Brand loyalty for Allegion (NYSE: ALLE) continues to drive revenue growth for the manufacturer of keypads, locks and doors.
Allegion’s well-known portfolio of brands is often chosen as architects, general contractors and homebuilders continue to transition access to industrial, commercial and residential buildings from mechanical means to electronic access products such as card readers and handles.
Brand loyalty holds up
The company established a good network of partners in North America which has led to additional growth. The company manufactures security products such as latches, door openers and closers, frames, weather stripping and automatic doors.
In North America, Allegion’s brand Schlage which manufactures locking systems, Von Duprin which creates exit devices and LCN which makes door controls have either “leading or near-leading market positions in their product categories,” wrote Nicholas Lieb, an equity analyst for Morningstar.
The trust in these brands has “garnered meaningful brand equity, which supports pricing power,” he said. “We calculate that Allegion’s price increases in the Americas segment have outpaced inflation by over 150 basis points on average over the past 10 years. Allegion’s pricing power has supported strong profit margins throughout the business cycle.”
Since the company was spun off from Ingersoll Rand (NYSE: IR), an industrial equipment manufacturer, in 2013, Allegion has produced returns on “invested capital inclusive of goodwill averaging in the low twenties,” Lieb said. “We expect the same going forward.”
Shares of the stock rose by 11% year-to-date.
Allegion reported third-quarter sales growth of 9.6% year-over-year from “strong” U.S. growth and international acquisitions while its modest operating margin expansion resulted in 13% growth in adjusted earnings per share, he added.
Net earnings grew to $220.9 million. The company raised its 2026 revenue growth outlook to a range of 9.5% to 10.5% and is raising its organic growth outlook to a range of 5.0% to 6.0%.
Organic revenue in the Americas increased 9.1%, including 4.6% volume growth and 4.5% pricing, demonstrating “broad-based nonresidential strength rather than reliance on price increases alone,” Lieb said.
But weakness in its international markets continues to impact the company’s consolidated results while Allegion’s 1.3% price increases almost fully offset a 1.5% decline in sales volumes.
The international market, which accounts for around 10% of Allegion’s segment operating profit, is more challenging because building codes in various cities and towns and other country-specific needs require “more capital-intensive manufacturing and sales footprints that we believe structurally limit Allegion’s ability to generate returns comparable to its Americas segment,” he wrote.
Management has been working on increasing its market share internationally by expanding distribution channels, improving cost structures and conducting other efforts to boost its profit margin.
But profits in its international markets can grow once these initiatives are implemented and as more contractors and architects adopt electronic and mechanical security technology.
Acquiring more companies in the U.S. makes more sense than international businesses since they proven to increase revenue and earnings per share for investors.
Since 80% of Allegion’s Americas revenue is nonresidential, the new residential home security product lines launched in October by Apple and Ring, which are direct competitors, will not impact overall growth and margins.
“We still believe consumers value Allegion’s time-tested locking brands such as Schlage,” Lieb added.
The company also has a strong presence at large retailers such as Lowe’s (NYSE: LOW), Home Depot (NYSE: HD) and Menards and online through Amazon that increases residential aftermarket sales.
Allegion has the potential to increase growth in revenue as new and refurbishment construction in the U.S. remains strong, he said.
“Electronic building access products fetch considerably higher average selling prices with a similar margin as mechanical equipment, providing a strong uplift to Allegion’s top and bottom lines as they replace mechanical access solutions,” Lieb said.
As a growing number of homeowners and contractors upgrade and switch or choose to use electronic keypads, locks and doors in homes and buildings, Allegion is likely to produce higher revenue.
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