Q2 2024 Allegion PLC Earnings Call
Operator: Good morning, and welcome to the Allegiance second quarter 2024 earnings call. All participants will be in listen-only mode.
Good morning, and welcome to the Allegiant second quarter 'twenty 'twenty four earnings call.
Operator: Should you need assistance, please signal conference specialists by pressing the star and 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 keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Josh Pokrzywinski, Vice President of Investor Relations. Please go ahead.
Speaker Change: Participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the 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 keypad to withdraw your question. Please press Star then two please note.
Speaker Change: This event is being recorded I would now like to turn the conference over to Josh Polka Winski Vice President of Investor Relations. Please go ahead. Thank you Jason and good morning, everyone. Thank you for joining us for Allegiant second quarter 2024 earnings call with me today are John <unk>, President and Chief Executive Officer, and Mike Wackness Senior Vice Pres.
Joshua Charles Pokrzywinski: Thank you, Jason. Good morning, everyone.
Joshua Charles Pokrzywinski: Thank you for joining us for Allegian's second quarter 2024 earnings call. With me today are John Stone, President and Chief Executive Officer, and Mike Wagnes, Senior Vice President and Chief Financial Officer of Allegian. Our earnings release, which was issued earlier this morning, and the presentations 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 two.
Speaker Change: Didn't and Chief financial Chief Financial Officer of Allegiant.
Speaker Change: Our earnings release, which was issued earlier this morning, and the presentation. We will refer to in today's call are available on our website at Allegiant Dot Investor Legion Dot Com. This call will be recorded and archived on our website.
Speaker Change: Please go to slide two.
Joshua Charles Pokrzywinski: 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 and the Financial Tables in our press release for further details. Please go to slide three, and I'll turn the call over to John.
Speaker Change: 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 up.
Speaker Change: These forward looking statements.
John: 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 Thanks, Josh Good morning, everybody. Thanks for joining today I can sum up this call in this quarter with four words.
John H. Stone: Thanks Josh. Good morning everybody. Thanks for joining today. I can sum up this call for this quarter in four words: stable markets and strong execution. That strong execution was by the entire Allegion team and our distribution channel partners. That's the team that drove these record Q2 results.
John: Table markets strong execution and that strong execution was by the entire Allegiant team and our distribution channel partners. That's the team that drove these record Q2 results.
John H. Stone: I'll briefly walk through some of the highlights for the quarter and an updated full year outlook, and then we'll share more on each of these later in the presentation. Allegiant's Q2 revenue growth and margin expansion demonstrate the resilience of our business model. We see stability in demand, given our broad end market exposure and specification expertise. Our team continues to see strength in areas like institutional markets and data centers, further helped by our own investments in electronics and new product development. And, as expected, we saw a return to volume growth and a seasonal bump in the quarter sequentially over Q1.
Speaker Change: I'll briefly walk through some of the highlights for our quarter and an updated full year outlook and then we'll share more on each of these later in the presentation.
Speaker Change: <unk> Q2 revenue growth and margin expansion demonstrates the resilience of our business model, we see stability in demand given our broad end market exposure and specification expertise.
Speaker Change: <unk> continues to see strength in areas like institutional markets and data centers further helped by our own investments in electronics and new product development.
Speaker Change: And as expected we saw a return to volume growth and a seasonal bump in the quarter sequentially over Q1.
John H. Stone: We are accelerating capital deployment, returning cash to shareholders, and investing in accretive acquisitions. We've announced four acquisitions already this year, with Krieger Specialty Products and Unicel Architectural in Q2. Overall, heading into the second half, we're executing at a high level.
Speaker Change: We are accelerating capital deployment, returning cash to shareholders and investing in accretive acquisitions, we've announced four acquisitions already this year with create your specialty products and unit sell architectural in Q2.
Speaker Change: Overall heading into the second half we're executing at a high level, we're raising our full year guidance for reported revenue and adjusted earnings per share were affirming our available cash flow outlook.
John H. Stone: We're raising our full-year guidance for reported revenue and adjusted earnings per share. And we're affirming our available cash flow outlook. I am very proud of how the Allegiant team is living our values while driving results for our customers and our shareholders. Please go to slide four.
Speaker Change: I'm very proud of how the Allegiant team is living our values, while driving results for our customers and our shareholders.
Speaker Change: Please go to slide four.
John H. Stone: Allegion continues to pursue balanced, consistent capital allocation for the benefit of shareholders and to take advantage of the strong cash generation this business drives. We are investing for organic growth. In April, we introduced three new lines of Schlage Indication Solutions, a best-in-class lock portfolio with trims that allow users to more easily see the status of a door. Developed specifically with K-12 schools and higher education security needs in mind, our new locks have some of the largest indication windows on the market and differentiated 180-degree views. They offer unparalleled functionality and durability for grade 1 fire rated applications in addition to tamper resistance and color-blind friendly backgrounds.
Speaker Change: <unk> continues to pursue balanced consistent capital allocation for the benefit of shareholders and to take advantage of the strong cash generation this business drives.
Speaker Change: We are investing for organic growth in April we introduced three new lines of slag indications solutions are best in class lot portfolio with trends that allow users to more easily see the status of the door.
Speaker Change: Developed specifically with K through 12 schools and higher education security needs in mind.
Speaker Change: Our new locks have some of the largest indication windows on the market and differentiated 180 degree views they offer unparalleled functionality and durability for grade one fire rated applications. In addition to tamper resistance and colorblind friendly backgrounds. Combined. These features allow for quick confirmation that doors are secured.
John H. Stone: Combined, these features allow for quick confirmation that doors are secured, providing teachers and administrators peace of mind and time, their most valuable resource when it matters most when every second counts. Allegion continues to be a dividend-paying stock. For the quarter, this amounted to approximately $42 million in cash returned to shareholders. Additionally, we closed two bolt-on acquisitions in our Americas region in Q2, Krieger Specialty Products and Unicell Architectural. Krieger is a leading specialty door manufacturer with expertise in highly engineered, acoustical, high security, thermal, and radio frequency applications.
Speaker Change: Providing teachers and administrators peace of mind and time their most valuable resource when it matters most when every second counts.
Speaker Change: Allegiant continues to be a dividend paying stock for the quarter. This amounted to approximately $42 million in cash returned to shareholders.
John H. Stone: Krieger Products complement our hollow metal portfolio and are used in a wide range of facilities including government agencies, data centers, concert halls, and healthcare. Unicel is a leading manufacturer of advanced glass wall systems that support privacy, safety, energy efficiency, and sustainability across institutional markets.
Speaker Change: We closed two bolt on acquisitions in our Americas region in Q2, Kreger specialty products and unit sell architectural.
Speaker Change: <unk> is a leading specialty door manufacturer with expertise in highly engineered acoustical high security thermal and radio frequency applications.
Speaker Change: Kreger products complement our hollow metal portfolio and are used in a wide range of facilities, including government agencies Datacenters concert halls in health care.
Speaker Change: <unk> is a leading manufacturer of advanced glass wall systems that support privacy safety energy efficiency and sustainability across institutional markets. This business is a natural extension of our core door and window Systems' portfolio, our PGP 80 systems and Stanley access technologies.
John H. Stone: This business is a natural extension of our core door and window systems portfolio of TGP, AD systems, and Stanley Access technology. Both Krieger and Unicel expand our portfolio with fast-growing niche products for key verticals that will benefit from the strength of our spec writing capability and nationwide sales footprint. On a combined basis, these businesses are accretive to overall Allegion growth rates and carry Allegion-like EBITDA margins in the low 20s. The total purchase price represents a valuation of approximately 10 times 2024 EBITDA.
Speaker Change: Both kreger and <unk> expand our portfolio with fast growing niche products for key verticals that will benefit from the strength of our spec writing capability and nationwide sales footprint.
Speaker Change: On a combined basis. These businesses are accretive to overall using growth rates and Korea, Leeds and like EBITDA margins in the low twenties.
Speaker Change: Total purchase price represents a valuation of approximately 10 times 2020 for EBITDA. We're very pleased with the recent acquisitions. We've made strong management teams that have come on board and a great cultural fit with the employees that they bring to our Legion, we're excited for the future.
John H. Stone: We're very pleased with the recent acquisitions we've made, strong management teams that have come on board, and a great cultural fit with the employees that they bring to Allegion. We're excited for the future. Lastly, in the quarter, we made additional share repurchases amounting to approximately $40 million. I'm happy with the balance and shareholder-friendly capital allocation that you see here on the slide, and Allegion continues to invest in the core, grow the business, and return cash to shareholders. Mike will now walk you through the second quarter financial results, and I'll be back to provide an update on our outlook and some final thoughts.
Speaker Change: Lastly in the quarter, we made additional share repurchases amounting to approximately $40 million.
Speaker Change: I am happy with the balanced and shareholder friendly capital allocation that you see here on the slide and Allegiant continues to invest in the core grow the business and return cash to shareholders. Mike will now walk you through the second quarter financial results and I'll be back to provide an update on our outlook and some final thoughts.
Michael J. Wagnes: Thanks John, and good morning everyone. Thank you for joining today's call. Please go to slide number five.
Mike: Thanks, John and good morning, everyone. Thank you for joining today's call.
Mike: Please go to slide number five.
Michael J. Wagnes: As John shared, our Q2 results reflect solid performance from the entire Allegiant team. We continue to execute at a high level, delivering another quarter of strong margin expansion with mid-single-digit top-line growth, driven by both price and volume. Revenue for the second quarter was $965.6 million, an increase of 5.8% compared to the same period last year. Organic revenue increased 5.2% in the quarter as a result of favorable price and volume. We saw strength across both our Americas and international regions.
Mike: As John shared our Q2 results reflect solid performance from the entire Allegiant team.
Mike: We continue to execute at a high level delivering another quarter of strong margin expansion with mid single digit top line growth driven by both price and volume.
Mike: Revenue for the second quarter was $965 6 million, an increase of five 8% compared to 2023.
Mike: Organic revenue increased five 2% in the quarter as a result of favorable price and volume we saw strength across both our Americas and international regions.
Michael J. Wagnes: Q2 Adjusted Operating Margin and Adjusted Deputy Margin increased by 150 and 170 basis points, respectively, driven by price and productivity in excess of inflation and investments, as well as favorable volume leverage. I'm very pleased with the operational execution and margin expansion in 2024. Adjusted earnings per share of $1.96 increased 20 cents or approximately 11.4% versus the prior year. Strong operational performance, accretive capital deployment, and favorable interest in other businesses more than offset the headwinds from higher taxes.
Mike: Q2, adjusted operating margin and adjusted EBITDA margin increased by 150, and 170 basis points, respectively, driven by price and productivity in excess of inflation and investments as well as favorable volume leverage.
Mike: I'm very pleased with the operational execution and margin expansion in 2024.
Adjusted earnings per share of $1 96 increased 20 cents or approximately 11, 4% versus the prior year strong operational performance accretive capital deployment and favorable interest and other more than offset the headwinds from higher tax.
Michael J. Wagnes: Finally, year-to-date 2024 available cash flow was $176 million, which was a 7.4% decrease versus last year. I will provide more details on our cash flow and balance sheet a little later in the presentation. Please go to slide number 6.
Mike: Finally year to date 2024 available cash flow was $176 million, which was a seven 4% decrease versus last year I will provide more details on our cash flow and balance sheet a little later in the presentation.
Mike: Please go to slide number six.
Michael J. Wagnes: This slide provides an overview of our quarterly revenue. I will review our enterprise results here before turning to the respective regions. Organic revenue grew 5.2% in the quarter, comprised of price realization of 2.7% and volume growth of 2.5%. As I mentioned last quarter, we are seeing the business return to expected seasonality in 2024 versus what we experienced last year. As John discussed earlier, we're accelerating capital deployment and have made investments in inorganic growth in both our Americas and international segments. As a result, acquisitions drove almost a point of growth in the quarter. Currency was a slight headwind, bringing total reported growth to 5.8%. Please go to slide number seven.
Mike: This slide provides an overview of our quarterly revenue.
Mike: I will review our enterprise results here before turning to the respective regions.
Mike: Organic revenue grew five 2% in the quarter comprised of price realization of two 7% and volume growth of two 5%.
Mike: As I mentioned last quarter, we are seeing the business returned to expected seasonality in 2024 versus what we experienced last year.
Mike: As John discussed earlier, we're accelerating capital deployment and have made investments in inorganic growth in both our Americas and international segments.
John: As a result acquisitions drove almost a point of growth in the quarter.
John: Currency was a slight headwind, bringing total reported growth to five 8%.
John: Please go to slide number seven.
Michael J. Wagnes: Our America segment delivered strong operating results in Q2. Revenue of $770.7 million was up 6% on a reported basis and up 5.7% organically as a result of favorable price and volume in the quarter. Reported revenue includes four tenths of a percent growth from the acquisitions of Krieger and Unicel. Our non-residential business, inclusive of access technologies, increased mid-single digits in the quarter as end markets remained stable. Our residential business was up low single digits in the quarter, showing an improvement versus the declines in Q1. Demand for electronics in our Americas region remains strong, while electronics revenue was down low single digits in the quarter against a tough comparable.
Our Americas segment delivered strong operating results in Q2.
John: Revenue of $777 million was up 6% on a reported basis and up five 7% organically.
John: As a result of favorable price and volume in the quarter.
John: Reported revenue includes four tenths of a percent growth from the acquisitions of kreger and UNICEF.
John: Our nonresidential business inclusive of access technologies increased mid single digits in the quarter as end markets remain stable.
John: Our residential business was up low single digits in the quarter, showing an improvement versus the declines in Q1.
John: Demand for electronics in our Americas region remained strong while electronics revenue was down low single digits in the quarter against a tough comparable.
Michael J. Wagnes: Our business has grown well above 30% over the last two years for both the quarter and year to date. America's adjusted operating income of $226.2 million increased 9.9% versus the prior year period due to solid top line growth and strong operational execution. Adjusted Operating Margin and Adjusted EBITDA Margin for the quarter were up 110 and 130 basis points, respectively, as we continue to drive margin expansion through price and productivity and the exclusion of inflation and investment. Overall, our Americas team delivered another strong quarter. Please go to slide number eight.
John: Our business is growing well above 30% over the last two years for both the quarter and year to date.
John: Americas adjusted operating income of $226 2 million increased nine 9% versus the prior year period.
John: Due to solid top line growth and strong operational execution.
John: Adjusted operating margin and adjusted EBITDA margin for the quarter were up 110, and 130 basis points, respectively. As we continue to drive margin expansion through price and productivity in excess of inflation and investments.
John: Overall, our Americas team delivered another strong quarter. Please go to slide number eight.
Michael J. Wagnes: Our international segment had a solid second quarter; revenues of $194.9 million were up 5.2% on a reported basis and up 3.1% organically. Price realization and strength in our electronics business drove the growth in the quarter. Acquisitions were a tailwind this quarter, positively impacting reported revenues by 3.2%, driven by the Dorcas and Boss acquisitions announced earlier this year. Currency, however, was a headwind of 1.1%.
John: Our international segment had a solid second quarter revenues of $194 9 million was up five 2% on a reported basis and up three 1% organically.
John: Price realization and strength in our electronics business drove the growth in the quarter.
John: Acquisitions were a tailwind this quarter positively impacted reported revenues by three 2%.
John: Driven by the Dorcas and boss acquisitions announced earlier this year.
John: Currency, however was a headwind of one 1%.
Michael J. Wagnes: International Adjusted Operating Income of $23.6 million increased 12.9% versus the prior year period. Adjusted Operating Margin and Adjusted EBITDA Margin from a quarter both increased 80 basis points. Volume and Favorable Mix are driving the margin expansion, as well as margin accretion from our acquisition. Please go to slide number nine.
John: International adjusted operating income of $23 6 million increased 12, 9% versus the prior year period.
Adjusted operating margin and adjusted EBITDA margin for the quarter, both increased 80 basis points volume and favorable mix are driving the margin expansion as well as margin accretion from our acquisitions.
John: Please go to slide number nine.
Michael J. Wagnes: Year to date available cash flow came in at 176 million, down 14.1 million versus the prior year. However, we did see year over year growth in the second quarter this year. However, the first half of 2023 was particularly strong as it benefited from supply chain lead time reduction.
John: Year to date available cash flow came in at 176 million down $14 1 million versus the prior year.
John: We did see year over year growth in the second quarter. This year. However, the first half of 2023 was particularly strong as it benefited from supply chain lead time reductions.
Michael J. Wagnes: Next, working capital as a percent of revenue increased, primarily driven by higher receivables as a result of the timing of revenue and collections within the quarter versus the prior year. Finally, our net debt to Adjusted EBITDA remains at a healthy ratio of 1.9 times, consistent with where we finished 2023. It is worth noting that our gross debt and cash balances include the proceeds from our $400 million senior note issuance in the second quarter, which will be used to repay a $400 million senior note maturity in the back half of 2024.
John: Next working capital as a percent of revenue increased primarily driven by higher receivables as a result of the timing of revenue and collections within the quarter versus the prior year.
John: Finally, our net debt to adjusted EBITDA remains at a healthy ratio of one nine times consistent with where we finished 2023.
John: It is worth noting that our gross debt and cash balances include the proceeds from our $400 million senior note issuance in the second quarter, which will be used to repay a $400 million senior note maturity in the back half of 2024.
Michael J. Wagnes: This results in a slightly higher gross debt to adjusted EBITDA at the end of the second quarter but has no impact on net debt to adjusted EBITDA. 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: This results in slightly higher gross debt to adjusted EBITDA at the end of the second quarter, but has no impact on net debt to adjusted EBITDA.
John: 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 Thanks, Mike. Please go to slide 10.
John H. Stone: Thanks, Mike. Please go to slide 10.
John H. Stone: Allegion is on track for record full-year revenue, adjusted operating income, and adjusted earnings per share in 2024. We're increasing our full-year outlook on reported revenue and adjusted EPS, tightening our organic revenue range, and affirming available cash flow. We now expect the America segment to be up 2.5 to 3.5% for total growth and 2 to 3% organically, led by our non-residential business. For international, we expect revenue to be up 3 to 4 percent in total, including a half to one and a half percent organically, based on a solid start to the year, particularly in electronics and software.
John: Allegiant is on track for record full year revenue adjusted operating income and adjusted earnings per share in 2024, we're increasing our full year outlook on reported revenue and adjusted EPS tightening our organic revenue range and affirming available cash flow.
Speaker Change: We now expect the America segment to be up two 5% to three 5% for total growth and 2% to 3% organically led by our nonresidential business.
Speaker Change: For international we expect revenue to be up 3% to 4% in total, including a half to one 5% organically based on our solid start to the year, particularly in electronics and software.
John H. Stone: All in for the company, we are raising total growth to a range of 2.5% to 3.5%; organically, we're tightening the range by half a point on both ends to 1.5% to 2.5%. Based on our strong operational performance in the second quarter and capital deployment, we are increasing our adjusted earnings per share outlook by $0.15 to a range of $7.15 to $7.36. Lastly, we affirm our outlook on available cash flow to be in the range of $540-570 million. Please go to slide 11.
Speaker Change: All in for the company, we are raising total growth to a range of two five to three 5% organically. We're tightening the range by half a point on both ends to one five to two 5%.
Speaker Change: Based on our strong operational performance in the second quarter and capital deployment, we are increasing our adjusted earnings per share outlook by <unk> 15.
To a range of $7 15 to $7 30.
Speaker Change: Lastly, we affirm our outlook on available cash flow to be in the range of $540 to $570 million.
Speaker Change: Please go to slide 11.
Speaker Change: Yes.
John H. Stone: Now, two years into my role at Allegion, I want to take a moment to reflect. I feel very lucky and very humbled to have stepped into such a great team and business. We overcame supply chain and inflationary disruptions and are now putting up record revenues and margins. We have two new factories ramping up production smoothly and safely. We have successfully integrated the largest acquisition in Allegiant history and have grown our business further with five additional bolt-on acquisitions.
Speaker Change: Now two years into my role at Elisa and I want to take a moment to reflect I feel very lucky and very humbled to have stepped into such a great team and business.
Speaker Change: We overcame supply chain and inflationary disruptions and are now putting up record revenues and margins, we have two new factories ramping up production smoothly and safely.
Speaker Change: We have successfully integrated the largest acquisition in <unk> history and have grown our business further with five additional bolt on acquisitions.
John H. Stone: And earlier this year, we earned the Gallup Exceptional Workplace Award, an achievement that I would say is probably my proudest moment with Allegion so far. It's helpful to step outside the market discussion of the moment, whether it's supply chain and inflation as it was two years ago, or Fed policy and macro data today.
Allegiant: And earlier this year, we earned the Gallup exceptional workplace award and achievement that I would say is probably my proudest moment with Allegiant so far.
Allegiant: It's helpful to step outside the market discussion at the moment, whether its supply chain and inflation as it was two years ago or fed policy of macro data today with Allegiant Youll find a resilient business model, reflecting a strong value proposition as well as opportunities to further drive growth and reward shareholders. It starts with the front end and back end.
John H. Stone: With Allegion, you'll find a resilient business model reflecting a strong value proposition, as well as opportunities to further drive growth and reward shareholders. It starts with the front end and a spec engine that is always running and solving complex problems for our end-user customers, regardless of which non-res segment they're a part of. Plugging in bolt-ons like Krieger and Unicel into this spec engine creates additional value as we bring heightened channel access to their strong niche products and helps them grow.
And that is always running in solving complex problems for our end user customers, regardless of which non res segment that are a part of plugging.
Speaker Change: Plugging in bolt ons like Kreger and unit cell and of the spec engine creates additional value as we bring heightened channel access to their strong niche products and help them grow.
John H. Stone: Our industry-leading margins are the hallmark of a strong culture of execution at Allegion. We have a long-standing track record of success on price and productivity that has created durable returns through the cycle. Allegion's broad portfolio and in-market exposure and mix of aftermarket and new construction further adds to the resiliency of our business. Our consistent, balanced framework on capital allocation has allowed us to deploy approximately $280 million of cash flow year-to-date through accretive M&A and return of capital directly to shareholders.
Speaker Change: Our industry, leading margins are the hallmark of a strong culture of execution at Allegiant.
Speaker Change: Have a long standing track record of success on price and productivity that has created durable returns through the cycle.
Speaker Change: Allegiance broad portfolio and end market exposure and mix of aftermarket and new construction further adds to the resiliency of our business.
Speaker Change: Our consistent balanced framework on capital allocation has allowed us to deploy approximately $280 million of cash flow year to date through accretive M&A and return of capital directly to shareholders.
John H. Stone: In summary, stable demand and strong execution by the entire Allegion team and our channel partners drove record Q2 revenue and earnings per share results. We expanded margins and are accelerating capital deployment for the benefit of our shareholders, which supports our higher outlook for 2020. With that, let's turn to Q&A.
Speaker Change: In summary, stable demand and strong execution by the entire Allegiant team and our channel partners drove record Q2 revenue and earnings per share results, we expanded margins and are accelerating capital deployment for the benefit of our shareholders, which supports our higher outlook for 2024.
Speaker Change: With that let's turn to Q&A.
Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys. If at anytime here question has been addressed and you like to withdraw your question. Please press Star then two.
Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Our first question comes from Tim Weiss from Baird. Please go ahead.
Speaker Change: Please limit yourself to one question and one follow up at this time, we'll pause momentarily to assemble our roster.
Speaker Change: Our first question comes from Tim Weiss from Baird. Please go ahead.
Speaker Change: Yes.
Timothy Ronald Wojs: Hey, hey, everybody. Good. Good morning. Nice job. [inaudible] Maybe just my first question, John, if you could maybe give us a little bit of color on what you're seeing on the spec side of the business within America, you know, color, what you're seeing around like quoting and releases, you know, maybe anything specific on end markets, and then any sort of variances that you guys might be seeing, you know, from new construction and kind of remodeling activities.
Timothy Ronald Wojs: Hey, everybody good morning, nice job.
Timothy Ronald Wojs: Maybe just my first question just John if you could maybe give us a little bit of color on what youre seeing on the spec side of the business within Americas.
Speaker Change: Color, what youre seeing around like quoting and releases maybe anything specific on an end market and then any sort of variances that you guys might be seeing from new construction and kind of remodeling activity.
John H. Stone: Yeah, thanks, Tim. I appreciate the question. And I think channel checks recently being out in the field with our sales teams and our end users and distributors would indicate pretty much what we said at the outset, that we're in what we would just call a stable demand environment, really driven by the institutional segments and the stability there. I think the specification activity is always on, you know, just the way we said it in the prepared remarks.
John: Yes, thanks, Thanks, Tim.
John: Appreciate the question and I think.
John: Channel checks recently being out in the field with our sales teams and our end users and distributors would indicate pretty much what we said it at the outset that we're in what we would just call a stable demand environment really driven by the institutional segments and the stability there I think.
John H. Stone: And our spec writers have the capability to flex to whichever vertical, whichever job that they need to. So whether it's an office building, whether it's a school, a university, a hospital, a data center, our spec writers can do it all. And so just think of that as a flywheel that doesn't stop. I'd say on just the demand side, certainly there are pockets of strength, pockets of weakness, like we've been saying for the last few quarters, that ebbs and flows depending on where you are, which vertical you're looking at. But in general, I think we should just stick with a stable demand environment. And we feel like our strength and our execution will differentiate us and will outperform the market.
John: The specification activity is always on just the way we said it in the prepared remarks.
John: And our spec writers have the capability to flex to whichever vertical whichever job that they need to so whether it's <unk>.
John: And office building, whether it's a school the University hospital at data Center, our spec writers can do it all and so just think of that as a flywheel that doesn't stop.
John: I'd say on the.
Speaker Change: Just the demand side, certainly there's pockets of strength pockets of weakness like we've been saying for the last few quarters that ebbs and flows depending on where you are which vertical you are looking at.
Speaker Change: But in general I think we would just stick with our stable demand environment and we feel like.
Speaker Change: Our strength and our execution will differentiate us and will outperform the market.
Timothy Ronald Wojs: Okay, okay, that's helpful. And then just on on M&A, I'd say historically, the pace of M&A has been kind of uneven at Allegion. It's kind of come in clusters in the past. And, you know, you've closed four acquisitions here to date. And I'm just wondering if that represents a change in the underlying pace of activity from your perspective, you know, where we should expect, you know, a lot more kind of tuck in activity, or if that is just kind of a function of timing again, and really, what I'm asking is, you know, should investors start to think about a much more regular cadence of M&A going forward for Allegion on an annualized basis?
Speaker Change: Okay. Okay. That's helpful.
Speaker Change: And then just on M&A.
Speaker Change: Historically the.
Speaker Change: The pace of M&A has been kind of uneven at a Legion.
Speaker Change: Come in clusters in the past then.
Speaker Change: You've closed four acquisitions year to date and I'm just wondering if that represents a change in the underlying pace of activity from your perspective.
Speaker Change: We should expect you know a lot more kind of tuck in activity or if that is just kind of a function of timing again and really what I'm asking is.
Timothy Ronald Wojs: Should investors start to think about a much more regular cadence of M&A going forward for <unk> on an annualized basis, yes. It's a great question, Tim and I appreciate that and I would just reinforce.
John H. Stone: Yeah, it's a great question, Tim, and I appreciate that. And I would just reinforce that we are really pleased with the acquisitions we've tucked in this year, everyone accretive to EPS right out of the chute. We talked a little bit, gave a little bit of an indication of the kind of valuation that we were looking at here in the Americas recently. And I'd say, way back when I first stepped into this seat, we talked about orienting Allegion more towards growth.
Speaker Change: We are really pleased with the acquisitions, we've talked and this year, everyone accretive to EPS right out of the chute.
Speaker Change: We talked a little bit gave a little bit of an indication on the kind of valuation that we were looking at here in the Americas recently, and I would say way back to as I first stepped in the seat we talked about orienting our leads and more towards growth.
John H. Stone: We do want to be acquisitive, but we don't want to become a serial acquirer that just wantonly buys anything. We want to be very strategic. We want to play to our strengths. We want to have acquisitions that complement our portfolio and bring benefits to our customers. We want to have returns that are accretive to our shareholders. And so, you know, each acquisition, each deal is going to take on a life of its own.
Do want to be acquisitive.
Speaker Change: We don't want to become.
Speaker Change: A serial acquirer that just wantonly buys anything we want to be very strategic we want to play to our strengths. We want to have acquisitions that complement our portfolio and bring benefits to our customers. We want to have returns that are accretive to our shareholders and so each acquisition each deal is going to take.
Speaker Change: On a life of its own and so the timing is going to be.
John H. Stone: And so the timing is going to be what it is. But I would say in terms of activity, our view would be, my view would be that the environment for strategics like Allegion is better than it was a year or two ago. We don't see that changing in the near term, and we do see a good pipeline of opportunity. So I think you can look forward to seeing more quarters like you've seen these last couple from Allegion.
Speaker Change: What it is but I would say in terms of activity.
Speaker Change: Our view would be my view would be the environment for strategics like Allegiant is better than it was a year or two ago.
Speaker Change: We don't see that changing in the near term and we do see a good pipeline of opportunity. So I think you can look forward to seeing more quarters like you've seen these last couple from Elisa.
Timothy Ronald Wojs: Okay, okay, great. Thanks. Thanks for the time and good luck for the rest of the year. Thank you.
Speaker Change: Okay, Okay, great. Thanks.
Speaker Change: Thanks for the time and good luck on the rest of the year. Thank you.
Operator: The next question comes from Joe Ritchie from Goldman Sachs. Please go ahead.
Speaker Change: The next question comes from Joe Ritchie from Goldman Sachs. Please go ahead.
Joseph Alfred Ritchie: Hey, guys good morning.
Speaker Change: Hey, Joe.
Joseph Alfred Ritchie: Okay, maybe we can touch on America's margins to start off. You know, it's about the best margin we've seen in some time. And I'm just wondering about the sustainability of that margin going forward, what are the key levers, especially impressive, you know, given that you have, you know, a margin dilutive mix coming through on the access tech business. And so any color that you can provide on the future would be helpful.
Joe Ritchie: Okay.
Maybe we touch on American Americas margin can start off.
Speaker Change: Yeah, it's about the best margin, we've seen in some time and I'm just wondering on the sustainability of that margin going forward what are the key levers.
Speaker Change: Thanks to the impressive given that you've had.
Speaker Change: Margin dilutive I mean, youre on the access business and so any color that you can provide on the gulfport would be helpful.
John H. Stone: Thanks for the question, Joe. You know we've been talking about this for some time. Our business, the way we manage it, we drive pricing to cover inflation, we're going to drive productivity to fund our investments, and in aggregate, that price, productivity, and inflation dynamic is a net positive for us. We've shown that over many quarters now. We expect that to continue. From a pricing perspective, in the Americas, the non-res business, it's very sticky.
Speaker Change: Thanks for the question Joe we've been talking about this for some time our business the way we manage it we drive pricing to cover inflation, we're going to drive productivity to fund our investments and in aggregate that price productivity investments and inflation dynamic is a net positive for us.
Speaker Change: We've shown that over many quarters now we expect that to continue.
Speaker Change: From a pricing perspective in the Americas that non res business, it's very sticky so we feel comfortable about the resiliency of the margin profile.
John H. Stone: So we feel comfortable about the resiliency of the margin profile and the productivity DNA that we have. We expect that to continue. So I would expect us to maintain these margins that you see. There was that temporary decline in 21 and 22 where we had supply chain challenges. But that's kind of behind us now, and we're in a good place. And I think from here, think of Allegion as you've known us over the last decade, where we're going to be driving that price and productivity to maintain and expand margins.
Speaker Change: And that productivity DNA that we have we expect that to continue so I would expect us to maintain these margins that you see there was that temporary decline in 'twenty, one and 'twenty, two where we had supply chain challenges that's kind of behind US now and we're in a good place and I think from here I think of Allegiant that you've known us over the last deck.
Speaker Change: Good where we're going to be driving that price and productivity.
Speaker Change: To maintain and expand margins.
Speaker Change: Okay.
Joseph Alfred Ritchie: Yeah, that's helpful. And, John, maybe just, just along that point, you know, we have seen some commodities deflate to start the year. I'm just curious, like, what are you seeing in your core commodities? And how do you see the cost side of the equation evolving as we progress through the year?
Speaker Change: Yes, that's helpful.
Speaker Change: And John maybe just along that point.
John: I've seen some commodities late to start the year I'm just curious like what are you seeing in your core commodities and how do you see the.
John: Cost side of the equation evolving.
John: We progressed through the year.
John H. Stone: Yeah, it's a good question, Joe, and I think, you know, you had some rather extreme volatility in 21-22. That volatility, for sure, has dampened, and I'd say lately it's kind of been not much of an event. You know, you see little blips up and down, but generally within a range that's... Not concerning to us, either way, deflation or inflation on the raw material side. And as Mike mentioned, I think we've got a whole host of pretty exciting productivity projects in the pipeline for our factories.
John: It's a good question, Joe and I think.
Speaker Change: You had some rather extreme volatility in 'twenty, one 'twenty two.
Speaker Change: That volatility for sure is dampened and I'd say lately, it's kind of been not much of an event.
Speaker Change: You see little blips up and down but generally within a range thats.
Speaker Change: Not concerning to us either way that deflation or inflation on the raw mat side and as Mike mentioned I think we've got a whole host of.
Mike: Pretty exciting.
Mike: Productivity projects in the pipeline for our factories and then again two new factories ramping up that are going to drive more productivity in a couple of.
John H. Stone: And then again, two new factories are ramping up that are going to drive more productivity in a couple of parts of the business that need it. So I'd say raw material has been stable enough recently. We don't see anything dramatic on the horizon.
Mike: Parts of the business that needed so.
Mike: I would say raw mat has been stable enough recently, we don't see anything dramatic on the horizon.
Mike: Yes.
Speaker Change: Okay, great. Thank you.
Operator: The next question comes from Joe O'Day from Wells Fargo. Please go ahead.
Speaker Change: The next question comes from Joe O'dea from Wells Fargo. Please go ahead.
Joseph Alfred Ritchie: Hi, good morning. Thanks for taking my questions. Hey, Joe. Can you start on the international side? I think this is the first quarter of volume growth in a couple of years. And so just in terms of expanding on what you're seeing there and confidence that things could have turned and expectations for volumes as we move into the back half of the year.
Speaker Change: Hi, good morning, Thanks for taking my questions Hey, Joe.
Joseph Alfred Ritchie: Hey can you start on the international side I think this is the first quarter of volume growth in a couple of years.
Speaker Change: And so just in terms of expanding on what Youre seeing there and confidence that things could have turned and expectations for volumes as we move into the back half of the year, Yes. It's a great question, Joe I'm glad you asked us we've been dying for the chance to brag on international because we think they have been performing extremely well I would.
John H. Stone: Yeah, it's a great question Joe. I'm glad you asked this. We've been dying for the chance to brag about international because we think they've been performing extremely well, I would call your attention to, over the past couple of years. There has been some intentional pruning in International just to exit a couple of underperforming businesses. But let's not forget that the acquisitions made recently have been contributing favorably to growth and international as well. Demand for electronics and our software solutions has remained strong in the high single-digit range in international.
Speaker Change: Call your attention to over the past couple of years, there has been some intentional pruning and international.
Speaker Change: Just to exit a couple of underperforming businesses, so let's not forget that.
Speaker Change: The acquisitions made recently have been contributing favorably to growth in international as well.
Speaker Change: Yes.
Speaker Change: Demand for electronics, and our software solutions has remained strong.
Speaker Change: The high single digit range and international those businesses continue to outperform and then I'd say, even portable security. After many many quarters of very tough end markets turned positive on volume here in Q2, so really happy for them they've done a great.
John H. Stone: Those businesses continue to outperform. And then I'd say even portable security, after many, many quarters of very tough end markets, turned positive on volume here in Q2. So, really happy for them. They've done a great job managing margins over the past year and a half in really tough volume environments, and that turned positive as well. Overall, I would say there's been just a ton of self-help work going on on the mechanical side of our international business, in addition to continued strong demand and strong performance by our electronics and software teams.
Speaker Change: Job managing margins over the past year year, and a half and really tough volume environments and that turned.
Speaker Change: Positive as well overall I would say there has been just a ton of self help.
Speaker Change: Work going on on the mechanical side of our international business.
Speaker Change: In addition to continued strong demand and strong performance.
Speaker Change: By our electronics and software teams.
Joseph Alfred Ritchie: And then also wanted to get your views on institutional investment in America. I think there are maybe some kind of contrasting data points out there. When we look at the Dodge Momentum, institutional investment looks soft. I think recently the AIA came out with new forecasts for 2025. It's actually got institutional up 4%, so pretty good. So I guess when you look at speculative activity, when you peel back anything you understand about Dodge Momentum, just overall in terms of direction on institutional and whether you see sort of tailwinds or headwinds there based on speculative activity.
Speaker Change: And then also.
I wanted to get your views on institutional in Americas.
Speaker Change: I think maybe some kind of contrasting data points out there when when we look at the Dodge momentum institutional looks soft.
Speaker Change: I think recently you had the AIA come out with new forecasts for 2025, it's actually got institutional up 4% so pretty good.
Speaker Change: So I guess when you look at spec activity when you Peel back anything to understand about Dodge momentum.
Speaker Change: Just overall in terms of direction on institutional and if you see sort of tailwind or headwinds there based on spec activity.
John H. Stone: Yeah, it's a good question, and certainly, we watch the same leading indicators that you reference. They have been pretty volatile. Some of them have been flashing negative for a long, long time now.
Speaker Change: Yes, it's a good question and certainly.
Speaker Change: We watch the same leading indicators that you referenced they have been pretty volatile of some of them have been flashing negative for a long long time now I would say in general our view would be the institutional segment.
John H. Stone: I would say in general our view would be the institutional segment has less volatility than maybe parts of the commercial segments. It's a bit more stable, and I think something else to look at that maybe wouldn't make it into an ABI or a DoD start is municipal bond issuance, which is up about 30% year-to-date versus the prior year period, which goes to fund school budgets and things like that. Just something else to think about in terms of what's driving the activity, whether it's new construction or expansion or repair and maintenance aftermarket type activity that's going on. But I'd say the headline from the beginning of the prepared remarks is still the best takeaway. So we see stable demand, but we feel like we're executing at a very high level.
Speaker Change: It has less volatility than maybe parts of the commercial segments.
It's a bit more stable.
Speaker Change: And I think something else to look at that maybe would make it into an abi or Dodge start as municipal bond issuance, which is up about 30% year to date versus prior year period, which goes to fund school budgets and things like that just just something else to think about.
Speaker Change: In terms of what's driving the activity, whether it's new construction or expansion or repair and maintenance aftermarket type activity, that's going on I'd say the headline from the beginning of the prepared remarks is still the best takeaway till we see stable demand.
Speaker Change: But we feel like we're executing at a very high level.
Joseph Alfred Ritchie: That's great. I appreciate it. Thanks.
Speaker Change: That's great I appreciate it thanks.
Operator: The next question comes from Julian Mitchell from Barclays. Please go ahead.
Speaker Change: The next question comes from Julian Mitchell from Barclays. Please go ahead.
Julian C.H. Mitchell: Hi, good morning. Maybe just the first question around the operations kind of guidance on the EPS tailwind. So you raised that, I think, at the high end and the low end, the organic growth guide is unchanged. So maybe just help us understand kind of what moved around in that. Was it just some conservatism and a cushion that you don't need anymore, given we're at the halfway point of the year?
Julian C.H. Mitchell: Hi, Good morning, maybe just a first question around the <unk>.
Julian C.H. Mitchell: The operations kind of guidance on the EPS tailwind. So you raise that I think at the high end and the low and the organic growth guide is on change. So maybe just help us understand kind of.
Speaker Change: What was moved around and that was it just some conservatism on a cushion that you don't need any more given we're at the halfway point of the year did something move around in terms of say expectations on cost inflation any help on that please why that kind of operational guide has moved up for the year.
Julian C.H. Mitchell: Did something move around in terms of, say, expectations for cost inflation? Any help on that, please? Why has that kind of operational guide moved up for the year? Yeah, thanks for the question, Julian.
Michael J. Wagnes: Yeah, thanks for the question, Julian. If you look at our first half, you know, we're doing quite well on the margin front, and we've been talking about, and I mentioned it earlier in the earlier question, just driving that price and productivity, the actions we can control to push margins, and we feel we've made good progress. So although organically we tightened the guide, we feel that the margin performance has really performed well, and so we did raise a nickel, as you see, in our operational performance.
Speaker Change: Yes. Thanks for the question Julien if you look at our first half we're doing quite well on the margin front and we've been talking about and I mentioned it earlier.
Speaker Change: Earlier question, just driving that price and productivity.
Speaker Change: The actions, we can control to push margins and we feel we've made good progress so although organically we've.
We've tightened the guide we feel that the margin performance has really performed well and so we did raise a nickel as you see in our operational performance.
Speaker Change: Okay.
Julian C.H. Mitchell: That's great. Thank you. And then maybe just my follow-up question would be about the residential outlook. You know, it's surprising, I think, to see a positive result there in the second quarter. Maybe just update us, you know, how you're feeling about that market. The sort of consumer discretionary side seems very weak, more broadly, understanding though that LOX is not that discretionary. So maybe just some color on RESI expectations for the year ahead. Thank you. Julian, this is John. That's a super insightful question. And I think there are a couple of different things going on in Resi. You're right.
Speaker Change: Okay.
Speaker Change: That's great. Thank you and then maybe just my follow up question would be around.
Speaker Change: If we think about.
Speaker Change: The residential outlook.
Speaker Change: Surprising I think to see a positive result, there in the second quarter.
Speaker Change: Maybe just update us.
Speaker Change: Are you feeling about that market.
Speaker Change: The sort of consumer discretionary side seems very weak more broadly understanding now that <unk> is not that discretionary. So maybe just some color on raise the expectations for the year ahead. Thank you.
Jon: Julian This is Jon.
Jon: Super Insightful question and I think a couple of different things going on in Raza Youre right secondary home sales are at really low levels really depressed levels.
John H. Stone: Secondary home sales are at really low levels, really depressed levels, but housing completions have kind of maintained a decent pace. We're hearing some better growth sentiment from large national builders. Interest rates, though, mortgage rates are still quite high, depressing some activity. So you sum all that up, we feel really good about how our resi business has performed in the first half of the year. That being said, still a bit of a cautionary outlook; a bit of a flattish outlook is what we're contemplating. And then any, you know, relief in the interest rate environment would definitely be positive for us, and I think that seems to be what the broader market is waiting for.
Speaker Change: Housing completions as kind of maintained a decent pace.
Speaker Change: We're hearing some better growth sentiment from large national builders.
Speaker Change: Interest rates, though mortgage rates are still quite high depressing. Some activity. So you sum all that up we feel really good about how our resi business is executed the first half of the year.
Speaker Change: That being said, it's still a bit of a cautionary outlook a bit of a flattish outlook is what we're contemplating and then any.
Speaker Change: Relief in the interest rate environment would definitely be a positive for us and I think that that seems to be what the broader market is waiting for.
Speaker Change: That's great. Thank you.
Operator: The next question comes from Brett Linzey from Mizzou. Please go ahead.
Speaker Change: The next question comes from Brett Linzey from Mizuho. Please go ahead.
Brett Logan Linzey: Hey, good morning. Congratulations on a great quarter. Thanks, Brett. Hey, just a question on the electronic locks performance. Better than I expected, the two-year stack did accelerate versus Q1. Would you attribute that to the improvement in the mix of the end markets, so multifamily, commercial, softer, institutional, a little better, or are you just seeing broader adoption across some of the different verticals?
Speaker Change: Hey, good morning, Congrats on a great quarter. Thanks, Brett.
Speaker Change: Hey, just a question on the electronic locks performance better than I expected in the two year stack did accelerate versus Q1 would you attribute that to the improvement in the mix of the end markets. So multifamily commercial softer institution a little better.
Speaker Change: Just seeing broader adoption across some of the different verticals, yes, Brett it's a really good question and I appreciate you looking at the.
John H. Stone: Yeah, Brett, it's a really good question, and I appreciate you looking at the comps and the two-year stack. It is relevant to talk about that, given the tail of those supply chain disruptions that we dealt with through the first half of 23, et cetera. Demand is still strong, and it is broad-based, I would say, is the other conclusion. You know, we see electronic locks being adopted in education, being adopted in healthcare, commercial office, multifamily, et cetera.
Speaker Change: The comps in the two year stack it is relevant to talk that given the.
Speaker Change: The tail of those supply chain disruptions that we dealt with through first half of 'twenty three et cetera. The demand is still strong and it is broad based I would say is the other conclusion, we see electronic locks.
Speaker Change: Being adopted in education being adopted in healthcare and commercial office multifamily et cetera.
John H. Stone: It has broad-based adoption. The demand is still strong, and I think one of the key underlying growth drivers is still the leverage of the smartphone wallet, mobile credentials, digital credentials, and digital identities that are now just increasing both the security of the access point as well as the convenience, which is right up the middle of our seamless access and safer world strategy. You hear things from large university customers of ours that inbound students just flat-out refuse to carry a key or a plastic card these days, and, you know, a smartphone is a natural extension of their persona.
Speaker Change: It is broad based adoption the demand is still strong and I think one of the key underlying growth drivers is still deleverage of the smartphone wallet.
Speaker Change: Credentials digital credentials digital identities that are now just increasing both the security of the access point as well as the convenience.
Speaker Change: Which is right up the middle of our seamless access and safer world strategy.
Speaker Change: Do you hear things from.
Speaker Change: Large university customers of ours that inbound students just flat out refuse to carry a key or a plastic card. These days in <unk>.
Speaker Change: Smartphone is a natural extension of their persona, so I see still tailwind there in terms of electronics demand and adoption.
John H. Stone: So I see still tailwinds there in terms of electronics demand and adoption, and the work that we're doing with our hardware, the work we're doing with our software, as well as credential technology, really feel like Allegiant is in a leading position here in the space and can continue to drive growth and good results.
Speaker Change: And the work that we're doing in our hardware the work we're doing in our software as well as our credential technology really feel like Allegiant is in a leading position here in this space and can continue to drive growth and good results.
Brett Logan Linzey: That's great. And then just to follow up on the sales performance between new versus aftermarket, I understand you lose track of it at some point through the channels, but just curious if you had any granular color on how new construction versus aftermarket performed that you could glean through, you know, whether it's lock categories or some other metric.
Speaker Change: That's great and then just a follow up on the sales performance between new versus versus aftermarket I understand you lose track of it at some point through the channels, but just curious if you had any granular color on how new construction versus aftermarket performed as you could glean through whether it's law categories or some other metrics.
John H. Stone: Yeah, it's a good question, Brett, and I think the most... Accurate way we can describe that is still to think of us as roughly a 50-50 mix and that those two fifties are not pinpoint precision numbers. You're right. Well, you know, selling through distribution and, in some cases, two-step distribution. You do lose sight of exactly where that goes, and I would say it probably also depends on where you are in the Americas. If you're in a place where there's net migration, like Texas or Florida, new construction is probably more than 50% right now.
Speaker Change: Yes, it's a good question Brett.
Speaker Change: <unk>.
Speaker Change: The most.
Speaker Change: Accurate way, we can describe that as still think of US is roughly a 50 50 mix in that those those two <unk> are not pinpoint precision numbers youre right.
Speaker Change: Selling through distribution in some cases two step distribution.
Speaker Change: You do lose sight of exactly where that goes and I would say it probably also depends on where you are in the Americas.
Speaker Change: If you're in a place where there is net migration like Texas, or Florida, or new construction is probably more than 50% right now if you're in some more mature markets regions midway.
John H. Stone: If you're in some more mature markets, regions, Midwest or Northeast or whichever, maybe it's more heavily weighted towards the aftermarket. That's why I'd say, on balance and in aggregate, it's still appropriate to think of us as about a 50-50 mix.
Speaker Change: The Midwest or northeast or whichever maybe it's more heavily weighted towards aftermarket. That's that's why I'd say on balance and in aggregate, it's still appropriate to think of us as about a 50 50 mix.
John H. Stone: The other thing I would say is that once you spec yourself into a large institution, university campus, school district, etc., that makes the aftermarket business really sticky. And so, you know, break-fix, repair maintenance, new wing, or whatever expansion, like-for-like replacement is quite prevalent. And that's another important tailwind for the electronic side because we're seeing some early adopters of electronic locks now upgrading to a recent model after installing locks just, you know, six, seven years ago. So a faster replacement cycle is also showing up these days.
<unk>.
Speaker Change: The other thing I would say is that once you spec yourself into a large institution University campus School district et cetera.
Speaker Change: That makes that aftermarket business really sticky.
Speaker Change: And so break fix repair maintenance, new weighing or whichever expansion like for like replacement is.
Speaker Change: Quite prevalent and that's another important tailwind on the electronics side, because we're seeing some early adopters of electronic locks now upgrading to a recent model after installing locks just six seven years ago. So a faster replacement cycle is also.
Speaker Change: Showing up these days.
Speaker Change: I appreciate the insight thank.
Speaker Change: Thank you.
Operator: The next question comes from David MacGregor from Longbow Research. Please go ahead.
Speaker Change: The next question comes from David Macgregor from Longbow Research. Please go ahead.
David Sutherland MacGregor: Yes, good morning. Thanks for taking my questions. Pretty solid quarters, so congratulations there. Yeah, I guess we're going to be talking about tariffs a little more here over the next few months. So I was wondering if you could just remind us, you know, what the tariff burden on earnings was last time around? And what's changed since in terms of reshoring suppliers? And maybe, what percentage of your North American cogs would now be sourced outside of North America?
David Sutherland MacGregor: Yes. Good morning, Thanks for taking my questions pretty solid quarter. So congratulations there. Thank you very much.
David Sutherland MacGregor: I guess, we're going to be talking about tariffs a little more here over the next few months. So I was wondering if you could just remind us what was the tariff burden to earnings last time around and what's changed since in terms of re shoring suppliers and maybe what percentage of your North American Cogs would now be sourced outside of North America.
John H. Stone: Yeah, tough to break all that down. We'll see if Mike has anything to add, David, but this is John. I'll start.
Yeah.
David Sutherland MacGregor: To break all that down we will see if Mike has anything to add David but this is John I'll start.
John H. Stone: I'd say for any global company like Allegion, tariffs in general are not helpful, right? That's not helpful to a company like Allegion. I would say, I'd call you back to, you know, the nearshoring that Allegion invested in with our new factory in Corretero, Mexico. The ramp-up is going well. Our people are safe. They're focused on quality. The numbers are coming through just like we thought.
Speaker Change: Say for any.
Speaker Change: Global company like Allegiant tariffs in general are not helpful right.
Speaker Change: Not helpful to a company like Allegiant I would say I would call you back to the.
Speaker Change: Near shoring that Elisa and invested in with our new factory in collateral in Mexico.
Speaker Change: <unk> is going well our people are safe they are focused on quality. The numbers are coming through just like we thought.
John H. Stone: Great culture, great team down there. And that's because, you know, a lot of our residential products are manufactured between Corretero and a manufacturing campus in the Baja area that we have. I'd say that investment did significantly de-risk our supply chain and made our supply chain more resilient in terms of some product supply that used to be single-sourced and outsourced in China. And so we acquired the IP. We can produce that product wherever we want to now.
Speaker Change: Great culture, great team down there and Thats for a law.
Speaker Change: Out of our residential products are manufactured between collateral in our manufacturing campus in the Bahar area that we have.
Speaker Change: I would say that investment did significantly derisk, our supply chain, our supply chain more resilient in terms of some product supply that used to be single source down outsourced in China and so we've acquired the IP, we can produce that product wherever we want to now we have that flexibility since.
John H. Stone: We have that flexibility since we own the design, as well as shortening the supply lines, obviously sourcing it close to home. I would say now is not really the time to speculate about any future tariff regimes. We need to just wait and see how the policies evolve. But in terms of supply chain resiliency, I think the investments we've made over the past 18 months or so have been very well timed and are delivering the kind of results that we'd like to see. Mike, anything you'd add?
Speaker Change: We own the design.
As well as shortening the supply lines, obviously sourcing it.
Speaker Change: Close to home.
Speaker Change: I would say now is not really the time to speculate about any future tariff regimes, we need to just wait and see how the policies evolve but in terms of supply chain resiliency I think the investments we've made over the past 18 months or so have been very well placed and are delivering the kind of results that wed like to see Mike.
Michael J. Wagnes: Yeah, if you remember, David, we tend to manufacture in the region that we sell, right? So if you think of our Americas business, most of our non-residential business is really manufactured here in the United States. We do have some operations in Mexico, as John mentioned, but we don't have a large supply chain where we're manufacturing our product in Asia and shipping it over here. If it's sold in the U.S., we tend to make it here as well.
Mike: Anything you'd add.
Mike: You remember, David we tend to manufacture in the region that we sell right. So if you think of our Americas business. Most of our nonresidential business is really manufactured here in the United States. We do have some operations in Mexico as John mentioned, but we don't have a large.
Speaker Change: Supply chain, where we're manufacturing our product in Asia and shipping it over here if it's sold in the U S. We tend to make it here as well.
David Macgregor: John, thanks for that detail. And just as a follow-up, I guess, you know, obviously not any inventory in the specified business, but just wondering what you're seeing in terms of channel inventory and the commercial and the retail space.
David Sutherland MacGregor: Got it thanks for that detail.
David Sutherland MacGregor: Thanks for that detail. And just as a follow-up, I guess, you know, obviously not any inventory in the specified business, but just wondering what you're seeing in terms of channel inventory in the commercial and retail space.
Speaker Change: Just as a follow up I guess, obviously not.
Speaker Change: Inventory in the specified business, but just wondering what youre seeing in terms of channel inventory on the commercial and the retail space.
John H. Stone: Yeah, it's a good question, David, and I think... You know, we operate, and our distribution channel operates in a made to order environment. And so, in general, our channel does not hold a lot of inventory unless that's specific to their business model, where they, you know, a particular distributor will want to hold some unique or rare, rarely ordered SKUs just to be that that's the provider of choice in their market.
John Stone: Yeah, it's a good question, David, and I think, you know, we operate in our distribution channel, operate in a made-to-order environment. And so, in general, our channel does not hold a lot of inventory unless that's specific to their business model. What were they, you know, a particular distributor, will want to hold some, whatever unique or rare, rarely ordered skews just to be that provider of choice in their market. So, you know, lead times over the course of 2023, progress back down to the two to four week range for most of our products that our channel was used to ordering patterns have adjusted pretty well, I think.
Speaker Change: Yes, it's a good question, David and I think.
Yes.
Speaker Change: We operate in our distribution channel operates in a made to order environment.
Speaker Change: So in general our channel does not.
Speaker Change: Hold a lot of inventory.
Speaker Change: Unless that's specific to their business model, where they a particular distributor will want to hold some.
Speaker Change: Whatever unique or rare rarely ordered skus just to be that provider of choice in their market.
John H. Stone: So, you know, lead times over the course of 2023 progressed back down to the two to four weeks range for most of our products that our channel is used to. Ordering patterns have adjusted pretty well, I think, and so I guess what I would feel like is similar to what you saw with Allegian's seasonality Q1 to Q2, I think, just kind of a back to a more normal environment on the inventory side, and that's how we feel internally as well. I think our own inventory turns are up modestly this year; we feel good about that, you know; good working capital discipline there. So my sense is that our channel would feel the same.
Speaker Change: So lead times over the course of 2023 progressed back down to the two to four week range for most of our products that.
Speaker Change: Our channel is used to.
Speaker Change: Ordering patterns have adjusted pretty well I think and so I guess, what I would feel like is similar like you saw with the legions seasonality Q1 to Q2, I think just kind of a back to a more normal environment on the inventory side and Thats, how we feel internally as well I think our own.
John Stone: And so, I guess, what I would feel like is similar like you saw with the Legion's seasonality Q1 to Q2. I think, just kind of back to a more normal environment on the inventory side. And that's how we feel internally as well. I think our own inventory turns are up modestly this year. We feel good about that, you know, good working capital discipline there. So, my, my senses are our channel would feel the same.
Speaker Change: Inventory turns are up modestly this year, we feel good about that good working capital discipline there.
Speaker Change: My sense is our channel would feel the same.
David Sutherland MacGregor: Thanks very much. Good luck. Thank you.
Unknown Executive: Thank you very much. Good luck.
Speaker Change: Got it thanks very much good luck. Thank you.
Unknown Executive: Thank you. Before we end the call, we'd like to give one more opportunity to ask a question. As a reminder, to ask a question, please press star, then one.
Operator: Before we end the call, we'd like to give you one more opportunity to ask a question. As a reminder, to ask a question, please press star, then 1.
Speaker Change #100: Before we end the call we'd like to give one more opportunity to ask a question as a reminder to ask a question. Please press Star then one.
John H. Stone: There are no more questions in the queue. 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. Thanks very much, everyone, for joining us.
Unknown Executive: There are no more questions in the queue.
Speaker Change #100: There are no more questions in the queue. 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, thanks very much everyone for joining I appreciate your time.
Unknown Executive: This concludes our question and answer session.
John Stone: I would like to turn the conference back over to John Stone, President and CEO, for any closing remarks. Thanks very much. Everyone for joining. I appreciate your time. I think in summary, a stable demand, strong execution by the entire Legion team. And it's worked to call out what I would feel is probably the best field sales and marketing team and distribution channel organization in the industry. Very proud of how they've executed Q2. Very proud of our Q2 revenue and EPS results. And we definitely feel like a Legion's best days are still ahead.
John H. Stone: Thanks very much, everyone, for joining us. I appreciate your time.
John H. Stone: I think, in summary, stable demand, strong execution by the entire Allegion team, and its work to call out what I would feel is probably the best field sales and marketing team and distribution channel organization in the industry. Very proud of how they've executed Q2. Very proud of our Q2 revenue and EPS results. And we definitely feel like Allegion's best days are still ahead.
In summary stable demand strong execution by the entire Allegiant team and its work to call out what I would feel is probably the best field sales and marketing team and distribution channel organization and the industry very proud of how they've executed Q2 <unk>.
Speaker Change #100: Proud of our Q2 revenue and EPS results.
Speaker Change #100: And we definitely feel like allegiance best days are still ahead.
Unknown Executive: Thanks.
Dan: Thanks, Dan.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change #100: Okay.
Unknown Executive: The conference is now completed. Thank you for attending today's presentation.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Unknown Executive: You may now disconnect.
Operator: ??? ?? ?? ?? ?? ?? ?? ?? [inaudible]
Speaker Change #100: Yeah.
Speaker Change #102: Uh huh.
Speaker Change #100: Okay.
Speaker Change #100: Yeah.
Speaker Change #100: Okay.
Speaker Change #100: [music].
Speaker Change #100:
Speaker Change #100: Yes.
Speaker Change #100: [music].
Speaker Change #100: Yes.
Speaker Change #100: Yeah.
Speaker Change #100: Yeah.
Speaker Change #100: [music].