Tyco International Ltd TYC reported third-quarter fiscal 2015 adjusted income from continuing operations of 59 cents per share compared with 54 cents in the prior-year quarter. The adjusted earnings were ahead of the Zacks Consensus Estimate of 56 cents. The increase in earnings was driven by productivity and cost initiatives.
Net income from continuing operations came in at $188 million, down from $435 million in the year-ago quarter. GAAP income from continuing operations was 44 cents per share versus 93 cents per share in the year-ago quarter.
Revenues decreased to $2,489 million in the reported quarter from $2,660 million in the year-earlier quarter, missing the Zacks Consensus Estimate of $2,537 million. A stronger U.S dollar against foreign currencies had a negative impact of 7% on the top line. Organic revenues declined 1% in the reported quarter. Inorganic growth contributed 2%, partially offset by the impact of divestitures.
Segment Performance
North America Systems Installation & Services: Second-quarter revenues were $972 million versus $968 million in the prior year as organic growth was partially offset by a weak Canadian dollar. Segment organic growth of 1% was driven by growth in installation revenue, while service revenue was relatively flat.
Backlog was $2.5 billion, up 4% year over year. Operating income came in at $160 million versus $117 million in the prior-year quarter. Operating margin improved to 16.5% from 12.1% in the prior-year quarter, driven by improved execution and successful restructuring and productivity initiatives
Rest of World Systems Installation & Services: Revenues decreased 16% year over year to $842 million primarily due to adverse currency translation effects. Organic revenue declined during the quarter with decline in service and installation revenues.
Backlog of $1.9 billion decreased 1% year over year. Operating income came in at $57 million versus $102 million in the prior-year quarter. Operating margin stood at 6.8% versus 10.2% in the prior-year quarter.
Global Products: Revenues were $675 million in this segment, down 3.0% year over year, driven by organic growth. Organic revenues declined in the reported quarter. Operating income came in at $108 million versus $136 million in the prior-year quarter. Operating margin stood at 16.0% versus 19.6% in the prior-year quarter.
Acquisitions
During the quarter, Tyco completed the acquisition of FootFall – a global retail intelligence leader for approximately $60 million in cash. The addition of this business to Tyco's operations is likely to be accretive to future earnings.
Balance Sheet and Cash Flow
Cash and cash equivalents at quarter end were $531 million with long-term debt of $1.7 billion. Cash provided from operating activities totalled $249 million versus $152 million in the year-ago quarter. Free cash flow stood at $186 million versus $74 million in the year-ago quarter.
Outlook
Tyco expects fourth quarter 2015 recurring earnings to be in the range of 60 cents – 62 cents per share. For full year the company has lowered its guidance to a range of $2.23 – $2.25 per share from the prior range of $2.23 – $2.27 per share.
Tyco currently has a Zacks Rank # 4 (Sell). Other stocks that look promising and are worth a look now include Allegion plc Ordinary Shares ALLE, Lakeland Industries Inc LAKE and ASSA ABLOY AB ASAZY, all carrying a Zacks Rank #2 (Buy).
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