Tyco cuts year outlook, shares plunge

BOSTON - Tyco International Ltd on Tuesday cut its earnings outlook due to higher commodity costs and expected weakness in European automotive electronics, dragging its shares down nearly 7 per cent.

Quarterly earnings beat Wall Street views by a penny, but the lowered free cash flow and earnings outlook prompted investors to question Tyco's restructuring progress, which has driven earnings growth in recent quarters.

"Why are we getting the heads-up now?" said John Boland, principal at Maple Capital Management, which holds shares of Tyco. "I'm disappointed we're not seeing more progress on winnowing out of some of its assets."

The company, whose products range from hypodermic needles to plastic hangers, said it would explore the divestiture of its plastics and adhesives business segment because it does not fit with the company's strategy for the future.

Chief executive Edward Breen, who was brought in as chief executive officer after Dennis Kozlowski was ousted in 2002 in a scandal, has already dumped assets and exited businesses, such as its fibre optic cable unit, under a restructuring plan designed to put the company back on track for growth.

Kozlowski, who had grown Tyco via a series of acquisitions, is currently standing trial for the second time on charges that he stole millions of dollars from the company. The first trial of Kozlowski and Mark Swartz, Tyco's former finance chief, ended in a mistrial.

Tyco's net profit in the fiscal second quarter ended March 31 fell to US$192 million, or 9 cents per diluted share, from US$783 million or 37 cents per share a year earlier.

Earnings from continuing operations excluding charges totalled 48 cents per share, versus 41 cents per share last year. Analysts, on average, had forecast second-quarter earnings of 47 cents a share, according to Reuters Estimates.

Quarterly revenue rose 6.5 per cent to US$10.46 billion, in line with Wall Street's expectations.

The company, based in Pembroke, Bermuda, said it now expects fiscal-year earnings per share excluding charges of up to US$1.93, a nickel lower than its earlier estimate. Analysts were forecasting US$1.97, according to Reuters Estimates.

Tyco also cut its full-year free cash flow forecast by about US$500 million to US$4.6 billion, excluding the impact of US$625 million in dividends.

Tyco shares closed down US$2.07 at US$28.65 on the New York Stock Exchange, and were near a 16-month low of US$26.90.

- REUTERS