U.S. News

Tyco International Profit Beats Forecasts


Tyco International reported higher-than-expected operating earnings Tuesday in the initial quarterly report following its break-up into separate companies, helped by strength at its two largest remaining businesses.


The company, which in June completed the spinoff of its Tyco Electronics and Covidien health care businesses, posted positive trends in its ADT security operation and the flow control unit, which makes valves, pipes and other products for the energy and water industries.

"The bottom line is that this is not a break-out quarter, ... (but) the consistent progress is positive," JP Morgan analyst Stephen Tusa said in a research note.

Earnings from continuing operations before special items rose 10% to $277 million, or 55 cents per share, in the third quarter ended June 29 from $252 million, or 49 cents per share, a year earlier.

Analysts on average expected profit of 47 cents per share, according to Reuters Estimates. Forecasts ranged from 29 cents to 52 cents as analysts tried to understand the new company, its growth prospects, tax structure and other factors.

Revenue from continuing operations, which strips out the divested businesses, was up 8% to $5.09 billion, compared with Wall Street forecasts for sales of $5.01 billion.

Results by Division

Tyco , whose remaining operations also include fire and safety products, said sales rose at four of its divisions, but fell in its electrical and metal products segment.

The flow control segment reported a 22% sales increase and said operating profits jumped 43%, reflecting strong global demand.

Operating earnings fell at three other divisions. The safety products segment reported a profit, reversing a year-earlier loss.

Tusa said both ADT and flow showed positive trends, while other segments were generally in line with his expectations.

David Bleustein of UBS agreed, calling ADT and flow results "solid."

Tyco said it expected sales would be up 6% to 7% in its fourth quarter and estimated an operating profit margin before special items of 9% to 9.5%.

The company also said it expects its tax rate to stand at 30% to 32% in the fourth quarter, at 27% in 2007 and at 25% in 2008, Chief Financial Officer Christopher Coughlin said on a conference call with analysts.

Tyco also expects revenue at each of its segments to rise in the fourth quarter, both year-over-year and compared with the quarter just ended.

Chief Executive Ed Breen said the company would consider "bolt-on acquisitions" to its fire, security and valve businesses and that he expected the cost-saving benefits of restructuring to kick in during 2008.

Breen also said the company would return cash to shareholders through dividends and buybacks.

"We're not going to sit on any excess cash," Breen said.

Tyco broke itself up to give investors a clearer choice and to move past its reputation as a scandal-ridden company.

The company's shares were down 38 cents at $47.62 in early trading. The stock has fallen about 10% since July 2, double the loss of the Standard & Poor's 500 in that time.