Tyco Warns on Future Profits, Though Recent Earnings in Line

Tyco International Ltd. (TYC) Thursday reported quarterly profit roughly in line with its lowered forecast and forecast disappointing earnings for the current period on weakness in its health care and fire and security divisions.

The diversified manufacturer, which is in the process of splitting into three companies, said it continued to face costs from product recalls and regulatory compliance in the health care business, as well as lower contracting margins in the fire and security unit.

The Bermuda-based company said net income fell to $570 million, or 28 cents per share, in the first quarter ended Dec. 30, from $730 million, or 34 cents a share, a year earlier.

The latest results include a loss of 11 cents per share from discontinued operations. Tyco in December said it would sell its plastics and adhesives business.

Earnings from continuing operations rose to 39 cents per share from 34 cents, topping recently lowered forecasts by a penny.

Tyco, whose products range from fire extinguishers to surgical instruments and anti-theft devices used in stores, said all four of its divisions reported lower operating margins and income, although sales grew in the electronics and engineered products units.

"We are not satisfied with our operating performance this quarter, and we are focused on addressing the issues that arose in several areas," Chief Executive Ed Breen said in a statement.

Total revenue of $9.71 billion missed Wall Street expectations of $9.78 billion.

Analysts in recent weeks have expressed disappointment in the performance of the health care business, which accounts for about 40 percent of overall operating profit. The division's growth in the past two quarters lagged its industry peers by a wide margin, analysts said.

Operating income in health care fell to $539 million from $581 million, and margins fell to 23.6 percent from 25.1 percent.

In its warning last month, Tyco cited product recalls and regulatory issues in its respiratory and imaging unit and capacity problems in its drugs business.

Also last month, Tyco said it would break up into three separate, publicly traded companies early in 2007, through tax-free stock dividends to its shareholders.

One company will be Tyco Healthcare, and the second will be Tyco Electronics. The third will combine Tyco's Fire & Security and Engineered Products & Services divisions.

Tyco said it expected profit of 40 cents to 42 cents per share from continuing operations for its second quarter, compared with analysts' expectations of 47 cents.

Tyco said revenue growth will be similar to the first quarter.

For the full year, the company forecast profit of $1.85 to $1.92 per share. Analysts on average were expecting $1.89.

Tyco shares are down 23 percent over the year, lagging both the broader market and the shares of other diversified conglomerates.