Corporate conglomerate Tyco (NYSE:TYC) spent the 1990s rolling up a wide array of businesses in an attempt to create value for shareholders. The strategy appeared to be working until former CEO Dennis Kozlowski left in 2002, and was later found to be using the company as a personal piggy bank. Since that time, the firm has been busy unwinding its collection of businesses, and 2012 will see another split into three separate companies.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Full Year Recap
Tyco recently reported full year results that saw sales rise a modest 2% to $17.4 billion. ADT, the its residential security business, reported strong 12% top line growth and total sales of $8.6 billion, or just under half of the total top line. Operating income jumped 25% to $1.4 billion for a healthy operating margin of 15.8% of sales. The flow control business reported a respectable 8% growth and total sales of $3.6 billion, or nearly 21% of total sales. Operating income grew modestly at 1% to $413 million for an operating profit margin of 11.3%. The fire protection business saw sales rise 5% to $4.7 billion for the remaining 27% of total sales and reported healthy 16% operating growth and an operating margin of 11.3%.

Total company pre-tax income jumped 49% to $1.9 billion while net income advanced 53% to $1.7 billion, or $3.62 per diluted share. Operating cash flow was strong at $2.4 billion. Subtracting out $788 million in capex, free cash flow was approximately $1.6 billion, or $3.44 per diluted share. (For related reading, see The Essentials Of Corporate Cash Flow.)

Outlook
For the coming year, analysts project a modest 0.6% uptick in sales to $17.5 billion and earnings of $3.64 per share, which would again be roughly flat from 2011.

The Coming Split
On September 19, Tyco announced it would be splitting itself into three separate companies. It expects to complete the separation by the end of 2012 and will divide into ADT North America, a flow control products and services division and a commercial fire and security business. The motivation for the breakup is similar to other corporate spinoffs and divestitures in that management believes the "new standalone companies will have greater flexibility to pursue their own focused strategies for growth."

The Bottom Line
The Tyco breakup follows a similar split in 2007 that saw Tyco split off its diversified electronics provider Tyco Electronics, now called TE Connectivity Ltd. (NYSE:TEL) and healthcare instrument provider Covidien (NYSE:COV) that competes with the likes of PerkinElmer (NYSE:PKI). Despite the greater flexibility in pursuing their own strategies, none of the underlying share prices have moved much in the past five years. ADT looks like the most appealing of the latest round of spinoffs, with the commercial and fire unit a potential takeover candidate for larger rivals such as United Technologies (NYSE:UTX).

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  2. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  3. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  4. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  5. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  6. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  7. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  8. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  9. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  10. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center