Agilent Technologies' (
) fiscal third-quarter 2014 earnings per share of 78 cents exceeded
the Zacks Consensus Estimate by 4 cents, driven by continued
improvement in the company's end markets.
Agilent's third-quarter revenues of $1.77 billion were up 2.0%
sequentially and 6.9% year over year. Also, revenues were above the
management guidance range of $1.74 to $1.76 billion and Zacks
Consensus Estimate of $1.75 billion.
The Asia/Pacific remained the biggest contributor to revenues
with a 38% share, and the Americas was also significant with a
contribution of 36%, followed by Europe contributing 26%. Both,
Americas and Europe increased both sequentially and year over year.
The Asia/Pacific, on the other hand, rebounded to a 4.5%
year-over-year improvement but declined 5.1% sequentially.
Agilent's revenues from all end markets were up from the
year-ago quarter, except Industrial, Computers and Semiconductor
market, which were flat.
Revenues by Segment
Agilent has three reporting segments - Life Sciences and
Diagnostics Group (LDG), Chemical Analysis Group (CAG) and
Electronic Measurement Group (EMG).
LDG generated 33% of revenues, up 2.6% sequentially and 5.0%
year over year. The quarter's results were driven by the ramp up of
new products in food & environmental and diagnostics/clinical
CAG generated 24% of revenues, up 1.5% sequentially and 7.8%
year over year. The reported quarter benefited from an increase in
food and chemical & energy revenues that were supported by a
steadier environmental and forensics business.
EMG remained the largest contributor, accounting for 43% of
total revenues. The segment was up 1.9% sequentially and 8.0% year
Agilent's orders were down 4.0% sequentially but up 8.7% year
over year. The sequential decrease was due to weak performance in
all the segments.
On a sequential basis, all three segments - Life Sciences,
Chemical Analysis and Electronic Measurement - decreased 0.2%, 2.8%
and 7.7%, respectively. On a year-over-year basis, Life Sciences,
Chemical Analysis and Electronic Measurement increased 11.4%, 7.7%
and 7.1%, respectively.
Reported gross margin for the quarter was 51.8%, down 10 basis
points (bps) sequentially but flat year over year.
Operating expenses decreased 0.6% sequentially but increased
10.5% from the year-ago quarter. Research & development
expenses decreased as a percentage of sales from the year-ago
quarter, while selling, general & administrative expenses
increased. The net result was an operating margin of 13.0%, up 90
bps sequentially but down 130 bps year over year.
Life Science and Chemical Analysis segment operating margins
improved 90 bps and 30 bps, respectively, from the previous
quarter, while Electronic Measurement margins shrank 10 bps
sequentially. On a year-over-year basis, both Chemical Analysis and
Electronic Measurement operating margins improved 50 bps and 60
bps, respectively, while Life Science margins shrank 20 bps.
Agilent Technologies, Inc. - Earnings Surprise
Agilent generated pro-forma net income of $262 million, or 14.8%
of sales compared with $244 million, or 14.1% in the previous
quarter and $233 million, or 14.1% 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 $147 million (43
cents per share) compared with $150 million (45 cents per share) in
the previous quarter and $168 million (49 cents per share) in the
Inventories were down 0.09% sequentially to $1,099 million. The
company ended with cash and cash equivalents of $2.95 billion, down
$559 million during the quarter. Agilent's total debt (long-term
plus short-term) was $2.22 billion at quarter end.
Cash generated from operations was $28 million compared with
$325 million generated in the second quarter. Important uses of
cash during the quarter included $64 million as capex, $44 million
as dividends and $50 million for share repurchases.
Agilent provided guidance for fourth-quarter and fiscal
For the fourth quarter, Agilent expects revenues of $1.81
billion to $1.85 billion, with core revenues (excluding currency
and M&A) growth of 6.3%. The expected earnings are 87 cents to
91 cents a share. Analysts polled by Zacks expect earnings of 95
cents, well above the guided range.
For fiscal 2014, Agilent expects revenues between $6.99 billion
and $7.03 billion and earnings of $3.04 to $3.08 a share. Analysts
polled by Zacks expect earnings of $3.07, which is on the higher
end of the guided range.
Agilent's results in the reported quarter were helped by good
cost control and a better product mix. The company continues to do
well in the Life Sciences and Chemical Analysis segments and its
decision to divest the underperforming Electronics Measurement (EM)
business makes perfect sense under the circumstances.
The company had named the new EM company as Keysight
Technologies which began to operate as a wholly owned subsidiary
from Aug 1, 2014. The new subsidiary's common stock is expected to
trade on the New York Stock Exchange with the ticker symbol
We remain positive on Agilent's broader portfolio and increased
focus on segments with a higher growth potential. Further, the
company continues to introduce new products (with higher margins),
which along with those acquired from Dako and Varian have greatly
improved its margin profile.
However, weakness in several end markets because of government
sequestration in the U.S., macro weakness in the U.S. and Europe,
and sluggish semi capex spending are concerns for the company.
Agilent carries a Zacks Rank #4 (Sell). Better-ranked stocks
include Emulex Corp (
), Research Frontiers Inc. (
) and Garmin Ltd. (
). All these stocks carry a Zacks Rank #2 (Buy).
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