UPDATE 3-Tyco profit beats expectations; shares gain

* Q3 shr ex-items 72 cents vs 64 cents expected

* Q3 rev up 3 pct to $4.27 bln

* Sees Q4 62 to 64 cents ex items, sales $4.4 bln

* Shares 16 cents higher (Recasts, adds outlook, CEO quote)

NEW YORK, July 29 (Reuters) - Industrial conglomerate Tyco International Ltd (TYC.N) set a fourth-quarter forecast on Thursday that fell short of Wall Street estimates, even as it reported a higher-than-expected quarterly profit.

Tyco, whose operations range from home security systems to fire safety products and industrial valves, was operating in a "continued challenging economic environment," Chief Executive Ed Breen said on the company's conference call.

The company said it expected fiscal fourth-quarter profit, excluding special items, between 62 cents and 64 cents per share, on sales of $4.4 billion. Analysts were looking for the company to earn 72 cents on sales of $4.57 billion in the current quarter.

"I'm slightly disappointed with the earnings," said Oliver Pursche of Gary Goldberg Financial services in Suffern, New York, co-portfolio manager of the GMG Defensive Beta Fund, which owns Tyco shares.

"We are much more concerned with forward-looking statements," Pursche said. "Today's report doesn't create any urgency to add to the (stock) position."

The company, which has been reshaping its portfolio to emphasize core areas of security, fire protection and flow control products, completed a $1.9 billion deal to expand its ADT segment and said it would sell a European valve business to focus its geographic reach.

Sales growth was disappointing at two of Tyco's highest-margin businesses: the ADT security segment and safety products, Pusche said. The best sales gain was actually at a unit that Tyco plans to sell, the electrical and metal products unit, which increased sales 22 percent and swung to an operating profit.

BOTTOM LINE BEAT

Net earnings attributable to common shareholders came to $254 million, or 51 cents per share, in the fiscal third quarter that ended June 25, compared with $287 million, or 60 cents per share a year earlier.

Excluding special items, Tyco earned 72 cents per share, 8 cents above average analyst forecasts, according to Thomson Reuters I/B/E/S. Revenue rose 3 percent to $4.27 billion, below Wall Street forecasts of $4.33 billion.

Tyco spokesman Paul Fitzhenry said Wall Street estimates counted a business Tyco is selling -- on an apples-to-apples comparison, sales topped analyst estimates, he said.

Tyco plans to sell its European waterworks business, part of the flow-control segment, to private equity firm Triton for $245 million, the company said. The business, which makes valves, hydrants and other products for commercial and residential uses, had sales of $82 million in the quarter.

In May, Tyco closed its deal to buy Brink's Home Security, operating as Broadview Security, for $1.9 billion to expand its ADT unit and said on Thursday that integration was on track.

ADT, which makes security systems for homes and commercial customers such as retailers, is Tyco's biggest segment. It reported a 5 percent sales increase. Operating profit was flat, as weak U.S. and European markets offset strength in Asia and Latin America.

Tyco shares rose about 16 cents to $36.72 in early trading. (Reporting by Nick Zieminski; Editing by Derek Caney and Maureen Bavdek)