New York: Industrial conglomerate Tyco International Ltd reported better-than-expected quarterly profits and sales on Tuesday and said it will spin off its electrical and metal products business to shareholders.
Tyco’s net earnings were $310 million, or 65 cents per share, for the fiscal second quarter ended 26 March, compared with a loss of $2.6 billion, or $5.42 per share, a year earlier, when results included large charges.
Earnings from continuing operations were 59 cents per share, excluding items. Analysts, on average, had expected a profit of 55 cents per share, according to Thomson Reuters.
Revenue of $4.17 billion compared with Wall Street forecasts for $4.14 billion.
The company did not immediately update its full-year earnings forecast but said it would do so on its conference call.
This earnings season, many companies have been beating expectations by 10% or so, so Tyco’s beat is actually slightly disappointing and its full-year outlook will be key, said Oliver Pursche, executive vice president with Gary Goldberg financial services in Suffern, New York. The firm runs the GMG Defensive Beta Fund and holds Tyco shares in separate accounts.
Sales rose at Tyco’s ADT Worldwide security unit and its electrical products segment, but fell in the fire protection and flow control segments.
ADT, the biggest unit, boosted its operating income and improved margins, as higher recurring revenue offset weakness in new system installations, which reflects the ongoing malaise in nonresidential construction.
Spinning Off a Unit
Separately, Tyco said on Tuesday it would spin off its electrical and metal products business via a tax-free distribution to shareholders. The unit makes steel tubes and pipes and other components for construction and other uses. Its 2009 sales totaled $1.4 billion.
Tyco expects the transaction to be completed in the first half of its 2011 fiscal year. It is currently in the third fiscal quarter of 2010.
Although the economy is improving, free cash flow “is king” for a company like Tyco, which could put the money toward growing through acquisitions or a higher dividend, Pursche said. Its cash position is improving and will be enhanced further by the spin-off, he said.
“They’re going to be able to demand some pretty rich valuations,” Pursche said. “I wouldn’t be surprised if they were able to fetch in the $15 billion to $18 billion range.”
In 2008, Tyco spun off its electronics and healthcare businesses into separate publicly traded companies, Tyco Electronics Ltd and Covidien Plc.
Tyco is expected to close a $1.9 billion deal next month to buy Brink’s Home Security Holdings Inc, which operates as Broadview Security and provides residential and commercial security services, to expand its ADT business.