Industrial conglomerate Tyco International Ltd posted higher-than-expected quarterly earnings, helped by revenue from services across its divisions and improved margins in its ADT security division, and its shares rose nearly 7 percent.
However, the company forecast current-quarter earnings below analysts' forecasts, partly because of higher corporate expenses and tax rates.
Net earnings fell 40 percent to $287 million, or 60 cents per share, in the third quarter ended June 26, from $476 million, or 98 cents per share, a year earlier, the company said Thursday.
Earnings from continuing operations were 58 cents a share, excluding special items. On that basis, analysts expected 45 cents, according to Reuters Estimates.
Revenue fell 19 percent to $4.24 billion, compared with Wall Street expectations for sales of $4.28 billion. Tyco said services, including recurring revenue such as monthly contracts, now account for 40 percent of total sales.
The fact they were able to grow recurring revenue is a strong sign, said analyst Guaylon Arnic of Profit Investment Management, which does not own Tyco stock but follows the company. (ADT) offset the segments with more cyclical exposure.
The biggest sales decline came in Tyco's electrical and metal products division, where revenue slumped by one-half, reflecting weak global demand for products used in electrical infrastructure. The segment was the only one of five divisions to post an operating loss.
Sales were down 10 percent in Tyco's biggest segment, ADT Worldwide, reflecting weak demand for security systems among commercial customers in North America and Europe. But recurring revenue rose, and the segment boosted its profit margin by cutting costs.
Tyco cited a strong performance in ADT's residential markets for the improved margins.
Bank of America/Merrill Lynch analyst John Inch called the results a strong beat that would please investors, despite high expectations coming into the quarter.
ADT appears to have stabilized, while the company's overall margin improvement would appear to reflect the benefits of Tyco's restructuring activities, Inch said in a research note.
Tyco shares rose 6.7 percent to $30.74 in early New York Stock Exchange trade.
AT Wednesday's close, the stock was up 90 percent from its 52-week low in November, far outperforming industrial peers in the S&P capital goods index .GSPIC, which was up 21 percent in that time.
Tyco, which this year reincorporated from Bermuda to Switzerland and lost its spot in the S&P 500 index .SPX, said it expected fourth-quarter profit of 50 cents to 53 cents a share, below Wall Street estimates of 56 cents.
The company raised its full-year forecast to a range of $2.25 to $2.28 per share, from its April outlook of $2.15 to $2.25.
The company has said it is focusing increasingly on three core areas: security products and services; fire products and services; and flow control technology.
We continue to see stabilization in our order activity on a quarter sequential basis, with slight improvement in fire, safety products and flow control, Chief Executive Ed Breen said on a conference call. It's much too early to draw any conclusions from these numbers.
Breen said order rates made the company cautious about buying back shares, and Tyco wanted to keep money on the sidelines for potential acquisitions. (Reporting by Nick Zieminski; Editing by Lisa Von Ahn and Jeffrey Benkoe)