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Electronics Production | July 29, 2009

Tyco: Net Sales decreased 34% Y-o-Y

Tyco Electronics reported net sales of $2.5 billion for the fiscal third quarter (ended June 26, 2009), a 7% increase sequentially and a 34% decrease compared to the prior-year period.

GAAP diluted earnings per share from continuing operations were $0.06 for the quarter, compared to EPS of $0.59 in the prior-year period. Included in the earnings per share from continuing operations were $0.11 per share of restructuring charges. This compares to $0.04 per share of charges in the prior-year quarter. Adjusted EPS from continuing operations were $0.17 in the quarter, a decline of 73 percent from last year's adjusted EPS of $0.63. "Our third quarter results reflect improved operating performance sequentially. Adjusted operating margin increased from 3 to 5 percent due to higher sales, coupled with continued strong productivity gains. We also generated $327 million of free cash flow, driven primarily by a significant reduction in inventory," said Tyco Electronics Chief Executive Officer Tom Lynch. "Demand for our consumer-related products is showing signs of improvement, as supply chain inventory reductions that impacted us over the past six months appear to be substantially over. This more than offset weakness in the industrial markets we serve." GAAP operating income was $64 million, compared to $515 million of income in the prior-year period. Included in the current quarter were restructuring charges of $63 million. Included in prior-year operating income were $16 million of restructuring costs and $7 million of pre-separation litigation charges. Excluding these items in both periods, adjusted operating income was $127 million compared to $538 million a year ago, a decrease of 76 percent. The adjusted operating margin was 5.1 percent, compared to 14.2 percent a year ago -- reflecting a 34 percent decline in sales. Cash flow Cash from continuing operations was $336 million during the quarter, which included a $285 million reduction related to changes in accounts receivable, inventory and accounts payable. Free cash flow was $327 million, compared to $262 million in the prior-year period. The increase in free cash flow was driven by inventory reductions, as well as reduced capital expenditures versus the prior year. Orders Total company orders declined 43% overall and 38% organically compared to the prior year. The book-to-bill ratio was 0.93 in the quarter. Excluding the company's Undersea Telecommunications segment, which is a project-oriented business with uneven order patterns, orders declined 35% overall and 30% organically in the quarter. The book-to-bill ratio was 1.04. 4Q-Outlook For the fourth quarter of fiscal 2009, the company expects sales of $2.53 billion to $2.63 billion, a sequential increase of 1% to 5%. The company expects income from operations of $105 to $145 million, which includes restructuring and other charges of approximately $75 million and a net gain of approximately $20 million on early retirement of debt. Adjusted operating income is expected to be $160 million to $200 million. GAAP EPS from continuing operations is expected to be $0.15 to $0.22, including restructuring and other charges of approximately $0.11 per share and approximately $0.04 per share related to a net gain on early retirement of debt. Adjusted EPS from continuing operations are expected to be $0.22 to $0.29, compared to adjusted EPS of $0.65 in the prior-year period. This outlook assumes current foreign exchange rates. Lynch said, "Our outlook assumes a slight sequential improvement in sales and continued margin improvement due to productivity gains and increased manufacturing utilization. We also expect our Electronic Components segment to return to profitability in the fourth quarter." Segment Results Tyco Electronics is comprised of four reporting segments: Electronic Components, Network Solutions, Specialty Products and Undersea Telecommunications. Electronic Components Sales in the segment declined 42% compared to the prior-year quarter. On a sequential basis, sales increased 11%. The segment experienced year-over-year declines across all end-markets, including automotive which was down 42%, computer which was down 43%, communications which was down 36% and industrial which was down 55%. The operating margin and the adjusted operating margin decreased primarily due to the sales declines and the negative impact of lower production to reduce inventory, partially offset by the company's cost reduction activities. The current quarter included $46 million of restructuring charges, compared to $11 million of restructuring charges in the prior-year quarter. Network Solutions Segment sales declined 26% compared to the prior-year quarter. Sequentially, sales increased 6%. Compared to the prior year, sales to the communication service provider market declined 22%, sales to the energy market declined 25% and sales to the enterprise networks market declined 34%. The revenue decline was due to reduced capital spending by customers in these markets. The decrease in the operating margin and the adjusted operating margin was primarily due to the sales declines and the negative impact of lower production to reduce inventory, partially offset by the company's cost reduction activities. Restructuring charges in the quarter were $15 million, compared to $4 million in the prior-year quarter. Specialty Products Segment sales declined 27% compared to the prior-year quarter, and fell 2% sequentially. Year-over-year, sales to the medical market decreased 15%, sales to the aerospace, defense and marine market declined 23%, sales of touch systems declined 36% and sales of circuit protection products declined 33%. The operating margin and the adjusted operating margin decreased primarily due to the sales declines and the negative impact of lower production to reduce inventory, partially offset by the company's cost reduction activities. Restructuring charges in the quarter were $1 million, compared to no such charges in the prior-year quarter. Undersea Telecommunications Segment sales increased 15% compared to the prior-year quarter. On a sequential basis, sales increased 3%. The operating margin and adjusted operating margin increases were due to favorable project mix and execution. Restructuring charges in the quarter were $1 million in both the current and prior-year quarters.
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