Agilent Q1 Revenues Up 6 Percent

Agilent Technologies reported after the close of the market on Wednesday that its first quarter 2019 revenues rose 6 percent year over year, thanks largely to a 13 percent increase in revenues in its diagnostics and genomics business.
 
For the three months ended Jan. 31, the firm said revenues rose to $1.28 billion from $1.21 billion in Q1 2018, beating the Wall Street analysts' average estimate of $1.27 billion. The company said core revenues also grew 6 percent in Q1.
 
Revenues for the diagnostics and genomics group (DGG) rose to $235.0 million from $207.0 million in the year-ago quarter, thanks to strength in the pharma and clinical and diagnostics end markets. The life sciences and applied markets group (LSAG) saw 2 percent revenue growth in Q1 to $607.0 million from $596.0 million, thanks to demand in the pharma, environmental, and forensics markets. And the Agilent crosslab group (ACG) grew 8 percent year over year to $442.0 million from $408.0 million because of strength in services and consumables, across regions and end markets.
 
"We are pleased to start the year with a strong performance driving excellent revenue and EPS growth and exceeding our guidance. The Agilent team is delivering on our commitment to drive superior revenue and earnings growth," Agilent President and CEO Mike McMullen said in a statement. "Our Agilent team continues to do a great job addressing customer needs across our business groups. We kicked off 2019 strengthening our best-in-class portfolio bringing new solutions and services to our customers to help them gain new insights and achieve greater productivity in their labs."
 
On a conference call with analysts following the release of the earnings, McMullen noted that revenues in the LSAG unit grew 1 percent on a core basis compared to 11 percent in Q1 2018.
 
"Demand remained strong in the pharma and environmental forensics markets. We continue bringing to the market innovative new offerings to fuel future growth," he said. "Earlier this month in Japan we strengthened our leadership position in gas chromatography with the global launch of two innovative new instruments, our new 8890 GC replacing our flagship 7890 GC offering and an all-new midrange 8860 GC."
 
In answer to an analyst's question, McMullen noted that Agilent had expected LSAG growth to be in the moderate to low single digits. "I would say there was some noise in the quarter particularly in January with the US shutdown and some China trade rhetoric," he said. "But I think [looking forward] we see good underlying business demand. We're expecting our growth rates to rebound in Q2 not only because the comps get easier, but you've got this underlying strong business demand and we have a number of very new exciting launches underway and these launches will be delivering the revenue in the second quarter."
 
The ACG unit, meanwhile, grew 10 percent on a core basis in Q1. The firm introduced an e-subscriptions system to allow customers to set up recurring consumables orders online, McMullen said, adding, "This provides customer the ease and convenience of not having to place repeated orders."
 
The DGG unit saw 12 percent core revenue growth in Q1, with strong demand across all businesses and regions. The pathology-related businesses — which comprise about half of the unit's revenues — grew in the low double-digits.
 
"Importantly, we continue to partner with our customers in efforts to fight cancer. This quarter we expanded our portfolio in high-volume cancer diagnostic testing," McMullen said. "In Europe, we launched the first PD-L1 pharmDx kit on the Dako OMNIS automated platform. We are also working on bringing this PD-L1 assay and OMNIS to the US and other markets."
 
He also noted that Agilent's NGS business saw double-digit growth in Q1.
 
On a geographic basis, the Americas led Agilent's performance in Q1 with high single-digit growth. Europe and China saw low single-digit growth.
 
"As we expected, China's Q1 growth rate is lower than our expectations for full-year growth," McMullen said. "This is owing to an extremely tough compare versus a 19 percent core growth last year. As you know, there has been a lot of conversation about the China market. While there are some puts and takes within the markets we serve, our view is that the overall market demand remains solid."
 
In Q1, Agilent reported income of $504.0 million, or $1.57 per share, compared to a net loss of $320.0 million, or $.99 per share, in Q1 2018. The prior-year quarter included a tax charge of $533 million related to US tax reform legislation. The firm reported adjusted earnings of $.76 per share for the quarter, beating the analyst estimate of $.73 per share.
 
The firm's Q1 R&D costs rose 9 percent to $102.0 million from $94.0 million, while SG&A expenses for the quarter rose 2 percent to $355.0 million from $347.0 million in the prior year.
 
Agilent ended the quarter with $2.06 billion in cash and cash equivalents.
 
For the second quarter, Agilent expects revenues of $1.26 billion to $1.27 billion, and adjusted earnings of $.70 to $.72 per share. Analysts are expecting Q2 revenues of $1.27 billion and EPS of $.72.
 
For fiscal year 2019, the company is raising full-year revenue guidance to a range of $5.15 billion to $5.19 billion and adjusted earnings guidance to $3.03 to $3.07 per share. Analysts are expecting revenues of $5.17 billion and earnings of $3.05 per share for the year.
 
In a note to investors on Thursday, Leerink analyst Puneet Souda maintained his Outperform rating on Agilent given its leading position in the chemical and energy end markets and its diversified positions in pharma, life science tools, and diagnostics. But he also wrote that the timing of the firm's new product launch and year-over-year comparison of its business in China made it challenging for Agilent to deliver mid-single digit growth in its LSAG unit, which accounts for almost 50 percent of Agilent's revenues.
 
"We believe LSAG issues are only transitory, and we expect Agilent growth to rebound strongly in 2Q as the new products reach customers," Souda said in his note. "Customers generally hold their product purchases in anticipation of the new version of the instrument."
 
Agilent's shares fell nearly 1 percent to $77.87 in Thursday morning trading on the New York Stock Exchange.