ALLE — Q3 2026 Financial Report Analysis

Overview

Allegion, the maker of Schlage locks, Von Duprin exit devices and LCN door closers, grew third-quarter 2026 revenue 9.6% to $1,172.6 million and diluted EPS 18.8% to $2.59, and raised its full-year outlook again. The growth came from commercial buildings in North America: the Americas segment grew 9.1% organically, with non-residential (offices, schools, hospitals) up by a low-teens percentage. ("Organic" growth strips out revenue that came from buying companies and from currency moves, so it shows how much the existing business actually grew.) The headline EPS jump overstates the improvement, though: a one-time $19.9 million refund of tariffs the US government collected illegally lifted reported profit, and on the company's adjusted basis, which removes that refund, EPS grew 13.0% to $2.60.

Results

Gross margin is revenue minus the direct cost of making the products, as a share of revenue. Available cash flow is Allegion's term for operating cash flow minus capital spending.

Segment performance

Americas (80% of revenue) did the work. Its 11.7% growth broke down into 4.5 points of price, 4.6 points of volume and 2.6 points from acquisitions. The filing says non-residential revenue grew by a low-teens percentage on higher volumes and price, while residential grew by a mid-single-digit percentage "primarily driven by improved pricing and revenue from acquisitions" — so home-lock unit demand is flat at best, and all of the volume growth is in commercial buildings. Electronic products (electronic locks, access control systems) grew by a low-double-digit percentage. Adjusted segment margin rose only 0.2 points to 30.1% despite 9% organic growth, because recently acquired businesses carry lower margins and cost 0.4 points.

International (20% of revenue) is still shrinking underneath. Prices rose 1.3% but unit volume fell 1.5%, which the filing attributes to "market conditions in Western Europe," and acquisitions (+2.5 points) are what kept reported revenue positive. Reported operating income fell to $17.2 million from $19.7 million, with restructuring charges rising to $5.3 million from $0.9 million as the company cuts costs there.

What the headline numbers hide

• The tariff refund is a one-off. In February 2026 the US Supreme Court struck down tariffs imposed under the International Emergency Economic Powers Act (IEEPA), and importers became entitled to refunds. Allegion booked $19.9 million of refunds received and expected in Q3 operating income (all in the Americas segment) plus $0.9 million of interest on them. That refund alone accounts for 1.7 of the 2.5-point rise in reported operating margin. Management says future IEEPA refunds are "not expected to be material," so this won't repeat.
• GAAP and adjusted EPS match this quarter by coincidence, not because nothing was excluded. The $0.01 gap nets the refund ($20.8 million) and a $4.1 million gain on investments against $17.0 million of amortization of acquired intangible assets and $8.0 million of restructuring and deal costs. In other quarters these items don't offset, which is why Allegion's full-year guidance has GAAP EPS about $0.70 below adjusted.
• A higher tax rate held back EPS; buybacks helped a little. Adjusted pre-tax earnings rose 14.7% ($267.9M vs $233.5M), but the adjusted tax rate rose to 17.5% from 14.9%, so adjusted net income grew 11.2%. A 1.5% lower diluted share count (85.2M vs 86.5M, after $120 million of buybacks in Q3 and $280.3 million year to date) brought adjusted EPS growth to 13.0%. On a GAAP basis the prior-year 9.8% tax rate was unusually low because of "favorable discrete" items, which makes the GAAP net income comparison look worse than the business, not better.
• Cash is keeping up with profit. Nine-month operating cash flow of $604.0 million was 1.11x net income of $543.6 million, and available cash flow of $539.4 million was about 93% of adjusted net income — inside the 85-95% target.
• Receivables jumped, but likely seasonally. Accounts receivable rose to $551.6 million from $437.7 million at December 31 (+26%). The filing doesn't give a September 2025 figure to compare with, and receivables at year-end are usually seasonally low, so this is worth watching rather than a red flag.

Takeaway: Strip out the one-time tariff refund and Allegion delivered a steady quarter with a better mix than Q2: organic growth accelerated to 7.2% with volume (+3.4 points) nearly matching price, all of it from North American commercial buildings. Adjusted EPS grew 13% despite a 2.6-point higher tax rate, but the business is still a one-region story — International's existing operations lost volume again.

Did last time's read hold up?

Our Q2 2026 analysis flagged that the guidance then implied organic growth slowing from Q2's 6.9%, that International volume was still falling, and that gross margin (down 0.7 points in Q2) was the line to watch for tariff pass-through. Americas did better than that guidance implied: organic growth sped up to 7.2% and management raised the range to 5.0-6.0%. International half-improved — organic revenue went from -1.2% to -0.2%, but volume still fell. Gross margin rose 1.0 point to 46.7%, though part of that likely reflects the tariff refund. The tariff refund we noted as "incremental to reported results and excluded from guidance" arrived this quarter at $19.9 million and was excluded from adjusted figures, as expected.

Guidance and outlook

The GAAP EPS range now includes a $0.18 per-share benefit from tariff refunds, offset by about $0.60 of acquisition amortization and $0.28 of restructuring, deal and other costs. With nine-month adjusted EPS at $6.79, the new range implies $2.26-$2.31 in Q4. Nine-month organic growth was 5.7%, so the 5.0-6.0% full-year range implies a fourth quarter roughly in the same mid-single-digit range — slower than Q3's 7.2%.

The filing also notes that after the court ruling, "new tariffs were imposed under other laws and on imports from more countries," and that Allegion has so far offset tariff-driven inflation with price increases. About 20-25% of its cost of goods sold comes from Mexico, under 5% from China and 5-10% from other non-US countries, so its exposure to new tariffs on Mexico is the bigger risk.

My read: the outlook looks conservative rather than stretched — Q3 organic growth beat the full-year range, and the Q4 implied figure leaves room for a slowdown. The things to watch in Q4 are whether Americas volume keeps growing now that price is running at 4.5% (the residential side is already showing no unit growth), whether International volume finally stops falling once the restructuring is done, and whether the adjusted tax rate settles inside the 18-19% guided range. The quality of earnings is fine; the concentration risk is that almost all of the growth depends on US commercial construction spending.