) fiscal first quarter earnings per share of 63 cents missed the
Zacks Consensus Estimate by 4 cents, or 6.0%.
Agilent's revenue of $1.68 billion was down 4.9% sequentially
and up 2.8% year over year, just short of the Zacks Consensus
Estimate of $1.70 billion. Revenue growth was greatly helped by
the Dako acquisition.
Revenue by Segment
Agilent reports results under three segments-Chemical
Analysis, Life Sciences, Electronic Measurement and Diagnostics
In the last quarter, Agilent's
segment remained the largest contributor, accounting for 43% of
its revenue. However, segment revenue declined both sequentially
and year over year for the third straight quarter.
Management attributed the 11.5% sequential and 7.2%
year-over-year declines to continued softness in base station
investment and reduction in investment in the wireless handset
segment following a period of strong investment. The weakness was
made worse by delivery issues at Agilent.
segment generated 24% of revenues, which was flat sequentially
and up 1.5% year over year. The increase from last year is
attributable to a stronger pharma market, supported by consistent
academic and government markets. Management stated that while the
consumables and service offerings remained robust, some products,
such as the LC/MS platform suffered from tougher compares.
segment generated 23% of revenue, which was consistent with both
the previous and year-ago quarters. Lower government spending was
responsible for the slight decline in the environmental business.
All other areas held up.
The newly added
Diagnostics and Genomics
segment accounted for 10% of revenue in the last quarter, up 4.5%
sequentially. Expanding partnerships, such as those with Eli
) are driving growth for the segment. New product launches and
expansion in Asia are also helping.
Broadly, the aerospace/defense and Food markets were the
strongest on a sequential basis although pharma also increased.
Industrial/semi and communications were particularly weak (down
double-digits), with academic/government and forensics/
environmental down mid-single-digits.
Aerospace/defense was also the strongest in the year-over-year
comparison, with chemical/energy, academic/government and food
also posting some growth. Revenue from other markets shrunk.
Agilent's orders were down 2.3% sequentially and up 5.4% from
the year-ago quarter. Diagnostics and Genomics was the lone
bright spot (up 4.4% sequentially, 139.1% year over year). Life
Sciences orders were down 4.8% sequentially and up 0.8% from the
The Chemical Analysis segment saw orders declining 5.2%
sequentially and 1.0% from last year. Electronic Measurement
remained a disappointment, with orders shrinking 0.8% and 1.1%,
respectively, from the previous and year-ago quarters.
The pro forma gross margin for the quarter was 54.9%, down 80
basis points (bps) sequentially and up 8 bps from the year-ago
quarter. The sequential decline is unsurprising, given the lower
volumes. Additionally, the high-margin EM business saw the most
significant decline, so there was likely a mix factor as
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 Agilent
Operating expenses increased 5.5% sequentially and 8.9% from
the year-ago quarter. Therefore, the operating margin shrunk 453
bps sequentially and 206 bps year over year to 17.1%, as all
expenses increased as a percentage of sales.
The Electronic Measurement operating margin shrunk 585 bps
sequentially and 325 bps year over year. The Life Sciences margin
shrunk 249 bps sequentially while expanding 53 bps from the
The Chemical Analysis margin shrunk 406 bps sequentially and
166 bps from last year. The Diagnostics and Genomics margin
shrunk 378 bps and expanded 76 bps from the year-ago quarter.
Agilent generated a pro-forma net income of $222 million or
13.2% net income margin compared to $303 million or 17.1% in the
previous quarter and $244 million or 14.9% 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.
Including these items, the GAAP net income was $179 million
($0.51 per share) compared with income of $425 million ($1.20
cents per share) in the previous quarter and $225 million ($0.64
cents per share) in the year-ago quarter.
Inventories grew 2.6% sequentially to $1.04 billion with turns
dropping from 3.1X to 2.9X. The company ended with cash and cash
equivalents of $2.45 billion, up $99 million during the quarter.
Agilent's long-term debt was $2.11 billion at quarter-end.
Cash generated from operations was $245 million compared to
$485 million in generated in the fourth quarter. Important uses
of cash during the quarter included $59 million on capex, $10
million on acquisitions, $35 million on dividends and $79 million
on share repurchases.
Agilent provided guidance for the second quarter of 2013 and
updated the guidance for the year.
In the second quarter, Agilent expects revenue of $1.74
billion to $1.77 billion and non-GAAP earnings of 64 to 70 cents
a share. Analysts polled by Zacks were expecting earnings of 74
cents, much higher than the guidance.
For fiscal year 2013, Agilent expects revenue of between $6.90
billion and $7.10 billion (previous $7.0 and $7.2 billion).
Non-GAAP earnings are expected to be $2.70 to $3.00 a share
(previous $2.80 to $3.10).
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 Dako and Varian
continues to improve its growth prospects.
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. 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 other hand, lingering macroeconomic concerns are
affecting the spending environment, which other test equipment
providers such as
) are also witnessing. This could remain a dampener for Agilent,
as it remains one of the largest providers of spectrum analyzers,
network analyzers, signal sources and oscilloscopes to government
and research organizations.
Agilent shares have a Zacks Rank #2 (Buy).
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