) fiscal fourth-quarter earnings per share of 81 cents beat the
Zacks Consensus Estimate by 5 cents, or 6.1%. Despite a revenue
miss in the last quarter, good expense control and stronger mix
helped results. The shares were languishing during the day but
shot up 5.62% after the company reported earnings.
Agilent's revenue of $1.72 billion was up 4.0% sequentially
and down 2.8% year over year, missing our estimate by 13.0%.
Unfavorable currency changes accounted for a 1.5% decline in
revenue although the impact of acquisitions was immaterial.
The Asia/Pacific remained the biggest contributor to revenues
with a 37% share, but the Americas was almost equally important
at 36%, followed by Europe with 27%. The Asia/Pacific was the
only region to have declined both sequentially and year over
year. The Americas grew 4.3% sequentially while remaining 9.1%
below year-ago levels. Europe staged something of a comeback,
growing 10.9% sequentially and 7.6% year over year.
The communications, aerospace/defense and industrial/comp/semi
markets declined from the year-ago quarter, while all other end
markets were flat or up.
Revenue by Segment
Agilent reports results under three segments -- Life Sciences
and Diagnostics, Chemical Analysis, and Electronic
segment generated 35% of revenues, which was up 6.6%
sequentially. The last quarter's results were driven primarily by
an increase in pharma/biotech revenues due to technology upgrades
and offshoring to emerging markets. Academia and
government, Dako and genomics also helped results. Services,
consumables (LCs) and diagnostic products were strong.
segment generated 24% of revenue, which was up 6.5% sequentially.
The last quarter benefited from the increase in food and chemical
& energy revenues that were supported by a steadier
environmental and forensics business. Spectroscopy,
consumables and services were the strongest offerings in the last
In the last quarter, Agilent's
segment remained the largest contributor, accounting for 41% of
its revenue. The segment was up 0.6% sequentially.
The weakness compared to the year-ago quarter was partly on
account of the loss of a major handset manufacturing test
customer, which continued to impact results in the last quarter.
Aerospace & defense markets were impacted by tougher comps
according to management. Both the U.S. and Asia softened, while
Europe strengthened. The semiconductor business was also weak but
orders appear to be picking up.
Agilent's orders were down 14.3% sequentially with all segment
contributing. Life Sciences orders increased 19.8%, followed by
Chemical Analysis, which grew 14.1%. Electronic Measurement was
the biggest surprise, reversing a multi-year negative trend to
The pro forma gross margin for the quarter was 55.1%, up 77
basis points (bps) sequentially and down 68 bps from the year-ago
quarter. Gross margins expanded significantly in both the Life
Sciences and Chemical analysis segments. Good cost control almost
totally offset volume declines in the Electronics Measurement
segment. The strength in the new Diagnostics segment remains a
positive for the overall gross margin, since the segment
generates significantly higher gross margins than the legacy
Operating expenses were flattish sequentially while declining
1.2% from the year-ago quarter. As a result, the operating margin
expanded 209 bps sequentially while shrinking 124 bps year over
year to 20.4%. All expenses declined sequentially and increased
year over year as a percentage of sales.
The Life Sciences operating margin expanded 300 bps
sequentially, Chemical Analysis 331 bps and Electronic
Measurement 60 bps.
Agilent generated a pro-forma net income of $271 million or
15.8% net income margin compared to $233 million or 14.1% in the
previous quarter and $303 million or 17.1% in the year-ago
quarter. Our pro-forma estimate excludes acquisition-related
costs, restructuring charges, amortization of intangibles and
other one-time items, as well as tax adjustments.
Including these items, the GAAP net income was $211 million
($0.63 per share) compared with income of $168 million ($0.49
cents per share) in the previous quarter and $425 million ($1.20
per share) in the year-ago quarter.
Inventories were up 1.1% sequentially to $1.07 billion with
turns roughly flat at 2.9X. The company ended with cash and cash
equivalents of $2.68 billion, up $345 million during the quarter.
Agilent's long-term debt was $2.70 billion at quarter-end.
Cash generated from operations was $377 million compared to
$215 million generated in the third quarter. Important uses of
cash during the quarter included $32 million on capex and $39
million on dividends. There were no share repurchases during the
Agilent provided guidance for the first quarter and fiscal
In the first quarter, Agilent expects revenue of $1.68 billion
to $1.70 billion, with core revenue (excluding currency and
M&A) expected to grow 2%. The expected earnings were 65 to 67
cents a share. Analysts polled by Zacks were expecting earnings
of 73 cents, well above the guided range. The fiscal first
quarter is typically slower for Agilent and this quarter will
also not see any impact of the Chinese New Year. Pay raises,
higher stock compensation booking and higher payroll taxes will
also impact results.
For fiscal year 2013, Agilent expects revenue of between $6.95
billion and $7.15 billion and earnings of $3.03 to $3.33 a
Agilent's results in the last quarter were helped by good cost
control and better product mix. Earlier, the company announced a
restructuring initiative that would, after completion, result in
a reduction of its workforce by 450 and generate cost savings in
the neighborhood of $50 million a year.
The company continues to do extremely well in Life Sciences
and Chemical Analysis segments and its decision to spin off the
underperforming electronics measurement business makes perfect
sense under the circumstances.
Management expects to complete the spin-off by the middle of
next year, which will allow them to focus on the faster-growing
segments. That said, order trends in the EM business have
started to improve, so there should be some impact on revenue in
the next quarter.
While the current outlook for this Zacks Rank #3 (Hold) stock
is negative, we remain positive about Agilent's broader portfolio
and increased focus on segments with higher growth potential.
Further, it continues to introduce new products (with higher
margins), which along with those acquired from Dako and Varian
have greatly improved its margin profile.
We note that peers
National Instruments Corp
) have a Zacks Rank #5 (Strong Sell), reflecting the difficult
market conditions. However,
) carries a Zacks Rank #2 (Buy) indicating that this stock would
be a safer bet for investors looking for exposure to the
We continue to expect that Agilent, which remains one of the
largest providers of spectrum analyzers, network analyzers,
signal sources and oscilloscopes to government and research
organizations, will see a quick turnaround once market conditions
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