Beckman Coulter surprised investors last week with the announcement that it would restructure the company, lay off 350 employees — or 3 percent of its workforce — and shift its sales focus to leasing instrumentation rather than pursuing big-ticket purchases.
Beckman also said it will review "minor product lines, facilities, and other assets that do not support the one-company strategy," which could result in divestitures.
The moves will lower Beckman's earnings and sales in the short term, but are expected to put the company "on a faster growth trajectory after full implementation," said President and CEO Scott Garrett in a conference call.
While Garrett was optimistic about Beckman's prospects, the news sparked a massive sell-off of the firm's shares that shaved roughly $623.6 million off of its market capitalization. On Friday, the day of the announcement, Beckman's shares dropped $9.60, or roughly 15 percent, to close at $54.65 on the New York Stock Exchange, their lowest point since closing at $54.35 in early October (see graph). Approximately 7.7 million shares traded hands that day compared with its average daily volume of 568,000 shares.
Earlier this week, two investment banks, Wachovia and Leerink Swann, downgraded Beckman to "market perform" from "outperform." And as of the end of trading Tuesday, with shares at $53.55, investors had yet to view the stock's drop as a buying opportunity.
Splitting the Business Into Four Business Groups
Under the restructuring plan, the company will fold its two operating divisions — Clinical Diagnostics and Biomedical Research — into one, and create four business groups that will focus on chemistry systems, immunoassay systems, cellular systems, and discovery and automation systems, respectively.
In addition, Garrett said that Beckman's sales force will focus around geographic areas and major market segments. "The US diagnostics team will be targeting clinical markets in the US," he said. "With its size and complexity it requires its own dedicated management team." The firm's international life sciences team will be responsible for all business outside of the US in the life sciences markets, he added.
"If there is a valuable cash flow associated with them, a harvest strategy may be appropriate, and if in fact we identify a business that is going to be sustainable but not strategic, we would consider it for divestiture."
"We will be reviewing especially the mature product lines, where our choices would most likely be harvest or shut down and possibly divestiture," Garrett said. "If there is a valuable cash flow associated with them, a harvest strategy may be appropriate, and if in fact we identify a business that is going to be sustainable but not strategic, we would consider it for divestiture."
Garrett did not elaborate on which product lines fell into the "mature" category.
Beckman said it expects to complete the review by the end of the year, at which point it "will announce the final restructuring charge and the commensurate annual cost savings," he added. The firm has already announced that it will take a $60 million restructuring charge in the second half of 2005.
Shifting Sales Focus
One reason behind the shift in sales strategy is that "customers [are] showing a clear preference for operating-type leases." The development, which primarily affects Beckman's diagnostic instruments, has led the company to "change [its] policy to reflect this important trend," Garrett said.
"When you have a sales-type lease, it becomes a capital expenditure which goes right on the balance sheet of the hospital," Garrett explained during the call. "Five or six years ago [we were] talking about $200,000 to $300,000 per instrument as a big capital purchase. Now we're selling instruments in groups, we're selling automation, we're looking at million-dollar orders, and the sales cycle gets extended to the CFO, CEO, or the board of the hospital," he said.
Customers at the decision-making level would prefer to make a purchasing or leasing decision within their operating budget "rather than taking it up the line for a capital approval," he added.
Garrett said that he expects the new sales strategy to translate into less "lumpy" automation products sales, more predictable revenue, and improvement in productivity, manufacturing, and commercial operations.
— Edward Winnick ([email protected])