Earnings Show Amphenol More Than Holding Its Own Against Tyco

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Includes: APH, TYC
by: William Trent, CFA

Tyco International Ltd. (NYSE:TYC) reported diluted GAAP earnings per share from continuing operations of $0.42 for the fiscal second quarter of 2007. Results include charges of $0.05 per share for separation activities and $0.02 per share for restructuring in connection with Tyco’s previously-announced restructuring program. Revenue in the quarter increased 7 percent versus the prior year to $10.8 billion, with organic revenue growth of 4.4 percent.

Analysts were expecting the company to earn $0.47 on $10.77 billion in sales. But we are actually more concerned about the implications for Amphenol (NYSE:APH). As we have noted before, Tyco’s electronics division is one of Amphenol’s primary competitors. By seeing how Tyco is doing in the market we can gauge how successful Amphenol’s efforts have been.

Tyco had this to say about the performance of Electronics:

Revenue increased 10 percent in the quarter with organic revenue growth of 6 percent. Solid growth in the automotive, industrial machinery, aerospace and defense, power utility, undersea telecommunications, mobile phone and consumer electronics markets was partially offset by sales declines in the computer and communication service provider markets. Geographically, growth was strong in Europe and Asia. In North America, with the exception of strong growth in the undersea telecommunications business, revenue declined modestly. The segment’s book to bill ratio was 1.03 in the quarter.

Operating income decreased 2 percent to $455 million. Operating income before special items increased 1 percent. Operating earnings were adversely impacted by $43 million of higher material costs, primarily copper, and modestly higher investment in engineering and selling. Special items in the quarter included $15 million of restructuring and asset impairment costs compared to $4 million in the prior year quarter.

Amphenol had 14% sales growth but did not break out the organic growth from that of acquisitions. Their 18.8% operating margin far exceeded Tyco’s 13.3%. All in all, Amphenol seems to be more than holding its own against its larger foe.

TYC-APH 1-yr chart:

TYC-APH 1-yr chart

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