Tyco Misses on Stronger Top Line - Analyst Blog

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Tyco International Ltd ( TYC ) reported results for the second quarter 2012. Earnings for the quarter (excluding one-time items) grew 18% year over year to 86 cents a share. However, earnings were well below the Zacks Consensus Estimate of 96 cents.

GAAP earnings for the quarter were 70 cents a share which were up 7.0% year over year compared to 66 cents reported in the prior-year quarter.

Revenue for the quarter grew 9% year over year to $4.4 billion. Organic revenue (revenue excluding the impact of foreign exchange translation and acquisitions) growth was 7%.


Segment Details

Effective second quarter 2012, the company has reorganized its business segments as Fire & Security, ADT and Flow Control.

Fire & Security

Revenue for the quarter increased 5% to $2.6 billion. Organic revenue for the quarter grew 3.5% driven by acquisitions adding 3% partially offset by 1% unfavorable foreign exchange. Organic revenue growth of 14% in fire and security products and 3% in service was partially offset by a 1% organic revenue decline in systems installation due to softness in the non-residential construction market.

However, excluding the impact of foreign currency, orders increased 9.5% year-over-year and backlog increased 5% to $4.7 billion on both a year-over-year and sequential basis.

ADT

Revenue increased 5% in the quarter both on a GAAP and organic basis to $807 million. Revenue growth was driven by 3.5% growth in average revenue per user (ARPU) and 2% growth in customer accounts. The 13.2% attrition rate for the quarter was flat year over year, although it increased 20 basis points sequentially.

Flow Control

Revenue of $996 million increased 24% in the quarter with organic revenue growth of 21%. Organic revenue grew 18% in Valves, 21% in Water and 32% in Thermal Controls. Excluding the impact of foreign currency, orders increased 21% year-over-year and backlog increased 4% on year over year and sequential basis to $1.9 billion.

Balance Sheet and Share Repurchase          

For the second quarter of 2012, cash from operating activities was $716 million while free cash flow (after deducting capex) was $326 million. Cash and cash equivalents for the quarter were $1.0 billion.

During the second quarter of 2012, the company repurchased 2.1 million shares for $100 million.

Guidance

Concurrent with the earnings release, management provided guidance for the third quarter.  Revenue for the third quarter is expected to increase a little above $4.5 billion.

Based on the company's performance year-to-date, management has increased its full year earnings guidance to approximately $3.65 compared to its previous guidance of $3.55 to $3.60 per share.

Conclusion

The company has reported a strong second quarter performance driven by robust organic revenue growth. Order momentum over the last few quarters, coupled with continued growth in the ADT Residential business continues to drive higher top line growth.

Tyco's large and stable base of recovering and service revenue, which represented 45% of its revenue in the quarter, coupled with strong operating leverage led by the Fire and Security manufacturing businesses, drove the operating performance during the reported quarter. All the three operating segments of the company also posted strong revenue growth.  

Tyco International currently has a Zacks Rank #2 which implies short-term Buy rating on the stock.


 
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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 The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

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