Third-quarter results released today saw sales up a bit more than 5% this quarter. By the standards of conglomerates, it was an exceptionally clean top-line result, with few acquisitions or other adjustments to obscure the underlying organic performance. Revenue growth was strongest in the electronics business and weakest in the health-care business.
Margins were less promising. though. Adjusting for some items, operating income fell about 10% from last year. Though units like the engineered products business did well (after adjusting for a charge), the health-care business continues disappoint. True, many large health care companies aren't really lighting it up these days. I still can't help thinking that this business remains a sorry underperformer for Tyco.
All that said, help may yet still be on the way. The company sold its underperforming printed-circuit-board business to TTM Technologies
Though the shares do trade below what I consider fair value, why shouldn't they? The company doesn't produce the return on capital of Danaher or United Technologies, nor the growth of many other rival industrial conglomerates. Simply put, a company that underperforms its peers shouldn't be valued as highly. So while I understand that many value investors like Tyco at these prices, I can't see any reason to bump it up toward the top of my watch list today.
For more Foolish thoughts on conglomerates:
- TTM Swallows Tyco Division
- Can Emerson Light It Up?
- ITT Offers Some Defense
- United Technologies Still in Sweet Spot
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).