Executive Summary / Key Takeaways

• Resilient Core & Strategic Expansion: Allegion plc ($ALLE) demonstrates robust performance driven by its strong Americas non-residential business and a disciplined strategy of accretive bolt-on acquisitions, particularly in electronics and software, which are expanding its market reach and technological capabilities.
• Strong Financial Momentum: The company reported double-digit revenue growth in Q3 2025, with net revenues increasing 10.7% to $1.07 billion, and adjusted EPS rising 6.5% to $2.30, showcasing effective operational execution and margin expansion in its core segments.
• Technological Leadership in Access Control: Allegion is actively differentiating its offerings through innovative electronic locks, ultra-wideband solutions, and cloud-based software platforms, enhancing security, convenience, and operational efficiency for diverse end-users.
• Optimistic Outlook with Prudent Risk Management: Allegion raised its 2025 adjusted EPS outlook to $8.10-$8.20, underpinned by resilient non-residential demand and the benefits of recent acquisitions, while maintaining an agile approach to managing macroeconomic headwinds and tariff uncertainties.
• Disciplined Capital Allocation: With strong cash flow generation and a healthy balance sheet, Allegion continues to prioritize investments in profitable growth through M&A and R&D, alongside consistent shareholder returns via dividends and share repurchases.

Allegion's Foundation: Securing the Future Through Innovation and Strategic Acumen

Allegion plc, established on December 1, 2013, following its spin-off from Ingersoll-Rand plc (IR), has rapidly carved out a formidable position as a global leader in security products and solutions. The company operates through two primary segments: Allegion Americas and Allegion International, serving a diverse array of commercial, institutional, and residential facilities worldwide, including education, healthcare, government, hospitality, retail, and commercial office markets. Allegion's strategy is deeply rooted in innovation, leveraging its established brand portfolio—including CISA, Interflex, LCN, Schlage, SimonsVoss, and Von Duprin—to deliver advanced access control and security solutions.

The security industry is undergoing a significant transformation, with increasing demand for electronic security products and integrated access control systems. Allegion is strategically positioned to capitalize on these trends, focusing on expanding its portfolio through both organic innovation and accretive acquisitions. The company's historical journey, marked by consistent product development and strategic M&A, has shaped its current market leadership and agile response to evolving customer needs.

Competitive Landscape: Allegion's Strategic Edge

Allegion operates within a competitive landscape populated by both large diversified industrial players and specialized security providers. Key direct competitors include Stanley Black & Decker, Inc. (SWK), Johnson Controls International plc (JCI), and ADT Inc. (ADT). Indirect competition comes from smart home technology providers like Google (GOOGL) (Nest) and Amazon (AMZN) (Ring), as well as cybersecurity firms.

Allegion differentiates itself through its deep specialization in security and access solutions, particularly in institutional and commercial settings. While Stanley Black & Decker offers a broader range of hardware and tools, Allegion's focus on specialized security solutions, especially electronic access control, provides a stronger market position in critical environments like healthcare and education. Allegion's established brands and extensive distribution channels foster strong customer loyalty in security-specific segments, allowing it to gain market share, particularly at the expense of smaller industry players.

Against Johnson Controls, which integrates security with broader building management systems, Allegion's strategy emphasizes specialized, user-friendly security products. Allegion's brand strength in locks and key systems underpins its market positioning, though JCI may have an edge in large-scale systems integration. Compared to ADT, which specializes in monitoring and alarm services, Allegion's offerings span a wider range of mechanical and electronic products, providing comprehensive hardware and software solutions. Allegion's operational execution in global distribution and product performance for hardware durability are key competitive advantages. The company's ability to drive price to offset inflation, including tariffs, also highlights its market power and disciplined financial management.

Barriers to entry in Allegion's core markets are substantial, including established brand loyalty, stringent regulatory requirements for product standards, and the necessity for specialized distribution networks. These barriers help Allegion maintain its market position and operational stability, contributing to sustained revenue and profitability.

Technological Differentiation and Innovation: The Digital Key to Growth

Allegion's competitive moat is significantly strengthened by its continuous technological differentiation and innovation, particularly in electronic security and integrated software solutions. The company's R&D initiatives are geared towards enhancing security, convenience, and operational efficiency across its diverse product portfolio.

A prime example is the Schlage Sense Pro smart deadbolt, Allegion's first ultra-wideband solution. This technology delivers a hands-free unlocking experience, understanding a user's intent to enter and unlocking the door precisely as they approach. This offers a tangible benefit of unparalleled convenience combined with trusted security, setting a new standard for home access. Complementing this, the Schlage Arrive Smart WiFi Deadbolt provides a simple and secure connected solution with built-in WiFi, making smart security more accessible for first-time users at an affordable price point. These innovations not only expand Allegion's residential offerings but also reinforce the Schlage brand's reputation, which has earned the title of America's most trusted lock brand for six consecutive years.

In the commercial and institutional sectors, Allegion's technological advancements are equally impactful. The SimonsVoss FORTLOX represents Allegion's first batteryless electronic cylinder, expanding applications and market segments by eliminating the need for battery maintenance, thereby reducing operational costs and increasing reliability. The Schlage L Series Motorized Latch Retraction Locks offer quiet control solutions for demanding environments like healthcare and education, broadening application opportunities with a patent-pending feature that detects binding conditions and adjusts to overcome side load, static pressure, and warped door conditions. This provides superior performance and durability compared to competitor offerings.

Allegion is also making significant strides in software and services. The Overtur™ OnSite App, a major upgrade to its cloud-based collaboration platform, delivers faster, smarter field inspections for building owners and consultants. This app includes an Inspection Suite with Fire & Egress and General Inspection tools, offering seamless data syncing, offline capabilities, and real-time team collaboration. This enhances accuracy, saves time, and streamlines field workflows, directly translating into operational efficiencies and cost savings for customers. The strategic acquisitions of Gatewise Inc., a smart access control solution for multifamily communities, and Waitwhile Inc., a cloud-based appointment scheduling and queue management software, further bolster Allegion's software-as-a-service (SaaS) capabilities. Gatewise integrates seamlessly with Allegion's electronic locks and Zentra multifamily property access solution, expanding perimeter security. Waitwhile connects virtual queues to physical access, streamlining operations in core non-residential markets.

For investors, these technological differentiators are critical. They contribute to Allegion's competitive moat by offering superior product performance, enhanced user experience, and integrated solutions that are difficult for rivals to replicate. This technological leadership supports higher average selling prices (ASPs), drives market share gains, and underpins the company's long-term growth strategy, particularly in the rapidly expanding electronics segment.

Financial Performance: A Story of Resilient Growth and Margin Expansion

Allegion's financial performance in 2025 demonstrates a compelling narrative of resilient growth and disciplined margin management, even amidst dynamic market conditions. For the third quarter ended September 30, 2025, Allegion reported net revenues of $1.07 billion, a significant 10.7% increase compared to the same period in 2024. This growth was fueled by a combination of favorable pricing (4%), volume increases (1.9%), and a substantial contribution from acquisitions and divestitures (3.9%), alongside positive currency exchange rates (0.9%). This marked Allegion's first quarter with revenues exceeding $1 billion, a notable milestone.

Operating income for Q3 2025 rose by $18.8 million, reflecting strong operational execution. While the overall operating margin for the enterprise saw a slight decrease to 21.8% from 22.2% in Q3 2024, this was primarily attributed to higher acquisition, integration, and restructuring expenses, as well as inflation and investment spending exceeding pricing and productivity. However, this was partially offset by favorable volume and product mix. For the nine months ended September 30, 2025, net revenues increased 7.3% to $3.03 billion, with operating income up $53.8 million and the operating margin expanding to 21.4% from 21.1% in the prior year period.

The Allegion Americas segment continues to be a powerhouse, with net revenues increasing 7.9% to $844 million in Q3 2025. This was driven by robust pricing (4.6%), higher volumes (1.8%), and acquisitions (1.5%). The non-residential business within the Americas segment showed particular strength, with high-single-digit revenue increases for both the three and nine months ended September 30, 2025, indicating healthy demand. The Americas adjusted operating margin expanded by 40 basis points to 28.7% in Q3 2025, benefiting from pricing and productivity exceeding inflation and investment spending, favorable volume/product mix, and lower integration expenses. Management noted that the non-residential business, being more profitable, significantly contributed to this margin expansion.

The Allegion International segment also delivered strong reported growth, with net revenues surging 22.5% to $226.2 million in Q3 2025. This was largely driven by acquisitions and divestitures (13.6%), favorable foreign currency exchange rates (5.3%), and higher volumes (2.3%). The segment's adjusted operating income increased 28.2%, and its operating margin improved by 70 basis points, primarily due to volume leverage and mix. Notably, Q3 2025 marked the first quarter of volume growth for Allegion International after four quarters of declines, a positive sign for the segment.

Allegion's liquidity and capital resources remain robust. Net cash provided by operating activities increased by $87.7 million during the nine months ended September 30, 2025, driven by higher net earnings and less cash used for working capital. The company's net debt to adjusted EBITDA ratio stood at a healthy 1.8x as of September 30, 2025. Allegion also raised its available cash flow conversion outlook to 85% to 95% of adjusted net income, reflecting strong year-to-date performance. This strong cash generation provides the financial flexibility to fund organic growth initiatives, pursue accretive acquisitions, and return value to shareholders through dividends and share repurchases.

Strategic Initiatives and Capital Allocation: Fueling Future Growth

Allegion's strategic framework is built upon a dual approach of organic innovation and disciplined, accretive mergers and acquisitions (M&A). This strategy is designed to expand its product portfolio, enhance technological capabilities, and strengthen its market position in areas where it possesses a "right to win."

In 2025, Allegion significantly accelerated its M&A activity, allocating approximately $600 million to acquiring businesses aligned with its strategic priorities. These acquisitions are carefully chosen to complement Allegion's core mechanical and electronics businesses and to integrate complementary software solutions. Notable acquisitions in 2025 include:

• ELATEC (Germany): Acquired for approximately $389 million, ELATEC is a leading manufacturer of security and access technology. This acquisition is a significant step to expand Allegion's global electronics portfolio and strengthen strategic relationships with channel partners, with ELATEC's margins in the mid-20s percent being accretive to the International segment.
• Gatewise Inc. (U.S.): A provider of smart access control solutions for the multifamily marketplace, Gatewise is a "hand-in-glove fit" with Allegion's electronic locks and Zentra multifamily property access solution.
• Waitwhile Inc. (U.S.): This software-as-a-service (SaaS) provider specializes in cloud-based appointment scheduling and queue management, connecting virtual queues to physical access in non-residential markets.
• UAP Group Limited (UK) and Brisant Secure Limited (UK): These acquisitions strengthen Allegion's product portfolio, including electronic locks, and enhance its cost position in the UK.
• Next Door Company (U.S.) and Trimco Hardware (U.S.): These additions bolster Allegion Americas' specialty door solutions and architectural hardware portfolios, leveraging existing go-to-market channels.
• Lemaar Pty Ltd (Australia) and Nova Hardware Pty Ltd (Australia): These expand Allegion International's security and accessibility solutions, particularly in the residential and multifamily markets in Australia.

These acquisitions, totaling approximately $628.4 million in aggregate consideration for 2025, are being rapidly integrated to capture revenue and cost synergies, and are expected to be accretive to 2026 adjusted earnings per share. Allegion's M&A pipeline remains active across both segments and various product categories, indicating a sustained commitment to inorganic growth.

Beyond M&A, Allegion continues to invest in organic growth through R&D and new product launches. The introduction of Schlage's Performance Series locks, a new mid-tier commercial product line, aims to capture more non-residential aftermarket business. The company's focus on electronics adoption is evident in its growing specification activity and new product launches, such as the Schlage Sense Pro and Arrive Smart WiFi Deadbolts.

Allegion maintains a balanced approach to capital allocation, returning cash to shareholders through a consistently growing dividend—marking its eleventh consecutive increase in early 2025—and opportunistic share repurchases. The company repurchased approximately $80 million in shares during the nine months ended September 30, 2025, and had approximately $160 million remaining under its authorization.

Outlook and Forward-Looking Guidance: Building on Resilience

Allegion's management has provided an optimistic yet prudent outlook for 2025, reflecting confidence in its core business and strategic initiatives. The company raised its full-year 2025 adjusted earnings per share (EPS) outlook to a range of $8.10 to $8.20. This upward revision is driven by strong operational execution, continued healthy demand in the non-residential Americas market, accretive acquisitions announced to date, and updated foreign exchange rates.

For 2025, Allegion anticipates total revenue growth of 1% to 3% and organic revenue growth of 1.5% to 3.5%. This includes approximately one point of growth from acquisitions (largely carryover from 2024) and an estimated 1.5 points of headwind from foreign currency, primarily impacting Allegion International. The Americas segment is expected to deliver low to mid-single-digit organic revenue growth, with both non-residential and residential businesses contributing. The non-residential market, particularly institutional verticals like education and healthcare, remains resilient, supported by healthy municipal bond issuances from 2024 that will fund projects over several years. Spec activity continues to grow, reinforcing the positive outlook for this segment.

Conversely, residential markets are expected to remain soft, consistent with year-to-date trends, largely due to persistently high mortgage rates and affordability challenges. Any growth in this segment is primarily anticipated from new electronic product launches rather than a broad market recovery. Allegion International is projected to achieve relatively flat organic revenue performance, as macroeconomic conditions, particularly in Germany, remain mixed. However, the segment is expected to benefit from 2025 acquisition activity, with a carryover revenue contribution of approximately 2 points from 2025 acquisitions anticipated for the enterprise in 2026.

Allegion expects approximately $40 million of surcharge revenue in the Americas related to tariff recovery, including the August 18 scope expansion for Section 232. The company is committed to offsetting tariff-related costs at the operating income and EPS level through pricing actions and productivity improvements, aiming for a neutral to slightly positive impact on margins from price and productivity net of inflation and investments (PPII) for the full year. The full-year tax rate is anticipated to be in the range of 17% to 18%.

Looking ahead to 2026, Allegion's preliminary view suggests market conditions will be "rather similar to 2025," with continued organic growth in Americas non-residential, ongoing softness in residential, and benefits from 2025 acquisitions internationally.

Risks and Challenges: Maintaining Agility

Despite a positive outlook, Allegion faces several risks and challenges that warrant investor attention. Macroeconomic conditions, particularly in international markets and the residential sector, remain dynamic. Persistent high interest rates continue to dampen residential market demand, and any further tightening could prolong this softness.

The evolving tariff environment presents a continuous challenge. While Allegion has successfully offset tariff-related inflation through pricing actions, the potential for new tariffs, particularly on imports from Mexico (which accounts for 20-25% of COGS), introduces uncertainty. The company's agile response to these pressures, including the use of surcharges, is critical to maintaining profitability.

Integration risks associated with its active M&A strategy are also present. While Allegion has a strong track record of integrating acquisitions, a rapid pace of deals can strain resources and impact operational efficiency if not managed effectively. Increased competition, including from technological developments by rivals, necessitates continuous investment in R&D to maintain Allegion's differentiated product portfolio. Supply chain disruptions, although mitigated by regional sourcing strategies, remain a potential headwind.

Conclusion

Allegion plc stands as a robust and strategically astute player in the global security products and solutions market. Its compelling investment thesis is built upon a foundation of resilient core businesses, particularly in the Americas non-residential segment, which continues to demonstrate healthy demand and strong margin expansion. The company's disciplined and aggressive M&A strategy, focused on expanding its electronics and software capabilities, is proving to be a powerful engine for accretive growth and technological differentiation. Innovations like ultra-wideband smart deadbolts and cloud-based inspection apps underscore Allegion's commitment to leadership in access control technology, providing tangible benefits that strengthen its competitive moat.

With a raised 2025 adjusted EPS outlook and a healthy cash flow profile, Allegion is well-positioned to capitalize on enduring secular trends in safety and security. While macroeconomic headwinds and tariff uncertainties persist, management's proven agility in pricing and operational execution provides confidence in its ability to mitigate these risks. Allegion's strategic focus on high-performing businesses, coupled with its strong brand portfolio and extensive distribution network, solidifies its competitive standing and promises continued value creation for discerning investors.