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Changing Beckman To Weigh in With Results

Early signs on how a reorganization is playing out at Fullerton-based Beckman Coulter Inc. are due later this week.

The county’s largest medical device company is set to release fourth-quarter results on Friday, the latest in a string of closely watched reports from big local companies.

The burning question: Will Chief Executive Scott Garrett’s move last year to combine two businesses and change the way sales are reported pay off?

Wall Street is waiting. Beckman Coulter’s shares have posted just subtle gains in recent weeks after slipping in the fall. The company counted a recent market value of $3.6 billion.

Beckman Coulter makes equipment and supplies for labs running tests for doctors and for medical and drug researchers.

Analysts expect the company to earn $45.3 million for the fourth quarter, off about 25% from a year earlier. Sales are seen coming in at $667.4 million, down 3% from a year ago.

The lower expectations stem in part from last year’s shift. In July, Beckman said it planned to change the way it accounts for leases of its instruments.

Beckman now logs them as operating leases, where revenue is spread over the life of the lease. Before, the company used a sales lease method, in which the value of the deal was recognized at once.

The result is less money up front, reflected in Wall Street’s lower sales and profit outlook versus a year earlier.

The upside for Beckman: the prospect of more sales of chemicals used to run tests on its instruments. The operating leases include reagent supplies and services from Beckman.

Some 60% of Beckman’s $2.5 billion in yearly sales come from supplies, chemistry kits and services.

“This should further improve competitiveness, sales efficiency and product margins,” Garrett said at the time of the lease change.

For now, “reported sales and earnings will be lower,” Garrett said.

With Wall Street braced for lower numbers, Beckman could have some surprises, said Frank Pinkerton of Banc of America Securities in New York.

“Despite what should be very low reported sales growth, we believe the economic reality is different,” he said.

Beckman recently came out with two workhorse instruments for labs, Unicel DxC 600 and 800, which are off to a strong start, according to Pinkerton.

Sales to labs running tests for doctors and hospitals make up the bulk of Beckman’s business.

The company’s smaller business focused on immunodiagnostics,or using antibodies to detect disease,could show signs of strength in the quarter, Pinkerton said.

“Beckman Coulter is benefiting from its assault on the immunodiagnostic market and leadership in automation unit placement,” the analyst wrote.

Beckman’s goal of growing its immunodiagnostics business to $1 billion in yearly sales by 2009 is “reasonable,” Pinkerton said.

Immunoassay systems accounted for $300 million in sales for Beckman through September.

Another analyst, Bruce Cranna of Leerink Swann & Co. of Boston, is more cautious.

In a November report, Cranna said he was lowering his projections for the fourth quarter on what he believed could be a tough period, given the lease reporting changes.

“With the uncertainties surrounding the transition to operating type lease revenue recognition and the headwind it creates for the next several quarters, we are cautious on the ability of (Beckman) stock to perform,” Cranna wrote.

Garrett’s other big push: creating “a one-company structure.”

Last year, he combined Beckman’s dominant diagnostic business, which sells testing gear and supplies to labs and hospitals, and its smaller biomedical research unit, which sells products to drug makers, universities and other researchers.

Beckman also eliminated some 350 jobs in the quarter.

The company expects to take a $30 million restructuring charge in the fourth quarter. The moves could bring $35 million in savings this year and next, according to analysts.

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