Allegion (ALLE) To Report Q4 Earnings: What's In The Cards?

Allegion plc (NYSE:ALLE) is slated to report fourth-quarter 2018 results on Feb 19, before the market opens.

The company pulled off average positive earnings surprise of 4.79% over the preceding four quarters, beating estimates thrice. Notably, Allegion’s third-quarter 2018 adjusted earnings of $1.23 per share outpaced the Zacks Consensus Estimate of $1.21 by 1.65%.

In the past three months, the company’s shares have returned 2.7% compared with 4.1% growth recorded by the industry it belongs to.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Rising cost of sales is a major cause of concern for Allegion. Notably, in the first nine months of 2018, the company’s cost of sales jumped 17% year over year. Also, in the third quarter, the metric jumped 20% year over year. Material cost inflation has been escalating Allegion’s aggregate costs, of late.

Allegion continues to focus on making incremental investments in organic growth for new product development. However, in the third quarter, incremental investments had an adverse impact of 3 cents on the company’s profitability. Incremental investments made to expand business in the residential electronics market and develop new products might drag down near-term margins. Also, integration costs related to acquisitions might mar the company’s margin.

Amid this backdrop, the Zacks Consensus Estimate for revenues from the company's Americas segment is pegged at $488 million, lower than $530 million recorded in the last reported quarter. On the other hand, the consensus estimate for revenues from Europe, Middle East, India and Africa segment in the to-be-reported quarter is currently pegged at $159 million, reflecting 18.7% growth sequentially.

The company intends to expand its business in new overseas markets. However, this exposes it to economic, social and environmental risks. For instance, over the past few quarters, unfavorable foreign exchange movements have been hurting Allegion’s overseas revenues and profitability. As a matter of fact, a stronger U.S. dollar might further depress the company's overseas business results.

However, Allegion expects that strong demand for its electronic products, strength of residential and non-residential businesses and increased connected security solutions and electronic locks' demand will likely continue to boost its revenues.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for Allegion in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Earnings ESP: Allegion has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $1.21.You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Allegion carries a Zacks Rank #4 (Sell), which when combined with the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Key Picks

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Constellium N.V. (NYSE:CSTM) has an Earnings ESP of +7.69% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

HD Supply Holdings, Inc. (NASDAQ:HDS) has an Earnings ESP of +1.50% and a Zacks Rank #3.

LSC Communications (NYSE:LKSD) has an Earnings ESP of +9.09% and a Zacks Rank #3.

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