Agilent (A) Beats On Q4 Earnings & Revenues, Issues View

Agilent Technologies’ (NYSE:A) fiscal fourth-quarter 2016 earnings per share of 59 cents beat the Zacks Consensus Estimate by 7 cents.

Following the fiscal fourth-quarter results, share price increased 0.15% in afterhours trading.

Revenues

Agilent’s fiscal fourth-quarter 2016 revenues of $1.11 billion were up 6.4% sequentially and 7.3% year over year. Revenues came above management’s guided range of $1.05 billion to $1.07 billion and the Zacks Consensus Estimate of $1.06 billion.

Revenue growth was supported by continued strength in pharma, better-than-expected growth in Europe and continued strength in China.

Revenues by Geography

Asia/Pacific contributed 37% of the total fiscal fourth-quarter revenue and was up 13.3% sequentially and 19.6% year over year. Americas contributed 36% and was up 35.6% sequentially and 3.4% year over year. Europe accounted for the remaining 27% and was down 21.7% sequentially and 1.3% 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 $548 million or 49% of total revenue, up 6% year over year. The increase was driven by strong performance in the pharma, food and forensics markets.

Revenues from ACG came in at $370 million or 33% of total revenue, reflecting 8% year-over-year growth. Both services and consumables witnessed growth across all geographical regions.

Revenues from DGG came in at $193 million or 18% of total revenue. The segment was up 8% 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 55.4%, up 110 basis points (bps) sequentially.

Operating expenses (research & development and selling, general & administrative expenses) in the quarter were $368 million, 3.7% higher than last quarter. As a result, operating margin of 22.2% was up 190 bps sequentially.

Net Income

Agilent generated pro-forma net income of $193 million, or 17.4% of sales, compared with $168 million, or 16.2%, 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 $140 million (42 cents) in the year-ago quarter.

Balance Sheet

Exiting the fiscal fourth quarter, inventories were $533 million, slightly down from $543 in the prior quarter. Agilent’s long-term debt was $1.91 billion at the end of the quarter. Cash and cash equivalents were $2.29 billion versus $2.20 billion in the prior quarter.

Net cash provided by operating activities was $234 million and capital expenditure was $52 million.

Guidance

Agilent issued guidance for the fiscal first quarter and fiscal 2016.

For the fiscal first quarter, Agilent expects revenues within $1.04 billion to $1.06 billion, and non-GAAP earnings per share in the range of 48 cents to 50 cents. Analysts polled by Zacks expect earnings of 53 cents per share and revenues of $1.08 billion.

For fiscal 2017, Agilent projects revenues between $4.35 billion and $4.37 billion and non-GAAP earnings per share in the $2.10 to $2.16 range. Analysts polled by Zacks expect earnings of $1.91 per share and revenues to the tune of $4.16 billion.

Recommendation

Agilent delivered strong fiscal fourth-quarter 2016 results, with both the top and the bottom-line 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 carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry are Cognex Corporation (NASDAQ:CGNX) , Itron, Inc. (NASDAQ:ITRI) and Teradyne Inc. (NYSE:TER) with a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cognex Corporation delivered a positive earnings surprise of 24.92% in the trailing four quarters.

Itron, Inc. delivered a positive earnings surprise of 30.55%, on average, in the trailing four quarters.

Teradyne Inc. delivered a positive earnings surprise of 19.26% in the trailing four quarters.

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