Tyco International CEO Discusses F4Q2010 Results – Earnings Call Transcript

Tyco International Ltd. (

TYC

)

F4Q2010 Earnings Call Transcript

November 9, 2010 8:30 am ET

Executives

Antonella Franzen – VP, IR

Ed Breen – Chairman and CEO

Chris Coughlin – EVP and CFO

Analysts

Scott Davis – Morgan Stanley

Nigel Coe – Deutsche Bank

Wanda [ph] – Bank of America Merrill Lynch

Jeff Sprague – Vertical Research Partners

Scott Gaffner – Barclays Capital

Gautam Khanna – Cowen & Company

Steven Winoker – Sanford Bernstein

Presentation

Operator

Compare to:
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» Tyco International Ltd. F4Q09 (Qtr End 09/25/09) Earnings Call Transcript

Welcome to the Tyco fourth quarter earnings conference call. (Operator Instructions) This call is being recorded. I would now like to turn the call over to Antonella Franzen, Vice President of Investor Relations. You may begin.

Antonella Franzen

Good morning and thanks for joining our conference call to discuss Tyco's fourth quarter results for fiscal year 2010 and the press releases issued earlier this morning. With me today, are Tyco's Chairman and Chief Executive Officer, Ed Breen and our Chief Financial Officer, Chris Coughlin.

Let me remind you that during the course of the call, we will be providing certain forward-looking information. We ask you to look at today's press release and read through the forward-looking cautionary informational statements that we've included there.

In addition, we will use certain non-GAAP measures in our discussions and we ask you to read through the sections of our press release that address the use of these items. The press releases issued this morning and all related tables, as well as the conference call slides, can be found on the Investor Relations portion of our website at Tyco.com.

When we refer to changes in average revenue per user, backlog and order activity, these changes are excluding the impact of foreign currency. Additionally, references to our operating margins during the call are excluding special items, which is a non-GAAP measure. Again, these non-GAAP measures are reconciled in the schedules attached to our press release.

Now, let me quickly recap this quarter's results. Revenue in the quarter of $4.5 billion was up 4% year-over-year with organic revenue growth of 2%. Earnings per share from continuing operations, attributable to Tyco common shareholders was $0.55 per share and included $0.19 of special items, primarily related to restructuring activities.

Earnings per share from continuing operations before special items was $0.74, compared to our guidance of $0.62 to $0.64, driven by approximately $0.03 per share of better operating results and $0.08 per share due to a better than expected tax rate.

Now let me turn the call over to Ed for some opening comments.

Ed Breen

Thanks, Antonella. And good morning, everyone. Overall, 2010 was a good year for Tyco. Not only am I pleased with our operating performance in yet another challenging year, but more importantly, I am pleased with how we have continued to position our businesses for future growth.

Before I get into our results for the quarter, I want to spend a few minutes reviewing the progress we made in 2010, in the key areas of cost management, growth investments, portfolio refinement and our focus on cash.

First, our cost management remained a top priority. Throughout the year, we were very active in identifying and executing cost containment initiatives and restructuring programs. These actions helped to offset the impact of the organic revenue decline we expected in 2010 and contributed to the 100 basis point improvement in our operating margin, year-over-year.

Second, we continue to invest in our businesses to strengthen our long-term competitive capabilities for both products and services. For example, the acquisition of Broadview Security increased our recurring revenue base. Broadview's solid and North American footprint brings additional capability and capacity to generate new high quality accounts, as well as additional install and service expertise.

Our capital spending grew modestly year-over-year, as it has each year through the downturn. A high percentage of our capital goes towards growth in our large service revenue base, which continued to grow nicely in 2010 and represented about 40% of our revenue. From a technology and innovation standpoint, we increased our engineering head count in our R&D centers around the world by almost 20% during the year.

Let me touch on a few of our service and product introductions this year. In our ADT North America business, we recently rolled out ADT Plus, our new interactive home security platform and we are supporting the launch with a highly visible advertising campaign.

In our Fire business, we are rolling out our remote diagnostic service, which allows us to remotely monitor our customers fire alarm network. This technology enables us to diagnose problems without a truck roll, reduces system downtime and improves our first-time fix rate.

And, our security products business recently released a new video management platform, which allows users to seamlessly integrate analog and IP cameras into a single solution.

Additionally, we continue to focus our efforts in emerging markets. During the year, we acquired two Brazilian valve manufacturers, which expanded and compliment our Flow Control product offerings and leadership position in South America.

Additionally, we have developed several localized products. For example, our Sensormatic business has recently introduced the Essentials solution set, which is a lower cost, anti-theft solution with features suitable for the emerging markets.

Third, we have completed the last major portion of our portfolio refinement with the sale of the majority interest in our electrical and metal products business. Earlier in the year, we took a meaningful step in repositioning ADT in Europe by divesting our business in France and more recently, we have exited some smaller non-strategic markets.

Last quarter, we announced the sale of our Flow Control European Waterworks business, which we recently completed. Over the last few years, we have significantly refined our portfolio around our three core platforms of Security, Fire and Flow Control and we have now reached a point where the heavy lifting is behind us.

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