A
Earnings call · Jan 2025 (Q1 FY25)

AGILENT TECHNOLOGIES Q1 FY25 earnings call A

Feb 26, 2025 Source

Executive summary

Agilent Q1 FY25 — Strong Start Exceeding Expectations with Infinity III Momentum and China Stimulus Wins

Agilent delivered a solid Q1 FY25, surpassing revenue and EPS expectations, driven by strong demand for its Infinity III LC solutions and significant wins in China's stimulus program. The company is navigating currency headwinds and uncertainty in the U.S. federal funding environment while progressing its Ignite transformation to enhance productivity and shareholder value.

Highlights

5

  • Q1 revenue of $1.681 billion exceeded expectations.

  • Core revenue growth of 1.2% (estimated over 3% adjusting for Lunar New Year) beat expectations.

  • Instrument book-to-bill was greater than 1 in Q1, typically less than 1.

  • PFAS solutions grew 70% in the quarter, contributing 75 basis points to company growth.

  • Won over 50% of China stimulus orders, totaling $35 million in Q1.

Concerns

5

  • Currency had a negative impact of 1.4 percentage points on Q1 revenue, 1 percentage point higher than estimated.

  • Full-year reported revenue guidance adjusted down by $110 million due to strengthening U.S. dollar.

  • Full-year non-GAAP EPS guidance unchanged but includes an estimated $0.09 incremental FX headwind.

  • Academia and government end market declined 7% globally due impacted by NIH funding uncertainty.

  • Applied Markets Group revenue declined 2% in Q1.

Guidance & targets

CategoryTargetConfidence
Full-year core revenue growth
2.5% to 3.5%
high materiality
High
Full-year reported revenue
$6.68 billion to $6.76 billion
high materiality
High
Full-year non-GAAP earnings per share
$5.54 to $5.61
high materiality
High
Q2 revenue
$1.61 billion to $1.65 billion
high materiality
Medium
Q2 non-GAAP earnings per share
$1.25 and $1.28
high materiality
Medium
Annual operating margin expansion (Ignite transformation)
50 to 100-plus basis points
high materiality
High
Annual core revenue growth (Ignite transformation)
5% to 7%
high materiality
High
Annual EPS growth (Ignite transformation)
Double-digit
high materiality
High
NASD growth
High single digits, nudging to low double-digit
medium materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Life Science and Diagnostics Markets Group
Performance driven by strong results in LC and LC/MS instruments, which grew high single digits, following the Infinity III launch. Integration of BIOVECTRA is ongoing, with positive customer response.
$647 million1%——
Agilent CrossLab Group
In line with expectations, led by services. The new ACG includes services, automation, consumables, software, and informatics, with positive response to InfinityLab Assist and OpenLab CDS.
$696 million3%——
Applied Markets Group
Better than expected due to strong China stimulus orders. Continued investment in next-generation technology innovation and lab productivity solutions.
$338 million-2%——

Operational metrics

Digital orders growth
High single digits
Q1

Reflects improvements to the e-commerce platform and user experience.

PFAS growth
70% vs 50% in Q4
Q1

Strong demand across environmental, food, and chemical materials markets, driven by new regulations.

PFAS revenue
Well over $100 million approaching $100M last year
Annualized run rate

Reflects strong performance and increasing contribution to overall revenue.

Pharma growth ex China
Low single-digit
Q1

Globally, biopharma and small molecule performed roughly in line with the overall market.

Pharma growth in China
High single-digit decline
Q1

Offset low single-digit growth ex China for flat overall pharma performance.

Chemical and Advanced Materials revenue growth
-2%
Q1

China decline mostly impacted by the timing of the Lunar New Year.

Diagnostics and Clinical end market growth
7%
Q1

Led by strong results in the Americas and Europe.

Academia and Government end market decline
7%
Q1

Soft results around the globe, impacted by U.S. federal funding uncertainty.

Americas revenue growth
3%
Q1

Slightly ahead of expectations.

Europe revenue growth
2%
Q1

Slightly ahead of expectations.

Asia ex China revenue growth
2%
Q1

Slightly ahead of expectations.

China revenue decline
4%
Q1

Better than expectations on the strength of stimulus performance.

Lunar New Year revenue headwind
$10 million
Q1 FY25

Expected to come back in Q2.

Lunar New Year revenue tailwind
$25 million
Q1 FY24

Compared to Q1 FY25, resulting in a 2 percentage point year-on-year impact.

Gross margin
54.7% down versus last year
Q1

Expected to improve throughout the year.

Operating margin
25.1% down versus last year
Q1

Roughly in line with expectations despite currency headwinds; expected to improve throughout the year from Ignite transformation.

Tax rate
12.5%
Q1

Better than expected.

Diluted shares outstanding
287 million
Q1

Used for EPS calculation.

Capital expenditures
$97 million
Q1

Investment in company assets.

Shares purchased
$90 million
Q1

Part of capital allocation strategy.

Dividends paid
$71 million
Q1

Part of capital allocation strategy.

Net leverage ratio
1.0
Q1 end

Indicates a strong balance sheet.

FX headwind (full year)
$110 million incremental vs prior guidance
FY25

Due to strengthening U.S. dollar, impacting reported revenue guidance.

FX headwind (full year EPS)
$0.09 incremental
FY25

Covered within the unchanged full-year non-GAAP EPS guidance.

M&A revenue impact (full year)
+2% to 2.2% unchanged
FY25

Contribution from acquisitions and divestitures.

FX headwind (Q2)
2.1%
Q2 FY25

Impact on Q2 revenue guidance.

M&A revenue impact (Q2)
2%
Q2 FY25

Benefit from acquisitions and divestitures.

FX headwind (Q2 EPS)
$0.02
Q2 FY25

Year-on-year currency net of hedging impact.

NIH-related revenue exposure
~1%
Annual

Limited exposure to NIH-related programs, impact believed to be manageable.

Tariff impact
~$5 million
Annual

Overall impact from recent tariff news, believed to be very mitigatable due to diversified supply chain.

China stimulus orders (Q1)
$35 million
Q1

Recognized in the quarter, primarily in the food area within Chinese customs government departments.

China stimulus pull-forward
~50%
Q1

Estimated portion of Q1 stimulus that is likely pull-forward rather than purely incremental.

LC and LC/MS instrument growth
High single digits
Q1

Driven by the successful Infinity III launch and improved pharma CapEx spending.

Ignite operating margin expansion target
50 to 70 basis points
FY25

On track with initial targets, though currency headwinds require more effort.

Industry KPIs

MetricValueDetails
Revenue EPS guidanceFY core growth: 2.5% to 3.5%; FY reported revenue: $6.68B to $6.76B; FY non-GAAP EPS: $5.54 to $5.61
China revenue exposure-4% %
Pricing price realizationTrending a bit higher
Diagnostics testing demand7% %
M a contribution synergies1.6% %
Segment organic revenue growth—
Bioprocessing orders book to bill—
Instruments vs consumables services mix—
Organic core revenue growth by end market—

Product announcements

ProductTypeDetails
Infinity III serieslaunch
InfinityLab Assistlaunch
OpenLab CDSlaunch
New GC and GC/MSlaunch

Deals & partnerships

ABB Robotics Collaborative agreement to produce automated laboratory solutions.

Agilent partnered with Zurich-based ABB Robotics to develop automated laboratory solutions, aiming for interoperability of instruments, robots, and software to boost customer productivity.

BIOVECTRA Integration of BIOVECTRA's unique capabilities into Agilent's Life Science and Diagnostics Markets Group.

Agilent remains focused on the integration of BIOVECTRA, noting strong customer interest in leveraging its unique capabilities and Agilent's expertise, particularly in therapeutic modalities. The integration process is bringing operations up to Agilent's NASD standards.

Risks & headwinds

U.S. Federal Funding Environment Uncertainty Ongoing, particularly Q2 FY25

Academia and government segment declined 7% in Q1. NIH-related revenue exposure is ~1% of total revenue.

Mitigation:Management believes the forecasted impact is manageable and within current guidance. Q2 guidance range widened to reflect uncertainty.

Tariff Impacts Ongoing

Estimated overall impact of ~$5 million.

Mitigation:Diversified supply chain with manufacturing presence in all major regions. Teams are taking action to mitigate impacts, including shifting supply chains (e.g., from China to U.S. and Singapore).

Currency Headwinds FY25

Negative impact of 1.4 percentage points on Q1 revenue (1 percentage point higher than estimated). Incremental $110 million headwind to full-year reported revenue (1.9% total headwind). Incremental $0.09 EPS headwind for full year. $0.02 EPS headwind for Q2.

Mitigation:Company is covering the $0.09 EPS headwind for the full year. Hedging strategies are in place, but some drop-through impacts gross margin.

China Market Stability (beyond stimulus) Ongoing

China revenue declined 4% in Q1. Underlying business did not see meaningful improvement in Q1.

Mitigation:Maintaining expectations for the base business, resulting in a modest increase for FY25 expectations within low single-digit guide range. Strong local manufacturing capabilities position Agilent to win outsized share of future stimulus.

What to watch in Q2 FY25

China Stimulus Round

Second half of FY25
Current $35M recognized in Q1, 50% win rate.
Target Quantification and timing of next stimulus round.

Why it matters

Potential upside to current guidance and continued market leadership in China.

our China team is now expecting the next round of stimulus to come later in the year. That's yet to be quantified.

Q&A highlights

Quantify the headline risk embedded in the Q2 and full-year guidance, and comment on any observed impact from customers or sales teams.

Management stated the guide is prudent, with the Q2 range widened to $40 million (from a typical $25-30 million) to account for uncertainty. NIH exposure is minimal (~1% of revenue), and no material impact has been observed yet, with pharma activity increasing.

“Our guide is a prudent one. We'll be able to monitor that as we go through the next quarters. But Bob, I don't know if you want to add more detail.”

asked by Rachel Vatnsdal Olson · answered by Padraig McDonnell

2 min read 6 chapters

Detailed narrative

Ignite Transformation Progress

Agilent is advancing its Ignite transformation with three key accomplishments: establishing an enterprise strategic pricing organization, enhancing its digital ecosystem (which saw high single-digit digital order growth in Q1), and identifying significant cost-saving opportunities in procurement. The company is also flattening management layers and increasing spans of control to improve decision-making and accelerate innovation, with associated cost reductions expected later in the year.

Innovation and Lab Productivity Focus

A foundational element of Agilent's growth strategy is innovation focused on driving lab productivity. This includes a collaborative agreement with ABB Robotics to produce automated laboratory solutions and the successful adoption of the Infinity III series. The Infinity III offers advanced automation, seamless upgrades, and backward compatibility, which has resonated strongly with customers and is driving significant momentum in the sales funnel.

Strong China Market Performance

Agilent demonstrated strong performance in China, capturing over 50% of stimulus-related tenders, which contributed $35 million in Q1 revenue. The company's local manufacturing capabilities, enabling 'in China for China' production, position it well to expand market leadership. Management anticipates further stimulus rounds later in the year, which are not yet factored into current guidance.

Robust PFAS Solutions Demand

Demand for PFAS solutions remains extremely strong, growing 70% in Q1 and contributing 75 basis points to company growth. Agilent's 6495 Triple Quad LC/MS, along with new offerings in PFAS-specific consumables and workflow deployment services, provides a competitive edge in this expanding market, which is driven by new regulations globally.

BIOVECTRA Integration and Outlook

The integration of BIOVECTRA is progressing, with increasing excitement about its unique capabilities in the therapeutic modalities market. While Q1 revenue for BIOVECTRA was slightly soft, the focus is on bringing certain operational aspects up to Agilent's NASD standards. The full-year guidance for BIOVECTRA remains unchanged, reflecting confidence in its longer-term potential.

Organizational Recognition and Sustainability

Agilent's commitment to operational excellence and sustainability was recognized by the World Economic Forum, which named its Shanghai and Penang factories as Global Lighthouse Networks for their use of advanced technologies. Additionally, Newsweek ranked Agilent #10 on its 2025 list of America's Most Responsible Companies, highlighting its positive global impact and leadership as a sustainable lab partner.

AI-generated summary of the company's earnings call. Not investment advice.