Tyco Second-Quarter Profit Rises on Drop in Costs
By: Administrative Account | Source: Bloomberg
May 4, 2006 7:33AM EST

May 4 (Bloomberg) -- Tyco International Ltd., the world's biggest seller of fire and security systems, lowered profit forecasts for its fiscal year as product recalls and higher commodity prices raised its costs. The company reported second-quarter profit from continuing operations of $1.08 billion, or 52 cents a share, up from $399 million, or 19 cents, a year earlier. Revenue rose 2.1 percent to $10.2 billion, the Pembroke, Bermuda-based company said in a statement today. Recalls have hurt revenue growth at the company's health- care division, while a reorganization at its security unit has damped profit. Higher commodity costs cut margins at Tyco's electronics unit. Investors are punishing Chief Executive Officer Ed Breen for missing growth goals, sending the company's shares down 25 percent in the past 16 months. ``The market got very disappointed that they had missed numbers,'' Charles Bobrinskoy, vice chairman of Ariel Capital Management LLC, said before the earnings release. ``The stock is trading at much less than the value of the individual parts.'' The firm owns about 40,900 Tyco shares. For the fiscal year through September, Tyco lowered its forecast to a range of $1.80 to $1.85 a share, excluding some items. Breen in January had projected $1.85 to $1.92. On that same basis, profit in the quarter that ended in March was 45 cents a share, beating Breen's forecast of 40 cents to 42 cents. Beating Estimates The shares rose 1 cent to $27.35 in New York Stock Exchange composite trading yesterday. They are down 11 percent since the day before Breen's January announcement of plans to break up the company, which is run from West Windsor, New Jersey. Excluding some costs and gains, the company was expected to earn 42 cents a share in the second quarter and $1.83 for the year, the average estimates of at least 15 analysts polled by Thomson Financial. The company also forecast profit of 46 cents to 48 cents a share in the third quarter, below the 50-cent average of analysts surveyed by Thomson. ``Expectations are generally low for Tyco,'' Nicole Parent, an analyst at Credit Suisse First Boston, said in a note to clients before the release. She has a ``neutral'' rating on the stock. Thomson spokesman John Butters declined to provide details of what was included in the projections. Breen's 2006 forecast excludes costs related to the breakup, which may total $1 billion. It includes the cost of paying employees with stock options. More Costs Breen in February said Tyco would have second-quarter costs of $450 million because of settlements related to legal matters, mostly at the health-care unit. At Tyco's electronics division, the world's biggest maker of connectors used in circuit boards and cellular phones, higher prices for copper and gold chipped at profits. Copper for delivery in three months rose 55 percent to $4,862 per metric ton on the London Metal Exchange in the first quarter from a year earlier. It was up 18 percent from the fourth quarter. Tyco plans to spin off its electronics and health-care divisions. Breen, 49, will stay to run the company's fire, security and industrial valves units. (Tyco's conference call to discuss earnings will be available at 8:30 a.m. New York time on {LIVE <GO>}.

To contact the reporter on this story: Rachel Layne in Boston at rlayne@bloomberg.net. Last Updated: May 4, 2006 07:10 EDT