) fiscal third-quarter earnings per share of 68 cents beat the
Zacks Consensus Estimate by 6 cents, or 9.6%.
Agilent's revenue of 1.65 billion was down 4.6% sequentially
and 4.1% year over year.
The Asia/Pacific remained the biggest contributor to revenues
with a 39% share. The Americas was next with 35%, followed by
Europe, which accounted for the balance. While all three regions
declined sequentially, it was most pronounced in the Americas
(down 5.6%), followed by the Asia/Pacific, which declined 4.9%
and Europe, which declined 2.8%. The Americas dropped 14.3% from
the year-ago quarter, with the Asia/Pacific coming in flattish
and Europe up 6.0%.
The most significant declines were in the aerospace/defense
and communications markets with pharma/biotech and petro/chemical
testing being the only end markets to have seen sequential
growth. However, food and aerospace/defense also grew from last
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 42% of
its revenue. The segment was down 7.8% sequentially and 17.0%
year over year indicating continued softness in key areas.
The significant weakness in the last quarter was on account of
the loss of a major handset manufacturing test customer.
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.
segment generated 24% of revenues, which was down 1.0%
sequentially and up 2.6% year over year. This sequential decline
was attributable to the residual negative impact of government
spending decisions, which has impacted the academia and
government business. Management said that stronger consumables,
services, support and informatics sales resulted in the
Technology upgrades on the pharma side remained a positive for
both the sequential and year-on-year comparisons. Additionally,
LC/LCMS product introductions continued.
segment generated 23% of revenue, which was down 3.5%
sequentially and up 1.6% from the year-ago quarter. Despite the
lower government spending that impacted the environmental and
forensics business for yet another quarter, Agilent saw continued
strength in chemical, energy and food testing segments across
several emerging markets (particularly China).
Diagnostics and Genomics
segment accounted for 10% of revenue in the last quarter, down
1.8% sequentially. The core business (excluding Dako) was up 6%
year over year. Segment revenue stayed 53.8% above the year-ago
level. New product launches and expansion in Asia continue but
market growth rates remain sluggish, which is a dampener.
Agilent's orders were down 5.2% sequentially and 3.7% from the
year-ago quarter. The most significant sequential decline was in
Life Sciences, although it was still above the year-ago period.
Chemical Analysis orders were down 4.4% sequentially but up 4.8%
from the year-ago quarter.
Electronic Measurement remained a disappointment, with orders
shrinking 3.9% and 16.9%, respectively, from the previous and
year-ago quarters. Diagnostics and Genomics orders dropped 5.2%
sequentially, staying 50.9% over the year-ago level.
The pro forma gross margin for the quarter was 54.3%, down 49
basis points (bps) sequentially and up 61 bps from the year-ago
quarter. The sequential contraction was related to volume
declines in the Electronics Measurement segment and unfavorable
mix in the Diagnostics and Genomics 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 Agilent business.
Operating expenses dropped 3.4% sequentially while increasing
3.3% from the year-ago quarter. However, the operating margin
shrank 94 bps sequentially and 197 bps year over year to 18.3%,
as all expenses increased as a percentage of sales.
The Electronic Measurement operating margin shrank 212 bps
sequentially and shrank 491 bps year over year. The Life Sciences
margin expanded 165 bps sequentially and 213 bps from the
year-ago quarter. The Chemical Analysis margin shrank 75 bps
sequentially while expanding 45 bps from last year. The
Diagnostics and Genomics margin shrank 214 bps and 37 bps from
the year-ago quarter.
Agilent generated a pro-forma net income of $233 million or
14.1% net income margin compared to $269 million or 15.5% in the
previous quarter and $278 million or 16.1% 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 $168 million
($0.49 per share) compared with income of $166 million ($0.48
cents per share) in the previous quarter and $243 million ($0.69
cents per share) in the year-ago quarter.
Inventories were up 1.2% sequentially to $1.05 billion with
turns down slightly from 3.0X to 2.9X. The company ended with
cash and cash equivalents of $2.33 billion, down $189 million
during the quarter. Agilent's long-term debt was $2.70 billion at
Cash generated from operations was $215 million compared to
$315 million generated in the second quarter. Important uses of
cash during the quarter included $53 million on capex, $41
million on dividends, $681 million on share repurchases and $250
million for the repayment of senior notes.
Agilent provided guidance for the fourth quarter of 2013 and
updated the guidance for the year.
In the fourth quarter, Agilent expects revenue of $1.70
billion to $1.72 billion and non-GAAP earnings of 75 to 77 cents
a share. Analysts polled by Zacks were expecting earnings of 76
cents, within the guidance.
For fiscal year 2013, Agilent expects revenue of between $6.76
billion and $6.78 billion (previous $6.75 and $6.85 billion).
Non-GAAP earnings are expected to be $2.83 to $2.85 a share
(previous $2.70 to $2.85).
Agilent's results were better than expected although the
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 remain negatives.
Agilent's 2013 guidance indicates that the persistent weakness
will be offset by cost efficiencies. 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
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, reflecting the difficult market
National Instruments Corp
) 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
AGILENT TECH (A): Free Stock Analysis Report
AMETEK INC (AME): Free Stock Analysis Report
TERADYNE INC (TER): Free Stock Analysis
To read this article on Zacks.com click here.