安朗杰 (ALLE) 2013 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Allegion fourth-quarter 2013 earnings call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Tom Martineau, Director of Investor Relations. Please go ahead, sir.

Thank you, Jamie, and good morning, and welcome to the fourth-quarter 2013 Allegion earnings call. With me today is Dave Petratis, Chairman, President, and Chief Executive Officer; and Patrick Shannon, Senior Vice President and Chief Financial Officer of Allegion.

The release and presentation that we will refer to in today's call have been posted on our website. If you would like to view this presentation, please go to the Investor Relations section of our website at Allegion.com. This call will also be recorded and archived on our website.

Please go to slide 2. Statements made in today's call that are not historical facts are considered forward-looking statements, and are made pursuant to the Safe Harbor Provisions of Federal Securities Law. Please see our SEC filings for a description of some of the factors that may cause actual results to vary materially from anticipated results. The Company assumes no obligation to update these forward-looking statements.

Our release and today's commentary includes non-GAAP financial measures, which excludes goodwill impairment, a one-time gain on sales property, an order flow change with the joint venture in Asia, restructuring costs, discrete tax items, and spin costs related to our separation from Ingersoll-Rand. We believe these adjustments reflect the underlying performance of the business when discussing operational results in comparing to the prior-year periods. Please reference our news release and tables, which provide the reconciliation of GAAP to adjusted results.

With that, please go to slide 3, and I'll turn the call over to Dave.

Thanks, Tom. Good morning, everyone, and thank you for joining us today. This marks our first earnings call as a stand-alone publicly traded company. We are excited to continue our introduction as we unlock the potential of Allegion.

Before we dive into the results, I want to recognize the Allegion employees around the world that made our new Company a reality on December 1, 2013. The journey to becoming an independent company was complex, and I'm very proud that we completed the launch on schedule. During this transition, we maintained focus on the customer, while continuing to drive operational improvement and driving solid 2013 financial results, proving that we have a great team, ready to take on whatever challenge lies ahead.

The Allegion team has established the vision and purpose for our Company and the values by which we operate. We make the world safer as a company of experts, securing the places where people thrive. The knowledge, skills, and experience of our people put us in a position to solve our customers' security challenges where they live, work, and visit. And we do this with leading brands, innovative products, and a team of experts poised to solve the most complex of challenges.

Allegion has a strong history of financial performance. If you look at our business over the past economic cycles, we have been resilient and have delivered strong, available cash flow on a consistent basis.

Our strategic priorities are clear for 2014. We will grow organically, invest in our business, and follow a disciplined acquisition process. We will continue to drive continuous improvement in our operating performance, while continuing to generate cash flow to be used to reinvest for growth and for shareholder distributions.

Please go to slide 4. As we look at our fourth-quarter results, there is clear alignment with our key strategies. Our first priority is to expand in our core markets. We see great opportunity to leverage what we do today and participate in the North American market recovery, where we have our largest position of revenue and profitability. In the fourth quarter, our residential Americas business delivered double-digit growth, fueled by the strength in the retail and builders channel.

Second, is to continue investing in innovation and new products, especially around electronic locks. In the fourth quarter, we introduced an innovative lock solution to be used for remote classroom lockdowns. We are leading a new wave of electronic applications that is redefining perimeter security within perimeters.

Third, is to grow in emerging markets. We have the opportunity to expand from our regional platforms and meet the needs in emerging markets, where increased urbanization and security drives growth.

Fourth, is our continued focus on operational excellence and leveraging the strong Ingersoll-Rand legacy from which we came. We are already seeing benefits of earlier restructuring activity in EMEIA and on EMEIA margins, and we look to leverage the Americas operational excellence maturity in the region.

Finally, we will look for opportunistic acquisitions, utilizing a disciplined approach, such as our recent acquisition in Colombia, which increases our presence in the South American security market.

Patrick will now walk you through the financial results, and I'll be back to review our 2014 outlook.

Thanks, Dave, and good morning to everyone. I'd like to start with a summary of our overall financial results, and then I will cover regional performance a little later.

Please go to slide number 5. Reported net revenues for the quarter were $550.6 million, reflecting an increase of 0.8% versus the prior year. In the fourth quarter of 2013, a change was made to the order flow with our consolidated joint venture in Asia.

Previously, the joint venture acted as a pass-through of products to the end customer. Beginning in the fourth quarter 2013, products were shipped direct from the supplier to the end customer, with the joint venture receiving a royalty in an amount that approximates the lost margin on revenue.

Accordingly, the joint venture will no longer recognize the revenue and cost of goods sold on these products. This impacts the revenue comparisons, but does not materially impact income or cash flows in future periods.

Adjusting prior periods for the order flow change, net revenues for the quarter increased by 4.5%. Excluding foreign exchange, growth in the quarter is up 4.4%. All regions reported adjusted revenue growth in the quarter compared to the prior-year period.

Net revenues for the year were approximately $2.1 billion, and $2.04 billion on an adjusted basis. This represents an increase of 3.7% versus the prior year. Excluding foreign exchange, revenue for the year is up 3.9%, with Americas and Asia Pacific up approximately 5%, while the European region was slightly down.

Operating margins, adjusted to exclude restructuring and spin-related costs, were 17.4% in the quarter, compared to an adjusted operating margin of 18.9% in 2012, a decline of approximately 150 basis points. The margin decline is primarily due to a change in the Americas business, and channel mix and inflationary pressures in South America exceeding price.

Adjusted operating margins for the year, which excludes goodwill impairment, restructuring expenses, spin-related costs, and a property gain on sale, were 17.8%, down approximately 130 basis points versus the prior year. The operating margin decline is primarily due to an incremental investments associated with the development of new products, additional corporate allocations, and the impact of prior-year nonrecurring benefits. The Company effectively managed and implemented price increases and productivity gains to offset inflation.

Please go to slide number 6. Now, I'd like to discuss our earnings-per-share performance. This slide shows our EPS walk for the fourth quarter. As you are aware, this is a transition year for Allegion and there are a number of moving parts. For the fourth quarter of 2012, GAAP EPS and adjusted EPS are the same, at $0.62.

There were three items to reconcile fourth-quarter 2013 adjusted EPS of $0.58. The first item is for additional interest expense for the incremental borrowings associated with the spinoff, which reduces EPS by $0.05. The second item reflects incremental investments and ongoing growth initiatives, which is another $0.02 reduction.

And, lastly, we have an improvement of $0.03 related to the reduction in the effective tax rate. All other operational elements result in no EPS change, as favorable price, volume, and productivity offset mix and inflation.

Continuing on, you will note we show a $0.48 EPS reduction to arrive at fourth-quarter 2013 GAAP EPS of $0.10. The reduction is made up of $0.04 related to one-time separation and restructuring expenses, and $0.44 related to discrete tax items recorded in the quarter, primarily related to the establishment of valuation allowances on deferred tax assets for non-US tax jurisdictions.

Please go to slide number 7. The full-year GAAP EPS for 2012 was $2.32. Adjusted for prior-year restructuring expenses of $0.06, the 2012 adjusted EPS is $2.38. As indicated on the slide, there are multiple operational impacts that reduce EPS by $0.25, to reach a full-year adjusted 2013 EPS of $2.13.

You will note, there is an EPS improvement of $0.06, primarily through pricing and productivity through operational excellence initiatives, which more than offset inflation. This is reduced by $0.05 of additional interest expense associated with the $1.3 billion in new borrowings as a result of the spinoff; $0.06 for exchange rate movements; $0.08 for incremental investments, primarily for new product development and channel focus; and, finally, $0.12 for other nonoperating items in a higher tax rate.

As reflected, the adjusted EPS is reduced by $1.80 to reach the full-year 2013 GAAP EPS of $0.33. In addition to one-time separation costs, restructuring expenses, and the discrete tax items already mentioned, there are two other items that were previously disclosed in Q3 results. The first is related to a gain on property sale, which increased EPS by $0.09, and a goodwill impairment charge of $1.37.

Let's move on now to a discussion of the regional results. Please go to slide number 8. Fourth-quarter revenues for the Americas region were up 4.5% on an adjusted basis, and up 5.8%, excluding foreign exchange. Residential revenues were up high teens versus the prior year, with strength in the retail, builder, and e-commerce channels.

Commercial revenues were flat in the quarter against 2012 that benefited from a distributor incentive program. For the full year, revenues increased in the region by 4.9% and 6%, excluding foreign exchange. We saw good growth across both the commercial and residential segments as a result of the market and new products, particularly in the electronics portfolio.

Adjusted operating margins for the quarter were down approximately 320 basis points due to business and channel mix, as a result of a much higher proportion of residential revenue compared to commercial revenue, Venezuela inflation, incremental investments, and foreign exchange. Adjusted operating margins for the year were down approximately 50 basis points, as favorable volume was offset by inflation and investments.

Please go to slide number 9. Fourth-quarter revenues for the EMEIA region were up 4.9%, and up 1.2%, excluding foreign exchange. We saw stability in the region, particularly in the southern countries, where our business is highly concentrated.

This represented the second quarter in a row where year-over-year revenue increased after seven consecutive quarters of decline. Full-year revenues for EMEIA were down 0.7% and down 2.8%, excluding foreign exchange. The decrease was across most major markets.

Adjusted operating margin for the quarter was 10.4%, up approximately 330 basis points compared to the prior-year period. This was an excellent performance for the quarter, and was primarily due to favorable restructuring actions taken earlier in 2013, cost containment, operational excellence initiatives, and modest price realization.

Margins are seasonally higher in the fourth quarter compared to other quarters, due to higher revenue and favorable business mix. Adjusted operating margins for the year were down approximately 230 basis points, primarily due to volume deleverage.

Please go to slide number 10. Fourth-quarter revenues for the Asia-Pacific region were up 4.3%, and up 2.6%, excluding foreign exchange, driven by higher systems integration sales. Full-year revenues for Asia Pacific were up 4.8% and up 4%, excluding foreign exchange.

Adjusted operating income for the quarter was down $2.1 million, driven by nonrecurring favorable adjustment in 2012. Adjusted operating margins for the year were down approximately 520 basis points, due to unfavorable product mix, one-time startup costs with our new Asian plant, and a nonrecurring favorable item in 2012.

Please go to slide number 11. Turning our attention to cash flow, you will see that we delivered $204 million of available cash flow in 2013, where 99% conversion of adjusted net earnings. This reflects a continuation of our focus on the balance sheet and our consistent and stable strong cash flow generation.

Allegion ended 2013 in a strong financial position, with $267 million of cash on hand, which includes $40 million of restricted cash, pledged as a repayment for a current note payable of the same amount. Adjusting for the $40-million restricted cash and current note payable, the debt-to-adjusted EBITDA ratio is 3.2, and within the targeted leverage ratio.

As a result of the strong cash flow generation and solid financial position, Allegion is well positioned to execute a well-balanced capital allocation program consisting of organic growth investment, M&A, and shareholder distributions.

Please go to slide number 12. From an overall perspective, we want to employ a balanced and flexible capital allocation strategy to ensure we can provide high, sustainable shareholder returns. Specifically, we will fund organic growth investments as a priority, followed by M&A, which would be aligned with our core strategy of expanding our product portfolio and presence in emerging markets and technologies, followed by shareholder distributions.

Of note, we announced our first quarterly dividend of $0.08 per ordinary share, payable March 31 to shareholders of record on March 17. We also announced a $200-million share repurchase program to offset dilution from any share creep on compensation programs. From a leverage perspective, we have targeted an unadjusted debt-to-EBITDA leverage ratio of 2.75 to 3.25.

I will now hand it back over to Dave for a review of our 2014 guidance.

Thanks, Patrick. Please go to slide 13. I'd like to spend a couple of minutes focused on our efforts to improve our European business. Given sensitivity, we can't go into too much detail, but I can share that my team has evaluated the challenges and established a clear path to improve profitability. In fact, I and members of my team have spent significant time in the region to obtain a better understanding of our current situation and challenges.

This is a region which has gone through a tremendous downturn, especially in the southern areas, where we have a large presence. During 2014, we will be focused on portfolio simplification, optimization, and clearly identifying the right products for the right channels. And we will continue driving delivery in quality improvements via our operational excellence and value-stream activities.

Our goal is to get closer to the customer and play in the markets where we can be successful. We will be making changes to our cost structure and overhead to improve margin performance. The message I want to leave with you for Europe, is that we believe we have a clear path to improve profitability established. We will share more details as we get further along in the implementation.

Please go to slide 14. If we turn our attention to end markets in the Americas, we see positive signs of recovery and are now looking toward more sustainable market growth. We see nonresidential growth in the low- to mid-single digits, slightly weighted to the second half as the commercial nonresidential market segment continues to outpace the institutional segment.

As vacancy declines and unemployment decreases, we expect growth in renovations and tenant build. And after two-plus years of decline, institutional nonresidential markets are showing early signs of modest recovery, as increased educational enrollments and security concerns drive demand for new facilities and upgrades.

The multifamily segment, which has been strong of late, continues to grow in major markets, as mixed-use construction supports both commercial and residential segments. Of note, we are probably seeing this segment top out in annual construction units, as compared to historic peak construction cycles.

The single-family residential market continues to show good acceleration, and we'd expect to see strong, year-over-year growth in the US markets. This is driven by continued recovery in single-family construction, although we wouldn't expect to see normal levels for a few more years. Furthermore, increased housing prices, reduced inventories, and increased renovation budgets are driving demand in both the builder and retail channels. Allegion is well positioned to support stronger residential renovations activity.

We see Latin American markets relatively flat, as increased urbanization, a growing middle class, and a relatively low security infrastructure are balanced by economic and inflationary pressures. Of note, we are watching closely ongoing rents related to the Venezuelan Bolivar.

Our outlook for European growth is subdued, although we expect the recent declines in nonresidential construction to stabilize and be relatively flat in 2014; however, the southern regions will continue to lag the northern regions as the market recovers.

We expect mid-single-digit growth in the Asia-Pacific region, driven by growth in China, but at a lower rate than recent history. We also see growth in the systems integration segment, as safe city investments in China shift from first-tier to second- and third-tier cities.

Please go to slide 15. Consolidating the market elements that we just discussed, we expect revenues for 2014 to be up 3.5% to 4.5% versus adjusted 2013 revenues. We expect the Americas revenues to be up 3.5% to 5%, the EMEIA region to be essentially flat, and the Asia-Pacific region to be up 8% to 10%.

Please go to slide 16. Let's turn our focus to earnings, where the 2014 adjusted earning per share range is $2.25 to $2.40, an increase of 6% to 13% from 2013 adjusted earnings per share. The increase is driven primarily by operational improvements, favorable tax rate change, and other favorable items, partially offset by investments in the business and a full year of interest expense. Operational improvements reflect price in excess of direct material inflation and ongoing operational excellent initiatives, as well as the European improvement.

The tax rate impact assumes a 31% effective tax rate for the year. The effective tax rate is lower as a result of the new structure and tax-planning strategies executed in conjunction with the spinoff. You may recall that the historic carveouts were prepared on a statutory basis, leading to a higher effective tax rate.

Investments in the business are primarily driven by new product development, channel development, and strategic growth platforms supporting vertical market expansion and electronic lock capability. Restructuring and spin costs are expected to be $0.25 to $0.30 per share of impact during the year, resulting in a reported EPS range of $1.95 to $2.15. This guidance does not reflect the potential risk of further devaluation of the Venezuelan Bolivar. The impact of devaluation comparing to the official [CCAD] rate would be a nonrecurring charge, estimated at approximately $10 million.

Please go to slide 17. 2013 was a momentous year for us at Allegion. We delivered solid operational performance in a year of significant organizational change related to the spin. We strengthened our position as a security industry leader, and will continue defining and raising the standards for safety and security. For over a century, our category-leading inventions and innovations have kept people safe and secure where they live, work, and visit, and we're excited to carry on this legacy.

We have a great team of experts and are eager to tackle our customers' toughest security challenges. We will continue to build on our strong financial position and cash flow generation, and will focus our defined strategies by driving EMEIA profitability improvement, building an acquisition pipeline and capability, and leverage our tax structure more effectively. And, last, we will maintain a balanced and flexible capital allocation strategy.

With that, now, Patrick and I will be happy to take your questions.

(Operator Instructions)

Josh Pokrzywinski, MKM Partners.

Just first question on the Americas and some of the margin headwinds there. How persistent should the residential mix and Venezuelan inflation issues be? It seems like in guidance, those go away. But, any spillover into the first quarter or first half?

Josh, I don't think there's going to be any particular spillover in the first half, or as we look at 2014. We did have an instance where inflation did exceed price in Venezuela. We were really out in front of that, predominately throughout most of 2013. Caught us a little bit in fourth quarter, but that was mostly a timing issue.

Since then, we've gone out with a price increase to mitigate that going forward. And as you mentioned, we would expect the residential business to grow a little bit faster than the commercial business in 2014. But, that's in our guidance for the full year.

Got you. That's helpful.

On the tax rate, this 31%, should we think of that as a full-year rate to start? Are there other initiatives that you guys are working on that could make that look lower in the second half, or in some of the out quarters? Or is that 31% more of an average and assumes some additional progress?

That's a full-year rate. I think you guys are aware, we've spent the majority of our time to date, really focused in executing the spin, and then, of course, finalizing our year-end tax accounts. So, we are now moving into the planning phase.

And we are able to get the 31% rate, primarily through executing certain strategies in conjunction with the spin. But given that this is a strategic asset of the Company, something we want to leverage going forward, obviously we are going to put a lot of time in it from a planning perspective. We are utilizing both internal folks as well as external resources to help us in this endeavor.

It's kind of like anything else. I think we will find some low hanging fruit that we will be able to execute quickly and put some points on the board. Some things will be more structural going forward. But I would look at the 31% as kind of the base for 2014, with it going down from there. I feel very confident that we can get further reductions as we look beyond 2014 basis of a survey kind of landscape of opportunities.

Got you. That's very helpful. Thank you. Congratulations on getting out with the spin.

Charles Clark, Credit Suisse.

Just a question. In terms of Europe, some profitability improvement initiatives there. Anything related to divestments in that plan? Or, too soon to say?

No, as I stated, we've got a clear picture in terms of what we've got to do. Portfolio simplification as part of the moves that we need to make. And as we finalize plans, we will get you more up to date on what that looks like. But, it's clear to me that we are in some markets that -- and businesses that we can't win, and we are going to take tough decisions on that.

Sure. Then just on overall M&A strategy. Obviously, you guys starting to build the pipeline out. Any particular products or verticals or geographies where you think you might be most interested in? Or where you might think you have an advantage?

So, electronic lock platforms, intelligent lock cylinders are a high priority. Geographically, we think there needs to be a sense of urgency in Europe. And we like to target areas where midpriced point products and things that can help drive channel development, not only in China, but in Asia.

What types of multiples are you seeing, or what types of multiples do you think are normal to pay for those types of businesses?

There is a good history of what multiples are played for this. But it's case by case.

I would just add. We are going to take a very disciplined approach to this. We have return on invested capital guidelines that we go by before we execute a transaction.

It's got to be aligned with our strategy, obviously, and provide synergy opportunities. So, not going to really let the market dictate, in terms of opportunities that we look at.

Thanks, guys.

Steven Winoker, Sanford Bernstein.

The first question is, on the tax rate optimization strategy, do anticipate that having any kind of impact? Or has it already had an any kind of impact on the Americas margins?

No, I wouldn't anticipate it to have any impact associated with the Americas margins.

Okay. All right.

Second thing is, did you see any pricing pressure in the US itself? I've been hearing some commentary from some channel competitors. We maybe talk a little bit about what you -- I know you talked about it offsetting overall for the Americas, but a little more color there would be helpful.

We are not seeing it. On any given day, we compete in the marketplace, but we are driving based on specification. When you get into the resi market at the opening price-point levels, that's competitive.

But, during the quarter, and I would say in the second half of 2013, the renovation market has picked up. That's a great spot for us to be able to drive price on the resi side of it. In our commercial markets, we were able to gain price through the year, and think it's driven by our unique position to be able to drive a spec and performance criteria and hold it.

Okay. Great. Finally, help us a little bit work through the inconsistency between some of the ABI metrics that are bouncing around a little bit, and the more favorable view you have of what's really happening on the ground in non-resi in your outlook.

I think you've got to look at those ABI index in terms of the trend lines. If you look quarter to quarter, you can spin yourself silly. To me, the trend lines are good.

A couple things that I like that favor Allegion -- one is state budgets are coming into what I call more normalcy. You actually -- you're seeing almost a dozen states with surplus. That's going to help us in institutional spending over the next 24 months.

I think you can look at various segments, from hospitality to retail, and I see spending moving in the right direction. We just came back from the builders show. There was good sentiment. As we meet with distributors and wholesalers, we see opportunity, and we want to go get it.

I spent a lot of time in the Southeast, the oil field areas. These areas are extremely robust. So there's opportunities out there. I think you saw our electronic lock business growing nicely. So, we are cautiously optimistic, but we see opportunity.

All right. Great. Thank you.

(Operator Instructions)

Jeff Kessler, Imperial capital.

First, I'd like to get some handle on some of the -- without obviously getting into details on restructuring in Europe, in terms of some of the best practices, in terms of going to market and coordinating various brands you have, the way you've done in the United States. Has this already been implemented, at least the beginning of this being implemented in Europe?

Was is being done before the spin, and now we are beginning to see the results post spin? Or was this something that you had to go into Europe and just begin in the quarter, and we are seeing the results of that come in a little quicker than we thought?

The results that you are seeing with the operating income margin improvement, was a combination of things, not necessarily market driven, bit more on the cost side. So what you are seeing there, is the benefit of some restructuring activities in terms of headcount reductions, executed earlier in 2013, as well as some incremental cost containment actions and some modest price realization.

I think going forward, what we are looking at doing, is looking at the whole portfolio, simplifying how we go to market, exiting markets that are unprofitable, as well as trimming some additional costs from the structure. So, all those would lead to improved margins going forward that we would see up in the neighborhood of 300 basis points year over year.

Okay. You think that will be this trend, the 300 basis points could be consistent as we go out sequentially in the quarters?

I think it would be more heavily weighted towards the back end of the year, in terms of year-over-year improvement. Because some of the activities that we need to implement will not have taken place yet.

Okay. Second question is, you did allude to, and you mentioned a little bit about one of the new products you've introduced being involved in the wireless interactive -- we'll call it wireless electronic lock area that you are excited about. Could you expand on that a little bit, and will that be shown at any of the upcoming trade shows?

One of notice, and we call it the CO-220, and it creates security in a schoolhouse perimeter within a perimeter. Effectively, a schoolteacher, an administrator, wears a dongle around the neck. And if there is a signal, they can immediately push the dongle or the signaling device and start locking down rooms, sections of buildings.

It's out on the market, and in the first month we had tremendous out-of-the-box with that. If you are coming in for the -- in the Analyst Day, there will be people talking about that product.

I think another area of electronics that I'm excited about is residential section. We've got the only grade one electronic lock out there in the big box. That's pretty important. We continue to invest in those products and have variations that we upgraded as we go forward.

Our independent company allows us -- under Ingersoll-Rand, we were pushing a system called Nexia, that was proprietary. I think having electronic locks, whether on the residential basis or a commercial basis, operating in an open environment is a big advantage for the Company. We've always operated open on the commercial side, but on the residential side, it will open up opportunities for us.

All right. Great. Thank you very much. We'll enjoy seeing this at the Investor Day.

Jim Krapfel, MorningStar.

Just taking a step back, how would you weight the following factors for explaining the lower margins for each of EMEIA and Asia Pacific -- that being insufficient scale, high cost structure, low pricing power and other? Just curious to hear your thoughts there.

For Europe, we've said too much structural costs. I think we are also in some businesses there that it's hard to see how we can win over the long term. I think we can take corrections there.

I've given a thumbs-up to Europe in the fourth quarter. We were at a 10% OI on an adjusted basis. I felt pretty good about that.

As you move to Asia, it's clearly a scale issue. But I'd also point, our Safe Cities business, which is an integration business, tends to be rather lumpy with large projects. So, move a couple of those big movers into the quarter or the second half, it improves the picture.

But, fundamentally, on the mechanical side, this is why I cite a sense of urgency. We've got to grow quickly in the region.

Okay.

In the Americas, if you go back to the Q4 of 2012, the business opportunities in a recovering market, and we encourage distributors to take high-margin products and get them on the shelf. That, frankly, hurt us. And then, you've got the residential mix. As Patrick said, I think that was more one time, and that will normalize as we go through 2014.

Okay. Then, in the Americas, how much latitude do you see for driving margin gains in the intermediate term?

Favorable. I think it's driven by a focus that we will put on channel development, focus on the 32 top cities.

As you look at the Allegion map across North America, but with particular in a focus on the US and Canada, we need to be more disciplined in looking at markets where we are not getting what I even call our traditional share. Every dollar that we can increase in an underperforming market, we get great leverage.

Okay. So more --

Let me add one more. I think there's been a reluctance coming from a difficult economic time to put feet on the street. We've got the ability to do that. The leverage we get by focus in this way, I think will give us good results.

Okay. Thank you.

Josh Pokrzywinski, MKM Partners.

Just a couple follow-ups, if I could. Have you spoke to how much price you have baked into guidance on the top line?

We are looking at price increase across the globe. It's pretty evenly split when you look at it from region to region, around 1%.

Okay. Just for --

Let me just add. Some of that, obviously, is carryover, price increases that we implemented mid-2013 that would benefit 2014, and then some new increases anticipated in the market.

Historically, closer to the 2% range, right?

So, what I referred to the 1%, I look at it from a core price increase. Some of the 2%, some of that would be related to the high inflationary situation in Venezuela, where we are accelerating price increases because of the added inflationary pressure. So, I kind of look at it 1% more on a normalized basis going forward.

Okay. To the extent that anything -- that you have more inflation in Venezuela, you think you can offset that?

Yes. Just as we did this past year throughout the whole year, except Q4.

One last follow-up on Europe. I understand that you guys are still putting together a plan there and don't want to get ahead of yourselves too much. But just taking a step back, a lot of your competitors have double-digit, if not strong double-digit margins.

I know you've pointed out, both today and during the road show, some differences there in geographic mix, product mix. But structurally, is that business similar enough to your competitors to where we should think about the long-term potential as being in that double-digit-plus range?

I think we can get to the double-digit range with our plans and what we anticipate to execute. We've targeted an objective to get at a run rate of 10% by the end of 2015. So, that gets us in the double-digit range. Getting to our peer group, which would be higher than that, I think we are going to have to build a little bit more scale going forward.

Right. Understood. Thank you.

Alex Blanton, Clear Harbor.

I have some questions on -- you may have covered this in the investor meeting in November, but I was not in attendance. It's unusual to have a share repurchase program in connection, so close after a spinoff, I think. I'm wondering why you decided to buy back shares rather than pay off some of the debt that's adding $0.27 to the costs this year? What is the theory behind that?

We are not in the market, currently, buying back stock. What we communicated during the equity road show, is that we would utilize share repurchases to offset any dilution associated with management comp plans, and that was kind of the sole purpose of that. So, what you saw a recently announced was a share repurchase program of $200 million, driven primarily for that effort.

Steven Winoker, Sanford Bernstein.

Thanks again. Just a couple follow-ups I thought would get asked. One is, can you give us color on the progression that you are expecting through the quarters for the year?

Progression in terms of revenue?

Of earnings expectations, or how you see it playing out, or top line progression. Just a little bit of color of maybe seasonality, or a way for us to think about how you are thinking about particularly the first quarter.

From a seasonality perspective, and if you kind of look at this over the past two or three years, normally, Q1 is the weakest quarter. Q4 is the strongest quarter. Q2 and three are equal in terms of size and proportion of revenue.

From a margin perspective, I would anticipate, as we discussed, in particular relative to Europe, that the margin improvements are going to be a little bit more heavily weighted towards the back end of the year. But, as this business grows, basis of our 3.5%, 4% guidance, you would expect some incremental margin improvement each quarter. That being weighed on a little bit by the incremental investments, but I would expect to get some growth in both revenue and margin.

I would just add, Q1 is our weakest quarter. As the days get longer and hopefully warmer, there's clearly more activity. Something else that's unique to the business, especially in the Americas, we drive a lot of retrofit during the summer months to college campuses, schools, and our revenues, our orders follow that, as well.

I guess I should've asked, on this Q1, how big a deal is the weather impact to various parts of the US?

I would -- having spent many days here in Indianapolis with record snows and below zero temperatures, I didn't see a lot of people installing locks, closers, or exit devices. Maybe where you are at, too. But there is an impact.

Now, I don't think it changes things annually. Contractors will get it moving as conditions improve. I saw this economy, not just Allegion, take some pretty big stops in places like Atlanta, Indianapolis, Chicago. We will see it in Q1.

Okay. It could be even a few full days' worth, given what you are saying?

Without question. There was nothing happening in the city of Atlanta for two full days. It affected shipments.

We had factories out here in Indianapolis, two full days. We've got plenty of opportunity to make it up as the weather straightens out.

Great. Thanks. Look forward to seeing you in Indianapolis. Take care.

I am showing no further questions. I would now like to turn the call back over to Tom Martineau.

Thanks, and thank you everyone for joining today's call. We do look forward to seeing many of you at our Investor Day on March 12 in Indianapolis. Have a safe day.

Ladies and gentlemen, that does conclude the conference for today. Again, thank you for your participation. You may all disconnect. Have a good day.