Allegion plc

Previous wording

Business and Industry Trends and Outlook

Current wording

Business and Industry Trends and Outlook and Global Trade and Macroeconomic Environment

Previous wording

In the third quarter of 2025, we delivered low-double digit revenue growth compared to the same period in 2024, driven by favorable pricing and volume growth in the Allegion Americas and Allegion International segments, as well as the impact from acquisitions made during the year.

Current wording

In the first quarter of 2026, we delivered high-single digit revenue growth compared to the same period in 2025, driven by favorable pricing and the impact from recent acquisitions in both the Allegion Americas and Allegion International segments. Demand for electronic security products has also remained strong and continues to be a long-term growth driver.

Previous wording

Throughout 2025, the U.S. government announced tariffs on imports from several countries from which we manufacture and/or import products and components. Through the nine months ended September 30, 2025, we have offset inflation due to tariffs with pricing actions. We continue to analyze the impact of changes in tariffs and what, if any, steps, including pricing actions, we may take to mitigate the impact of the tariffs. We estimate we source approximately 20-25% of cost of goods sold ("COGS") from Mexico, less than 5% of COGS from China, and 5-10% of COGS from all other non-US countries. Additionally, this could impact future demand.

Current wording

Following these rulings, new tariffs under other laws and on imports from more countries were imposed, in addition to existing non-IEEPA tariffs. Through the three months ended March 31, 2026, we have offset inflation due to tariffs with pricing actions. We continue to analyze the impact of changes in tariffs and what, if any, steps, including pricing actions, we may take to mitigate the impact of the tariffs. We estimate we source approximately 20-25% of cost of goods sold (“COGS”) from Mexico, less than 5% of COGS from China, and 5-10% of COGS from all other non-US countries. Additionally, existing or new tariffs could impact future demand.

Previous wording

During the nine months ended September 30, 2025, we paid dividends of $1.53 per ordinary share to shareholders and repurchased approximately 0.6 million shares for $80.0 million.

Current wording

During the three months ended March 31, 2026, we paid dividends of $0.55 per ordinary share to shareholders and repurchased approximately 0.3 million shares for $40.6 million.

Previous wording

The increase in Segment operating margin was primarily driven by favorable volume/product mix, lower acquisition, integration, and restructuring expenses, and favorable foreign currency exchange rate movements. These increases were partially offset by inflation and investment spending in excess of pricing and productivity, and the unfavorable impact on operating margin from recent acquisitions.

Current wording

The increase in Net revenues was driven by the favorable impact from acquisitions, net of divestitures, improved pricing and favorable foreign currency exchange rate movements. These increases were partially offset by lower volumes.

Previous wording

Operating income for the three months ended September 30, 2025, increased $18.8 million compared to the same period in 2024. Operating margin, which we define as Operating income as a percentage of total Net revenues, for the three months ended September 30, 2025, decreased to 21.8% from 22.2% for the same period in 2024, due to the following:

Current wording

Operating income for the three months ended March 31, 2026, decreased $1.1 million compared to the same period in 2025. Operating margin, which we define as Operating income as a percentage of total Net revenues, for the three months ended March 31, 2026, decreased to 18.9% from 20.9% for the same period in 2025, due to the following:

Previous wording

The increase in Operating income was driven by favorable volume/product mix, the favorable impact from acquisitions/divestitures, pricing and productivity improvements in excess of inflation and investment spending, and favorable foreign currency exchange rate movements, inclusive of transactional currency gains and losses. These increases were partially offset by higher acquisition, integration and restructuring expenses.

Current wording

The decrease in Operating income was driven by unfavorable volume/product mix and higher acquisition, integration and restructuring expenses. These decreases were partially offset by pricing and productivity improvements in excess of inflation and investment spending, the favorable impact from acquisitions and favorable foreign currency exchange rate movements, inclusive of transactional foreign currency.

Previous wording

Inflation and investment spending in excess of pricing and productivity includes the impact to both Operating income and Operating margin from pricing, as defined above, in addition to productivity, inflation and investment spending. Productivity represents improvements in unit costs of materials, cost reductions related to improvements to our manufacturing design and processes and reductions in selling and administrative expenses due to productivity projects. Inflation includes both unit costs for the current period compared to the average actual cost for the prior period, multiplied by current year volumes, and current period costs of ongoing selling and administrative functions compared to the same ongoing expenses in the prior period. Expenses related to increased head count for strategic initiatives, new facilities or other significant spending for strategic initiatives or new product and channel development, are captured in investment spending.

Current wording

Pricing and productivity in excess of inflation and investment spending includes the impact to both Operating income and Operating margin from pricing, as defined above, in addition to productivity, inflation and investment spending. Productivity represents improvements in unit costs of materials, cost reductions related to improvements to our manufacturing design and processes and reductions in selling and administrative expenses due to productivity projects. Inflation includes both unit costs for the current period compared to the average actual cost for the prior period, multiplied by current year volumes, and current period costs of ongoing selling and administrative functions compared to the same ongoing expenses in the prior period. Expenses related to increased head count for strategic initiatives, new facilities or other significant spending for strategic initiatives or new product and channel development, are captured in investment spending.

Previous wording

Interest expense for the three months ended September 30, 2025, decreased $2.2 million compared with the same period in 2024, primarily due to lower outstanding indebtedness compared to the same period in the prior year.

Current wording

Interest expense for the three months ended March 31, 2026, decreased $0.5 million compared with the same period in 2025, primarily due to a lower weighted-average interest rate on our outstanding indebtedness.

Previous wording

The effective income tax rates for the three months ended September 30, 2025 and 2024, were 9.8% and 10.5%, respectively. The decrease in the effective income tax rate compared to 2024 is primarily due to a tax benefit related to the enactment of a tax legislative change, partially offset by the unfavorable year over year changes in amounts recognized for uncertain tax positions.

Current wording

The effective income tax rates for the three months ended March 31, 2026 and 2025, were 19.5% and 15.4%, respectively. The increase in effective income tax rate compared to 2025 is primarily due to discrete items in the prior year, including the amounts recognized for uncertain tax positions, as well as the mix of income earned in higher tax rate jurisdictions.

Previous wording

Segment Results of Operations - For the three and nine months ended September 30:

Current wording

Segment Results of Operations - For the three months ended March 31:

Previous wording

Net revenues from non-residential products for the three months ended September 30, 2025, increased by a high-single digits percent compared to the same period in the prior year, as demand for our products remains healthy. We currently anticipate growth in revenues from our non-residential products for the remainder of 2025.

Current wording

Net revenues from non-residential products for the three months ended March 31, 2026, increased by a high-single digits percent compared to the same period in the prior year. These increases were driven by improved pricing and revenue from acquisitions. Net revenues from residential products for the three months ended March 31, 2026, were approximately flat compared to the same period in the prior year.

Previous wording

Growth in electronic security products and solutions is a metric that is actively monitored by management and a focus of our investors. Electronic products encompass both residential and non-residential solutions and include all electrified product categories including, but not limited to, electronic and electrified locks, access control systems and electronic and electrified door controls and systems and exit devices. For the three months ended September 30, 2025, Net revenues from the sale of electronic products in the Allegion Americas segment increased by a mid-teens percent compared to the same period in the prior year. We expect continued growth in our electronic products in 2025.

Current wording

Growth in electronic security products and solutions is a metric that is actively monitored by management and a focus of our investors. Electronic products encompass both residential and non-residential solutions and include all electrified product categories including, but not limited to, electronic and electrified locks, access control systems and electronic and electrified door controls and systems and exit devices. For the three months ended March 31, 2026, Net revenues from the sale of electronic products in the Allegion Americas segment increased by a mid-single digits percent compared to the same period in the prior year. We expect continued growth in our electronic products in 2026.

Previous wording

The increase in Segment operating income was primarily driven by pricing and productivity in excess of inflation and investment spending, favorable volume/product mix, the favorable impact of recent acquisitions, and lower acquisition, integration, and restructuring expenses. These increases were partially offset by unfavorable foreign currency exchange rate movements.

Current wording

The increase in Segment operating income was primarily driven by pricing and productivity in excess of inflation and investment spending and the favorable impact of recent acquisitions. These increases were partially offset by unfavorable volume/product mix, higher acquisition, integration, and restructuring expenses and unfavorable foreign currency exchange rate movements, inclusive of transactional foreign currency.

Previous wording

The increase in Net revenues was primarily driven by the favorable impact from acquisitions/divestitures, favorable foreign currency exchange rate movements, and improved pricing, which was partially offset by lower volumes.

Current wording

The increase in Net revenues was primarily driven by the favorable impact from acquisitions, net of divestitures, favorable foreign currency exchange rate movements and improved pricing. These increases were partially offset by lower volumes.

Previous wording

The decrease in Operating margin was driven by inflation and investment spending in excess of pricing and productivity, higher acquisition, integration and restructuring expenses, and the unfavorable impact on operating margin from acquisitions/divestitures. These decreases were partially offset by favorable volume/product mix.

Current wording

The decrease in Segment operating margin was primarily driven by inflation and investment spending in excess of pricing and productivity improvements, the unfavorable impact from volume/product mix and higher acquisition, integration and restructuring expenses. These decreases were partially offset by the favorable impact from recent acquisitions/divestitures and the favorable impact from foreign currency exchange rate movements.

Previous wording

Our primary source of liquidity is cash provided by operating activities. Cash provided by operating activities is used to invest in new product development and fund capital expenditures and working capital requirements. Our ability to generate cash from operating activities, our unused borrowing capacity under the Revolving Facility and our access to the capital and credit markets enable us to fund these capital needs, execute our long-term growth strategies and return value to our shareholders. Further, our business operates with strong operating cash flows, low leverage and low capital intensity, providing financial flexibility.

Current wording

Our primary source of liquidity is cash provided by operating activities. Cash provided by operating activities is used to invest in new product development and fund capital expenditures and working capital requirements. Our ability to generate cash from operating activities, our unused borrowing capacity under an unsecured revolving credit facility (the “Revolving Facility”) and our access to the capital and credit markets enable us to fund these capital needs, execute our long-term growth strategies and return value to our shareholders. Further, our business operates with strong operating cash flows, low leverage and low capital intensity, providing financial flexibility.

Previous wording

Our short-term financing needs primarily consist of working capital requirements, restructuring initiatives, capital spending, dividend payments and principal and interest payments on our long-term debt. Long-term financing needs depend largely on potential growth opportunities, including potential acquisitions, repayment or refinancing of our long-term obligations and repurchases of our ordinary shares. Of our total outstanding indebtedness as of September 30, 2025, approximately 86% incurs fixed-rate interest and is therefore not exposed to the risk of rising variable interest rates.

Current wording

Our short-term financing needs primarily consist of working capital requirements, restructuring initiatives, capital spending, dividend payments and principal and interest payments on our long-term debt. Long-term financing needs depend largely on potential growth opportunities, including potential acquisitions, repayment or refinancing of our long-term obligations and repurchases of our ordinary shares. Of our total outstanding indebtedness as of March 31, 2026, approximately 88% incurs fixed-rate interest and is therefore not exposed to the risk of rising variable interest rates.

Previous wording

Based upon our operations, existing cash balances and unused borrowing capacity under the Revolving Facility, as of September 30, 2025, we expect our cash flows from operations will be sufficient to maintain a sound financial position and liquidity and to meet our current financing needs for at least the next 12 months. Further, we do not anticipate any covenant compliance challenges with any of our outstanding indebtedness for at least the next 12 months. We also believe existing borrowing capacity under the Credit Facilities and access to credit and capital markets are sufficient to achieve our longer-term strategic plans.

Current wording

Based upon our operations, existing cash balances and unused borrowing capacity under the Revolving Facility, as of March 31, 2026, we expect our cash flows from operations will be sufficient to maintain a sound financial position and liquidity and to meet our current financing needs for at least the next 12 months. Further, we do not anticipate any covenant compliance challenges with any of our outstanding indebtedness for at least the next 12 months. We also believe existing borrowing capacity under the Revolving Facility and access to credit and capital markets are sufficient to achieve our longer-term strategic plans.

Previous wording

The following table reflects the major categories of cash flows for the nine months ended September 30. For additional details, see the Condensed and Consolidated Statements of Cash Flows in the Condensed and Consolidated Financial Statements.

Current wording

The following table reflects the major categories of cash flows for the three months ended March 31. For additional details, see the Condensed and Consolidated Statements of Cash Flows in the Condensed and Consolidated Financial Statements.

Previous wording

Operating Activities: Net cash provided by operating activities during the nine months ended September 30, 2025, increased $87.7 million compared to the same period in 2024, primarily driven by less cash used for working capital and higher net earnings.

Current wording

Operating Activities: Net cash provided by operating activities during the three months ended March 31, 2026, decreased $3.2 million compared to the same period in 2025, primarily due to lower net earnings.

Previous wording

Investing Activities: Net cash used in investing activities during the nine months ended September 30, 2025, increased $459.1 million compared to the same period in 2024, primarily due to higher cash used for acquisitions.

Current wording

Investing Activities: Net cash used in investing activities during the three months ended March 31, 2026, increased $68.9 million compared to the same period in 2025, primarily due to higher cash used for acquisitions.

Previous wording

Financing Activities: Net cash used in financing activities during the nine months ended September 30, 2025, increased $262.5 million compared to the same period in 2024. Net proceeds from debt borrowings were $306.6 million lower year over year due to the timing of the issuance of the $400 million 5.600% Senior Notes in May 2024. The proceeds from the 5.600% Senior Notes were used to repay senior notes that matured in October 2024. Net proceeds from the debt borrowings in 2025 were $83.3 million and were used to partially fund the acquisitions completed during the year. Additionally, repurchases of ordinary shares were $40 million lower than the prior year period.

Current wording

Financing Activities: Net cash used in financing activities during the three months ended March 31, 2026, decreased $42.6 million compared to the same period in 2025, primarily due to higher borrowings under the Revolving Facility.

Previous wording

Outstanding borrowings under the Credit Facilities accrue interest, at our option, equal to either: (i) a Secured Overnight Financing Rate ("SOFR") plus an applicable margin or (ii) a base rate plus the applicable margin. The applicable margin ranges from 0.875% to 1.375% depending on our credit ratings. At September 30, 2025, our outstanding borrowings under the Credit Facilities accrued interest at SOFR plus a margin of 1.225%, resulting in an interest rate of 5.388%. The Credit Facilities also contain negative and affirmative covenants and events of default that, among other things, limit or restrict our ability to enter into certain transactions. In addition, the Credit Facilities require us to comply with a maximum leverage ratio as defined in the credit agreement. As of September 30, 2025, we were in compliance with all applicable covenants under the credit agreement.

Current wording

Outstanding borrowings under the Revolving Facility accrue interest, at our option, equal to either: (i) a Secured Overnight Financing Rate (“SOFR”) plus an applicable margin or (ii) a base rate plus the applicable margin. The applicable margin ranges from 0.875% to 1.375% depending on our credit ratings. At March 31, 2026, our outstanding borrowings under the Revolving Facility accrued interest at SOFR plus a margin of 1.125%, resulting in an interest rate of 4.798%. The Revolving Facility also contains negative and affirmative covenants and events of default that, among other things, limit or restrict our ability to enter into certain transactions. In addition, the Revolving Facility requires us to comply with a maximum leverage ratio as defined in the credit agreement. As of March 31, 2026, we were in compliance with all applicable covenants under the credit agreement.

Previous wording

Management believes there have been no significant changes during the nine months ended September 30, 2025, to the items we disclosed as our critical accounting policies in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2024.

Current wording

Management believes there have been no significant changes during the three months ended March 31, 2026, to the items we disclosed as our critical accounting policies in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2025.

Previous wording

Refer to Note 2 in our Condensed and Consolidated Financial Statements for a discussion of recently issued and adopted accounting pronouncements.

Current wording

Refer to Note 2 in our Condensed and Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.