Tyco Beats, Guides Steady

Tyco International Ltd (TYC) reported 65 cents in diluted earnings per share from continuing operations for the fiscal first quarter of 2010. This was above the Zacks Consensus Estimate of 61 cents. Revenue in the quarter of $4.25 billion declined 4% versus the prior year with an organic revenue decline of 9.6%.

Segment Results

ADT Worldwide

Revenue of $1.8 billion declined 3% organically as the 5% growth in recurring revenue was more than offset by a 13% organic revenue decline in Systems Installation and Service. Recurring revenue which represented over 55% of ADT's total revenue in the quarter continues to perform well. However Systems Installation and Service revenue continues to be impacted by the weak economy.

Despite pressure on the top line, the operating margin improved 180 basis points over the prior year. Restructuring activities along with cost containment actions and growth in higher margin recurring revenue business more than offset volume headwinds, resulting in the year-over-year operating margin improvement.

Flow Control

Revenue in the quarter was $923 million with an organic revenue decline of 14%. Valves declined 15%, water declined 10% and thermal controls declined 14% due to continued softness in capital spending in key markets. Before special items, operating income was $118 million and the operating margin was 12.8%. The operating margin performance for the quarter was better than expected, due to product mix, particularly the strength of thermal controls during the winter months. However the significant volume de-leveraging resulted in a 170 basis point decrease in the operating margin before special items. Protection Services

Revenue for the quarter was $833 million and the organic revenue declined 6% as it continued to experience softness in Systems Installation revenue and to a much lesser degree in service revenue. Service represents about half of Fire's revenue and declined 2% organically as growth in Inspection and Maintenance revenue was more than offset by customers delaying other service projects. Systems Installation revenue declined by 10% organically in the quarter due to weaker demand in key markets.


Safety Products

Revenue in the quarter was $358 million with an organic revenue decline of 14%. Organic revenue growth of 4% in Life Safety was more than offset by soft demand in Fire Suppression and Electronic Security markets. Organic revenue declined 22% in Fire Suppression and 10% in Electronic Security. Before special items, operating income was $53 billion and the operating margin was 14.8%. Better-than-expected operating income in the quarter resulted from product mix in particular higher margin Life Safety and Electronic Security products.

Electrical and Metal Products

Revenue of $297 million in the quarter and experienced organic revenue decline of 30%. The revenue decline was primarily due to significantly lower selling prices for both steel and copper products. Decreased volume also contributed to the decline, although to a much lesser extent. Operating income before special items of $23 million was as expected. On a year over year basis, lower revenue was almost fully offset by improved steel strengths.

Looking Ahead

In the second quarter, the company expects revenue and operating income before special items to be similar to the first quarter. Based on in-market demand and pricing activity in the quarter, as well as the seasonal lift we get in the summer months, the company expects operating income before special items for the full year to equal approximately $120 million in Electrical and Metal Products business.

Tyco International Ltd. is a diversified company that provides vital products and services to customers around the world. Tyco is a leading provider of security products and services, fire protection and detection products and services, valves and controls, and other industrial products. Tyco had 2009 revenue of more than $17 billion and has more than 100,000 employees worldwide.

We currently have a Neutral recommendation on TYC.