Beckman Coulter Inc. may have handily beat expectations with its third-quarter results, but some company watchers are cautious about whether the maker of medical testing gear has overcome recent stumbles.
Late last month, Brea-based Beckman surprised Wall Street by trouncing lowered third-quarter estimates for profits and sales.
The company posted an adjusted third-quarter profit of $70.5 million, up 14% from a year earlier and topping the $61.9 million expected on average by analysts.
Revenue rose 9% to $894 million, beating Wall Street’s consensus estimate of $885 million.
Beckman, which makes testing machines and supplies used by hospitals, medical laboratories and research-ers, also reaffirmed its outlook for the rest of 2010.
The results brought a sigh of relief to analysts and investors who have watched Beckman wrestle with a costly product recall that’s cut into profits and sent the company’s shares spiraling.
“While (Beckman) is far from out of the woods, we are incrementally more comfortable with the company’s outlook,” wrote Dan Leonard and Julian Cochran of Boston’s Leerink Swann LLC. “However, we remain on the sidelines awaiting better visibility on customer attrition and price concessions.”
Most of Beckman’s year has involved addressing quality and regulatory issues stemming from a March recall of a test used to detect heart attacks.
That recall prompted a downward revision in the company’s 2010 profit projection and drove a 20% drop in Beckman’s shares since January. The company had a market value of $3.7 billion as of last week.
The recalled test detects troponin, a protein found in blood after a heart attack. Beckman made undisclosed changes to the test that resulted in higher readings when run on its DxI machine, a workhorse used by hospitals and labs to run tests for doctors.
A clinical trial is under way on a revised version of the test with sales projected to resume in mid-2011.
Analysts now are concerned about longer-term fallout with lost sales of testing machines, which sell for about $225,000, as customers opt to switch to rival products.
“Despite a good update on progress, damage will be hard to control at this point and (customer) losses will continue and compound in impact every quarter,” said Amit Hazan, an analyst with New York-based Gleacher & Co.
The longer it takes to get approval for a revised test increases the risk of losing customers, according to Hazan.
“For many labs, the longer they have to operate a system with reduced functionality, the more frustrated they become,” he said. “And it therefore becomes increasingly difficult to convince them to stay the course, no matter how much progress (Beckman) can show.”
The fourth quarter and early 2011 are expected to be more telling of customer losses, according to William Bonello of RBC Capital Markets.
“It takes time for customers to transition away to a new vendor,” he said.
Rivals
Beckman’s rivals include Abbott Laboratories of the Chicago area, Germany’s Siemens AG and Roche Diagnostics Corp., part of Switzerland’s Roche Holdings Ltd.
Beckman is tracking customer retention on a quarterly basis, according to Paul Glyer, the company’s senior vice president of strategy, business development and communications.
“That gives us the best measure of net wins and losses,” he said.
Glyer and Chief Financial Officer Charles Slacik did most of the talking during the company’s third-quarter conference call with analysts and investors.
Robert Hurley, Beckman’s interim chief executive since former chief Scott Garrett stepped down in September, said he’s been working on product quality and customer retention.
Hurley has been Beckman’s senior vice president of human resources and played a leading role in the company’s $800 million acquisition last year of Olympus Corp.’s diagnostics business.
Beckman directors formally have initiated a search for a permanent chief and hired a search firm, according to the company.
The search is set to look at internal and external candidates and take three to six months.
