Tyco Q4 Earnings Lag Estimates

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Tyco International Ltd (TYC) reported fourth quarter fiscal 2013 GAAP income from continuing operations of $162 million or 34 cents per share, a significant improvement from loss of $629 million or $1.36 loss per share incurred in the year-ago quarter. The year-on-year rebound to earnings was driven by accelerated growth in service and products along with increased benefits of productivity initiatives.

Excluding non-recurring items, income from continuing operations stood at $245 million or 52 cents per share versus $159 million or 34 cents per share in the year-ago quarter. However, the quarterly adjusted earnings missed the Zacks Consensus Estimate by a penny.

In fiscal 2013, Tyco International reported GAAP income from continuing operations of $527 million or $1.12 per share versus loss of $332 million or 72 cents per share incurred in the year-ago quarter.

Excluding non-recurring items, income from continuing operations stood at $871 million or $1.84 per share in fiscal 2013 versus $646 million or $1.38 per share in the year-ago quarter. Fiscal adjusted earnings beat the Zacks Consensus Estimate of $1.80.

Revenues for the quarter increased 1% year over year to $2,761 million, ahead of the Zacks Consensus Estimate of $2,759 million. Organic revenues improved 1% in the quarter, primarily led by an 8% increase in products and a 4% improvement in service. The positives were partially offset by a 6% decline in installation revenues. Further, acquisitions added 2% growth to the top line which was fully offset by the negative impact of divestitures and unfavorable currency translations.

Revenues for fiscal 2013 increased 2% year over year to $10,647 million. The fiscal revenues surpassed the Zacks Consensus Estimate of $10,617 million

Segment Performance

North America Systems Installation & Services: Fourth quarter revenues dropped 4% year over year to $996 million attributable to continued pressure in the non-residential construction market along with project selectivity. Organic revenues for the segment dipped 2% year over year, including a 5% service growth and a 10% decline in installation. Backlog in the quarter stood at $2.4 billion, down 2% year over year, excluding the impact of foreign currency. Operating income in the reported quarter was $113 million with operating margin of 11.3%.  

Rest of World Systems Installation & Services: Revenues in the fourth quarter increased 1% to $1.1 billion driven by acquisitions, but offset by negative impact of foreign currency translation. Organic revenue growth was 1% with service revenues rising 3%, but installation revenues going down 1.5%. Backlog of $2.7 billion increased 11% year over year, excluding the impact of foreign currency. Operating income for the segment was $110 million, while operating margin was 9.7%.
 
Global Products: Revenues of $627 million from this segment improved 12% year over year, driven by acquisitions. Organic revenues were up 8% across all the three product platforms. Operating income was $119 million and operating margin was 19% in the reported quarter.

Balance Sheet and Cash Flow

Cash and cash equivalents at year-end were $563 million, while long-term debt aggregated $1.4 billion. Cash from operating activities totaled $841 million with free cash flow of $445 million, which included a cash outflow of $381 million related to special items. Adjusted free cash flow for the reported quarter was $826 million.

The company approved an annual dividend increase of 13% from 64 cents to 72 cents per share, subject to shareholder approval in Mar 2014.

Acquisitions and Disposals    

During the quarter, Tyco International closed the acquisition of 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.

Additionally, the company also closed the acquisition of a majority ownership stake in Beijing Master Systems Engineering, a leading systems integrator of building and security systems in China.

Furthermore, during the quarter, the company signed a definitive agreement to sell its Armourguard business in New Zealand and its fire and security business in Fiji.

Subsequent to the quarter end, Tyco International acquired Westfire, Inc., a leading fire installation and services business in the mining and special hazard verticals in the United States, Chile and Peru. This acquisition is expected to generate approximately $80 million in revenues in fiscal 2014.

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 currently has a Zacks Rank #2 (Buy). Other stocks that look promising and are worth a look now are Nielsen Holdings N.V. (NLSN) having a Zacks Rank #1 (Strong Buy), Hutchison Whampoa Ltd (HUWHY) and ITT Corp.  (ITT)  both having a Zacks Rank #2 (Buy).

Read the Full Research Report on TYC
Read the Full Research Report on ITT
Read the Full Research Report on HUWHY
Read the Full Research Report on NLSN


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