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Tyco International Ltd. (TYC), ADT Corp (ADT): Secure Returns With These Security Companies

Tyco International Ltd. (NYSE:TYC)The fear of terrorism and crime propels the demand for security and protection products. This industry will grow 4.5% annually, growing from $174 billion in 2010 to $220 billion in 2015. Companies in this industry are adopting various strategies to meet the growing demand for their products. This article analyzes three security companies which are expanding and increasing their product portfolios to capitalize on this opportunity.

Cost reduction methods for more benefits

Tyco International Ltd. (NYSE:TYC)’s American Dynamics division manufactures video surveillance security products. The company prices the products appropriately but has experienced weak demand due to quality issues. To enhance this division, Tyco International Ltd. (NYSE:TYC) recently announced its intent to acquire Exacq Technologies for $150 million in cash. The deal will close in late 2013. Exacq will develop the company’s video management system, which will strengthen its video security market. The deal will also expand its overall video technology portfolio. This acquisition will increase revenue by approximately $75 million in 2014.

The company also launched a cost reduction initiative called “branch in a box.” The initiative will modify the business process infrastructure in the company’s branches and centralize all back-office work at one location. This will lead to cost savings of 5% at every branch. There are approximately 540 branches with a budget of $4.5 million per branch, so the company will save approximately $150 million this year with its “branch in a box” initiative.

Upgrading home security system for future benefits

he ADT Corp (NYSE:ADT)’s Pulse, an automatic home security system, increased from 18.5% in the first quarter of 2013 to 23% in the second quarter. The company is updating Pulse by adding features to its security system in order to retain customers. In January, the company added a healthmonitoring system to its automatic home management service. This feature enables the homeowner and a caretaker to track the health of the owner. Further, on June 18, 2013, it introduced new video motion sensor technology for Pulse. This new feature will send an email or message to users when a camera detects movement in the house, including a video clip of the movement. Due to the addition of these unique features, Pulse subscribers are expected to increase by 1.25% every quarter.

The company’s loyalty desk program saved 70% of customers wanting to disconnect their security services. Approximately 30% of disconnects are due to non-payment. The company is tightening its policy and converting to an automatic payment system through credit cards.

Currently 60% of the company’s customers are on the auto-payments system and 90% of new customer accounts are on automatic payment. The policy will stabilize customer attrition, which was leading towards revenue attrition. The attrition rate will be 13.7% in 2014, slightly below the expected 13.9% in 2013. With these events, the company’s earnings per share will increase from $0.40 in the second quarter to $0.45 by the end of the year.

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