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Agilent Technologies (A) Beats on Q1 Earnings & Revenues

Zacks

Agilent TechnologiesA fiscal first-quarter 2017 earnings per share of 53 cents beat the Zacks Consensus Estimate by 4 cents. Earnings were up 15.2% year over year.

Following the strong fiscal first-quarter results, share price increased by more than 3% in after-hours trading.

Over the past one year, shares of Agilent Technologies underperformed the Zacks categorized Electronic Testing Equipment industry. While the industry gained 48.47%, the stock returned 39.12%.


Revenues

Agilent’s fiscal first-quarter 2017 revenues of $1.07 billion were down 4.0% sequentially but up 3.8% year over year. Revenues came above management’s guided range of $1.04 billion to $1.06 billion and the Zacks Consensus Estimate of $1.05 billion.

Revenue growth was supported by continued strength in Chemical & Energy business and better-than-expected growth in China.

Revenues by Geography

Asia/Pacific contributed 36% of the total fiscal first-quarter revenue and was down 5.9% sequentially but up 10% year over year. Americas contributed 34% and was down 7.6% sequentially but up 5.5% year over year. Europe accounted for the remaining 30% and was up 3.3% sequentially but down 4.5% year over year.

Revenues by Segment

Agilent now has three reporting segments — Life Sciences & Applied Markets Group (LSAG), Agilent Cross Lab Group (ACG) and Diagnostics and Genomics Group (DGG). Its Electronic Measurement Group (EMG) segment was spun off as Keysight Technologies, an independent publicly traded company. Agilent also exited the Nuclear Magnetic Resonance business having failed to meet growth and profitability goals. The company divested or shut down underperforming units to streamline operations.

In the reported quarter, LSAG was the largest contributor and accounted for $540 million or 51% of total revenue, up 3% year over year. The increase was driven by strong performance in the pharma, food, chemical and energy markets.

Revenues from ACG came in at $363 million or 34% of total revenue, reflecting 6% year-over-year growth. Both services and consumables witnessed growth across all geographical regions.

Revenues from DGG came in at $164 million or 15% of total revenue. The segment was up 4% year over year, driven by strength in pathology and nucleic acid solutions. All businesses under this group (Dako, Genomics and Nucleic Acid Solutions) performed well.

Margins

The pro forma gross margin for the quarter was 55.1%, down 30 basis points (bps) sequentially but up 20 bps year over year.

Operating expenses (research & development and selling, general & administrative expenses) in the quarter were $368 million, 3.7% lower than the year-ago quarter. As a result, adjusted operating margin of 21.2% was up 100 bps year over year.

Net Income

Agilent generated pro forma net income of $168 million, or 15.7% of sales, compared with $121 million, or 11.8%, a year ago. Our pro forma estimate excludes acquisition-related costs, restructuring charges, amortization of intangibles and other one-time items, as well as tax adjustments.

With these above-mentioned items included, GAAP net income was $172 million (53 cents per share) compared with $153 million (46 cents) in the year-ago quarter.

Balance Sheet

Exiting the fiscal first quarter, inventories were $551 million, up from $533 in the prior quarter. Agilent’s long-term debt was $1.80 billion at the end of the quarter. Cash and cash equivalents were $2.24 billion compared with $2.29 billion in the prior quarter.

Net cash provided by operating activities was $116 million and capital expenditure was $32 million.

Guidance

Agilent gave guidance for the fiscal second quarter and fiscal 2017.

For the fiscal second quarter, Agilent expects revenues between $1.04 billion and $1.06 billion, and non-GAAP earnings per share in the range of 47 cents to 49 cents. Analysts polled by Zacks expect earnings of 49 cents per share and revenues of $1.05 billion.

For fiscal 2017, Agilent projects revenues between $4.33 billion and $4.35 billion and non-GAAP earnings per share in the range of $2.10–$2.16. Analysts polled by Zacks expect earnings of $2.13 per share and revenues to the tune of $4.33 billion.

Recommendation

Agilent delivered strong fiscal first-quarter 2017 results, with both the top and the bottom lines surpassing the Zacks Consensus Estimate.

The company’s decision to divest/wind up underperforming businesses has enhanced its focus on the new Agilent, while enabling expansion of the recurring revenue base and diversification of geographic and industrial operations for growth. Also, the company’s focus on aligning investments so as to be oriented toward more attractive growth avenues and innovative product launches is a positive.

In addition, we remain positive on Agilent’s broad-based portfolio and increased focus on segments with higher growth potential. Further, the company continues to introduce high-margin products.

Foreign currency headwinds may hurt revenues and profits, but the company seems prepared to counter them.

Agilent Technologies, Inc. Price, Consensus and EPS Surprise

Agilent Technologies, Inc. Price, Consensus and EPS Surprise | Agilent Technologies, Inc. Quote

Agilent carries a Zacks Rank #4 (Sell). Stocks worth considering in the industry include Texas Instruments TXN, carrying a Zacks Rank #1 (Strong Buy) and FactSet Research Systems FDS and Intersil Corporation ISIL, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Texas Instruments delivered a positive earnings surprise of 7.09%, on average, in the trailing four quarters.

FactSet Research Systems Inc. delivered a positive earnings surprise of 1.89%, on average, in the trailing four quarters.

Intersil Corporation delivered a positive earnings surprise of 2.92%, on average, in the trailing four quarters.

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