Tyco 2Q profit falls 67 percent after shedding businesses
TRENTON, N.J.—Tyco International Ltd.'s fiscal second-quarter profit tumbled 67 percent, mainly due to the loss of substantial profits from now-discontinued operations.
Despite the large hit, the company still beat Wall Street expectations significantly.
The diversified manufacturer, best known for its ADT alarm systems, said Thursday that its net income fell to $280 million, or 57 cents per share, in the quarter ended March 28. A year ago -- before the conglomerate split into three companies to sharpen their focus -- it posted net income of $835 million, or $1.66.
The "new Tyco," as one executive termed it, posted income from continuing operations of $273 million, or 56 cents per share. Excluding some charges, earnings at the trimmed-down company amounted to 67 cents per share.
That was a dime better than the 57 cents expected by analysts surveyed by Thomson Financial, who typically exclude one-time items. But analyst Nicole Parent of Credit Suisse noted in a report that about 5 cents came from a relatively low tax rate, 23.1 percent. That will rise, as executives said they expect a rate of about 25 percent for the full year.
Revenue climbed 8 percent, to $4.87 billion, slightly less than the $4.94 billion analysts were expecting. Favorable currency exchange rates boosted sales about 5 percent.
Shares of Tyco, which is nominally based in Bermuda but has operational headquarters in West Windsor, N.J., fell 2.4 percent on Thursday.
Looking ahead, the company raised its fiscal 2008 profit forecast to a range of $2.65 to $2.75, up 5 cents from its January forecast, citing its strong first-half performance and improved outlook.
"Overall, we had a good quarter and made solid progress in executing our key initiatives," Ed Breen, chairman and chief executive officer, told analysts during a conference call. "We continue to grow our revenue and make improvement in our operating margins across all our businesses."
Breen noted the company has a deal to acquire FirstService Security, to strengthen ADT, and expects to receive more than $1 billion from divesting three noncore businesses: Ancon Building Products, sold April 30; Nippon Dry-Chemical, sold Feb. 29, and Infrastructure Services, to be sold soon.
In the second quarter, the ADT Worldwide business posted revenues of $1.97 billion, up 4 percent.
Breen said ADT's residential business, nearly three-quarters of which is in North America, continues to add customers despite the U.S. economic slowdown.
However, all but 1 percent of the segment's growth came from exchange rates rather than internal growth, noted Parent. She had expected ADT revenues to grow by 5.5 percent.
The flow control business, which makes industrial valves and thermal controls, saw revenues jump 17 percent, to $1.02 billion. Revenues rose 13 percent in the electrical and metal products segment, to $542 million, and 5 percent in fire protection services, to $861 million.
Tyco said it has bought back $145 million of its stock since Feb. 5 and a total of $676 million under a $1 billion share repurchase announced in September.
For the first six months, net income totaled $643 million, or $1.31 per share, down 60 percent from $1.63 billion, or $3.23, a year earlier. Revenues totaled $9.7 billion, up 10 percent.
On Wednesday, Tyco agreed to pay New Jersey $73.3 million to resolve state charges of securities fraud involving a former management from the era of now-imprisoned former CEO L. Dennis Kozlowski. Breen noted his company is trying to quickly resolve several other lawsuits from that period.
That liability is shared by the three companies resulting from Tyco's breakup last June: the current Tyco International, Tyco Electronics Ltd. of Berwyn, Pa., and health products company Covidien Ltd. of Mansfield, Mass.
Tyco shares fell $1.14 to close at $45.65 on Thursday.
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