Will Buyouts Play A Part In Allegion's (ALLE) Q1 Earnings?

Allegion plc (NYSE:ALLE) is scheduled to release first-quarter 2018 results on Apr 26, before the market opens. Last quarter, the company delivered positive earnings surprise of 18.1%. Notably, it surpassed the Zacks Consensus Estimate in three of the last four quarters with average earnings beat of 8.7%.

Acquisition is an important part of the company’s growth strategy. In 2017, acquisitions contributed 1.4% to revenue growth of 7.6%. The trend is expected to continue in the to-be-reported quarter as well. The company consistently expands its product portfolio, widens geographic footprint and enhances its position in strategic market segments through buyouts.

The acquisition of Aurora Systems in March 2018 is expected to enhance product line, improve operating efficiency and expand distribution footprint. In February, the company acquired one of Middle East’s largest manufacturers of commercial steel and wood doors and frames, Qatar Metal Industries. With the addition of Qatar Metal, Allegion will be able to expand its code-compliant products to include doors in the Middle Eastern market. In January, Allegion acquired leading North American manufacturer of advanced fire-rated entrance and wall systems, Technical Glass Products or TGP, which is expected to enhance the company’s core product lines.

These acquisitions are expected to prove accretive to Allegion’s earnings in the to-be-reported quarter.

Let us delve into other factors that might impact Q1 results.

Strong Americas Business

Out of the three reportable segments, Allegion’s Americas segment has been witnessing strong growth for quite some time. Accounting for about 73% of total revenues, the segment’s revenues increased 7.4% in 2017 driven by favorable price and strength in electronic product. The trend is expected to continue in the to-be-reported quarter as well. Focused investments toward channel segmentation and product innovation will continue to boost the segment. The company expects segment revenues in the 10-11% range in 2018.

Innovative Products Drives Demand

Product innovation led to an increase in demand, thereby driving revenues. Allegion consistently updates its products and develops new ones to keep up with the changing market sentiment toward electronic security products and solutions. It is also trying to chalk out channel strategies and gain enterprise excellence to accelerate core market expansion. These initiatives are expected to contribute to first quarter revenues.

In spite of various investments, the company’s margins continued to increase, expanding 140 basis points (bps) in 2017. The upside was driven by solid price performance, volume leverage and productivity, which offset negative impacts from increased investments and inflation. The trend is expected to continue in the to-be-reported quarter as well.

Overall, for the first quarter, the Zacks Consensus Estimate for earnings is pegged at 84 cents, reflecting a 15.1% year-over-year increase. Meanwhile, the consensus estimate for revenues is estimated at $606.9 million, implying a year-over-year rise of 10.6%.

Here is what our quantitative model predicts —

Allegion does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — which increases the odds of an earnings beat.

Zacks ESP: The Earnings ESP for Allegion is 0.00%. 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 #1 (Strong Buy), which increases the predictive power of ESP. However, ESP of 0.00% makes earnings prediction difficult.

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

Allegion PLC Price and EPS Surprise

Stocks to Consider

Here are some companies in the Zacks Industrial Products sector that have the right combination of elements to post an earnings beat this quarter:

Alarm.com Holdings, Inc. (NASDAQ:ALRM) has an Earnings ESP of +5.44% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Century Aluminum Company (NASDAQ:CENX) has an Earnings ESP of +29.41% and a Zacks Rank #1.

Graco Inc. (NYSE:GGG) has an Earnings ESP of +0.67% and a Zacks Rank #2 (Buy).

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>