Agilent (A) Down 5.5% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Agilent Technologies (A). Shares have lost about 5.5% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Agilent due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Agilent Q2 Earnings Beat Estimates

Agilent Technologies reported second-quarter fiscal 2022 earnings of $1.13 per share, beating the Zacks Consensus Estimate by 1.8%. The bottom line increased 16.5% year over year.

Revenues of $1.61 billion lagged the Zacks Consensus Estimate by 0.3%. The top line was up 5% on a reported basis and 7% on a core basis from the year-ago quarter’s level.

The top-line growth was driven by continued strong growth in the pharma market. Also, solid momentum in the chemical & energy market remained a positive.

In terms of major markets, Analytical Laboratory and Dx & Clinical accounted for 85% and 15% of total revenues each, up 8% and 5% on a core basis, respectively, from the corresponding prior-year quarter’s readings.

However, lockdowns in China due to the coronavirus pandemic and the conflict in Ukraine remained headwinds during the fiscal second quarter.

Segmental Top-Line Details

Agilent has three reporting segments, namely Life Sciences & Applied Markets Group (LSAG), Agilent Cross Lab Group (ACG), and Diagnostics and Genomics Group (DGG).

LSAG: The segment accounted for $896 million or 56% of its total revenues, up 2% on a reported basis and 4% on a core basis from the respective prior-year quarter’s levels. This was driven by a positive environment across key end-markets served, especially the Pharma and Chemical & Energy market. However, shutdowns in China affected the instrument platforms. Nevertheless, growth in other platforms and cell analysis aided the results.

ACG: Revenues from the segment were $353 million, accounting for 22% of total revenues. Also, the top line improved 7% year over year on a reported basis and 10% on a core basis, driven by strong demand for services on BioPharma and LC-MS platforms. Also, solid contract revenue growth across the portfolio remained a tailwind.

DGG: Revenues increased 14% year over year on a reported basis and 15% on a core basis to $358 million, accounting for the remaining 22% of total revenues. Top-line growth was attributed to the strength in Nucleic Acid Solutions Division and genomics businesses.

Operating Results

For the fiscal second quarter, gross margin in the LSAG segment contracted 90 basis points (bps) on a year-over-year basis to 59%. DGG gross margin expanded 260 bps on a year-over-year basis to 56%. ACG gross margin expanded 180 bps to 47.1%.

Research & development costs were $115 million, up 5.5% year over year. Selling, general & administrative expenses were $386 million, which decreased 8.1% year over year.

Operating margin for the fiscal second quarter was 25.3%, which expanded 140 bps on a year-over-year basis.

Segment-wise, operating margin for LSAG was down 20 bps year over year to 25.5%. The DGG segment’s operating margin expanded 360 bps on a year-over-year basis to 25.5%. ACG operating margin was 24.6%, which expanded 360 bps from the year-ago quarter’s level.

Balance Sheet

As of Apr 30, 2022, Agilent’s cash and cash equivalents were $1.19 billion, up from $1.11 billion on Jan 31, 2022.

Accounts receivables were $1.24 billion at the end of fiscal second-quarter 2022, up from $1.21 billion at the end of first-quarter fiscal 2022.

Further, long-term debt was $2.730 billion for the reported quarter, in line with the prior quarter’s figure.

Outlook

For the fiscal third quarter, management expects revenues of $1.625-$1.650 billion, suggesting growth between 7.2% and 8.8% on a core basis from the year-ago actuals.

Non-GAAP earnings per share are expected to be $1.20-1.22.

For fiscal 2022, management anticipates revenues in the band of $6.67-$6.73 billion, implying growth of 5.6-6.5% on a reported basis and 8-9% on a core basis from the fiscal 2021 tally.

Further, management raised its guidance for non-GAAP earnings per share from $4.80-$4.90 to $4.86-$4.93.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, Agilent has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Agilent has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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