Agilent President and CEO Bill Sullivan and CFO Adrian Dillon discuss Q2 FY ’08 results

20 octobre 2021 Pierre Perrin-Monlouis

Q: How would you characterize Agilent’s second quarter fiscal 2008 financial results?

Sullivan: Our results in the second quarter continue to demonstrate the balance of our portfolio across markets and geographies, as well as the strength of our disciplined operating model.

Revenue was up 10 percent over last year, while orders increased by 9 percent Return on Invested Capital (ROIC) was 26 percent(1), delivering an adjusted net income of $187 million or $0.51 per share.(2) Cash generated from operations during the quarter was $325 million. Also during the quarter, the company repurchased $263 million of its common stock.

Dillon: Overall, second quarter revenues of $1.46B were up 10% from last year, and up 6% in local currency terms. Adjusted net income of $0.51 per share were just above the top of our $0.46 – $0.50 guidance range, with the drop in our tax rate responsible for the extra penny.(2)

Q: How did second quarter results look for Agilent’s business segments, Bio-Analytical Measurement and Electronic Measurement?

Dillon: The double digit momentum in Bio-Analytical Measurement continued for an eighth consecutive quarter with orders up 21 percent from one year ago, and up 14 percent excluding the impact of the acquisitions of Stratagene and Velocity 11.

Revenues of $556 million were up 20 percent from last year, and up 13 percent on an organic basis. Growth was robust across both life sciences and chemical analysis, and in all geographies, with the Americas up 19 percent, Europe up 13%, Japan up 12 % and other Asia up 44 percent from one year ago.

In life sciences, revenues of $259 million were up 33 percent from last year, and 16 percent organically. In this area, the pharma and biotech markets were up and we’re seeing strong sustained growth in our high-end LCMS systems as well as strong demand for GC, GC/MS, and ICP-MS-based solutions in pharma applications. In the academic and government markets we experienced exceptional growth.
In chemical analysis, revenues were up 11 percent year-over-year to $297 million, reflecting 16 percent growth in chemical analysis and a decline in our materials science markets. We saw strong double-digit growth in petrochemical and food safety markets and steady growth in environmental markets. Globalization of food processing, record high oil prices, and increasing regulation regarding air and water quality are driving this growth.
Our Electronic Measurement business experienced continued modest growth and regional variation in demand. Orders of $928 million were 2 percent above one year ago. Revenues of $900 million were up 5 percent. Geographically, the Americas and Europe were each up 1 percent and Asia 11 percent ahead of one year ago. China & India were particularly strong, up 42 percent and 65 percent, respectively.

General Purpose Test revenue was up 2 percent year-over-year to $537 million. In this area, aerospace and defense continues to be a source of strength while the computers and semiconductor sub-segment was weak again this quarter because of a sharp decline in the parametric test business. We did see strength in our new high end scope products and LPT applications, particularly digital wireless. Other general purpose test markets experienced generally good demand.
Communications test revenue was up 11 percent year-over-year to $363 million, reflecting relatively broad-based strength across end markets. Wireless R&D revenue was up, reflecting continued worldwide investment in new cellular and emerging wireless networking technologies. Wireless manufacturing continued its rebound from a tough 2007, while broadband R&D and manufacturing also continued to be a source of strength. It’s also worth noting that, for the first time in several quarters, we saw stability in network monitoring.
Q: How does Agilent plan to continue this momentum?

Sullivan: There are four factors supporting our belief in Agilent’s ability to continue the momentum from the second quarter.

First is our geographic footprint and ability to capitalize on our regional opportunities. During the second quarter we continued to invest in our fastest growing region, Asia. We have opened a new analytical and communication lab in Bangalore, India. We are increasing our R&D investment and continue to expand our sales and support presence in the fastest growing areas of Asia.

Secondly, we expect the continued success of our key strategic growth initiatives to support ongoing momentum. We continue to invest in our core electronic businesses. Our recent new product launches in high performance scopes, mid-performance microwave sources and spectrum analyzers have generated significant excitement in the industry. In the Life Sciences market, we continue to make excellent progress. For example, our nucleic acid workflow solutions, which include our microarrays, microfluidics and the recent acquisitions of Stratagene and Velocity II, more than doubled in the quarter. We continue to invest in our core analytic business as well, which is driving our growth in the pharma and biotech, petrochemical and food industries.

The third factor that will aid in our continued momentum is the flexibility we have built into our operating model to allocate resources to opportunities while we continue to increase the variability of our cost structure.

Finally, during the second quarter, we have proactively taken action to be fully prepared for potential economic disruptions. For example, our global infrastructure organization – which includes Finance, HR, Legal, IT and Workplace Services – has aggressively focused on ways to reduce expenses and leverage our infrastructure. Likewise, our worldwide manufacturing organization continues to drive cost reduction, through our internal efforts and in partnership with our contract manufacturing partners. In addition, in the second quarter we made excellent progress in improving the profitability of our networking business and manufacturing solutions business while taking aggressive action to minimize the operating profit impact of the downturn in our semiconductor-related business. These aggressive actions have helped ensure our ability to invest in new product generation, make the appropriate investments in Asia, and meet our operating profit objectives.

Q: What is your outlook for guidance for the second half of FY ’08?

Sullivan: Looking to the second half of fiscal year 2008, we continue to anticipate difficult conditions in U.S. markets and mixed conditions in Europe and Japan. However, we believe Asian markets will remain robust.

Based on these expectations, our solid second quarter performance, the continued success of our new product introductions and continued focus on operational excellence, we have not changed our outlook.

Dillon: We planned conservatively coming into fiscal 2008 and, so far, so good. At the December analyst meeting we suggested that Agilent’s revenues would be up roughly 8 percent this year, and our current forecast is for an increase of 7 percent to 9 percent.

For third quarter, we expect revenues of $1.44 billion to $1.49 billion, up 5 percent to 9 percent from last year. Adjusted net income is expected to be in a range of $0.52 to $0.56 per share, 8 percent to 17 percent above last year.(3)

For fourth quarter, we expect revenues of $1.53 billion to $1.59 billion, up 6 percent to 10 percent from last year. Adjusted net income is expected to be in a range of $0.62 to $0.66 per share, 17 percent to 25 percent above last year.(3)

That equates to full year 2008 revenues of $5.82 billion to $5.93 billion, up 7 percent to 9 percent from 2007 and an adjusted net income expected in a range of $2.07 to $2.15 per share, 14 percent to 18 percent above 2007 results.(3)

Q: Do you have any closing thoughts?

Sullivan: We are now halfway through “Year Two” after our transformation to a singular focus on the $43 billion measurement market – a measurement market that is broad-based and touches every technology industry in the world.

We continue to believe that Agilent is uniquely positioned to provide innovative and cost-effective solutions for our customers’ measurement needs anywhere in the world. As we have demonstrated consistently for the last year, we have the ability to provide these measurement solutions within the context of an operating model that will deliver solid, consistent operating profit and cash generation in a difficult economic environment.

Forward-Looking Statements
This article contains forward-looking statements as defined in the Securities Exchange Act of 1934 and is subject to the safe harbors created therein. The forward-looking statements contained herein include, but are not limited to, information regarding Agilent’s future revenues, earnings and profitability; the pace of new product introductions and future demand for the Company’s products and services; and guidance for the third and fourth quarters and for the full fiscal year 2008. These forward-looking statements involve risks and uncertainties that could cause Agilent’s results to differ materially from management’s current expectations. Such risks and uncertainties include, but are not limited to, unforeseen changes in the strength of our customers’ businesses, and unforeseen changes in the demand for current and new products and technologies.

In addition, other risks that Agilent faces in running its operations include the ability to execute successfully through business cycles while it continues to implement cost reductions; the ability to meet and achieve the benefits of its cost-reduction goals and otherwise successfully adapt its cost structures to continuing changes in business conditions; ongoing competitive, pricing and gross-margin pressures; the risk that our cost-cutting initiatives will impair our ability to develop products and remain competitive and to operate effectively; the impact of geopolitical uncertainties on our operations, our markets and our ability to conduct business; the ability to improve asset performance to adapt to changes in demand; the ability to successfully introduce new products at the right time, price and mix; and other risks detailed in Agilent’s filings with the Securities and Exchange Commission, including our Quarterly Report on Form 10-Q for the fiscal quarter ended Jan. 31, 2008. Forward-looking statements are based on the beliefs and assumptions of Agilent’s management and on currently available information. Agilent undertakes no responsibility to publicly update or revise any forward-looking statement.

(1) Return On Invested Capital is a non-GAAP measure and is defined as income (loss) from operations less other (income) expense and taxes, annualized, divided by the average of the two most recent quarter-end balances of assets less net current liabilities. The reconciliation of ROIC can be found on page 6 of the attached tables, along with additional information regarding the use of this non-GAAP measure.

(2) Adjusted net income and adjusted net income per share are non-GAAP measures. Each of these measures is defined to exclude primarily the impacts of restructuring and asset impairment charges, business separation costs, non-cash share-based compensation, intangible amortization as well as gains and losses from the sale of investments and disposals of businesses net of their tax effects. A reconciliation between adjusted net income and GAAP net income is set forth on page 5 of the attached tables along with additional information regarding the use of this non-GAAP measure.

(3) Adjusted net income per share as projected for Q308, Q408 and full year 2008 is a non-GAAP measure which excludes primarily the impacts of future restructuring and asset impairment charges, non-cash share-based compensation, and intangibles amortization. Most of these excluded amounts pertain to events that have not yet occurred and are not currently possible to estimate with a reasonable degree of accuracy. Therefore, no reconciliation to GAAP amounts has been provided. Future amortization of intangibles is expected to be approximately $13 million per quarter.

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