Tyco Beats on Higher Revenues - Analyst Blog

Tyco International Ltd (TYC) reported earnings per share from continuing operations of 74 cents for the fourth quarter of 2010, exceeding the Zacks Consensus Estimate of 66 cents. The company's reported revenues of $4.49 billion was above the Zacks Consensus Estimate of $4.44 billion.

From a capital perspective, the company invested more to strengthen its businesses and returned excess cash to shareholders through dividends and share repurchases. First, the majority of business segments, including the service side of fire business grew revenue organically year over year.

Operating margins improved both year over year and sequentially, driven by close management efforts and a continued growth of recurring revenue and service activities. Additionally, increased volume in product and manufacturing businesses also contributed to the operating margin's improvement.

For ADT Worldwide, recurring revenues continued to perform well with 5% organic revenue growth. Total revenue of $1.95 billion increased 8% in the quarter with organic revenue growth of 3%. Excluding Broadview Broadview Security, which became part of ADT following the completion of Tyco's acquisition of the business on May 14, 2010, account base increased and disconnect rate continued to improve.

Growth in the Asia-Pacific and Latin American regions and improving conditions in North America offset the continued softness in Europe. There was a continued improvement in operating margin, both sequentially and year over year.

The operating margin improvement resulted from the continued benefit of restructuring and cost reduction activities, stronger operational performance in the commercial business, growth in ADT's higher-margin recurring revenue business and the contribution of the Broadview acquisition.

Turning to Flow Control, there was a year-over-year decline in revenues and operating margins. Revenues of $868 million declined 5% in the quarter with an organic revenue decrease of 5%. An 8% growth in Thermal Controls and a 9% growth in Water were more than offset by a 12% decline in the Valves business.

Fire Protection Services business had operating margin improvement both sequentially and year over year despite the continued pressure on the top line. Revenues of $893 million fell 1% in the quarter with an organic revenue decline of 1%.

Growth of 4% in service revenues was more than offset by a 6% decline in installation revenue. Due to normal seasonal decline, backlog decreased 4% to $1.2 billion on a sequential basis.

The continued investments made in Safety Products business to fund growth plans and maintain R&D sales and marketing spin throughout the economic downturn are starting to pay off. Revenues of $406 million increased 9% in the quarter. Organic revenues grew 13% due to higher volume in Electronic Security, Fire Suppression and Life Safety.

Electric and Metal products performed a bit better than expected in the quarter due to an improved pricing for both steel and copper products. Revenues of $376 million upped 15% in the quarter with organic revenue growth of 11%.

During the fourth quarter, the company completed the $1 billion share repurchase program. During the year, the company repurchased 24 million shares.

Tyco fulfills an incredibly wide range of the diversified needs of businesses and governments, educational and medical institutions, and commercial industries, ranging from food to automobiles. It also boasts of leading brand names for products and services under Flow Control, Fire Protection Services, Safety Products and Electrical & Metal Products portfolios.

We currently have a Neutral recommendation on Tyco International Ltd.