Tyco Trims Guidance

The big conglomerate cites rising steel prices and issues at its electronics unit.
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Tyco

(TYC)

trimmed earnings guidance Tuesday, citing rising steel prices and slowing growth in its electronics business.

Tyco also posted a 3% gain in third-quarter revenue and set a $1.5 billion stock buyback plan.

For the quarter ended July 1, the Pembroke, Bermuda, conglomerate earned $1.19 billion, or 56 cents a share, up from the year-ago $923 million, or 43 cents a share. Latest-quarter numbers were aided by a 15 cents-a-share gain from the divestiture of the Tyco Global Network, partly offset by a 9-cent charge on debt retirement. Excluding those items, latest-quarter earnings were 49 cents a share, 2 cents ahead of the Thomson First Call analyst consensus.

Revenue rose 3% from a year ago to $10.56 billion, just shy of the $10.67 billion Wall Street estimate. Revenue was flat in the fire and security unit and rose 2% at the electronics business, 3% organically. Health-care revenue rose 8% and engineered products revenue rose 4% from a year ago. Revenue rose 6% at the plastics unit, but operating income there dropped sharply. Tyco continues to try to sell the unit.

Cash flow from operating activities was $1.6 billion, and the company generated free cash flow of $1.25 billion in the quarter.

"Tyco's third quarter results reflect our ongoing efforts to build the operating foundation of this company," said CEO Ed Breen. "While we have made a great deal of progress, this is a long-term process and there is much more to be accomplished."

Tyco paid $620 million in cash to repurchase $448 million of convertible debt securities, reducing fully diluted shares outstanding by 20 million shares and generating a charge of $179 million, or 9 cents a share. The company said it has reduced shares outstanding by 96 million this way over the last year.

For the fourth quarter, Tyco guided toward adjusted earnings of 46 cents a share, 8 cents shy of the Thomson First Call estimate. The company cited lower operating income in its engineered products and services division, "primarily due to dynamics in the steel market," and a modestly higher tax rate for the company. For the full year, this would result in EPS from continuing operations excluding special items of $1.85 to $1.87, vs. the $1.90 estimate. The company expects full-year cash from operating activities of $6.0 to $6.4 billion and free cash flow of $4.2 billion to $4.6 billion.

For 2006, Tyco sees adjusted earnings growth of 10% or so, which would put its target in the range of $2.05 a share, about 20 cents shy of the Wall Street estimate. "This outlook reflects a continuation of growth trends the company has been experiencing in the Electronics and Fire & Security segments and the impact this has on operating margins," Tyco said. "The company further expects that 2006 free cash flow will exceed net income excluding special items."

Early Tuesday, Tyco shares were at $30.82.