Breen on ADT's numbers, Pulse, & the telco incursion
ADT's parent, Tyco reported its earnings on Jan. 27 and "beat Street estimates." Here's a nice tight synopsis from Rueters:
Tyco International Ltd's quarterly earnings more than doubled, beating Wall Street expectations amid sharply higher profits at the industrial conglomerate's security business, which includes the former ADT Worldwide service. Net earnings rose to $659 million, or $1.34 per share, in the first quarter ended December 24, from $302 million, or 63 cents per share, a year earlier. Earnings from continuing operations before special items were 75 cents per share, 7 cents ahead of analysts' estimates, according to Thomson Reuters I/B/E/S. That marked the 10th consecutive quarter that Tyco beat Wall Street forecasts. Revenue rose 5 percent to $4.38 billion, slightly ahead of forecasts of $4.34 billion. Sales in Tyco's biggest segment, security solutions, rose 10 percent, helped by increased demand from commercial customers. The segment was the only one to increase operating income or margins.
During the subsequent earnings call, Tyco CEO Breen noted that ADT's commercial orders were "surprisingly positive ... double-digit in all regions." And on the fire side, SimplexGrinnell’s orders were up 15 percent, he said. In both cases, the increase is not due to new construction (not surprisingly) but to an increase in retrofits and upgrades he said. “People are upgrading their electronic panels because there's a lot of new features and software capability. You know, technology, it's got a five year life cycle to it, so in the last three years no one's done anything ... [now, it’s] a lot of retrofit and upgrades."
On ADT’s new interactive product, called Pulse, Breen said ADT is signing up customers they believe may not have signed up for a traditional security account. Pulse is currently being sold by ADT's direct sales team now, and Breen said "about 15% of our customers are taking Pulse, and about 85% of them are taking the first tier of the package." After more dealer training, those numbers will pick up, he surmised.
Breen had some interesting comments on the telco incursion into the space. He is not worried. In fact, he thinks it will result in more advertising, which will "lift all boats" and if anyone suffers it will be the smaller companies rather than a giant like ADT. When Brink's Home Security changed its name to Broadview and hit the airwaves with its new commercials, ADT picked up business, he said. He predicts the same effect from other telcos and cable companies entering the business. While, he said, it won't happen immediately, "I think if a couple of these cable guys or phone guys markets more security than they are now, I think over time it's at the expense of the smaller, local players and the big, branded players will do very, very well in that environment. You have to remember that only 19-20% of the homes in North America are penetrated with security. My belief, and again this is multiple years, is that this is about a 40% penetrated service and I do think interactivity helps that percentage get there eventually because to a question earlier I think more people are going to be attracted to the service because of the opportunity to do more things. We have 25% North America market share with thousands of others having the other 75%. I've always been a believer this industry will consolidate. If it consolidates around a few players, I think we do very, very well in that environment. I would also point out that this is not that easy to do for everybody because one of the reasons the local, little player actually does well is that they have a sales force like we have a sales force. Between our dealers and our direct sales team, we have almost 9,000 sales people in North America, and 90% of the sales that we close we sit in the home with the homeowner to close the sale. It’s not like cable, it's not like getting a phone service, where it's an automatic "you're going to get it." It's a utility. This you have to go in and market it. So there's a lot of nuances here and I think we do very well in that environment."
The direct quotes above are courtesty of SeekingAlpha.com