Allegion (ALLE) Q4 2025 Earnings Call Transcript

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Date

Tuesday, Feb. 17, 2026 at 8 a.m. ET

Call participants

• President and Chief Executive Officer — John H. Stone
• Senior Vice President and Chief Financial Officer — Michael J. Wagnes
• Vice President of Investor Relations — Joshua Pokrzywinski

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Takeaways

• Revenue -- over $1 billion in Q4, an increase of 9.3%, including 3.3% organic growth led by the Americas nonresidential segment.
• Adjusted operating margin -- 22.4% for the quarter, up 30 basis points; pricing and productivity exceeded inflation and investment by $12 million, driving 20 basis points of margin expansion.
• Adjusted EPS -- $1.94, up $0.08 or 4.3%, with more than 10 points of EPS growth from operational performance and acquisitions, partially offset by higher tax rates.
• Available cash flow -- $685.7 million year-to-date, rising 17.6% driven primarily by higher EBITDA.
• Americas segment revenue -- $795.5 million, up 6.1% reported and 4.8% organic, with nonresidential up high single digits organically and residential down high single digits; electronics up low double digits.
• International segment revenue -- $237.7 million, up 21.5% reported and down 2.3% organically; 16 points of growth from acquisitions, 7.8% tailwind from currency effects.
• 2025 M&A activity -- $630 million deployed to acquisitions in mechanical, electronics, and software, aligned with the company’s stated strategic priorities.
• Dividend -- $175 million paid in 2025, with the twelfth consecutive annual increase just announced for 2026.
• Share repurchases -- $80 million in 2025; none in Q4; future repurchases expected at minimum to offset share-based compensation.
• 2026 guidance -- Revenue growth projected at 5%-7% (with 2%-4% organic); adjusted EPS guidance of $8.70 to $8.90, implying approximately 8% growth at midpoint with a $0.10 headwind from higher tax rates.
• Net debt to adjusted EBITDA -- 1.6x at year end, supporting continued capital allocation flexibility.
• Americas margin dynamics -- Adjusted operating income rose 5.4% to $216.2 million; Q4 operating margin down 30 basis points due to residential volume declines, with favorable mix offsetting volume deleverage and $9 million Q4 investment tailwind cited as timing related.
• International portfolio moves -- Net acquisitions and selective divestitures advanced portfolio quality, as management explicitly emphasized ongoing “self-help” and “selective pruning of non-core assets.”
• Electronics growth -- Electronics outperformed mechanicals across segments, sustaining low double-digit growth and positioned as a long-term driver.
• 2026 segment outlooks -- Americas organic growth anticipated in low to mid single digits, more weighted to price than volume; International guided for low single-digit growth led by electronics and M&A carryover.

Summary

Allegion (NYSE:ALLE) reported high single-digit enterprise revenue growth and significant year-over-year cash flow expansion, directly aided by a disciplined blend of pricing, productivity, and accretive acquisitions. The company announced new adjusted EPS guidance for 2026 of $8.70 to $8.90 per share, with explicit expectations for continued organic and total revenue growth supported by its Americas nonresidential and global electronics businesses. Management underscored strategic capital deployment as $630 million was used for bolt-on acquisitions, a twelfth consecutive annual dividend increase was introduced, and a further commitment to portfolio quality and disciplined M&A was reiterated. Guidance for 2026 incorporates both a modest pricing environment relative to last year and a $0.10 incremental tax-rate headwind, establishing a transparent framework for investors.

• The management team explicitly signaled ongoing active M&A pipeline activity across both Americas and International, stating acquisitions would focus on mechanical, electronics, and software solutions in line with strategic initiatives.
• CEO Stone said, "our team has a proven track record of execution across a variety of macro conditions," highlighting operational confidence as residential softness persists.
• Electronics businesses in Western Europe—particularly the DACH region—were named as core growth engines in International, complemented by targeted expansion efforts for solutions including Interflex.
• Americas residential markets ended the year softer than management had anticipated. Management explicitly expects that softness to extend into 2026 barring upside surprises.
• Wagnes noted, "We expect 2026 to be more list price increases," forecasting slightly less pricing in total, and articulated that both price and productivity are structured to fund investments and inflation.
• Company leadership noted that available cash flow conversion for 2026 is projected at 85%-95% of adjusted net income, setting expectations for capital efficiency.

Industry glossary

• DACH: Acronym for Germany (D), Austria (A), and Switzerland (CH); commonly refers to the Central European region served by Allegion’s International segment.
• Nonresidential: Refers to commercial, institutional, and other segments excluding residential housing; in Allegion’s reporting, a key growth driver especially in the Americas.
• Electronics: Allegion’s product category encompassing electronic security products, access control, and software, distinct from mechanical locking solutions.
• Adjusted EPS: Company-reported earnings per share adjusted for items such as acquisition, restructuring, or other non-operational impacts.
• Available cash flow: A company-specific cash flow measure, typically referring to free cash flow available for allocation after core operational needs.

Full Conference Call Transcript

Operator: Good day, everyone. My name is Stefan, and I will be your conference operator today. At this time, I would like to welcome you to the Allegion fourth quarter and full-year earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time and if you have joined via the webinar, please use the raise hand icon, which can be found at the bottom of your webinar application. At this time, I would like to turn the call over to Joshua Pokrzywinski, Vice President of Investor Relations. Thank you, Stefan.

Good morning, everyone, and thank you for joining us for fourth quarter 2025 earnings call. With me today are John H. Stone, President and Chief Executive Officer, and Michael J. Wagnes, Senior Vice President and Chief Financial Officer of Allegion plc. 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 investors.allegion.com. This call will be recorded and archived on our website. Please go to slide two. 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 three, and I will turn the call over to John. Thanks, Josh. Good morning, everyone. Thanks for joining the call. Allegion delivered a strong year marked by high single-digit enterprise revenue growth more than $600,000,000 of accretive M&A, and solid execution in a dynamic and inflationary environment.

I am proud of the Allegion team's performance in 2025. I see our results as a testament to the talent and dedication of our people, the strength of our brands and channel partnerships, and our sound strategy as we deliver on our commitments to shareholders. As we enter 2026, our broad end-market exposure supports continued growth led by Americas nonresidential. U.S. residential markets were softer than expected in the fourth quarter and our outlook contemplates residential remains soft in 2026. However, our team has a proven track record of execution across a variety of macro conditions. We are initiating fiscal year 2026 adjusted EPS guidance of $8.70 to $8.90 per share.

I will provide more detail on our outlook later in the call. Please go to slide four. Let us take a look at capital allocation for 2025 starting with our investments for organic growth. A core element of Allegion’s portfolio strength is our brands’ legacy of innovation. Brands like Schlage, Von Duprin, and LCN invented their product categories a hundred years ago and are known as pioneers in our industry. Allegion is built on that legacy by expanding our offerings of mid-tier commercial product lines. Last September, we launched our Schlage Performance Series locks providing more ways to win in the nonresidential aftermarket alongside the mid-price point Von Duprin 70 Series exit devices released in 2024.

These are complemented by our mid-tier offerings with LCN closures. We now have a full suite of commercial-grade offerings from the industry's leading brands at more price points to meet customers' needs. As you know, 2025 was an active year for acquisitions for the company with approximately $630,000,000 of capital deployed. These acquisitions aligned to the strategy we outlined at our May Investor Day, including additions to our core mechanical portfolio, as well as electronics and complementary software solutions that meet end-user needs for safety and convenience. As we enter 2026, the pipeline is active and we will remain disciplined to drive returns and continue positioning Allegion as a leading pure play in security and access.

Allegion continues to be a dividend-paying stock. In 2025, we paid $175,000,000 in dividends to shareholders. Looking ahead to 2026, we have also just announced our twelfth consecutive annual increase in dividends. While we did not repurchase shares in the fourth quarter, share repurchase was part of our capital allocation in 2025 totaling $80,000,000. At a minimum, we intend to offset the creep from share-based compensation. You can expect Allegion to be balanced, consistent, and disciplined with capital deployment over time with a clear priority of investing for growth. Michael will now walk you through the fourth quarter financial results. Thanks, John, and good morning, everyone. Thanks for joining today's call. Please go to slide number five.

As John shared, our Q4 results reflect continued strong execution from the Allegion team as we delivered high single-digit revenue growth for the enterprise. Revenue for the fourth quarter was over $1 billion, an increase of 9.3% compared to 2024. Organic revenue increased 3.3% in the quarter, led by our Americas nonresidential business. The organic revenue increase was driven by price realization partially offset by volume declines in our Americas residential and International businesses. Q4 adjusted operating margin was 22.4%, up 30 basis points compared to last year. Pricing and productivity exceeded inflation and investment by $12,000,000, driving 20 basis points of margin expansion in the quarter. Favorable mix also benefited margin rates.

Adjusted earnings per share of $1.94 increased $0.08 or 4.3% versus the prior year. Operational performance and accretive acquisitions contributed over 10 points of EPS growth. This was partially offset by higher tax. Finally, year-to-date available cash flow was strong at $685,700,000, up 17.6% versus the prior year. I will provide more details on our balance sheet and cash flow a little later in the presentation. Please go to slide number six. Our Americas segment was resilient in Q4 despite a weak quarter in residential markets. Revenue of $795,500,000 was up 6.1% on a reported basis and up 4.8% on an organic basis, led by our nonresidential business.

Our nonresidential business increased high single digits organically, driven by a combination of price and volume growth. Demand for our products remains healthy, supported by our broad end-market exposure. Our residential business declined high single digits, as favorable price was more than offset by volume declines as residential markets remain soft. Electronics revenue was up low double digits for the quarter and for the full year 2025, and continues to be a long-term growth driver for Allegion. Additionally, reported revenues include 1.3 points of growth from acquisitions. Americas adjusted operating income of $216,200,000 increased 5.4% versus the prior year. Adjusted operating margin was down 30 basis points in the quarter.

Pricing and productivity net of inflation and investment were a 30-basis-point headwind to margin rates in the quarter; however, they were positive on a dollar basis as we were able to offset higher inflation in a dynamic environment. Additionally, mix was favorable to margin rates and offset volume deleverage in residential. Please go to slide number seven. Our International segment delivered revenue of $237,700,000, which was up 21.5% on a reported basis and down 2.3% organically. Growth in our Electronic businesses was more than offset by weaknesses in Mechanical. Net acquisitions contributed 16 points to segment revenue. Currency was also a tailwind, positively impacting reported revenues by 7.8%. International adjusted operating income of $39,400,000 increased 27.5% versus the prior-year period.

Adjusted operating margin for the quarter increased 90 basis points driven by accretive acquisitions, and favorable price and productivity net of inflation and investment. We continue to drive portfolio quality in the International segment through self-help, selective pruning of non-core assets, and adding high-performing businesses where we have a right to win. Please go to slide eight, and I will provide an overview of our cash flow and balance sheet. Year-to-date available cash flow was $685,700,000, up over $100,000,000 versus the prior year, primarily driven by higher EBITDA. I am pleased with the cash flow performance in 2025. For 2026, we anticipate our available cash flow conversion will be approximately 85% to 95% of adjusted net income.

Next, working capital as a percent of revenue increased in 2025 due to acquired working capital, which does not impact cash flow. Finally, our balance sheet remains strong, and our net debt to adjusted EBITDA is at a healthy ratio of 1.6 times, which supports continued capital deployment. I will now hand the call back over to John. Thanks, Mike. Please go to slide nine. And before we discuss the 2026 outlook, I want to provide an overview of our key end-market assumptions. In the Americas, we see continued volume growth in nonresidential markets similar to 2025 levels and this is supported by our spec-writing trends.

A broad end-market exposure and large installed base make for a resilient business, one that is less reliant on any single end-market vertical to drive growth. We do expect a more modest price contribution, however, to reflect slightly lower inflation as compared to last year. If inflation were to remain higher, the business has proven our ability to manage inputs and drive the necessary pricing as you saw in 2025. Residential markets were weak throughout 2025. Demand is likely to remain soft in 2026, and we expect Americas residential to be down slightly. For International, we see modest organic growth primarily driven by our Electronics businesses.

We have been focused on improving portfolio quality in International through a combination of self-help and acquisitions, which we believe supports growth in markets that remain sluggish. Please go to slide 10, and I will discuss our outlook for 2026. We expect total Allegion revenue growth to be 5% to 7% and organic revenue growth to be 2% to 4%. Total growth includes approximately one point of foreign currency translation and two points of carryover contribution from M&A primarily on Allegion International. We expect organic growth of low to mid single digits in the Americas from a combination of price and volume led by our nonresidential business.

We expect Electronics to outpace Mechanical growth consistent with our long-term performance and customer trends. In the International segment, our outlook assumes low single-digit growth led by Electronics with largely stable Mechanical markets. Our adjusted EPS outlook is $8.70 to $8.90. This represents growth of approximately 8% at the midpoint inclusive of an approximate $0.10 headwind from a higher tax rate. You can find more details on our outlook slide and in the appendix. Please go to slide 11. In summary, Allegion is executing at a high level while staying agile and steadily delivering on the long-term commitments we shared with you at our Investor Day.

Our strong performance is led by an enduring business model in nonresidential America, double-digit Electronics growth, and accretive capital deployment as we acquired good businesses in markets where we have a right to win. I am proud of the Allegion team and appreciative of our strong channel partners. With that, we will take your questions. Operator: We will now move to the Q&A. For today's session, we will be utilizing the raise hand feature. If you would like to ask a question, simply click on the raise hand button at the bottom of your screen. Once you have been called upon, please unmute yourself and begin to ask your question.

We will be taking one question and one follow-up question only. Thank you. We will now pause for a moment to assemble the queue. Our first question will come from Joseph John O'Dea from Wells Fargo. Please unmute your line and ask your question. Joseph John O'Dea: Good morning. Can you hear me? John H. Stone: Yep. Hi, Joe. Joseph John O'Dea: Good morning. Can start on the resi side in the fourth quarter? I think you touched on it being kind of softer than anticipated.

And so just what you saw develop over the course of the quarter, the degree to which that extends into the early part of this year, whether that was more kind of destocking events or sell-through demand, and then on the pricing side of things as well if there was any need to adjust price there based on the demand you have. John H. Stone: Yeah, Joe, thanks for the question. I think certainly, resi in the Americas ended the year softer than we had contemplated. And honestly, resi throughout the year was a little choppy.

Let us say, we put up mid single-digit growth in the third quarter really largely on the heels of a very successful new product launch, then a pretty soft Q4. I would say ’26 started off better, let us just say. But just looking at resi, it did end softer than we had contemplated. And I think that is part of the things that just cause us to at least take what we think is a very prudent assumption into 2026 that we would expect resi to be soft, and certainly, should there be an uptick in that market, we are positioned very well to capture upside there.

I would say with your question around pricing, no, there was not any short-term reaction on pricing nor do I think that contributed to any of the demand softness. The last point would be our channel does not hold a lot of inventory, and so any inventory correction-type actions are usually very short lived. Joseph John O'Dea: Got it. And then on the Americas organic outlook, and the low single digit, mid single digit, just any color as we think about price and volume components of that? Is that a little bit more price than volume, the price carryover tailwind, and then how you think about that volume progression over the course of the year?

Is the volume growth expected to get better, and is that a function of comps or anything that you are seeing in the spec activity that would suggest a little bit better demand environment as we go through 2026. Michael J. Wagnes: Yeah, Joe. So thanks for the question. I would say as you think about Americas for ’26, we expect to see both price and volume growth, but as you suggested, more pricing than volume growth for the year. I do not like to give quarterly outlook, but I would be happy to unpack it qualitatively for you.

As you know, the Americas, as you start the year in Q1, revenue levels are similar to the revenue in Q4 in total historically, and then from there, we tend to have higher revenue in the middle two quarters. We expect that same seasonality where the middle two quarters are our largest quarters, and obviously, Q4 a little less. So as you model this, I think that could help you qualitatively. In addition, you do have to look at the prior-year comp as you think about pricing and margins for that matter. You have to consider how we finished in each quarter for 2025 as you think about that pricing impact for the next year.

Obviously, ’25, we had not yet felt the inflationary impacts from tariffs, so you did not have the pricing or the inflation. So hopefully, that helps you as you think about unpacking the year from a top line. Joseph John O'Dea: It does. Thanks, Mike. Operator: Our next question will come from Tomohiko Sano from JPMorgan. Please unmute your line and go ahead. Good morning, everyone. Michael J. Wagnes: Good morning. Joshua Pokrzywinski: Thank you for taking my questions. Joseph John O'Dea: So you maintained secular leading margins despite the higher cost, repricing, productivities, and acquisition synergies. Can you break down the contributions from each of these levers and which will be most important in 2026, please? Michael J.

Wagnes: Yeah. Tom, we put all that information in our 10-K. So when you get a chance, you can look at it for the fourth quarter and full year. I guess the full year is in the K. I will share, obviously, on the enterprise level, we did get some margin tailwind from that pricing and productivity in excess of inflation and investment. There was a headwind in the Americas. That is a function of the tyranny of the math we have been talking about all year long. We also had some slightly favorable mix, but the residential volume deleverage we experienced kind of mitigated that in the Americas region as we highlighted.

As you think about 2026, you could back into the full-year margin expansion. You know we have all the components at the enterprise level. As you know, the Americas is our largest business, and we cannot drive the margin expansion without the Americas being in the similar ZIP code. So it kind of provides you at least a framework for the Americas as well. And then as far as the components, I would expect to have pricing and productivity in excess of inflation and investment on a dollar basis, and from a rate basis, I would not expect that to be a headwind in 2026. It was obviously in the Americas in ’25.

We do have that first quarter where you have that carryover impact, that last quarter as I mentioned in the previous answer. But for the full year, expect the price and productivity to be positive on a dollar basis and certainly not negative on a margin rate basis. Tomohiko Sano: Thank you, Mike. And a follow-up on International markets. So these markets are expected to see continued spike with growth primarily from acquisition and electronics. Can you provide more color on specific geographies, particularly Western Europe and Australia, and when you expect the demand recovery, please? John H. Stone: Yeah. Tomo, this is John. I appreciate that. And I think, yeah, we do see our Electronic businesses leading the way.

That is primarily a Western Europe-based business, and then within that, primarily a DACH region business, but we are expanding pan-Europe with that. And those businesses performed very well in 2025, and we expect continued growth out of them in ’26. I would say Australia, New Zealand, the end markets have not been great, and, you know, so a little bit of improvement there off of pretty weak comps I think is not totally out of the question. We will have to see. And then largely, I would just say Mechanical market remaining a little sluggish, like we said in the prepared remarks, and Electronics will lead the way for us, along with again some carryover contribution from M&A.

Tomohiko Sano: Thank you, John. Operator: Our next question will come from Brett Logan Linzey from Mizuho. Please unmute your line and ask your question. Brett, please unmute your line and ask your question. Tomohiko Sano: Okay. We will move on to the morning, Jay. Good morning. Sorry about that. Brett Logan Linzey: So, yeah, I just want to come back to the pricing dynamics for this year. So it looks like the industry implemented a conversion of the surcharge to list and then some incremental list above that. Maybe just talk about the pricing capture you expect this year on a net basis and what you are calibrating within the guidance framework? Michael J. Wagnes: Yeah, Brett.

So, obviously, our business does do, as you know, a combination of some surcharges, mostly list price increases. We expect 2026 to be more list price increases. Obviously, we will be agile and deal with the environment. We have learned a lot over the last few years that if things change, we will just adjust accordingly, but our going-in assumption is that inflation will be a little less than what you saw in 2025. So, therefore, we will get a little less pricing in total as we mentioned in the prepared remarks. I already talked about the rate benefit of that in a previous question.

And then total revenue enterprise and in Americas just expect a little more pricing than volume. And then if you get the organic within the framework we provided, you can kind of have an idea of each component. Brett Logan Linzey: I appreciate that, Mike. And then maybe just a follow-up on investments. The $9,000,000 tailwind in Q4 within Americas, is that just a function of the timing of some projects and some spending? Then how do we think about the investment allocation this year and if there is some flexibility around that budget? Michael J. Wagnes: Yeah.

Well, as I like to look at it, I like to look at it in combination of price and productivity has to fund the investments and the inflation. We have been talking about that a few years. Quarter to quarter, that can move around a little, but I would say in general, think of it as we are going to take the necessary pricing actions and drive productivity to fund both. And as I mentioned earlier, I do expect that to be a positive on a full-year basis. Obviously, as I mentioned as well, Q1 we do have that tough comparable in the prior year where you did not have the inflation or the investment.

So the ’26 you do have the carryover of that last quarter where you did not have the inflation investments. So that will weigh on margin rates. But full year, you can back into the enterprise margin expansion and just remember that the Americas will approximate that enterprise total as well from an expansion perspective. Brett Logan Linzey: Appreciate the detail. Pass it on. Operator: Our next question will come from Robert Schultz with Baird. Unmute your line and go ahead. Brett Logan Linzey: Hey, guys. Thanks for taking the question. Maybe as you think about ’26, in the Americas, what are you assuming for institutional and commercial volume growth?

You think they are pretty similar, or do you expect outperformance in one of those verticals? Michael J. Wagnes: You know, Bobby, when we think about our business, we would not want to give volume growth nonres versus res, so I certainly do not want to dive into select verticals within the nonres market. I will just refer you back to John’s prepared remarks where he talked about that broad end-market exposure and just understanding our business, our outlook supported by our spec activity as well. But I really do not want to give subvertical details of volume. Robert Schultz: Understood.

And then just on M&A, how does your pipeline look today, and are you seeing any increasing competition for deals now? John H. Stone: Yeah. It is a good question. This is John. Pipeline is very active, I would say, in both our International and our Americas segments, and largely in line with the strategic overlay we shared with you at our Investor Day last May in terms of core Mechanical portfolio, Electronics, and even complementary software. So I think pipeline is busy. I think it is a very encouraging outlook.

And with all that being said, you can still count on us to be quite disciplined and making sure we are sticking very close to our strategy, understanding where we have got competitive advantage, right to play and a right to win, and very much focused on our shareholder returns. Robert Schultz: Got it. Thank you. Operator: Our next question will come from Andrew Obin with Bank of America. Please unmute your line and go ahead. Andrew Obin: Hi. Yes. Good morning. Michael J. Wagnes: Hi. Good morning, Andrew. Andrew Obin: Just a question on, I guess, M&A and capital allocation. I mean, you know, the markets have been sort of sluggish for a while.

You guys have been able to deliver consistent EPS growth in pretty tough markets. You know, you chose to allocate a lot more capital to M&A this year. I am just wondering, given that you are laying a foundation, why do you not think that Allegion stock is a better sort of use of cash? Why did you not think your own stock is the best value out there? And just maybe give us some insights how you and the board have gone through the thought process where you chose M&A acceleration versus Allegion stock this year? Thank you. John H. Stone: Yeah. Andrew, this is John. Appreciate the question.

And, you know, I think that is why we have taken the time to put together a very consistent view of capital allocation across all of the different areas in our quarterly earnings deck as just a standard piece that we speak to. And so, I would say the priority is towards profitable growth. And that is why we will take time each quarter, this quarter too, talking about some highlights around investing for organic growth. That is the top priority for our use of cash. And then as you look to what are the other elements of capital allocation, we are a dividend-paying stock. We will continue to be a dividend-paying stock.

You can expect that dividend to grow commensurate with our earnings growth. And then, again, an orientation towards profitable growth. And so, yeah, as we started the year, we did have some share repurchase. We do have an open authorization with our board. And as that is the right decision at the right time when the conditions are there, we can do that, and we have a supportive board there. When we have very attractive acquisition targets that we can bolt on and integrate into an existing business unit structure and drive synergies and drive accretive returns to the shareholders, we are going to do that.

And so I thought what you saw in really the last two years is this whole theme of expect Allegion to be balanced and disciplined and consistent with our capital allocation to drive shareholder returns. Andrew Obin: Thank you. And maybe a little bit more color on markets growth. You know, you sort of highlighted DACH. How is Interflex business doing? And maybe a little bit more color what is happening in—thanks so much. John H. Stone: I am thrilled that you asked that question, Andrew. I am so proud of our Interflex team. You know, it is kind of an interesting business. It tends to kind of ramp up its revenue and profitability as the year goes on.

So, you know, September is kind of slow and December looks great. Right? It is just kind of an interesting business that way. Blue-chip customer base. We have put in resources to grow the Flex and the plano solutions across Europe. Doing very well. They had a bang-up year. They are really delighting their customers. We are finding ways to get AI into the software offerings just to help our customers get all the reports and the data that they need. And they are growing very, very nicely. Just super proud of that business. Andrew Obin: So we are making progress moving beyond the core sort of German manufacturing base? Absolutely. So much. John H. Stone: Thank you. Thank you.

Yeah. Operator: Our final question in the queue comes from Christopher M. Snyder with Morgan Stanley. Please unmute your line and ask your question. Christopher M. Snyder: Thank you. Hopefully, everyone can hear me. I wanted to ask around Americas margins. Q4 came in down year on year modestly. I understand that obviously, margin—zero margin revenue via—when you guys were growing margins. Tariffs is a headwind, but that does not seem all that dissimilar from Q2 and Q3. So did the Q4 decline just a function of resi volumes turning lower versus Q3? There still seems like there was a lot of tailwinds in the quarter between mix and then the productivity, what seems quite positive as well.

So just any other kind of color unpacking the year-on-year margin for Americas in Q4? Thank you. Michael J. Wagnes: Yes, Chris, you are thinking about it the right way. If you look at residential in the fourth quarter, down high single digits, and we did, as I mentioned in the prepared remarks, have some positive pricing. So when you think about volume, volumes were even worse than the total residential. So that is a pretty substantial volume decline. That is the delta when you think of Q3 versus Q4. Q3, right, you are growing mid single. And so that is a 10 to 15, depending on how your rounding works, delta between the two quarters.

And that explains why the margins were different. Christopher M. Snyder: Thank you. I appreciate that. And then I know you have kind of flagged a couple times that Q1 has this tough margin comp, and we can certainly see that. But I guess if we look past Q1 and kind of think Q2 to Q4, does the guide assume that Americas kind of get back to that target 35 or so incremental margin rate, Q2 to Q4, once we have all the tariff revenue in the comp? Thank you. Michael J. Wagnes: Yeah.

If you think about the fundamentals of the business, right, that core incrementals we laid out at Investor Day, after we get through Q1, that still holds. Think of that core incrementals being strong once we get through that Q1. So as you think about the full year, margin expansion in the Americas, like I mentioned earlier, just that one more quarter we need to get through. But the business fundamentals remain sound and consistent with what we talked about at Investor Day where we can leverage that volume once we get through this last quarter of the tyranny of the math. Christopher M. Snyder: Thank you. I appreciate all the help. Have a great rest of the day.

Thanks, Chris. Operator: At this time, I see no callers in the queue. So I will hand the call back to John H. Stone for closing remarks. John H. Stone: Thanks very much. Thank you all for the great Q&A. We look forward to speaking with you on our Q1 earnings call in April. Be safe, be healthy.

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