安朗杰 (ALLE) 2017 Q2 法說會逐字稿

Good morning, and welcome to Allegion's Q2 2017 earnings call.

(Operator Instructions) Please note, this event is being recorded.

I'd now like to turn the conference over to Mike Wagnes, Vice President, Investor Relations and Treasurer.

Please go ahead, sir.

Thank you, Keith.

Good morning, everyone.

Welcome, and thank you for joining us for Allegion's second quarter 2017 earnings call.

With me today are Dave Petratis, Chairman, President and Chief Executive Officer; and Patrick Shannon, Senior Vice President and Chief Financial Officer of Allegion.

Our earnings release, which we issued earlier this morning, and the presentation, which we will refer to in today's call, are available on our website at allegion.com.

This call will 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 differ from anticipated results.

The company assumes no obligation to update these forward-looking statements.

Please go to Slide #3.

Our release and today's commentary include non-GAAP financial measures, which exclude the impact of restructuring and acquisition expenses and charges in current year and prior year results.

We believe these adjustments reflect the underlying performance of the business when discussing operational results and comparing to the prior year periods.

Please refer to the reconciliation in the financial tables of our press release for further details.

Dave and Patrick will discuss our second quarter 2017 results, which will be followed by a Q&A session.

(Operator Instructions) Please go to Slide 4, and I'll turn the call over to Dave.

Thanks, Mike.

Good morning, and thank you for joining us today.

Allegion posted another strong quarter of operational results, delivering above-market organic growth and continued margin expansion.

We delivered solid organic growth across all regions.

For the quarter, revenue was $627 million, an increase of 7.2%, reflecting organic growth of 6.2% as well as the benefit of acquisitions, partially offset by foreign currency.

All regions contributed to our solid organic growth.

The Americas saw organic growth of 6.1% in the quarter supported by low double-digit growth in the residential business and mid-single-digit growth in our nonresidential businesses despite a tough comparable from the prior year.

The Americas business continues to see solid returns on our strategic product and channel investments and continue to seize favorable trends in end markets.

EMEIA organic revenues grew at 6.3%, its best organic quarter of growth since the spin, led by strong growth in our Portable Securities business.

Our Asia Pacific business saw organic growth of 7.8%, led by strong growth in electronic locks.

Adjusted operating income of $136 million increased 8.2% versus the prior year.

Adjusted operating margin increased by 20 basis points as we continue to demonstrate margin expansion from incremental volume in excess of investment headwinds.

Adjusted earnings per share of $1.11 increased $0.12 or 12.1% versus the prior year.

Overall, I'm pleased with the solid revenue growth and operational performance in the second quarter.

In addition, we are raising our full year adjusted EPS guidance.

Adjusted EPS guidance is now $3.65 to $3.80 and reported EPS guidance is $3.55 to $3.72.

Please go to Slide 5. Before I turn the call over to Patrick, I want to take a little time to talk about our organic investments.

Since the spin, we've been focused on organic investments to drive above-market growth and these investments continue to play dividends in the market, while also increasing earnings and providing a superior return on invested capital.

The Americas region continues to benefit from our focused investments in channel segmentation and product innovation.

Our teams are creating new value in the discretionary commercial market, where channel partners make decisions every day on which brands to provide to end-users.

We've also worked to accelerate electronic partnerships, strengthen lead management and expand in vertical focus aftermarket programs, all initiatives that are supporting our growth.

In addition, Allegion continues to drive growth and create shareholder value by investing in new technology.

Allegion culture of innovation and our global footprint positions us to not only lead the electromechanical convergence, but accelerate it.

Doing so allows us to bring better solutions to our customers, increase our vitality index and drive growth at Allegion.

We've also formed and maintained strategic relationships to increase the impact of new product development and, ultimately, drive more growth.

Our open architectural approach to design stimulates the development of other devices for us to connect to, while it also allows integrators and other trusted third parties to easily connect our products into their systems.

From day 1, Allegion has been committed to making connected products that are the easiest to integrate and secure the places, people and property where we work and live.

In residential applications, we now integrate with leading systems like Apple HomeKit, Amazon Alexa and Samsung SmartThings, among others, and we offer solutions for the evolving monitored security market as well.

We strive to provide the best platforms to work with for the consumer and the ecosystem partners and while leveraging our unique leadership position in the residential multifamily and commercial markets to identify and redeploy disruptive innovations and solutions quickly to enhance our offerings.

Patrick will now walk you through the financial results, and I'll be back to discuss our full year 2017 guidance.

Thanks, Dave, and good morning, everyone.

Thank you for joining the call this morning.

Please go to Slide #6.

This slide depicts the components of our revenue growth for the second quarter.

I'll focus on the total Allegion results and cover the regions on their respective slides.

As indicated, we delivered 6.2% organic growth in the second quarter.

The strong organic growth reflects favorable markets in the Americas, along with strong performance in the EMEIA and the Asia Pacific regions.

Pricing was solid this quarter and was favorable in all regions as the company remains disciplined in taking necessary pricing actions to help mitigate the impact from rising commodity prices.

During the quarter, acquisitions contributed nearly 2% growth and foreign currency was a headwind, particularly in the EMEIA region.

Please go to Slide #7.

Reported net revenues for the quarter were $627 million.

This reflects an increase of 7.2% versus the prior year, up 6.2% on an organic basis.

I was particularly pleased with the strong mid-single-digit organic revenue growth from all regions.

The organic growth was driven by strong volume.

We also had good price realization in the quarter, offsetting the currency headwind seen in the EMEIA region.

Adjusted operating income of $136 million and adjusted operating margin of 21.7% increased 8.2% and 20 basis points, respectively, when compared to the prior year.

The operational improvement was driven by solid incremental volume leverage and productivity, which more than offset the impacts of product, the geographic mix, incremental investments and headwinds from FX.

As stated earlier, pricing during the quarter was solid and allowed us to absorb and manage through the higher inflation we experienced.

The business continues to execute at a high level, demonstrating both strong organic growth and operational margin improvement while continuing to make investments for future profitable growth.

Please go to Slide #8.

This slide reflects our EPS reconciliation for the second quarter.

For the second quarter of 2016, reported EPS was $0.98.

Adjusting $0.01 for the prior year restructuring expenses and integration cost related to acquisitions, the 2016 adjusted EPS was $0.99.

Operational results increased EPS by $0.13 as favorable price, operating leverage and productivity more than offset inflationary impacts.

A decrease in the adjusted effective tax rate drove a $0.07 per share increase versus the prior year.

The decrease in rate was primarily due to favorable impacts from discrete tax items, including a $0.09 per share benefit from the release of the valuation allowance.

These discrete benefits more than offset unfavorable changes in the mix of income earned in higher tax rate jurisdictions.

A reduction of the number of outstanding shares drove a $0.01 per share increase.

Interest and other income were a net $0.04 per share reduction.

This was primarily attributable to the positive impact from the sale of nonstrategic marketable securities during the second quarter of 2016 that did not repeat in Q2 of 2017.

This impact was partially offset by the previously announced sale of our equity investment in iDevices, which had a $0.03 per share benefit.

Incremental investments were a $0.05 per share reduction.

These investments relate to new product development and channel initiatives, which allow us to grow faster than the market, expand our electromechanical presence and increase our vitality index.

This results in adjusted second quarter 2017 EPS of $1.11 per share, an increase of $0.12 or just over 12% compared to the prior year, with the growth driven primarily by operational improvements and organic growth.

We have a negative $0.01 per share reduction for acquisition and restructuring charges.

After giving effect to these onetime items, we arrive at the second quarter 2017 reported EPS of $1.10.

Please go to Slide #9.

Second quarter revenues for the Americas region were $468.6 million, up 7.4% on a reported basis and 6.1% organically.

The strong organic growth reflects above-market performance driven by our new product and channel initiatives as evidenced by low double-digit growth in electromechanical products.

As noted on the chart, we experienced low double-digit growth in residential products, driven by strength in electronics.

Nonresidential products saw a mid-single-digit organic growth.

Pricing was strong in the quarter at nearly 3% as we continue to effectively manage the price/cost dynamic.

This quarter also saw a tough comparable driven by last year's ERP implementation, which was mostly offset by favorable timing of orders and shipments during the quarter as a result of a previously announced price increase.

On a year-to-date basis, the Americas had first half growth of 9.6% on a reported basis and 8% on an organic basis.

Americas adjusted operating income of $140.5 million increased 8.1% versus the prior year period and adjusted operating margin for the quarter increased 20 basis points.

The increase in adjusted operating income and adjusted operating margin was driven by strong price and incremental volume leverage, more than offsetting the impact of inflation, unfavorable mix and incremental investments.

The operational increase, while absorbing incremental investment spend, demonstrates continued excellent performance by the Americas team.

Please go to Slide #10.

Second quarter revenues for the EMEIA region were $129.2 million, up 6.3% on both a reported and organic basis.

Revenue growth was driven by strong performance in the Portable Security business, along with solid price performance.

Currency headwinds offset the contributions from acquisitions.

As mentioned previously, the organic revenue growth of 6.3% is the best organic revenue growth quarter since the spin.

EMEIA adjusted operating income was $9.4 million, increased 1.1% versus the prior year period.

Adjusted operating margin for the quarter decreased 30 basis points, driven by unfavorable product and geographic mix, along with FX headwinds.

Favorable price and productivity offset the impacts from inflation and incremental investments.

Please go to Slide #11.

Second quarter revenues for the Asia-Pacific region were $29.2 million, up 9% versus the prior year.

Organic revenue increased 7.8%, driven primarily by solid growth in electronic products across the region.

Total revenue was also supported by contributions from acquisitions, and currency had no impact during the quarter.

Asia-Pacific adjusted operating income for the quarter was $2.3 million, with adjusted operating margins down 70 basis points versus the prior year period.

Operating margins were impacted by unfavorable regional mix and inflation.

On a year-to-date basis, operating margins in Asia-Pacific were up 80 basis points, reflecting good volume leverage and operating performance.

Please go to Slide #12.

Year-to-date, available cash flow for the second quarter 2017 was $42.6 million, which is a decrease $42.1 million compared to the prior year period.

The decrease is driven by the previously announced $50 million discretionary pension funding payment that was made in the first quarter, partially offset by higher net earnings.

Working capital as a percent of revenues in the ratio for the cash conversion cycle slightly increased in the second quarter 2017 when compared to the prior year period.

The increase is primarily driven by planned increases in inventory levels in certain areas to improve customer fulfillment requirements and the timing of revenue during the quarter.

We remain committed to an effective and efficient use of working capital.

Lastly, we are affirming our full year available cash flow guidance of $300 million to $320 million, which is net of the $50 million discretionary pension funding payment.

I will now hand the call back over to Dave for an update on our full year 2017 guidance.

Thank you, Patrick.

Please go to Slide #13.

As noted on the slide, we are raising total revenue growth in all regions, given performance during the first half and our expectations for the remainder of the year.

As noted, we are raising organic revenue guidance in the Americas and Europe, while reducing Asia-Pacific.

This results in total revenue increasing to a range of 6.5% to 7.5%, and organic revenue increasing to a range of 6% to 7%.

If we look closer at the Americas business, we believe that our organic investments, combined with our ability to execute, will continue to deliver better-than-market growth.

We continue to see positive indicators in nonresidential verticals and expect momentum in single-family constructions to continue to support solid residential markets.

European markets are being bolstered by general macroeconomic improvements, such as the highest consumer confidence rates since 2008 and the lowest unemployment level since 2009.

The total revenue and organic revenue growth rates are now the same, signaling that FX headwinds are not what we had anticipated when giving original guidance.

In the Asia-Pacific region, electronics remain a key driver of growth.

Similar to EMEIA, the FX headwinds we anticipated in original guidance are not as prevalent, which is why total revenue guidance was increased.

We are raising our adjusted earnings per share to a range of $3.65 to $3.80, an increase of $0.05 on both the low end and high end.

This represents adjusted EPS growth of 9.3% to 13.8%.

The guidance includes a reduction of reported EPS related to restructuring and acquisition expenses in the range of $0.08 to $0.09.

This brings our updated guidance or reported EPS to a range of $3.55 to $3.72.

Included in the revised guidance is an assumption for the full year tax rate to be between 18.5% and 19%.

The guidance continues to assume outstanding diluted shares of approximately 96 million.

Please go to Slide 14.

Let me finish by reiterating that I was very pleased with our second quarter execution and results.

As a summary, reported revenue growth, over 7%; organic revenue growth, over 6%; adjusted operating margins increased 20 basis points; adjusted EPS saw just over 12% growth in the quarter.

These first half results position us well for the full year.

We are raising our guidance for revenue growth both total and organic, raising our adjusted EPS outlook and we affirm our available cash flow guidance.

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

(Operator Instructions) And the first question comes from Rich Kwas with Wells Fargo Securities.

I wanted to -- just on the nonres piece, so mid-single-digit growth, you did have a tough comp, you really highlighted some of the channel investments starting to pay off.

Dave, is there any way you can kind of delineate what you're seeing on the light commercial side versus the traditional institutional side, where you've had strong presence historically?

We clearly are seeing positive momentum in the investments in light commercial.

Remember, as we talked, Rich, that, that's area of the market that we didn't feel that we are -- were as well positioned and believe we can use our mid-price-point products, our improved -- positioning doors to go in and grow in a marketplace that we weren't as active.

So we like our position and think momentum will pick up over the next year.

Okay.

All right.

So it sounds like a little better there or trending a little bit better than it had been?

Yes.

Okay.

And then just in terms of investment spending, Patrick, can you just refresh us on the investment spending for this year?

And then if we think about '18, kind of early read on how that should trend in '18.

And then longer term, if we get into some sort of meaningful slowdown in the U.S. market, how would you adjust investment spending and what are the toggles there we should be thinking about longer term as the economy hits the cyclical peak?

Yes, our full year guide on investment spending is $0.15 to $0.20 impact.

That hasn't changed since our -- going out at the beginning of the year.

You saw a little bit of uptick in Q2, that was planned.

I would continue to think that Q3 will be kind of a similar level and then taper down a little bit in Q4, again, all according to our plan.

As Dave highlighted, seeing some really good benefits relative to the investments, both in our channel segmentation as well as new product development.

I think a lot of that is helping us drive above-market growth relative to the overall industry.

As we look forward to '18, it's a little early to tell right now.

As we've talked previously, we look at each year independently.

Each year comes up with different potential opportunities that we look at in terms of investments, how we're going to manage that relative to expectations and earnings, what's our degree and capability to execute on particular programs.

But we will continue to invest in the business, and believe that will continue to drive above-market performance, above revenue growth as well as earnings.

Will it be higher than this year?

I think probably not, but again, we'll take a closer look at our planning process in the back half of this year.

But your last question, what could we do in a market downturn?

I mean, a lot of these are variable-related to the extent that some is demand creation, and you can certainly shut off the spigot related to that if we needed to.

Some of them are headcount-related.

We monitor those, so that's kind of toggle basis of the -- how the market's performing, how we're performing.

And so that's something, if, for example, we went into the year with higher incremental investment spend and the market outlook turns south on us, we could shut that down as well.

Like any good business, we would manage the cost side of the business basis of the market demand.

And the next question comes from Julian Mitchell with Crédit Suisse.

Just a quick question on price and raw materials, I guess.

So pricing, very, very strong in the second quarter, almost 2.5% after 1% in the first.

Just wondered how you see the price outlook for the second half, whether you think you'll be somewhere in that sort of 1% to 2% range, still like the first half.

And also any update on the -- on quantifying the raw material headwind?

Just because, obviously, the last time you may have faced a headwind from that was back in 2011 before the spinoff, so it's hard to see how the business would perform regarding input costs.

This was historically -- you go back and this business has done extremely well in terms of passing on price from incremental costs related to material inflation.

Not seeing any difference as related to Q2.

Pricing outpaced material cost.

I think we were able to get a quick start on that.

We had visibility, obviously, late last year.

The performance was extremely strong, and I would say that's really attributable to many factors: one, obviously, you have a strong market, so we're benefiting from that; two, well-disciplined industry; three, we've implemented some new tools to help us manage pricing better more specifically, which is helping us get price realization, particularly in the Americas.

I wouldn't expect -- we had I think 2.4%, 2.5% price realization in the quarter.

That's going to taper down probably a little bit in the back half of the year, but to your comment, 1.5% to 2% in the second half within certainly the realm of possibility, which is better than what we performed last year.

We did announce a price increase in Americas to take effect August 1, which is quicker than what we've normally done historically.

And so hopefully that will have some benefit in the business as we go forward as well.

And then just my last one would be around the margin expansion path in EMEIA.

I think in the first quarter, you'd had a bit of choppiness around aspects like the CISA restructuring and maybe some of the M&A integration.

Any update on that, please?

So well, first of all, the -- as we indicated in the results, revenue growth was outstanding organically, had the best quarter since the spin.

So I was really pleased to see that.

I think you're seeing good performance from our business, but the market's improving a little bit as well, which is a good sign.

Unfortunately, the -- it did pull through incremental margin.

It is one of those quarters kind of has a lot of things working against us.

Some of that unfavorable one-time items, unfavorable mix, both from a product/geographic perspective.

FX was a headwind.

The plant move that you mentioned, I'd say we made improvements, particularly in our customer delivery and performance, not out of the woods yet.

It's still going to be a little bit of headwind on the cost side, but again, making improvements.

Our expectation is the second quarter -- excuse me, the second half of 2017 to show incremental margin improvement, both in Q3 and Q4, which will give us a full year-over-year improvement for the year, close to that 10% objective we established earlier.

I want to just add in.

I continue to be -- feel very good about the progress that we make over time in Europe.

The CISA move more -- has a lot of complexity.

There's a lot of SKUs, and as we start up those SKUs and our new manufacturing capability, it puts some chop into demand, but we made progress in improving customer satisfaction and reducing backlog in the quarter.

I expect that to continue over the next 12 months.

And the next question comes from Joe Ritchie with Goldman Sachs.

So maybe just following on Julian's question there on price cost.

So Dave, you think that from a pricing perspective, you -- maybe you can kind of keep that 1.5% to 2.5% in the back half of the year?

How is -- how are you guys thinking about cost and commodity inflation in the back half of the year?

And specifically, are you hedging any of your commodity costs?

So commodity prices, particularly on steel, zinc and brass, copper, were kind of stabilized, if you will, sequentially Q2 to Q1, but still continues to rise and spot rates are higher today than they were when we ended the quarter, and so we see a continued pressure on the cost side.

But again, I think relative to the price/cost dynamic, hopefully we can mitigate that as we move forward on the price increase.

So I kind of look at it as continued good price realization performance.

Cost higher than what we anticipated, but the expectation is we should be able to offset that in the second half of the year.

Got it.

So I mean the expectation then, I guess, for second half is that this price cost is going to remain positive, correct?

Yes.

Okay.

And then my following question, when I take a look at your balance sheet now, we're at a point where your gross leverage is starting to trend below your -- the typical kind of, like, 2.75 to 3.25 range that you're typically at.

What does your M&A pipeline look like?

So we continue to work the M&A pipeline.

I have to reflect here [half the] time at my own performance in successful acquisitions and disappointed, it's not because of a lack of effort, I would say it's more of a lack of -- it's more driven by discipline.

We've looked and put our fingers in a lot of deals, and we've just not pulled the trigger because they didn't line up with our expectations.

But I'd say the pipeline is active.

There are several files that we're working in -- around the world, and we'll continue to be disciplined and active, and believe that we'll pull things in.

With that said, our capital allocation policy continues to focus on organic growth, M&A, share buybacks.

We were -- we bought back some shares in the quarter.

And as we see the need to do it, we're going to move on all 3 of those levers.

And the next question comes from Rizk Maidi with Berenberg.

My first question is really on the organic revenue growth guidance for the full year of 6% to 7%.

So you basically achieved 7% in H1, 6% to 7% for the full year means that the low end of the full year guidance implies growth slows down to 5%.

Even at the midpoint, it actually implies that growth slows down to 6% from 7%, as I said.

I'm just wondering why that is the case, please.

Yes.

So I would characterize it as maybe a little cautiousness in the second half of the year.

We had better visibility going into 2017.

And as you indicated, really strong growth in the first half of the year.

Still strong performance in the second half of the year is the expectation.

We did raise the guide on both organic and total revenue growth, and that's reflective of very strong first half of the year.

Pretty strong organic growth in the second half of the year, I'd say.

A couple of things, little cautiousness, order intake has been a little, I'd say, choppy relative to what we saw in the first part of the year.

And I think that's more from a capacity industry perspective and the ability to absorb all the new construction activity.

So hey, look, still the market outlook isn't changing.

I know we're still bullish on the market dynamics and what we're seeing in terms of bid/quote activity, specification writing activity, et cetera.

I want to weigh in here too.

Our organic growth, I think, globally is noteworthy.

What we see in the market is variance from month-to-month in terms of incoming orders.

And I think that variance comes from a lack of labor, especially in the Americas across the value stream.

This would be our contractors, mechanical labors, wholesalers, installers.

And so we think that requires some conservatism in terms of what we view.

We believe that Allegion will do better in our markets based on our execution than our competition, and remain extremely positive on our end markets as we look out over the next 12 months.

Okay.

And then secondly, maybe on EMEIA, the 6% organic growth, you said it's the highest since the spin.

Can you just give us a sense what is rising that, kind of, by country basis?

But -- and also how large is SimonsVoss today within EMEIA?

If you could just give us a sense for that, please.

So the growth is driven through investments that we've made in Portable Security.

We like that.

We think we're again executing across the country areas.

We're seeing some performance based on investment initiatives similar to what we've done in the United States, spec writing, project-based business.

We don't split out SimonsVoss and -- but we continue to be extremely pleased with the performance of that asset.

(Operator Instructions) And our next question comes from Jeff Sprague with Vertical Research.

I'll actually try to squeeze in 2, even though we just got the roll handed down there.

But first, I was just wondering if you could elaborate a little bit on the mix effects in your business in the quarter.

Those negative in all 3 segments.

I assume some of it's kind of the electronic dynamics and the like, but just what's going on there and the impact on margins in the quarter would be interesting.

So not so much on the electronics migration.

That is growing faster than the overall business.

And as we've talked about previously, that's a great trend for us because the higher selling price, but similar margins, so doesn't really impact the margin profile of the business, but does contribute higher EBIT dollars which, obviously, we like.

The mix is more a function of the -- particularly in Americas, the residential business growing double digit; nonres, single digit, and that's -- some of that's the tough comp we had relative to last year.

But, as you know, the residential business operates at a lower operating margin, and with the higher growth of that, you have a mix effect there.

Also geographically, Europe had some unfavorable mix just based on the country mix.

And Asia-Pacific was more generated around a specific region, had a couple of one-time orders last year in North Asia that normally carry a higher margin than, say, in markets like China or Southeast Asia.

Great.

And then maybe a little bit bigger picture, just watching this proliferation of do-it-yourself home security that doesn't directly play to you, right?

The voice-activated lights, the do-it-yourself security systems, et cetera.

I mean, obviously, you're aligned with the big guns with the Apple HomeKit and the like.

But do you see any change in just kind of the nature of what's going on in the residential market as new entrants try to find an angle into the home?

And how are you addressing that?

So Jeff, we would observe that there's disruption, new thinking going on.

I think it helps us sharpen our game.

The second change that we see is what we call the last mile.

Clearly, with the growth of home delivery of goods, it changes the way people think about home security.

We think there are some fundamentals that are important.

Number one, open platforms being able to connect; simplicity, ease-of-use; third, providing a good product that's reliable.

That's -- we thought about our primary role, that's security.

We're extremely pleased with our residential electronic growth.

We see the market growing at low double digits, and we're growing above that.

So we're going to continue to be nimble, think about the opportunity and try to position Allegion to be able to participate in that growth globally.

And the next question comes from Tim Wojs of Baird.

I guess just on the residential business, growing low double digits.

I know the comparison was a little bit easier, but is there a way to -- could just elaborate a little bit on what that looked like within repair, remodel or Big Box, and then what that looked like in new construction?

And then is some of this being driven by some of the investments that you've made in electronics, specifically in resi?

So feel good about what we did in the quarter across-the-board.

I think we see some of the strongest growth in our res pro, which is new construction.

We had good year-over-year growth for that, and you see the strengths in the new construction part of it.

We have made specific investments to serve that new construction market.

Second, we get good traction with the electronic locks.

We believe that we're gaining share and consumer confidence, renovation and investment is some of the healthy it's been since the crash, and we're benefiting from them.

And the next question comes from Jeff Kessler with Imperial Capital.

We -- I'm doing a study on security integrators and also the specifiers that work with them, and we're finding out that there is a narrowing of those -- of the use of who the large -- who the end users are using in the integration fields, smaller and smaller group.

The names are obviously familiar to you.

How does that narrowing of the integration group itself as to whose -- who is being used affect your business?

Do you have to -- are you tailoring more or less?

Is your open platform an advantage?

Do you think for a smaller group of integrators, as opposed to the drop-offs of the smaller and midsized guys as the larger companies and the more IT-oriented integrators in security begin to play a larger and larger role in the market share out there?

So I'll need to see the study.

If you want to share that data that comes out, that would be helpful.

But my observation would be this, you've got customers in that integration value stream across the spectrum.

We think it's the higher-end homes that weigh more heavily in those integration partners, people that would require secure -- high-end security systems.

We think they will prefer a superior product, the technical support.

I think one of the bigger challenges there, Jeff, is aesthetics, and that's why miniaturization, battery life, become important.

But we look at that integration of our products with other systems as a growth opportunity beyond what we're doing today and we'll invest and focus to be able to serve that.

Okay.

And just quickly related to that.

You were a smaller player in the midsize -- if you want to call, the midsize industrial market.

You've, obviously, come on with a number of products in that area.

What new types of things can we expect at some of the trade shows coming up with you folks?

You're not going to give me anything in specific, but obviously, in general, how are you trying to more fully penetrate that mid-priced market?

Is it just new iterations of the same energy product that you had out there?

Or is it actually -- will there be actually new lines of products coming out?

So I think about a building 10 years out, every opening will be connected.

And how does that expand the opportunity at the high-performance product set, which we do extremely well at?

Look at our mid-priced point products to offer more connectivity, more intelligence and being able to bring that together and support it.

I think the opportunity, Jeff, here, as it comes together, I think customers are demanding more Apple-esque type systems that where customers have ease-of-use and connectivity, and those are the things that we think are important that will differentiate Allegion.

It's making it simple for the end-user to operate and integrate with the systems, fire, access, alarms, potentially HVAC in a simple way.

And that's where our direction will be, and we think it will make a difference for Allegion.

And the next question comes from Andrew Obin with Bank of America.

Just a question.

I think on their call [ASA] cited double-digit growth in request for closed specifications when they were asked about the end-market strength.

What are you guys seeing?

Are you seeing something different, something similar?

And does that raise possibility of things actually accelerating in the second half?

Your question is in terms of future demand quotations?

Yes.

Is strong -- as I go out and meet with customers, demand is strong, our backlog is healthy, and we think it's reflective of how we see the next 12 to 18 months.

In particular, I spent some heavy time here, a half time working with our economists, and we see good drivers in primary demand.

I -- we see this, what I call incoming variance, I think the market is somewhat capped on the availability of labor, but it will push at this recovery even longer.

And it's a little bit like a snowplow.

The demand is there, and we like our position in it.

And just another question.

I know you guys are pushing into the door market in North America.

Can you just tell us what the experience has been so far as you pivot the strategy towards that market where you, sort of, not ignored for a while, but were not as active in it for many years, and now you're increasing the level of activity?

And what the competitive dynamic is as your pushing there.

Heavy debate the first 24 months around doors.

It -- the role that it plays in the marketplace, our competitive positioning.

We've invested in both mechanical capability and people to enhance our steel craft competitiveness and on-time delivery.

We've acquired Republic Doors.

We feel extremely good about the position that we had but that we feel the -- you must have regional capability, laid out [at that test] -- adaptation capability and the ability to provide that adaptation and local delivery in the markets.

We're going to continue to drive that strategy and we like the growth dimension that it gives, especially in some of these light commercial areas.

We had a question earlier about that light commercial, it's helping us grow in that part of the market that was underserved by Allegion.

And the next question comes from Josh Pokrzywinski of Wolfe Research.

Just a couple of cleanups here since we've covered a lot of ground already.

I guess first, on the -- some of the big pushes that you guys have had, particularly on the nonresi side, on the engage platform and the commercial retrofit.

Dave, can you just kind of remind us how those 2 were doing I guess on the commercial retrofit side, maybe from a share perspective?

Where you guys started?

Where you think you're at today?

And then what the growth was on commercial electronic relative to the rest of the portfolio?

So commercial retrofit, we'll also refer to as [channel wood], we continue to build that out, but we're -- if we use a baseball analogy, we're in the sixth, seventh inning.

Still work to be done because it's a people-driven thing.

Continues to exceed our expectations.

A good part of the market, good partnering with our channel partners as well as the locksmiths, so feel good about that.

In terms of the electronic growth, we like the growth.

It's a new market for us.

The market does not adapt quickly.

We're taking mechanical guys, flipping them to electronic guys.

And so it -- we're moving much faster on the res, multifamily and we think that's the opportunity for growth.

Clearly, this electronics evolution will grow at low double digits, and we think we're positioned well to be able to grow in that space.

Is that low double-digits growth reflective of what's happening on the commercial side as well?

That would be overall growth.

Put the commercial -- institutional side is a high single-digit growth.

It will adapt at a slower pace, but it will move over the next strategic planning period.

Got you.

And then Dave, I think people have asked this question a few times now, maybe I'm just not smart enough to get the finer points of it, but relative to last quarter, is price cost a tailwind or headwind in your guidance?

Did you tweak that up or down?

I know that it's still kind of net-neutral the tailwind on the overall, but did -- was that toggled up or down versus the last time you guys guided?

So slightly positive in Q2.

Neutral, I'd say, in the second half of the year.

Both price improving as well as cost inflation.

Which sounds consistent with what you guys said before, if I remember, right?

Right.

And the next question comes from Robert Barry of Susquehanna.

I wanted to clarify the comments on the pull-forward activity ahead of the price increase.

It sounds like that may have added 3 or 4 points to Americas in the quarter.

So as we indicated, we went out with the price increase, announced it about a month prior to quarter-end.

Believe that had the effect of bringing forward some orders and shipments, hard to quantify, but there was a spike in some activity.

It did have the effect of mitigating kind of the ERP implementation, the effect that we saw in terms of last year.

So hey, look, hard to quantify in terms of whether it's 3 to 4 points, but clearly there was some pull forward from Q3 into Q2.

But I think, as I think about it, looking forward on a full year basis, again, really strong revenue growth and the outlook up 50 basis points in Americas.

I would make this observation with it.

We were quick to pull the trigger on that price increase.

We would typically give more advanced notice, and it didn't give the pop that may create some drag in the second half.

So we needed to react to the inflation that we're seeing, but it wouldn't measure up to historical price increases in terms of pulling a bunch of volume forward.

Okay, you had said it, it almost offset the ERP, which you had quantified at 3 to 4 points.

So that's where I went with that.

But -- so should we expect some kind of payback in third quarter or it sounds like not so much?

I'd say not so much.

Okay.

And then maybe just a couple of housekeeping items on the guidance.

Could you just clarify what's changing or what was in the guide and what wasn't, vis-à-vis, the iDevices sale, the tax benefit, $0.09 in the quarter.

I think most of that was contemplated but maybe not all.

And then FX kind of embedded in there versus prior?

Yes.

So on the -- so if you may recall last quarter, we increased guidance I think by $0.05, and that was predominately due to the iDevices gain as well as tax benefit expectations.

We guided lower on the effective tax rate.

So some of the benefit that we saw in Q2 was already baked in.

Now basis of our full year guide, the 19% to 18.5%, that implies a second half effective tax rate higher, low 20s, say, to kind of get at that range.

So there's some pressure there, if you will, year-over-year in the back half of the effective tax rate.

Okay.

And currency?

Currency, we upped our overall reported revenue growth, and that's due to favorable exchange rates predominantly on translation.

So it is an improvement year-over-year, but not too much flow-through in terms of earnings.

And the next question comes from David MacGregor with Longbow Research.

This is Robert Aurand on for David this morning.

Looking at the Europe business, strong organic growth, you called out strength in the Portable Security business.

Can you give us a sense of maybe how more the core locksmith business did there?

How the core business did?

Yes.

Strong electronics.

This would come from SimonsVoss and our hospitality business.

Core business, market performed.

We could have done better if our supply chain was running.

So you hear us talk about we moved production capabilities to Eastern Europe, and we made progress on that, but we left some revenue on the table.

It will get better every quarter as we go over the next 12 months.

And that's all the time we have right now for questions.

I would like to return the call over to Mike Wagnes for any closing comments.

We'd like to thank everyone for participating on today's call.

If you have any questions, please follow up with me, and have a great day.

Thank you.

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