updated 5/3/2005 8:22:15 AM ET 2005-05-03T12:22:15

Manufacturing conglomerate Tyco International Ltd. said Tuesday that second-quarter earnings fell sharply from last year due to numerous charges, and announced it is exploring how to divest its plastics and adhesives business.

Net income fell to $192 million, or 9 cents per share, in the three months ended April 1 from $783 million, or 37 cents per share, a year ago.

Revenue grew 6.5 percent to $10.46 billion from $9.82 billion last year.

Latest-quarter earnings included charges totaling 37 cents per share, consisting of 26 cents for the early retirement of debt, 9 cents for asset impairment charges in a unit of the plastics and adhesives business, and 2 cents to establish a reserve for resolving the regulatory investigation that began in June 2002.

Last year's second-quarter results included charges totaling 4 cents per share related to the restructuring and divestiture program.

Excluding items, Tyco earned 48 cents per share from continuing operations in the latest quarter, up from 41 cents last year.

Analysts surveyed by Thomson Financial were looking for the company to post earnings of 47 cents per share on sales of $10.44 billion in the latest quarter.

While Tyco considers the plastics and adhesives business "a good business with a strong management team," Chairman and CEO Ed Breen said it has "determined that it is no longer a strategic fit for our vision of Tyco's future."

For the third quarter of 2005, the company expects to post earnings from continuing operations, excluding charges, of 47 cents to 49 cents per share. Full-year earnings from continuing operations, excluding charges, are estimated at $1.88 to $1.93 per share.

The high end of the previous guidance range has been reduced to reflect the impact of increased commodity costs across the company, anticipated weakness in European automotive electronics, and continued sales and marketing investment in the fire & security segment.

On average, analysts are looking for third-quarter and full-year operating profit of 52 cents and $1.96 per share, respectively.

"We are pleased with our year-to-date progress, and despite the commodity pressures we are facing, we still feel good about Tyco's ability to deliver strong year-over-year earnings improvements for 2005," said Breen.

As part of the second-quarter debt reduction activities, the company used $1.5 billion of cash to repurchase $932 million of convertible debt securities. This action reduced Tyco's fully diluted shares outstanding by about 42 million shares and generated a $573 million, or 26 cents per share, charge in the second quarter, for which no tax benefit is available.

Since the company began to repurchase its convertible securities in the fourth quarter of 2004, it has used $2.6 billion of cash to repurchase $1.7 billion of convertible debt securities. In total, this has reduced diluted shares outstanding by 76 million shares.

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