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Here's Why Agilent Tumbled Today

By Maxx Chatsko – Updated May 15, 2019 at 11:03AM

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The lab equipment and services provider reduced full-year fiscal 2019 revenue guidance. Is today's tumble just a big overreaction?

What happened

Shares of Agilent (A -0.73%) fell nearly 13% today after the company reported fiscal third-quarter 2019 operating results for the period ending March 31. The slow-growing lab equipment manufacturer experienced an unusual hiccup within its life sciences and applied markets group (LSAG), with revenue falling 1% compared to the year-ago period. Total revenue increased 3% compared to the prior-year period, while adjusted earnings per share (EPS) grew 9% in that span.

Still, weakness in the company's largest segment prompted management to lower full-year fiscal 2019 revenue guidance, although expectations for adjusted EPS remain the same. Wall Street isn't taking the news lightly. As of 10:37 a.m. EDT, the stock had settled to a 9.1% loss.

A declining stock chart on a chalkboard.

Image source: Getty Images.

So what

On the fiscal third-quarter 2019 earnings conference call, CEO Michael McMullen explained that lower demand for lab instruments in China was the primary factor for lower revenue in the LSAG. The country's government-run quality control and food testing labs were recently a significant buyer of equipment, but the food market hasn't recovered from a lingering slowdown. Wall Street is worried the ongoing trade war won't help Beijing increase its purchases anytime soon. Additionally, China's drive to lower generic drug prices has pressured the industry to cut costs, also stemming the flow of equipment purchases.

Agilent also noted that slowing global demand for small-molecule pharmaceuticals is weighing on the LSAG, but that should create more opportunities for its products and services aimed at the growing biopharmaceutical markets.

Investors should also remember that the LSAG had a remarkable performance in fiscal 2018, achieving year-over-year revenue growth of 9%. That certainly makes it more difficult to deliver consistent growth, especially for a traditionally slow-growing market. Within that context, the business didn't have as lousy a performance as the stock movement suggests.

Now what

Context aside, management can't seem to settle on guidance. Initial expectations announced in November 2018 called for $5.13 billion to $5.17 billion in revenue this fiscal year. That was then increased in February to a range of $5.15 billion to $5.19 billion. Now, management expects full-year fiscal 2019 revenue of $5.085 billion to $5.125 billion, representing year-over-year growth of 3.5% to 4.4%. Expectations for adjusted EPS of $3.03 to $3.07 haven't changed since being increased in February.

Investors with a long-term mindset don't have much to fret about. Agilent has strong market positions for its core offerings and is investing accordingly in its future (read: biopharma). Just keep an eye on headwinds in China and small molecules for the remainder of the year.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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