Tyco International Limited (TYC) Message Board

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Non-Tech : Tyco International Limited (TYC)

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To: hdl who wrote (3717)	5/10/2006 6:51:48 PM
From: rich evans	of 3770

Tyco reported results yesterday which were better then expected. My take on the results are: Tyco overall without any special items did 13.7% operating margin versus 13% in Q1. But in the second quarter of 2005 tyco did 14.8%. So despite all the operational efficiency programs, Tyco margins year to year are not improving. In the conference call, the reasons for the lower margins were pretty much set forth. Electronics: cost of materials is killing Tyco (56mill) especially gold and copper. Tyco can't pass thru these costs for the most part. Tyco is being affected by the theories of Donald Patinkin(Google him) Basically the increased costs have to be eaten by Tyco. And if the prices go down , tyco we be faced with the hysteresis effect ( take hand away from pushing putty and what do you get) so Tyco will have to continue lowering prices for reduced cost of goods sold and not recapture . The restructure expenses will be continuing in electronics for the next two years. Conclusion - tyco will not reach its goal of 16.5% operating margin in electronics and will have to keep struggling to do the 14-15% operating margin .Autos are 35% of business and Europe auto is half of that or 17%. This is low margin business. Fire/Security More competition is commercial security has hurt Tyco. Commercial security is 80% of profits and about 20% of customers. But USX i.e. is hurting tyco's commercial security business. Nice improvement in Fire-Simplex grinnel from 4 to 6% Operating Margin. Fire products is always good. World wide security margins increased from 12% to 13.4% sequentially but were down year to year from 15%... Why? commercial security competition and poor execution. Not corrected yet in Q2 but hopefully Q3 and Q4 will improve. Healthcare: Good info on CC on this segment. Basically has new goal of 24.5% operating margin versus old goal of 26%. Why- Diapers. Both Kimberly clark and ProcterGamble have not raised their branded prices despite big increases in material costs. Look at their results reported. So we are stuck behind this train. The walmarts /safeways win. Margins down from 20% in diapers to 6%.This hurt health margins by 1%. Engineering/Flow Ahh- the Jewel and why I bought Tyco orginally. Steel spreads still hurt operating margins but they are at target of 11-12% at 11.4. Still Donald Patinkin and hysteresis has effected the Elect-Metal products division. But water business will save the margins. Some other comments: Currency hurt again. This quarter hit was 254 mill in revs which is about 30 mill in profits or 1.5cents. Share count and interest payments were backend loaded so not get benefit this quarter of less shares and less interest. Q3 should show about 40mill less shares and 10mill less interest. Look for tyco to exceed earnings estimates as they have assumed worst scenario on material costs and are on a "show me" agenda for costs and commercial security business rebound. Health care is now on track except for those damn diapers. A 2 bill stock buyback is another 65 mill shares or 3+% which should help results also. Tyco's margins hit from cost of commodities is about 1% . this is 240mill a year for copper and gold, 60 mill for steel and 70 mill for diaper paper.

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