(TYC) Tyco International Exceeds Consensus Estimates

November 14th, 2009

Tyco International Ltd. (TYC) reported fourth-quarter earnings per share from continuing operations of 61 cents. This was higher than the Zacks Consensus Estimate of 54 cents per share.

Quarterly Revenues of $4.4 billion declined 16% versus the prior year with an organic revenue decline of 12%. For the largest operating segment, ADT Worldwide, revenues of $1.8 billion declined 9% in the quarter with an organic revenue decline of 5% and a 4% decline due to changes in foreign currency. ADT’s recurring revenues grew 4% organically on a global basis. Systems installation and service revenue declined 14% organically, mostly due to weakness in North America and Europe, as a result of continuing lower sales to commercial customers Incorporatedluding the retailer end market.

For Flow Control, revenues of $1 billion declined 15% in the quarter with an organic revenue decline of 10%. Organic revenues declined 7% in the Valves business, 17% in Water and 12% in Thermal Controls. In Fire Protection Services, revenues of $904 million declined 11% in the quarter with an organic revenue decline of 7%. Service revenues declined 5% organically and installation revenues declined 8% driven by continued softness in the North American and EMEA regions. Revenues declined 45% in the Electrical and Metal Products segment and 25% in Safety Products on a year-over-year basis.

Operating income was $226 million in the quarter and the operating margin was 12.6%. Special items of $31 million resulted primarily from restructuring activities. The operating margin before special items improved 160 basis points to 14.3%, as cost-containment initiatives, restructuring activities and growth in ADT’s higher-margin recurring revenue business more than offset volume declines.

Cash from operating activities was $985 million in the quarter. The company had free cash flow of $614 million, which included cash payments of $84 million for restructuring and legacy legal matters.

Cash and equivalents were $2.3 billion with long-term debt at $4 billion and shareowners’ equity at $12.9 billion.

The company’s large and growing service revenue base has provided stability and consistency to its performance in 2009 and now represents about 40% of its total revenues. A significant portion of service revenues is contractual recurring revenue in ADT, which grew 4% organically for the year with growth across all geographic regions.

Throughout the year the company was very active in executing cost containment programs, which resulted in charges of about $250 million. These actions, which are expected to provide incremental savings of $175 million in 2010 Incorporatedluded staffing reductions as well as the consolidation of both back office operations and manufacturing facilities.

The company anticipates an organic revenue decline of 11% to 13% for the first quarter of 2010. Partially offsetting this decline will be the currency tailwind which is estimated at about 5% of revenue. This brings the total revenue for the quarter to approximately $4.1 billion Tyco expects earnings per share from continuing operations before special items in the first quarter to be between 48 and 50 cents. The Zacks Consensus Estimate is currently 52 cents.

Tyco is a diversified, global company that provides vital products and services to customers around the world. Tyco is a leading provider of security products and services, fire protection and detection products and services, valves and controls, and other industrial products. Major competitors include General Electric Co. (GE), Honeywell International Inc. (HON) and United Technologies Corp. (UTX).

We currently have an Outperform recommendation on TYCO.

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(TYC) Tyco International Exceeds Consensus Estimates

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