On Thursday, Allegion (NYSE:ALLE) discussed second-quarter financial results during its earnings call. The full transcript is provided below.

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The full earnings call is available at https://allegion-q2-2026-earnings-call.open-exchange.net/registration

Summary

Allegion Public Limited Company reported strong second-quarter results driven by organic growth in the Americas, with revenue increasing by 12.7% to approximately $1.2 billion.

The company raised its full-year revenue outlook to 7.5% to 8.5% and adjusted EPS to $8.85 to $9, citing strong demand in the Americas but weaker demand in European markets, particularly Germany.

Operational highlights include strong performance in electronics, particularly in higher education, and the successful integration of acquisitions, which contributed to revenue growth.

The company repurchased $120 million of shares and paid $47 million in dividends during the quarter, maintaining a balanced approach to capital allocation.

Management highlighted strong specification activity in non-residential markets and ongoing restructuring actions in Europe to address weaker demand.

Full Transcript

Donnie

That's fine. Stefan's in here so he has a verbal cue. So as soon as I do 5-4-3, he'll be ready to go.

Stefan, Conference Operator

Good day, everyone. My name is Stefan, and I'll be your conference operator today. At this time, I'd like to welcome you to the Allegion PLC second quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time and if you've joined via the webinar, please use the raised hand icon, which can be found at the bottom of your webinar application.

At this time, I'd like to turn the call over to Josh Pokowinski, Vice President of Investor Relations.

Josh Pokowinski, Vice President of Investor Relations

Thank you, Stefan. Good morning, everyone. Thank you for joining us for Allegion's second quarter 2026 earnings call. With me today are John Stone, President and Chief Executive Officer, and Mike Wagnes, 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. This call will be recorded and archived on our website.

Please go to slide 2. 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. 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 3, and I'll turn the call over to John.

John Stone, President and CEO

Thanks, Josh. Good morning, everyone. Thanks for joining us. Second quarter results were driven by strong organic growth in the Americas, and we see continued momentum in non-residential indicators. Our specification activity has been robust for several quarters and includes the breadth of our core institutional markets, cyclical improvement in commercial verticals like office and multifamily, and strong growth in data center, which is still small compared to some of our legacy markets but will continue to gain relevance as that installed base grows and fuels aftermarket over time.

I'm also pleased with the return to margin expansion in our International segment. We made progress on the ERP challenges experienced in the first quarter consistent with our expectations. We saw strong sequential margin improvement and expect to build on that in the second half of the year. However, demand is weaker in several of our European markets, including Germany, which is our largest market, and we have taken additional restructuring actions in response.

With respect to our full year, we're raising our reported revenue outlook to 7.5% to 8.5% and our outlook for organic revenue growth to 3.5% to 4.5%. Based on stronger expected demand in the Americas, partially offset by weaker International demand, we are raising our adjusted EPS outlook to $8.85 to $9. I'll provide additional details on this later in the call. Please go to slide 4. Let's take a look at capital allocation, starting with our organic investments and ongoing demand trend for electronics.

Higher education offers a clear example of continued secular growth in electronics as demand for mobile technology increases on college campuses. These customers are moving from plastic cards and mechanical keys to contactless mobile credentials provided and managed by Allegion. This also drives large-scale hardware modernization. In a recent example from our team, two flagship university deployments turned into multimillion-dollar opportunities for our company, stemming from thousands of Allegion reader and lock upgrades paired with system-wide Allegion credential standardization.

We also see off-campus housing and property managers adopting the same approach, extending secure, seamless access from the campuses where students learn into the communities where they live and connect. These upgrades deliver real benefits: simpler credential management and updates, lower installation costs, faster integration, and improved security and convenience for the end user. As mobile credential adoption spreads across core institutional markets, our organic investments position Allegion to capture these hardware upgrade cycles, driving deeper customer loyalty and long-term electronics growth and shareholder value.

Turning to M&A, we spent $70 million in acquisitions in the first quarter and did not complete any acquisitions in the second quarter. We continue to cultivate a pipeline of opportunities that complement our portfolio. Allegion paid $47 million in dividends, and we repurchased $120 million of Allegion shares in the second quarter. And as we've said in the past, you can expect Allegion to be balanced, disciplined, and consistent with capital deployment, oriented towards profitable growth and driving long-term returns for shareholders.

At current share-price levels, we do see attractive valuation in our shares and expect to remain active in the second half. However, consistent with past practice, our outlook does not include additional share repurchase. Mike will now walk you through second quarter financial results.

Mike Wagnes, Senior Vice President and Chief Financial Officer

Thanks, John, and good morning, everyone. Thank you for joining today's call. Please go to slide number 5. Revenue for the second quarter was approximately $1.2 billion, an increase of 12.7% compared to last year. Organic revenue increased 6.9% in the quarter driven by strength in our Americas segment. The enterprise organic revenue increase was driven by both price realization and volume. Q2 adjusted operating margin was 24.2%, up 50 basis points compared to last year.

Pricing/productivity, net of inflation and investment and inclusive of transactional FX, was favorable by $11.8 million and was a 30 basis point tailwind to margin rate. Volume leverage was also a tailwind to margin rate in the quarter. This favorability was partially offset by acquisitions, which were a 30 basis point headwind to margins. I'll provide more details on revenue and margins within each of the regions. Adjusted earnings per share of $2.40 increased $0.36, or 17.6%, versus the prior year.

Operating income inclusive of acquisitions drove the majority of the year-over-year EPS growth, with a slight tailwind from tax and share count, partially offset by interest and other. Finally, year-to-date available cash flow was $260.8 million, down 5.3% from the prior year. I'll provide more details on cash flow and the balance sheet a little later in the presentation. Please go to slide number 6. Our Americas segment delivered revenue of $918.6 million, which was up 11.8% on a reported basis and up 8.9% on an organic basis.

Our non-residential business increased high single digits organically, driven by price and volume growth. Demand for our non-residential products remains healthy, and as John mentioned earlier, spec activity continues to be strong. Our residential business also grew high single digits, driven by both price and volume. Resi growth in Q2 was particularly strong in electronics, which can fluctuate quarter to quarter. Electronics revenue for the segment was up low teens for the quarter, as both res and non-res were strong.

On a year-to-date basis, electronics grew high single digits, consistent with our long-term expectations. In addition, acquisitions contributed 2.9 points of growth in the quarter. Americas adjusted operating income of $276.4 million increased 12.5% versus the prior year. Adjusted operating margins were up 20 basis points in the quarter. Price and productivity, net of inflation and investment and inclusive of transactional FX, was favorable by $10.8 million and was a 10 basis point tailwind to margins.

The transactional foreign currency headwind of $2 million related to the prior-year benefit that we disclosed in Q2 last year. Volume leverage was a tailwind to margin rates, and acquisitions were a 40 basis point headwind as expected. Please go to slide number 7. Our International segment delivered revenue of $232.9 million, which was up 16.2% on a reported basis but down 1.2% organically. The organic revenue decline was the result of weaker demand in some of our markets, including Germany.

As John discussed earlier, net acquisitions contributed 14.3% to segment revenue. Currency was also a tailwind, positively impacting reported revenue by 3.1%. International adjusted operating income of $28.8 million increased 9.9% versus the prior year. Adjusted operating margin for the quarter decreased 70 basis points. Price and productivity, net of inflation and investment, was a 120 basis point headwind to margin rate in the quarter. Volume deleverage was also a headwind to margins.

These declines were partially offset by an 80 basis point tailwind from acquisitions. Margins did increase 440 basis points sequentially as the company worked to improve production rates following the ERP disruptions experienced in Q1. Please go to slide 8, and I will provide an overview of our cash flow and balance sheet. Year-to-date available cash flow was $260.8 million, down 5.3% versus the prior year. The cash flow decrease was primarily driven by timing of sales, which were stronger later in the quarter, resulting in higher receivable balances at quarter end.

For 2026, we still anticipate our ACF conversion will be approximately 85% to 95% of adjusted net income. Next, working capital as a percent of revenue increased in the second quarter due in part to acquired working capital as well as higher receivables just mentioned. Finally, our balance sheet remains healthy, with net debt to adjusted EBITDA at 1.6 times. I will now hand the call back over to John.

John Stone, President and CEO

Thanks, Mike. Please go to slide nine. Midway through the year we are raising our organic revenue growth outlook to 3.5 to 4.5% and adjusted earnings per share outlook to $8.85 to $9. We're raising our reported revenue outlook to 7.5% to 8.5% based on changes to the organic growth rate range. You can find more details on our outlook in the appendix. In the Americas, we're raising our organic assumption to the higher end of mid single digits, reflecting pricing associated with increased inflation as well as a healthier demand environment, primarily in non-res.

We announced pricing actions in the quarter to cover the higher inflation we were experiencing, and we'll continue to monitor the tariff and input cost environment to cover additional inflationary pressures if needed. As we said in the first quarter, we expect Americas margin expansion in the second half. Our outlook does not include potential IEIPA refunds due to uncertainty on future refund timing, and as we prioritize communicating with our customers first.

We would not expect any potential IPA refund to have a material impact on EPS. For International, we expect to catch up on production impacts from the ERP implementation during the remainder of the year, and while we expect better revenue and margin performance in the second half, weak market demand in Europe, particularly Germany, supports reducing our full-year outlook to a low single-digit organic decline. We're also truing up inorganic assumptions around FX and a modest reduction to M&A contribution, as those businesses faced weaker markets this year as well.

In total for 2026 we expect to deliver high single-digit to low double-digit EPS growth, in line with our long-term earnings framework. Consistent with prior practice, the outlook does not include the benefit of future capital deployment. And as a result, the outlook assumes a share count of 85.9 million shares. Please go to slide 10. In summary, Allegion delivered double-digit revenue growth, high-teens adjusted earnings per share growth, and returned capital to shareholders.

We see momentum building in our largest market, which gives us confidence in our organic growth potential over the next several years. The Allegion team expects to continue delivering on our commitments and driving value for shareholders. And with that, we'll take your questions.

Stefan, Conference Operator

We will now begin the Q&A session. For today's session we'll be utilizing the raise hand feature. If you would like to ask a question, simply click on the raise hand button at the bottom of your screen. Once you've been called upon, please unmute yourself and begin to ask your question. You'll be able to ask one question and one follow-up question. Thank you. We'll pause for a moment to allow the queue to form. Our first question will come from Tim Weiss from Robert W. Baird and Company. Please unmute your line and go ahead.

Tim Weiss, Analyst at Robert W. Baird

Hey guys, good morning. Nice, nice job. Can you hear me? Just want to make sure I figure this whole tech thing out. Okay, great. Yeah, thanks. So I guess maybe just first question. I guess, you know, particularly on the volumes in North America. I mean it seems like the quarter itself was better from a volume perspective for you guys. I'm just kind of curious what was better relative to your expectations and what is your expectation for Americas volume in the second half of the year?

John Stone, President and CEO

Yeah, Tim, certainly we had a real strong second quarter from a volume and total revenue. The quarter itself was as strong as I can remember in some time. There was strength across both res and non-res. Demand has been really solid and we feel we'll continue to have strong demand patterns moving forward. When you think of 26 and 27 residential, certainly stronger than we expected. You know, high single digit at the higher end of that, obviously with the close to 9% organic that was a little stronger; that was driven by electronics. The one item I would note for Allegion here in the second quarter in the Americas: we did put a price increase out in the market at the end of May that does result in customers ordering a little in advance of that. So that led to the stronger June. You could have seen a little pull forward as you think of Q3 into Q2, but not much. I mean underlying demand is in the high singles. When you think about the second quarter, maybe just not as high as 9 for the segment.

But overall really good demand. And as you think moving forward, non-res feel real good. In the case of residential, encouraged by the quarter we just had. I would say the outlook doesn't assume that level of performance moving forward. I think there's a, you know, we're a little prudent to not take one quarter and then extrapolate that as a trend moving forward. So I think there's more modest assumptions in residential in the outlook, although feel good.

Great to see our residential business growing as strongly as it did in the second quarter.

Tim Weiss, Analyst at Robert W. Baird

Okay, okay, that's helpful. And then I guess maybe just stepping back. Is there any way to put numbers or any sort of kind of color or trend around what you're seeing from like a spec quoting activity and how that's kind of tracked the past three to four quarters? I'm just trying to get a better kind of visual or understanding of how specifically that non-res spec activity has changed over the last three to four quarters and what that might mean for volumes as we think about 2027 here.

John Stone, President and CEO

Yeah, Tim, this is John. It's a good question and I think certainly you picked up on the commentary from Q1 where we said spec activity was strong to even very strong. That strength, that momentum has continued through second quarter. It's as strong as I've seen since I joined the company, and we're very encouraged by it. And I think certainly we feel it supports our outlook for the current year. And with specs generally being a good indication of project work and revenue in the next 12 to 18 months, as we said, we feel that this lays a good foundation for organic growth in non-res for the next couple years.

We don't release specific numbers around spec. I think it's not prudent to do that because the line of sight to revenue is always a little lumpy. So better just to let you know, like we said in the prepared remarks, we see broad-based strength across the core institutional verticals. We do see cyclical recovery in commercial verticals. AIA consensus came out this week that indicates some acceleration in the commercial space into 2027. So there's more signal than noise at this point for what feels like improving non-res.

Tim Weiss, Analyst at Robert W. Baird

Appreciate the color. Thanks guys. Good luck.

John Stone, President and CEO

Thanks, Tim.

Stefan, Conference Operator

Thank you. Our next question will come from Alexander Virgo with ISI Evercore. Please unmute your line and go ahead.

Alexander Virgo, Analyst at Evercore ISI

Yeah, thanks very much. Good morning. Hopefully you can hear me.

John Stone, President and CEO

Yeah. Morning.

Alexander Virgo, Analyst at Evercore ISI

Morning. Thank you. I wondered if you could talk a little bit about Europe and the evolution of demand there. I think one of your main competitors last week actually reported accelerating growth in Europe, albeit slow. So I just wondered if you could give us a little bit of comment there around some of the drivers of the difference in performance and perhaps a bit of color around that deceleration or deterioration that you called out, especially in Germany.

Thank you.

John Stone, President and CEO

Yeah, very fair question and something we've been watching pretty closely. I think when you look at our exposure in Europe, primarily Southern Europe and overweighted in Germany, if you look at Germany GDP growth forecasts sequentially, they've been taking that down with every update in the last six or nine months, and we're feeling that. I think confident in the businesses there — they're good businesses. Our electronics businesses in Europe are very strong, great margins, been good growth.

The macro backdrop in Germany has just been worsening. That does have an outsized impact on us. In our mechanical businesses, largely exposed to Southern Europe, countries like Italy and Spain have been hanging in there consistent with our expectations. It's not great — like you say, it's not huge — but hanging in with expectations. It's just been the sequential decline in demand in Germany that's had a bit of an outsized impact on us.

Alexander Virgo, Analyst at Evercore ISI

Okay, that's very helpful. Thank you. And just as a kind of extension of that, I guess, the pricing side of things and the pricing that you've obviously been able to push through in the Americas is encouraging to see. I'm guessing that the weakness in the broader market in International makes pricing a little bit more difficult. So I just wondered if you could just maybe talk a little bit about the second half and how we might think about that. Thank you.

John Stone, President and CEO

Yeah, certainly if you think about our business, our pricing ability in North America, particularly non-residential, is our strongest across the company. I would expect, though, to see positive pricing. And as we talked about in the prepared remarks, we're also really focused on driving cost actions. So as you think about the margin performance for the International business, you should see expansion in the second half of margins, and that would be a combination of pricing as well as restructuring and cost activity to drive better margin performance.

Alexander Virgo, Analyst at Evercore ISI

Brilliant. Thank you very much.

Stefan, Conference Operator

Thank you. Our next question will come from Raf Jadrasich with Bank of America. Please unmute your line and ask your question.

Raf Jadrasich, Analyst at Bank of America

Hi, good morning. Thanks for taking my questions. Just to start, can you just talk a little bit about, obviously, the acceleration on Americas residential. How do you think about kind of quantifying the pre-buy relative to the sell-through rate, and just how do we think about potentially the cadence as we go through the back half of the year?

John Stone, President and CEO

Yeah, if you look at our performance in the second quarter for res, really strong electronics, and that's driven by consumers and retail channel. And point of sale was good. So inventory levels at retailers are at normal levels. Right. So this is not a big stocking order. Underlying demand was strong in the quarter. In the first question I tried to address this. This is one quarter where we saw this — super pleased. I think the activity was stronger in the quarter, but the outlook doesn't assume that just yet.

We want to see a few more quarters of positivity. In addition, just be cognizant as you think about the prior-year comp: Q3 last year was particularly strong. So as you think about resi as we progress, Q3 last year was strong. That's a tougher comp.

Raf Jadrasich, Analyst at Bank of America

Okay, that's very helpful. And then in terms of the input cost environment, can you just talk about how that has evolved maybe over the last three months or so? There's a lot of puts and takes with 232 and steel prices. I think last time you were talking about maybe a 30 basis point margin rate headwind but dollar neutral, 1% of revenue in terms of the input cost pressure. Is that still the case or has that shifted at all?

Mike Wagnes, Senior Vice President and Chief Financial Officer

Yeah, I would say as we think about our business, Tara, tariff and inflation. Right. Tariff is a form of inflation, and what we're going to do is we're going to manage those inputs. We're going to drive pricing and productivity such that we're going to cover the inflation and the investments. What you saw in the second quarter is we're back to expanding margins and covering, obviously, the cost basis. Q1, a little pressure in the Americas. Q2, back to expansionary margins from PPII.

I do expect for the full year we will be neutral to slightly positive on PPII in the Americas. That would be, obviously, expansionary in the back half. And then finally, as you think about the quarters, just take a look at the prior year comps as well. I mentioned earlier about Q3, but in general think of it as all the costs that we know about are in the outlook as inflation, and we've taken the necessary pricing actions to ensure that we can cover it.

Tara, Analyst

Great, thank you.

Stefan, Conference Operator

Thank you. Our next question will come from Jeffrey Sprague with Vertical Research Partners. Please unmute your line and ask your question.

Jeffrey Sprague, Analyst at Vertical Research Partners

Hey, good morning, everyone. Hey, John. I just wondered if you could shed a little more light on sort of the nature and scope of the restructuring that you're doing in Europe, and is everything you plan to do in flight there? And maybe some, you know, some color on the savings or expected savings on the other side of the actions.

John Stone, President and CEO

Yeah, Jeff, I'll start and ask Mike to chime in a little bit too. With regards to the restructurings and the cost actions, we took a couple of different flavors there. Some of it was capturing acquisition cost synergies from acquisitions we made a year ago. Some of it, though, admittedly was just in response to softer demand environments that have persisted for a little bit and just reducing the overall cost structure in a couple of those segments.

In terms of how to think about it from a more quantified perspective, let me ask Mike just to add in a couple of comments.

Mike Wagnes, Senior Vice President and Chief Financial Officer

Yeah, so Jeff, if you think about the benefit, think of it as $10 million annually of cost benefit. We'll get the full run rate in Q4. The actions, though, have been addressed. They're already completed, and you're going to have a partial quarter in Q3. Q4 is the full quarter. And then, as you think of the first half of next year, you're going to get the tailwind from the carryover. But just from a full-year amount, think of it as $10 million annually of benefit.

Jeffrey Sprague, Analyst at Vertical Research Partners

Great, thanks for that. And then just back to Resi one more time, or at least only one more time from me. Was there anything going on with, I don't know, new product launches or anything that caused the stimulation of demand? You said there was no unusual, you know, inventory build and point of sale seemed good, but like, you know, just again, curious, it seems like a surprisingly strong number.

John Stone, President and CEO

Yeah, Jeff, I think, you know, consistent with the prepared remarks and Mike's answer earlier, it was stronger than we expected in the quarter. I do think it was driven by electronics. The new product launch was a year ago. That was Q3 2023. And Mike mentioned, you know, that's what drove what's going to be a strong, or tough, comp as you look into second half of this year. But I think, you know, we're running our playbook, we're running our strategy, and it's working.

We got great electronic products out there. You know, our Resi business is 70% weighted to aftermarket and about 30% on new build. New build is still weak and, you know, there's no denying that. You can see what the home builders are reporting and their commentary out there. But the point of sale in retail, like Mike said, has been pretty strong, and strong because of electronics.

Jeffrey Sprague, Analyst at Vertical Research Partners

Got it. Thank you very much.

Stefan, Conference Operator

Thank you. Our next question will come from Joseph Ritchie with Goldman Sachs. Please unmute yourself and ask your question. Joe, your line is unmuted. Please go ahead and ask a question. Okay. In the meantime, we'll move on to Tomo Sano from JP Morgan. Please unmute your line and go ahead.

Tomo Sano, Analyst at JP Morgan

Hi, good morning everyone. Hi John, thank you for taking my questions. I'd like to double click on Americas non-residential high single-digit growth in the second quarter. Could you give us more color on the by-verticals, let's say universities, office, multifamily? John, you talked a little bit about the data centers. How should we look at the second-half outlook for those drivers as well? Thank you.

John Stone, President and CEO

Yeah, Tomo, really good question. And, you know, non-res is certainly the largest part of Allegion's business, and demand has been improving. The momentum is good. Forward-looking signals around spec activity and the AIA consensus are favorable, so we feel good about that. In the slides in the prepared remarks you saw a bit of the breakdown between pricing and volume growth. I would say consistent with what we said on the spec activity: the project work, our customers' backlogs are very much broad based.

And you do see some cyclical recovery in commercial verticals like multifamily and office that have been depressed for the last few years — they're improving. Our institutional verticals: healthcare has been strong, education hanging in there. You know, we highlighted some of the work going on within higher ed just as a few pinpoint examples for you. But broad based is the way we would talk about the acceleration in non-res. And data centers, you know, obviously very rapid growing space.

It's small — it's probably approaching 5% of our non-res business at this point — and still growing very rapidly. And that's, you know, that's future installed base that will generate aftermarket sales in the coming years. So very excited about that too.

Tomo Sano, Analyst at JP Morgan

Thank you. John, if I may follow up on data centers: as these clients emerge as a new area of technology-driven demand, how does Allegion differentiate yourself for the customers versus competitors, please?

John Stone, President and CEO

Yeah, that's a great question, and I'd say really, really proud of our Americas field sales and marketing team, our spec writers, our end-user demand generation playbook is exactly what we're doing here, and I do feel we're the best at it. So getting in early in the design phase, creating end-user standards that meet code, meet specification, have all the SKUs available that meet the specifics around data centers. A really important acquisition we made two years ago now — Krieger Specialty Products — is bringing very high-technology doors, in fact, that are a new space for us but are really helping in the data center vertical.

So create the specification, create the end-user standard, and then meet the delivery expectations with all of these SKUs in very short lead times as the projects go. And now, as these hyperscalers build new campuses, we expect to be there.

Tomo Sano, Analyst at JP Morgan

Thank you. Appreciate it.

Stefan, Conference Operator

Thank you. At this time I see no callers in the queue, so I'll hand back to John Stone for closing remarks.

John Stone, President and CEO

Well, thank you all for the engagement and the great Q&A, and we look forward to connecting with you on our Q3 earnings call in October. Be safe, be healthy.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.