安朗杰 (ALLE) 2017 Q3 法說會逐字稿

Good morning, and welcome to Allegion Q3 earnings conference call.

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

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

Please go ahead, sir.

Thank you, Keith.

Good morning, everyone.

Welcome, and thank you for joining us for Allegion's Third 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 was 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, debt refinancing costs and impairment 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 third 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 solid quarter of operational results, delivering continued margin expansion and modest organic growth.

For the third quarter, revenue was $609.4 million, an increase of 4.9%, reflecting organic growth of 2.7% as well as the benefit of foreign currency and acquisitions contributing to the overall growth.

All regions contributed to organic growth.

Americas saw organic growth of 2.8% in the quarter supported by strong price and mid-teens growth in electronics.

The Americas business continues to see favorable trends in the end markets though constraints across the construction supply chain, including labor, continue to impact the completion of projects, which caused some choppiness in the timing of orders and shipments of our products.

Europe had another solid quarter of organic revenue growth of 3.1%, led by strong growth in our Portable Security and SimonsVoss businesses.

Our Asia Pacific business saw organic growth of 0.4%.

Adjusted operating income of $134.6 million increased 6.2% versus the prior year.

Adjusted operating margin increased by 30 basis points as we continue to experience margin expansion driven by strong price and incremental volumes in excess of investments and inflationary headwinds.

Adjusted earnings per share of $1.02 increased $0.09 or 9.7% versus the prior year.

Overall, I'm pleased with the operational performance in the third quarter.

In addition, we are updating our full year EPS guidance.

Adjusted EPS guidance is now $3.75 to $3.80 and reported EPS guidance is $3.21 to $3.26.

Please go to Slide 5. Before I turn the call over to Patrick, I want to take a little time to talk about Allegion's foundation for electro-mechanical convergence and connectivity.

At Allegion, we blend the best elements of our mechanical heritage with the latest technology to provide the security our customers expect, along with the convenience and connectivity they desire.

That's what allows Allegion to lead the electro-mechanical convergence in the security industry today.

For instance, over the last 12 months, we have sold 1.5 million residential electronic locks.

To best illustrate our leadership in convergence, this slide showcases the evolution of some of our residential products.

On the far left, you see a Schlage mechanical deadbolt, something that most people listening today probably grew up using.

Since 1920, when Schlage was awarded the first patents for cylindrical and push button locks, we've been pioneering in the home security hardware segment.

Now our experts have been creating innovative smart locks for nearly 10 years.

Leading us to the products you see on the far right, our latest launch, the Schlage Sense WiFi Adapter.

This simple wall plug-in provides Android and Apple users access to their Schlage Sense Smart deadbolts from anywhere.

No smart home platform needed.

We launched it in August 1 along with Android compatibility for the Schlage Sense Smart Deadbolt.

Just like our mechanical and leading smart deadbolts, we're confident the Schlage Sense WiFi Adapter will become a staple in the residential marketplace.

We're equally as confident in the bigger picture.

Allegion's extensive base of mechanical and electronic solutions serve as a robust foundation and competitive advantage to our growth into the ongoing electro-mechanical convergence.

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 third quarter.

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

As indicated, we delivered 2.7% organic growth in the third quarter.

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

As a result, pricing improvements have continued to exceed material inflation.

During the quarter, acquisitions contributed 1% growth and foreign currency was a tailwind, particularly in the EMEA and Asia Pacific regions.

Please go to Slide #7.

Reported net revenues for the quarter was $609.4 million, this reflects an increase of 4.9% versus the prior year, up 2.7% on an organic basis.

I was particularly pleased with the strong price performance in all regions.

The total growth was driven by favorable currency impacts in addition to the price performance.

Adjusted operating income of $134.6 million and adjusted operating margin of 22.1% increased 6.2% and 30 basis points, respectively, when compared to the prior year.

The operational improvement was driven by solid price and productivity, which more than offset the impacts of inflation in incremental investments.

The price performance allowed us to absorb and manage through the higher inflation we experienced.

The business continues to deliver both 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 third quarter.

For the third quarter of 2016, reported EPS was $0.02.

Adjusting $0.91 for the prior year loss on divestiture, restructuring expenses and integration-cost related to acquisitions, the 2016 adjusted EPS was $0.93.

Operational results increased EPS by $0.09 with favorable price, operating leverage and productivity more than offset inflationary impacts.

Interest and other income were a net $0.03 per share increase, driven by nonoperating gains.

The combination of the adjusted effective tax rate and share count grow by $0.01 per share reduction versus the prior year.

The adjusted effective tax rate grow by $0.02 per share reduction.

The increase in rate is primarily due to the mix of income earned in higher tax rate jurisdictions.

Share count reductions increased EPS by $0.01.

Incremental investments were a $0.02 per share reduction.

These investments relate to new product development and channel initiatives, which allow us to grow faster than the market, expand our electro-mechanical presence and it increased our vitality index.

This results in adjusted third quarter 2017 EPS of $1.02 per share, an increase of $0.09 or nearly 10% compared to the prior year with the growth driven primarily by operational improvements.

We have a negative $0.08 per share reduction for debt refinancing costs, acquisition and restructuring charges.

After giving effect to these onetime items, we arrive at third quarter 2017 reported EPS of $0.94.

Please go to Slide #9.

Third quarter revenues for the Americas region were $455.2 million, up 4.4% on a reported basis and 2.8% organically.

The modest organic growth was driven by strong pricing in the quarter as well as mid-teens growth in electronic products, which offset the impact of timing of orders that was a positive benefit in the second quarter.

The price performance continues to allow us to effectively manage the price cost dynamic.

On a year-to-date basis, the Americas region has had strong organic growth at 6.2%.

Americas' adjusted operating income of $137.1 million increased 3.6% versus the prior year period and adjusted operating margin for the quarter decreased 10 basis points.

The decrease in adjusted operating margin is primarily driven by unfavorable product mix and incremental investments.

Please go to Slide #10.

Third quarter revenues for the EMEIA region were $125.1 million, up 7.5% on a reported basis and 3.1% organically.

Revenue growth was driven by strong performance in both the Portable Security and SimonsVoss businesses, along with solid price performance.

Currency tailwinds also contributed to total growth.

EMEIA adjusted operating income of $10.6 million increased 45.2% versus the prior year period.

Adjusted operating margin for the quarter increased 220 basis points driven by solid price, favorable leverage on incremental volume, favorable mix and currency tailwinds offsetting the impact of inflation and incremental investments.

Our EMEIA business had strong operating performance in the quarter as we continue to focus on areas that will drive us to double-digit margin profile in that region.

Please go to Slide #11.

Third quarter revenues for the Asia Pacific region were $29.1 million, up 2.1% versus the prior year.

Organic revenue increased 0.4% driven primarily by favorable price as a tough comparable, notably in Australia and New Zealand, muted the volume growth.

Total revenue was also supported by contributions from currency tailwinds.

Asia Pacific adjusted operating income for the quarter was $2.2 million with adjusted operating margins up 130 basis points versus the prior year period.

Operating margin increases were driven by favorable price, productivity and FX more than offsetting inflationary impacts.

Please go to Slide #12.

Year-to-date, available cash flow for the third quarter 2017 was $136.3 million, which is a decrease of $15.7 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.

Excluding the discretionary pension payment for 2017, available cash flow increased $34.3 million or 22.6% compared to the prior year period.

Working capital as a percent of revenues and the ratio for the cash conversion cycle slightly increased in third 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.

As noted, we are updating our full year available cash flow guidance to approximately $300 million, which is net of the $50 million discretionary pension funding payment.

Please go to Slide #13.

I want to take this time to highlight the changes from our recent debt refinancing we previously announced.

During September, we closed on the refinancing of our credit facility; and in early October, we issued investment grade senior notes, the proceeds of which were used primarily to redeem our previously outstanding high-yield senior notes.

Our outstanding debt as a result of the refinancing increased slightly, however, our debt to adjusted EBITDA remained approximately the same at 2.8x and 2.2x on a net basis.

Our refinancing and upgrade to investment-grade resulted in an unsecured capital structure with maturities extending approximately 3.5 years and demonstrates our financial strength and strong cash flow characteristics.

It also reduces our cost of capital and future borrowing costs, which enhance our ability to fund and accelerate organic growth as well as future acquisitions.

Lastly, the refinancing will reduce our annual interest expense by approximately $13 million or $0.09 per share, 1/4 of which will be realized in Q4 of this year.

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 14.

As noted on the slide, we are updating our revenue guidance in all regions.

We are reducing revenue guides in the Americas and Asia Pacific while increasing in EMEIA.

This results in a revised guidance range for a total revenue of 6.5% to 7% and our organic revenue being revised to a range of 5% to 5.5%.

If we look closer at the Americas business, end market fundamentals remain solid as we continue to see positive indicators in nonresidential verticals and expect momentum in single-family constructions to continue to support solid residential markets.

However, due to constraints across the supply chain, including labor, the industry is experiencing delays in overall project construction, which has an impact on the timing of our revenue.

For EMEIA region, we are raising both the total revenue and organic revenue outlooks.

European markets have started to rebound nicely and are being bolstered by continued general macroeconomic improvements, such as high consumer confidence and low unemployment.

For the first time in a decade, the GDP in all of our key economies are growing.

Total revenue growth is also being assisted by FX tailwinds in the second half of the year.

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

Similar to EMEIA, the FX headwinds are anticipated in the original guidance are not as prevalent.

As we look out to 2018, we would expect end markets to continue to grow and expect organic revenue in line with our previously provided long-term target of 4% to 6%, which includes the benefit of electronics growth as well as continued performance in our channel initiative.

We are updating our 2017 adjusted earnings per share to a range of $3.75 to $3.80.

This represents EPS growth of approximately 12% to 14%.

This guidance includes the reduction of reported EPS related to debt refinancing costs and restructuring and acquisition expenses in the amount of $0.54.

This brings our updated guidance or reported EPS to a range of $3.21 to $3.26.

Included in the revised guidance is the assumption for the full year tax rate to be between 18% and 18.5%.

This guidance assumes average diluted share count for the full year to be approximately 96 million shares.

Please go to Slide 15.

Let me finish by reiterating that I'm pleased with our third quarter execution results.

As a summary, reported revenue grew nearly 5%; organic revenue grew nearly 3%, it's up 5.5% for the year.

Adjusted operating margins increased 30 basis points.

Adjusted EPS saw nearly 10% growth in the quarter and it's almost -- it's up almost 13% for the year.

These results position us well to complete 2017.

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

(Operator Instructions) And the first question comes from Josh Pokrzywinski with Wolfe Research.

Just as a -- maybe a bit of a follow up on some of the residential electro-mech initiatives.

I mean, clearly the market has evolved a little bit in the past week or so with AXA picking up August and the Amazon Key announcement yesterday.

I guess that you guys have a lot of partnerships out there and still have a pretty good leadership position, but how would you characterize some of these changes?

And then could you give us kind of a walk-through of how this Amazon Key -- maybe a future opportunity or why you guys aren't part of that initial partnership?

So number one, we welcome the introduction of Amazon Key.

We think this whole category is in its early stages, early innings.

As we said in the past, maybe 3% to 5% penetration, so we like the opportunity.

Heavy intensity on what we call the last foot or the last mile in terms of this delivery.

We think we're in a very good position with over 1.5 million locks sold last year, that were installed into the residential category.

We work with all players, Amazon -- and I'd encourage you to click on and look at our products offering on Amazon.

We've got the highest star ratings.

Consumer Reports rates our e-lock as best-in-class.

And we think it's opportunity plus.

We continue to have heavy investments to be able to work.

And with our open-platform approach, to be able to grow the categories.

So I think there's a bevy of features that are loaded into our lock in terms of the design and robustness that gives us a leadership position.

Whether it's Amazon, Google, Siri, Control4, there's a variety of operating platforms that we comply with, and we like our position.

But there's nothing proprietary in what's coming out with, I guess, the new -- that new key platform that Schlage couldn't fit into eventually?

No.

And I'd encourage you, we may be -- yes, with our presence in this marketplace, maybe a little bit more insightful on some of the opportunities and pitfalls as you're inviting people into the home.

Remember, some of the early challenges with voice activation, who's on which side of the door, we think thinking through these details and in this case, maybe not being the first but a follower, will be a good position for Allegion.

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

Can we maybe discuss on the Americas for a little bit?

And David, maybe you can talk a little bit more about the constraints that you're seeing on labor and on the project side.

How much of an impact do you guys estimate that, that this happened this quarter, that it impacted this quarter?

And then as you think about the upcoming quarter, it seems like you're embedding in acceleration in the Americas in your guidance.

So maybe talk a little bit about what you're thinking about for 4Q as well.

So we'd say in the quarter, maybe 2 points of overall growth.

What are some things driving that?

Number one, if you've heard me over the last year, I've talked about constraints in the marketplace.

Construction unemployment is at the lowest level since 2001.

There's clearly tightness in the job markets.

We had our top distributors in Chicago early September.

And the general consensus was their backlogs had never been higher and their ability to turn them had never been lower and talked about constraints from an architectural level right down to install.

So there's clearly some constriction in the marketplace.

I would include also in that, commercial doors, normally would run 2- to 4-week lead times.

They've run long all year and are in the 8- to 12-week range.

This significantly impacts our commercial.

We hang all of our stuff on doors.

So that constriction appears.

We think some of it will move through in Q4.

It's not a constraint that's going away in '18 or '19.

We actually think it pushes the expansion farther ahead.

I think as we look at '18 in the long term, we like our view in terms of the continued end market performance.

As we think about education, health care, single-family, we like the continued expansion of that.

We see some slowdown in multifamily.

It's not one of our sweet spots.

We actually think our lack of share in that position in electronics and some of the things we're investing in, will give us a growth.

So that's how I see it.

Okay.

That's helpful.

I guess just to maybe follow up on that comment, so is it fair to say then that you -- from an end market perspective, outside of multifamily, you're not really seeing much of a slowdown.

So there's been just some timing-related things that impacted the quarter.

And moving forward you expect to see it -- the acceleration come back in like, let's say, 4Q and in the early part of next year.

Is that fair?

It's extremely fair.

And I would reemphasize, as we look to '18 and '19 and spend significant time understanding our end markets, we believe our long-term growth projections in 4% to 6% is spot on.

I think it also puts some challenges on Allegion in terms of the jobs we pick in that overabundance of backlog.

When you think about constraints in the marketplace, we will get sharper in making sure that we're putting our resources behind the jobs that we believe will move through.

Got it.

That makes sense.

One last question on pricing.

I know that you guys were planning to put through a pricing increase in August.

Clearly, it was strong this quarter, strong as it was last quarter.

Did you already start to feel some of the impact of that pricing this quarter?

Or is that really more on to come for 4Q?

No.

We benefited in this quarter.

There'll be some carryforward for the balance of the year, but the expectation is you're probably not going to see as strong a price realization as Q4 as what you saw in Q3.

And the next question comes from Tim Wojs with Baird.

So I just -- maybe just an update a little bit on the investment spending.

I see that it -- at least in the Americas business, I think it had slowed down a little bit maybe versus what you guys had done in the first half.

So just an update on kind of what you expect to spend from an investment perspective in 2017 and then maybe any preliminary thoughts on 2018.

Yes.

So we had -- when we started the year, had provided some original guidance with a range of $0.15 to $0.20.

Year-to-date, I think we're at $0.11 year-over-year incremental investment spend.

For Q4 or for the full year, I would say probably it's at low end of that guidance, if not a little bit lower.

So anticipate Q4 to kind of be at or maybe a little bit higher than what you saw in Q3.

As we look forward to 2018, we'll provide more specific guidance when we report Q4 results in February.

But kind of as we had indicated previously, we look at it relative to market conditions, what are the opportunities, what's the capacity, can we accelerate things like electronic adoption rates, those types of things.

So more color to come there.

We can balance that relative to market conditions.

A slower market would mean less investment to kind of manage earnings going forward.

So...

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

Just wanted to circle back on the labor shortages in the Americas issue.

So I guess, I find it interesting that you'd raised your organic growth guide in the region slightly back in July, then you're lowering it today.

So just trying to understand at what point did you see a sudden shift in this aspect of constraint?

And I guess what's your confidence or conviction level in the visibility of the growth guidance for Q4?

I guess it implies volume growth of about 2% or 1.5% in the Americas in Q4.

So just intrigued sort of how quickly and when things really changed that, that caused you to move from an increase in the guide to a reduction within 3 months.

So if I look back on the year, first half of the year was pretty high.

It doesn't mean that, that product was always installed.

So we actually saw a deceleration in July.

But I think as we would've said at the end of our Q2 call, we plan this business for a year-to-date basis.

We're, I think, well within the range that we forecasted.

We saw tightness in the labor market.

Is that going to affect our projects?

Ultimately, yes.

But it clearly wasn't as evident in the first half of the year.

I would also say this, there's some nuances to our businesses.

Our strong position in K-12 and college campuses sets us up for that strong first half.

That product has to be on-site to be able to take care of the summer upgrades.

And it's part of how the business works.

I'm confident if the labor availability would there -- would have been there, we would have shipped more products.

I would just add, Julian, that if you kind of look at the front end of the business in terms of specifications, bid-quote activity, still very strong market conditions.

The fundamentals, again, haven't changed and that stayed fairly consistent, kind of throughout the quarter.

The fall-off perhaps in billing revenue is more back-end loaded towards the quarter.

The Q4 guide is a little bit higher than what we saw in Q3 and basis of what we're seeing in the marketplace, we feel okay about that.

I would also add, I think we've worked extremely hard with our economic forecasters over the last 4 years to have a view.

I think we've generally had good perspectives on the health of our end markets, and I'm confident in our 4% to 6% growth going forward into '18.

And then just one quick follow-up.

I think pricing -- sorry, not pricing, volume mix had turned negative slightly in the Americas in Q3 even though I think nonresi outgrew resi in the quarter.

So maybe just give any color you can on the mix issue.

Yes, no.

Actually, it went the other way.

As we indicated, the really good growth on electronic products, that was driven heavily from the residential segment.

So the residential business, which all of you know, has a lower margin profile, actually outgrew the nonresidential segment.

And that which -- that was contributing to the mix that we highlighted in the quarter and drove the margins slightly down year-over-year in the Americas segment.

And the next question comes from Rich Kwas with Wells Fargo Securities.

Just when we think about late July, when you gave the outlook, updated the outlook for the year, what was the expectation for volume in the Americas at that time?

I assume it wasn't 0 when you looked at volume mix.

But what's the way to quantify that or think about that relative to your initial internal expectation?

So I'd have to go back and look at those specifics.

On the slide, where we give the revenue guide, you've got the delta there in terms of total reported or organic growth.

So the organic growth number, of course, included in that component would be the volume as well as price and pricing, I think we had it, maybe 150 to 200 basis points type of range.

And so you deduct that from the organic growth and then you kind of get the volume number.

So it was higher than what we were anticipating, pricing actually being a little bit lower or to me, better.

And so all the change in the guidance, if you will, is all volume related.

And that's all stuff that's still in backlog.

Or in terms of being in a project, then that's just been pushed, basically, is the message here.

That is the clear message.

I read some commentary coming out of Dallas and the Florida regions, not related to hurricanes, but just project delays, they're being shoved into '18.

Okay.

And then just, Patrick, on capital allocation here, so limited M&A here year-to-date.

You've talked about not building cash.

You've got a buyback in place.

How should we think about that?

So as we've indicated, our capital deployment strategy, balanced flexible disciplined approach, our preference is -- was indicated, leads with investments and driving organic growth, then M&A and then perhaps shareholder distributions.

I would say, particularly from the M&A perspective, very active pipeline, a lot of pokers in the fire, feel fairly confident.

We put some points on the board here within the next 3 months.

And so that's why you haven't seen a slog, if you will, of some capital deployment.

So stay tuned.

More to come on that.

And the next question comes from Jeff Sprague with Vertical Research Partners.

It's Brett Linzey in for Jeff.

I just wanted to come back to pricing, obviously, strong in the quarter again.

I guess as you look at those pricing measures, is it primarily related to price to cover inflation?

Or are you getting some help from new products or FX?

Maybe just a finer point there.

So it's predominantly to cover inflation.

So anything related to new products would come through in the volume side.

So when we calculate price, it's really year-over-year same products.

And obviously, we've been fairly active in pulling forward price increases.

We've got better tools now to measure better alignments relative to incentives, et cetera.

So I think from an overall management perspective, operational excellence, we've done a very good job across the globe to try to maximize price to clearly offset the commodity price increases.

Okay.

And then maybe just back to the end markets.

I mean, cycle duration is obviously a big topic here.

As you unbundle both the commercial markets and your institutional markets, you look at your front logs, your project metrics, what are those telling you in terms of visibility into '18 between both institutional and commercial?

We see positives in education, health care.

Commercial will be about the same level as it was in '17.

So we see good opportunity as we look out to '18 in those verticals.

And the next question comes from Saliq Khan with Imperial Capital.

Dave, a quick question.

You kind of highlighted this earlier as well, but if you take a look at the growth that you guys got, if I strip out the overall price inflation from currency, how does your strategy change overall going into 2018 be able to get better volume, not out of North America because I know that's a slightly interesting market right now.

But if I look across the globe, how would your strategies change to be able to push out more product and increase the volume?

So I -- in Europe, we're going to continue to push electronics and the bundling around projects.

Some of the same channel initiatives that we've deployed in the U.S. and the Americas, we believe have opportunity in Europe and the Middle East.

These will be project-based that leads with our electronics.

In Asia Pacific, continued growth in the -- again, in the electronics.

We think our Milre and SimonsVoss offerings as well as the introduction of the Schlage electronic brands puts us in a great position for growth.

And in Asia Pacific, that's not only driven by new product introductions but the quality of our products.

Lots of electronics out there that have high failure rates, we really provide that Asian customer base a high quality product that puts us in a good position.

Okay.

So one follow-up as well for that is, there's been a lot of technology changes across the industry and across Allegion as well.

So if you look out into 2018, all the current e-solutions out there, someone alluded to August Home being acquired by HID earlier.

Well, are there other solutions out there that you find interesting that you think could be a great addition to your product portfolio?

There are -- I think if I go out a decade, the connected building, the connected institution is going to create, I think, outstanding opportunity for Allegion to expand the penetration of electronic locks.

We think the app, that portion of -- and connectivity solutions and working with a variety of building controlled platforms are important battlegrounds.

And we've got investment and thought leadership going after that, including partnerships with Honeywell, Johnson Controls, Siemens and Amazon, Apple, Google as well, these -- I know -- I see yesterday's news in terms of the connectivity with Amazon, we work with them every day as a supplier as well as a partner on connectivity.

And the next question comes from David MacGregor with Bonglow Research (sic) [Longbow Research].

I guess I wanted to ask you a question, David, on the discretionary commercial market.

I know this is an area where you've done a lot of work for some time now.

But does this segment contribute to growth?

And maybe can you talk about how competitive conditions maybe are evolving in your discretionary commercial business?

I would say our channel-led initiatives working with locksmith and wholesale distributors continue to exceed our expectations.

The competitive positioning -- certainly, there's jockeying but we think we're -- in a 9-inning game, we're probably in the fourth and fifth, there's more work to be done.

Our deployment of human resources will be completed this year, and we like the upside part of it.

And it also gives us confidence that as we move into '18, we'll see the benefits of that.

And I guess just with regard to your recent discussion about the negative mix in America, I know you've been pushing harder on Falcon and some of the lower price point brands, are these gaining share?

And if so, are you seeing any cannibalization on your premium brands?

They are gaining share.

I'd like to think that cannibalization comes from our competitors.

But as you see projects push out, one of the reasons they do push out is there's value engineering going on in the project because of prices escalations by us and primarily, steel in commercial and institutional building.

So a general contractor will say, "Do I have the ability to trade off our premium brands to the Falcon brands?" We think the work that we've done to solidify and enhance those brands helps us to grow.

Remember historically, David, we just walk away from that.

We'd say, "Okay, it's value engineered, they're not going with our premiums.

Today we stay engaged and we think it helps us grow."

Okay.

Just last quick follow-up.

In Europe, what was the organic growth excluding Portable Security and SimonsVoss?

I don't know that number.

We'll have to get back to you on that.

And the next question comes from Robert Barry with Susquehanna.

Actually, I just wanted to clarify something you said earlier, did you say that the nonres was up mid-single?

And the resi up low?

Or the resi was up mid-single and the nonres up low single?

Rob, the question with mix is that the volume from resi was up more.

When you look at the commercial business, that revenue growth was driven more by price.

So that's what resulted in your negative mix between the two.

Okay.

Was there a significant difference in the growth between the aftermarket and the new construction components of resi and/or nonres?

Nothing that we saw is any difference relative to the mix, no.

Because I think if it was like the labor constraint issue it might be -- appear more pressure in that construction piece of the business versus the other, which is more consumer-driven.

I have had face-to-face discussions with general contractors as well as locksmiths, electricians.

They're all bitching about it.

Yes.

It's just broad labor availability.

I guess just last question on demand elasticity.

Do you think that's relevant here at all, higher prices impacting the volume or causing any mix down?

I don't think that's happening at all.

And as there are no more questions, I would like to return the call to Mike Wagnes for any closing comments.

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

Please contact me for any further questions and have a great day.

Thank you.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.