Tyco International Ltd (TYC.N), a fire safety and security systems maker, reported better-than-expected first-quarter results, helped by higher margins in its North American business, but forecast the current quarter below analysts' expectations.
Operating margins in the fire detection and suppression systems business, the company's second-largest division, rose more than 2 percentage points in the quarter ended December 28. The business caters to customers mainly in North America.
Tyco said higher-margin service revenue accounted for a larger portion of the revenue in the fire detection and suppression systems business. A strong retail season also drove margins for the business.
The company forecast second-quarter earnings, before items, of 37 cents to 39 cents per share. Analysts on average were expecting 42 cents, according to Thomson Reuters I/B/E/S. [ID:nWNAB00PYJ]
Tyco, reporting only its second quarterly results as a standalone company, said it expects "normal seasonality" associated with a retail slowdown to hurt margins in its North America installation and services business in the current quarter.
The company, which makes security applications used in fire detection and suppression, split its operations into three units in September. The North American home security arm, ADT (ADT.N), operates as a separate company, while its flow control unit was sold off to Pentair Ltd (PNR.N).
Vertical Research Partners analyst Jeff Sprague said there won't be any "lingering" concerns about the second-quarter outlook.
"Looks to me like their full year is on track. They have shown here very quickly, in their first quarter, the independence out there ... getting after along the cost reductions they had targeted."
Switzerland-headquartered Tyco's shares, which have gained 14 percent of their value in the last three months, were slightly down at $30.57 in afternoon trading on the New York Stock Exchange.
Earnings from continuing operations rose to $159 million, or 34 cents per share, for the first quarter, from $98 million, or 21 cents per share, a year earlier.
Excluding items, the company earned 40 cents per share from continuing operations.
Tyco, which is focused on expanding its presence in high-margin services and emerging markets following the split, said it intends to spend about $200 million to $300 million on mergers and acquisitions.
It reported cash and cash equivalents of $501 million in the first quarter.
On a conference call with analysts, Tyco Chief Executive George Oliver said the company is "excited about the pipeline of potential acquisitions", but would buy back shares if the plan gets delayed.
(Reporting by Bijoy Koyitty in Bangalore; Editing by Maju Samuel and Roshni Menon)