安朗杰 (ALLE) 2019 Q4 法說會逐字稿

Good morning, and welcome to Allegion's fourth quarter and full year conference call.

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

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

Mr. Wagnes, please go ahead.

Thank you, Anita.

Good morning, everyone.

Welcome, and thank you for joining us for Allegion's Fourth Quarter and Full Year 2019 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'll refer to in today's call, are available on our website at investor.allegion.com.

This call will be recorded and archived on our website.

Please go to slides #2 and 3.

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 most recent SEC filings for a description of some of the factors that may cause actual results to differ materially from our projections.

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

Today's presentation and commentary include non-GAAP financial measures.

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

Dave and Patrick will now discuss our fourth quarter and full year 2019 results and provide an outlook for 2020, which will be followed by a Q&A session.

(Operator Instructions) We will do our best to get to everyone given the time allotted.

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 experienced modest top line revenue growth in the fourth quarter, with strength in the Americas, offset by weakness in Europe and Asia Pacific.

The Americas region had reported an organic growth of 6.8% in the quarter, driven by both the nonresidential and residential businesses.

The EMEIA region saw market soften, and the complexity of moving our operations from Turkey to Poland negatively impacted the top line as well as operating income.

The level of effort in executing a move like this cannot be underestimated.

While we did experience some impact from the transition, we are better positioned after leaving Turkey.

Asia Pacific continued to experience weak markets in Australia and saw deteriorating markets in China.

Electronics growth in the Americas came in just over 12% in the quarter and increased over 10% for the full year.

We continue to see electronics as a long-term positive trend as more and more products become connected for ease of access.

As I look to our end markets, U.S. nonresidential remains healthy, and U.S. residential has improved.

As I mentioned, EMEIA and Asia Pacific are experiencing weaknesses in the markets they serve, and we see that continuing in the near term.

Adjusted operating margins were up 30 basis points in the quarter and 70 basis points for the full year.

Margin expansion was led by the Americas region, which saw a full year adjusted margins up 120 basis points.

Volume leverage was good during the year, and the price, productivity, inflation dynamic was positive.

In the fourth quarter, adjusted EPS growth came in at nearly 5%, bringing the full year increase to approximately 9%.

Available cash flow was up nearly $14 million to $422.6 million for the year.

Overall, I'm pleased with our full year 2019 results.

We saw good revenue performance, expanded adjusted operating margins, delivered solid adjusted EPS growth and generated substantial available cash flow.

Please go to Slide 5, and I'll walk you through the fourth quarter financial summary.

Revenue for the fourth quarter was $719.5 million, an increase of 2.4% inclusive of 3.5% organic growth.

Currency headwinds and the impact of the divestiture of our business in Turkey offset some of the organic growth.

Americas led the way on revenue growth, offsetting the weakness we experienced in EMEIA and Asia Pacific.

Patrick will share more detail on the regions in a moment.

Adjusted operating margin increased by 30 basis points in the fourth quarter as we saw significant margin expansion in the Americas, with declines in Europe and Asia.

Adjusted earnings per share of $1.28 increased $0.06 or nearly 5% versus the prior year.

The increase was driven primarily by higher operating income.

Favorable share count and interest expense offset the unfavorable year-over-year tax rate increase.

Available cash flow for the year came at $422.6 million, an increase of nearly $14 million versus prior year.

Increased adjusted earnings and improvement in net working capital were the driving factors for the increase.

Please go to Slide 6. This year, we're recognizing Schlage for its past, present and future innovation.

2020 marks the 100th anniversary of the brand, and we're proud to celebrate this milestone in various ways that support the business and engage the customer, nonresidential and residential audiences.

As a legacy brand with a rich history, there is no doubt that Schlage is an important part of the Allegion story.

Schlage has been providing security, style and peace of mind for the last 100 years.

From the first push-button lock pioneered by Walter Schlage in 1920 to the high-tech mobile solutions of today, our trusted brand's passion for door hardware is rooted in security and steeped in innovation.

As you may recall, we saw strong market acceptance of the Schlage Encode residential lock after it was introduced in 2019, especially because we were the first major manufacturer to bring a smart WiFi Deadbolt to the market.

By year's end, the Schlage Encode was recognized as the best-in-class product by consumer tech influencers at CNET, Digital Trends and Consumer Reports among others.

Just last month, it was named the best smart door lock to keep intruders out, highlighting the peace of mind Schlage is known to bring to homeowners across the globe.

And it's not only -- and it's not the only one driving recognition of the Schlage suite of products.

Our Schlage Sense and Schlage Connect also continue to receive accolades in the smart home market as the best smart locks you can buy and the best tech gifts.

Collectively, these smart locks, along with Schlage Encode has been recognized by tech experts as the best to work with Amazon Alexa, Apple HomeKit and Google Home.

As a powerful brand, we expect Schlage will continue to set the bar for customer experience in our industry and redefine what's possible with security solutions for seamless access.

Please go to Slide 7. Last March, we announced our business strategy, centered on seamless access and a safer world.

Allegion has a strong internal innovation engines creating award-winning products like the one you just saw as well as overture for specification work flow and next-generation products like the SimonsVoss SmartHandle AX.

As we looked at the future, we see the opportunity for technology to drive progress in seamless access.

What I'd like to highlight today is edge computing.

We made a leap forward in edge devices with the acquisition of ISONAS.

It was a good technology move.

And through Allegion Ventures, we're investing in companies that approach authentication and people flow in new ways, companies like Pindrop, Robin and Openpath.

I'm excited to see the ways we can create new value and access by current Schlage products and the data and analytical capabilities of a company like Openpath.

You'll see us continue to look for opportunities to invest, partner and drive progress through internal and external innovation that aligns with our strategic pillars: Be the partner of choice, deliver new value and access, smart capital allocation, expanding our core markets and focus on enterprise excellence.

Access has been a part of the company heritage for more than 100 years, and seamless access will define our company going forward.

Patrick will now walk you through the financial results, and I'll be back to discuss our full year 2020 outlook.

Thanks, Dave.

Good morning, everyone.

Thank you for joining today's call.

Please go to Slide #8.

This slide depicts the components of our revenue growth for the fourth quarter as well as the full year of 2019.

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

As indicated, we delivered 3.5% organic growth in the fourth quarter.

Overall, we saw solid volume and price realization led by the Americas region.

Price continued to remain strong, particularly in the Americas nonresidential business.

The impact of the divestiture of our business in Turkey, along with continued currency pressure in EMEIA and Asia Pacific, were a headwind to total growth.

With the fourth quarter performance, you can see where we ended up for the full year on revenue growth.

Total top line revenue saw an increase of 4.5% for the year, and organic growth came in at 4.6%, led by Americas at more than 6%.

As indicated, Americas organic growth in the fourth quarter was higher than the full year results, while EMEIA and Asia Pacific were weaker.

Please go to Slide #9.

Reported net revenues for the fourth quarter were $719.5 million.

As stated earlier, this reflects an increase of 2.4% versus the prior year, up 3.5% on an organic basis.

Adjusted operating income of $151 million increased 4% over the same time frame from last year.

Adjusted operating margin of 21% increased 30 basis points.

The margin expansion was primarily driven by solid operating leverage on incremental volumes in the Americas, along with pricing and productivity outpacing inflation.

Headwinds to margin performance include incremental investments, which had a 30 basis point impact on adjusted operating margins.

For the full year, the company experienced adjusted operating margin expansion of 70 basis points.

Please go to Slide #10.

This slide reflects our earnings per share reconciliation for the fourth quarter.

For the fourth quarter of 2018, reported earnings per share was $1.39.

Adjusting $0.17 for the prior year restructuring expenses, integration cost related to acquisitions and benefits related to U.S. tax reform, the 2018 adjusted earnings per share was $1.22.

Operational results increased earnings per share by $0.08 as favorable price.

Operating leverage on incremental volume and productivity more than offset inflationary impacts and unfavorable currency.

Favorable year-over-year share count drove another $0.03 increase, reflective of the $226 million of share buyback that occurred during 2019.

The impact of incremental investments in the quarter was a $0.02 reduction, and unfavorable year-over-year tax rate drove another negative $0.03 per share impact.

This results in adjusted fourth quarter 2019 earnings per share of $1.28, an increase of $0.06 or nearly 5% compared to the prior year.

Lastly, we have a $0.42 per share reduction for charges related to restructuring, trade name impairments as well as loss on divestitures in Turkey and Colombia.

The loss on divestitures was predominantly associated with noncash currency translation adjustments previously deferred in equity and reclassified into earnings upon the sale of the divested businesses.

After giving effect to these onetime items, you arrive at fourth quarter 2019 reported earnings per share of $0.86.

Please go to Slide #11.

Fourth quarter revenues for the Americas region were $526.3 million, up 6.8% on both a reported and organic basis.

The growth was driven by strong price realization and volume.

Both the nonresidential and residential businesses grew nicely and at similar levels to each other.

The residential business had strong growth in the quarter attributed to new products and increased sales in the builder channel.

Electronics growth for the quarter was just over 12% and was sequentially higher than the prior quarter.

As Dave mentioned earlier, the full year electronics growth in the Americas was solid at just over 10%.

Electronics products continue to be a long-term growth driver as consumers and end users migrate to electronics from solely mechanical products as a value connectivity and convenience.

Americas adjusted operating income of $153.9 million increased 16.8% versus the prior year period and adjusted operating margin for the quarter increased 240 basis points.

Strong volume leverage along with price and productivity significantly exceeding inflation drove substantial margin expansion.

Incremental investments were a 40 basis point decrease to margins.

With the outstanding Q4 performance, full year adjusted operating margins in Americas were up 120 basis points.

Please go to Slide #12.

Fourth quarter revenues for the EMEIA region were $149.6 million, down 5% and down 1.5% on an organic basis.

The lower volume was driven by weakening end markets across the region.

The impact of the divestiture of the business in Turkey and currency headwinds also contributed to the revenue decline.

EMEIA adjusted operating income of $16.7 million decreased 25.8% versus the prior year period.

Adjusted operating margin for the quarter decreased by a disappointing 310 basis points.

During the quarter, inflation exceeded price plus productivity, and currency headwinds continued to be a drag on margins.

In addition, revenue declines also had a negative impact on operating margins.

The plant relocation from Turkey related to the divestiture of that business drove additional costs in the quarter.

The magnitude of the move, while anticipated, resulted in some operational inefficiencies that are likely to continue in the near-term future but are also expected to be resolved as we progress in 2020.

These types of moves are extremely complex.

And though we did experience increased costs, we are better positioned being out of Turkey in the long run.

With the drag of the Q4 performance, full year adjusted operating margins were down 10 basis points in the region.

Please go to Slide #13.

Fourth quarter revenues for the Asia Pacific region were $43.6 million, down 16.6% versus the prior year.

Organic revenue was down 13.4%.

The decline was driven by continued weakness in Australian end markets, particularly on the residential side as well as declines experienced in China attributable to weaker end markets.

Total revenue continue to be affected by currency headwinds.

Asia Pacific adjusted operating income for the quarter was $1.9 million, a decrease of $4.6 million with adjusted operating margins down 800 basis points versus the prior year period.

Approximately $1 million of the income decline was attributable to inflation exceeding price plus productivity.

Significant volume declines and unfavorable mix had a large impact on the reduced income and margin.

We have initiated restructuring actions to lower the cost base and accelerate integration of the GWA business.

These actions will better position us to address the market challenges in the region.

Full year adjusted operating margins for Asia Pacific were down 180 basis points in 2019.

Please go to Slide #14.

Available cash flow for 2019 came in at $422.6 million, which is an increase of $13.9 million compared to the prior year period.

The increase was driven by higher adjusted net earnings and improvements in net working capital, partially offset by increases in restructuring spend and capital expenditures.

Looking at the chart at the bottom of the slide, it shows working capital as a percent of revenues increased based on a 4-point quarter average.

However, the year-end working capital as a percent of revenue was lower at the end of 2019 compared to the same point in time last year.

As always, we remain committed to an effective and efficient use of working capital.

We will continue to evaluate opportunities to increase available cash flow and minimize investments in working capital increasing the velocity of asset turnover.

I will now hand it back over to Dave for a view on our full year 2020 outlook.

Thank you, Patrick.

Please go to Slide 15.

We continue to see favorable trends in our primary end markets in 2020.

We also believe growth in the electronics portfolio will continue to outpace mechanical in all regions, and we are well positioned to continue to take advantage of this industry trend.

In the Americas, we see continued positive fundamentals in our nonresidential verticals.

The residential end markets have rebounded and improved.

We expect the general trend towards electronic products in both residential and nonresidential businesses to continue.

With these expectations, we project organic revenue growth in the Americas of 4.5% to 5.5%.

We are projecting Americas total revenue expansion to be 4% to 5%, with a slight impact from divesting our business in Colombia.

In Europe, markets have softened in Germany and Southern Europe and remained weak in the U.K. For the region, we project total and organic growth to be 1.5% to 2.5%, led by our SimonsVoss and Interflex businesses.

In Asia Pacific, we expect weakness in the Australian markets to continue, particularly in residential.

The market in China has also softened.

With that backdrop, we expect growth in the region to be flat, both on a reported and organic basis, with declines expected in the first half of the year and modest recovery in the second half on easier comparisons.

All in, we are projecting total revenue growth for the company at a range of 3% to 4%, with organic growth between 3.5% and 4.5%.

Please go to Slide 16.

Our 2020 outlook for adjusted earnings per share is $5.10 to $5.20, an increase of approximately 4% to 6%.

As indicated, the earnings increase is driven by revenue growth and operational improvements as adjusted operating earnings are expected to increase 6% to 8%.

Our outlook anticipated anticipates continued volume leverage and a positive equation for price, productivity and inflation.

We also expect margin accretion in all regions for the full year but continued pressure in the first half for EMEIA and Asia Pacific.

Incremental investments continue to be a headwind as we remain focused on accelerating new product development and channel initiatives, which we believe enable us to keep delivering above-market growth and allows us to take advantage of the shifting customer preferences for electronic products.

The combination of interest and other expense is expected to be a slight positive to earnings per share.

Our outlook assumes a full year adjusted effective tax rate of approximately 16.5% to 17%, an increase from 14.3% in 2019.

It also assumes outstanding weighted average diluted shares of approximately 93 million.

The outlook additionally includes a $0.10 per share impact from restructuring charges during the year.

As a result, reported EPS is estimated at $5 to $5.10.

We are projecting our available cash flow for 2020 to be in the $450 million to $470 million range.

Please go to Slide 17.

We are pleased with our 2019 performance, which saw top line growth that delivered organic revenue expansion of 4.6%, adjusted operating margins up 70 basis points, adjusted EPS growth of nearly 9% and strong available cash flow.

And while it's not highlighted on this slide, we strengthened the foundational elements of Allegion's culture that will help drive our success as a company into this new decade: Safety and sustainability and engagement.

In 2019, we were safer reducing workplace accidents and their cost, which were already below the industry average.

We were cleaner, reducing energy inputs and waste outputs, and we were significantly more engaged, meaning our global employees are more committed to our vision and our work than ever before.

As we look to 2020 and renew our commitment to safety, sustainability and engagement, we are well positioned to drive continued growth in revenue and earnings.

We also expect to deliver solid growth in adjusted earnings per share and generate substantial available cash flow.

Before we take questions, I'd like to take a moment to share some news with regard to the organization changes here at Allegion.

Mike Wagnes will be assuming a general management role within the Americas business.

Mike has been Treasurer and Head of Investor Relations since the summer of 2016.

Since that time, Mike has served as a valuable voice for the shareholder community among the leadership team.

As we move forward, Tom Martineau, Vice President Finance for the EMEIA region, will assume the Vice President, Treasurer and Investor Relations role.

Many of you are familiar with Tom and know that he brings a wealth of financial experience and knowledge that will position him well as Allegion's primary representative to the investment community.

I'd like to congratulate both Mike and Tom on their new opportunities.

This transition has been completed, and you can begin contacting Tom for any investor-related questions on a go-forward basis.

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

(Operator Instructions) The first question today will come from Julian Mitchell with Barclays.

Thanks, Mike, for all the help in the last few years.

Just wanted to follow-up on the comments around the first half softness, particularly in the international regions.

Just wondered if you could put a finer point on what that means for the earnings cadence through the year.

Although you don't guide quarterly, but I guess, in recent years, the first half has been around 45%, 46% for the full year earnings.

Do you expect a similar ratio this year or is it more back-end loaded?

I would see a similar ratio, but just as we kind of highlighted some continued pressure, particularly as it relates to the international regions with the softness in the markets, trying to recover some of the margin deterioration we experienced in Q4.

Americas business will continue to caught up with the same seasonality of the business from a revenue perspective, as you guys know, stronger Q2, Q3.

But overall, similar type of profile, but weakness in the international areas.

Then on the point you just made, you mentioned in APAC, the restructuring initiatives, something we can understand what's happening there.

Maybe just within the EMEIA region, help us understand how much of a surprise it was that inflation exceeded price plus productivity in Q4.

And maybe what are the measures, if any, beyond the Turkey plant relocation that you're implementing in the EMEIA region to turn that business around.

Yes.

So if we look at the European business from a margin perspective in Q4, I'd say disappointing operational performance, really driven from weakness in the end markets, particularly in Germany, U.K., we saw some softness.

And Germany, as you know, is a real strong point for our business, particularly in the electronics side with higher margin profile.

So we had somewhat of an unfavorable mix as well that negatively affected us.

And then you throw on top of that some of the inefficiencies with moving the plant from Turkey to Poland and just trying to work through that, both from an operational perspective as well as supply chain, third-party providers.

We will work through that.

And it's going to take some time, but there's going to be some kind of continued pressure on that.

So we'll continue to work through that.

Going forward, your question relative to actions, yes, we will continue to evaluate our business and size it accordingly to market demand, but that's just the kind of a continuation of what we're going to do to operate the business.

So there will be some activity there to recover margins, particularly in the back half of the year.

The next question comes from Josh Chan with Baird.

Congrats, Mike, on the new role.

Thanks, Josh.

My first question is on the Americas, just on your organic guidance for 2020.

It looks like the growth is slightly lower than the 2019 growth.

But is that mainly due to the price maybe not being up as much and a pretty steady volume type of growth outlook?

Just wondering how you're feeling about the cadence of growth in the Americas.

So I feel really good, particularly on the performance.

And in Q4, they put up another strong growth -- organic growth, 6.8%.

So I think we're entering 2020 in good shape.

All the indicators, as Dave highlighted, end markets continue to remain strong, particularly in the institutional segment, which you know favors our business well.

As we look into 2020, it's, I think, more kind of what you highlighted, not as strong of a price profile for 2020 outlook.

We'll continue to drive it.

But from a material input cost kind of in a deflationary environment, probably won't get as much price in 2020 as what you saw in 2019, but we'll continue to work that.

But I would say, hey, 5% organic growth midpoint of guidance is still strong.

It's just -- you also have tougher comps in the back half of the year, and so maybe a little conservatism there.

But feel good about where we're entering 2020 basis of the markets and how we're performing.

Yes.

That's definitely a solid growth there.

And my follow-up is on the EMEIA region.

You mentioned that the transition from Turkey kind of impacted you in Q4.

Just wondering how much of the demand weakness was because of some of that transition.

And how much of that would you say was the end markets in the quarter?

I would -- number one, European end markets definitely softened.

I think if you look at industrials and automotives, which we're particularly strong with, that -- still that softened our electronics businesses.

And then I'd say general decline in our mechanical side because of regional weakness, U.K., Italy and others.

So clear market weakness.

Second is the move from Turkey to Poland, a good productivity play for us over the long term, but we moved a lot of jobs, a lot of tools, change of the supply base.

And that certainly impacted our ability to serve our customers and drove inefficiencies.

I think as you think about 2020, we'll get better every month.

But we're talking almost 140 new roles in Poland.

Good productivity inside that.

But as an old manufacturing guy, we'll get better week-to-week, month-to-month and I think have this operation in pretty good order by midyear.

The next question comes from Andrew Obin with Bank of America.

Hey, Mike.

Congrats.

And Tom, are you sure you want back?

So Mike, thanks for all the help, and Tom looking forward to working with you again.

So a couple of questions.

First, in terms of your -- on the electronics side, do you guys have -- we've heard some concerns about second and third-tier suppliers.

How comfortable are you guys with your supply chain for the electronic components for the lock business going into first and second quarter, given what's happening in China?

So we have an outstanding supply chain team here.

They've been working with the events in China and the coronavirus.

I would say this, Andrew.

Every week that China stays shut down, it will put pressure on our supply chain.

Remember, we typically produce in region, but we still draw a lot of sourcing out of China.

Probably, more concerned about second-tier suppliers, providers that could supply subcomponents to final assemblers.

So we're well out in front of us.

I think the timing helped us a little bit with the Chinese New Year.

We would typically stock up.

But again, I looked at some reports yesterday out of China, only about 30% of the industrial workforce is back to work.

It's really a function of how quickly this comes back up.

Got you.

So limited...

And Andrew, I would just add to that, that kind of looking at is, we're not heavily exposed in region, obviously, there will be a impact.

But globally, you're probably looking at minor disruption in Q1.

I think it's more of a Q2 and then the longevity, how long does this thing last.

And -- but right now, for a full year basis, the expectation is that there wouldn't be any impact relative to the guide that we've provided here.

Yes, I just want to make sure that there's not like one chip that will shut down production line for electronics.

Just a question on the electronics.

You guys have been doing great.

How should I think about business mix for North America, given the strength in electronics relative to mechanical because I would imagine there is margin difference?

So the margin profile on electronic products, both commercial, residential, are similar to mechanical, but what you have is a higher average selling price.

So there's more EBIT dollars, if you will, with that migration, and it is a favorable mix for us to the extent we can continue to drive that.

And that's some of our incremental investments that we make to drive demand, particularly in electronics to put new products out to the market faster.

It's centered around that because that is a favorable trend in both the industry and for Allegion.

The next question comes from Deepa Raghavan with Wells Fargo.

I echo my congrats to Mike and Tom as well.

Two questions from me.

First is Americas.

Resi versus nonresi expectation within Americas organic growth guide, do we assume they both grow at the same rate?

Or is there perhaps a delta driven by resi having to do some catch-up in the first half?

So I would characterize it as, as you know, we historically don't give specifics around outlooks relative to the residential, nonresidential businesses.

So just take it in aggregate.

There will be differences between the businesses as we progress.

I would say this.

If you kind of look at the residential business, the backdrop is more favorable from industry perspective than what we were talking about 3 to 6 months ago.

So we would expect that to be positive.

And then new products like Encode are performing extremely well and higher electronics growth in resi than the nonresi.

So just think about it in those terms.

And -- but overall, Americas is performing well from an organic perspective.

Got it.

That's helpful.

My follow-up is on the incremental investment spend, that's $0.15 that you provided.

Is that spread -- how is that spread out over the year, the $0.15?

And also, is this all going into the APAC region?

Or is that more spread out across geographies?

No.

The majority, similar to prior years, would be Americas focused.

We believe we have a lot of opportunities to continue to invest in the business.

Again, it's centered around new product development and channel-specific initiatives where we have underserved markets that we believe we can continue to drive through our channel.

So predominantly, Americas and the cadence of that, I would say, fairly evenly split as we progress throughout the year is how you should be thinking about it.

But overall, $0.15, pretty much in line with what we've experienced in the last couple of years.

The next question comes from David MacGregor with Longbow Research.

Good luck, Mike.

Tom, nice to have you back.

I guess, David, is there any way of talking about just what you're assuming for growth of the broader markets where you compete in 2020, just some sense of what you've got in your guidance?

I'd say strong institutional.

We continue -- as you think of 2019 to 2020, we actually see that market continue to get stronger, our spec position, our backlogs.

So like that, with a focus on education, those bond issues that we look at across the country are going into security, and we like that trend.

I think the other significantly more favorable risk and then complemented by electronics, the residential market was in the bit of a doldrums in 2019.

I think there are some things that step up nicely for Allegion in the Americas as we go into '20 and which would include new products, the full year of Lennar and continued to grab this -- on our team to go out and grow that part of the market.

Encouraging.

And I guess, is there any way to quantify this Turkey to Poland?

There's been a lot of discussion.

We've been kind of talking around the point, but is there any way to put some numbers on what that meant to the quarter?

And how you're thinking about the potential headwind here in the first half of '20?

So the answer to the latter part of your question, yes, it will continue to be a headwind for the first half of the year, and I would expect by Q3, we're at a full run rate perspective in getting realization of the benefits that we anticipated when we set forth in the move.

So i.e., production should be smooth, no disruption in supply chain, et cetera.

It was a drag on margin in the quarter as well as unfavorable mix and the deleverage associated with the reduction in organic growth.

The next question comes from Jeff Kessler with Imperial Capital.

And again, congratulations to Mike and to Tom.

Tom, good to have you back again on this side.

The -- on the electronics business in the U.S. or in the Americas, I should say, can you parse out what areas seem to be providing you with some of the better growth that you're seeing?

Is it in NFC?

Is it you're beginning to use power over Ethernet?

Is it beginning to use other areas of access control or other new products that you have recently developed for doors and entryways or for that matter, the use of overture in driving business, too?

Do you -- can you kind of parse out what it is on the electronics side that is really -- that's really driving this better-than-expected growth here?

I think, number one, a great lineup of capabilities.

I think, two, you mentioned our spec writing capabilities, but it's really that installed base with technical mastery working with clients, could be the University of Michigan, could be Iowa Western Community College, it could be the University of Tennessee.

Those products and capabilities come together in a trusted relationships that help us grow.

I would say things like ISONAS, our investment in multifamily, which can position itself in college dormitories.

It's that trusted position in a market that wants to move keyless that is driving the growth.

Let me give you one other one, too.

Encode, the first WiFi lock, the battery sustainability there, our ability to get through some technical issues.

And I think growth on our parts in terms of our mastery to be able to connect into the web of complexity that can appear in the a residential home or a commercial institutional site, it's how things connect, our teams have put a lot of work on.

And I think as we unload out of the box and connect, we're doing a better job that builds customer loyalty.

Okay.

Sticking in the same area.

When you're talking about your -- more or less the -- on the commercial side of electronics, is it just institutional?

Or when you look at -- are there areas other -- obviously, smaller from -- business from the get-go, but perhaps fast-growing health care or if you want to call it, a strategic or specific new types of logistics, are there areas in those markets where you have particular focus in putting investments and actually getting return on those investments over the next 2 to 3 years?

I think our priority will continue to be heavily institutional focused because of that installed base and our spec writing capability.

Our things like the master key system, the devices are already there.

So ability to upgrade that puts us in an A position.

I'd say second, really doing, I think, a nice job on multi-family and mixed-use.

You see a lot of movement into the intercity, our ability to solve multiple problems for a developer, including keyless access has given us some nice growth across the country.

The next question comes from John Walsh with Crédit Suisse.

And A thank you to Mike for all the help over the years.

I guess, first question, just looking at the cash balance, obviously, you've been growing nicely.

You had announced that new share repurchase program.

Just wondering if you could talk about the priorities for your uses of cash as we think about 2020 and beyond?

I would say our uses of cash has been pretty clear.

We like the organic growth, especially around the opportunity to seamless access in electronics.

Second is M&A.

We continue to work extremely hard on deals in what I call the mid-major area.

And think about the future of how we can position Allegion stronger for electronics and capabilities that will help us realize this vision of seamless access.

And yes, you did see our announcement authorized by the Board to increase the dividend as well as a reload of the stock buyback.

Our message is that we want to make sure that our capital is put to work efficiently.

And if that means returning it to shareholders, we pull that lever as well.

Great.

And then maybe just a question around, you mentioned some channel investments there, just don't know if you can be any more specific if that's on kind of the specification side of the channel, e-commerce, big box, kind of, what we should be thinking around kind of the channel investments you highlighted earlier?

You hit one of them.

We continue our specification is one of the strength.

Overture would be an investment to help give new tools to customers and our spec writer.

And then relationship's important there, feet on the street that can help us grow and optimize that tool.

Second, multi-family.

We continue to see a strong market there that we've historically been underpenetrated.

And like our electronic offering to be able to grow in that market, we put some investments back in res because we see that market responding would be examples of how we're segmenting the market and investing.

This concludes our question-and-answer session.

I would like to turn the call back over to Mike Wagnes for any closing remarks.

We'd like to thank everyone for participating in today's call, and have a great day.

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