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Tyco International Ltd. (TYC - Analyst Report) reported first quarter 2014 GAAP income from continuing operations of $270 million or 57 cents per share, a significant improvement from $159 million or 34 cents per share from the year-ago quarter. However, the reported earnings beat the Zacks Consensus Estimate of 45 cents per share. The year-on-year increase in earnings was driven by strong execution across all three segments.

Excluding non-recurring items, income from continuing operations stood at $222 million or 47 cents per share versus $195 million or 41 cents per share in the year-ago quarter.

Revenues for the quarter increased 2% year over year to $2,647 million, but were below the Zacks Consensus Estimate of $2,662 million. Organic revenues improved 1.5% in the quarter, primarily led by a 2% increase in products and a 2% improvement in service. Installation revenue remains unchanged from the prior year on an organic basis.  Acquisitions contributed 2% growth, which was offset by the impact of divestitures and changes in foreign currency exchange rates.

Segment Performance

North America Systems Installation & Services: First quarter revenues decreased 2% year over year to $957 million due to the divestiture of the guarding business. A 2% increase in service revenue was offset by a 3% decline in installation resulting in flat organic revenue growth.

Backlog in the quarter stood at $2.4 billion, flat year over year. Operating income in the reported quarter was $117 million versus $108 million year over year.  Operating margin stood at 12.2% versus 11.1% in the prior year.

Rest of World Systems Installation & Services: Revenues in the first quarter increased 3% to $1.1 billion driven by acquisitions, but offset by negative impact of divestitures and changes in foreign currency exchange rates. Organic revenue growth was 2% with service revenues rising 2% and installation revenues going up 3.0%. Backlog of $2.7 billion increased 11% year over year, excluding the impact of foreign currency. Operating income in the reported quarter was $125 million versus $114 million year over year.  Operating margin stood at 11.1% versus 10.5% in the prior year.  

Global Products: Revenues of $565 million from this segment improved 6% year over year, driven by acquisitions. Organic revenues were up 2%. Operating income in the reported quarter was $86 million versus $74 million year over year.  Operating margin stood at 15.2% versus 13.9% in the prior year.

Balance Sheet and Cash Flow

Cash and cash equivalents at quarter-end were $479 million, while long-term debt aggregated $1,443 million. Cash from operating activities totaled $123 million with free cash flow of $24 million, which included a net cash outflow of $25 million.  Adjusted free cash flow for the reported quarter was $49 million.

The company repurchased 6.6 million shares for $250 million during the quarter.
Acquisitions and Disposals    

During the quarter, Tyco International closed the acquisition of Westfire, Inc., a leading fire installation and services business in the mining and special hazard verticals in the United States, Chile and Peru. This acquisition is expected to generate approximately $80 million in revenues in fiscal 2014 and provides the company a platform for further growth in Latin America.

Furthermore, during the quarter, the company divested its Armourguard business in New Zealand and its fire and security business in Fiji.


Moving ahead, Tyco International believes that its strong balance sheet provides flexibility to continuously fund organic and inorganic growth initiatives and maximize return for its shareholders. Additionally, accretive acquisitions are expected to strengthen the company’s position by broadening its product and service offerings in the long term. There are also signs of a recovery in non-residential construction markets in North America, stability in Europe and going forward the company expects to capture double-digit growth in its markets.

Share prices dipped in pre-market trading as investors probably expected a more positive outlook from the company with a healthy beat in earnings.

Tyco currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth a look include Carlisle Companies Inc. (CSL - Snapshot Report), Hutchison Whampoa Ltd. (HUWHY) and Crane Co. (CR - Snapshot Report), each carrying a Zacks Rank #2 (Buy).

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