Tyco Beats Q2 Adjusted Earnings, Misses Rev.
Tyco International Ltd. (TYC) reported income from continuing operations of $132 million or 28 cents per share in third quarter fiscal 2013 versus $65 million or 14 cents per share in the year-ago quarter.
Excluding non-recurring items, income from continuing operations stood at $233 million or 50 cents per share versus $223 million or 47 cents per share in the year-ago quarter. Quarterly adjusted earnings beat the Zacks Consensus Estimate by a couple of cents.
Revenues for the quarter increased 1% year over year to $2,678 million, missing the Zacks Consensus Estimate of $2,707 million. Organic revenue improved 1% in the quarter, primarily led by a 5% growth in products and a 3% growth in service, partially offset by a 4% decline in installation revenues.
Segment Performance
North America Systems Installation & Services: Third quarter fiscal 2013 revenues for this segment plummeted 4% year over year to $966 million due to continued project selectivity in the commercial security business. Organic revenue dipped 3% year over year, including a 2% service growth and an 8% decline in installation. Backlog in the quarter stood at $2.5 billion, up 1% sequentially, excluding the impact of foreign currency. Operating income in the reported quarter was $88 million with an operating margin of 9.1%.
Rest of World Systems Installation & Services: Revenues for third quarter fiscal 2013 increased 2% to $1.1 billion, driven by acquisitions but offset by negative impact of foreign currency translation. Organic revenue growth was 2% with service revenue up 4% but installation revenue down 1%. Backlog of $2.6 billion increased 3% sequentially, excluding the impact of foreign currency. Operating income for the segment was $104 million while the operating margin was 9.4%.
Global Products: Revenues of $600 million from this segment improved 7% year over year, driven by acquisitions. Organic revenues were up 5% across all the three product platforms. Operating income was $114 million and operating margin was 19% in the reported quarter.
Balance Sheet and Cash Flow
Cash and cash equivalents at quarter-end were $455 million, while long-term debt aggregated $1.5 billion. Cash from operating activities totaled $265 million with free cash flow of $167 million, which included a cash outflow of $106 million related to special items. Adjusted free cash flow for the reported quarter was $273 million.
During the reported quarter, Tyco International repurchased 3.1 million shares for $100 million under its $750 million share repurchase program. Currently, the company has an additional $500 million worth of share repurchase remaining under the program.
Acquisitions and Disposals
During the quarter, Tyco International penned an agreement to acquire Exacq Technologies, a developer of open architecture Video Management Systems (:VMS) for security and surveillance applications, for an undisclosed amount. This acquisition is expected to generate approximately $75 million in revenues in fiscal 2014.
Furthermore, during the reported quarter, the company completed the acquisition of National Fire Solutions Group – a provider of fire protection services in Australia including installation, inspection and maintenance services. National Fire is expected to contribute revenues of $65 million in 2014.
During the quarter, Tyco International completed the divesture of its North America guarding business, which had generated revenue of $75 million in fiscal 2012.
Outlook
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. Additionally, accretive acquisitions are expected to strengthen the company’s position by broadening its product and service offerings in the long term.
Tyco International currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth considering now in the industry include United Technologies Corp. (UTX), Hutchison Whampoa Ltd. (HUWHY) and Macquarie Infrastructure Company LLC (MIC), each carrying a Zacks Rank #2 (Buy).
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