Tyco International Surges After Profit Tops Estimates

- Tyco International Ltd. rose the most in more than six years in New York trading after the world’s largest maker of security systems posted first-quarter profit and sales that exceeded analysts’ estimates.
Tyco International climbed $3.93, or 19 percent, to $24.27 at 4:15 p.m. in New York Stock Exchange composite trading, the biggest percentage increase since July 26, 2002. The shares are up 12 percent so far this year.
Sales excluding acquisitions, divestitures and currency effects fell 1 percent, beating the company’s November forecast of as much as a 3 percent decline. Restructuring and other expenses declined from a year earlier. Tyco raised its estimate for cost-cutting charges this year to as much as $150 million from $50 million as it shrinks to cope with the slowing economy.
Better-than-expected results “were driven by substantially better operating margins,” Nigel Coe, an analyst at Deutsche Bank, wrote in a note to clients. “With growth in the recurring revenue and modest backlog build, this result will likely be viewed in a favorable light.” He has a “buy” rating on Tyco.
Profit from continuing operations declined 24 percent to $272 million, or 57 cents a share, from $360 million, or 72 cents, a year earlier, the Bermuda-based company said today in a statement. Revenue in the quarter ended Dec. 26 fell 8.5 percent to $4.43 billion.
Excluding some items, Tyco International earned 61 cents a share. The average of 12 analysts’ estimates compiled by Bloomberg was for 47 cents on sales of $4.39 billion. Results fell in each of Tyco’s five main divisions, hurt by the strengthening U.S. dollar and weak demand in North America and Europe.

2009 Forecast
For the year ending in September, per-share profit will be $2.28 to $2.50 a share, excluding potential restructuring costs of 8 cents a share, Tyco International said. That’s in line with the previous November forecast that included such costs and was $2.20 to $2.50.
Tyco International decided to exclude the restructuring costs because they aren’t yet set and to make the forecast “as neat and clean as possible,” Chief Executive Officer Ed Breen said on a conference call. As economic conditions become more clear, Tyco will update the forecast on cost cutting, he said. The unchanged $2.50-a-share end of the range reflects a reduced outlook for the electrical and metal unit.
“While the environment is clearly more challenging, I believe we have the appropriate focus and disciplines to address our cost structure and our long-term growth initiatives,” Breen said on the call.
Swiss Move
In the second quarter, total revenue will be $4.2 billion to $4.3 billion, while per-share profit should be 40 cents to 43 cents, excluding about 6 cents in restructuring costs and other expenses, Breen said. Currency translation will shave about $500 million, Breen said.
The electrical and metal products segment will likely have a better second half of year than first as costs improve, Breen said.
“We see Tyco as one of only a few names within industrials that we would buy both relative and absolute,” Scott Davis, a Morgan Stanley analyst, wrote in a note to investors today, citing results and the 2009 forecast. He has an “overweight” rating on the stock.
Tyco International, run from West Windsor, New Jersey, projected on Nov. 11 that first quarter profit from continuing operations excluding some items would be 46 cents to 49 cents a share.

The company said it December it is seeking to move its headquarters to Switzerland, which has an established tax treaty with the U.S.
Director Resignation
Tyco International agreed to sell most of its infrastructure business known as Earth Tech to Aecom Technology Corp. for $510 million in the 2008 second quarter. The company agreed to sell its Ancon building products unit for $174 million in cash in the third quarter.
The company also said today that Admiral Dennis C. Blair has resigned from the board after President Barack Obama appointed him as director of national intelligence.



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