Tyco's Q1 Profit Dips 22 Percent

Tyco International Ltd. said Thursday its first-quarter profits plummeted 22 percent as it recorded a loss on asset sales and problems in its health care sector. The company's stock price slid almost 5 percent.

The conglomerate best known for its ADT home alarm systems said net income for the period ending Dec. 30 totaled $570 million, or 28 cents per share. That was down from $730 million, or 34 cents per share, a year earlier.

The latest results included a $237 million loss from discontinued operations on the sale of its plastics, adhesives and other businesses, as well as 2 cents per share from stock option expensing.

Earnings from continuing operations were $807 million, or 39 cents per share, a penny better than analysts had expected based on Tyco's January forecast.

Shares of the company, which is to split into three separate businesses by early next year, fell $1.30 to close at $24.80 on the New York Stock Exchange. Shares had been trading in a 52-week range of $25.66 to $36.24.

Revenue edged up 1 percent from last year to $9.71 billion, below the $9.81 billion expected by analysts polled by Thomson Financial.

"We are obviously not happy with the current performance of some of the businesses," CEO Ed Breen told analysts during a conference call.

Based in Bermuda, with operating headquarters in West Windsor, Tyco reported its fire and security business saw operating income fall by $55 million in the quarter, while health care declined $42 million.

That was due to $31 million in costs related to voluntary product recalls and the cost of complying with federal regulators, as well as a $20 million decline in retail sales. Expensing stock options at $12 million also cut into operating income, as did a $24 million investment into research, development and sales compared with the previous quarter.

"We just got hit with the perfect storm this year," said Rich Meelia, CEO of Tyco's health care division, a position he is to keep with the proposed split. He said he has changed top management in the health care division, separated quality assurance from the regulatory affairs division, and added hundreds of new sales staffers overseas.

Breen said the setbacks in the health care business are temporary and changes are afoot to improve fire and security's productivity and operating margins. In addition, he said Tyco will begin increasing prices for electronics to try to catch up with several quarters of rising costs of raw materials.

In the corporate split announced last month, Breen will remain head of Tyco's fire and security business, while electronics and health care will be spun off into separate operations.

The company is recovering from accounting scandals that resulted in the convictions and imprisonment last year of former CEO L. Dennis Kozlowski and former Chief Financial Officer Mark H. Swartz. Charged with looting hundreds of millions of dollars from the firm, both men are appealing their convictions.

Breen said he forecast second-quarter earnings from continuing operations of 40 cents to 42 cents per share, and full-year earnings of $1.85 to $1.92 per share. Both forecasts exclude possible one-time charges.

Analysts had forecast second-quarter earnings of 47 cents per share for the quarter and $1.88 per share for the year.

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On the Net:

Tyco International Ltd.: http://www.tyco.com


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