Agilent Technologies Inc. (A)

F3Q2010 Earnings Call Transcript

August 16, 2010 4:30 pm ET

Executives

Alicia Rodriguez – VP, IR

Bill Sullivan – President and CEO

Didier Hirsch – SVP and CFO

Ron Nersesian – SVP and President, Electronic Measurement Group

Mike McMullen – SVP and President, Chemical Analysis Group

Nick Roelofs – SVP and President, Life Sciences Group

Analysts

Jon Wood – Jefferies

William Stein – Credit Suisse

Jon Groberg – Macquarie

Tony Butler – Barclays Capital

Richard Eastman – Robert W. Baird

Mark Douglass – Longbow Research

Paul Knight – CLSA

Ajit Pai – Stifel Nicolaus

Anthony Luscri – JP Morgan

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the third quarter 2010 Agilent Technologies earnings conference call. My name is Crystal and I will be your operator for today. At this time, all lines are on listen-only mode. Later, we will conduct a question-and-answer session. (Operator instructions) As a reminder, today’s conference is being recorded for replay purposes. I would now like to turn the conference over to Ms. Alicia Rodriguez, Vice President, Investor Relations. Please proceed.

Alicia Rodriguez

Thank you, Crystal. Welcome, everyone, to Agilent's third quarter conference call for fiscal year 2010. With me are Agilent's President and CEO, Bill Sullivan, as well as Senior Vice President and CFO, Didier Hirsch. Joining in our Q&A will be the Presidents of Agilent's Electronic Measurement, Life Sciences and Chemical Analysis Groups, Ron Nersesian, Nick Roelofs and Mike McMullen.

After my comments, Bill will give his perspective on the quarter and the overall market environment. Didier will then follow with a review of financial results. And after Didier's comments, we will open the lines and take your questions.

In case you haven't had a chance to review our press release, you can find it on our website at www.investor.agilent.com. Please note that we have moved the business segment financial tables to the schedules accompanying the press release. We are also providing further information to supplement today's discussion. After you log on to our webcast module from our website, please click on the link for Supporting Materials. There you will find additional information, such as our revenue breakouts and historical financial information for Agilent's continuing operations.

We have also updated our investor presentation slides with scenarios that encompass the current range of First Call analyst estimates for fiscal year 2011. Also, in accordance with SEC Regulation G, if during this conference call we use any non-GAAP financial measures, you will find on our website the required reconciliation to the most directly comparable GAAP financial metrics.

Additionally, I'd like to remind you that we will make forward-looking statements about the future financial performance of the company. These involve risks and uncertainties that could cause Agilent's results to differ materially from management's current expectations. As a result, we encourage you to look at the company's most recent filings with the SEC to get a more complete picture of all the factors at work.

The forward-looking statements, including our guidance provided today during the call, are only valid as of this date, and the company assumes no obligation to update such statements as we move throughout the current quarter.

Now let me turn the call over to Bill for his comments.

Bill

Sullivan

Thanks, Alicia. And hello, everyone. Agilent’s latest results are a strong indicator of our continued momentum. Q3 orders of $1.5 billion were up 39% year-over-year, while revenues of $1.4 billion were up 32% from a year ago. Note that these numbers include the results of the Varian acquisition. Without the Varian acquisition and our divestitures, orders and revenue were up 30% and 24% respectively.

In addition to the top line growth, we continued to improve gross margins, and our expenses were well controlled. Q3 non-GAAP earnings were $191 million or $0.54 per share. Agilent’s third quarter revenue growth was strong across all regions. Excluding acquisitions and divestitures, the Americas were up 25% year-over-year, Europe 18%, and Asia Pacific up 28%.

The Varian integration continues to go very well. We have successfully integrated Varian’s field service and support functions into the existing Agilent structure. We have established three new product divisions dedicated to spectroscopy, research products and backing technologies, and we have consolidated Varian’s consumables with our own consumable business.

Varian’s businesses were solidly profitable in Q3. Moving forward, we are highly confident we will achieve our goal of $75 million in net savings. This is inclusive of $10 million of additional R&D that we are investing in Varian’s technologies as well as our increased investment in service and support.

From a market perspective, our third quarter results saw continued strength in most of our key markets that we serve. In our Chemical Analysis business, the applied market recovery continues. Q3 revenues of $329 million were up 62% over last year, up 30% excluding Varian. Operating margin was 21%. Excluding the Varian acquisition, we saw double-digit year-over-year growth in petrochemical, environmental and forensic markets.

From a product perspective, all product lines posted double-digit order growth over a year ago. Our high end mass spec business was especially strong with the ICP-MS, GC/MS, and Agilent’s new GC Triple Quad driving growth in food and environmental applications. And our new vacuum products are performing well in response to the improving global economy. We expect future growth to be driven by continued focus on food safety, expanding consumables and mass spec portfolios, and a continued successful integration of Varian.

In Life Science businesses, revenues of $374 million were up 28% over last year. Adjusting for Varian and the Hycor divestiture, Life Science revenues were up 15%. Operating margin was 15%. Strength from emerging markets was offset by softness in big pharma consolidation. Excluding divestitures and the Varian acquisition, academic and government revenues grew 21% over last year. We saw a more modest 6% increase in pharma, biotech, CRO and CMO. Sales of LSG products and services into applied markets were up 20% from a year ago.

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