Agilent Technologies, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended April 30, 2012. Financial statements are unaudited. Agilent provides measurement solutions through its life sciences, chemical analysis and electronic measurement businesses.
Financial performance
| Metric | Three months ended Apr. 30, 2012 | Year-over-year | Six months ended Apr. 30, 2012 | Year-over-year |
|---|---|---|---|---|
| Revenue | $1.733 billion | +$56 million; +3% | $3.368 billion | +$172 million; +5% |
| Gross margin | 53.0% | Down 0.7 percentage point | 53.2% | Down 0.5 percentage point |
| Operating income / margin | $300 million / 17.3% | $266 million / 15.9% in 2011 | $571 million / 17.0% | $477 million / 14.9% in 2011 |
| Net income | $255 million | Up from $200 million | $485 million | Up from $393 million |
| Diluted EPS | $0.72 | Up from $0.56 | $1.37 | Up from $1.11 |
| Orders | $1.841 billion | +8% | $3.464 billion | +4% |
For the quarter, revenue by segment was $469 million in life sciences (+1%), $388 million in chemical analysis (+2%) and $876 million in electronic measurement (+5%). Six-month segment revenue was $930 million (+7%), $784 million (+7%) and $1.654 billion (+3%), respectively. Segment order growth was strongest in electronic measurement in the quarter (+13%); life sciences orders declined 1%.
Cash flow, balance sheet and capital allocation
- Six-month operating cash flow was $503 million, versus $498 million a year earlier. Capital expenditures were $83 million, versus $89 million.
- Cash and cash equivalents were $3.896 billion at April 30, up from $3.527 billion at October 31, 2011. Approximately $3.7 billion was held outside the United States; repatriation could trigger additional U.S. taxes.
- Current assets were $6.010 billion and current liabilities $1.835 billion. Debt comprised $251 million short-term and $1.926 billion long-term, or $2.177 billion total carrying value. The $250 million 2012 senior notes mature in September 2012. The company had no borrowings under its $400 million revolving credit facility and was covenant-compliant.
- Agilent paid $35 million in dividends during the six months and declared another $0.10 per share dividend, approximately $35 million, payable in July. It repurchased 2 million shares for $78 million, compared with 6 million shares for $270 million in the prior-year period.
- Inventory was $947 million, up from $898 million at October 31. Inventory days on hand rose to 105 from 99 a year earlier; days sales outstanding improved to 47 from 49.
Material changes, outlook and risks
- Revenue, orders, operating income and net income increased year over year, while gross margin declined modestly. Management attributed operating-margin improvement to higher revenue and lower operating expenses.
- Management cited demand in pharmaceutical and biotechnology markets, broad chemical-analysis growth, and strength in wireless manufacturing test. It also noted softness in academic and government markets, cautious European spending, weaker European electronic-measurement revenue, and weakness in some semiconductor-related demand.
- Management expected reasonable market momentum and continued opportunities in emerging markets, and planned to invest 9%–10% of revenue in R&D. Fiscal 2012 capital expenditures were expected to be approximately in line with fiscal 2011’s $188 million. No specific earnings or revenue forecast was provided.
- On May 16, 2012, Agilent agreed to acquire Dako A/S for approximately $2.2 billion cash enterprise value, subject to closing adjustments and customary conditions. The FTC granted early termination of its waiting period, but other closing conditions remained pending. Agilent planned to use existing cash and entered into foreign-exchange contracts for potential foreign-currency payments.
- The six-month tax provision was $64 million and included $14 million of net discrete tax expense. The company had a $338 million valuation allowance, including $276 million relating to U.S. jurisdictions; management said a reversal of the U.S. allowance might become supportable within the year, but was not assured. U.S. federal returns for 2006–2007 were under IRS audit.
- Management reported no pending legal matters it believed reasonably likely to have a material impact. Key disclosed risks include economic and market cyclicality, order volatility, product innovation and supply-chain execution, foreign-exchange exposure, acquisition integration and approvals, environmental liabilities, regulatory compliance, pension funding, tax uncertainty, and reliance on overseas cash and financial counterparties. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the Dako acquisition closed on expected terms and how its cash funding affected liquidity, debt and subsequent results.
- Whether order growth—particularly electronic measurement—and management’s qualitative outlook translated into sustained revenue and margin performance.
- Whether rising inventory days and the modest gross-margin decline reversed or persisted.
- Any change in the U.S. deferred-tax valuation allowance, IRS audit matters or tax costs associated with overseas cash.
- Repayment or refinancing of the $250 million senior notes due in September 2012 and the cash available for other commitments.