Allegion plc (ALLE) Cash Flow Statement

The wide oscillation in OCF/NI, from 0.41 to 1.62, suggests that working capital swings, not operational deterioration, drive the gap between net income and cash generation. In 2026Q2, the ratio normalized to 1.07, implying that accruals are largely timing-related. Investors should monitor whether the recurring negative working capital changes in Q1 quarters indicate a seasonal pattern or a structural shift in cash conversion.

The FCF margin trajectory shows a clear seasonal pattern, with Q1 typically weak (2.7% in 2024Q1, 8.9% in 2025Q1) and subsequent quarters robust (above 19%). This suggests that working capital outflows in Q1 are a recurring feature, likely tied to incentive compensation and inventory builds. The 2026Q2 margin of 15.7% is below the prior year's 19.8%, indicating a slight deceleration in cash generation relative to revenue growth.

CapEx/Revenue has stayed consistently between 1.6% and 3.9%, with the highest ratio in 2024Q1 (3.0%) and the lowest in 2026Q2 (1.6%). This low capital intensity supports high FCF conversion and suggests that growth investments are primarily in working capital and acquisitions rather than fixed assets. The modest capex relative to depreciation (D&A around $30-36M per quarter) implies that maintenance capex is well covered, leaving room for discretionary investments.

The negative working capital changes in Q1 quarters (e.g., -$101.5M in 2024Q1, -$73.7M in 2025Q1) and positive in Q4 (e.g., +$59.0M in 2024Q4, +$33.8M in 2025Q4) suggest a build-up of receivables and inventory in Q1, followed by collections and inventory drawdowns later in the year. This pattern is typical for a company with strong Q4 sales, but the magnitude of the swings (over $100M) warrants monitoring for potential channel stuffing or demand timing issues.

Dividend payments have been consistent, growing slightly from $41.4M in 2024Q2 to $46.6M in 2026Q2, reflecting a disciplined payout policy. Share repurchases, however, have been erratic, with a large $100M buyback in 2024Q4 and minimal activity in other quarters, suggesting opportunistic repurchases rather than a fixed program. The $572.1M acquisition outflow in 2025Q3 indicates significant M&A activity, likely the Stanley Access Technologies integration, which may have temporarily reduced buyback capacity.

The cumulative OCF/NI ratio of approximately 1.14 suggests that Allegion's earnings are backed by strong cash generation, with non-cash charges like D&A and SBC adding back more than working capital outflows. This divergence is positive, but the quarterly volatility in working capital changes (ranging from -$101.5M to +$72.4M) implies that the timing of cash flows can be lumpy. Investors should note that the cumulative gap may narrow if working capital requirements increase with growth.