Beckman Slashes Forecast as Net Income Drops 18%

Beckman Coulter Inc., a maker of medical tests and equipment, reported an 18% drop in second-quarter net income Friday because of slower sales and the wrenching effects of a shift to a new equipment-leasing strategy.

The Fullerton-based company slashed its full-year earnings forecast, announced plans to lay off 350 employees -- about 3% of its worldwide workforce -- and warned that sales and earnings growth would be flat during the first half of 2006.

Investors were surprised by the news and drove Beckman’s shares down $9.60, or 15%, to $54.65.

“This was a very sloppy quarter,” analyst Matthew Miksic of Morgan Stanley wrote in a research note to investors.

“The key question now,” said analyst Steven Hamill of Piper Jaffray, “is whether they can turn it around by next spring.”

Beckman makes tests that are used in hospitals to diagnose diseases, such as prostate cancer and heart failure, or to measure certain compounds in the blood, such as calcium and cholesterol. Its chief competitors are Abbott Laboratories and Johnson & Johnson.

Beckman’s net income was $47.7 million, or 73 cents a share, compared with $58.3 million, or 88 cents, in the year-earlier quarter. Excluding one-time charges, net income was 80 cents a share. Wall Street had expected 92 cents, according to a survey by Thomson First Call.

Beckman said it took an after-tax charge of $3.2 million, or 6 cents a share, related to certain pension and restricted stock awards to former Chief Executive John P. Wareham, who retired in February.

Revenue was $618.8 million, up 3.6% from $597.3 million in the year-earlier quarter but below analysts’ forecasts.

Slower demand for some diagnostic tests and equipment sliced $9 million from revenue, Morgan Stanley’s Miksic wrote. Beckman said the switch to a new leasing formula cut $8 million from quarterly sales.

Also affecting results in the quarter were increased freight, inventory and manufacturing costs, driven by rising higher energy prices, Beckman said.

Beckman said it now expected to earn $2.55 to $2.90 a share in 2005, down from $3.51 to $3.61. Revenue is expected to be $2.41 billion, down from $2.46 billion.

A change in leasing strategy accounted for most of the expected earnings and revenue decline. Beckman said it would offer operating-type leases instead of sales-type leases.

Hospitals prefer operating leases because they don’t have to account for the full cost of the equipment at once, analysts said. But for Beckman, the change means revenue and profit will be recorded over the life of the lease rather than at the time the equipment is installed.

The company said the change would help it compete for hospital contracts and smooth out its quarterly results.

“It will enhance sales productivity; sales and earnings will become more predictable; the company will be more focused on ... growth,” CEO Scott Garrett said in a conference call with analysts.

Analysts said they had expected Beckman to change its leasing strategy because the company’s competitors already had done so. But Miksic said he was surprised by the effect of the shift, which amounts to 75 cents a share for 2005.

Beckman said it would take a charge of $60 million in the second half of this year because of a corporate restructuring that was expected to eliminate 350 jobs. The reorganization would create four product groups and two sales organizations, focused on domestic and international sales respectively.

Beckman spokeswoman Anne M. Warde said it wasn’t yet known which jobs would be cut. The company employs 11,000 worldwide and 1,800 in Fullerton.

Beckman Coulter was formed by the 1997 combination of Beckman Instruments and Coulter Corp. of Miami.

The company dates to the 1930s, when the late Arnold O. Beckman, a professor at Caltech, created an “acid meter” for a friend in the citrus industry. Beckman became well-known as a philanthropist whose gifts included major contributions to UC Irvine, City of Hope National Medical Center and Caltech. He died last year at 104.