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Agilent Q3 Revenues Up 8 Percent

NEW YORK (GenomeWeb) – Agilent Technologies reported after the close of the market on Tuesday that its third quarter revenues grew 8 percent year over year, thanks largely to 9 percent growth for its Diagnostics and Genomics group.

For the three months ended July 31, the life sciences company said total revenues rose to $1.20 billion from $1.11 billion in Q3 2017, in line with analysts' average estimate.

Revenues from the CrossLab Group rose 10 percent to $426.0 million from $386.0 million the previous year; Diagnostics and Genomics Group revenues rose 9 percent to $237.0 million from $218.0 million; and revenues from the firm's Life Sciences and Applied Markets Group rose 6 percent to $540.0 million from $510.0 million in the prior-year period.

Agilent said that strength in the chemical and energy and pharma end markets led the results in the Life Sciences and Applied Markets Group, growth was strong in both services and consumables across all end markets and geographies in the CrossLab segment, and that strength in genomics and China led the results in the Diagnostics and Genomics business.

"The Agilent team continues to capitalize on healthy end markets and delivered another strong quarter," Agilent President and CEO Mike McMullen said in a statement. "Both earnings and revenue growth, led by China and the global pharma and chemical and energy end markets, exceeded expectations."

He also noted that the firm repurchased $243 million in shares, paid $48 million in dividends, and invested $430 million in M&A during the quarter. The company has made several acquisitions in recent months, including ProZyme, Advanced Analytical Technologies, and Ultra Scientific.

On a call with analysts following the release of the earnings, McMullen also said the company saw particularly strong performance in mass spectrometry and cell analysis in Q3, and that growth remains robust in both the biopharma and small molecule market segments. The firm's pharma segment grew 8 percent in the quarter, revenues from its chemical and energy end market grew 12 percent, academia and government grew 3 percent, and diagnostics and clinical revenues grew 5 percent.

McMullen also said that Agilent's China business grew 10 percent in Q3, driven by double-digit growth in pharma and chemical and energy, and offsetting any temporary slowing of instrument sales in the food and environmental markets. "The business is also strong in the Americas and the rest of Asia outside of China, with these two regions delivering healthy, high-single-digit growth," he added. "Europe was flat."

The firm's Q3 net income rose to $236.0 million, or $.73 per share, from $175.0 million, or $.54 per share, a year earlier. On an adjusted basis, Agilent reported EPS of $.67, beating the average Wall Street estimate of $.63 per share.

Agilent's R&D expenses for the quarter rose 11 percent to $97.0 million from $87.0 million in Q3 2017, and its SG&A costs rose 10 percent to $339.0 million from $308.0 million in the prior-year quarter.

The company ended the quarter with $2.13 billion in cash and cash equivalents.

For Q4, Agilent expects revenues of $1.24 billion to $1.26 billion and adjusted EPS of $.72 to $.74. Analysts, on average, are expecting Q4 revenues of $1.26 billion and EPS of $.73. For full-year 2018, Agilent raised its guidance and now expects revenues of $4.86 billion to $4.88 billion and adjusted EPS of $2.69 to $2.71. The firm had previously guided for 2018 revenues of $4.85 billion to $4.87 billion and adjusted EPS of $2.63 to $2.67. Analysts are expecting 2018 revenues of $4.88 billion and EPS of $2.67.

On the call, Agilent CFO Didier Hirsch said the US's new tariff policy toward China effective early July, as well as China's retaliatory tariffs, is expected to have a negative impact of $3.5 million in Q4. As such, Agilent has adjusted its supply chain to mitigate those effects.

In a note to investors on Wednesday, JP Morgan analyst Tycho Peterson noted that this would correspond to an annualized gross tariff impact of $25 million but said this "looks manageable and will be further mitigated through supply chain adjustments." Agilent intends to ask local contract manufacturers to move production out of China, which is expected to take three quarters, Peterson added. Once those changes are in place, Agilent expects to reduce the annual tariff impact to $9 million by mid-2019.

In response to a question on customers changing their buying habits because of the tariffs, McMullen said in talking to pharma industry and research base customers, there's no reason to think they're going to change their instrument or consumables buying habits because of political considerations.

"They're taking a long-term view on investments — purchasing our equipment, purchasing our solutions are absolutely critical for their enabling their growth plans and research plans. So, they're not at all distracted by the tariff discussion," McMullen said.

"We have seen some cautiousness in certain aspects of the chemical energy market where they were a little bit slower to approve the deals, but [we're] still getting the deals approved," he added. "It's the same kind of situation we had last quarter, so no new changes in customer buying behavior. Again, that gives us a lot of confidence about our outlook because despite all the noise and rhetoric out there, it really hasn't yet affected any of the actual buying behavior of customers."

Agilent's shares fell a little more than 1 percent to $65.97 in Wednesday morning trading on the New York Stock Exchange.