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Tyco Shares Climb as Profit Exceeds Estimates

Wednesday, 16 Nov 2011 05:46 PM

Shares of Tyco International Ltd. jumped to the highest level in two weeks after earnings beat analysts’ estimates and the company’s breakup kept to its schedule.

Excluding some items, profit of 92 cents in the fiscal fourth quarter through Sept. 30 topped the average estimate of 86 cents from analysts’ projections compiled by Bloomberg.

The split, planned for this fiscal year, is ending a decade in which Chief Executive Officer Ed Breen transformed the scandal-plagued conglomerate into a Standard & Poor’s 500 Index outperformer. It will create standalone companies from ADT’s North American residential security, flow-control and the world’s biggest commercial security and fire-systems business.

“Overall, we are on track with the separation process,” Breen said in a conference call with analysts Wednesday. “The most complicated work is in our legal, tax and finance reporting groups and we are making good progress in each of these areas.”

Tyco, based in Schaffhausen, Switzerland, gained 2.6 percent to $46.99 in New York, the highest since Oct. 28. The gain was the seventh biggest among stocks in the S&P 500 Index, which fell Wednesday. Tyco has advanced 13 percent this year, compared with a 1.7 percent drop for the benchmark index.

The company is recruiting new board members for companies created in the split and building out management capabilities, Breen said. Tyco may make three or four acquisitions totalling about $250 million this year, he said. The company needs to get them done in the first half because the amount of work to finish the separation will “kind of freeze” any activity in the second half, he said.

Restructuring Charges

Tyco will incur restructuring costs of $125 million to $150 million in 2012 in addition to the $700 million related to the separation previously announced by the company. In 2011, restructuring- and acquisition-related charges were $126 million, Chief Financial Officer Frank Sklarsky said on the call.

Fourth-quarter net income climbed 50 percent to $400 million, or 85 cents a share, from $266 million, or 53 cents, a year earlier, according to a statement Wednesday.

Sales climbed 4.4 percent to $4.69 billion, topping the average analysts’ estimate of $4.51 billion. The beat was due largely to gains in the fire-safety and flow-control units, Julian Mitchell, a New York-based analyst at Credit Suisse AG, said in a note to clients.

Extra Week

Tyco benefited from an extra week in the quarter, which added $143 million in revenue, or 2 cents a share, C. Stephen Tusa, an analyst with JPMorgan Chase & Co. in New York, said in a note.

“Core sales accelerated as the year progressed, ending at the high point, and orders at Flow are encouraging for the outlook,” wrote Tusa, who has an “overweight” rating on the stock.

Tyco forecasts earnings of $3.50 to $3.60 a share in fiscal 2012, excluding some items, Breen said on the conference call. Analysts predicted $3.61 on average.

Revenue will be $17.5 billion to $17.7 billion, spurred by 4.5 percent to 5 percent of so-called organic growth, which excludes acquisitions, Breen said.

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