アレジオン（ALLE）2026年第3四半期決算説明会：米州での成長を背景にガイダンスを引き上げ

主要なポイント

• 第3四半期の売上高は前年同期比9.6%増の約12億ドルとなり、価格改定と販売数量の増加に牽引され、オーガニック売上高は7.2%増加しました。
• 調整後EPSは13%増の2.60ドルとなりました。調整後営業利益率は60ベーシスポイント（bps）拡大し、24.7%となりました。
• 米州のオーガニック売上高は9.1%増加し、非住宅分野における10%台前半のオーガニック成長と、エレクトロニクス製品の10%台前半の伸びが寄与しました。
• アレジオンは、2026年のオーガニック売上高見通しを5%〜6%に、調整後EPSの見通しを9.05ドル〜9.10ドルに引き上げました。
• 経営陣は、仕様指定活動やデータセンター需要に支えられ、米州の好調が2027年まで続くと予想している一方、西欧は低迷が続くとみています。
• 年初来の利用可能キャッシュフローは11.2%増の5億3,940万ドルとなり、純有利子負債は調整後EBITDAの1.5倍となりました。

主要業績

第3四半期の調整後営業利益および調整後EPSには、IEEPA（国際緊急経済権限法）関税還付による好影響は含まれていません。

事業および業績の動向

米州は引き続きアレジオンの主要な成長エンジンとなりました。非住宅部門のオーガニック売上高は、価格と数量の双方に支えられ、10%台前半の増加となりました。経営陣によると、仕様指定活動は広範にわたっており、需要の見通しを良好に維持しているとのことです。

データセンター向け事業は非住宅部門の約5%に達し、急速な成長を続けています。アレジオンはドアやドアハードウェアを供給しており、経営陣はこれらが建設プロジェクトの終盤に設置されると説明しました。商業オフィス向けも改善の兆しが見られた一方、集合住宅向けは市場によって状況が異なりました。

住宅部門の売上高は主に価格改定により5%前後増加しましたが、実質的な販売数量はほぼ横ばいでした。経営陣は、根強いインフレと高金利を背景に中長期的な力強い回復は見込んでいないものの、これ以上の大幅な悪化も予想していません。

米州のエレクトロニクス部門の売上高は10%台前半増加しました。経営陣は、新規導入、機械式製品からの切り替え、古い電子ロックのアップグレードに支えられ、エレクトロニクス製品をサイクルを通じて1桁台後半の成長ドライバーと引き続き位置付けています。

国際部門のオーガニック売上高は、価格改定の効果が販売数量の減少によって打ち消され、微減となりました。特にドイツをはじめとする西欧での需要低迷が引き続き主な制約要因となりました。なお、第1四半期に判明したERPシステムの問題は解決され、業務およびリードタイムは正常に戻っています。

アレジオンは10月初旬に約9,000万ドルでオーバーリー・ドア・カンパニーの買収を完了しました。経営陣は、オーバーリー社が全社と同等の利益率を維持しつつ、米州の年換算売上高を約1ポイント押し上げると見込んでいます。また、同社は当四半期中にAmbient.aiへ4,000万ドルの追加投資を行ったほか、1億2,000万ドルの自社株買いを実施し、4,600万ドルの配当を支払いました。

経営陣による業績予想

この見通しには将来の資本投下による効果は含まれておらず、発行済株式数を8,560万株と仮定しています。

2027年について、経営陣は主要な最終市場の需要が2026年と同水準になり、米州が成長を牽引すると予想しています。非住宅需要は好調な仕様指定傾向から恩恵を受けると見込まれる一方、住宅需要の伸びは主に価格改定によるものと予想されます。国際市場は引き続き軟調に推移する見通しです。

また、経営陣はインフレの継続を見込んでおり、毎年恒例となっている2月初旬の引き上げを含め、さらなる価格改定を実施する計画です。アレジオンは2027年に利益率の拡大を見込んでいますが、詳細な見通しは2月に発表する予定です。

リスクと注視すべき事項

• 西欧（特にドイツ）における経済活動の停滞と根強いインフレが、国際部門の販売数量およびプロダクトミックスの圧迫要因となっています。
• 高インフレと高金利が住宅市場の力強い回復の妨げとなっています。
• 熟練労働者の不足が非住宅市場の成長ペースを制約する可能性があります。
• 大型建設プロジェクトにより四半期ごとの売上高に変動が生じる可能性があり、建設活動は通常、第2・第3四半期に活発化します。
• 当四半期において、買収に伴い全社の調整後利益率が20ベーシスポイント、米州の利益率が40ベーシスポイント押し下げられました。
• 原材料コストなどのインフレが続いており、営業利益を確保するためにはタイムリーな価格改定と生産性向上策が必要です。

アナリストQ&Aの要点

経営陣によると、米州の非住宅分野の成長は広範な仕様指定活動に引き続き支えられており、データセンターが2027年の販売数量に向けた強力な基盤となっているとのことです。予想される成長環境は販売数量の増加と高水準の価格維持の組み合わせであると説明したものの、熟練労働者の不足が市場拡大の制約となる可能性があります。

価格改定について、アレジオンはインフレへの対応をより迅速かつ選別的に行うようになったと述べました。2027年への価格改定の繰り越し効果を見込んでいるものの、年間を通じてコスト増加に対応するには追加の価格改定が必要になると説明しました。同社の目標は、通期で金額ベースでの価格・生産性のプラス効果を確保し、利益率（マージン率）への影響をほぼ中立に維持することです。

人工知能（AI）に関して、アレジオンは年間約250万件の指定された開口部のデータを活用し、仕様策定のスピードと精度を向上させていると述べました。これらのツールはすでに社内および販売パートナーに向けて導入されています。

経営陣は、シュラーゲが主要なスマートホームプラットフォームやAirbnbと連携していると語りました。ハードウェア市場への新規参入候補がターゲットとする製品カテゴリーは、米州売上高の1桁台前半の割合にとどまり、米州営業利益に占める割合はさらに小さいとしています。

資本の最適配分に関して、経営陣は機械式、電子式、電気機械式、および補完的なソフトウェア分野における規律あるボルトオン買収と、継続的な自社株買いを並行して推進することを強調しました。

決算説明会 文字起こし全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good day, everyone. My name is Shell and I will be your conference operator today. At this time, I would like to welcome you to the Allegion Third Quarter Earnings Call. [Operator Instructions] At this time, I would like to turn the call over to Joshua Pokrzywinski, Vice President, Investor Relations.

Joshua Pokrzywinski

Thank you, Shell. Good morning, everyone. Thank you for joining us for Allegion's Third Quarter 2026 Earnings Call. With me today are John Stone, President and Chief Executive Officer; and Mike Wagnes, 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 investor.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 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.

Please go to Slide 3, and I'll turn the call over to John.

John Stone

Thanks, Josh. Good morning, everyone, and thanks for joining us. Third quarter results were driven by strong organic growth in the Americas, led by double-digit organic growth in our Non-Residential business. The team's performance reinforces what I hope you've come to believe about Allegion. We're a leader in security and access with premium brands and the highest margins in a great industry.

Our resilient business model has the proven ability to navigate inflation and withstand cyclical forces based on the value we provide to our customers and the large installed base we serve. This model continues to evolve with technology as security and access become electrified and digitized, a trend we expect to benefit market leaders like Allegion for many years to come. All of this allows us to deliver double-digit EPS growth through the cycle as we outlined at our Investor Day in May of last year.

Digging into the quarter, our Americas business is performing very well. With continued momentum in spec writing trends through our demand generation engine, we expect Non-Residential strength to continue into 2027, which we'll comment on later in the presentation. Residential has performed well in 2026 despite consumer headwinds from inflation and interest rates. However, these dynamics also make it difficult to forecast a strong recovery in the medium term. I'm also pleased with another quarter of margin expansion in the Americas. We have managed inflation well thus far in 2026, primarily through agile pricing actions that continued in the third quarter.

In International, we have resolved the ERP challenge we highlighted in Q1 and that business is back to normal operations and lead times. However, as discussed last quarter, macro conditions are difficult across Western Europe, particularly in our largest market, Germany, and we continue to be focused on execution and cost management in our International segment. With respect to our full year, we're raising our reported revenue outlook to 9.5% to 10.5%, and our outlook for organic revenue growth to 5% to 6% based on stronger demand and favorable price in the Americas. We are raising our adjusted earnings per share outlook to $9.05 to $9.10. I'll provide additional details on this later in the call.

Please go to Slide 4, and let's take a look at capital allocation, starting with our organic investments. In September, we launched the Allegion Optimize app in the Americas. Optimize gives installers, end users and our channel partners, one tool to commission, configure, manage and troubleshoot our connected products throughout their life cycle. We're rolling Optimize out initially across electronic door controls and locks, and we expect this app will ultimately manage our full nonresidential connected portfolio globally. Offering a single app to cover management of multiple product categories is a first in our industry. Customers will benefit from faster, easier experiences with our intuitive interface that eliminates the friction of switching between multiple stand-alone apps for connected devices.

Turning to M&A. We completed the acquisition of the Overly Door Company in early October for approximately $90 million. Overly manufactures specialty doors for acoustics, blast, bullet resistance and vault security. Overly's high security solutions serve commercial and institutional customers with strength across U.S. government, education and health care markets.

Similar to our 2024 acquisition of Krieger Specialty Products, this complements our hollow metal portfolio with additional specialty products and regional capability. We expect Overly to add approximately 1 point to Americas revenues on an annualized basis at margins consistent with the overall enterprise.

Recently, we also made a $40 million follow-on investment in Ambient.ai through Allegion Ventures. Ambient continues to prove the transformative potential of purpose-built AI and physical security, helping customers shift their security operations from reactive to proactive. This investment underscores our confidence in their technology, their leadership and our increased collaboration. Allegion paid $46 million in dividends and repurchased $120 million of shares in the quarter. We see attractive valuation in Allegion shares and expect to remain active in share repurchase. As we've said in the past, you can expect Allegion to be balanced, disciplined and consistent with capital deployment oriented to profitable growth and driving long-term returns for shareholders.

Mike will now walk you through the third quarter financial results.

Michael Wagnes

Thanks, John, and good morning, everyone. Thanks for joining today's call.

Please go to Slide #5. Revenue for the third quarter was approximately $1.2 billion, an increase of 9.6% compared to last year. Organic revenue increased 7.2% in the quarter driven by strength in our Americas segment. The enterprise organic revenue increase was driven by both price realization and volume growth.

Q3 adjusted operating margin was 24.7%, up 60 basis points compared to last year. Price and productivity net of inflation and investment was favorable by $15.6 million and was a 50 basis point tailwind to margin rate. Volume leverage was also a tailwind to margin rate in the quarter. This favorability was partially offset by acquisitions, which were a 20 basis point headwind to margins. I'll provide more details on revenue and margins within each of the regions.

Adjusted earnings per share of $2.60 increased $0.30 or 13% versus the prior year. Operating income, inclusive of acquisitions, drove the majority of the year-over-year EPS growth. Additionally, benefits from interest and other and share count were offset by a headwind from tax. Please note, third quarter 2026 adjusted operating income and adjusted earnings per share exclude the favorable impact from IEEPA tariff refunds. You can find additional information regarding this in our press release and 10-Q, which were filed this morning. Finally, year-to-date available cash flow was $539.4 million, up 11.2% from the prior year. I'll provide more details on cash flow and the balance sheet, a little later in the presentation.

Please go to Slide #6. Our Americas segment delivered revenue of $942.4 million, which was up 11.7% on a reported basis and up 9.1% on an organic basis. Our Non-Residential business increased low double digits organically driven by price and volume growth. Demand for our non-res products remains healthy. And as John mentioned earlier, spec activity continues to be strong.

Our Residential business grew mid-single digits in the quarter, driven by price, consistent with year-to-date trends. Electronics revenue for the segment was up low double digits for the quarter and continues to be a long-term growth driver for the business. In addition, acquisitions contributed 2.6% of growth in the quarter.

Americas adjusted operating income of $283.8 million increased 12.6% versus the prior year. Adjusted operating margins were up 20 basis points in the quarter. Price and productivity, net of inflation and investment, was favorable by $13.5 million and was a 20 basis point tailwind to margins. Volume leverage was also a tailwind to margin rates. However, acquisitions were a 40 basis point headwind as we expected.

Please go to Slide #7. Our International segment delivered revenue of $230.2 million, which was up 1.8% on a reported basis and down slightly organically as favorable pricing was offset by lower volumes. The volume decline was the result of continued weakness in Western Europe, as John discussed earlier. Acquisitions contributed 2.5% to segment revenue and currency was a headwind in the quarter.

International adjusted operating income of $31.9 million decreased 1.2% versus the prior year. Adjusted operating margin for the quarter decreased 40 basis points. Price and productivity, net of inflation and investment, was a 30 basis point tailwind to margin rate in the quarter. Net acquisitions drove a benefit to margin rates of 20 basis points. These benefits were more than offset by headwinds related to lower volume and unfavorable mix.

Please go to Slide 8, and I'll provide an overview of our cash flow and balance sheet. Year-to-date available cash flow was $539.4 million, an increase of 11.2% versus the prior year. The cash flow increase was primarily driven by higher earnings. For 2026, we still anticipate our ACF conversion will be in the range of 85% to 95% of adjusted net income.

Next, working capital as a percent of revenue was 7.9%, consistent with the prior year. Finally, our balance sheet remains healthy with a net debt to adjusted EBITDA at 1.5x.

I will now hand the call back over to John.

John Stone

Thanks, Mike. Please go to Slide 9. With one quarter remaining in the year, we're raising our organic revenue growth outlook to 5% to 6% and adjusted EPS outlook to $9.05 to $9.10. We are raising our reported revenue outlook to 9.5% to 10.5% based on changes to the organic growth range and acquisitions. You can find more details on our outlook in the appendix.

In the Americas, we're raising our organic growth assumption to 7% to 8%, consistent with year-to-date organic growth in the segment. This is a result of a healthier non-res demand environment and higher price realization. For International, our organic growth outlook remains unchanged at down low single digits as market demand in Europe, particularly Germany, remains weak. For full year 2026, we expect to deliver low double-digit EPS growth, consistent with our long-term earnings framework. As in prior periods, this outlook excludes the benefit of future capital deployment and therefore, assumes a share count of 85.6 million.

Please go to Slide 10. We'll provide our full 2027 outlook in February. But in the meantime, consistent with our usual practice, we'll share some high-level perspectives on the year ahead. We expect demand in our major end markets to be similar to current year with growth led by strength in the Americas. Spec writing trends support optimism on nonresidential markets over the next several years, particularly in the context of our late cycle business model.

Residential markets continue to face headwinds from inflation and high interest rates but multiple years of low activity supports a stable demand outlook in 2027 with growth driven primarily by price. International markets are expected to remain soft, driven by weak economic activity and persistent inflation. We expect to remain in an inflationary environment and will continue to drive pricing to protect operating profit dollars.

Operating leverage in the Americas segment should be consistent with our long-term framework for incremental margins. Internationally, we remain focused on self-help and have some benefit of carryover cost savings from 2026 actions. We plan to stay active in deploying capital pairing bolt-on acquisitions with share repurchase.

Please go to Slide 11. In summary, Allegion delivered high single-digit organic revenue growth this quarter, fueled by the strength of our Americas Non-Residential business. For the full year 2026, we're raising our reported revenue outlook and our adjusted EPS outlook. We remain agile and focused on strong execution. The Allegion team expects to continue delivering on our commitments and driving value for shareholders.

With that, we'll take your questions.

Operator

[Operator Instructions]

Our first question comes from Joseph O'Dea from Vertical Research.

質疑応答

Joseph O'Dea

John, can you just talk a little bit more and unpack some of the strength that you're seeing in Americas Non-Res, the organic this quarter kind of equal parts volume, enterprise and so in particular, volume that's in that mid-single-digit type of territory. If you could talk a little bit about the end market strength there, where the spec writing activity is seeing signs of strength? And any degree to which you think you're winning in the market and some of this is share related?

John Stone

Yes, Joe, I appreciate the question. And certainly, as you know, Americas Non-Res is the largest business segment of the company and really our most important and up high single digits this year, a combination of volume and price. Our spec activity continues to be strong, as we've said the past few quarters, and that strength continues to be broad-based. Certainly, growth in data center forms a good base for 2027 volume growth as we look forward, but we do expect other verticals to contribute there as well.

And as we mentioned in the prepared remarks, we see an inflationary environment continuing, and you should expect price to remain elevated as a result. We do feel that I think trade labor -- skilled trade labor can be a bit of a governor on year-on-year market growth. But again, as we said in kind of looking forward into 2027, that kind of high single-digit environment with a combination of price and volume, what we feel is quite well supported by our spec activity.

With respect to where are we winning, I think our team wins every time we step on the field. We've got great brands. We've got a great field marketing and sales force. We've got great distribution partners. And I think, tough to say with share, as we've answered many times in the past, we sell through distribution. So pinning down market share numbers in this space is kind of hard.

Joseph O'Dea

I appreciate that color. And then just given some of the headlines earlier this month, I wanted to ask about your technology integration with smart home providers. If you could give a little bit of color on developments around the technology integration, how broadly penetrated you are with that across different providers. And your perception of any risks attached to new entrants into the hardware space?

John Stone

It's a timely question. And yes, we saw the news media headlines as well as you did. So I would say, first off, Allegion through our Schlage brand has been an innovation leader there and electronic and connected locking in the residential space. For the past 7 years, Schlage is America's most trusted lock brand. We've got a great brand reputation, great product portfolio. We're integrated with all the major smart home devices and providers. We're integrated with Airbnb as we've talked about on previous calls as well.

But if you wind the clock back, it'd be, maybe 8 or 9 years ago, we were the first WiFi connected deadbolt that integrated with Apple HomeKit. That innovation has not slowed down. And I'd say with regards to new entrants into the space, that happens from time to time. I would say the product category that these companies have indicated, they might be introducing a lock into, represents a low single-digit percentage of Americas revenue and an even smaller portion of Americas operating profit just to size it for you. But we feel confident in the Schlage brand and Schlage portfolio. And I think our performance this year and a rather soft demand environment speaks for itself.

Operator

Our next question comes from Rafe Jadrosich from Bank of America.

Rafe Jadrosich

Just starting on the pricing in Americas, on a year-over-year basis, it did not sort of maintain a similar level in 3Q versus 2Q, but you are lapping a lot tougher of a comp. Was there incremental pricing that was announced in 3Q? And then how do we think about that going forward?

Michael Wagnes

Yes. Thanks for the question. If you remember, last year, our pricing started to step up in the back half of 2025 as we dealt with the new tariff impacts that were implemented by the administration. So the comp got tougher starting really in Q3. So you saw that this year, we have a tougher comp. The thing to remember about our business is we've been facing consistent inflationary pressure. So the days of just setting pricing once across the portfolio in early February, has kind of changed over the last couple of years. So we take pricing as needed to combat inflationary pressures. So we put in multiple price increases across select parts of our business.

I think the key thing to think about our business is we're always going to drive that pricing and productivity to try to cover that inflation and investment. And we -- as you've seen over the last couple of years, we've been able to do that driving positive dollars. And then as you think of the current year, think of it as that PPII neutral on a margin rate for the full year and some positive dollars. So there's going to be pricing actions, but it's not going to be the one time in the beginning of the year that you might have known Allegion to do in, let's say, 2014 through 2019. It's been a more consistent adaptable environment to the changing inflationary pressures we face.

Rafe Jadrosich

Okay. That's helpful. So it does sound like there's been some incremental pricing which is why you're not slowing kind of on the 2-year. Can you just talk about your visibility on the level of inflation you're expecting into next year, maybe compared to this year? What are you expecting in terms of input costs? And then like how much price you would need to offset that?

Michael Wagnes

I would say, honestly, the details of the magnitude of exact pricing and inflation, we'll give that when we give the outlook in February when we announce earnings. In general, though, think of it as we're planning for a high inflationary environment. And so we're going to make sure that we take the necessary actions to price our products to combat that environment that we're in today and we expect to continue into next year.

The magnitude of it, we'll come back to you in Feb. But just remember, we're focused on driving that pricing and productivity to offset that inflation and investments and expect us to do that into next year as well. But the details of the actual percentages, let us finish out the year and get back to you in February.

Operator

Our next question comes from Alexander Virgo from Evercore ISI.

Alexander Virgo

I wondered if you could just talk a little bit to the sort of implied slowdown in the guide in Q4. Just sort of thinking about, is that something that's just a reflection of prudence given the comps get easier? And then just to clarify on the pricing and the carryover into the first half, I suppose, of next year. Any chance you can give us a sense of how much that might end up being?

John Stone

Alex, this is John. I would say a couple of things. Largest business segment being our Americas Non-Residential business, and that's a construction-facing business. Project size has been growing, and that's going to put a little lumpiness when you look quarter-to-quarter. And what we think is the better thing to look at is just the year-to-date or the full year high single-digit organic growth that, that business is driving.

Taking one quarter and extrapolating that forward is not the best idea. There's going to be some lumpiness because of project size. There's going to be some lumpiness because we're construction facing. And in the Americas, the middle 2 quarters are always going to have a little bit more construction activity than the 2 tails.

I'm going to ask Mike to step in and speak to the pricing part of the question.

Michael Wagnes

Yes, there will be carryover pricing into next year. I think it's more important for you as you think about next year, carryover wouldn't be sufficient, obviously, as you think about the back half of the year. We do anticipate putting that pricing increase in early February next year. We'll announce that, obviously, to channel partners first. But as you think about pricing next year, think of an elevated inflationary environment and expect Allegion to put that pricing announcement in early February, like we customarily do to drive that pricing also for the back half of the year.

Operator

Our next question comes from Tim Wojs from Baird.

Timothy Wojs

Maybe just on the pricing cadence, Mike. I mean, just kind of transitioning, it sounds like a little bit to maybe more, I'd say, kind of selective pricing as well as kind of broad-based pricing. Does that change your ability to kind of line up price with inflation versus historically? I think there's been a little bit of a lag? Or does it really kind of change that timing dynamic at all?

Michael Wagnes

Yes. Tim, if you think about our business over the last, I'd say, 1.5 years, we've gotten better at reacting to inflationary pressures. So you don't see that significant lag that you might have seen in 2021. Some of the challenges we encountered in '21, we've learned from. And as you've seen over the last 1.5 years, we are quicker. I don't expect to see periods of time where there's big headwinds because we're late in taking those pricing actions.

Look for us to take pricing to combat inflationary pressures and driving that PPII. We talk about neutral on a dollar basis. If you think about quarters, then over the course of the year, it tends to be neutral on a rate as you saw this year, but we're committing to at least driving that neutrality on a dollar basis.

Joshua Pokrzywinski

Positive.

Michael Wagnes

Positive on a dollar basis, neutral on a margin rate basis. Thank you, Josh.

Timothy Wojs

On a rate basis, yes. Okay. And then I guess just a bigger picture question. Just -- John, could you kind of talk about the AI impact on your spec writing business. What you guys are working on implementing and if that's an opportunity for productivity, but also for, I guess, greater volume if you can be more efficient with the spec writing network?

John Stone

Yes, it's a good question, Tim. And I think we're making some really well thought out and exciting investments internally on leverage of AI tools, and that's across every function in the business. And when you think about what does an AI model of any flavor, LLM or otherwise, need to really do a good job for you, it needs a very large and robust data set.

And when we're specifying 2.5 million openings in any given year, we've got an exceptionally large data set to train models on and use those models for efficiency, just like you're saying. That's happening right now. It's happening in conjunction with channel partners. So our responsiveness in terms of initial spec or change orders is definitely increasing for the benefit of the customer. So I think we're in the pole position really to make the best use of AI in a spec writing environment from an accuracy and a speed standpoint. And it's really built upon this enormous data set that we've built up over time, and we'll continue to build.

Operator

Our next question comes from Aanvi Patodia from Goldman Sachs.

Aanvi Patodia

Yes, congrats on the quarter and good growth there on the Non-Res side. I did want to touch upon the Residential growth. We saw mid-single-digit growth organically, but I believe it's largely attributed to price realization with the ABI coming in yesterday and the September read was weaker than expected, August and July was also below the 50% number. So I just wanted to understand what you've seen from a volume standpoint on the Resi side? What has happened to like underlying demand there? And when would you expect to return to positive volume growth, absent of pricing?

John Stone

Yes, I appreciate the question. And I'd say consistent with our prepared remarks, you're right in that growth in our Residential business recently has been driven primarily by price. The end market volume has been kind of flattish. Price realization has driven that. And as we said, looking forward, it's tough given high inflation and high interest rates to expect any kind of strong recovery in the residential sector, but we also don't see it getting a lot worse. And so I think that informs our look into 2027 that growth in the residential space will primarily be driven by price.

Aanvi Patodia

Okay. Got it. That makes sense. And I guess switching gears more holistically, I wanted to touch upon your data center opportunity. Where does Allegion participate today? Is it more like the door hardware, perimeter security? Is it other solutions? And how large is this opportunity for you? What portion of your Non-Res growth is more data center linked?

John Stone

Yes, it's a good question. And I'd say we are active in the data center space. I think our specification writers, our end-user consultants have done a great job in terms of getting Allegion a leading position in terms of doors and door hardware with the large data center builders.

As we mentioned in second quarter, data centers were approaching 5% of our Non-Res business. I'd say it's there now, growing rapidly and has been a source of volume growth this year, and we look for that to continue. I would -- just keep in mind, whatever you believe about data center construction and build-out, doors and door hardware are some of the last things to go into the building on the construction project. We are late cycle on each project. So we do feel good about the trends there and about our market position with respect to our core products.

Operator

[Operator Instructions]

Our next question is from David MacGregor from Longbow Research.

David S. MacGregor

Congratulations on a great quarter, John. I wanted to -- and I appreciate the early sort of preliminary thoughts on 2027. I guess I wanted to ask about your acquisition program. 2025 was obviously a more M&A active year than 2026. And I'm just wondering how much of that slower pace in '26 related to the need to make progress on integrating the 25 transactions versus maybe valuations or funnel development issues. But how are you thinking about 2027? Could it be a more active year? And what would need to change to make it a more active year?

John Stone

That's a really good question, David. And I would say, first off, if you look at 2025, just from a deal count perspective, we would say that was, let's just say, very high. And M&A of any sort is rather episodic in its timing. It's not something that I think anyone can do on this perfectly linear basis. So I don't think '25 as a deal count is any kind of benchmark or goal or any of that.

What we're after on acquisitions, is what we talked about at our 2025 Investor Day. Looking to complement and continue to build out our mechanical portfolio like we just did with the acquisition of Overly Door Company. Very excited about that one. Add electronics, add electromechanical acquisitions and complementary software for those faster growth verticals in our segment. And I think the point on the pace is really while we are oriented towards profitable growth, we do see acquisitions continuing to be a part of our growth story for the future. We're going to be very disciplined on what we buy strategically and what we buy from a valuation perspective.

So those acquisitions that come in, they're going to drive good value for our shareholders and not just growth for growth's sake. So I think that's going to throttle the pace of deal flow more so than anything else, just being disciplined around our strategy and around what we pay.

David S. MacGregor

Just secondly, and for the cash flow model here, I'm just wondering how higher freight and logistics costs influence how you think about your inventory levels going forward?

Michael Wagnes

Yes, David, obviously, if you think about cash conversion, we've thrown out that 85% to 95% cash conversion. I wouldn't expect to see any change to that percentage based on something like freight. That's a pretty big range for us. With inventory, we'll always be smart to make sure that we have the necessary parts to ship product.

So -- but if there's inflationary pressure, which there is, it will impact inventory on the balance sheet, right, because inventory costs more. The key thing for us, and as I think about it, are we driving the necessary pricing, which I talked about earlier in the call? So I would say if you think about the framework, 85% to 95% ACF conversion, I think that's a decent framework to think of us long term at. And then inventory levels, I think they won't move enough to where it impacts that framework we provided.

Operator

Our next question is from Brandon Knutson from Morgan Stanley.

Brandon Knutson

I wanted to start out on electronics. So you've seen strong growth there after the year started mid-single digits, accelerating on a 2-year stack essentially as you go throughout the year. Are you seeing an acceleration in electronics adoption? And are there any actions that you're taking currently to drive that acceleration that we're seeing this year?

John Stone

Yes. I think we're always striving for growth in electronics, and that comes from everything you can think of from demand generation engine with our specs, introducing new products. We have introduced a new family of connected locks in the commercial space. I'm very proud of that. Very excited about the launch. It's going well. So steady stream of new products driving organic growth, excellence in our demand generation engine and our end-user consulting.

And I'd say the way we continue to think about it is high single-digit growth driver for the business over the cycle. Quarter-to-quarter, is there some lumpiness here and there? Does the comp make things look a little lumpy from time to time? Always. But over the cycle, high single-digit growth driver for the business. And we see continued trends of both new adoption of electronics and conversion from mechanical to electronics and now even upgrades of old e-locks to new electronic locks. All those factors are coming into play, and I think we're well positioned to take advantage.

Brandon Knutson

Great. And then on the Residential side, you highlighted that the growth there is primarily going to be driven by price. As you see continued sort of macro headwinds from higher interest rates [Technical Difficulty], is it getting harder to get price? Are you seeing any pushback from your customers on the pricing front? Any color there?

John Stone

Yes. I think that's fair to always expect some pushback and some negotiation. That's how those things go. But inflation is real. Inflation is high. We are pushing price to cover for that, as Mike has said a couple of times on the call and in the Q&A, and we'll continue to do that. We just feel that given the current environment, we don't see reason to expect a strong recovery in the residential space in the medium term.

Operator

Our next question is from Julian Mitchell from JPMorgan.

Julian Mitchell

Just wanted to start off with a question around the sort of end markets into next year. And when you look back historically at Allegion and the relationship of nonresidential orders and sales to changes in the interest rate environment, I suppose anything you could share with us on how recent rate moves have affected your commentary. So I think you talked about high single-digit organic growth again in Americas Non-Res into 2027. Are you assuming anything changes in terms of the composition of end markets driving that because of what's happened recently in rates? And when would you think rates would show up in terms of slowing any commercial new construction activity?

John Stone

Yes. I appreciate the question, Julian, and I'd say a couple of things. One would be the growth in data centers. This is all new build. This is the next add to our large installed base. So that new build kind of has its own dynamics. And again, it's whatever you believe about that build-out and that continued strength we are participating, we're participating well, and we're late cycle in each of those projects. So I do feel good about our position there and the rather long tail that we would expect to see.

Elsewhere, as we've mentioned, past couple of quarters, and you can see it in the news as well, recent JLL reports have even said commercial office demand has 5 straight quarters of growth, kind of coming back from the dead after the pandemic and the work-from-home dynamics. You see that in major metro areas, New York and San Fran, really leading the way. So some tower work has come back that hasn't been there in a while. Multifamily is some places contracting, other places growing.

So I think when you look at Allegion, never forget that our portfolio, our sales force, our demand generation engine is broad-based. That's also where we feel justified in our optimism that our spec writing shows strength broad-based. So it's across all the institutional verticals and the commercial verticals have started to show some signs of life. And again, data centers just being its own dynamic right now that's very strong.

Julian Mitchell

That's helpful. And then just on the margins and the aspects around that 50 bps tailwind from PPII that you've seen. Is that a good kind of placeholder, assuming no major changes in the cost inputs from here? Just wanted to check on that. And it looks like your guidance embeds a step-up in margin improvement year-on-year in Q4 from what we've seen in the last few quarters. Anything specific to call out there?

Michael Wagnes

Yes, Julian, if you think about for this year, 2026, we would expect to see flat to slightly up margins for the full year. Obviously, that means Q4 has that step-up, as you just mentioned. Part of that is comp related. If you think about, especially in the Americas last year, that rate was a little lower. So we have some favorability.

As you think about next year, we expect to see margin expansion. The magnitude of that is similar to my comments earlier. When we get to February, we'll give an outlook. A couple of things we did put on the slide though, as you think about next year. Expect us to drive that PPII, right, to combat the inflationary pressure. And then in the Americas, that core incrementals that we highlighted at our Investor Day, think of next year within the parameters of that framework we laid out. So you have an idea.

As to the amount of margin expansion next year, we'll come back in February, and we'll give you that when we give you EPS. But at least we wanted to provide you some framework for you to think about next year as part of this earnings call.

Operator

At this time, I see no more callers in the queue. So I will hand the call back to John Stone for closing remarks.

John Stone

Well, thank you all for joining the call, and thanks for a great Q&A. We look forward to connecting with you on our full year earnings call in February. Be safe, be healthy.

Operator

Thank you for joining the call. You may now disconnect.