Agilent Technologies : Second Quarter 2025 Prepared Remarks

Published: 2025-05-28 17:04:09 ET A

Published on 05/28/2025 at 17:04

Thank you, and welcome everyone to Agilent's conference call for the second quarter of fiscal-year 2025.

With me are Padraig McDonnell, Agilent President and CEO, and Bob McMahon, Agilent Senior Vice President and CFO.

Joining the Q&A will be:

Simon May, President of the Life Sciences and Diagnostics Markets Group

Angelica Riemann, President of the Agilent CrossLab Group

And Mike Zhang, President of the Applied Markets Group

This presentation is being webcast live. The press release for our second-quarter financial

results, investor presentation, and information to supplement today's discussion - along with a recording of this webcast - are available on our website at https://www.investor.agilent.com.

Today's comments will refer to non-GAAP financial measures. You'll find the most directly comparable GAAP financial metrics and reconciliations on our website.

Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year and references to revenue growth are on a core basis. Core revenue growth is adjusted for the impact of currency exchange rates, and any acquisitions and divestitures

completed within the past 12 months. Guidance is based on forecasted exchange rates.

As a reminder, beginning in the first quarter of fiscal 2025, we implemented certain changes to our reporting structure related to the reorganization of our three businesses segments. We have recast our historical segment information to reflect these changes and have provided the

financial details on our website. These changes have no impact on our company's consolidated financial statements.

During this call we will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors.

And now, I'd like to turn the call over to Padraig.

Hello, everyone, and thank you for joining today's call.

Agilent delivered strong second-quarter results in a highly dynamic market environment.

Revenue of 1.67 billion dollars for the second quarter represented growth of 6% reported and up 5.3% core compared with the second quarter of 2024. Operating margin was a solid 25.1% as we absorbed some incremental tariff costs.

We also delivered EPS of $1.31, growing 7% compared with the second quarter of 2024.

Both revenue and EPS exceeded our expectations, marking the fourth consecutive quarter of accelerating growth.

Our performance was driven by growth across markets and regions - speaking to the diversity of our business.

We also saw another quarter of building momentum in instruments with our book-to-bill ratio, again, greater than one. Thank you to the Agilent team for delivering these results by tirelessly

going above and beyond for our customers.

No matter where I travel in the world, our customers consistently say the same thing: The Agilent team is second to none and for that reason they want to increase their partnership and collaboration with us even more - even during a challenging macro environment.

These conditions have proved the efficacy of our three-year Ignite Transformation, which is the execution of our strategy.

We're already leveraging Ignite to create an enterprise operating model that has resulted in multiple early wins, including tariff mitigation.

More on that in a moment.

First, let me tell you why our Q2 was so strong.

All regions grew in the quarter. …

Americas grew low single digits.

EMEA grew mid-single digits.

And China led the way at 10% growth - exceeding our expectations - while the rest of Asia grew high single digits.

China saw stable demand conditions sequentially while a favorable Lunar New Year comparison helped year-on-year growth.

In Asia, India delivered high-teens growth. India is a long-term, high-growth, innovation-driven market, which is why we opened our first India Solutions Center there this month. The center showcases Agilent's expertise across disciplines to deliver end-to-end solutions in sectors such as GLP-1 analysis, emerging food and environmental contaminants analysis, and PFAS detection.

We also delivered mid-to-high single-digit growth in all end markets except Academia & Government, which declined modestly with strong results in Asia moderating the expected softness in the U.S.

Pharma grew 6% - at the high end of expectations - led by small molecule growing low

double digits. Biopharma continues to recover at a slower pace, growing low single digits as we continue to see funding challenges in small and mid-size biotech, primarily in the U.S. Within

biopharma, NASD was a standout growing high single digits in Q2, and we are looking forward to double-digit growth from NASD in the second half of the year.

In addition, while not yet part of core growth, our BIOVECTRA business performed well,

exceeding guidance. BIOVECTRA'S capabilities are in the sweet spot of tremendous markets - for example, GLP-1s and complex chemistries - with terrific medium and long-term growth

potential. We are very excited about the combined offerings of NASD and BIOVECTRA.

Diagnostics and Clinical grew 8% - ahead of expectations - on strong performance of our pathology business in the Americas and Europe.

Environmental & Forensics grew 6% on strong PFAS testing demand globally.

PFAS testing remains strong for Agilent globally and we see it continuing to expand into other end markets, such as Food and Chemicals & Advanced Materials. In Q2, PFAS grew more than 70% year over year globally, with Europe and China more than doubling their business. PFAS

provided an incremental 80 basis points to our growth in the quarter and is now annualizing to well over 100 million dollars.

We continue to be very optimistic about the long-term growth prospects globally in PFAS as regulations and standards continue to be put in place.

For PFAS testing, our Infinity III and 6495D system is the most sensitive and robust solution. The Agilent team has a deep understanding of customers' challenges and how we can help them with their testing needs through delivering integrated workflow solutions, productivity, and

new-modality-application development. We are tracking over 350 regulations globally and are very confident in the continued momentum in this emerging 1-billion-dollar addressable market by 2030.

In Chemicals & Advanced Materials, revenue grew 4% with high single-digit growth in advanced materials, while Chemical & Energy was up low single digits globally. Overall, we saw growth ex-China offset by a low-single-digit decline in China. Lower oil prices are a net positive to the CAM business given it drives lower input prices to our Chemical business, which is four times bigger than Energy.

Food grew 8%, benefitting from strength in Asia through government-funded technology refresh.

Our smallest end market, Academia & Government declined only 2 percent in the quarter,

better-than-expected performance in both the U.S. and globally. Given we were ahead of others talking about potential U.S. funding impacts in our first-quarter earnings call and did better than expected in Q2, we feel we already have adequately captured any variability looking forward.

When looking holistically across Agilent, we continue to make investments in our digital

ecosystem - such as our next-generation e-commerce platform - so that we can offer an outstanding customer experience.

Those investments are paying off, as we grew digital orders by 12% year over year to 295 million dollars.

I also want to highlight ACG's 9% growth this quarter, which exceeded expectations. ACG's

performance was led by strong growth in automation, services and consumables. For the first time in several quarters, we saw both on-demand and installation services return to growth.

These results keep us on track with the long-term commitments we outlined at our Analyst and Investor Day in December - including 5 to 7% core revenue growth, expanding margins 50 to 100 plus basis points annually, and driving double-digit EPS growth.

We have momentum at Agilent.

Over the past 12 months - my first year as CEO - the Agilent team has accomplished a lot. …

We've built a formidable senior-leadership team that is working in lockstep to maximize Agilent's resources to drive shareholder value.

We've evolved our enterprise strategy to be market-first and realigned our businesses to our markets.

We acquired BIOVECTRA for roughly 1 billion dollars to expand our CDMO capabilities.

And we have moved from planning to execution on Ignite.

Before providing further details on Ignite, I want to pause here and thank our Agilent team members for how quickly they've adapted to change - and the company's higher ambitions.

It is no small feat to transform a company, and I've been impressed by our colleagues' passion for our mission and vision - and their increased zeal to delight customers so that Agilent can continue to win in the market.

These team members are leading Ignite - an initiative that already is yielding incredible results. Those incredible results include …

Strengthening our strategic-pricing capabilities and implementing enterprise-wide pricing initiatives. In six months, we already have exceeded the full-year price

contribution from last year and are expecting at least 100 basis points of price realization in 2025 with expectations for an even greater impact in 2026 and beyond. …

Improving organizational agility and efficiency by flattening management layers and

increasing spans of control by 30% to improve our organizational health and become a nimbler company. Additionally, we expect this to deliver annualized savings of about 80 million dollars starting in the second half of this fiscal year. …

Centralizing our procurement under a Chief Procurement Officer and adopting an integrated, enterprise-wide approach to vendor management. We already see strong momentum exceeding our internal savings targets, ramping in the second half of this year while being essential in mitigating tariff expense with our suppliers. This is with projected procurement annualized savings exceeding 50 million dollars by the end of 2025 and establishing a strong foundation for additional gains in 2026.

Ignite has become the backbone of our operating system - enabling faster decision-making, more scalable growth, and over 130 million dollars of profit for fiscal-year 2025. It is our institutional engine for long-term value creation.

Central to value creation is our continued commitment to innovation.

I'm proud to share three impactful new products that demonstrate that commitment.

In our cell-analysis portfolio, we just launched the Seahorse XF Flex Analyzer. With its world class-leading sensitivity, versatility, intuitive design and compatibility with 3D models, the XF Flex empowers more researchers than ever to explore cellular metabolism with confidence.

And at the 73rdASMS conference next week, we will launch our latest innovation in liquid-chromatography mass detection. The new InfinityLab Pro iQ Series offers unparalleled

sensitivity, speed, and efficiency - making it the ideal choice for customers analyzing complex biomolecules in settings where performance and lab productivity are key.

At ASMS, we also will showcase our enhanced 8850 GC now coupled with the power of our market-leading GC/MS that enables our customers to do more with less. We've reduced the 8850's footprint by 50% and increased throughput up to five times, while lowering its energy usage by 45% compared with a conventional benchtop GC.

We also continue to have success with our Infinity III LC - in orders, funnel and our attach rates of services and consumables.

We're seeing this success both geographically - with robust growth in India a particular highlight - and across all end markets, with our top customers calling out the Infinity III's superior performance, intelligence, and task automation capabilities.

To help further drive Agilent's internal and external innovation engine, I'm delighted to

announce that August Specht is joining Agilent next month as our Chief Technology Officer. August has spent over 25 years in senior R&D roles in the life-sciences industry. Welcome, August!

Ignite also gave us a significant head start on tariff mitigation, enabling the immediate creation of our Tariff Task Force that's allowed us to make changes that will maintain our market strength regardless of tariff rates. …

We are proactively managing tariff exposures by taking several targeted actions, including:

Focusing on specific product lines and production sites rather than adopting a one-size-fits-all approach. …

Further diversifying our supply chain by leveraging our extensive global-sourcing capabilities and manufacturing network, ensuring we're geographically even closer to customers. …

Implementing strategic-pricing initiatives around the globe that protect our market competitiveness.

While we remain vigilant amid geopolitical developments, our localized manufacturing,

proactive tariff mitigation, and diversified customer base give us greater resilience and agility globally than many of our peers.

Through our Tariff Task Force enabled by our Ignite operating model, we feel we will be able to mitigate most of the impact in 2025 and fully mitigate in 2026 - even when considering recent developments on U.S.-E.U. tariffs. With the Task Force, we can create targeted analytics in a matter of hours - not days - that identify key supply chain and commercial opportunities that will allow us to maximize our tariff-mitigation efforts.

Our top priority is ensuring we minimize tariff impacts on our customers and that our customers have the trusted Agilent products, solutions, and services they need.

Looking ahead, we are confident that the long-term fundamentals and secular growth drivers of our markets remain strong.

For the year, we are maintaining our core growth rate of 2.5 to 3.5% while incorporating favorable currency movements.

And leveraging our Ignite program, we are fully absorbing all unmitigated FY25 tariff costs and maintaining our full-year EPS guidance.

While our results this quarter exceeded expectations, we believe it's important to remain

disciplined in our outlook given ongoing uncertainty in the macro environment and geopolitical landscape. We are committed to maintaining guidance that is both credible and achievable, and we continue to prioritize long-term value creation.

Bob will now share further details about our Q2 and guidance. Bob?

Thanks, Padraig, and good afternoon, everyone.

In my remarks today, I will provide additional details on revenue in the quarter, as well as take you through the income statement and other key financial metrics.

I'll then cover our full-year and third-quarter guidance.

As Padraig mentioned, Q2 revenue was 1.67 billion dollars - above the high end of our guidance.

On a core basis, we posted growth of 5.3% while reported growth was 6%. Currency had a

negative impact of 1.6%, which was half a point better than estimated as the dollar weakened during the quarter. M&A also contributed 2.3%, coming in nicely ahead of expectations.

Now let me talk about our performance by business group.

The Agilent CrossLab Group reported revenue of 713 million dollars, growing 9%, which was ahead of our expectations. Double-digit growth in consumables and automation, and high-single digit growth in services drove ACG's performance.

Our Life Sciences and Diagnostics Markets Group reported revenue of 654 million dollars in the quarter, growing 3%. Core growth was driven by our pathology business and NASD - both of which delivered high-single-digit growth - and our LC & LC/MS instruments that grew mid-

single digits. Our cell-analysis business returned to growth - up low single digits. Performance was partially offset by an expected mid-single-digit decline in our NGS business.

And our Applied Markets Group reported 301 million dollars in the quarter - flat versus last year on a core-growth basis. Growth in spectroscopy and GC/MS was offset by some timing-related declines in gas chromatography.

Before getting into the rest of the P&L, I want to cover additional details on Q2 revenue that were influenced by the April tariff announcements - primarily in China.

While there was no revenue impact to Agilent overall, we did see some shifts by group in the quarter.

Specifically, we saw roughly 15 million dollars of "in country" ACG lab-consumables revenue pulled forward into Q2 from Q3. However, this was offset by longer processing time through customs on some select instrumentation in both AMG and LDG.

Again, this did not impact our overall revenue for Q2 - or our Q3 outlook. But we have taken that into account by group looking forward, which I will talk to in a minutes. It is also important to note that we've seen a return to normal customs processing times here in May.

Now let's move on to the rest of the P&L.

Gross margin was 54.1% in the quarter - roughly in line with our expectations after accounting for 55 basis points of incremental tariff costs. It is down versus last year with the delta being equally distributed among tariffs, currency, and product mix.

We drove operating margins of 25.1%. While flat versus last year - excluding the 55 basis points of incremental tariffs - it would have been an increase year on year. So, overall a strong showing.

Below the line, we had 2 million dollars of income while our tax rate of 11.5% was better than expected. And we had 285 million diluted shares outstanding in the quarter.

Putting it all together, Q2 earnings per share were $1.31. That was ahead of our expectations and up 7% from a year ago - growing faster than core revenue. This is a very good result in the face of the dynamic macro environment, which is a testament to the Agilent team forging close collaborative partnership with our customers.

Now let me turn to cash flow and the balance sheet.

Operating cash flow was 221 million dollars in the quarter, and we invested 114 million dollars in capital expenditures.

We purchased 165 million dollars in shares and paid out 70 million dollars in dividends during the quarter.

And we ended the quarter with a net leverage ratio of 1, so we continue to have a very strong balance sheet.

Now, let's move on to our outlook for the fiscal year and third quarter.

As Padraig mentioned earlier, we are maintaining our core-growth outlook for the year and

increasing our reported revenue guidance by 50 million dollars to reflect incremental Fx benefit since our last guide.

This results in an increase to our full-year reported revenue to be in the range of 6.73 billion to

6.81 billion dollars, increasing reported growth to 3.4 to 4.6%. Currency is now expected to

represent a 1.1% headwind for the year versus a prior 1.9% headwind, while our M&A guidance is unchanged at plus 2 to 2.2% revenue impact for the year. Core growth is still expected to be

between 2.5 to 3.5% for the year.

We believe this is a prudent way to manage considering the dynamic macro environment.

Now to help you with your models, I wanted to provide some additional perspective on our end markets.

In Pharma, we are monitoring the progress of U.S. pricing-policy proposals but are not seeing a change in customer behavior. As a result, we continue to expect low-to-mid single-digit growth for the year with the second half of the year continuing to show steady improvement versus the first half.

For Diagnostics and Clinical, given Q2's performance, we now expect growth to be toward the upper end of mid-single digits.

And we expect growth for both Chemicals & Advanced Materials and Food to continue to be in the range of low-to-mid-single digits, while the Environmental & Forensics market is solid mid-single-digit growth on PFAS strength.

Lastly, as a reminder, Academia & Government is our smallest market at 8% of total revenue with NIH-related research representing only about 1 percent of revenue. We are maintaining

our outlook from Q1 of a mid-single-digit decline in total with the U.S. market being the driver. While we performed much better than we expected in Q2, we feel this is a prudent approach for the year.

We also are maintaining our full-year EPS guidance of $5.54 to $5.61 while covering the

incremental tariff costs that I will explain in more detail in a moment. This represents a year-on-year increase of 4.7 to 6%.

For clarity, let me briefly summarize the tariff assumptions we incorporated into our FY25 guidance.

Based on the tariff rates that are currently in place, we estimate that the gross incremental tariff exposure in the second half of our fiscal year is 50 million dollars. This is on top of the roughly 10 million dollars we already have absorbed in the first half of our fiscal year.

Thirty percent of the exposure is represented by trade between U.S. and China, about evenly split. Of the remaining 70%, 30 percentage points is from the E.U. into the U.S. and the

remaining 40% from the rest of the world into the U.S. As Padraig mentioned, we have mobilized our team using the Ignite operating model to quickly move our procurement and

supply chains to minimize the tariffs and build inventory. We are using a combination of supply chain moves, like moving LC production into the U.S., surcharges, and some of the Ignite-driven savings that Padraig previously highlighted to offset the incremental costs. Importantly, we

expect our actions to fully mitigate the costs in fiscal 2026.

The tariff landscape continues to be dynamic and hard to predict. However, given the recent

news of potentially increasing tariffs on E.U.-sourced products to 50% as early as July 9, we felt it important to frame that exposure. If implemented on July 9, we estimate that would add

another 40 million dollars in gross exposure in the second half of the year. But through

additional pricing mitigations and the inventory we have built up, we anticipate the net impact would be minimal for the year.

This is the power of our Tariff Task Force. It enables us to address tariffs at the enterprise level and align Agilent's key senior leaders so we can quickly leverage our strong and diverse global supply chain footprint and adjust to the market-driven approach of our unified Commercial team.

Finally, for your modelling, we are now projecting an increase in other income and expenses to 15 million dollars in income, along with a 12% tax rate for the year and 285 million diluted

shares outstanding.

Moving to the third quarter, we are guiding to revenue of 1.645 billion to 1.675 billion dollars. This range represents an increase of 1.7 to 3.6% growth on a core basis and an increase of 4.2 to

6.1% growth on a reported basis. Currency is a 0.6% tailwind and M&A impact is expected to be a 1.9% benefit for the quarter.

Again, while the Q2 stocking-and-logistics dynamics I mentioned earlier do not affect the total revenue in Q3, we do see it play out differently by group. For that reason, we thought it helpful to provide a perspective on group core-growth guidance in Q3. Given the Q2 impacts, we see

LDG growing mid-single digits and both ACG and AMG growing low single digits.

Third-quarter non-GAAP earnings per share are expected to be between $1.35 and $1.37, representing growth of 2.3 to 3.8%.

Now, I would like to turn the call back to Padraig for closing comments. Padraig?

Thanks, Bob.

Before I close, I want to thank our retiring board member Heidi Kunz for her many years of service with Agilent.

And I want to welcome Pascal Soriot and Judy Gawlik Brown to the board. Pascal is CEO of AstraZeneca and Judy is currently founder and CEO of Downtown Advisory after holding senior-leadership positions at Amgen and Perrigo.

Both bring decades of global leadership experience from the pharmaceutical, biotechnology, and health-care sectors, with proven track records in strategy, innovation, operations, and

finance.

I look forward to working with both of you.

It's an exciting time to be part of Agilent's growth story …

To be part of building on our foundational strengths of being an established leader in 80-billion-dollar markets driven by secular growth …

Having leading market share and a sustainable competitive advantage through our intense customer focus. …

And re-accelerating growth through innovation and market-share gains.

And we continue to look at the long term. As Bob mentioned, we have a strong balance sheet and remain focused on augmenting our internal innovation with external growth opportunities. We have a robust pipeline of opportunities of all sizes that are aligned with our strategy we explained in December and will further build this great company.

In a highly dynamic macro environment, Agilent is excelling.

We remain confident in our ability to deliver on our full-year 2025 commitments and in our long-term trajectory toward the financial framework we explained at Investor Day.

With Ignite scaling and our pace of innovation accelerating, Agilent is well-positioned to outperform regardless of near-term market dynamics.

After one year as CEO, I'm even more energized by what we're accomplishing at Agilent. And we're only getting started.

Thank you for your attention. I'll now hand it over to Parmeet to kick off our Q&A.

Parmeet?

Disclaimer

Agilent Technologies Inc. published this content on May 28, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 28, 2025 at 21:03 UTC.