Agilent Technologies’ (A) first-quarter earnings of 38 cents per share beat the Zacks Consensus Estimate by 6 cents. Revenue of $1.21 billion increased 4% on a year-over-year basis. Shares rose 2.11%, outperforming the market, which grew just 0.28%. The company reported growth across all segments and significant expansion in gross, operating and net margins.
Revenue
Revenue grew 3.9% sequentially and 4% year over year. The year-over-year increase is very encouraging, as it comes after four quarters of double-digit declines. This was also the second straight quarter of sequential revenue increase. Stabilization in North America and Europe, currency gains in Europe and strength in Asia were the reasons for the growth in the last quarter. Additionally, all served end markets were up from the year-ago quarter.
Revenue by Segment
Management has changed the reporting structure beginning in 2010. Therefore, starting with this quarter, the company is reporting results in three segments—Chemical Analysis, Life Sciences and Electronic Measurement.
The Chemical Analysis segment generated 20% of first quarter revenue, helped by a 17% growth in food, 12% growth in petrochemicals and 9% growth in environment and forensics markets. Segment revenue was up 8.4% sequentially and 13.0% year over year. The consumables business was the strongest, recording double-digit increase. The platform (GC/MS and ICP/MS instrumentation) and services businesses also grew strongly.
The Life Sciences Segment generated 28% of revenue, with pharma up over 8% and academic and government up over 15%. Segment revenue was up 6.6% sequentially and 10.0% year over year. Success with the new 1290 liquid chromatography platform, as well as double-digit growth in microarray, reagents and informatics products drove the increase.
Electronic Measurement generated $52% of quarterly revenue, driven by a 13% increase in industrial, computing and semiconductor markets, a 12% increase in aerospace and defense markets, offset by a 23% decline in the communications test market due to weak demand for handset test capacity.
Segment revenue was up 1% sequentially and down 1.9% from the year-ago quarter. Management stated that the company maintained its position as the leading provider of network analyzers and spectrum analyzers and continued to boast a very strong portfolio of oscilloscopes.
Orders
Orders were weak compared to the October quarter, with mid-single-digit declines in the life sciences and electronic measurement segments, and a low-single-digit increase in the chemical analysis business. However, all segments saw increases from the year-ago quarter.
The chemical analysis and life sciences segments had book-to-bills of 1.01 each, which were up from both the previous and year-ago quarters. The electronic measurement book-to-bill remained below unity in the quarter. Although this was an improvement from the October quarter of 2009, it was down from the year-ago quarter.
The overall book-to-bill of 1.01 was down from the October quarter, but up significantly from the year-ago quarter. There was a net addition to backlog during the quarter.
Margins
Margins in the last quarter benefited from higher volumes, increased efficiencies and cost reductions from restructuring actions.
The proforma gross margin for the quarter was 56.1%, up 45 basis points (bps sequentially and 134 bps from the year-ago quarter. The operating expenses of $499 million were flat sequentially.
The operating margin was 14.9%, up 207 bps sequentially and 497 bps from the year-ago quarter. The sequential increase was mainly due to lower SG&A expenses (as a percentage of sales) and also helped by lower COGS and R&D (as a percentage of sales).
Operating margins improved across all segments except chemical analysis, which was down 10 bps sequentially. However, it was up 107 bps from the year-ago quarter. Life sciences and electronic measurement margins increased 144 bps and 280 bps, respectively from the October quarter and 194 bps and 1,096 bps, respectively from the January quarter of 2009.
Net Income
Agilent generated pro forma net income of $135 million, or a 11.1% net income margin, compared to $111 million or 9.5% in the previous quarter and $93 million, or 8% in the first quarter of last year. Our pro forma estimate exclude restructuring charges, amortization of intangibles, impairment of long-lived assets and other one-time items on a tax adjusted basis.
On a GAAP basis, the company recorded a net income of $79 million (22 cents per share), compared to income of $25 million (7 cents per share) in the previous quarter and a net profit of $64 million ($0.18 per share) in the year-ago quarter.
Balance Sheet
The balance sheet shows limited liquidity, with a net debt position of $418 million. The debt to total capitalization ratio was 52.9%, which is not bad. The interest coverage ratio is 9.6X, which means the company should not have trouble servicing the debt. Inventories at quarter-end were down 0.7%, with annualized inventory turns increasing slightly from around 3.7X to 3.9X. Days sales outstanding (DSOs) were flat sequentially at around 47.
Guidance
Management did not provide specific guidance for the quarter or for the year. However, it has stated that if end market recovery continues as in the last two quarters, the company would generate 10% revenue growth in fiscal 2010, as well as earnings per share of $1.65-1.70.
We currently have a Neutral recommendation on Agilent shares.
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