On November 19, 2018 Agilent Technologies, Inc. (NYSE: A) reported revenue of $1.29 billion for the fourth-quarter ended October 31, 2018, up 9 percent year over year (up 9 percent on a core basis(1)) (Press release, Agilent, NOV 19, 2018, http://www.agilent.com/about/newsroom/presrel/2018/19nov-gp18063.html [SID1234531466]).
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Fourth-quarter GAAP net income was $195 million, or $0.61 per share. Last year’s fourth-quarter GAAP net income was $177 million, or $0.54 per share.
"The Agilent team delivered an outstanding quarter to wrap up the fiscal year with revenues and earnings per share ahead of expectations," said Mike McMullen, Agilent CEO and President. "Our performance this quarter caps off an excellent 2018 as we achieved our highest annual core growth rate and profitability since becoming a stand-alone life sciences company in 2014."
"During the quarter we continued our investment in growth introducing new and differentiated products and services," continued McMullen. "We leveraged our strong balance sheet completing several acquisitions to further strengthen our portfolio. We also returned over $600 million to shareholders through stock buybacks and dividends this year.
"We enter fiscal 2019 with momentum. Our focus remains on executing our shareholder value creation model to deliver superior earnings growth."
Financial Highlights
Life Sciences and Applied Markets Group
Fourth-quarter revenue of $597 million from Agilent’s Life Sciences and Applied Markets Group (LSAG) grew 8 percent year over year (up 9 percent on a core basis(1)), with broad-based strength across major end markets, platforms and regions. LSAG’s operating margin for the quarter was 25.9 percent. Full-year revenue of $2.3 billion grew 9 percent year over year (up 7 percent on a core basis(1)). LSAG’s operating margin for the year was 24.1 percent.
Agilent CrossLab Group
Fourth-quarter revenue of $441 million from Agilent CrossLab Group (ACG) grew 9 percent year over year (up 9 percent on a core basis(1)). Demand was excellent across both services and consumables. ACG’s operating margin for the quarter was 24.7 percent. Full-year revenue of $1.7 billion grew 11 percent year over year (up 8 percent on a core basis(1)). ACG’s operating margin for the year was 23.3 percent.
Diagnostics and Genomics Group
Fourth-quarter revenue of $256 million from Agilent’s Diagnostics and Genomics Group (DGG) grew 9 percent year over year (up 5 percent on a core basis(1)) led by pharma growth and strong demand for genomics and NASD products. DGG’s operating margin for the quarter was 23.3 percent. Full-year revenue of $943 million grew 10 percent year over year (up 5 percent on a core basis(1)). DGG’s operating margin for the year was 18.9 percent.
2019 First Quarter and Full Year Outlook
For fiscal year 2019, Agilent expects revenue of $5.13 billion to $5.17 billion, representing growth of 4.4 to 5.2 percent and core growth of 5.0 to 5.5 percent(1). Full-year 2019 non-GAAP earnings of $3.00 to $3.05 per share(3). The guidance is based on October 31, 2018 currency exchange rates.
Agilent expects first-quarter 2019 revenue in the range of $1.265 billion to $1.280 billion, representing growth of 4.4 to 5.7 percent and core revenue growth of 4.5 to 5.5 percent(1). First-quarter 2019 non-GAAP earnings are expected to be in the range of $0.71 to $0.73 per share(3).
New Share Repurchase Program
Agilent’s Board of Directors approved a new share repurchase program authorizing the purchase of up to $1.75 billion of common stock. The 2018 share repurchase program commences on November 21, 2018, replacing the previous program.
The number of shares to be repurchased and the timing of any repurchases will depend on factors such as the share price, economic and market conditions, and corporate and regulatory requirements. The share repurchase program may be suspended, amended or discontinued at any time.
Conference Call
Agilent’s management will present more details about its fourth-quarter FY2018 financial results on a conference call with investors today at 1:30 p.m. (Pacific Time). This event will be webcast live in listen-only mode. Listeners may log on at www.investor.agilent.com and select "Q4 2018 Agilent Technologies Inc. Earnings Conference Call" in the "News & Events Calendar of Events" section. The webcast will remain available on the company’s website for 90 days.
Additional information regarding financial results can be found at www.investor.agilent.com by selecting "Financial Results" in the "Financial Information" section.
In addition, a telephone replay of the conference call will be available at approximately November 19, 2018 at 4:30 p.m. (Pacific Time) after the call and through November 26 by dialing +1 855-859-2056 (or +1 404-537-3406 from outside the United States) and entering pass code 6519506.
The adjustment for taxes excludes tax benefits that management believes are not directly related to on-going operations and which are either isolated or cannot be expected to occur again with any regularity or predictability. For the three months and year ended October 31, 2018 and 2017, management uses a non-GAAP effective tax rate of 18.0%.
We provide non-GAAP net income and non-GAAP net income per share amounts in order to provide meaningful supplemental information regarding our operational performance and our prospects for the future. These supplemental measures exclude, among other things, charges related to asset impairments, amortization of intangibles, business exit and divestiture costs, transformational initiatives, acquisition and integration costs, pension settlement gain, gain on step acquisition of Lasergen, NASD site costs, special compliance costs, and adjustment for Tax Reform.
Asset impairments include assets that have been written down to their fair value.
Business exit and divestiture costs include costs associated with business divestitures.
Transformational initiatives include expenses associated with targeted cost reduction activities such as manufacturing transfers including costs to move manufacturing due to new tariffs and tariff remediation actions, small site consolidations, legal entity and other business reorganizations, insourcing or outsourcing of activities. Such costs may include move and relocation costs, one-time termination benefits and other one-time reorganization costs. Included in this category are also expenses associated with company programs to transform our product lifecycle management (PLM) system, human resources and financial systems.
Acquisition and Integration costs include all incremental expenses incurred to effect a business combination. Such acquisition costs may include advisory, legal, accounting, valuation, and other professional or consulting fees. Such integration costs may include expenses directly related to integration of business and facility operations, the transfer of assets and intellectual property, information technology systems and infrastructure and other employee-related costs.
Pension settlement gain resulted from transfer of the substitutional portion of our Japanese pension plan to the government.
Gain on step acquisition of Lasergen resulted from the measurement at fair value of our equity interest held at the date of business combination.
NASD site costs include all the costs related to the expansion of our manufacturing of nucleic acid active pharmaceutical ingredients incurred prior to the commencement of commercial manufacturing.
Special compliance costs include costs associated with transforming our processes to implement new regulations such as the EU’s General Data Protection Regulation (GDPR), revenue recognition and certain tax reporting requirements.
Other includes certain legal costs and settlements in addition to other miscellaneous adjustments.
Adjustment for Tax Reform primarily consists of an estimated provision of $499 million for U.S. transition tax and correlative items on deemed repatriated earnings of non-U.S. subsidiaries and an estimated provision of $53 million associated with the decrease in the U.S. corporate tax rate from 35% to 21% and its impact on our U.S. deferred tax assets and liabilities. The taxes payable associated with the transition tax, net of tax attributes, on deemed repatriation of foreign earnings is approximately $426 million, payable over 8 years.
Our management uses non-GAAP measures to evaluate the performance of our core businesses, to estimate future core performance and to compensate employees. Since management finds this measure to be useful, we believe that our investors benefit from seeing our results "through the eyes" of management in addition to seeing our GAAP results. This information facilitates our management’s internal comparisons to our historical operating results as well as to the operating results of our competitors.
Our management recognizes that items such as amortization of intangibles can have a material impact on our cash flows and/or our net income. Our GAAP financial statements including our statement of cash flows portray those effects. Although we believe it is useful for investors to see core performance free of special items, investors should understand that the excluded items are actual expenses that may impact the cash available to us for other uses. To gain a complete picture of all effects on the company’s profit and loss from any and all events, management does (and investors should) rely upon the GAAP income statement. The non-GAAP numbers focus instead upon the core business of the company, which is only a subset, albeit a critical one, of the company’s performance.
Readers are reminded that non-GAAP numbers are merely a supplement to, and not a replacement for, GAAP financial measures. They should be read in conjunction with the GAAP financial measures. It should be noted as well that our non-GAAP information may be different from the non-GAAP information provided by other companies.
The preliminary non-GAAP net income and diluted EPS reconciliation is estimated based on our current information.
Income from operations reflect the results of our reportable segments under Agilent’s management reporting system which are not necessarily in conformity with GAAP financial measures. Income from operations of our reporting segments exclude, among other things, charges related to asset impairments, amortization of intangibles, business exit and divestiture costs, transformational initiatives, acquisition and integration costs, pension settlement gain, gain on step acquisition of Lasergen, NASD site costs, and special compliance costs.
Readers are reminded that non-GAAP numbers are merely a supplement to, and not a replacement for, GAAP financial measures. They should be read in conjunction with the GAAP financial measures. It should be noted as well that our non-GAAP information may be different from the non-GAAP information provided by other companies.
We compare the year-over-year change in revenue excluding the effect of recent acquisitions and divestitures and foreign currency rate fluctuations to assess the performance of our underlying business.
(a) The constant currency year-over-year growth percentage is calculated by recalculating all periods in the comparison period at the foreign currency exchange rates used for accounting during the last month of the current quarter, and then using those revised values to calculate the year-over-year percentage change.
(b) The dollar impact from the current quarter currency impact is equal to the total year-over-year dollar change less the constant currency year-over-year change.
The preliminary reconciliation of GAAP revenue adjusted for recent acquisitions and divestitures and impact of currency is estimated based on our current information.
We compare the year-over-year change in revenue excluding the effect of recent acquisitions and divestitures and foreign currency rate fluctuations to assess the performance of our underlying business.
(a) The constant currency year-over-year growth percentage is calculated by recalculating all periods in the comparison period at the foreign currency exchange rates used for accounting during the last month of the current quarter, and then using those revised values to calculate the year-over-year percentage change.
(b) The dollar impact from the current year currency impact is equal to the total year-over-year dollar change less the constant currency year-over-year change.
The preliminary reconciliation of GAAP revenue adjusted for recent acquisitions and divestitures and impact of currency is estimated based on our current information.