NEW YORK (GenomeWeb) – Agilent Technologies reported after the close of the market on Tuesday that its fiscal second quarter revenues rose 3 percent year over year.
For the three months ended April 30, the firm said total revenues rose to $1.24 billion from $1.21 billion in Q2 2018, missing the Wall Street analysts' average estimate of $1.27 billion. The company said core revenues grew 4 percent in Q2.
Revenues for the diagnostics and genomics group (DGG) rose 5 percent to $254.0 million from $243.0 million in the year-ago quarter, thanks to strength in the in the company's pathology-related businesses and nucleic acids solutions division (NASD). The life sciences and applied markets group (LSAG) saw revenues fall 1 percent in Q2 to $529.0 million from $537.0 million, as strong demand in the environmental and forensics markets was offset by weakness in the pharma and food markets. And the Agilent crosslab group (ACG) grew 7 percent year over year to $455.0 million from $426.0 million. Growth in that business was broad-based across all regions, but was led by China, Agilent said.
"While overall revenues were below our expectations, the story of our second quarter results is one where we demonstrated the resilience of Agilent's business model," Agilent President and CEO Mike McMullen said in a statement. "Two of our three business units continued to deliver strong growth while the third was affected by soft market conditions."
On a conference call with analysts following the release of the earnings, McMullen said two factors in the latter part of the quarter contributed to the LSAG revenue shortfall: a slowing of internal orders in China and a slowdown in orders from big pharma customers.
"In China, our overall business grew 3 percent, driven by double-digit growth in ACG. However, our LSAG business declined by 1 percent during the quarter," he explained. "There are two major factors impacting our China LSAG business. First, the recovery in the food market has not yet materialized. Government labs have not yet resumed purchasing at the levels we have previously seen. Second, the Chinese government's initiative to lower generic drug prices is having a greater-than-expected impact on small-molecule pharma."
McMullen also added that even though China remains an important long-term growth market for Agilent, the company is lowering its revenue expectations in the country for the rest of this year.
"The other factor affecting LSAG growth is moderating global demand in small-molecule pharma," he added. "We've seen several large accounts delay and replace in purchases."
However, McMullen said, other LSAG end markets showed positive signs as demand remained strong in the environment forensics, biopharma, and chemical and energy markets. He also noted that Agilent has seen stronger-than-expected customer demand for its new gas chromatography instruments, and that the company introduced a new LC/MS Q-TOF system in April.
The ACG group grew 9 percent on a core basis with broad-based demand across all regions. "This reflects the market-leading value of our portfolio and differentiated customer experience," McMullen said. "In China, the ACG business grew in the mid-teens. The team continues to execute our strategy of leveraging Agilent's large instrument installed base. We also continue to expand our services footprint in emerging cities, and tailor our consumer's portfolio to local markets."
The DGG group showed 6 percent core revenue growth. "Regional demand is led by strength in the Americas. Our pathology-related businesses grew high single digits," McMullen added. "The NASD business continued delivering strong performance with mid-teens growth." In Q2, Agilent reported income of $182.0 million, or $.57 per share, compared to $205.0 million, or $.63 per share, in Q2 2018. The firm reported adjusted earnings of $.71 per share for the quarter, missing the analyst estimate of $.72 per share.
The firm's Q2 R&D costs rose 8 percent to $99.0 million from $92.0 million, while SG&A expenses for the quarter rose 4 percent to $354.0 million from $341.0 million in the prior year.
Agilent ended the quarter with $2.16 billion in cash and cash equivalents.
For the third quarter, Agilent expects revenues of $1.23 billion to $1.25 billion, and adjusted earnings of $.71 to $.73 per share. Analysts are expecting Q3 revenues of $1.27 billion and EPS of $.73.
For fiscal year 2019, the company is revising full-year revenue guidance downward to a range of $5.09 billion to $5.13 billion, but is maintaining its guidance for adjusted earnings of $3.03 to $3.07 per share. Analysts are expecting revenues of $5.19 billion and earnings of $3.07 per share for the year. The company had previously guided for revenues of $5.15 billion to $5.19 billion for 2019.
"Looking ahead to the second half of the year, we're confident that the momentum will continue in ACG and DGG businesses," McMullen said on the earnings call. "For our LSAG business, our outlook for the second half is tempered by our view of continued soft market conditions."
Agilent CFO Robert McMahon added that despite reducing revenue guidance, the company is confident in holding to its previous full-year EPS guidance range. "Our EPS guidance reflects confidence in the strength of Agilent's business and our ability to drive earnings through multiple levers. These include disciplined expense management and the use of our balance sheet," he said.
McMahon further noted that Agilent has taken the increased tariffs on China — and their possible effects on Agilent's own business — into account and is taking steps to minimize those effects. The increased tariffs are also baked into Agilent's newest revenue guidance, he added.
Agilent's shares fell more than 10 percent to $68.30 in Wednesday morning trading on the New York Stock Exchange.