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Agilent Technologies (A)

F1Q11 Earnings Call

February 14, 2011 4:30 pm ET


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

Alicia Rodriguez -

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

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

Ronald Nersesian - Senior Vice President and President of Electronic Measurement Group

Didier Hirsch - Chief Financial Officer, Principal Accounting Officer and Senior Vice President


Richard Eastman - Robert W. Baird & Co. Incorporated

Nandita Koshal

Anthony Luscri - JP Morgan Chase & Co

Jonathan Groberg - Macquarie Research

Ross Muken - Deutsche Bank AG

Stephen Unger - Lazard Capital Markets LLC

Isaac Ro - Goldman Sachs Group Inc.

Jonathan Palmer - Thomas Weisel Partners

D. Mark Douglass - Longbow Research LLC

Jon Wood - Jefferies & Company, Inc.

William Stein - Crédit Suisse AG

Ajit Pai - Stifel, Nicolaus & Co., Inc.



Good day, ladies and gentlemen, and welcome to the First Quarter 2011 Agilent Technologies Earnings Conference Call. My name is Derek, and I'll be your operator for today. [Operator Instructions]

I would now like to turn the conference over to Ms. Alicia Rodriguez, Vice President of Investor Relations. You may proceed.

Alicia Rodriguez

Thank you, and welcome, everyone, to Agilent's conference call for fiscal year 2011. With me are Agilent's President and CEO, Bill Sullivan; as well as Senior Vice President and CFO, Didier Hirsch. Joining in our Q&A will be the Presidents of Agilent's Electronic Measurement, Life Sciences and Chemical Analysis Groups: Ron Nersesian, Nick Roelofs and Mike McMullen. After my comments, Bill will give his perspective on the quarter and the overall market result. Didier will then follow with a review of financial results. And after Didier's comments, we will open the lines and take your questions.

In case you haven't had a chance to review our press release, you can find it on our website at Please note that the business segment financial tables are in the schedules that accompany the press release. We are also providing further information to supplement today's discussion. After you log on to our webcast module from our website, please click on the link for supporting materials. There, you will find additional information, such as our revenue breakouts and historical financial information for Agilent's continuing operations.

If during this conference call we use any non-GAAP financial measures, you will find on our website the required reconciliation to the most directly comparable GAAP financial metrics. We will make forward-looking statements about the future financial performance of the company. This involve risk and uncertainties that could cause Agilent's results to differ materially from management's current expectations. As a result, we encourage you to look at the company's most recent filings with the SEC to get a more complete picture of all the factors at work. The forward-looking statements, including our guidance provided today during the call, are only valid as of this date, and the company assumes no obligation to update such statements as we move throughout the quarter.

Before turning the call over to Bill, I would like to remind you that Agilent will host its annual analyst meeting in New York City on March 3. Details about the meeting and webcast will be available in the coming week on the Agilent Investor Relations website.

Now let me turn the call over to Bill for his comments.

William Sullivan

Thanks, Alicia, and the hello, everyone. Agilent's Q1 orders of $1.63 billion were up 33% year-over-year, while revenues of $1.52 billion were up 25% from a year ago. Without the impact of the Varian acquisition and recent divestitures, orders and revenues were up 22% and 19%, respectively.

Overall, financial results were excellent. Non-GAAP EPS is $0.60, exceeded expectations and straight consensus. Agilent continues to demonstrate the strength of its product portfolio, as all key platforms grew revenue by double digits for the third consecutive quarter. All regions posted double-digit organic revenue growth.

Our Electronic Measurement business posted its second consecutive quarter with a 20% operating margin. Q1 revenue of $771 million reflects 23% year-over-year growth. Excluding the Network Solutions divestitures, orders and revenues both grew 31% organically.

We saw continued strength and momentum across markets and regions. Aerospace and defense revenues grew 11% organically from a year ago. Communications markets were up 45% year-over-year, driven by our industry-leading position in the LTE and 3G test solutions. Industrial semiconductor computer markets grew 31% organically, led by our oscilloscope business. Our scope revenue is up 70% year-over-year. Tomorrow, we're introducing a new family of value oscilloscopes, which have the best price performance in the industry. These 26 new models of 70 to 500 megahertz scopes represents the largest ever oscilloscope introduction.

In our Bio-Analytical Measurement business, we saw a gap between orders and revenues in our Q1 results. During the quarter, we started the process of transforming Varian's quote-to-cash process to the Agilent system. As a result of issues related to end of month pipeline logistics, revenue for Varian-based products came in at $30 million below expectations for the quarter. Life science and chemical analysis were both impacted by the revenue shortage.

Life Science business revenues were up 19% to $404 million, up 7% organically. Orders grew 11% organically. Operating margin, including Varian, was 12%. We saw strong growth in Academic and Government, with 12% organic growth driven by year end budget spending. Pharma and Biotech was up 6%.

Life science platform performance were strong, particularly in LCs and Mass Spec. We're seeing acceleration in instrument replacement cycle. We also strong demand for our genomics, open lab informatics, automation, NMR and MRI products.

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