Agilent Technologies (A) Beats On Q3 Earnings & Revenues

Agilent Technologies’ (NYSE:A) fiscal third-quarter 2017 earnings per share of 59 cents beat the Zacks Consensus Estimate by 7 cents. Earnings were up 20.4% year over year.

Following the strong fiscal third-quarter results, share price has increased 4.16% in the after-hours trading. Also, the company’s shares have surged 35.5% year to date, outperforming the industry’s gain of 31.3%.

During the quarter, the company closed the acquisition of U.K.-based Cobalt Light Systems, which might allow Agilent to strengthen its presence in the high-growth Raman spectroscopy market. The deal complements Agilent’s own product expansion efforts with a promise to help it offer better services to its pharmaceutical and biopharma customers.

We also 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.

Revenues

Agilent’s fiscal third-quarter 2017 revenues of $1.11 billion inched up 1.1% sequentially and 6.7% year over year. Revenues were slightly above the management’s guided range of $1.06–$1.08 billion and the Zacks Consensus Estimate of $1.08 billion.

Revenue growth was supported by double-digit growth in Chemical & Energy business and strength in Pharma. China remained strong in the quarter. Also, better-than-expected growth in Europe contributed to the upside.

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 after failing 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 $531 million or 47% of total revenue, reflecting an increase of 5% year over year. This was driven by strong performances in the chemical and energy, pharma and environmental markets.

Revenues from ACG came in at $386 million or 35% of total revenue, reflecting a rise of 7% year over year. Both services and consumables witnessed growth across all geographical regions.

Revenues from DGG came in at $197 million or remaining 18% of total revenue. The segment was up 9% year over year, driven by strength in pharma, diagnostic and clinical end-markets. All businesses under this group (Dako, Genomics and Nucleic Acid Solutions) performed well.

Margins

The pro forma gross margin for the quarter was 53.5%, down 22 basis points (bps) sequentially and 81 bps year over year.

Operating expenses (research & development and selling, general & administrative expenses) in the quarter were $395 million, 0.3% lower than the year-ago quarter. As a result, operating margin was 18.0% versus 14.0% in the year-ago quarter.

Net Income

Agilent generated pro forma net income of $191 million (59 cents per share) compared with $160 million (49 cents) in the year-ago quarter. 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 $175 million (54 cents per share) compared with $124 million (38 cents) in the year-ago quarter.

Balance Sheet

Exiting the fiscal third quarter, inventories were $566 million, up from $548 in the prior quarter. Agilent’s long-term debt was $1.80 billion at the end of the quarter. Cash and cash equivalents were $2.56 billion compared with $2.39 billion in the prior quarter.

Net cash provided by operating activities was $228 million and capital expenditure, $43 million.

In the reported quarter, the company paid $42 million in dividends. There was no share repurchase activity in the time frame.

Guidance

Agilent provided guidance for fiscal fourth quarter.

Agilent expects revenues between $1.15 billion and $1.17 billion, and non-GAAP earnings per share in the range of 60–62 cents for the fiscal fourth quarter. Analysts polled by Zacks expect revenues of $1.14 billion and earnings of 59 cents per share.

For fiscal 2017, Agilent increased its revenue and earnings expectations.

The company now projects revenues in the range of $4.435-$4.455 billion versus the preceding guidance of $4.36–$4.38 billion. Also, non-GAAP earnings per share are now expected in the range of $2.29-$2.31 versus the previous guidance of $2.15–$2.21.

Analysts polled by Zacks expect earnings of $2.22 per share and revenues to the tune of $4.39 billion.

Zacks Rank and Stocks to Consider

Currently, Agilent has a Zacks Rank #3 (Hold). A few better-ranked stocks in the same space are Lam Research Corporation (NASDAQ:LRCX) , sporting a Zacks Rank #1 (Strong Buy), plus Applied Materials (NASDAQ:AMAT) and Fortive Corporation (NYSE:FTV) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lam Research delivered an average positive earnings surprise of 4.44% in the trailing four quarters.

Applied Materials delivered a positive earnings surprise of 3.35%, on average, in the last four quarters.

Fortive Corporation delivered a positive earnings surprise of 5.80%, on average, in the trailing four quarters.

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