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Agilent Keeps Analysts Guessing, Beats Estimates in Q3

By Maxx Chatsko - Aug 16, 2019 at 1:52PM

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The company has revised guidance in each of the last four quarters, but it continues to outperform expectations.

Management's ever-changing guidance this fiscal year hasn't done shareholders any favors (see: volatile stock price), but the important thing is that Agilent Technologies (A 0.77%) appears to be on track for a solid year of operations in fiscal 2019.

Fiscal third-quarter 2019 operating results show the business has navigated global headwinds better than its peers have. The most recent acquisition demonstrates management is taking a proactive approach to position the company to better weather similar headwinds in the future. And the latest revision to guidance -- the fourth in as many quarterly periods -- suggests Agilent Technologies will continue to outperform Wall Street expectations.

Will that be enough for the struggling stock to break out? Here's what investors need to know about the latest results.

A hood workstation in a biology lab.

Image source: Getty Images.

By the numbers

From Illumina to Fluidigm to NanoString Technologies, laboratory hardware companies haven't performed very well in the first half of the calendar year. Agilent Technologies bucked that trend by leaning on strong double-digit growth from its second- and third-largest business segments. Its largest business segment, the life sciences and applied markets group (LSAG), only managed 1% year-over-year growth in the most recent quarter.

LSAG encountered the same headwinds as in fiscal Q2, namely weakness in China related to quality control in food applications and generic drug manufacturing. There was a slight sequential improvement in the latter, but government-owned food lab purchases remained weak.

Management hopes to mitigate those obstacles by going all-in on cell analysis through the proposed acquisition of BioTek Instruments for $1.165 billion. The company expects to have revenue of at least $180 million in calendar 2019. When combined with the acquisitions of Seahorse Bioscience (2015), Luxcel Biosciences (2018), and ACEA Biosciences (2018), the transaction will create a cell analysis business with $250 million in annual revenue and double-digit growth prospects.

That should keep Agilent Technologies on a solid growth trajectory in fiscal 2020. It reported a 10% year-over-year growth rate in fiscal 2018 and has grown 5% through the first nine months of fiscal 2019.

Metric

First 9 Months Fiscal 2019

First 9 Months Fiscal 2018

Change

Revenue

$3.79 billion

$3.62 billion

5%

Total costs and expenses

$3.10 billion

$2.96 billion

5%

Operating income

$691 million

$660 million

5%

Net income

$877 million

$121 million

624%

Operating cash flow

$707 million

$715 million

(1%)

Data source: Press release.

As the table above shows, the business is growing revenue and operating income at a ho-hum rate of 5%. Net income has been a little more volatile, but the entire difference can be explained by changes in tax expense from fiscal 2018 (a net expense) to fiscal 2019 (a net benefit). Operating income is a better indicator of the financial health of the business.

The more important consideration for shareholders is the BioTek acquisition, which will provide a solid boost to revenue growth without weighing on earnings growth. Agilent Technologies expects the proposed transaction to add at least $0.02 in adjusted earnings per share (EPS) in fiscal 2020 and grow contributions thereafter. Given the leader's global footprint and experience in cell analysis to date, solid potential exists to accelerate growth at BioTek.

Looking ahead

Management expects to capitalize on its operating efficiency strategy and existing growth opportunities before the BioTek acquisition begins contributing in fiscal 2020. Following a surprisingly good fiscal Q3, Agilent Technologies now expects an even better end of the fiscal year than before, although keeping track of the changes has been difficult for investors.

Date Issued

Revenue Guidance

Adjusted EPS Guidance

November 2018 (initial)

$5.13 billion to $5.17 billion

$3.00 to $3.05

February 2019

$5.15 billion to $5.19 billion

$3.03 to $3.07

May 2019

$5.085 billion to $5.125 billion

$3.03 to $3.07

August 2019 (current)

$5.105 billion to $5.125 billion

$3.07 to $3.09

Data source: Press releases. Fiscal full-year 2019 guidance shown.

For perspective, Agilent Technologies delivered full-year revenue of $4.91 billion and adjusted EPS of $2.79 in fiscal 2018. Current guidance expects year-over-year revenue growth of at least 4% and adjusted earnings growth of at least 10%. While revenue expectations have waned since the initial guidance, the outlook for adjusted earnings has become more optimistic.

Can this global leader keep riding tailwinds?

After a spectacular 2016 and 2017, shares of Agilent Technologies have gone sideways in the last two years. Management has done its best to address headwinds in China and position all three business segments to deliver value to customers increasingly seeking high-quality biological data. There's been some choppiness, but overall the business has performed well. If the pending BioTek acquisition lives up to expectations, then investors might see the stock resume its trek higher in fiscal 2020. Well, if global economic headwinds don't get in the way.

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Stocks Mentioned

Agilent Technologies, Inc. Stock Quote
Agilent Technologies, Inc.
A
$120.30 (0.77%) $0.92
Illumina, Inc. Stock Quote
Illumina, Inc.
ILMN
$233.74 (0.08%) $0.18
Fluidigm Corporation Stock Quote
Fluidigm Corporation
FLDM
$2.17 (-2.25%) $0.05
NanoString Technologies, Inc. Stock Quote
NanoString Technologies, Inc.
NSTG
$15.25 (-8.85%) $-1.48

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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