Agilent Technologies (NYSE: A) lives and dies by the maxim, "Measure twice, cut once." Fortunately for the maker of measurement instruments of various kinds, people are measuring more and more before making any cuts these days.
You can tell by Agilent's third-quarter results: sales shot up by 31% year-over-year to $1.38 billion, or 24% if you remove the effects of acquisitions and discontinued businesses. That's the billed revenue: Incoming orders are growing even faster at a 39% clip and the all-important book-to-bill ratio stands well north of the neutral 1.0 mark. With business so brisk, it's no wonder that non-GAAP earnings more than tripled from $0.15 per share to $0.54 per share.
Among the division-shuffling moves, Agilent closed the sale of its network-testing unit to JDS Uniphase (Nasdaq: JDSU) this quarter. The $186 million collected in cash for that transaction helped pay for the much larger acquisition of medical and scientific tester Varian. With both of those deals in the bank, Agilent is now much more focused on lucrative markets like medical and industrial testing. The network-test division is probably better off under JDS Uniphase, where that operation falls neatly in place to support the larger operation. And so the balance of the universe is improved.
With this new, rebalanced structure, Agilent is less of a competitor to JDS Uniphase and Keithley Systems (NYSE: KEI), and more toward the same profile of Danaher (NYSE: DHR) or Waters (NYSE: WAT). One look at the much more robust profit margins and returns on assets of the two sets of rivals tells me that Agilent made the right move: medical testing is where the easy money is.
Should the shopping spree continue with borrowed funds, or should Agilent say that enough is enough? I think this business mix is about the right blend of proven profitability and forward-looking opportunity, but feel free to air your opinions in the comments below.
