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Non-Tech : Tyco International Limited (TYC)
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To: Sidney Street who wrote (3659)12/13/2003 6:19:40 PM
From: rich evans  Read Replies (1) of 3770
 
Tyco SGA is key to margins IMO.
Whether to buy, hold or sell this stock at this time IMO depends on Tycos ability to increase operating margins . This is Breens job now IMO. Going back to 10K page 50 we see that Gross margins for Tyco were 38% of total revs for FY 2000 and 2001 and then dropped to 35% for FY 2002 and 2003. Not too bad for the economic slowdown. BUT SGA increases really hurt Tyco as a result of KOS excesses and cost to correct. SGA in 2000 was 19% of total revs and 20% in 2001 giving adjusted operating margins of 19% for 2000 and 18% for 2001. These margins are core proforma margins forgetting about restructuring charges , impairment charges,and other writeoffs. In 2002 and 2003 though we see a large increase in overall SGA expense for TYCO equal to 23% of revs for 2002 and 24 % of revs for 2003. This resulted in proforma operating margins decreasing to 12% for 2002 and 11% for 2003. Breen's job IMO is to correct this SGA problem. Even if revs were static, if Breen can reduce SGA to 18%, core earnings will go way up near $2/share. This is supposed to be his forte. So hopefully he will do it and if so TYCO is a buy. If not Tyco will not have the earnings power we all hope for and expect. We shall see.
Rich
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