Agilent Technologies, Inc. (A)

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Agilent Technologies (A)

Q4 2012 Earnings Call

November 19, 2012 4:30 pm ET

Executives

Alicia Rodriguez

William P. Sullivan - Chief Executive Officer, Executive Director and Member of Executive Committee

Didier Hirsch - Chief Financial Officer and Senior Vice President

Guy Sene - Senior Vice President and President Electronic Measurement Group

Nicolas H. Roelofs - Senior Vice President and President of Life Sciences Group

Michael R. McMullen - Senior Vice President and President of Chemical Analysis Group

Lars Holmkvist - Senior Vice President and President of Diagnostics & Genomics Group

Analysts

Jon Davis Wood - Jefferies & Company, Inc., Research Division

Doug Schenkel - Cowen and Company, LLC, Research Division

Daniel Brennan - Morgan Stanley, Research Division

Jonathan P. Groberg - Macquarie Research

Tycho W. Peterson - JP Morgan Chase & Co, Research Division

Ross Muken - ISI Group Inc., Research Division

Isaac Ro - Goldman Sachs Group Inc., Research Division

Patrick M. Newton - Stifel, Nicolaus & Co., Inc., Research Division

Amit Bhalla - Citigroup Inc, Research Division

Paul R. Knight - Credit Agricole Securities (USA) Inc., Research Division

Mark Douglass - Longbow Research LLC

Derik De Bruin - BofA Merrill Lynch, Research Division

Charles Anthony Butler - Barclays Capital, Research Division

Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Agilent Technologies Earnings Conference Call. My name is Derek, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Ms. Alicia Rodriguez, Vice President of Investor relations. Please proceed.

Alicia Rodriguez

Thank you, Derek, and welcome, everyone, to Agilent's Fourth Quarter Conference Call for Fiscal Year 2012. With me are Agilent's CEO, Bill Sullivan, as well as Senior Vice President and CFO, Didier Hirsch. Joining in the Q&A after Didier's comments will be Agilent's President and Chief Operating Officer, Ron Nersesian. Also joining are the presidents of our Electronic Measurement, Life Sciences, Chemical Analysis and Diagnostics and Genomics Groups, Guy Sene, Nick Roelofs, Mike McMullen and Lars Holmkvist. You can find the press release and information to supplement today's discussion on our website at www.investor.agilent.com. While there please click on the link for financial results, where you will find revenue breakouts, business segment results and historical financials for Agilent's operations. We will also post a copy of the prepared remarks following this call.

Bill and Didier's comments today will refer to non-GAAP financial measures. You will find the most directly comparable GAAP financial metrics and reconciliations on our website. We will make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors.

And now, I'd like to turn the call over to Bill.

William P. Sullivan

Thanks, Alicia, and hello, everyone. For Agilent's fiscal fourth quarter, orders were flat year-over-year, while Q4 revenues were up 2% over last year. Operating margin was almost 22%, and non-GAAP EPS was $0.86 per share. The headline for this quarter is that most of our end markets remain soft. As a result of executing on our operating model we improved gross margins, tightly controlled our expenses to deliver a record non-GAAP operating profit, exceeded our EPS guidance and strengthened our balance sheet as a result of excellent free cash flow. We are pleased with our financial results for the quarter, as we have rebounded from our Q3 earnings miss.

In regards to end markets, Q4 played out as predicted. Fourth quarter revenue, excluding Dako, was flat compared to Q3. Electronic Measurement revenues declined 5% over last year. Communication markets were down in high-single digits with softness in R&D and manufacturing. Aerospace and defense spending was down 2% year-over-year. All of our Chemical Analysis markets remained soft except for Forensic, testing for drugs of abuse, with overall business revenues down 3% year-over-year.

Our Life Science business was flat compared to previous year as we continue to see positive growth for Pharma and continued weakness in academic and research.

Overall organic growth in our new Diagnostics and Genomics business was slightly up year-over-year. Dako met its fourth quarter revenue plan and continues to deliver on our expectations.

Looking ahead for the fiscal -- full fiscal year 2013, Agilent expects revenue of $7 billion to $7.2 billion and non-GAAP earnings of $2.80 to $3.10 per share. Forecasting the outlook for FY '13 is difficult, especially in the face of a potential U.S. financial or fiscal cliff. However, we would like to share the thinking that supports our FY '13 guidance.

First, we're assuming there will be no new financial crisis in the United States or Europe. However, continued uncertainty will dampen demand until the second half of our fiscal year. Second, Agilent will face higher pension expenses and the traditional increases in compensation and benefits. These costs will be less easily absorbed in a slow growth environment.

We continue to deliver on our ambitious manufacturing cost improvement plan. However, we're also facing price competition again because of the current slow growth environment. Overall, we are forecasting an FY '13 core revenue growth rate in the range of plus or minus 1.5%. Total reported revenue growth, including the impact of acquisitions, is expected to be in the 2% to 5% range.

In regards to business segments, we're forecasting a 1% to 3% decline in our Electronic Measurement business. We are not counting on increased investments in cellular infrastructure in the first half. Our Chemical Analysis and Life Science businesses will be flat to up to 3% with no fundamental changes in end markets.

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