothy Wojs, Senior Research Analyst at Robert W. Baird & Co]

Okay. Okay. That's helpful. Thanks a lot for that. And then just on the tariffs, if you kind of look at your kind of China and I guess other country kind of sourcing, how would you think you frame up relative to your competitors?

[Timothy Wojs, Senior Research Analyst at Robert W. Baird & Co]

I'm just curious if you're kind of on the lower end relative to your peers if you're kind of on the higher end in the middle kind of how would you kind of assess your relative kind of supply chain versus your competitors here in The U. S?

[John Stone, President & CEO at Allegion]

Yes. For sure I don't know. I'm not the guy to speak to their supply chains. But I would say, in general, what we see on the residential side is, by and large, the industry imports. That's from a range of countries.

[John Stone, President & CEO at Allegion]

We import from Mexico vast majority under USMCA compliant products. We have been reducing our China exposure with the investment of the new plant in Correto, Mexico that we've talked about probably for the last two years now. And so that's kind of automatically continuing to reduce China and build up a better supply chain there in Corretera. On the non res side, I'd say, our impression is our largest competitor probably has a footprint pretty close to ours. And generally, you make and source in region.

[John Stone, President & CEO at Allegion]

Some of the smaller competitors on the non res side, I could surmise they're a bit more import heavy than we are. But that's just a guess. I don't know for sure.

[Timothy Wojs, Senior Research Analyst at Robert W. Baird & Co]

Sounds good. Thank you guys for the time.

[John Stone, President & CEO at Allegion]

Thanks, Jim.

[Operator]

The next question comes from Jeff Sprague from Vertical Research. Please go ahead.

[Jeffrey Sprague, Founder and Managing Partner at Vertical Research Partners]

Hey, thank you. Good morning, everyone. Hey, Hey, good morning, John. Hey, not to make you reiterate what you said on the institutional markets, but just the comment about specifications. How good of a leading indicator have you seen that over time?

[Jeffrey Sprague, Founder and Managing Partner at Vertical Research Partners]

You're seeing strong specifications for example might seem at odds to kind of the ABI and things of that nature. So maybe just a little bit more color on how you try to sort out what the market signals really are here?

[John Stone, President & CEO at Allegion]

Yes. It's a fair question and there's a reason why we don't publicly disclose a KPI or anything around specifications because it's quite varied. Specifications on a large mega project could be a couple of years before realized revenue. Specifications on a small project renovation something like that could be months. And so it's always a little bit different.

[John Stone, President & CEO at Allegion]

But for us internally, it is a good indicator of capturing project business and it is something that we do use to drive our own activity within the company. So it's helpful. Is it a linear relationship that you can count on quarter to quarter? No, that's not the right way to look at it. For us, it's just a general gauge of activity.

[Jeffrey Sprague, Founder and Managing Partner at Vertical Research Partners]

Appreciate that. And then also understand you don't want to move the revenue target around with everything so fluid every day. But would it be reasonable to assume that you're really looking at sort of an upside revenue case, but maybe some pressure on margins, right? I don't know if your goal on tariffs is to offset dollar for dollar or at the margin rate, right? But if it's dollar neutral, it's margin negative.

[Jeffrey Sprague, Founder and Managing Partner at Vertical Research Partners]

Again, maybe we're splitting hairs. But just wondering how you think about how the year might progress from a revenue versus margin standpoint?

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Yes, Jeff. Thanks for that question. As we think about it, we offset it at the dollar basis. So at the OI and EPS level. So if there's substantial tariffs that would be margin rate, potentially margin rate impact negative, but it's the dollars that we're going to offset.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

That's consistent with what we said at year end and we still feel that way. So your question was spot on. That's how we're thinking about it from a margin rate. Can do the tyranny of the math to comment.

[Jeffrey Sprague, Founder and Managing Partner at Vertical Research Partners]

Yes. No. Yes. No, I get it. I think a lot of people forget that math, the numerators and denominators.

[Jeffrey Sprague, Founder and Managing Partner at Vertical Research Partners]

So just wanted to be clear on that. And then just one other quick ones. Speaking of margin rate, even taking out the $3,000,000 from Mexico, I think that Americas margin in Q1 is the best Q1 margin you've ever printed. I guess the mix is positive with resi weak and electronics strong. But anything else you would say about the margin rate in the quarter, mix within mix or something else going on there that supported that level of margin?

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Yes. Really pleased with the margin performance in Q1. And frankly, over the last couple of years, we've done really good job of driving productivity in the business as well which helps the margin performance. One item I will highlight for you is our non residential business as you know is a more profitable product line than the non res is more profitable than res. And so you have to consider that when you look at margin rates.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Obviously non res growing residential declining. So that's the one item I'll call out for you.

[Jeffrey Sprague, Founder and Managing Partner at Vertical Research Partners]

Right. All right. Thank you.

[Operator]

The next question comes from Joe O'Dea from Wells Fargo. Please go ahead. Hi, good morning.

[Joseph O'Dea, Managing Director at Wells Fargo]

Clearly, really good start to the year. I just want to understand kind of what the framework is as you think about Q2 and expectation setting. I think you talked about maybe there's a little bit of a price cost timing impact, but just from the demand side also, sounds like no real pull forward, really strong volumes in Americas in Q1. And so is it really just a margin sensitivity, just given strong beat in Q1, no raise at this point in the guide? Any first half, second half framework would be helpful.

[Joseph O'Dea, Managing Director at Wells Fargo]

Like is it roughly forty eight percent first half of the year on EPS and anything there just to kind of help level set on how things are pacing in the first half?

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Yes. Thanks for the question Joe. I would say obviously when you model us and you've heard me say this before get the full year first and then work on the quarters. I did call out earlier the concept of that month ish lag price cost. I think it's important for you to consider that.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Absent that, we're not calling any pull ahead from Q2 into the first quarter. So I think the key thing for you to consider is that item I mentioned earlier, get the full year and then consider that in your model. And then also the tax rate, we did have an unusual tax rate in Q1. So in my prepared remarks, I mentioned about first half is similar to second half. That is different than normal for us.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

So when you model that just kind of take that into consideration.

[Joseph O'Dea, Managing Director at Wells Fargo]

Got it. That's helpful. And then can you just spend a little bit of time on the go to market and distribution and what might be a little bit unique about kind of locks and contract hardware dealers, because I think there's some attention on the degree to which there's pull forward or whether there's just stocking ahead of price increases. But how much of the business would generally be stock and flow nature versus this is spec in and the short cycle nature of it is just dependent on the timing of when the project needs the products, but it's not exactly stock and flow?

[John Stone, President & CEO at Allegion]

Yes. Joe, it's a good question. And I think it's part of the secret sauce of Allegion. This if you look at our and in my opinion, the industry's finest field sales and marketing team, you split those folks three to one, three folks working on end user demand generation through architectural design, through end user consulting on complex spaces, etcetera. And then that demand generation helps pull our products through the channel.

[John Stone, President & CEO at Allegion]

We and generally as an industry, we operate on short lead times. This is a book and ship business. I would say that pull strategy makes it quite similar for the majority of our distribution partners. Like I mentioned in earlier in the Q and A, watching very closely to see evidence of any pull ahead or any like inventory builds. And on the nonres side, we're just not seeing that at this point.

[John Stone, President & CEO at Allegion]

I'd say with our largest distribution partners on the nonres side, we do watch sell through. Sell through has been very healthy. And so at this point, just not seeing evidence of any large inventory build. But again, very volatile time, so premature to do anything different than we did on the outlook. And that's how we would see it, book and ship business.

[Joseph O'Dea, Managing Director at Wells Fargo]

Got it. Thank you.

[Operator]

The next question comes from Brett Linzey from Mizuho. Please go ahead.

[Brett Linzey, Executive Director at Mizuho Financial Group, Inc.]

Hey, good morning all.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Good morning, Brett.

[Brett Linzey, Executive Director at Mizuho Financial Group, Inc.]

Yes, I wanted to come back just to pricing and trying to understand the timing and the magnitude here. Has all the price you need to offset the $80,000,000 now been announced with this second April round of price? Or should we expect more actions to ramp and feather through the balance of the year?

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

I would answer it this way, Brett. We will always announce to the channel first and we made that announcement based on the tariffs that are in place today.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

I think that's the key clarifier. So anything that the President announced or the administration announced already in April, we've taken the actions and that's in the marketplace now.

[Brett Linzey, Executive Director at Mizuho Financial Group, Inc.]

Got it. And then I guess just maybe the mechanics between list price and surcharge. You did flag the surcharge path as well.

[Brett Linzey, Executive Director at Mizuho Financial Group, Inc.]

I guess what does the composition between those two pricing levers look like? And then I guess at what point do you just assume the tariffs are maybe structural and you begin to convert some of the surcharge to list over time? Just trying to understand the mix there.

[John Stone, President & CEO at Allegion]

Yes. That's fair. We did opt for surcharge rather than list price changes at this point. To your second question on when do we assume, well, we're not assuming. We're watching and monitoring the tariff environment.

[John Stone, President & CEO at Allegion]

I think the amplitude of the volatility and the continual nature of the volatility just has us focused on remain agile, do our analysis, make sure we understand our exposures and our impact and then work with our channel partners to mitigate that impact. That's what we've done so far. That's why we're confident to reiterate the guide today. And looking forward, I think that's the best way to think about us. We will remain agile and resilient.

[Brett Linzey, Executive Director at Mizuho Financial Group, Inc.]

All right. Appreciate the insight.

[Operator]

The next question comes from Julian Mitchell from Barclays. Please go ahead.

[Julian Mitchell, Equity Research Analyst at Barclays Investment Bank]

Hi, good morning. Maybe wanted to focus first of all on the residential market in The Americas. And I guess two parts to that. One is, what are you seeing in the replacement market demand right now leaving aside the pre buy and hangover that had happened and leaving aside greenfield, which is weak. What are you seeing kind of on fundamentals and sell out in the replacement market?

[Julian Mitchell, Equity Research Analyst at Barclays Investment Bank]

And also on market share in residential, I would think there's quite a good opportunity to take domestic share because of the struggles that a lot of the importing rivals will have. Is that something you're pushing your sales force to do or it's more around the margins are lower, so you're kind of just happy with your share as is?

[John Stone, President & CEO at Allegion]

Okay. Yes. Thanks for the question, Julien. I would say a year ago or nine months ago, we were very helpful for a better outlook on U. S.

[John Stone, President & CEO at Allegion]

Residential, but with persistently high mortgage rates. Affordability is still a challenge in the country even though we know there is a housing shortage. There is that dynamic is still there. But mortgage rates are still high. Tariff uncertainty and construction costs are a wildcard right now.

[John Stone, President & CEO at Allegion]

So resi, as we mentioned earlier in the prepared remarks, we expect to just kind of continue to remain soft. I'd say maybe bouncing along the bottom until there is a notable catalyst to change that. Our residential business is probably 70% aftermarket, 30% new build. I think that's round numbers we've shared for a while. And that, I think, still holds.

[John Stone, President & CEO at Allegion]

In terms of other imports and cost advantages or disadvantages, I think it's really premature to put too much stock into that right now just because of the very volatile nature of the tariff environment we've been in. So time will tell on that. Where we've been focused, as you saw in the presentation, is on the electronics side, where we feel we're an innovation leader. We are differentiated. We continue to bring differentiated product to market and drive growth in electronics.

[John Stone, President & CEO at Allegion]

And these recent two new products, new front door locks, I think you might even be a customer for one of them because they're very, very exciting, good innovation, good technology, premium products.

[Julian Mitchell, Equity Research Analyst at Barclays Investment Bank]

That's helpful. Thanks very much. And then as we think about the profit outlook, I think the price productivity net of inflation and investment, that sort of aggregate line in your profit bridge was around zero in the first quarter. And I think there was some consternation in Q4 when it was a headwind. So I understand it's a lot of moving pieces there, particularly now with tariffs coming in.

[Julian Mitchell, Equity Research Analyst at Barclays Investment Bank]

But should we assume that you can kind of keep that line sort of around zero for the balance of the year? Is that sort of the aspiration with the surcharges and all the rest of it?

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Yes. Thanks for the question, Julien. That's exactly how we think about it, right? Price and productivity covering that inflation and investment, right? So think of it as neutral for the year.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

We had a challenged Q4. I addressed that on that call, but felt confident in the ability to get it back to the normal neutral that we I just mentioned. You saw that in Q1 expect that to be that for the full year. Quarter to quarter it could ebb and flow like you saw Q4 last year. I also mentioned in Q2 the timing lag.

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

But for the full year think of it as a neutral number like you mentioned.

[Julian Mitchell, Equity Research Analyst at Barclays Investment Bank]

That's great. Thanks very much.

[Operator]

The next question comes from Chris Snyder from Morgan Stanley. Please go ahead.

[Chris Snyder, Executive Director at Morgan Stanley]

Thank you. I wanted to just follow-up start with a quick one on the mechanics of the guide. So if I'm understanding right, the revenue guide does not assume any uplift for incremental or for price action or surcharges, I guess, related to the tariffs. But the operating profit guide does reflect those price actions?

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Yes. If you read the press release that's explicitly stated in the release Chris. So you have it correct.

[Chris Snyder, Executive Director at Morgan Stanley]

Thank

[Chris Snyder, Executive Director at Morgan Stanley]

you. I guess when we've talked to people in the channel lately, we've heard about like project paralysis on a lot of, I guess, it be a new greenfield with just uncertainty around price and cost, hard to do quoting and bidding and things have slowed. I guess, do you not think that, that will impact your volumes this year? Or is it like you were saying earlier, we're so late cycle that, that would hit us? Or any maybe slowdown in new projects would hit us in the out years?

[Chris Snyder, Executive Director at Morgan Stanley]

Any color on that would be helpful. Thank you.

[John Stone, President & CEO at Allegion]

Yes. Very fair question. And certainly, I'd say, as interest rates rose in recent times, you did see some of that on the private finance market, private projects might have gone through planning phase, might have gone through design with the architect and then just press pause to wait for a bit more favorable financing environment. Late last year, we did talk about interest rates as a key swing factor. Think as you mentioned, we hear evidence of a similar dynamic.

[John Stone, President & CEO at Allegion]

So I'd say as interest rates do come down as a more favorable investment environment comes about, it does feel like there's a lot of already designed, already planned projects that could go forward. We'll just have to wait and see what's the catalyst to get that environment a bit more favorable.

[Chris Snyder, Executive Director at Morgan Stanley]

Thank you. I appreciate that.

[Operator]

And our last question comes from Andrew Obin from Bank of America. Please go ahead.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

Yes. Good morning. Can you hear me?

[Mike Wagnes, Senior Vice President and Chief Financial Officer at Allegion]

Yes. Yes.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

Good morning. Yes. Just a follow-up on Chris' question. Lots of consternation about potential recession a couple of weeks ago. These concerns seemingly have gone away.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

What are you guys seeing in terms of momentum in the channel and so far? Clearly, you guys not calling for a recession. What makes you confident in your outlook? What are we seeing in April? If you could give us some color there.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

Thank you.

[John Stone, President & CEO at Allegion]

Appreciate the question, Andrew. And I'd say, we don't guide quarters. We're certainly not going to guide a month. But if you looked at the progression of positive volume growth in the last few quarters of twenty twenty four. We exited 2024 with good momentum in non res.

[John Stone, President & CEO at Allegion]

That momentum has continued thus far this year in non res. And I think again it's a healthy aftermarket. It's a resilient institutional verticals, new products that Allegion has brought to market contributing to the internal indicators that give us confidence in the full year guide.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

And maybe just to flip it a little bit. We were in Europe and it seems a lot of optimism in Italy actually of all places. People talking about maybe potential German recovery sometime in the second half. What are you seeing in Europe? What are you seeing in Chisa?

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

What's the messaging from your German channel into the second half of the year? You.

[John Stone, President & CEO at Allegion]

Yes. Question, Andrew. Love talking about international because again that business unit is continues to perform well in the face of kind of flattish markets. In Europe, I would say Germany with the political upheaval they had at the end of twenty twenty four slowed down pretty dramatically. I do feel there is more optimism now as the new coalition gets built, little bit more conversation about investment in the country.

[John Stone, President & CEO at Allegion]

We'll see how that plays out. But it does feel better than it did in Q4, but I think still premature for us to change anything. We're just going to reiterate the guide. Italy, Chiesa, you specifically asked, really proud of that team. They've done a lot of self help work on their portfolio and their factories, have been gaining market share as a result.

[John Stone, President & CEO at Allegion]

So new products hitting the market. Very proud of them. Cheese is performing well. So thanks for the call out.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

But no near term improvement in terms of macro in Italy?

[John Stone, President & CEO at Allegion]

I think the best we can say, Andrew, is again just reiterating the full year guide is how you ought to think about us.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

Okay. Thank you.

[Operator]

This concludes our question and answer session. I would like to turn the conference back over to John Stone for any closing remarks.

[John Stone, President & CEO at Allegion]

Well, thanks everyone for the great Q and A. We look forward to connecting with you in New York at our Investor Day where you will hear a little bit more about our long term growth strategy. And I would just leave you with I'm very confident that Allegion is a high quality industrial company. We have an important mission served by great people. And in my opinion there are few secular trends more important particularly in times like today and that's personal safety and security and that's what we do.

[John Stone, President & CEO at Allegion]

So come see us in May in New York or join us for our Q2 earnings call in July. Be safe, be healthy everyone. Thanks for the time.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Josh Pokrzywinski, Vice President of Investor Relations
• John Stone, President & CEO
• Mike Wagnes, Senior Vice President and Chief Financial Officer

Analysts

• Joe Ritchie, Managing Director at Goldman Sachs
• Timothy Wojs, Senior Research Analyst at Robert W. Baird & Co
• Jeffrey Sprague, Founder and Managing Partner at Vertical Research Partners
• Joseph O'Dea, Managing Director at Wells Fargo
• Brett Linzey, Executive Director at Mizuho Financial Group, Inc.
• Julian Mitchell, Equity Research Analyst at Barclays Investment Bank
• Chris Snyder, Executive Director at Morgan Stanley
• Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch