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Agilent's (A) Q3 Earnings Beat Estimates, Revenues Down Y/Y

Zacks Equity Research
·5 mins read

Agilent Technologies’ A 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 marketwas 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%.

Coming to price performance, Agilent has returned 15.1% on a year-to-date basis, compared with the industry’s rally of 6.5%.

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 or44% 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.

Agilent Technologies, Inc. Price, Consensus and EPS Surprise

Agilent Technologies, Inc. Price, Consensus and EPS Surprise
Agilent Technologies, Inc. Price, Consensus and EPS Surprise

Agilent Technologies, Inc. price-consensus-eps-surprise-chart | Agilent Technologies, Inc. Quote

Operating Results

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 margincontracted 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.

Balance Sheet

As of Jul 31, 2020, Agilent’s cash and cash equivalents were $1.36 billion, up from $1.32 billionas 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.

Outlook

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.

Zacks Rank & Other Key Picks

Agilent Technologies currently has a Zacks Rank #2 (Buy).

Blackbaud BLKB, Autodesk ADSK and Cadence Design Systems CDNS are some other top-ranked stocks worth considering in the broader computer and technology sector. While Blackbaud flaunts a Zacks Rank #1 (Strong Buy), Autodesk and Cadence carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Blackbaud, Autodesk and Cadence is pegged at 7.59%, 39.6% and 13.74%, respectively.

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