Tyco International Beats on Q2 Earnings, Share Price Fall - Analyst Blog

By Zacks Equity Research,

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Shares of Tyco International Ltd ( TYC ) dipped 2.18% on Friday following the announcement of its second quarter 2014 results, as it failed to cheer investors' sentiments with almost flat revenues year over year .However, the company reported second quarter 2014 GAAP income from continuing operations of $183 million or 39 cents per share, a significant improvement from $51 million or 11 cents per share in the year-ago quarter. The year-over-year improvement in earnings was driven by lower operating expenses.

Excluding non-recurring items, income from continuing operations stood at $212 million or 45 cents per share versus $175 million or 37 cents per share in the year-ago quarter. The adjusted earnings beat the Zacks Consensus Estimate of 40 cents

Revenues for the quarter edged up 0.5% year over year to $2,487 million, but were below the Zacks Consensus Estimate of $2,516 million. Organic revenues improved 2.0% in the quarter, primarily led by a 2% increase in products, a 1.5% improvement in service and 1% growth in installation. Acquisitions contributed 2% growth, which was offset by the impact of divestitures and changes in foreign currency exchange rates.

Segment Performance

North America Systems Installation & Service s: Second quarter revenues edged down 1% year over year to $939 million due to the divestiture of the guarding business and foreign currency impacts. A 2% increase in service revenue was offset by a 1% decline in installation resulting in 1% organic revenue growth.

Backlog in the quarter stood at $2.4 billion, flat year over year. Operating income in the reported quarter was $99 million versus $79 million year over year.  Operating margin stood at 10.5% versus 8.3 % in the prior year.

Rest of World Systems Installation & Services : Revenues in the second quarter was flat year over year to $943 million driven by acquisitions, but offset by negative impact of divestitures and changes in foreign currency exchange rates. Organic revenue growth was 2% with service revenues rising 1% and installation revenues going up 3.0%. Backlog of $2.3 billion increased 11% year over year, excluding the impact of foreign currency. Operating income in the reported quarter was $103 million versus $77 million year over year.  Operating margin stood at 10.9% versus 8.2% in the prior year.  

Global Products : Revenues were $605 million in this segment, up 5% year over year, driven by acquisitions. Organic revenues were up 2%. Operating income in the reported quarter was $107 million and operating margin stood at 17.7%.

Balance Sheet and Cash Flow

Cash and cash equivalents at quarter-end were $495 million, while long-term debt aggregated $1,442 million. Cash from operating activities totaled $262 million with free cash flow of $187 million, which included a net cash outflow of $133 million. Adjusted free cash flow for the reported quarter was $320 million.

The company approved an additional $1.75 billion authorization for share repurchases bringing the total authorization to $2 billion.

Acquisitions and Disposals    

During the quarter, Tyco International entered into an agreement to divest its South Korean security business, ADT Korea, for $1.93 billion

Also, Tyco's remaining stake in Atkore International, the company's former electrical and metal products business, was redeemed by Atkore for $250 million in cash.


Moving ahead, Tyco International believes that its strong balance sheet provides flexibility to continuously fund organic and inorganic growth initiatives and maximize return for its shareholders. The company expects to witness uplift in its top line, as continued growth in service and products revenue is being supported by a rise in installation revenue. As per the three-year growth strategy outlined, the company is on track to deliver 15% EPS Compounded Annual Growth Rate (CAGR) through 2015.

TYC currently has a Zacks Rank #4 (Sell). Other stocks that look promising and are worth a look now include Noble Group Ltd . ( NOBGY ), Federal Signal Corp ( FSS )  and Icahn Enterprises, L.P . ( IEP ), each having a Zacks Rank #1 (Strong Buy).

FED SIGNAL CP (FSS): Free Stock Analysis Report



TYCO INTL LTD (TYC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Stocks: CAGR , FSS , IEP , NOBGY , TYC

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