) fiscal fourth quarter 2012 earnings per share of 86 cents beat
the Zacks Consensus by 6 cents.
Agilent's revenue of 1.77 billion was up 2.6% sequentially and
2.3% year over year. Reported revenue beat the Zacks Consensus
Estimate of 1.76 billion.
Revenue by Segment
Agilent has been reporting results under three
segments-Chemical Analysis, Life Sciences and Electronic
Measurement. However, the Dako acquisition (closed in the fiscal
third quarter) now makes up the fourth segment, named Diagnostics
segment remained the largest contributor, accounting for 46% of
its revenue in the last quarter. However, segment revenue was
down 3.4% sequentially and 4.6% year over year to $816.0 million.
Communications was the sore point in the last quarter, with
Agilent seeing softness on the R&D and manufacturing sides of
segment generated 23% of revenues. The segment revenue of $401.0
million was up 2.6% sequentially and down 0.2% from last year.
Revenue from the pharma/biotech market grew from both the
previous and year-ago quarters. However, academic/government
markets were softer in the year-over-year comparison.
segment generated 22.0% of fourth quarter revenue. The segment
revenue of $394.0 million rose 3.4% sequentially but was down
2.7% year over year. This decline from last year was largely on
account of food testing but forensics and testing for drugs of
abuse witnessed growth. Environmental was weak when compared with
both the previous and year-ago quarters.
The newly added
Diagnostics and Genomics
segment accounted for 9.0% of revenue in the last quarter, up
Agilent's were up 5.4% sequentially and consistent with the
year-ago quarter. Diagnostics and Genomics had the most
significant impact (up 49.1% sequentially, 107.9% year over
Life Sciences orders were up 11.8% sequentially, but they
shrunk 3.7% from the year-ago levels. The Chemical Analysis
segment saw orders increasing 13.2% sequentially, although they
were flat with the year-ago level. Electronic Measurement was the
big disappointment, with orders shrinking 6.9% and 8.2%,
respectively, from the previous and year-ago quarters.
The GAAP gross margin for the quarter was 52.2%, up 50 basis
points (bps) sequentially and down 110 bps from the year-ago
quarter. On a pro forma basis, the gross margin increased 206 bps
sequentially and 77 bps year over year to 55.7%.
The strength in gross margin was due to efficient cost
management. The strength in the new Diagnostics segment was a
positive for the overall gross margin, since the segment
generates significantly higher gross margins than the legacy
Operating expenses increased 4.7% sequentially and 4.3% from
the year-ago quarter. However, the operating margin expanded 136
bps sequentially and 9 bps year over year to 21.7%, as the higher
gross margin offset the impact of higher R&D and flattish
SG&A expenses as a percentage of sales in both cases.
The Electronic Measurement operating margin contracted 15 bps
sequentially and 128 bps year over year. The Life Sciences
segment margin expanded 313 bps sequentially and 353 bps from the
year-ago quarter. The Chemical Analysis margin expanded 362 bps
sequentially and 67 bps from the year-ago quarter. The
Diagnostics and Genomics margin expanded by 157 bps and 72 bps
from the previous and year-ago quarters, respectively.
Agilent generated a pro-forma net income of $303.0 million or
17.1% net income margin compared with $278.0 million or 16.1% in
the previous quarter and $292.0 million or 16.9% in the year-ago
quarter. Our pro-forma estimate excludes acquisition-related
costs, amortization of intangibles and other one-time items, as
well as tax adjustments.
On a fully diluted GAAP basis, the company recorded a net
income of $425.0 million ($1.20 per share) compared with income
of $243 million (69 cents per share) in the previous quarter and
$289.0 million (82 cents per share) in the year-ago quarter.
Inventories declined 2.1% sequentially to $1.014 billion in
the fourth quarter. The company ended with cash and cash
equivalents of $2.351 billion, up from $1.923 billion in the
previous quarter. Agilent's long-term debt was $2.112 billion in
the fourth quarter.
Agilent generated $485 million in cash from operations in the
fourth quarter, up from $240.0 million in the previous quarter.
Important uses of cash during the quarter included $61 million
for capex, $30 million for acquisitions, $34 million for
dividends and $94 million for share repurchases.
Agilent expects fiscal first quarter revenue in the range of
$1.68 billion to $1.70 billion. Non-GAAP earnings are expected to
be 65 to 67 cents a share.
For fiscal year 2013, management expects revenue between $7.0
and $7.2 billion. Non-GAAP earnings are expected to be $2.80 to
$3.10 per share.
We are positive about Agilent's broader portfolio and
diversification into segments with higher growth potential.
Further, it continues to introduce new products (with higher
margins), which along with those acquired from Varian should
continue to generate higher growth.
Agilent also offers something for in come-seeking investors -
it has paid out cash in the form of both share repurchases and
dividends over the past 3 years.
In recent times, Agilent's focus has shifted to life sciences,
genomics, diagnostics and wireless test markets, where the
company has made a few important acquisitions (Varian and more
recently Dako). The company already enjoys a strong position in
its markets and its attempt to strengthen its position in
segments with better growth potential is encouraging.
On the contrary, the lingering macroeconomic conditions are
affecting the spending environment, which other test equipment
providers such as
) are also witnessing. The U.S. economy is also apprehensive
about the impending Fiscal Cliff, which may reduce its spending
in defence contracts. This may impact Agilent, as it remains one
of the largest providers of spectrum analyzers, network
analyzers, signal sources and oscilloscopes into these
We have a short-term Hold rating on Agilent's shares,
supported by the Zacks #3 Rank.
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