Tyco International plc (TYC)

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Tyco International (TYC)

Q1 2013 Earnings Call

January 29, 2013 9:00 am ET

Executives

Antonella Franzen

George R. Oliver - Chief Executive Officer and Director

Arun Nayar - Chief Financial Officer and Executive Vice President

Analysts

Ajay Kejriwal - FBR Capital Markets & Co., Research Division

Jeffrey T. Sprague - Vertical Research Partners, LLC

Scott R. Davis - Barclays Capital, Research Division

Nigel Coe - Morgan Stanley, Research Division

Julian Mitchell - Cr├ędit Suisse AG, Research Division

Charles Stephen Tusa - JP Morgan Chase & Co, Research Division

Gautam Khanna - Cowen and Company, LLC, Research Division

Presentation

Operator

Welcome to the Tyco First Quarter Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, please disconnect at this time. I will now turn the call over to Antonella Franzen, Vice President of Investor Relations. You may begin.

Antonella Franzen

Good morning, and thank you for joining our conference call to discuss Tyco's first quarter results for fiscal year 2013 and the press release issued earlier this morning. With me today are Tyco's Chief Executive Officer, George Oliver; and Chief Financial Officer, Arun Nayar.

I would like to remind you that during the course of today's call, we will be providing certain forward-looking information. We ask that you look at today's press release and read through the forward-looking cautionary informational statements that we've included there.

In addition, we will use certain non-GAAP measures including normalized earnings per share in our discussions, and we ask that you read through the sections of our press release that address the use of these items. The press release issued this morning and all related tables, as well as conference call slides, which contain summary financial information, can be found on the Investor Relations portion of our website, at tyco.com.

Please also note that we will be filing our first quarter SEC Form 10-Q later today. In discussing our segment operations, when we refer to changes in backlog and order activity, these figures exclude the impact of foreign currency. Additionally, references to operating margins during the call exclude special items, making them non-GAAP metrics. These non-GAAP metrics are reconciled in the schedules attached to our press release.

Now, let me quickly recap this quarter's earnings. Earnings per share from continuing operations attributable to Tyco common shareholders was $0.34 and included charges of $0.06 related to special items. These charges related primarily to separations and restructuring activities.

Earnings per share from continuing operations before special items was $0.40 compared to the prior year quarter of $0.26. As we mentioned on last earnings call, EPS this fiscal year is not comparable to the prior year, as the prior year's results include corporate and interest expense associated with supporting the ADT and Flow Control businesses.

Additionally, our 2013 results are being impacted by the synergies associated with the separation of the Commercial Security operations in North America from ADT. Normalizing last year's results for these items, the comparable prior year earnings per share before special items would have been $0.36.

Now, let me turn the call over to George.

George R. Oliver

Thanks, Antonella. Good morning, everyone. We were off to a great start as the new Tyco. During our first quarter, we made a lot of progress in bringing the teams together as an integrated Fire and Security company and executing on our growth strategy. We also continued to strengthen our competitive capabilities across our businesses. Both organically and through acquisitions, we have started to see the increased benefits from our productivity initiatives.

Overall, our first quarter results reflect a year-over-year increase of 11% in earnings per share before special items on a normalized basis, a solid beginning to fiscal 2013.

In line with our growth strategy, our Installation and Services segment benefited from increased service revenue across most geographic regions, and our product businesses continue to reap the benefits of our focused R&D spend to drive new product introductions.

Additionally, we've strengthened our service platform and augmented key vertical markets with recent acquisitions and accelerated our growth rate in high-growth markets.

Before I turn to our business results for the quarter, let me quickly touch on each of these items. First, service revenue, including recurring revenue, represented nearly 45% of total revenue in the quarter.

Given the integration of our Fire and Security businesses, we are uniquely positioned to bring differentiated solutions to our combined customer base. We expect this will allow us to accelerate the rate of service revenue growth to 5% over the next few years.

Second, we continued to fund engineering and product development with double-digit increases year-over-year. It is these types of investments which drive new or enhanced product introductions. For example, this quarter in Fire protection products, we introduced a new liquid vehicle system under our ANSUL brand, which is a new liquid agent system technology for mobile equipment, particularly suited for the mining verticals. It is a holistic approach to fire suppression, with early fire detection and fast actuation to control and suppress flames in seconds. This new technology positions us well for future growth in the mobile equipment market.

In Security Products, we developed the fastest IP camera on the market, with improvements in the speed, the camera can pan, tilt and zoom. This significantly boosts the capabilities we provide for our customers, where precision and detail can make all the difference.

On a separate front, we are also upgrading our existing residential panels and keypads, integrating the Visonic PowerG wireless technology obtained from our recent Visonic acquisition.

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