# How Allegion makes money

CXProWealth Business Lens · Allegion (ALLE) · Q3 FY2026

Read from the 10-Q for the period 2026-07-01 to 2026-09-30, filed 2026-10-22 with the SEC (accession 0001579241-26-000034): https://www.sec.gov/Archives/edgar/data/1579241/000157924126000034/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $1.2B (+24.5% on the year)
- Operating income: $284.6M (operating margin 24.3%)
- Net income: $220.9M (net margin 18.8%)
- Gross margin: 46.8%
- Free cash flow: $278.6M (23.8% of revenue)
- Cash conversion (operating cash flow / net income): 1.38x
- Capital expenditure: 2.2% of revenue

## Where the money goes (Q3 FY2026)

- Allegion Americas → Net revenues: $942.4M
- Allegion International → Net revenues: $230.2M
- Net revenues → Cost of goods sold: $624.4M
- Net revenues → Gross profit: $548.2M
- Gross profit → Selling and administrative expenses: $263.6M
- Gross profit → Operating income: $284.6M
- Operating income → Interest expense: $24.2M
- Operating income → Total earnings before income taxes: $260.4M
- Other income, net → Total earnings before income taxes: $7.4M
- Total earnings before income taxes → Provision for income taxes: $46.9M
- Total earnings before income taxes → Net earnings: $220.9M

## Where the revenue comes from

### Segments (Business Segment Information (Summary of Operations by Reportable Segments) (Details))

| Member | Value | Share |
|---|---:|---:|
| Allegion Americas | $942.4M | 80.4% |
| Allegion International | $230.2M | 19.6% |

The members sum to total revenue.

## Key insights

### One region earns more than the whole company

International adds little profit and corporate costs sit outside the segments, so Allegion's earnings are essentially a North American business.

Allegion Americas brought in $942.4M, 80.4% of the quarter's $1,172.6M of net revenues, and earned $294.6M of segment operating income, a 31.3% margin. That is 103.5% of the company's $284.6M operating income. The two segments together earn more than the total because the filing reports corporate expense outside them. _(from the filing)_
Allegion International brought in $230.2M, 19.6% of revenue, and earned $17.2M, a 7.5% margin against 31.3% in the Americas and 6.0% of company operating income. Its revenue grew 1.77% against 11.66% in the Americas, and its share of company revenue fell 1.5 points. The filing cites lower volumes in Western Europe and higher acquisition, integration and restructuring expenses. _(from the filing)_
Analysis: acquisitions abroad have added revenue much faster than profit, so company earnings move with North American commercial and institutional building rather than with the group's wider geographic reach. _(analysis)_

### Profit outran sales, helped by a one-off refund

Selling costs barely grew, but the filing's largest margin driver was tariff refunds, which it does not expect to stay material.

Operating income rose 21.73% to $284.6M while net revenues rose 9.57% to $1,172.6M. Operating margin reached 24.27%, up 2.42 points. Cost of goods sold grew 7.58% and selling and administrative expenses 2.97%, so gross margin rose 0.98 points to 46.75% and selling and administrative costs fell 1.44 points as a share of revenue. _(from the filing)_
The filing's operating margin bridge lists tariff refunds as the largest single contributor, following the court rulings that certain IEEPA tariffs were invalid. It adds: "The impact of future IEEPA tariff refunds is not expected to be material." Pricing and productivity ahead of inflation and investment spending, and favorable volume and product mix, supplied most of the remaining gain. _(from the filing)_
For comparison, operating income was 21.1% of revenue across FY2025, on $859.5M of operating income and $4,067.3M of revenue. _(from the filing)_
Analysis: even without the refund the quarter shows leverage, since selling and administrative costs grew far more slowly than sales. But the reported margin is lifted by an item the company does not expect to recur at material size, so the coming quarters are the cleaner test of the underlying gain. _(analysis)_

### Each dollar of profit brings more cash

Capital spending takes 2.2% of revenue, so most operating cash is free to fund dividends, buybacks and bolt-on deals.

Operating cash flow was $304.3M against net earnings of $220.9M. Capital expenditures were $25.7M, 2.2% of revenue, leaving free cash flow of $278.6M: 23.8% of revenue and 97.9% of operating income. A year earlier, third-quarter free cash flow was $209.8M. _(from the filing)_
Quarterly cash flow is seasonal: free cash flow was $80.3M and $180.5M in the first two quarters of 2026. Over a full year the pattern holds. In FY2025, free cash flow of $685.7M was 106.5% of net income of $643.8M, on capital spending of $98.1M. _(from the filing)_
The filing describes a business with "strong operating cash flows, low leverage and low capital intensity". This year it repurchased shares and bought two door makers, DCI and Overly, funded with cash on hand and its revolving facility. Diluted shares fell to 85.2M from 86.5M a year earlier. _(from the filing)_
Analysis: the cash comes from an assembly and sourcing model rather than heavy process plants. The open question is where it goes: acquisitions bought for growth, as in International, have so far earned well below the core business. _(analysis)_

### Taxes took back part of the operating gain

Pre-tax earnings rose 28.2%, but a higher tax rate held net earnings growth to 17.25%.

The provision for income taxes rose 128.78% to $46.9M from $20.5M, an effective rate of 17.5% against 9.8% a year earlier. The filing attributes the increase to "favorable discrete charges in the prior year" and the unfavorable mix of income earned in higher-tax jurisdictions. _(from the filing)_
The lines between operating income and tax helped: interest expense fell 9.02% to $24.2M on a lower average rate, and other income rose to $7.4M from $1.7M. Earnings before taxes rose 28.2% to $267.8M. Net earnings rose 17.25% to $220.9M, and diluted earnings per share rose to $2.59 from $2.18 as diluted shares fell to 85.2M from 86.5M. _(from the filing)_
Analysis: much of the tax drag is the absence of a prior-year benefit the filing calls discrete, rather than a new cost. Allegion is incorporated in Ireland, and the filing lists changes in tax rates and risks tied to that incorporation among the factors that could move results. _(analysis)_

## For members

Signed-in members read, on the page: the investor's and the founder's views of Allegion (its fundamentals against its peers, where the profit is made, how the model works, where every $100 of revenue goes against the industry, the path to scale), its performance over time with every line as filed, and the edge and the risks. Membership is free.

## Member research

Signed-in members read, on the page: what Allegion's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Allegion 10-Q for the period to 2026-09-30: https://www.sec.gov/Archives/edgar/data/1579241/000157924126000034/ (2026-10-22)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-03 · as of 2026-11-03