Beckman Coulter, Inc. (Beckman) has reported total revenues of $3.1 billion for the full year of 2008, compared with the total revenues of $2.7 billion in the previous year-end. It has also reported net earnings of $194 million, or $3.01 per diluted share, for the full year of 2008, compared with net earnings of $211.3 million, or $3.30 per diluted share, in the previous year-end.
For the fourth quarter of 2008, total revenue was $811.3 million, up 2.8%, on robust sales to clinical diagnostics customers, partially offset by a decline in Life Sciences revenue. In constant currency, revenue increased 6.6%. Reported net earnings increased to $77.2 million, or $1.21 per fully diluted share. Adjusted net earnings increased to $82.3 million, or $1.29 per fully diluted share.
Fourth quarter discussion
Recurring revenue comprised of supplies, test kits, service and operating-type lease payments, was $610 million or about 75% of total revenue. Recurring revenue continued its steady performance increasing 5.1%, or 8.9% in constant currency.
On a geographic basis, fourth quarter revenue in the US increased 7.4%. In constant currency, International revenue grew 5.8%, with 9.7% growth in Clinical Diagnostics, offset partially by a 6% decline in Life Sciences.
Scott Garrett, chairman, president and chief executive officer, said, “Fourth quarter results demonstrate the ongoing strength of our Clinical Diagnostics business worldwide and the stability of sector fundamentals. Continued robust growth of recurring revenue at stable margins in combination with disciplined expense management allowed us to deliver on our earnings commitments, despite flat cash instrument sales.”
Gross profit grew 4.4% to $385.7 million, as gross margin up 70 basis points to 47.5% versus fourth quarter 2007. Operating income was $115.1 million.
Non-operating expense increased to $14.5 million from $10.3 million, principally due to higher interest on potential tax assessments. Adjusted net earnings were $82.3 million, or $1.29 per fully diluted share, partially benefiting from the accretion of the flow cytometry acquisition and a reduction in the tax rate from 33.0% to 24.4%.
Recent business developments
Received FDA clearance for the UniCel DxH 800 Cellular Analysis System, the first in a series of products that should significantly expand test menu and system capability in cellular analysis over the next ten years.
Introduced three new chemistry-immunoassay work cells, bringing to five the number of systems customers can choose from to meet a wide range of test mix and volume requirements.
Received FDA clearance for the Access Soluble Transferrin Receptor assay and the sTfR/log ferritin index as aids in the diagnosis of iron deficiency anemia and anemia of chronic disease.
Launched the SPRI-TE Nucleic Acid Extractor for simple, automated purification of DNA and RNA.
Completed relocation of the centrifugation manufacturing from Palo Alto, California to Indianapolis, Indiana, and the consolidation of US distribution centers.
Full Year 2008 Discussion
Revenue for full year 2008 was $3.1 billion up 12.2% over prior year, or 10.4% in constant currency. The 2007 flow cytometry acquisition contributed 1.4% to this growth. Against prior year, clinical diagnostics revenue grew 13.5%, while unusually strong first-half sales in Life Sciences drove growth of 6.1%.
Throughout 2008, constant currency recurring revenue grew steadily in the 7 to 9% range, resulting in full year growth of 8.3%. clinical diagnostics recurring revenue up 10.9%, or 9% in constant currency driven by continued gains in access immunoassay and flow cytometry, which grew 19.6% and 14.6%, respectively.
Gross profit margin declined 40 basis points from prior year to 46.5%, driven in part by strong placements of instruments and faster growth in developing countries, both of which have lower margins. Operating income for the year was $298.6 million against $272.4 million in 2007. Adjusted operating income increased 11.2% to $363.7 million, or 11.7% of revenue.
Non-operating expense was $46.7 million versus non-operating income of $20.3 million in 2007, which included gains from the company’s Miami land sale and the Biosite transaction break up fee, partially offset by the establishment of the Beckman Coulter Foundation. Non-operating expense, excluding these items, increased from about $37 million in 2007 to about $48 million in 2008 primarily due to currency related expense.
The effective tax rate for 2008 was 23.0%, while the adjusted tax rate for the year was 26%, down from a 2007 adjusted rate of 28.3% primarily due to a shift in geographic profit mix and additional R&E tax credits. Earnings per fully diluted share were $3.01, down 8.8% from previous year. Adjusted earnings per fully diluted share were $3.63, within the company’s outlook range of $3.55 to $3.65.
Garrett continued, “In 2008, our Clinical Diagnostics business continued its above-market growth demonstrating the strength of our portfolio in which the introduction of four new chemistry-immunoassay work cells and our next-generation cellular analysis system extended our breadth and capability. A fourth consecutive year of record placements for UniCel DxC chemistry analyzers and robust growth in immunoassay system placements also contributed to our success. Strong total and recurring revenue growth allowed us to make significant investments in our DxN molecular diagnostics product development, intellectual property for new tests and developing markets sales and service infrastructure. Despite challenges from increased commodity prices, unprecedented capital markets turmoil and significant shifts in currency exchange rates, we delivered on our earnings commitments.
“We made continued gains in operating excellence, further consolidating manufacturing and distribution sites, optimizing our processes and footprint. Also, the growing benefits of moving to an operating-type lease business model and increased effectiveness in asset management resulted in considerable improvements in operating and free cash flow. Operating cash flow improved more than $75 million to about $475 million, and free cash flow increased more than $50 million to $175 million. In total, 2008 adjusted results reflect the company’s strong fundamentals with fully diluted EPS growth of 11.7% and EBITDA increasing more than 14%,” he said.
Full year 2009 outlook
“On a constant currency basis, our 2009 full year outlook for revenue growth is 4% to 6%, driven by recurring revenue growth estimated in the 6% to 7% range. However, at current exchange rates we expect reported total revenue to be flat. We anticipate that cash instrument sales in the current economic climate will slow, compared with the robust growth of cash instrument sales in the first half of 2008. However, solid recurring revenue growth is expected to continue,” Garrett said.
“Operating margin is anticipated to be between 11.7% and 12%, after absorbing a significant currency head wind and a $25 million increase in pension expense. We are committed to zero overhead growth resulting in flat operating expense. At current exchange rates, non-operating expense should be around $22 million, due to expected gains on hedging contracts. Based on an estimated tax rate of 26% to 27% and a flat share count, earnings per fully diluted share should be between $3.85 and $4.05. The planned pacing of earnings growth is uneven, with as much as 65% of net earnings expected to come in the second half of the year, due to slowed growth of cash instrument sales and currency shifts in the first half. Capital expenditures are expected to be $350 to $375 million, and depreciation and amortization should be between $270 and $290 million.
“2009 will, no doubt, be a challenging year. However, we began to adjust our spend rate last summer when the U.S. Dollar strengthened dramatically. We believe we have identified and begun to implement changes necessary to deliver on our commitments. Solid trending of recurring revenue and positive cost management initiatives implemented in 2008 give us confidence that our 2009 goals are achievable,” Garrett concluded.