) fiscal second-quarter earnings per share of 77 cents beat the
Zacks Consensus Estimate by 10 cents, or 6.7%.
Agilent's revenue of 1.73 billion was up 3.1% sequentially and
flat year over year, just short of the Zacks Consensus Estimate
of 1.74 billion.
The Americas remained the biggest contributor to revenues with
a 36% share. The Asia/Pacific was next with 39%, followed by
Europe, which accounted for the balance. While the Americas and
Europe grew 4.9% and 9.0% on a sequential basis, Europe declined
7.1%. However, Europe was up 8.6% from last year, the only region
to have posted year-over-year growth.
Overall, government spending patterns and policies are
impacting Agilent's revenues in both the U.S. and Europe and not
all of this can be tracked to a specific market. Industrials,
defense, environmental/forensics, academia are some of the areas
seeing the impact. The fact that Japanese government initiatives
have not kicked in yet also paint a gloomy picture.
Revenue by Segment
Agilent reports results under four segments-Chemical Analysis,
Life Sciences, Electronic Measurement and Diagnostics &
In the last quarter, Agilent's
segment remained the largest contributor, accounting for 44% of
its revenue. However, while the 5.3% sequential increase was
encouraging, the 13.2% year-over-year decline indicates continued
softness in key areas.
Still-modest capacity additions and over capacity conditions
(in some cases) in the semiconductor equipment market, the
secular decline in the PC market and the negative macro impact on
the industrial market are the main reasons for this softness.
Handset manufacturing test was also weak, as Agilent lost a big
customer account, with wireless R&D also declining slightly.
Strong overseas sales offset weak domestic sales in the
segment generated 23% of revenues, which was up 1.0% sequentially
and 2.5% year over year. This segment suffered the brunt of
government spending decisions, with U.S. sequestration having a
significant impact on the academia and government business.
Technology upgrades on the pharma side remained a positive for
both the sequential and year-on-year comparisons. The LC/LCMS
lines and recurring revenue remained strong.
segment generated 23% of revenue, which was up 1.8% sequentially
and 3.4% from the year-ago quarter. Despite the lower government
spending that impacted the environmental and forensics business,
Agilent saw continued strength in chemical, energy and food
testing segments across several emerging markets (particularly
Diagnostics and Genomics
segment accounted for 10% of revenue in the last quarter, up 1.8%
sequentially. The core business (excluding Dako) was up 38% year
over year. Expanding partnerships are driving growth for the
segment. New product launches and expansion in Asia are also
Agilent's orders were down 1.3% sequentially and 8.3% from the
year-ago quarter. Electronic Measurement remained a
disappointment, with orders shrinking 6.4% and 26.8%,
respectively, from the previous and year-ago quarters.
Diagnostics and Genomics orders were up 147.0% year over year
(due to the addition of Dako), but were down slightly on a
The Life Sciences and Chemical Analysis segments saw business
improving. These two segments grew 4.8% and 2.3%, respectively on
a sequential basis and 1.5% and 0.0%, respectively from last
year. Life Sciences and Chemical Analysis segments built some
backlog, while the other two segments depleted.
The pro forma gross margin for the quarter was 54.8%, down 15
basis points (bps) sequentially and up 67 bps from the year-ago
quarter. The sequential increase was volume-related.
Additionally, the high-margin EM business saw the most
significant increase, so there was a mix factor as well. 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 dropped 3.1% sequentially while increasing
2.3% from the year-ago quarter. Therefore, the operating margin
expanded 214 bps sequentially while shrinking 16 bps year over
year to 19.3%, as all expenses increased as a percentage of
The Electronic Measurement operating margin expanded 321 bps
sequentially and shrank 288 bps year over year. The Life Sciences
margin shrank 15 bps sequentially while expanding 392 bps from
the year-ago quarter. The Chemical Analysis margin expanded 164
bps sequentially and 338 bps from last year. The Diagnostics and
Genomics margin expanded 398 bps and shrank 340 bps from the
Agilent generated a pro-forma net income of $269 million or
15.5% net income margin compared to $222 million or 13.2% in the
previous quarter and $275 million or 15.9% 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 $166 million
($0.48 per share) compared with income of $179 million ($0.51
cents per share) in the previous quarter and $255 million ($0.72
cents per share) in the year-ago quarter.
Inventories were flat sequentially and stayed at $1.04 billion
with turns up slightly from 2.9X to 3.0X. The company ended with
cash and cash equivalents of $2.52 billion, up $69 million during
the quarter. Agilent's long-term debt was $2.11 billion at
Cash generated from operations was $315 million compared to
$245 million in generated in the first quarter. Important uses of
cash during the quarter included $51 million on capex, $41
million on dividends and $140 million on share repurchases.
Agilent provided guidance for the third quarter of 2013 and
updated the guidance for the year.
In the second quarter, Agilent expects revenue of $1.63
billion to $1.66 billion and non-GAAP earnings of 60 to 64 cents
a share. Analysts polled by Zacks were expecting earnings of 75
cents, much lower than the guidance.
For fiscal year 2013, Agilent expects revenue of between $6.75
billion and $6.85 billion (previous $6.9 and $7.1 billion).
Non-GAAP earnings are expected to be $2.70 to $2.85 a share
(previous $2.70 to $3.00).
While Agilent reported a strong second quarter and share
prices also responded positively, management cautioned against
persistent weakness in several end markets because of government
sequestration in the U.S., macro weakness in the U.S. and Europe,
sluggish semi capex spending, secular decline in PCs and the loss
of a major wireless customer.
The persistent weakness is going to result in weaker margins
and thereby, earnings for Agilent, which is reflected in its
lowered 2013 guidance. On the positive side, a restructuring
initiative was announced 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.
While the current outlook for this Zacks Rank #3 (Hold) stock
is negative, we remain 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
have greatly improved its margin profile.
We note that peers
) also have a Zacks Rank #3, while
National Instruments Corp
) carries a Zacks Rank #4, reflecting the difficult market
conditions. Therefore, Agilent, which remains one of the largest
providers of spectrum analyzers, network analyzers, signal
sources and oscilloscopes to government and research
organizations, should see a quick turnaround once market
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