Agilent Technologies Inc Q3 2023 Earnings Conference Call Insights

Key highlights from Agilent Technologies Inc (A) Q3 2023 Earnings Concall

Management Update:

• [00:04:02] A said it now expects core growth for the full year to be around 1%, down from its previous guide of 3%.

• [00:04:10] The company is not assuming any improvement in the China market for the remainder of the year.

Q&A Highlights:

• [00:20:13] Matt Sykes at Goldman Sachs asked if the slowdown in China’s pharma market is transitory or structural, and what are the competitive challenges that A is facing in the region. Mike McMullen CEO said that the slowdown in China’s pharma market is a macro story, not a competitive one. Agilent is taking a month-by-month approach and is positive about the ability to grow the aftermarket in its diagnostics business.

• [00:21:41] Matt Sykes from Goldman Sachs enquired about the durability of ACG’s high single-digit to low double-digit growth and 30%-plus margins, and whether there were any one-off factors in the latest quarter. Robert McMahon CFO replied that the company expects the ACG business to continue to grow in the high single-digit to low double-digit range, with profitability in the high double-digits, but not at the level seen in 3Q.

• [00:24:00] Jack Meehan of Nephron Research asked for an update on the cyclical areas of the CAM segment, like the chemicals market, and how A is seeing budget cuts impacting demand. Mike McMullen CEO answered that A’s CAM segment is seeing mixed results, with the Advanced Materials segment holding up well and the Chemicals and Energy segment slowing due to a challenging macroeconomic environment.

• [00:26:30] Jack Meehan at Nephron Research enquired how A is seeing margins evolving in 2023, given the interplay of cost savings, revenue growth, and performance compensation? Robert McMahon CFO answered that the decision to shut down the Resolution Bioscience business will contribute to margin expansion in 2023. And A expects leveraged earnings growth to continue into 2024, despite some headwinds.

• [00:29:04] Vijay Kumar with Evercore ISI asked for an update on the capital versus recurring revenue mix in the Americas and Europe, and whether the company sees a similar phasing in ex-China. Robert McMahon CFO replied that ACG grew in all regions and end markets, including China. The Americas and Europe saw better-than-expected performance, with no trends like those seen in China.

• [00:32:23] Dan Leonard at Credit Suisse asked for a comparison of the current cycle in China to previous cycles and how to get out of it. Mike McMullen CEO answered that that the current cycle is unprecedented, and the way to get out of it is for China to focus on its long-term goals of becoming an innovation-driven economy, investing in R&D, improving the health of the population, and addressing environmental issues, which will require getting back to fundamentals. And eventually, there will be investments and a level of confidence in the private sector to reinvest.

• [00:35:06] Dan Leonard at Credit Suisse also enquired about the decision to shut down ResBio, that was acquired only a couple of years ago. Mike McMullen CEO replied that the decision to shut down ResBio was difficult, but the company’s fundamental belief in the kitted strategy for companion diagnostics did not pan out as expected.

• [00:37:40] Brandon Couillard at Jefferies asked for an update on the mass spec versus LC trend in the quarter and the four-year CAGR for LSAC instruments from 2019, and how it compares to the historical average. Mike McMullen CEO replied that A’s market share in LC and LC-MS is holding up well, and the company is taking share from competitors.

• [00:41:13] Puneet Souda at Leerink Partners asked about pricing, including the impact of China deflation and local competition. Robert McMahon CFO said that A expects to continue to drive positive pricing across all its businesses, despite the deflationary environment in China.

• [00:44:50] Rachel Vatnsdal from JPMorgan asked for an update on the recovery of pharma spending, particularly outside of China, and how long it may take. Mike McMullen CEO answered that the company saw signs of stabilization in Europe and the US, but is not seeing any signs of recovery in pharma spending yet.

• [00:49:50] Patrick Donnelly at Citi asked how the company is seeing the top line setup for fiscal 2024 given the lingering headwinds from the instrument cycle and the China slowdown. Mike McMullen CEO said that the company expects to grow in fiscal 2024, but the first half of the year will be challenging due to tough comparisons and lingering headwinds.

• [00:53:59] Derik De Bruin at Bank of America asked about the company’s capital deployment strategy, including M&A and share buybacks. Mike McMullen CEO answered that the company is still committed to its balanced capital allocation strategy, which includes M&A and share buybacks. The company will be disciplined in its approach to M&A, and will not overpay for any assets.

• [00:55:38] Derik De Bruin at Bank of America enquired about orders in chromatography. Robert McMahon CFO replied that the order book was down, largely a function of China, but they were down year-on-year.