Beckman Coulter, Inc. Announces Third Quarter 2010 Results

ORANGE COUNTY, Calif., Oct. 27 /PRNewswire-FirstCall/ -- Beckman Coulter, Inc. (NYSE: BEC), a leading developer, manufacturer and marketer of products that simplify, automate and innovate complex biomedical testing, announced today third quarter and nine months ended September 30, 2010 results. Total third quarter revenue of $893.8 million, including $112.2 million from the 2009 Olympus Diagnostics acquisition (Olympus), was up 8.6% over prior year quarter, or 9.8% in constant currency. Recurring revenue for the quarter increased 6.9%. On a constant currency basis, recurring revenue for the third quarter 2010 increased 8.3% over prior year quarter, or 4.2% excluding the impact of Olympus. Reported net earnings were $67.0 million, or $0.95 per diluted share. Adjusted net earnings excluding Olympus intangibles amortization were $70.5 million, or $1.00 per diluted share, an increase of 12.4% from prior year quarter. See “Non-GAAP Financial Measures” and “Reconciling Items to Non-GAAP Financial Measures.”

(Logo: http://photos.prnewswire.com/prnh/20031202/BECLOGO)

(Logo: http://www.newscom.com/cgi-bin/prnh/20031202/BECLOGO)

Management Commentary

“Third quarter highlights included another strong contribution from the Olympus business as we recorded the one-year anniversary of the acquisition; continued strength in Asia Pacific; 11.1% growth in International recurring revenue, or 13.8% in constant currency; and 24.6% growth in trailing-twelve-month adjusted EBITDA,” said Bob Hurley, interim President and Chief Executive Officer. “At the same time, third quarter revenue in developed markets was negatively impacted by softness in demand. In addition, third quarter wins and losses within our U.S. Clinical Diagnostics customer base showed a net decline of less than 1% from the second quarter. We believe that U.S. recurring revenue growth will remain under pressure until our quality challenges are behind us, especially in Chemistry and Immunoassay.

“Our renewed focus on customer satisfaction and quality continues. Our recent U.S. quality challenges have prompted significant ongoing attention in this area to ensure that we live up to the expectations of our customers. We have identified root causes and developed remediation plans. Implementation is underway with some projects continuing through 2011. With customer satisfaction and retention our foremost objective, we have shifted some R&D resources from future products to current products until we resolve our quality issues. We continue to give high priority to customer-facing activities and operations to address and enhance customer satisfaction which, in turn, will drive future revenue growth. These efforts are expected to continue into 2011,” he said.

“Based on the first nine months results, we are reaffirming our revenue and EPS full year outlook provided on July 22, 2010. We are confident that, as we work to restore affected customers to full value, we will emerge an even stronger company. Despite the macroeconomic environment and our current challenges, Beckman Coulter has a strong installed base of customers, an enviable product pipeline, and a 75-year history of meeting the needs of customers,” Hurley said.

Three-Month Summary

Total recurring revenue increased 8.3% in constant currency. Excluding Olympus, recurring revenue increased 4.2% in constant currency when compared to prior year quarter. Automated Immunoassay recurring revenue grew 12.8%, or 14% in constant currency in the quarter as strong demand in Asia Pacific and Europe was partially offset by weakness in the U.S. Cash instrument sales increased 16.4%, or 16.7% in constant currency, due to the Olympus acquisition and a significant increase in Cellular placements.

In the quarter, Clinical Diagnostics revenue, excluding Olympus, increased 4.6%, or 5.5% in constant currency, led by 20%, or 18% in constant currency, growth in Asia Pacific and Emerging Markets. Sales to life science customers decreased 5.1%, or 4.1% in constant currency reflecting continued soft demand in developed markets, particularly Europe.

On a geographic basis, third quarter revenue in the U.S. increased 5.2%, due to Olympus. International revenue increased 11.9%, or 14.1% in constant currency, as a result of Olympus and continued strong performance in Asia Pacific and Emerging Markets.

Operating income in the quarter was $114.2 million and the operating margin was 12.8%. On an adjusted basis, operating income totaled $119.7 million, an increase of 11.7% over prior year quarter. Adjusted operating margin was 13.4%, a 40 basis point improvement relative to prior year quarter with a lower operating expense rate more than offsetting a decline in gross margin.

Non-operating expense was $24.2 million compared to $4.9 million in the prior year quarter, which benefited from a gain of $18 million related to forward contracts to hedge the Yen purchase price of the Olympus acquisition. The tax rate of 25.6% reflects changes in the geographic mix of profits.

Net earnings were $67 million, or $0.95 per diluted share. Excluding Olympus intangibles amortization, third quarter adjusted net earnings were $70.5 million or $1.00 per diluted share.

Recent Developments

• Declared a $0.19 per share quarterly cash dividend, a 5.6% increase over the prior quarter dividend, payable on November 19, 2010 to all stockholders of record on November 5, 2010, representing the company’s 17th consecutive annual dividend increase.
• Completed Stage One (study design) of the troponin clinical trial and entered Stage Two (study set-up) and Stage Three (study execution). Currently, several sites have moved into study execution and are collecting patient samples from the intended population. Per our plan, we will continue to add more enrollment and testing sites through November. We remain on track to complete the trial in time to file two separate 510(k) submissions for troponin in the first half of 2011 one for Access instruments and one for DxI instruments.
• Announced leadership changes effective September 6, 2010, coinciding with Scott Garrett‘s resignation as President and CEO as well as from the board of directors, including the appointment of Glenn Schafer as non-executive Chairman of the Board and Bob Hurley as interim President and Chief Executive Officer. The Board of Directors has initiated a search for a successor.
• Received FDA clearance of the DxH 300, a lower throughput hematology analyzer suitable for the low to mid-sized hospital laboratory.

Nine-Month Summary

For the first nine months of 2010, revenue increased 17.9%, or 16.7% in constant currency, versus prior year period due to Olympus and robust growth in Asia Pacific. Year-to-date recurring revenue was up 17.2%, or 16.1% in constant currency. Excluding Olympus, recurring revenue increased 6.3%, or 5.1% in constant currency compared to the prior year period.

Year-to-date operating income was $273.6 million. On an adjusted basis, operating income was $327.3 million, a 20.9% increase over prior year due largely to leverage and synergies from the Olympus acquisition. Operating margin increased to 10.2% primarily due to the completion of the Olympus integration and other restructuring initiatives in 2010. Adjusted operating margin increased 30 basis points to 12.2% with a lower operating expense rate more than offsetting a decline in gross margin.

Non-operating expense was $66.3 million (including $25.1 million of interest expense associated with the Olympus acquisition) compared to $23.8 million in the prior year period (which included a net foreign currency gain of $26.7 million related to hedging the Olympus purchase and $12.0 million of incremental interest expense for financing the Olympus acquisition). The tax rate in the first nine months was 27.5% compared to 13.7% in the prior year period. The adjusted tax rate was 26.3% (compared to 24.2% in the prior year period), in line with the company’s full year expectations. Net earnings were $150.3 million, or $2.12 per diluted share. Excluding Olympus intangibles amortization, restructuring and acquisition-related costs and other items described in the accompanying tables, the first nine months adjusted net earnings were $192.4 million or $2.71 per diluted share, up 12.4% and 4.6% over the prior year period, respectively.

Outlook

“We are reaffirming our July 22 outlook for 2010 which calls for revenue between $3.65 billion to $3.70 billion, including $480 to $500 million from Olympus products. Our expectation for constant currency recurring revenue growth remains at about 5%, excluding Olympus, and should be comprised of about 1% growth in the U.S. and around 9% growth in International markets.

“We continue to expect: adjusted operating margins of approximately 12.7%, with a full-year tax rate revised to between 25.5% and 26%; non-operating expense of approximately $90 million and adjusted earnings per diluted share in the range of $3.90 to $4.00 per share based on a revised share count of 71 million. We are lowering our estimate of capital expenditures to between $325 million and $350 million due to lower expenditures for infrastructure. Depreciation and amortization should remain between $350 million to $375 million,” concluded Hurley.

The company expects to provide 2011 outlook in February in conjunction with its 2010 year-end release of financial results and has postponed the annual business review typically held in December awaiting greater visibility with respect to customer retention and quality improvement programs now under way.

Investor Conference Call

There will be a conference call and webcast presentation of accompanying slides accessible on the company’s website today, Wednesday, October 27, 2010 at 5:00 p.m. ET to discuss the third quarter and first nine month 2010 results. The call may be accessed by dialing (877) 516-3365 or (706) 679-3246 and asking for the Beckman Coulter conference call or reservation number 17906714. The presentation webcast will be available live and is accessible to all investors through Beckman Coulter’s website at www.beckmancoulter.com. When accessing the webcast through the Beckman Coulter site, select “go to IR” under Investor Relations and find the call listed under “What’s Ahead.” The webcast will be archived on Beckman Coulter’s website for future on-demand replay through Friday, November 12, 2010.

About Beckman Coulter

Beckman Coulter, Inc., based in Orange County, California, develops, manufactures and markets products that simplify, automate and innovate complex biomedical tests. More than 200,000 Beckman Coulter systems operate in laboratories around the world, supplying critical information for improving patient health and reducing the cost of care. Recurring revenue, consisting of consumable supplies (including reagent test kits), service and operating-type lease payments, represent about 80% of the company’s 2009 revenue of $3.3 billion. For more information, visit www.beckmancoulter.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements contain words such as “may,” “will,” “might,” “expect,” “believe,” “anticipate,” “could,” “would,” “should,” “estimate,” “continue,” “pursue,” or the negative thereof or comparable terminology, and may include information regarding the company’s expectations, goals, strategy, business plans, or intentions regarding the future, including without limitation statements regarding expectations or estimates relating to our 2010 outlook, timing of our 510(k) submissions, total revenue, constant currency recurring revenue, constant currency recurring revenue growth, expense management, constant currency, earnings growth, operating margins, currency exchange rates, non-operating expense, tax rate, adjusted earnings per diluted share, capital expenditures, product and geographic leadership, timing and scope of investments in customer-facing personnel and operations, competitive position, product pipeline, share count, stability of our sector, growth opportunities, timing and scope of our quality initiatives and projects, and depreciation and amortization. The foregoing may not be a complete list of all forward-looking statements we make. The forward-looking statements contained in this press release reflect our current analysis of financial data, market trends, and business plans available only as of the date of this press release, which may become out of date or incomplete. The forward-looking statements are neither statements of historical fact nor guarantees or assurances of future performance. Therefore, we caution you not to put undue reliance on forward-looking statements. We assume no obligation to update any forward-looking statement as a result of new information, future events, or other factors except as required by law.

In addition, the preliminary unaudited financial information for the quarter and nine months ended September 30, 2010 set forth in this press release is based on information available at the time of this press release and is subject to further review by our independent accountants and management prior to our filing of our Quarterly Report on Form 10-Q for the third quarter ended September 30, 2010. Therefore, these results for the period ended September 30, 2010 set forth in this press release could differ from the final results reported in our Quarterly Report on Form 10-Q for the same period. Furthermore, any results reported for any completed period should not be considered indications of our future performance.

Forward-looking statements included in this press release involve certain risks and uncertainties, some of which may be beyond the company’s control, that could cause actual results and events to differ materially from those stated in the forward-looking statements. These risks and uncertainties include, but are not limited to, legal and regulatory changes, oversight or other activities, product quality and regulatory compliance requirements, including new 510K clearances for the use of our Troponin I test on our immunoassay systems, and the cost and time factors involved, FDA actions including recalls, warning letters and fines, failures in our internal processes and systems, the effects of healthcare reform; our ability to compete effectively; changes in laws and regulations; our ability to meet our customers’ expectations, our ability to protect our brand, market demand for the company’s new and existing products; intellectual property infringement claims by others and our ability to protect the company’s intellectual property; difficulty in obtaining materials and components for our products; consolidation of our customer base, formation of group purchasing organizations and changes in customer inventory levels and inventory management practices; reductions in government funding to our customers; foreign currency exchange fluctuations; global market, economic and political conditions and natural disasters; costs associated with our supply chain initiatives; tax risks and regulations; changes in the value of our investment in marketable securities; our ability to successfully acquire and integrate acquired businesses and realize the anticipated benefits from such acquisitions, our ability to retain key employees, and pending or new litigation matters. Additional factors that could cause actual results to differ are discussed in Part I, Item 1A (Risk Factors) of the company’s annual report on Form 10-K filed with the SEC on February 22, 2010 as well as in the company’s quarterly reports on Form 10-Q or current reports on Form 8-K filed since then.

Non-GAAP Financial Measures

“GAAP” refers to financial information presented in accordance wit