Tyco International Ltd Earnings Call Insights: Installation Orders and Share Count Outlook
Steven Winoker – Sanford C. Bernstein: Just maybe a little more color around a few things. One on the Installation orders in North America, maybe just get that out of the way around. How much of that you think was project selectivity driven? How much was just a really tough comp that you laid out there? How should we think about that going forward in terms of your progress on that front?
George R. Oliver – CEO: So I’d start, Steve. When you look at, as we guided during the last earnings call, we said in the third quarter we’re going to have a tough compare because we had a retail order last year that was very sizable, that we didn’t see repeating this year. In addition to that, there were some opportunistic sprinkler jobs that we’ve taken on the Fire business that also didn’t recur this year. So it’s right in line with what we expected. I think what’s important, Steve, is if we step back and really look at how the year has played out within North America. So if we start – beginning of the year, we started off with a pretty good backlog going into the year with – especially as it tied to the commercial security business. When you looked at the performance in the first half, we certainly – the revenue that we achieved in the first half was really on the backlog that was they applied to the separation. What’s happened here in our order rates, when you look at the order rate sequentially, we’re actually stable now, going from the second quarter to third quarter. As we look at the fourth quarter going forward, we’re going to be able to sequentially improve those order rates. So when you look at the second half of this year, this is where we’re seeing the revenue decline as a result of the project selectivity within commercial security on the revenue side, but the order rates now support the revenue that we see in the fourth quarter and it does position us now as we get into next year. In the first half, we’re going to have a tough compare on revenue, but the order rate that we’re seeing now being able to grow going forward is going to really position us well to be able to deliver growth by the second half of next year.
Steven Winoker – Sanford C. Bernstein: When you talk about that kind of growth, are you talking about low single-digit or mid-single or how are we thinking about that?
George R. Oliver – CEO: Well, similar to our Fire business, so when you look at our Fire business, within North America, the economic growth is roughly around 2%. We have been outperforming that 2% in our Fire business, certainly with the focus on service growth and that continues and as we see this business coming back, it will be similar to fire. Now as we see the recovery within non-residential, we have seen the activity in that space today, that will position us to be able to capitalize on their recovery and be able to accelerate the growth going forward. Now I would say, if you normalize, if you were to normalize our North America segment, as a result of project selectivity within our commercial security business. So we’ll be down, if you look at the third quarter being down about 3% and without the project selectivity, we’d be in the 1% to 2%. If you looked at the total company, that has impacted the total company by about 1% organic growth…
Steven Winoker – Sanford C. Bernstein: Just second question, you mentioned the 5,000 integrators and distributors for Exacq, is that – how are you thinking about dealing with that given your current distribution across the rest of the business?
George R. Oliver – CEO: We are very excited about this acquisition. It’s going to play out in a very attractive space within our video business, high growth space and so it adds – when you look at what it adds – it adds a Tier 2 offering in the high-growth segment. As I said, it does – it’s a product that’s easy to install, easy to use for our customers and so we see a significant opportunity, not only in being able to leverage our existing distributor base that we have within our security products business to be able to accelerate product growth, but more important, Steve, is the opportunity to be able to take this technology and really create simple solutions that we can put through our direct channels with our Installation & Services business globally. So, the opportunity that we have outside of North America is also pretty significant.
Share Count Outlook
Jeffrey Sprague – Vertical Research Partners: Just couple of things, first, just on share count, your guiding share count actually up sequentially in Q4?
Arun Nayar – EVP and CFO: Jeff, basically as you know each quarter we have some dilution that takes place from option exercises and vesting of stock. In addition to that, we are also seeing some further dilution that takes place with the stock price. So, we’ve made some assumption here in terms of what the option exercises and the vesting would happen in Q4 and that’s what takes share count up to 472.
Jeffrey Sprague – Vertical Research Partners: So that type of dilution would occur with what, another $100 million of gross share repurchase. So, you are not doing any gross buyback in the quarter?
Arun Nayar – EVP and CFO: The 472 does not assume any share buybacks, but keep in mind Jeff that, we still have $500 million of authorization left and we plan to be opportunistic in terms of how we exercise that authorization…
Jeffrey Sprague – Vertical Research Partners: Then George, I wondered if you could elaborate a little bit more on the backlog margin comment you made. Obviously, North America Systems Install margins looked pretty solid this quarter. I would assume that does not reflect a lot of selectivity help, maybe it does, but I am thinking that’s maybe just mix, but can you elaborate on the impact of selectivity in the quarter itself and what you are alluding to in the pipeline going forward?
George R. Oliver – CEO: Sure. So when you think about our Installation business, as we look at these jobs through our project selectivity strategy, we make sure – I mean, a lot it is how we – it really starts with how do we scope the job, how do we spec the job. Then making sure that we have the fundamentals in place so that as we book those jobs, we have a pretty good idea or pretty good predictability on how those jobs will be executed. As we have launched project selectivity across all of the other businesses, this is typically what we see, where the backlog has improved, the backlog margin has improved to about 100 basis points. But in addition to that, Jeff, as we execute on these projects, what’s also contributing to our margin expansion is that we are executing these projects better. So, think about it as is discipline that goes in the specification of a project and then as we then position ourselves to execute, we are executing better. So there is two elements that actually drive the margin expansion within the business. It’s typical of what we’ve seen when we’ve deployed project selectivity across the other businesses.
Jeffrey Sprague – Vertical Research Partners: Then, I guess, just one last one and I’ll move on. Corporate, what is the outlook there going forward? If you hit your projection here in Q4 that will kind of be Q4 is in a row was actually drifting up. I guess, some of the spud that might actually be drifting down going forward. What’s the opportunity there?
Arun Nayar – EVP and CFO: Jeff, basically, let me start by saying that, as you know, we’re kind of transitioning from a holding company to an operating company. In this transition there are certain costs that take place as we are trying to, to George’s comments, centralize, standardize, consolidate some of the functions of that in HR and Finance and sourcing, IT, et cetera. You see some charges incremental that to what would be in a holding company structure. Now, going forward, clearly, we will start to see the benefit of having a consolidated these functions, corporate functions.
George R. Oliver – CEO: So Jeff, it’s really right in line with what we had estimated or guided last quarter for the total headquarters cost, and I think as we look at the simplification that’s occurring across the overall enterprise, over the next year as we get through the final separation, it will be somewhat in the same range, but going forward, the success of the operating system that we put into place is going to position us to be able to really now going forward from there be able to continue to take that down.
A Closer Look: Tyco International Earnings Cheat Sheet>>