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Agilent Technologies (A)

Q2 2011 Earnings Call

May 13, 2011 8:30 am 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

Anthony Luscri - JP Morgan Chase & Co

Jonathan Groberg - Macquarie Research

Ross Muken - Deutsche Bank AG

Paul Knight - Thomas Weisel

Isaac Ro - Goldman Sachs Group Inc.

Jon Wood - Jefferies & Company, Inc.

D. Mark Douglass - Longbow Research LLC

William Stein - Crédit Suisse AG

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

Charles Butler - Barclays Capital



Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Agilent Technologies Inc. Earnings Conference Call. My name is Lacey, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Ms. Alicia Rodriguez, Vice President of Investor Relations. Please proceed.

Alicia Rodriguez

Thank you, Lacey, and welcome, everyone to Agilent's Second Quarter 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. Bill will give his perspective on the quarter, and Didier will follow with a view of financial results. After Didier's comments, we will open the line for questions.

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.

In case you've not had a chance to review our press release, you can find it on our website at We are also providing further information to supplement today's discussion. At our website, please click on the link for supporting materials. There, you will find information, such as revenue breakouts and historical financials for Agilent's operations. We will all also post a copy of the prepared remarks following this call.

If during this conference call we use any non-GAAP financial measures, you will find on our website the most directly comparable GAAP financial metrics. We will make forward-looking statements about the future financial performance of the company.

These statements are only valid as of today, and the company assumes no obligation to update them throughout the current quarter. Please look at the company's most recent SEC filings for a more complete picture of the risks and other factors at work.

And now, let me turn the call over to Bill.

William Sullivan

Thanks, Alicia, and hello, everyone. Agilent's Q2 revenues of $1.68 billion were up 32% year-over-year. Without the impact of recent acquisitions and divestitures, revenues were up 21% organically.

Q2 orders of $1.7 billion outpaced revenues as demand for Agilent's products remain strong. Orders were up 37% year-over-year, up 18% organically. Overall financial results were excellent. Non-GAAP EPS was $0.74, while operating margin was 19.3%.

Agilent continues to demonstrate the strength of its product portfolio, as all key platforms grew by double digits for the fourth consecutive quarter. All regions posted double-digit organic revenue growth.

A few words about Japan. While there have been some issues from the recent earthquake and tsunami, we do not expect any business impact. Q2 Japan revenue was up almost 20% organically over a year ago and accounted for 12% of Agilent's total revenue for the quarter.

In terms of supply chain, we do not anticipate any issues at this point in time. We continue to work with our suppliers to minimize any potential risks.

Moving on to the businesses. Our Electronic Measurement business continue to generate strong margins and organic growth. Quarterly operating margin of 23% was the highest for the business since the first quarter of fiscal 2001. Q2 revenues of $834 million reflect 19% year-over-year growth. Excluding the Network Solutions divestiture, the revenues and orders were up 26% and 15% respectively.

We saw continued strength and momentum across markets and regions. General purpose market revenues grew 26%. Industrial and computer markets were strong, while semiconductors appear to be moderating. Aerospace and defense saw solid growth, with near-term outlook improved by the resolution of the U.S. government budget in March.

Communications organic growth was also strong, with revenue up 26% organically over the previous year. Test demand remains strong for wireless manufacture -- manufacturing, driven by smartphones and 3G. LTE network roll-outs continue to ramp up as well.

We saw broad success in our core electronic measurement platforms, including oscilloscopes, network analyzers, signal analyzers and signal sources.

In our bio-analytical measurement businesses, the integration-related issues we experienced in Q1, around the order fulfillment and logistics, have been resolved.

Life Science business revenues were up 39% to $464 million, with 16% organic growth. Orders grew 21% organically. Operating margin, including the Varian product, was 13%.

We saw double-digit revenue growth across all regions and continued growth in our markets. Pharma and biotech grew 16% organically, driven by the replacement and upgrades for lab instrumentation and Big Pharma. Academic and government revenue grew 9%.

Platform performance remains strong, with solid growth in LC, LC/MS, genomics, microarrays, automation and informatics. The Chemical Analysis business saw revenue growth of 60% to $381 million, up 13% organically. Orders grew 22% organically. Operating margin, again including the Varian products, was 19%.

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