Security services provider Tyco International Ltd. (TYC) reported first-quarter fiscal 2015 income from continuing operations (before one-time items) of $209 million or 49 cents per share versus $198 million or 42 cents per share in the year-ago quarter. The year-over-year increase in adjusted net income was driven by continued productivity initiatives and capital allocation.
This is the sixth consecutive quarter when Tyco reported double-digit recurring earnings growth. Adjusted earnings for the reported quarter were in sync with the Zacks Consensus Estimate.
GAAP income from continuing operations was $163 million or 39 cents per share versus $246 million or 53 cents in the year-ago quarter. The year-over-year decline in reported earnings was driven by higher selling, general and administrative expenses as well as significant restructuring and asset impairment charges.
Revenues decreased to $2,479 million in the reported quarter from $2,493 million in the year-earlier quarter, missing the Zacks Consensus Estimate of $2,500 million. Organic revenues improved 2%, led by 10% year-over-year growth in Global Products. Inorganic growth contributed 1.0%, partially offset by the impact of divestitures.
Segment Performance
North America Systems Installation & Services: First-quarter revenues were down 1% year over year to $951 million driven by weak Canadian dollar. Segment organic growth of 1% was offset by a 1% decline in installation revenue.
Backlog was $2.5 billion, up 5% year over year. Operating income came in at $105 million versus $117 million in the prior-year quarter. Operating margin declined to 11.0% from 12.2% in the prior-year quarter due to restructuring charges.
Rest of World Systems Installation & Services: Revenues decreased 6% year over year to $917 million primarily due to adverse currency translation effects. Organic revenue growth was relatively flat.
Backlog of $2.1 billion increased 2% year over year. Operating income came in at $69 million versus $95 million in the prior-year quarter. Operating margin stood at 7.5% versus 9.8% in the prior-year quarter.
Global Products: Revenues were $611 million in this segment, up 8% year over year, driven by organic growth. Organic revenues were up 10%, with healthy growth across all three product platforms. Operating income came in at $98 million versus $86 million in the prior-year quarter. Operating margin stood at 16.0% versus 15.2% in the prior-year quarter.
Acquisitions
Tyco completed five acquisitions during the quarter in tune with its strategic priorities. These acquisitions focused on key areas of growth for Tyco and expanded its services platform.
The most notable acquisition was that of Texas-based gas & flame detection products manufacturer Industrial Safety Technologies from venture capital firm Battery Ventures for $329.5 million. The purchase augmented Tyco’s gas & flame detection capabilities across the globe and will generate additional revenues.
With a strong presence across diversified markets in Europe, the Middle East, and the U.S. Gulf Coast region, Industrial Safety Technologies offers Tyco an increased market penetration for cutting-edge industrial safety solutions. The transaction is expected to generate annualized revenues of $140 million for Tyco.
Tyco completed the other four acquisitions for a total of $140 million in cash. These included a fire and security service business in the U.K., a thermal imaging business, a Chinese fire suppression products business, and a majority investment in an interactive intrusion platform to expand its Internet of Things capabilities. On an annualized basis, these strategic purchases are likely to generate additional revenue of $100 million.
Balance Sheet and Cash Flow
Cash and cash equivalents at quarter end were $473 million with long-term debt of $1.2 billion. Cash provided from operating activities totaled $96 million with a free cash flow of $4 million. Adjusted free cash flow was $42 million for the reported quarter.
During the quarter, the company repurchased 10 million shares for $417 million. Tyco has an additional $1.0 billion authorization for share repurchases.
Outlook
Despite relatively healthy first quarter results with 17% increase in recurring earnings per share, foreign currency headwinds have force Tyco to trim its fiscal guidance. The company presently expects fiscal 2015 recurring earnings within $2.30 and $2.40 per share, which at the midpoint would represent an 18% year-over-year improvement. For the second quarter, the company anticipates recurring earnings to be in the range of 48 cents–50 cents per share.
Moving ahead, Tyco is set to boost its healthy organic growth momentum as it seeks opportunities to expand its revenue base. According to the company, its strong balance sheet provides flexibility so as to continuously fund organic and inorganic growth initiatives and maximize return for its shareholders.
Tyco currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth a look now in the industry include Federal Signal Corp. (FSS), General Dynamics Corp. (GD) and Digimarc Corp. (DMRC), each carrying a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment