Tyco Fails to Impress (update)

Tyco reported an 85% drop in fiscal Q4 earnings to $181M, or $0.36/share, due to restructuring costs and the absence of income from discontinued operations. However, adjusted EPS of $0.57 beat analyst expectations of $0.55. Revenue growth of 8.9% to $5.03B was also better than expected (est. $4.98B). In June, Tyco spun off Tyco Electronics and Covidien, its healthcare division. Tyco said revenues rose across the board, but profits were higher only at its flow control (pipes and valves) unit. Tyco also said from this quarter it is counting its infrastructure services unit, which is up for sale, as a discontinued operation. A Goldman analyst who rates Tyco's shares Sell commented to clients in a note ahead of Tyco's earnings release that, "After an unexpected change in ADT accounting policy in the first quarter post-separation, Tyco may now have a higher bar to regain favor with investors." In a statement, Tyco's CEO Ed Breen said the company "had a good finish to the year and made progress on a number of key initiatives that we expect to drive solid earnings growth in 2008," (earnings call transcript later today).

Revenue was "was disproportionately driven by Flow - up 16%. No other business grew more than 3.3% [ADT] organically. ADT and Fire slowed sequentially, and could be feeling the effects of weaker construction markets," Citigroup analyst Jeffrey Sprague commented in a post-earnings note. "Margins declined versus last year in 4 of 5 segments... [Cash] flow margins slipped sequentially and versus last year despite the strong revenue performance."

Shares of Tyco lost 1.9% to $39.31 on Wednesday and are down another 2.3% to $38.64 Thursday.

Sources: Press release, Bloomberg, MarketWatch, Reuters
Commentary: Tyco Posts $3.55B Q3 Loss, But Earnings From Continuing Operations Beat • Why I Passed On the Tyco Spinoffs • Tyco Spinoffs' Valuation Uninspiring
Stocks to watch: TYC. Competitors: GE, HON, UTX. ETFs: XLI, IYJ, VIS

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