In the midst of a reorganization, Beckman Coulter this week reported that its third-quarter sales grew by 2 percent, beating management's earlier forecasts for the quarter.
While a change in leasing policy for its instruments resulted in lower quarterly sales than Beckman would have recognized under its older policy, President and CEO Scott Garrett reiterated the company's belief that this and other restructuring initiatives would start to pay off next year.
The company said that a "big part of the next phase of restructuring will be trying to improve its manufacturing processes, reducing the number of outside suppliers, cutting logistics and distribution expenses by returning to the company projects that had been outsourced in the past.
Beckman's total worldwide sales for the three months ended Sept. 30 inched up to $593.4 million versus $581.2 million in the same quarter last year. The company reported that $591.7 million of total sales for the quarter were organic, while $1.7 million could be attributed to currency.
The company said that academic and biopharma spending "continue[s] to be somewhat constrained," but it identified "pockets of investment" for proteomic and genomic-based technology.
The results beat the firm's prediction, made during its second quarter conference call, of Q3 sales of $570 million to $580 million, which would have been a slight drop from 2004 third-quarter revenue of $581 million (BioCommerce Week 7/28/2005).
"Academic research, pharmaceutical R&D, and biotechnology funding continue to be somewhat constrained with pockets of investment in proteomic and genomic-based technology."
The firm said that sales in the US remained flat compared to last year, while international sales grew by 3.8 percent.
Beckman is in the midst of a restructuring, announced in late July, under which it is laying off 350 employees and shifting its sales focus to leasing instruments to customers rather than pursuing big ticket purchases (see BioCommerce Week 7/28/2005). The firm announced that it would take a $60 million restructuring charge in the second half of 2005, though that charge does not appear to have been applied to its third-quarter results.
The change in leasing policy shifted the recognition of instrument revenue from a single transaction to monthly installments made over the life of the lease agreement, which is typically 5 years, the company said. Under the previous leasing policy, Beckman said its sales would have increased 5 percent for the quarter.
During Beckman's third-quarter conference call, Garrett said the leasing policy change was the primary cause of flat sales in the US, and added that impact would be smaller than originally anticipated. "Our original estimate, with impact of the leasing policy change on sales was a range of $200 to $220 million," Garrett said. "We now expect the leasing policy change to reduce revenues by $190 to $200 million over the implementation period, which we expect to be split about evenly between 2005 and 2006."
He reiterated, though, the long-term benefits of the change in leasing policy: "It is the preference of customers, it enhances sales productivity, sales and earnings become more predictable, it focuses the company on consumables growth, it facilitates inventory reduction by minimizing end-of-quarter safety stock, and enables a level-loading production program. This change in leasing policy should lead to accelerated growth in sales and earnings through the end of the decade."
Garrett said the restructuring initiatives are expected to provide savings of $15 million in 2006, growing to $20 million in annual savings in 2007 and beyond.
As part of the restructuring plan, Beckman folded the clinical diagnostics and biomedical research divisions into one, but created four business groups focusing on chemistry systems, immunoassay systems, cellular systems, and discovery and automation systems.
For the third quarter, sales of chemistry systems declined .7 percent year over year to $172.9 million, sales of cellular systems grew 1.2 percent to $193 million, sales of immunoassay systems grew .3 percent to $97.4 million, and sales of its discovery and automation systems increased 7.5 percent to $130.1 million.
"Our discovery tools mainly serve the life sciences market, which has been flat for a few years," Garrett said during the call. "Academic research, pharmaceutical R&D, and biotechnology funding continue to be somewhat constrained with pockets of investment in proteomic and genomic-based technology."
He said that the firm's genetic analysis products — which includes the firm's CEQ DNA sequencing product, the new Vidiera molecular testing products, and the operations of the Agencourt Bioscience subsidiary — grew nearly 40 percent during the quarter, due primarily to the addition of Agencourt's DNA sequencing services business and reagent line.
Beckman's third-quarter net income fell 38 percent to $36.2 million from $57.2 million year over year. But its earnings per share of $.74, compared to $.87 for the comparable period last year, also beat an earlier forecast of $.45 to $.60 earnings per share for the quarter.
The firm said it incurred $19.2 million in special charges during the quarter, mostly due to "impaired receivables and leased equipment" related to Hurricane Katrina — which cost the company $4.9 million — and "the non-cash write off of intangible assets of discontinued robotic automation product" from the discontinuation of the Bovine Spongiform Encephalopathy testing initiative, which cost Beckman $13.4 million.
When it disclosed its reorganization plans, Beckman said it would review "minor product lines, facilities, and other assets that do not support the one-company strategy," which could result in divestitures. "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.
However, this week he said a harvesting strategy for some of the more mature product lines would make more sense rather than divesting them.
"A big part of the next phase of our reorganization and restructuring initiative will focus on supply chain," Garrett said this week. "We're looking for ways to improve our manufacturing processes, take down the number of outside suppliers we're using, improving our overall quality in the plant, and look for ways to reduce our overall logistics and distribution expense by taking back responsibility for some of the things we outsourced a few years ago."
Beckman Coulter, facing flat revenue in 2005, expects that new product launches and a hoped-for increase in consumable sales will drive growth for the remainder of this year and next year, Jay Steffenhagen, senior vice president of development and strategy told investors at the UBS Global Life Sciences conference in New York in late September (see BioCommerce Week 10/6/2005). The firm reiterated that it expects 2005 receipts to be largely unchanged from last year's $2.4 billion, ranging from $2.45 billion and $2.46 billion.
— Edward Winnick ([email protected])