Agilent (A) Beats On Q3 Earnings, Revenues Match Estimates

Agilent Technologies’ (NYSE:A) fiscal third-quarter 2016 earnings per share of 49 cents beat the Zacks Consensus Estimate by a couple of cents.

Following the fiscal third-quarter results, the share price plunged more than 4% in the after-hours trading.

Revenues

Agilent’s fiscal third-quarter 2016 revenues of $1.04 billion were up 2.5% sequentially and 3.0% year over year. Revenues came within management’s guided range of $1.03 billion to $1.05 billion and were in line with the Zacks Consensus Estimate.

Revenue growth was supported by continued strength in the pharma, diagnostics and clinical markets across most of the geographical regions.

Revenues by Geography

Asia/Pacific contributed 35% of the total fiscal third-quarter revenue and was up 3.1% sequentially; Americas contributed 28% and was up 4.7% sequentially; while Europe accounted for the remaining 37% and was up 0.3% sequentially.

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 spinned 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 $504 million or 48% of total revenue, down 1% year over year. Strong performance in pharma, food and environmental markets, was offset by continued softness in Chemical & Energy.

Revenues from ACG came in at $360 million or 35% of total revenue, and up 7% year over year. Both services and consumables witnessed growth across all geographical regions.

Revenues from DGG came in at $180 million or 17% of total revenue. The segment was up 8% year over year. All businesses under this group (Dako, Genomics and Nucleic Acid Solutions) performed well.

Margins

The pro-forma gross margin for the quarter was 54.3%, down 50 basis points (bps) sequentially.

Adjusted operating expenses in the quarter were $355 million, down 1.7% from the last quarter. As a result, operating margin of 20.3% was up 80 bps sequentially.

Net Income

Agilent generated pro-forma net income of $160 million, or 15.3% of sales, compared with $147 million, or 14.5%, 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 $124 million (38 cents per share) compared with $111 million (33 cents) in the year-ago quarter.

Balance Sheet

Exiting fiscal third quarter, inventories were $543 million, slightly down from $555 in the prior quarter. Agilent’s long-term debt was $1.65 billion at the end of the quarter. Cash and cash equivalents were $2.20 billion versus $2.14 billion in the prior quarter.

Net cash provided by operating activities was $194 million and capital expenditure was $24 million.

Guidance

Agilent issued guidance for the fiscal fourth quarter and lowered its projections for fiscal 2016.

For the fiscal fourth quarter, Agilent expects revenues within $1.05 billion to $1.07 billion, and non-GAAP earnings per share in the range of 50 cents to 52 cents. Analysts polled by Zacks expect earnings of 54 cents per share and revenues of $1.08 billion.

For fiscal 2016, Agilent now projects revenues between $4.14 billion and$4.16 billion (previous expectations of $4.16 billion and $4.18 billion) and non-GAAP earnings per share in the $1.89–$1.91 range (previous expectation of $1.88 to $1.92 range). Analysts polled by Zacks expect earnings of $1.90 per share and revenues to the tune of $4.17 billion.

Recommendation

Agilent delivered decent fiscal third-quarter 2016 results, with the bottom line surpassing the Zacks Consensus Estimate while the top line matched the same.

The company’s decision to divest/wind up underperforming businesses has enhanced its focus on the new Agilent, while enabling expansion of a solid 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 r 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 carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Radcom Ltd. (NASDAQ:RDCM) and Netgear Inc. (NASDAQ:NTGR) , each, sporting a Zacks Rank #1 (Strong Buy), and Digi International Inc. (NASDAQ:DGII) carrying a Zacks Rank #2 (Buy).