Tyco Security Financials - Here's How Big They AreBy: John Honovich, Published on Jun 17, 2014
Tyco is a major force in the security industry, generating about $10 billion USD annually as a hybrid integrator / product manufacturer.
And Tyco's CEO is excited about their performance, gushing, "I have seen a lot of turnaround over my career. But there has been a change, I’ve seen in North America security business in second to none." He also emphasized that "Global products revenue exceeded our expectations and the operating performance was very strong... I am very proud to see the positive results."
In this note, we examine why Tyco's CEO is so bullish and what the numbers are behind it.
Revenue Breakdown Integrator vs Manufacturer
Tyco's ~$10 billion USD revenue is split into 3 major components:
- ~$4 billion USD revenue from North American system integration
- Slightly less than ~$4 billion USD revenue from their system integration business outside of North America
- ~$2.4 billion USD revenue from their security products line (including video surveillance, access control, intrusion, etc.)
Tyco does not disclose more granular breakdowns of their products.
No to Low Growth
Overall, Tyco's growth is quite low and practically non existent.
Tyco gets excited about 3% and even 2% growth across their businesses.
Indeed, for Q1 2014, overall revenue was up just 0.5%, though organic growth was 2%.
However, in North America, installation revenue declined 1% and orders for future installs declined 3%.
By contrast, security products revenue was up 5% overall, though it was only 2% organically, once acquisitions, like Exacq were excluded.
But Strong Profits
So why is Tyco's CEO so happy? Simply low expectations?
Tyco's focus is profits / earnings, as he emphasized on the investor's call [link no longer available]: "I made a commitment at our Investor Day ... that we would deliver 15% earnings per share CAGR over the three year period."
And Tyco's profits are strong:
- On the integration side, operating margins are ~10% both in the Americas and the rest of the world
- On the manufacturing side, operating margins are ~17%
Those are both very good numbers. And since Tyco is already so large, it is not as if they need to gain scale or share to be significant. Rather, maximizing profits is their focus, as they discussed here.
Contrasted to Startups / Growth Companies
The focus on profits over revenue growth helps explain why Tyco is less interested in innovation and less aggressive at dropping prices than startups and growth companies. The latter are trying to take share from incumbents like Tyco and need to offer a much better product at more attractive pricing than behemoths like Tyco who have brand and channel in place to maximize profits.