A month has gone by since the last earnings report for Agilent Technologies (A). Shares have added about 2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Agilent due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Agilent's Q3 Earnings Beat Estimates, Revenues Down Y/Y
Agilent Technologies reported third-quarter fiscal 2020 earnings of 78 cents per share, beating the Zacks Consensus Estimate by 18.2%. Further, the bottom line improved 2.6% year over year and 9.9% sequentially.
Revenues of $1.26 billion were down 1% on a reported basis and 3.1% on a core basis. This was owing to COVID-19 induced disruptions, currency headwinds, softness in diagnostics and clinical, sluggish chemical and energy, weak academic and government, and environmental and forensics business.
Nevertheless, the top line surpassed the Zacks Consensus Estimate of $1.21 billion and increased1.9% from the previous quarter.
Growth in pharmaceutical market on the back of solid momentum across both small and large molecule applications remained positive. Further, strong performance in the food market was a tailwind.
We note that region wise Americas, Asia-Pacific and Europe accounted for 36%, 39% and 25% of revenues, respectively, in the reported quarter.
By type, 58% of revenues were generated from Consumer Services Informatics. Instruments contributed the remaining 42% of revenues.
In terms of major markets, Analytical Laboratory generated 86% of fiscal third-quarter revenues. Dx & Clinical accounted for the remaining 14%.
Segment Top-line Details
Agilent has three reporting segments — Life Sciences & Applied Markets Group (LSAG), Agilent Cross Lab Group (ACG) and Diagnostics and Genomics Group (DGG).
In the reported quarter, LSAG was the largest contributor to total revenues. The segment accounted for $557 million or 44% of its total revenues, up 2% year over year. This was driven by growth in food, and academic and government markets.
However, coronavirus pandemic related woes acted as headwinds for the segment during the reported quarter.
Revenues from ACG were $463 million, accounting for 37% of total revenues. However, the top line declined 1% year over year. This was owing to sluggishness in the end-markets on account of disruptions caused by COVID-19.
Nevertheless, core growth in pharmaceutical and food markets remained positive.
DGG revenues decreased 8% year over year to $241 million, accounting for the remaining 19% of total revenues. The segment was impacted by slowdown in non-COVID Dx testing activities and decline in academic and government research activities.
In the fiscal third quarter, LSAG gross margin contracted 120 basis points (bps) on a year-over-year basis to 59.3% due to lower volumes.
DGG gross margin contracted 590 bps on a year-over-year basis to 49.8%. ACG gross margin also expanded 50 bps to 52.6%.
Research & development and selling, general & administrative expenses were $92 million and $347 million, down 8.9% and 5.2% year over year, respectively.
As a result, operating income improved 2.2% year over year to $230 million.
Operating margin for LSAG segment expanded 90 bps year over year to 22.6%.
DGG segment operating margin contracted 190 bps on a year-over-year basis to 17.2%. ACG operating margin was 28.4%, which expanded 220 bps from the year-ago quarter.
As of Jul 31, 2020, Agilent’s cash and cash equivalents were $1.36 billion, up from $1.32 billion as of Apr 30, 2020.
Accounts receivables were $930 million at the end of fiscal third quarter, up from $886 million at the end of fiscal second quarter.
Further, total debt (Short-term debt + Long-term debt) was $2.3 billion in the reported quarter compared with $2.5 billion in the prior quarter.
Operating cash flow was $290 million compared with $313 million in the last quarter. Agilent paid $56 million in dividends and repurchased 360,000 shares for $33 million.
Agilent refrained from providing any guidance for the fiscal year 2020 and fiscal fourth-quarter 2020 owing to uncertainties related to COVID-19.
Nevertheless, the company anticipates strong momentum in research activities in academia and other markets. Further, improving elective medical procedures such as cancer screenings remain positives.
Additionally, continued lab openings are other positives.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
Currently, Agilent has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Agilent has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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