Allegion’s latest filing reveals a company where cash generation is lagging behind capital investment. Revenue over the twelve months to Q3 2026 reached $4.39 billion, a 10.3% increase from the year before. This growth rate is down 0.3 percentage points from the rate recorded a quarter earlier.

What stands out

Capital spending is consuming a larger share of generated cash. Capital spending rose 26.2% over the period. Operating cash flow grew by 10.7% in the same timeframe. Because spending grew faster than cash inflows, less of the generated cash was left over for other uses.

Growth and profit

Profit margins expanded even as revenue growth slowed slightly. The trailing gross margin stood at 45.1%. The trailing operating margin was 21.5%, which is up 0.5 percentage points from a year earlier. The trailing net margin was 15.7%. Net income over the twelve months totaled $691.1 million, representing a 7.9% increase on the year before.

Cash flow

Cash generation grew, but the pace was slower than revenue expansion. Operating cash flow over the twelve months was $844.1 million, up 10.7% on the year before. Capital spending amounted to $104.2 million, or 2.4% of revenue. Free cash flow, defined as operating cash flow less capital spending, was $739.9 million. This figure is up 8.8% on the year before. The free-cash-flow margin was 16.9% of revenue, down 0.2 percentage points from a year earlier. The average diluted share count fell 0.6% over the year.

In context

Current performance sits near the top of the company’s historical range. Today’s free-cash-flow margin of 16.9% is higher than 88% of the company’s own past quarterly readings. Those past readings have ranged from 8.1% to 20.3%. Today’s operating margin of 21.5% is higher than 100% of the company’s own past quarterly readings. Those past readings have ranged from 11.0% to 21.1%. Today’s twelve-month revenue growth rate of 10.3% is higher than 81% of the company’s own past quarterly readings. Those past readings have ranged from −4.7% to 23.5%.

Guidance

The company adjusted its outlook for the full year. It raised its full-year 2026 guidance for reported revenue growth to 9.5% to 10.5%. It raised its full-year 2026 guidance for adjusted EPS to $9.05 to $9.10. It kept its full-year 2026 guidance for the adjusted effective tax rate at 18% to 19%. It gave its full-year 2026 guidance for the average diluted share count at 85.6.

What it means for value

Our model shows high sensitivity to growth assumptions. If growth is 5 percentage points lower, the value decreases by 26.6%. If growth is 5 percentage points higher, the value increases by 34.6%. A free-cash-flow margin 1 percentage point lower would lower the value by 5.8%.

What to watch

The next filing will show whether the gap between capital spending and operating cash flow narrows. It will also reveal if the operating margin holds above its historical peak. Finally, it will indicate whether the revenue growth rate stabilizes or continues to decelerate.