Q4 2023 Allegion PLC Earnings Call
Good morning, and welcome to the Allegiant fourth quarter 2023 earnings call.
Participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone.
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I would now like to turn the conference over to Josh Polka Winski, Vice President of Investor Relations. Please go ahead.
Thank you drew good morning, everyone. Thank you for joining us for allegiance fourth quarter and full year 2023 earnings call.
With me today are John Stone, President and Chief Executive Officer, and Mike Wackness, Senior Vice President and Chief Financial Officer of Allegiant.
Our earnings release, which was issued earlier this morning, and the presentation, which we will refer to on today's call are available on our website at Investor data Legion Dot com.
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 that 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 detail. Please go to slide three and I'll turn the call over to John.
Thanks, Josh Good morning, everyone and thanks for joining us I'd like to start today by recognizing that 2023 was a year of strong execution by the entire Allegiant team. This performance reflects the value we add for our customers the strength of our distribution partners as well as the quality of our brands and our capabilities and expertise.
Our employees.
Let's walk through some highlights of the quarter and the year.
After celebrating our 10th anniversary as a Standalone company in December we closed the year with record revenue adjusted operating income and adjusted EPS.
Reinforcing the thesis behind our seamless access strategy electronics demand remains strong we delivered approximately 20% organic growth in electronics for the year, our supply chain has normalized and that's on top of mid teens organic growth in the prior year.
We sustained a high operating cadence and expanded our industry, leading margins in the quarter and.
And for the full year, our adjusted operating margin performance was 22, 1% up 160 basis points.
Speaker Change: <unk> stated the Allegiant team delivered on pricing productivity, bringing margins back to pre pandemic levels with room to expand further in 2024 and beyond.
Our balance sheet and cash flow generation are strong we ended the year under two times net debt to EBITDA, which sets up 2020 for return to the balanced capital deployment, you've come to expect from Allegiant.
When you look at our past decade. This team has delivered solid results and executed well through a variety of macroeconomic backdrops. We built on the strength of a 100 year old brands consistently meeting customer needs and meeting our commitments to shareholders. We've operated with excellence sustaining the highest margins in the industry and are still pioneering safety.
Better secure and people and their property, where they live learn work and connect.
Driven by our vision of enabling seamless access and a safer world. We're proud of this track record. We're proud of what we delivered in 2023 and we're excited about the momentum we're carrying into 2024.
Please go to slide four and let's talk about our capital allocation strategy in action.
Reflecting on our allegiance first 10 years, we've had a roughly even split between inorganic growth and the return of capital to shareholders through dividends and share repurchases, we remain committed to balanced consistent capital allocation and having quickly delever from the access technologies acquisition, our balance sheet supports this strategy.
<unk>.
As we move into 2024, we will continue investing for organic growth prioritizing projects and solutions that drive seamless access forward.
One recent example of new product development as Slags next generation of innovative electronic locks the <unk> hundred 60.
This is the latest wireless lock family from slag designed with flexibility and interoperability in mind with solutions for perimeter and interior doors. This series has the security and access features most looked for by multifamily and light commercial properties at attractive price points.
Leaves with open architecture supports the latest credential technologies and integrates with the Legion and our partner systems. In addition, slags innovative flex module allows the <unk> hundred 60 series to be easily upgraded in the field to allow migration from an offline to a network solution to adapt to emerging trends in security and connectivity.
On the road.
Next the leaves and we will continue to be a dividend paying stock you can expect our dividends to grow commensurate with earnings over the long term and we've just announced our 10th consecutive annual increase.
We also.
We expect to grow through acquisitions bolt on acquisitions that fill portfolio gaps in the hardware space and high margin recurring revenue business in the access solution space will remain priorities.
Larger deals like access technologies may be more episodic, but we will be disciplined and have demonstrated the ability to quickly delever boss door controls, which we closed. This month is a classic bolt on that both complement and expand how we go to market in the U K. This acquisition bolsters, our local business with a strong architectural channel.
Flexible supply chain and also positions us to increase our spec driven business there in the future.
Lastly.
With regards to share repurchases as we've said at a minimum we will continue to offset incentive compensation and as you saw in the fourth quarter, we will make additional share repurchases as appropriate Michael.
Mike will now walk you through fourth quarter financial results and I'll be back to discuss our full year 2020 for outlook.
Thanks, John and good morning, everyone. Thank you for joining today's call.
Please go to slide number five.
As John shared Allegiant continued to execute at a high level and delivered another solid quarter.
Revenue for the fourth quarter was $897 4 million, an increase of four 2% compared to 2020 to.
Organic growth of two 6% was driven by our Americas, nonresidential and access technologies businesses offset by declines in residential and international.
Adjusted operating margin and adjusted EBITDA margin increased by 130, and 120 basis points, respectively in the fourth quarter, driven by price and productivity in excess of inflation and investment.
I am pleased with the margin performance as we have recaptured the margin loss during the supply chain disruptions experienced in late 2021 in early 2022.
Our operating model and strong execution have positioned us well for future margin expansion.
Address adjusted earnings per share of $1 68 decreased a penny or approximately six tenths of a percent versus the prior year.
Operational performance drove growth of 17 cents per share with the offset coming from tax driven driven by the timing of discrete items versus the prior year.
John will cover the outlook later in the presentation. However, I want to note that our tax rate will migrate to between 18 and 19% in 2024 inclusive of the implementation of global minimum tax.
We expect the Legion structural tax rate will be in the high teens over the planning horizon, we laid out at our Investor day in May.
Finally full year available cash flow for 2023 was $516 4, million% to 36% increase versus last year, driven by higher earnings and improved working capital performance.
Speaker Change: We'll provide more details on cash flow and balance sheet, a little later in the presentation.
Please go to slide number six.
This slide provides an overview of our quarterly and full year revenue.
I will review our enterprise results here before turning to our respective regions.
Organic growth in the quarter was two 6% as strong price realization offset pressure on volumes.
Currency and acquisitions drove additional favorability in the corner, bringing the total reported growth of four 2%.
On a full year basis organic revenue growth was five 2% overall with Americas at seven 4%.
Our international business was down two 5% for the year.
Our full year organic growth was led by electronics and software solutions, which grew globally by approximately 20% in 2023 with both regions in double digits.
Please go to slide number seven.
Our Americas segment continues to deliver strong operating results in the fourth quarter.
Revenue of $704 6 million was up three 7% on both a reported and organic basis as favorable pricing offset lower volumes.
Our Americas non residential business was up mid single digits against the prior year comp that grew in the mid Twenty's percent.
On a full year basis, this business had double digit organic growth in 2023.
Residential markets are soft with our business down low single digits in the quarter and for the full year as higher interest rates continued to impact new and existing home sales.
Our access technologies business delivered organic growth of mid single digits in Q4.
Yeah.
Americas electronics growth remained strong on a multiyear basis with mid single digit growth in the quarter on top of the nearly 50% comparison in Q4 2022.
Our Americas adjusted operating income of $188 4 million increased 10, 8% versus the prior year period, while adjusted operating margins and adjusted EBITDA margins for the quarter were up 170, and 190 basis points respectively.
The team executed well, we are performing more efficiently driving price and productivity and we delivered margin expansion every quarter in 2023.
Please go to slide eight.
Our international segment continues to execute well in a challenging macroeconomic environment.
Revenue of $192 8 million was up five 9% on a reported basis and down one 3% organically.
Price realization was more than offset by lower volumes associated with soft end market demand.
Currency and acquisitions were a tailwind this quarter positively impacted reported revenues by four 4% and two 8% respectively.
International adjusted operating income of $32 3 million increased nearly 13% versus the prior year period.
We also saw improvement in adjusted operating margins and adjusted EBITDA margins of 110, and 100 basis points respectively.
The team delivered margin expansion for Q4, and the full year, despite a challenging topline highlighting the healthier more resilient business portfolio, we have within our international segment.
The acquisition growth I mentioned earlier is primarily driven by our plateau business a tuck in soft software as a service business. We acquired early 2023, which is accretive to both growth rates and margins.
Please go to slide number nine.
As I mentioned earlier year to date available cash flow came in at $516 4 million up nearly $121 million versus the prior year.
This increase was driven by higher earnings and working capital improvements, partially offset by higher capital expenditures.
Look for Allegiant to continue to invest in our business and convert earnings to cash.
Next working capital as a percent of revenue improved versus the prior year, driven by higher inventory turns and supply chain normalized.
Finally, our net debt to adjusted EBITDA is down to one nine times as we successfully deleveraged following the access technologies acquisition.
We are now back to historical leverage levels, which demonstrates our proven track record of effective effectively deploying capital, while maintaining both our leverage profile and our investment grade credit rating.
Our business continues to generate strong cash flow and our balance sheet continues to be in a healthy position I will now hand, the call back over to John for our 2024 outlook. Thanks, Mike. Please go to slide 10 and.
And before we get to guidance I want to spend a moment on what we see is a couple of key drivers for 2024, including macroeconomic inputs that inform our outlook.
We're expecting more modest inflation in 2020 for enabling normal levels of margin expansion from net pricing productivity.
We report these two as aggregate price productivity inflation and investments shown on the left hand chart.
Since the beginning of 2019, we've averaged approximately 60 basis points of margin contribution annually from net price and productivity. This has been a hallmark of the business over time and it's a key driver of our 2020 for outlook.
We're expecting a stable nonresidential environment underpinned by healthy institutional markets you can see Dod starch for institutional have shown steady growth in the past few years contrasting the higher volatility in commercial lending verticals.
As you all know Allegiant is a late cycle business and starts can lead our business by a year or more.
We're not expecting many market tailwind. However, we believe the visibility and stability of late cycle institutional verticals as well as our large installed base will allow us to deliver organic growth.
Please go to slide 11, and let's walk through the outlook for 2024.
We expect total and organic revenue growth in the Americas to be one 5% to three 5%. This is led by our nonresidential business forecast to grow low to mid single digits organically.
Please note the nonresidential business is inclusive of access technologies, starting this year.
The residential business is expected to be flat to down slightly on an organic basis.
Overall for the Americas, we're expecting a more normal seasonality with tough comps in the first quarter.
For our leads in international we expect total revenue to be up one five to three 5% and minus 1% to up 1% on an organic basis.
Inorganic growth includes the recently announced acquisition of bulk door controls.
While mechanical markets remained sluggish in international I'm pleased with how the team executed to close out the year, we have a high quality portfolio and continue to see good growth potential in our international electronics and software solutions businesses.
All in for the company, we are projecting total revenue growth of one five to three 5% with organic revenue growth of 1% to 3%.
We expect to drive margin expansion consistent with our historical framework, we're confident in the execution playbook, we have for 2024, given cost actions taken in 'twenty, three and a more modest inflation environment.
Based on our strong operating momentum prior cost actions and more normalized inflation, we're projecting an adjusted EPS outlook in the range of $7 $7 15.
This represents growth of approximately 1% to 3% over the prior year period inclusive of a 37 headwind from tax.
Lastly, we expect our outlook on available cash flow to be in the range of $540 million to $570 million.
While we are committed to balanced and consistent capital deployment. This guidance does not include future capital deployment beyond the recent acquisition of boss door controls.
Please go to slide 12.
Bottom line I am very proud of the entire Legion teams 2023 performance and grateful for the strong distribution partners and loyal customers. We have as we look ahead to 2024, we will continue to build on the Allegiant legacy and deliver new value in access.
Our team is focused on relentless execution of our strategy and balanced capital deployment against what we expect to be a stable market backdrop.
We remain committed to putting our customers first and delivering our vision of enabling seamless access and a safer world.
I look forward to updating you more in the future as we work to achieve another record year for Allegiant and propel our company into its next decade of growth.
With that let's turn to Q&A.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you were using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw.
Your question. Please press Star then two please limit yourself to one question and one follow up.
At this time, we will pause momentarily to assemble our roster.
First question comes from Joe O'dea with Wells Fargo. Please go ahead.
Hi, good morning.
Morning, Joe Good morning, Joe.
Wanted to start on op margin in 'twenty four.
It looks like year over year margin expansion, maybe in the 60 bps kind of range.
So it would fit within the 50 to 100 bps I think medium term target, but also it comes off a pretty tough comp where you just did up 160, and so I think maybe a little bit better than anticipated.
Can you just talk about the drivers of that year over year expansion that's embedded.
In terms of price productivity inflation sort of how much of that is driven by it in.
And then also how.
How much is already kind of been in there in terms of carryover price price that you've announced cost actions that you've taken versus how much you still have to go get.
Yes, thanks for the question Joe.
You are correct in that if you look at margin expansion a big driver of that is the price productivity in excess of inflation and investments.
As you as you look at our top line guide.
<unk> is going to be a driver of growth.
If you think about midpoint, it's going to be the biggest driver of growth as a result, you will get margin expansion.
When you think about the 24 year.
And in addition, when you think about the actions we've taken.
Biggest driver of price for US you know is our nonresidential business in the Americas, those pricing actions are or have already been announced and in the marketplace.
And then from cost actions, we've taken some cost actions in the fourth quarter of 'twenty three as a result, we're positioned nicely you should see an acceleration of productivity in 2024. So when you think about our margin outlook. The actions have been taken and we're positioned well in order to achieve that outlook.
That's really helpful. And then in terms of non res in the growth outlook in Americas can you unpack a little that a little bit.
Vertical.
Then talk about sort of electronics versus mechanical, but then institutional versus commercial I think a lot of focus on sort of office and headwinds out there.
But what you see on kind of new versus renovation and just trying to understand some of the moving pieces within that growth in non res.
Yeah, Joe This is John I appreciate the question.
As we showed the institutional.
Verticals, they are less volatile than the commercial lending verticals and have still been flashing some some positive data on starch.
So we and our businesses as you know it was a little bit heavily tilted to those verticals. So.
Speaker Change: Felt good about that space it is stable.
Commercial.
Wide basket of.
And users so it's everything from data centers to retail to office multifamily, we put that in the commercial bucket as well and certainly commercial office on the new construction side is soft and has been for quite some time, we think that will continue.
Multifamily has been slowing as well.
So we're not counting on a dramatic snap back there.
We do see strength like everybody has been talking about in data centers. That's a highly spec application of our high end electronic products and.
I'd say on balance you add all that up the puts and takes.
And complement that with again, if you think of the leads and is about 50 50, new construction to aftermarket exposure.
The aftermarket is quite stable.
Across all verticals.
Break fix repair and maintenance, even some tenant turnover here in commercial office. So the aftermarket is still.
I think pretty stable and underpins the overall portfolio that's what.
<unk> us to come up to low to mid single digits for growth in non res and the only other item to mention since we do include access technologies and non res for this year and going forward is.
Big retail chains with store renovations and things like that.
Also makes for a rather stable outlook on the access that the automatic doors business. That's that's kind of how we would see the whole basket.
I appreciate the details thanks.
Thank you.
The next question comes from Joe Ritchie with Goldman Sachs. Please go ahead.
Hi, This is to make sure Russell on for Joel Thanks for the question.
My first question is just on the cadence of organic growth.
It just looks like in first quarter 'twenty three you had a big backlog Bang for that could be a tough comp is it fair to say you probably have a slightly negative organic growth in fourth quarter and then it ramps up to maybe closer to mid single digits in the second half.
Yes, thanks for the question clear.
Clearly Q1 is going to be our most challenging comp when you think about the 24 year, we don't give quarterly guidance, but if you recall, we burn through that backlog Q1 of 'twenty three so when you think about our cadence for top line.
23 was not a normal year.
When we think about 'twenty, four I think theres more normal seasonality.
So we're a little more back half loaded in first half loaded from a from a top line.
Don't want to get individual quarter forecasting as you know we don't we don't give quarterly guidance, but just remember little more back half than first half from a top line as a company and we do have that really challenging comp in the first quarter when you model year over year.
Thanks, That's helpful. And then just a follow up on the international segment margin.
Impressive to see that in fourth quarter. Despite negative organic growth you expanded over 100 basis points of margin could you talk about what drove that strong margin expansion in fourth quarter, and then just expectations in that segment for margin in 2024.
Yes, its super pleased about our international business when you think about the margin performance.
You look at our 10 year history.
That business is breakeven when we spun out a decade ago now we're driving good healthy margin expansion. It's a much healthy Europe portfolio. When you think about that electronics and software businesses, we've been talking about the last few years.
Strong.
Stronger businesses from a margin perspective than top line.
So really doing some good work to drive.
<unk> in the region pricing excellence, Tim He took the excellence we had in the Americas and brought that to international as well. So a lot of things favorable for international as we think about the business for 'twenty, three and more importantly, moving forward.
Great. Thanks.
The next question comes from Jeff Sprague with vertical research partners. Please go ahead.
Hey, Thank you good morning, everyone.
Just coming back to just the seasonality comment.
I know you won't don't want to get in the quarters, but.
Are you comfortable with us kind of assuming kind of the pre COVID-19 period call. It 2014 to 2019 is what you mean by normal seasonality as we.
As we look into Q1.
Yes, Jeff if you look at how so I'd like to talk about it enhance.
Think that 14% to 19 is kind of a normal seasonality when you look at the half years.
We expect to be more in line with that little more back half weighted than than first half.
Okay great.
Hey can you just give us a little more color on Boston size, the profitability what impact if any it has on international margins.
Jeff If you think about that business.
Organic I'm, sorry, inorganic growth for international you would assume about half of that inorganic growth. We have highlighted in the outlook is coming from the <unk> acquisition. The other half coming from currency. So you can see it's a pretty it's.
Smaller acquisition, it's not a massive size so from a price known the topline you have an idea that it's not a huge acquisition, but it's a nice complement to our business. We're really strong at writing specifications in North America. This is bringing that spec writing capability to a large.
Country in Europe like the U K.
Alright, and then Hey, John earlier in your opening remarks, you mentioned its niche like electronic product can you just.
Maybe provide a little bit more color overall on what you're expecting for electronics growth then in 2024.
Is there a measurable impact on your investment.
Levels to drive that et cetera.
Got it.
Good question, Jeff and I think if you listen to the prepared remarks in 2022.
Strong electronics grow 2023 around 20% of electronics growth. So I mean over the long haul long term like we said at Investor day back in May last year.
Of our electronics performance is high single low double digit growth driver for our Legion.
We definitely given backlog burn and things in 2023, we will have some tough electronics comps here and there but demand is still strong the secular trend still remains this migration to electronic access control for better security and better convenience is still moving and underway.
We're still investing there <unk> hundred 60 is just one that.
It was very timely to highlight for us given the flexibility and interoperability that that brings to the market and also just to highlight the ease of upgrade of that in the field. We're also pretty excited about that I mean, the flexibility that's going to offer the end users.
It's quite interesting and quite attractive for us I think as you as we move through 2024, you can continue to see.
An emphasis from us on things like product vitality youre going to see a steady stream of new product launches just like this and we look forward to highlighting those for you.
Alright, thank you.
Hi, good morning.
Maybe just.
Just the first question.
Talked about some of the color by end market. So that's a cool.
And maybe one I.
I just wanted a bit more color Ron was the education vertical I think it's one of your largest so.
So maybe any sense of kind of.
Scan of how much of your business is education today, and how do you see the outlook. There there have been some good tailwind depending on product types from the education stimulus three.
Three years ago.
Speaker Change: 70% of the way through that spend now.
So how do you see that kind of tailing off and what does it mean for your education political growth rates from here.
Yes.
Then.
Julian when you look at our Americas business, we would say we're in the range of around 45% of that business would be institutional.
Institutional of course would be <unk>.
Medication also healthcare Samsung government institution is in there.
Education, K through 12, and higher Ed have been.
A quite stable.
When you see the things that Allegiant invest human capital as well as.
Product investments in terms of helping.
Rides safer schools.
It's one it's a really important mission, we're very active in the partner alliance for safe schools ads.
The case for proper standards make sure people are aware and educated on proper standards.
And then yes that is a substantial portion of our business, but 45%.
Americas is institutional its a stable <unk>.
Vertical I think you can look around the country you can see some big bond referendums lately.
This can lead sales by a year or two years or more in some cases.
In any given year certain portions of school budgets of course go to safety and security and we know we want to make sure people understand.
<unk> standards.
And an advocate for that and if you recall again one of the products, we highlighted at our Investor day. These indication lots that does provide a visual.
Indication.
<unk> status.
Critically important we've got a great portfolio, there and thats continuing to drive value and to that vertical. So I think stable would be the outlook that we would see kind of consistent with the Dodge starts chart that we showed you think in that low to mid single digit growth driver.
That's helpful. Thank you John and just my second one would be.
Following up on the operating margin outlook.
So just wanted to check is the right way to think about it that you referenced that kind of 60 bps.
On slide 10 from price productivity inflation investment net.
Is that really.
Speaker Change: Sort of the essentially the margin expansion guide for 2024, Simplistically and then we assume that things like mix.
And volume.
Sort of netting off.
Against each other I just wanted to check that that's the right assumption and any color you could give on the corporate cost outlook for the year.
So.
As you know Julien, we don't guide margins per se.
However, we do give topline bottomline other estimates so you can back into our margin rate.
I think Joe kind of talk to margin rates earlier in the call as well.
From a from a business perspective, you can see corporate being flattish for us year over year.
With that element you can kind of back into their respective region margin rates and the big driver to the expansion like I mentioned earlier is that price productivity.
Oh in excess of an of.
Of investments and inflation.
Lastly, you asked about mix historically mix is not a huge mover of margin rates for us it can move around a little but it's not something that drive significant changes in our margin profile for a full year.
Understood. Thank you.
The next question comes from Brett Linzey with Mizuho. Please go ahead.
Hey, good morning, all Hey, Brad.
Hey wanted to come back just to price volume, Mike I think you said a good portion of organic growth was was price generation I guess is it safe to assume the volumes or assume flat to maybe negative for the year and then any any context on the non res versus resi volume outlook for this year as well.
Yes so.
As you know Brett we don't give sub segment outlooks of volume and pricing, especially on the pricing dynamic don't want to share that.
In general think of us as at that midpoint. This is a price driven outlook from actions that have already been announced in the marketplace.
And then as markets with markets are better than we think.
And then.
I think that answers your question, but there might have been another element. If there is just remind me.
Yes, no. Thanks for that and then maybe just shifting to the to the available cash flow.
I think implicitly in that 90% ZIP code, but you did have some working capital drawdown last year.
Is that the right type of conversion Youre thinking about and then I guess, what what kind of levers you back up to that kind of 95 to 100 historical range you guys have generated in the past yes.
Yeah. So.
You got to look at it one or two ways either on an adjusted basis net income adjusted net income or on the reported.
On an adjusted basis, we're at that 90%, which is roughly historical even a little better than historical.
From a business we have improved working capital in 2023 expect that to continue in 'twenty four really focused on the inventory front, where we're going to drive increased turns and be a more efficient as we manage our inventory.
But from a conversion perspective.
Speaker Change: Roughly in line with historical performance.
Alright, I appreciate the detail.
The next question comes from Tim Weiss with Baird. Please go ahead.
Hey, guys good.
Good morning.
Maybe just first one just on investments.
I know you guys don't disclose that number anymore in the.
Tim Weiss: And the 10-Qs and the 10-K. So I was just kind of curious how you. How you would kind of frame go forward investments in terms of the incremental dollars you'd spend in any given year.
2024 would be kind of assumed as a kind of a normal year or there are some.
Discrete investments around some of the software development and new product and things you'd want to call Tim.
Tim look for us to always continually invest in our portfolio and our business to drive organic growth, especially in software and electronics that is something we've been talking about driving growth and investing in our business for a decade and I expect that to continue.
Okay. So no changes there, okay, and then and then Mike you said that.
If the market, what's kind of better than you thought you'd be able to participate in some upside I guess, how would you frame your backlog kind of heading into 'twenty four versus maybe a normal year and if there was upside where do you think the most likely source of that would come from.
As you know Tim we're a made to order business predominantly.
We if you think about 'twenty one backlogs in 'twenty one early 'twenty two they got really extended because of our inability to ship efficiently. We're now back to that normal lead time book and ship business. So I.
I would say, it's a normal lead time for customers and our ability to serve them and so backlog is not what it was two years ago. When we were talking about extended backlogs and dissatisfied customers.
It's about serving our customers and I think we're doing a much better job today than a couple of years ago.
Okay, and I guess, if theres any source of upside I mean, if you look at the business, where do you think that most likely come from.
We talked about it as a company where our outlook is we see stability in the institutional markets residential we see us saw Ryan if residential is better than we think hey, we have a great brand that <unk> brand will be able to participate but for right now we see the strongest markets being the <unk>.
Institutional in the non res side as we laid out in the prepared remarks.
Okay. Okay very good thanks, guys I appreciate it.
The next question comes from Andrew <unk> with Bank of America. Please go ahead.
Yes, good morning.
Good morning, Andrew.
Bob.
Just go back to international because I looked at my model and it's quite fascinating right. If you look at 2018.
Just year over year comps.
Tim Weiss: I think revenues have declined with the except for one year very very consistently.
The margins are materially higher when they were back down sort of underscore what you've said.
So can you just give us a little bit more color because I think in the 10-K. You also highlighted the portable securities I think dragon volumes in 'twenty, three and I felt that was mix.
You know helpful to the mix in international just can you just give us a little bit more color as if Europe is in Asia.
Australia and New Zealand.
As an interim flags because under the surface something is growing really really well there just give us a little bit color there over the long term. Thank you, yes, Andrew really appreciate the question and the chance to highlight what we feel is there.
This outstanding performance by the lease an international team.
Thanks.
The soft points, certainly China is still soft.
Particularly on the residential side of the market. That's that's all over the headlines.
We felt that too.
Our exposure there is rather muted I would say we took some portfolio actions over time.
Just.
Raise the overall portfolio quality of our international business. Our teams are executing very well on productivity and international despite rather soft mechanical volume markets and then our electronics business.
Simon Vos and the <unk> team have really come together extremely well, they're driving growth or driving margin expansion and find new customers and then performing.
Really really well.
One of the things that make us so excited about the boss door control acquisition and Mike indicated it is rather small it's strategically significant for us because it does help us.
Get into more of that architect channel more spec driven business in the U K and <unk>.
Excited about that potential from a strategic standpoint, there. So I think the international team has been performing very well portfolio quality overall is better and execution by the team has been outstanding.
I'll I'll take that answer thanks, a lot.
Just to follow up on North American residential.
When do you think just the volumes to bottom out is it a 24 event or is this sort of something beyond the scope of 24 volumes North American rosy.
So probably tough to call I've I've seen others.
Eager to call a bottom I think are.
Outlook contemplates.
Flat to slightly down and market and that's what we see today. If there are any meaningful changes in interest rate environments that might be a spark that starts up secondary home sales, but I'd say, we're going to remain cautious on our outlook for the residential segment in <unk>.
<unk>.
And if I could just squeeze one more in I'm, sorry pricing has been very solid, particularly on a two year stack would you say that pricing has been stickier than you would've expected earlier in the year. If we would go back 12 months ago would you say that pricing is stickier than you would've expected or about where you thought it would come out. Thank you.
I would say this Andrew as you know we price for value.
We had significant inflation over a multiple year period, our industry puts and price increases so it tends to lag a little some of the inflation dynamic CFO look at it on a multiyear basis.
But in general we.
We price for value as a business and as an industry and so pricing tends to be sticky it's in list prices.
So from a from a dynamic just don't forget you have to look at the massive inflation, we saw over a multiple year period.
Think of the pricing in that context.
Okay. Thanks, so much thanks Andrew.
The next question comes from Chris Snyder with UBS. Please go ahead.
Thank you John I believe in the prepared remarks, you talked about how a lesion is very late cycle business and starts can lead the company by by more than 12 months.
So when and I know I guess Americas non res has stayed organic positive, but the growth has decelerated a lot here over the last two to three quarters, but starts only really.
It came down maybe two quarters ago, so when we see that deceleration or softening in the non resin Americas growth rate is it fair to assume that that's really just been the channel destock in any sort of cycle pressure.
That could come from those starts is still on the horizon, just any way to help think about that thank you.
Yes.
A fair set of questions there.
I think the <unk>.
<unk> destock.
That was in our opinion.
A rather unique and temporary phenomenon.
That just happened because of all the supply chain disruptions and lead times got extended backlogs get extended and <unk>.
Patterns were disrupted.
You saw that manifest itself in late 2022 through about mid 'twenty three.
Tim Weiss: We feel like most of that is in the rear view for the industry in fact published lead times.
Vertical mix.
Has been rather volatile the institutional segment is stable, but the commercial vertical mix has been a bit volatile right with <unk>.
Office being soft multifamily was very strong multifamily has been softer a little bit.
Data centers have been extremely robust.
Warehouses have now been very weak. So yes, you have to kind of.
Low to mid single digit growth for the non res part of our business.
Okay.
I appreciate that and maybe just a follow up on on Americas margins.
Up about 200 basis points this year in the absence of volume growth.
So really supportive and I understand that you know price cost is recovering and productivity is getting better but I guess my.
As you know is.
Is it getting increasingly difficult or is there a point, where you guys kind of run up on a glass ceiling. There in Americas margins until maybe the cycle gives you enough to start driving positive volume growth at some point in the coming quarters. Thank you, yes, Chris clearly there was some catch up this year as I.
Mentioned earlier the inflation was.
It was before the pricing.
A few questions ago.
When we think about this business. So I think it's important to understand we had some challenges operationally over the last few years as well that started to get better in 'twenty three and for 'twenty four we should be more efficient and more productive as well. So it's not just a pricing element you will see in 'twenty four.
And acceleration of productivity, which should give us some tailwind for us.
Margins, but if you think long term clearly long term you have to have some volume growth to drive margin expansion, but for the 24 year.
You will see us operate more efficiently and accelerate productivity to help drive that margin expansion.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to John Stone, President and CEO for any closing remarks.
So thanks, everyone for a great Q&A.
I think when you look back on 2024, a year from now we expect Youll see an organization that delivered on margins and continued to show proof points on organic growth and capital allocation along with continuing to drive forward our strategy on seamless access.
I think youll see were making the right investments to reinforce our strategy and reward our shareholders through balanced and consistent capital allocation. Thank you very much be safe be healthy.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
Okay.
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