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Agilent Technologies Inc (A) Q2 2019 Earnings Call Transcript

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Agilent Technologies Inc (NYSE: A)
Q2 2019 Earnings Call
May 14, 2019, 7:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Agilent Technologies Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. (Operator Instructions) Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, today's conference is being recorded.

I'd now like to introduce your host for today's conference, Mr. Ankur Dhingra, Vice President of Investor Relations. Sir, please go ahead.

Ankur Dhingra -- Vice President, Investor Relations

Thank you, Liz, and welcome everyone to Agilent's second quarter conference call for fiscal year 2019. With me are Mike McMullen, Agilent's President and CEO; and Bob McMahon, Agilent's Senior Vice President and CFO. Joining in the Q&A after Bob's comments will be Jacob Thaysen, President of Agilent's Life Science and Applied Markets Group; Sam Raha, President of Agilent's Diagnostics and Genomics Group; and Mark Doak, President of the Agilent CrossLab Group.

You can find the press release, investor presentation and information to supplement today's discussion on our website at investor.agilent.com.

Today's comments by Mike and Bob will refer to non-GAAP financial measures. You will find the most directly comparable GAAP financial metrics and reconciliations on our website.

Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year. References to revenue growth are on a core basis. Core revenue growth excludes the impact of currency and the acquisitions and divestitures completed within the past 12 months. Guidance is based on exchange rates as of April 30th.

We will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors.

And, now, I would like to turn the call over to Mike.

Michael McMullen -- President and Chief Executive Officer

Thanks, Ankur, and thanks for joining our call today. Our Q2 results are mixed. On one hand, we continue to deliver strong growth in two of our three business. On the other hand, our LSAG business is experiencing unexpectedly soft market conditions.

Despite revenue below our expectations, the Agilent team delivered solid earnings with EPS of $0.71 at the midpoint of our guidance. This represents 9% EPS growth over last year. We also delivered our 17th consecutive quarter of adjusted operating margin expansion.

For the quarter, total revenues were $1.24 billion , representing 4% core growth. Let me break that down. Performance was led by our Agilent CrossLab Group with core growth of 9%. Our Diagnostics and Genomics Group delivered 6% core growth, while our LSAG declined 1%. There were two key market factors observed in the latter part of the quarter that contributed to the LSAG revenue shortfall. First, we experienced a slowing of instrument orders in China. The second factor is tied to more general slowdown in orders from big pharma. I'd point out that this slowdown became apparent to us at the beginning of April. Let me explain this in a little more detail.

In China, our overall business grew 3%, driven by double-digit growth in ACG. However, our LSAG business declined by 1% during the quarter. There are two major factors impacting our China LSAG business. First, the recovery in the food market has not yet materialized. Government labs have not yet resumed purchasing at the levels we have previously seen. Second, the Chinese government's 4+7 initiative to lower generic drug prices is having a greater than expected impact on small molecule pharma. Consequently, we're lowering our revenue expectations in China this year. China does, however, remain an important long-term growth market for us. The other factor affecting LSAG growth is moderating global demand in small molecule pharma. We've seen several large accounts delaying replacement purchases.

In contrast to small molecule pharma, we continue to see strong global biopharma demand. While overall growth declined 1%, there are positive signs in other LSAG end-markets. Demand remains strong in environmental forensics and biopharma markets with solid results in chemical and energy.

You recall the strength in our leadership in gas chromatography with the recent launch of the new 8860, 8890 GCs. Since the launch, we're very pleased with the stronger than expected customer demand we've seen. We also had some other very exciting new products. In April, we introduced the new Agilent 6546 LC/MS Q-TOF system. This system is tailored to environmental metabolomics research in food testing laboratories, provide an ability to acquire high resolution data across an unprecedented dynamic range. Customers can certainly see more compounds and analyze them more quickly with this new offering.

In addition, during the quarter, we also introduced a unified, purpose-built portfolio of cell analysis products targeting cancer immunotherapy with the addition of ACEA Biosciences. This offering enables research in this fast-growing segment. Our cell analysis business continued to deliver double-digit growth. While we are facing soft market demand in our LSAG business, we remain confident in the strength of our portfolio and believe we are well positioned to continue winning in the market.

Now, I'd like to share more detail about the other two businesses. The Agilent CrossLab Group continues to deliver excellent results, growing 9% on a core basis. Demand is broad-based across all regions. This reflects a market-leading value of our portfolio and differentiated customer experience.

In China, the ACG business grew in the mid-teens. The team continues to execute our strategy of leveraging Agilent's large instrument installed base. We also continue to expand our services footprint in emerging cities and tailor our consumers portfolio to the local market.

The Diagnostics and Genomics Group delivered a solid quarter with 6% core revenue growth. Regional demand is led by strength in the Americas. Our pathology-related businesses grew high-single digits. Previously announced large competitive wins, along with continued strong demand for our antibodies and our companion diagnostic services, are driving our growth in that segment.

Agilent also received expanded FDA approval for our PD-L1 IHC companion diagnostic for metastatic non-smallcell lung cancer. This companion diagnostic would now be used to identify a broad range -- broader range of patients who may qualify for first-line treatment with KEYTRUDA.

The NASD business continues delivering strong performance with mid-teens growth. We are on track to bring our second facility online. We anticipate initial production of GMP grade APIs by the end of fiscal 2019. Material revenue contributions are expected in fiscal year 2020.

Looking ahead to the second half of the year, we are confident that the momentum will continue in our ACG and DGG businesses.

For our LSAG business, our outlook for the second half is tempered by our view of continued soft market conditions. As a result, we revised our outlook for the full year, reaffirming our prior EPS commitment, while lowering revenue growth. Bob will describe this in more detail, but first, just a few summary comments.

We now expect to deliver core growth for the year between 4% and 5%. While we are facing market headwinds in our LSAG business, our full year earnings guidance remains intact. The Agilent team remains firmly committed to meeting our current guidance for earnings growth. Our guidance reflects confidence in the strength of the overall Agilent business model and our ability to drive solid earnings results.

Thank you for being on the call today and look forward to answering your questions. I'll now hand off the call to Bob. Bob?

Robert McMahon -- Senior Vice President and Chief Financial Officer

Thank you, Mike, and good afternoon, everyone. In my remarks today, I will provide some additional detail on revenue, walk through the second quarter income statement and some other key financial metrics, and then I'll finish up with our updated guidance for Q3 and the full year. Unless otherwise noted, my remarks will focus on non-GAAP results and percentage changes will be on a year-over-year basis.

As Mike mentioned, we delivered solid Q2 earnings despite slower than anticipated top line growth, underscoring the strength of Agilent's financial model and our ability to respond quickly to changing market conditions. Revenue for the quarter was $1.24 billion with core revenue growth of 4%. Reported growth was 3% as currency negatively impacted growth by 320 basis points, slightly higher than expected. This was partially offset by M&A contributing 190 basis points of growth.

As Mike spoke to the business groups' performance for the quarter, I'll provide some additional details around our end-markets and regional performance. Pharma, our largest end-market, delivered 2% core growth. We continue to see strength in biopharma in aftermarket services and consumables and in our NASD business. However, the slowing of the instrument replacement cycle for small molecule applications led to a softer than expected results.

Chemical and Energy core growth was a strong 6%, above expectations and driven by a strong low-teens growth in services and consumables. All regions grew, led by strength in the Americas.

Environmental and Forensics was up 7%. Strength in forensics is linked to the ongoing global opioid crisis, which is driving demand for expanded forensic laboratory capabilities, more samples and broader screening requirements. The environmental market grew mid-single-digits and continues to be driven by an ongoing expansion of testing and oversight in China.

Now, wrapping up our end-market discussion, core revenue for both Diagnostics and Clinical and Academia and Government, both grew 5%, while food declined 3% due to the softness in the China market.

Geographically, we saw growth in all regions, led by the Americas with 6% growth, as conditions in the US continue to be healthy. Europe, with 4% growth, performed better than anticipated, driven by pharma outsourcing trends and continued strong biopharma investments. China grew 3%. And while we had strong mid-teens growth in the ACG business, softer instrument sales in the food market and small molecule pharma led to lower than expected overall results.

Now before I leave revenue, the core growth of our combined LSAG and ACG businesses, while below our expectations, was 4% in the quarter and, we believe, compares favorably to the overall analytical lab market growth.

Now turning to the rest of the P&L. Q2 gross margin was 56% and increased 70 basis points compared to the prior year. We continue to achieve good gross margin improvements through our productivity initiatives and driving continued economies of scale in our ACG services business.

Operating margin was 21.9%, up 60 basis points, mainly due to disciplined cost management, as shifting market conditions became increasingly apparent in the latter part of the quarter. Additionally, the tax rate was down marginally and average diluted shares were 321 million. This led to non-GAAP earnings per share of $0.71 in the second quarter, an increase of 9% compared to the prior year and at the midpoint of our guidance.

Now before moving to Q3 guidance and full year guidance, I want to touch on a few additional financial metrics on cash flow and on the balance sheet. Our free cash flow for the quarter was $213 million. We deployed $102 million in the quarter, consisting of $52 million in dividends and $50 million in share repurchases, representing roughly 635,000 shares. Lastly, we ended the quarter with $2.2 billion in cash and $1.8 billion in debt. And, during the quarter, we also renewed our revolving credit line of $1 billion , which remains undrawn.

With our strong balance sheet position, we will be more active in the second half of the year deploying capital. Specifically, we intend to deploy $500 million for share repurchases with the majority of that to come in the third quarter. This underscores not only our balance sheet strength, but also our confidence in the future. In addition, we still have plenty of capacity for M&A and we have an active business development funnel, although we will continue to remain disciplined in our approach.

Now, let's turn to our non-GAAP financial guidance for the fiscal year. As Mike indicated, we're reducing our core revenue growth outlook for the year. While our expectations for ACG and DGG aren't changing, our forecast for the second half is tempered by softening market conditions in certain segments on the Instruments side of the business. The developments in China coupled with their continued uncertainty on trade is creating a more challenging macro environment. As a result, we are updating our full year revenue guidance to a range of $5.085 billion to $5.125 billion , representing 3.5% to 4.3% reported growth. Currency is expected to be a headwind of 210 basis points, partially offset by M&A. And, as a result, we are now expecting core revenue growth in the range of roughly 4% to 5%.

Now despite reducing revenue guidance, we feel confident in holding to our full year earnings per share guidance range of $3.03 to $3.07, representing growth excluding currency of roughly 10% to 11% and reported growth of 8.6% to 10%. As Mike mentioned, our EPS guidance reflects confidence in the strength of Agilent's business and our ability to drive earnings through multiple levers. These include disciplined expense management and the use of our balance sheet. Based on deploying the additional $500 million toward share repurchase, we are updating our average diluted share count down to 319 million for the year.

Now, finally, turning to the third quarter, we're expecting revenue in the range of $1.225 billion to $1.245 billion , representing reported growth of 1.8% to 3.5% and core growth of 2.7% to 4.1%. Currency is estimated to be a headwind of 210 basis points, partially offset by M&A, contributing roughly 120 to 150 basis points of growth.

Third quarter 2019 non-GAAP earnings are expected to be in the range of $0.71 to $0.73 a share, which is 6% to 9% reported growth versus a year ago. The share count for Q3 is expected to be 317 million.

Let me conclude by saying, we are pleased with the team's ability to preserve earnings performance despite shifting market conditions. We are confident in the strength of Agilent's business and our ability to navigate softness in certain markets.

With that, before opening it up for questions, I will turn it back to Mike for some closing comments.

Michael McMullen -- President and Chief Executive Officer

Thanks, Bob. I just want to add a few closing words before we move into Q&A. Great companies do not just react to market conditions, they see market opportunity. At Agilent, we will continue to drive productivity and double down our efforts to be a more Agile company. We have multiple levers to drive earnings, including disciplined expense management and use of our balance sheet. However, we are not going to expense cut our way to growth. We will continue to bring innovative new products to market and aggressively compete for market share.

Now, Ankur, back to you for the Q&A.

Ankur Dhingra -- Vice President, Investor Relations

Thank you, Mike. Liz, if you can please provide instructions for the Q&A.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of Dan Leonard with Deutsche Bank. Your line is now open.

Daniel Leonard -- Deutsche Bank -- Analyst

Thank you. So first question, in trying to...

Michael McMullen -- President and Chief Executive Officer

Hi, Dan.

Daniel Leonard -- Deutsche Bank -- Analyst

Hi, Mike. So trying to make sure I understand the issues in small molecule pharma, is that an LC comment specifically, or more broadly, customers you're labeling as small molecule pharma? And can you comment on the trends between ethical pharma and generics?

Michael McMullen -- President and Chief Executive Officer

Yes. So I'll make a few comments and then, Jacob, feel free to jump on this. I think it's primarily LC-related. And it's a situation we're seeing actually globally. I call out specifically the government initiative in China. But we also saw on our large pharma accounts in US and Europe, delays in purchasing. In fact, I remember talking with our European field manager, we had an order that was supposed to close in January, a big European pharma company. It was pushed out. We thought it was going to close at the end of March, and now it is closed in May. And, perhaps, you can add your thoughts here as well, Jacob.

Jacob Thaysen -- Senior Vice President and President, Life Sciences and Applied Markets Group

No, you're absolutely right, Mike. That is primarily the LC business. However, many of those pharma companies also have investment into some other areas. And when they now see some chances in the generics, they might put back also in other areas. So LC is the prime focus, but it certainly also expands into the mass spec and all.

Michael McMullen -- President and Chief Executive Officer

And I think just to close this off, Dan, I think the comments for China were specifically to generics. I think globally, we saw both in ethical and generic drugs in the small molecule side.

Daniel Leonard -- Deutsche Bank -- Analyst

Okay. Thank you. And then my follow-up, can you elaborate just further on the actions you're taking to respond to the market softness? And I ask because the decrementals margins in LSAG were pretty high, so can you elaborate a bit on what you're doing to react? Thank you.

Michael McMullen -- President and Chief Executive Officer

Yes. So as Bob mentioned in the -- in his call notes, we're actually quite pleased by the action team to really rapidly adjust the cost structure in a phenomena developed probably over the last four to six weeks of the quarter. And the actions are just double downing on the Agile Agilent programs that we had already in flight, but also really making sure that we looked at the expenses that weren't directly related to growth and all over the call to action that kind of pull back on things that really don't drive growth, like internal travel for example. So we pulled all the levers we could, but while maintaining intact our coverage model in the field as well as our NPI programs. And, Bob, I don't know if you add anything else.

Robert McMahon -- Senior Vice President and Chief Financial Officer

Yeah, I would just add, Dan, while the LSAG business did show a decline year-over-year, I would remind you to look at the total company, which actually did improve margins for -- year-over-year and for the 17%. So we operate this as a full company as part of the One Agilent approach. And so, we're taking a number of initiatives. But as Mike said, we are also doubling down in areas such as the new products in the areas where we think we can drive. We did see pockets of strength in LSAG, and Jacob and team are really focusing on those areas, areas such as cell analysis and chemical and energy and some of the other areas as well. So it's not just an expense. It is really ensuring that we're focused on the areas that we have the fastest opportunities for growth.

Daniel Leonard -- Deutsche Bank -- Analyst

Okay. Thank you for all that color.

Michael McMullen -- President and Chief Executive Officer

Sure.

Operator

Our next question comes from the line of Tycho Peterson with JPMorgan. Your line is now open.

Tycho Peterson -- JP Morgan Chase & Co. -- Analyst

Hey, thanks. I'm going to follow-up on some of the pharma questions.

Michael McMullen -- President and Chief Executive Officer

Sure.

Tycho Peterson -- JP Morgan Chase & Co. -- Analyst

McMullen, we did the CEO call back in early April, you did call out the China generic headwinds. We didn't really hear about the pharma delays at that point. So obviously, it seems like it came up later in the quarter and you mentioned it with several accounts. So can you maybe just talk on how widespread it is and is this a transitory issue in your mind? Or how are you thinking about pharma for the remainder of the year?

Michael McMullen -- President and Chief Executive Officer

Yes. Thanks for the excellent question, Tycho. And I do recall our conversation. I think it was in early April. And I had just come back from China and we were first hearing about the 4+7 initiative in China. And to your question, I think that we saw that fairly broad-based. This is outside of China. So I think China has got some specific things happening relative to the government actions around 4+7, which I think is fairly publicized. But we saw the both our US and European customers, and we have a -- we just had a major account review, and all of our major accounts were down year-over-year. And there's just a level of caution relative to replacement investments in the small molecule side of the businesses. The same companies, however, are investing quite heavily in the biopharma side. So it's sort of a tale of two cities from the standpoint of what's really going well inside some of our larger accounts versus where there's been pause. And, Bob, I know you've looked at this quite closely as well, and I don't know if you have anything else to add to that.

Robert McMahon -- Senior Vice President and Chief Financial Officer

I think you're right, Mike. And Tycho, as we're thinking about the guidance going forward in the second half of the year...

Michael McMullen -- President and Chief Executive Officer

(multiple speakers)

Robert McMahon -- Senior Vice President and Chief Financial Officer

...we are looking at probably a more moderated growth for pharma going forward, but still not at the rate that we saw in Q2, but probably in the mid-single digits, where we were expecting probably high-single-digits globally. So, I think we are taking a prudent approach there as we're thinking about the outlook for the year. I do say -- I would say that we're continuing to, as Mike said, grow our biopharma business, but we still have the proportion, a large proportion of our pharma business being in the small molecule side.

Tycho Peterson -- JP Morgan Chase & Co. -- Analyst

And with (multiple speakers)

Michael McMullen -- President and Chief Executive Officer

And then...

Tycho Peterson -- JP Morgan Chase & Co. -- Analyst

Oh, go ahead.

Michael McMullen -- President and Chief Executive Officer

I was just to add, Tycho, one thing we have seen though is, on the small molecule side, there still is very high demand for chemistries and services. I think you've seen that reflected in the strong ACG results.

Tycho Peterson -- JP Morgan Chase & Co. -- Analyst

And it was a little surprising to see food down, now that you've anniversaried it. Can you maybe just -- I know it's not recovering, but is it getting worse?

Michael McMullen -- President and Chief Executive Officer

Yes. Thanks, Tycho. It was a surprise for us as well. It's not getting any worse, it's just not getting any better. And we had anticipated coming on the anniversary that the Central Government will start reinvesting at the previous level and the spends just are not fair. Now we are seeing in other parts of the end markets, so the spends and investments in environmental are quite strong. But they have not yet returned to the spending levels that we had seen in prior -- in the food market. But, again, I would say the same story here relative to the aftermarket flows. We are still seeing strong growth on the aftermarket flows in food. It's just the instrument purchases aren't there. So it's not getting worse, but it's not getting better as we had thought.

Tycho Peterson -- JP Morgan Chase & Co. -- Analyst

And then one just last clarification on the cost side, are you taking any additional tariff remediation efforts given round three, just curious?

Michael McMullen -- President and Chief Executive Officer

Yes, Bob, would you want to take that?

Robert McMahon -- Senior Vice President and Chief Financial Officer

Yes. We continue to be focused on additional remediation to minimize that, the increase between the round three from the 10% up to the 25% is incorporated into our guidance. It was a -- I've talked about this before, it's roughly about $752 million in the second half of the of the year, net of their efforts that we are taking.

Tycho Peterson -- JP Morgan Chase & Co. -- Analyst

Okay. Thank you.

Operator

Our next question comes from the line of Patrick Donnelly with Goldman Sachs. Your line is now open.

Patrick Donnelly -- Goldman Sachs -- Analyst

Great, thanks. Mike, maybe just a clarity...

Michael McMullen -- President and Chief Executive Officer

Hey, Patrick.

Patrick Donnelly -- Goldman Sachs -- Analyst

Hey, how are you?

Michael McMullen -- President and Chief Executive Officer

Sure.

Patrick Donnelly -- Goldman Sachs -- Analyst

Just some clarity around some of the slowing you saw beginning in April and I don't know in the last call you kind of talk about January being slow. So maybe just talk us through the cadence of the quarter, particularly in China, where February and March trending OK and then you've kind of got the signs of 4+7 and April really slowed, because again one of your peers who didn't have April in their quarter had some real softness there, which obviously was in March. So maybe just talk us through, kind of, month-by-month how things trended there?

Michael McMullen -- President and Chief Executive Officer

Yes. Sure, Patrick, because we really want to make sure this is clear to investment community what we saw during the quarter. So what I would say is, if you had been -- if we had been having this discussion at the end of February, we're feeling really good about the quarter. Fact that we got off to a very good start and as we looked at our forecast for the reign of the quarter, it looked pretty solid. But as we increasingly went through the month of March, we were expecting In the last 7 to 10 days, our normal push of orders to close business. And I say normal pushes across all the regions, because often we have a lot of customers who have a quarter end date, so typically March is a pretty strong month for us.

And when we closed the last week or so, the orders in March, it just wasn't there. We just didn't get the normal month end surge. And then, perhaps, maybe some order didn't get booked at the end of March, we did see anything unusual in the beginning of April. So I think as at that timeframe that we knew we were in the midst of something that we hadn't expected. I would say, again, I think it caught our teams by surprise. I had been in China at the latter part of March and we just reviewed the forecast, and then we could see that they were caught unexpectedly by customer delays in China. We also saw the same thing in Europe and the US as well.

Patrick Donnelly -- Goldman Sachs -- Analyst

Okay. That's really helpful color. And then maybe just...

Michael McMullen -- President and Chief Executive Officer

Well, Patrick, if I can just add one more thing. What I would tell you is, and just to kind of reinforce the confidence we have in regards to the second half outlook, April did come in relative to our expectations on orders, our recast orders on the LSAG front obviously, too late for revenue, but that gives us confidence that we have a handle on where the market is right now.

Patrick Donnelly -- Goldman Sachs -- Analyst

So the orders trended a little better in, kind of, late April?

Michael McMullen -- President and Chief Executive Officer

We came in relative to our forecast. Yes. Again, we're still saying that it's going be subdued for the second half. I really wanted to kind of -- it's not a situation where we see a continued worsening of the end market environment, but we're also not seeing a dramatic improvement either. But we do believe we've gotten a level of predictability back in the business based on what we saw in April.

Patrick Donnelly -- Goldman Sachs -- Analyst

Understood. That's helpful, Mike. And then maybe just one kind of housekeeping item. Can you just help us frame how much of your business is small molecule? I know 30% is kind of under that biopharma umbrella, but maybe just help us think about how much is specific to do?

Michael McMullen -- President and Chief Executive Officer

Yeah. Great question. The fact Bob and I were just talking about this right before the start of this call and I think right now we characterize as a 80/20, which is about 80% of the small molecule, was about 85% two or three years ago. We think there will be a shift to more biopharma naturally in 2020, given just the continued strong growth we're having with the days portfolio. But back to my comments on NASD, once an additional revenue flows, you'll see the benefits of our broader biopharma play that Agilent has, but right now I'd characterize about 20% of our -- 20% of the 30% is in biopharma.

Patrick Donnelly -- Goldman Sachs -- Analyst

Okay. Thank you very much.

Operator

Our next question comes from the line of Ross Muken with Evercore ISI. Your line is now open.

Ross Muken -- Evercore ISI -- Analyst

Good afternoon, guys.

Michael McMullen -- President and Chief Executive Officer

Hi, Ross. Good afternoon.

Ross Muken -- Evercore ISI -- Analyst

So that's a lot of helpful color, but I guess just going back to China, I mean, how much did you debate sort of what to do with the assumption there, even though April came in, it seems like or at least overall for the book, kind of, in line. Obviously the last couple of days have been quite a lot just in terms of some of the trade tensions and the uncertainty, yes, it's possible some of the 4+7 pieces kind of get worse just in terms of China's restrictions. I guess, how confident are you that you sort of titrated this correctly, not just for, kind of, what you saw in April, but sort of the current macro relative to sort of the last week or so where obviously we had a pretty disappointing outcome on its rate?

Michael McMullen -- President and Chief Executive Officer

Hey, Ross, great question. I almost feel like you may have been inside the hall here at the Agilent offices, so this was a big point of discussion with the team and where we landed was, our team has brought down their forecast in China relative to where we were before and what we said is, we're going to take a very conservative view, we're going to assume that the strain on the overall pharma market continues in China as well as food, there is no recovery. So basically we're assuming that the softness that we had experienced already through much of the -- through the back half of the quarter will continue in the second half.

So I think we've tried to be prudent relative to taking a very conservative in bringing our forecast down and as you know w e had a high-single-digit kind of forecast for the full year for China by think probably around 3% for the whole year. Again, I would keep -- I would keep -- I would remind the group to that a lot of the call is focused on LSAG, which has really been the center of our weakness for the quarter on the top line, but one of the reasons why we have confidence in the overall growth forecast for China is that we have very predictable results coming through on the ACG side, which was mid-teens growth and I think it's been fairly well publicized. We're under penetrated on DGG, so what -- we have expectations of good solid growth on both of those businesses. So sort of -- from a tale of two cities, we expect that the continued strength on the ACG and DGG side in China, while bringing down our expectations on the LSAG side and, Bob, I know we have a lot of debate on this one, so maybe you have something else you'd like to add there?

Robert McMahon -- Senior Vice President and Chief Financial Officer

Yes. Thanks, Mike. And Ross maybe to put some dimensions to that, when we think about where -- how we've taken our guidance now for the second half of the year, really about two-thirds, two-thirds to 70% of that reduction is really reflective of China and the other third, call it, $10 million to $15 million is probably the broader pharma, so the majority of it is the lower expectations or tempered expectations in the China market.

Ross Muken -- Evercore ISI -- Analyst

And maybe ACG margins were pretty impressive, yes, the pull through there continues to be north of 50%. I guess what's driving the massive step up in that business this year, because the expansion even relative to what you saw in the first quarter, kind of, accelerated and so trying to get a feel for kind of the underlying?

Michael McMullen -- President and Chief Executive Officer

Yeah. So Ross, I'm glad you've noticed that, because we really were quite pleased with the overall margin performance in ACG and I think I made the comment inside the Congress (ph), let's somebody proven that. We can scale our service business and make good margins. What I'd like to do is, maybe turn the call over to Mark Doak to let him take a little bit bout here with the audience and maybe share Mark what specifically has been going on within your team.

Mark Doak -- Senior Vice President and President, Agilent CrossLab Group

Thanks, Mike. And on the margins front, obviously, we've seen a nice expansion through the first half along that. I would come back to a couple of things I think Mike and Bob alluded to. First of all, on the Agile Agilent programs, many of these are shared services across the company, which certainly helped the broader gross margins for the business. But inside of the business, particularly services, there's been two major themes: one is, we've used advanced analytics to really look at how we can improve various aspects of our operations and use these analytics pretty widely over the course of the last year to drive that; and then the second component of that, I've talked many times about our drive to put our business online and use things like mobile apps that fundamentally facilitate faster and more complete workflows for our team on the ground. So if you put all those pieces together, it's turned up to be actually a quite positive development, but this is after a lot of years of investment to really build a platform across our services business that's scalable.

Ross Muken -- Evercore ISI -- Analyst

Thank you.

Michael McMullen -- President and Chief Executive Officer

Thanks, Ross.

Operator

Our next question comes from the line of Doug Schenkel with Cowen. Your line is now open.

Douglas Schenkel -- Cowen and Company -- Analyst

Hey, good afternoon, guys.

Michael McMullen -- President and Chief Executive Officer

Good afternoon, Doug.

Douglas Schenkel -- Cowen and Company -- Analyst

So I'm going to have a couple of more questions on pharma.

Michael McMullen -- President and Chief Executive Officer

Sure.

Douglas Schenkel -- Cowen and Company -- Analyst

But I actually want to start on DGG. If pathology grew high-single-digits and NASD grew mid-teens, it would seem hard for DGG to only grow 5.3% core given those businesses account for about 60% of DGG sales unless you had some weakness in genomics. How do genomics go in the quarter? And how our competitive dynamics evolving and target enrichment or maybe I'm just off course here and if so maybe you can point me in the right direction?

Michael McMullen -- President and Chief Executive Officer

Yes. I don't know the exact math I had about 6% overall for the DGG, but I think the answer would be genomics business came in exactly it has -- we had at forecasted overall. Clearly, there are some competitive wins out there on the target enrichment side, but the main challenge that we've seen have been more on our legacy genomics and Sam anything you might want to comment on there.

Sam Raha -- Senior Vice President and President, Diagnostics and Genomics Group

No. Mike, I mean I think you said it right. There are puts and takes in any business. I mean, overall, we performed as we expected. We had some -- we're continuing to see some really good strength related to our QC part of the portfolio and, yes, so really nothing more to add. It's...

Michael McMullen -- President and Chief Executive Officer

Yes, and the reason I mentioned we have -- recall our non-NGS part of genomics, because that NGS side, which is inclusive of target mentioned was close to double-digit. So it's been more of a -- some of the older (multiple speakers)

Sam Raha -- Senior Vice President and President, Diagnostics and Genomics Group

Exactly, yes.

Douglas Schenkel -- Cowen and Company -- Analyst

Okay. All right. That's helpful. Thank you for that. So on LSAG, it looks to us like LSAG would have to decline to get to the midpoint of fiscal Q3 guidance. We get to the high-end with it actually flat year-over-year and that's not changing our DGG or ACG assumptions, which we don't think we're being too aggressive there and basically being consistent with what you guys have been talking about all year. So are you assuming LSAG core growth declines in the third quarter? And if so, how do we reconcile that with your comment on instrument orders improving in April? Does that tell us something about May order trends or is this just conservatism coming off of a weaker than expected quarter?

Robert McMahon -- Senior Vice President and Chief Financial Officer

Yes, I think -- this is Bob, Doug. As we think about the various pieces, obviously there's some variation there, but we're assuming roughly flat for LSAG in Q3. Hopefully, that proves to be conservative. But given that we saw this late in the quarter, I think we are taking a prudent approach for Q3. As Mike said, our April orders hit our revised forecast, but that's also one month. So, hopefully, it proves to be conservative, but I think it's the appropriate level of forecast right now.

Michael McMullen -- President and Chief Executive Officer

And I think Bob the way that Doug thinking about the modeling of ACG and DGG, that's just how we've been (multiple speakers) as well.

Robert McMahon -- Senior Vice President and Chief Financial Officer

That's right. We expect them -- they continue to perform as expected and we would continue to see the growth rates that they've experienced in the first half be similar in the second half of the year.

Douglas Schenkel -- Cowen and Company -- Analyst

Okay. And last one, the slowdown in small molecule demand is something you've been talking about for a while. Clearly, things were and are worse than you expected, so I think all of that's clear, but I want to make sure on the large molecule side that growth met your expectations.

Michael McMullen -- President and Chief Executive Officer

Yes, absolutely. Yes, so that's like I said earlier is, it's a tale of two cities, the biopharma continues to do quite well, both on the instrumentation side but also we've been investing very heavily on the chemistry side, inclusive of one of our recent acquisitions, ProZyme was really targeted in the biopharma side. Then also we have the NASD story as well. So the biopharma is right where we thought it would be.

Robert McMahon -- Senior Vice President and Chief Financial Officer

And, Doug, I would say the other thing is, I know we're talking a lot about pharma and certainly it didn't meet our expectations. I'd say the biggest variable in the quarter though was food, because we were expecting the anniversary of the reorganization and to have a much better performance and it was still down.

Michael McMullen -- President and Chief Executive Officer

Yes.

Douglas Schenkel -- Cowen and Company -- Analyst

Okay. Thank you very much for all that color.

Michael McMullen -- President and Chief Executive Officer

Sure.

Operator

Our next question comes from the line of Derik de Bruin with Bank of America. Your line is now open.

Derik de Bruin -- Bank of America Merrill Lynch -- Analyst

Hi, good afternoon.

Michael McMullen -- President and Chief Executive Officer

Good afternoon, Derik.

Derik de Bruin -- Bank of America Merrill Lynch -- Analyst

So sort of following up on the food question, just looking -- and this is -- it obviously -- your waters had some issues as well. I mean, is it -- is there -- some business just go to Shimadzu or some business go to Dionex or some of the other companies that are sort of out there? I mean, can you just sort of talk about that it's not just business shifting round rather than things not coming back?

Michael McMullen -- President and Chief Executive Officer

Yes, sure. Happy to do so, Derik. In fact, I think it was almost a year ago in my Q2 '18 call that we first started talking about the reorganization of the whole food safety and structure in China. And we're really confident the business isn't going anywhere else, it's just not there. And when I talk about the business, I think about along two dynamics. One, which is the business that's been shifted to contract testing labs, which we're well positioned. What we're focusing on is the central agencies where Agilent has historically had a very strong position. They are just not investing right now beyond supporting the ongoing operations with right chemistries and services. So, we're quite confident that the business isn't going anywhere else, it's just not there.

Derik de Bruin -- Bank of America Merrill Lynch -- Analyst

And did you -- I mean, I think we were all surprised by the strength in the first fiscal quarter. I mean, did you -- did some -- is some of the weakness as potentially as you saw there were some stockpiling you didn't see happening in Q1 that... yes.

Michael McMullen -- President and Chief Executive Officer

No, no, no. In fact, I think we -- I guess that earlier we were sitting here at the end of February thinking that the quarter -- this quarter wasn't developed just as it was. And what we didn't anticipate was the -- just the -- how quickly the pharma business slowed down in China and then as well as the lack of recovery in China, the food side. And then there was a -- there seem to be this whole small molecule side in US and Europe. So really there was a tale of the latter part of the quarter. We saw nothing unusual about our -- we can't point anything unusual relative to our Q1 results.

Derik de Bruin -- Bank of America Merrill Lynch -- Analyst

Yes. In the US and European pharma slowdown, was this just capital not being -- I mean, I know there is always a little bit of slowness in release of capital funds at beginning of the year, is it that or just people? And you mentioned some order delays. I guess is that because of the company are just nervous on their small molecule businesses? I mean are they -- I mean, once again, we're going to ask the question, are they back to extending the life in their current instruments or where -- going along those lines, just trying to figure out what's driving that?

Michael McMullen -- President and Chief Executive Officer

Yes, I think it's a little of both, Derik. I mean, I do think that there -- we haven't seen -- we obviously have a backlog and so far we haven't seen orders being cancelled or people saying they're not purchasing, it's actually is being delayed. And so the question for us was, is it transitory and will catch up? We're taking the approach that it's probably not going to catch up and it's just going to continue to push. But I also do think that there is probably some element of trying to get more mileage, so to speak out of the existing instrumentation, particularly as they're looking at capacity.

Jacob Thaysen -- Senior Vice President and President, Life Sciences and Applied Markets Group

Yes. Bob, I think it's very clear out there that we see that base, certainly a conservative procurement tactics happening right now and people are stalling a little bit, but we -- at the same time, we actually see that our fund list is quite rich. So we still see a lot of business, but it takes -- it goes more slower these days. So we actually -- we do believe there is a greater opportunity out there, but we can comment right now.

Derik de Bruin -- Bank of America Merrill Lynch -- Analyst

Great. Thanks.

Robert McMahon -- Senior Vice President and Chief Financial Officer

Thank you.

Michael McMullen -- President and Chief Executive Officer

Thanks, Derik.

Operator

Our next question comes from the line of Brandon Couillard with Jefferies. Your line is now open.

Brandon Couillard -- Jefferies & Company -- Analyst

Thanks. Good afternoon.

Michael McMullen -- President and Chief Executive Officer

Good afternoon, Brandon.

Brandon Couillard -- Jefferies & Company -- Analyst

Mike, I'd like to step back a little bit. I'd realize it's early, but could you speak to the -- as we look at fiscal '20, could you sort of speak to the relevancy of the 4.5% to 6% midterm range that you talked about at the June Analyst Day last year relative to the 4% to 4.5% you are going to pull up this year? And what specifically needs to get better to achieve that?

Michael McMullen -- President and Chief Executive Officer

Yes, I think it's probably a little early to talk about 2020. But there is -- there really isn't anything developing that we can see that takes away from our long-term view and still grow this company. And we've got -- as I mentioned in my opening comments, we had two or three businesses are performing very well, and we have some incremental sublets that are going to coming in those businesses in 2020.

And then the -- I think what we need to see is really focused on the soft points that we saw in the LSAG business, which has returned to positive growth, a higher level of growth in China, which we -- I called out in my remarks, I'd said, listen, the quarter not developed as we had forecasted, but we believe that as things -- eventually things will get settle down, issues will get resolved, and we'll get clarity on -- even in generics, which are currently -- getting under lot of pressure. When an industry gets through that knot and those survivors are going to be in a reinvestment mode and who need to drive productivity, we think there's going to be business there. So I think that part of the story for 2020 is a return to an improved China market environment.

Jacob, I think you'd like to jump in on this as well?

Jacob Thaysen -- Senior Vice President and President, Life Sciences and Applied Markets Group

Yes. I think overall we, over the past few quarters, we have also delivered some very nice NPIs, the new product introduction, here in the market and we still have a very strong fund. So as Mike is saying, when the market is coming back we are absolutely in very strong position to take our share of the market.

Michael McMullen -- President and Chief Executive Officer

Yes. And essentially as Bob noted in his call, the chemical energy business which I have positioned early on as sort of a wildcard for Agilent; on the upside, we actually had really solid growth in Q2 and we're pretty optimistic about that for the rest of the year.

Brandon Couillard -- Jefferies & Company -- Analyst

Thanks. That's helpful. And then secondly, would love to get an update on how some of the more recent acquired assets are performing relative to your deal models like ACEA and AAT? It looks like the M&A contribution expected for the year kind of came down a bit, so we'd love to get an update on how some of those assets performing? Thanks.

Michael McMullen -- President and Chief Executive Officer

Yes. Overall, I think that they continue to do -- see as early, but in fact we just had a review with -- on this yesterday afternoon and they've delivered strong double-digit growth ahead of expectations. So while that is not yet in revenues, so ACEA is tracking very nicely. AATI was still very pleased with the performance to-date. The growth rates are probably a little bit slower there, tied to -- if you look at the number of new instrument placements that Illumina had in the first quarter. So to some extent that business growth rate is tied to the growth rate of Novaseek and some other parts of the portfolio in Illumina. We're expecting, I think, some in the back half, it's probably looking a little bit better for that as Illumina gets more those instruments placed.

Sam Raha -- Senior Vice President and President, Diagnostics and Genomics Group

Yes, that's absolutely right, Mike. And looking at overall, NGS QC, we're still tracking with the market absolutely.

Michael McMullen -- President and Chief Executive Officer

Yes. And I think we also got a fair minimum tied to PacBio, so that gets resolved. So -- but you're close to the numbers, but overall there's still double-digit growth out of the companies we've acquired and I pointed to the cell analysis business overall as being a double-digit grower for us in the quarter.

Brandon Couillard -- Jefferies & Company -- Analyst

Very good. Thank you.

Operator

Our next question comes from the line of Jack Meehan with Barclays. Your line is now open.

Jack Meehan -- Barclays -- Analyst

Thanks. Good afternoon, everyone.

Michael McMullen -- President and Chief Executive Officer

How you're doing, Jack?

Jack Meehan -- Barclays -- Analyst

I'm OK. I wanted to follow-up and I was hoping you could just elaborate a little bit more contrasting some of the weakness on the capital side versus the strength you're seeing in ACG. I guess just what's embedded in the outlook for CrossLab through the end of the year, and just the level of comfort that some of the slower replacement cycle on the instrument side that the recurring piece can hold up as you look out over the next year?

Michael McMullen -- President and Chief Executive Officer

Yes, we're really confident about the outlook on the ACG business and often we find that if you have slowing capital replacements that actually is an upside to the service business in particular where though often it's going to be extending the life of equipment. So, Bob, I think we're pretty -- it's an area of high confidence for us.

Robert McMahon -- Senior Vice President and Chief Financial Officer

Yes, I mean, and Jack, we're expecting the continued performance into the second half of the year like we had in the first half. And quite honestly the way that we had in '18 as well, which is high-single-digit growth there, really behind both services as well as the consumer. We aren't seeing testing volumes decline, whether that'd be in pharma or any of the other end markets, they're actually quite strong and so we feel pretty good about that, our forecast remains unchanged there.

Michael McMullen -- President and Chief Executive Officer

Yes.

Jack Meehan -- Barclays -- Analyst

Great. And then, just wanted to follow-up on some of the comments related to the NASD business. Obviously growth came in a little better again in the quarter than we were expecting, but just the pacing of when the new line is going to open up and just -- that's a fourth quarter kind of step up you're expecting, just confirm that? Thanks.

Michael McMullen -- President and Chief Executive Officer

Yes, sure, Jack. And in fact we just had a review, the very timely call, so we're expecting most likely the fourth quarter is where we start to see some initial revenue coming out of the new site where we're still in the final phases of validation, so we don't want to say we're done yet but we're getting close and we have our first customers lined up to -- for those initial batches out of our fabric site and we're planning an opening in mid-June. But that's just a ceremonial opening, we won't be yet producing a product, but we're forecasting inside the company and the fourth quarter of this year and I say that there are initial revenue then with the larger step-up coming in 2020. But I'd also just compliment Sam and his team, because they continue to find ways to get more revenue out of our existing visiting voter sites. I would also tell you that our full year revenue projection there are well intact.

Robert McMahon -- Senior Vice President and Chief Financial Officer

Yeah. And, Jack, just to maybe build on that, I wouldn't build any incremental revenue in Q4 for your model, because as we ramp up the facility. It's really going to be a material contribution in 2020.

Jack Meehan -- Barclays -- Analyst

Okay. Thank you, both.

Operator

Our next question comes from the line of Puneet Souda with SVB Leerink. Your line is now open.

Puneet Souda -- SVB Leerink -- Analyst

Yes. Hi, Mike. Thanks. So maybe my first question is, just wanted to clarify on USP regulation? I know USP has been helping you in the past in terms of ICP-MS. Was there a step down in that application as well across the pharma channel worldwide or was it just weak in China? And what's your outlook in that business aligned with ICP-MS? And I mean I'm asking this, because it's levered to the small molecules and your customers are using it for analyzing the small molecule coatings.

Michael McMullen -- President and Chief Executive Officer

Yes. I'll make a few summary comments and I'll have of Jacob jump in on this, but I believe we think that there's actually been decline in the pharma space, but overall we expect really good growth in our spectroscopy business that we look out with some of the other applications given the stronger PMIs in US, similar demand for product in other end markets outside of the USP, but Jacob you're closer to than I am.

Jacob Thaysen -- Senior Vice President and President, Life Sciences and Applied Markets Group

Yes. Absolutely right. That we saw a -- and then a very nice opportunity last year in USP, but now it's kind of moved on post to water analysis, but also the STM business. And generally speaking we see that the ICP-MS growth particularly in US is very strong this year. So we actually see that that there is a plenty of opportunity with ICP-MS obviously with new regulations coming in place and there is a certain opportunity, but it looks like we're jumping for opportunity and opportunity in that space, and I think it's -- will continue to grow.

Puneet Souda -- SVB Leerink -- Analyst

Okay. And my second question is around -- I appreciate that you're getting challenging quarter in LSAG here, but just help us understand -- I mean, you talked about the magnitude of benefit that you received in 8890 and 8860, I don't know if you quantified that in the quarter and I'm asking that because in last quarter call you mentioned you started shipping that instrument I think in the second week of February and just wanted to get a sense of how that instrument is contributing and what's your expectation for the rest of the year?

Michael McMullen -- President and Chief Executive Officer

Yes, Puneet, thanks so much for asking about this, because this is a real bright spot in the overall LSAG performance in Q2 and it kind of speaks to our view of the future. We didn't quantify and probably won't quantify the exact contribution, but we just started shipping, but I'd say right now we have more orders and backlog than we shipped and I think we're 150% to 200% of our forecast. For me, it's pretty significant. It has been very significant. Obviously, it is also some customers decided to move from the 78 series into 88 series faster than we anticipated, but at the same time we're also seeing that with 8860 going for the mid-range that combination with the mass spectrometry actually been quite successful also. So overall we see good momentum, but we haven't quantified the incremental.

Puneet Souda -- SVB Leerink -- Analyst

Okay. Got it. And last one if I could squeeze in around.

Michael McMullen -- President and Chief Executive Officer

Sure.

Puneet Souda -- SVB Leerink -- Analyst

Food again. Just wanted to understand, again, is that business largely all LC there or how much of the -- I mean, how do you look at that business in terms of the types of (technical difficulty) that are actually (technical difficulty) and how do you expect this improvement? Thank you.

Michael McMullen -- President and Chief Executive Officer

Sure. Happy to answer that, Puneet. So when we think about the food safety marketplace in particular, which is where we've been focusing our comments relative to China, it really is primarily a mass spec plays, you're talking about GCMS, LCMS, ICP-MS and some stand-alone LCs, and I think there is long reasons why we have done so well in this place, historically, is this the breadth of the portfolio we have across all those technology platform. So it's broader than -- for Agilent, it's broader than LC.

Puneet Souda -- SVB Leerink -- Analyst

All right. Great. Thank you.

Operator

Our next question comes from the line of Catherine Schulte with Baird. Your line is now open.

Catherine Schulte -- Robert W. Baird & Co. Incorporated -- Analyst

Hey. Thanks for the questions.

Michael McMullen -- President and Chief Executive Officer

Sure, Catherine .

Catherine Schulte -- Robert W. Baird & Co. Incorporated -- Analyst

Yes. Just going to your guidance commentary, you said about two-thirds of the reductions from China, how much of that is 4+7 versus food?

Michael McMullen -- President and Chief Executive Officer

Yes. I would say about, of that roughly two-thirds of it is food and about a-third of it is 4+7. But I think it is a rough math, so on the -- more of generic pharma is probably two-ish.

Robert McMahon -- Senior Vice President and Chief Financial Officer

Yes. Overall, when we think about China, the small molecule business in China is roughly 2% to 3% of the overall Agilent revenue just kind of frame in the size.

Catherine Schulte -- Robert W. Baird & Co. Incorporated -- Analyst

Okay. Very helpful. On the 4+7 program, what's the incremental risk if that moves beyond the initial, it was in pilot cities and how long do you think it takes a market to work through these changes?

Michael McMullen -- President and Chief Executive Officer

Yeah. I actually think -- the way we're thinking about that, Catherine, is actually the -- because of while it's only in 11 cities, I think it's actually created a pause throughout the provinces to understand kind of what the impact is. So it's actually got greater. We think we are seeing that benefit -- that impact now as opposed to further impact down the road. I think actually what you'll see is once this determined, it will actually create clarity about what's going to happen throughout the course and then we think we've seen the impact broader than just those 11 countries -- cities, excuse me.

Robert McMahon -- Senior Vice President and Chief Financial Officer

In fact that was the thinking behind the calculation we did. Yes.

Catherine Schulte -- Robert W. Baird & Co. Incorporated -- Analyst

Okay. And then just last one. We saw US PMI drop below 53 in April and Europe's been below 50 for a couple of months now, it sounds like you're pretty optimistic on chemical energy outlook. So can you talk about what you're expecting in the back half for chemical energy and the puts and takes there?

Michael McMullen -- President and Chief Executive Officer

You want to take that one, Bob?

Robert McMahon -- Senior Vice President and Chief Financial Officer

Sure. Our chemical and energy business in the back half is, we've talked about, when we gave initial guidance at the beginning of the year, kind of, low-single-digits and that's kind of what we're thinking about. We were -- we are positively surprised in Q2 for reference, Q1 was roughly 2%, grew to 6% in Q2, we're assuming kind of low-single-digits in the back half of the year consistent with our early guide.

Michael McMullen -- President and Chief Executive Officer

And I think on this on the overall European outlook, it's -- we're (multiple speakers) I expect that at the Q2 level.

Robert McMahon -- Senior Vice President and Chief Financial Officer

No, exactly. And for Europe as well across the businesses we're thinking low-single-digits, again, consistent with our estimates at the beginning of the year, we are positively surprised in Q2, but we are expecting it to be consistent with what our initial expectations were.

Catherine Schulte -- Robert W. Baird & Co. Incorporated -- Analyst

Great. Thank you.

Michael McMullen -- President and Chief Executive Officer

You're quite welcome.

Operator

Our next question comes from the line of Steve Willoughby with Cleveland Research. Your line is now open.

Stephen Willoughby -- Cleveland Research -- Analyst

Hi, good evening, and thanks for taking my questions.

Michael McMullen -- President and Chief Executive Officer

Sure.

Stephen Willoughby -- Cleveland Research -- Analyst

Two things for you, Mike. I guess first as it relates to the China food business, have you thought at all, is it possible that the softness continues for quite a while here even though we start to anniversary it, as that volume moves to these more efficient commercial labs versus the previous government? One last, and then I just have one quick follow-up.

Michael McMullen -- President and Chief Executive Officer

Yes, sure. What's happened also is the charter what these organizations do has changed, right. So a lot of the volume activities has been to the contract special labs and these guys are all now developing methods and the new reg. So we think they're going to require ultimately the next generation technologies equivalent to stay on the leading edge of research and development of new applications. That being said, we are not assuming any recovery in the second half of this year. So we've become much more cautious about the outlook for the food in the second half. I think that's fair?

Robert McMahon -- Senior Vice President and Chief Financial Officer

Yes. I mean, to be honest, we've assumed recovery and it's taken a little longer than we expected. So we're going to temper our growth until we're wrong to the upside.

Stephen Willoughby -- Cleveland Research -- Analyst

Okay. Fair enough. And then just -- Bob, just one quick follow-up for you. And I know you're not going to provide any 2020 guidance, but just give us some perspective on the new Frederick NASD sites. It sounds like minimal revenue here in fiscal '19, where do we get in fiscal '20 as it relates to the kind of $100 million revenue potential capacity?

Robert McMahon -- Senior Vice President and Chief Financial Officer

Yes, Steve, you're correct. We're not going to give kind of a forward-looking. What I would say though is we're generally on track with what we said back in June of last year in terms of, kind of, the ramp and so forth. So how that ramps across the quarters and across the year is -- still we haven't gone through our planning cycle, but what I will tell you is that we feel very good, we have a very robust funnel for products that are going into that site, we've already had some customers toward the site. Obviously, it's not operational yet, because we're still doing the validation as Mike talked about, but it's moving along as we expected.

Stephen Willoughby -- Cleveland Research -- Analyst

Okay. Thank you.

Operator

Our next question comes from the line of Dan Brennan with UBS. Your line is now open.

Daniel Brennan -- UBS -- Analyst

Great. Thanks for taking the questions here. So I wanted to ask a question maybe back to Jacob. I was hoping you can provide a little bit more color about what you're hearing from customers on the pharma side in US and Europe to account for the more restrictive budgets and if it's related to anything with global macro, maybe for Mike, if you heard any such impact to other businesses as well?

Michael McMullen -- President and Chief Executive Officer

Yes. Actually why don't I start off, Dan, and thanks for the question, and I'll pass it down to -- over to Jacob for specifics on pharma. We haven't seen that in the other segments of the marketplace and there's a lot of noise out there, so uncertainty is never good. But we -- like -- we really can't point anything specific and I think if you look at the -- our results. I mean you saw two, three businesses continue to perform as expected and do quite well. And then we had some isolated, but obviously impactful slowdowns in aspects of the LSAG business, albeit the chemical, energy, academia and government, environmental forensics and biopharma are continued source of the strength. So I think it's really been isolated to the factors you mentioned. And I know Jacob you've been trying to do a little bit more diligence around this and we have some theories, but I'm not sure we have 100% specific answer what's driving the customers to delay the purchases on the small molecule side.

Jacob Thaysen -- Senior Vice President and President, Life Sciences and Applied Markets Group

No. Clearly, we are seeing that conservative procurement tactics that they are using and obviously we've been out doing our own digging to understand what's really going on there. And, first of all, we don't see any change in competitive dynamics, this is not -- this is truly a market situation we're in right now. So this is where is people or the procurement organizations and the customers in generally are just more cautious in their decision on capital equipment expenditure right now.

Michael McMullen -- President and Chief Executive Officer

Yes. I think there is more speculation on our part, but we -- some of the things were, hey, there's still some question about where prices are going to land in certain parts of the world in terms of annual prices, some questions about growth. And then again, as I mentioned earlier in the call, prioritization, when push comes to shove, prioritization of biopharma over small molecule. But, again, we just think it's a push out delay, business has not been cancelled.

Daniel Brennan -- UBS -- Analyst

Great. Thanks, Mike. And then maybe related to a question I know that was asked earlier, just maybe a clarification. I think you gave us what form has baked in for Q3, can you just let us know what kind of assume for pharma and food for Q3 and Q4. And just remind us how big is your China food business?

Michael McMullen -- President and Chief Executive Officer

Yes.

Robert McMahon -- Senior Vice President and Chief Financial Officer

So on the guidance, Dan, this is Bob, we're assuming, as I mentioned before, for pharma kind of mid-single-digit growth for the full year and that's consistent with where we are for Q3 as well on a global basis. So better than the 2% that we had in Q2. In food, we're expecting for Q3, probably a slight decline as well. Hopefully, as I mentioned, hopefully that proves to be conservative, but we're assuming that overall for the full year food will be flat to slightly down.

Michael McMullen -- President and Chief Executive Officer

And I think historically, Bob, it's growing about 15% to 18% of our China business has been in food, obviously with the decline is probably close to that 15% number.

Daniel Brennan -- UBS -- Analyst

Great. And if I can ask one more since that seems to be the trend here. Just on the cap deployment obviously more toward the buyback in Q3, but kind of how you're thinking about M&A, obviously you have a lot of balance sheet optionality, just wondering what the pipeline looks at and kind of how we think about over the next, say, 6 to 12 months? Thanks.

Michael McMullen -- President and Chief Executive Officer

Sure, Dan. Thanks for that question. In fact, the pipeline looks very, very robust. And as I signaled, I believe, in the last call where we're very active right now and don't having anything to announce, but we want to deploy the capital, we want to leverage the strengthening on the balance sheet. Bob is very explicit of how we're going to use one aspect of that relative to our -- the buyback side, but we have plenty of firepower to execute on targets. And as you can see based on my earlier comments and some of the numbers we're putting up with the companies we have acquired, we are increasingly confident in our ability to deliver on SOBs, if you will, for our shareholders when we deploy that capital.

Robert McMahon -- Senior Vice President and Chief Financial Officer

Sources of value.

Michael McMullen -- President and Chief Executive Officer

Oh, sorry. Thanks, Bob.

Daniel Brennan -- UBS -- Analyst

Perfect. Thanks, guys.

Michael McMullen -- President and Chief Executive Officer

Thank you, Dan.

Operator

And that concludes today's question-and-answer session. I'd like to turn the call back to Mr. Dhingra for closing remarks.

Ankur Dhingra -- Vice President, Investor Relations

So, with that, we'll close today's earnings call. Thanks a lot for joining.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone, have a great day.

Duration: 65 minutes

Call participants:

Ankur Dhingra -- Vice President, Investor Relations

Michael McMullen -- President and Chief Executive Officer

Robert McMahon -- Senior Vice President and Chief Financial Officer

Jacob Thaysen -- Senior Vice President and President, Life Sciences and Applied Markets Group

Mark Doak -- Senior Vice President and President, Agilent CrossLab Group

Sam Raha -- Senior Vice President and President, Diagnostics and Genomics Group

Daniel Leonard -- Deutsche Bank -- Analyst

Tycho Peterson -- JP Morgan Chase & Co. -- Analyst

Patrick Donnelly -- Goldman Sachs -- Analyst

Ross Muken -- Evercore ISI -- Analyst

Douglas Schenkel -- Cowen and Company -- Analyst

Derik de Bruin -- Bank of America Merrill Lynch -- Analyst

Brandon Couillard -- Jefferies & Company -- Analyst

Jack Meehan -- Barclays -- Analyst

Puneet Souda -- SVB Leerink -- Analyst

Catherine Schulte -- Robert W. Baird & Co. Incorporated -- Analyst

Stephen Willoughby -- Cleveland Research -- Analyst

Daniel Brennan -- UBS -- Analyst

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