Tyco International warns on 2009; shares slide
Tyco International Ltd (TYC.N: Quote, Profile, Research, Stock Buzz) warned that fiscal-year profit would be well below Wall Street forecasts because of the economic downturn and the impact of the stronger U.S. dollar, sending the industrial conglomerate's shares down 14.6 percent, Reuters reported.
The outlook on Tuesday came as Tyco reported higher-than-expected quarterly earnings on strong pricing in its electrical and metal products segment and increased demand for its valves and temperature controls.
The company said commercial markets were slowing in its ADT security business, the stronger U.S. dollar would hurt its flow control division, and tighter government budgets would affect spending on its safety products.
While Tyco said results were hard to predict, it forecast earnings of $2.20 to $2.50 per share from continuing operations for the year, which began on September 27. Analysts, who had recently cut their profit outlooks, were expecting $3.02, according to Reuters Estimates.
Sales from existing businesses will be flat to down 4 percent for the year, Tyco said.
Morgan Stanley analyst Scott Davis said nearly all of Tyco's businesses face macroeconomic challenges, and ADT may start losing commercial customers at a faster pace.
"Tyco is one of only five out of 30 industrial names that we continue to rate overweight but as today's trading shows, there is pretty much nowhere to hide," Davis said in a note to clients. "However, Tyco is one of the first names in the space to set realistic guidance and it remains one of the few stocks in our coverage universe that can buy back stock."
The company added that restructuring benefits, a lower tax rate and fewer shares outstanding would support 2009 earnings as operating units focus on controlling costs and maintaining pricing. It said that it would continue to look for acquisitions, but would be more cautious about share buybacks until credit markets stabilize.