Agilent Technologies Inc. 2026 Q3 Earnings Call

You may begin. Thank you and welcome everyone to Agilent's conference call for the third quarter of fiscal year 2026.

With me on the line are CEO, Padraig McDonnell, and CFO, Adam Elinoff. Joining for the Q&A will be Simon May, President of the Life Sciences and Diagnostics Markets Group, Angelika 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 third 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 investor.agilent.com. Today's comments will refer to non-GAAP financial measures. Non-GAAP measures are supplemental and should not be considered a substitute for GAAP results. You'll find the most directly comparable GAAP financial metrics and reconciliations in the press release and 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 or organic constant currency basis. All references to profitability metrics are on a non-GAAP basis. Core or organic constant currency 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. During this call, we will 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. Agilent assumes no obligation to update them. Please refer to the company's recent SEC filings for a more detailed description of the risks and other factors that would cause our performance to differ from these forward-looking statements.

I'd like to turn the call over to Padraig.

Thanks, Tejas, and welcome everyone. We delivered an excellent third quarter with strong performance in both the top and bottom lines. Our results clearly demonstrate the sustained momentum unlocked by our exceptional commercial and operational execution and the Ignite Operating System against the backdrop of steadily improving end markets. For the third quarter, Agilent reported $1.88 billion in revenue, growing 7.3% on a core basis and exceeding the high end of our guidance by 140 basis points. Our operating margin of 27.2%, excluding the net benefit from tariff refunds, was 80 basis points ahead of our implied guidance of 26.4%, providing further evidence of the strong operating leverage and execution discipline embedded in the business. Including the net benefit from tariff refunds of $20 million, our operating margin was 28.3%.

Our earnings per share of $1.56 on an ex refund basis were $0.06 above the high end of our guidance range of $1.48 to $1.50, representing robust year-over-year growth of 14%. Including the net benefit from tariff refunds, our earnings per share were $1.62. Make no mistake, our extraordinary Q3 results are no accident, nor are they purely a function of improving end markets. Rather, they reflect the momentum created by our four key elements of our strategy. First, we continue to build on our unparalleled customer intimacy and trust. This differentiation is increasingly translating into share gains across key workflows and geographies. Second, that customer intimacy informs our innovation engine, resulting in distinct solutions that drive success for our customers and Agilent. Third, at the core of our success is a deep and increasingly capable bench of talent.

As our organizational capabilities continue to strengthen, we are improving speed, agility, and operational discipline, resulting in a step function improvement in execution. Finally, the compounding benefits of Ignite are now increasingly visible. I want to take a moment to reflect on our transformation journey. We announced our Ignite transformation in late 2024. Our earliest efforts emphasized strategic pricing, procurement, and tariff mitigation. Since then, Ignite has broadened and now underpins every aspect of how Agilent operates. This includes reinvigorating our innovation engine, strengthening our supply chain agility and operational discipline, and streamlining our structure and unlocking greater value through our integrated business model, which drives meaningful cross-selling of our LC and GC solutions across our pharma and applied customers. The enterprise capabilities we have developed with Ignite across commercial execution, innovation, manufacturing, supply chain, and digital have strengthened the business and created inherent resiliency throughout the organization.

All this positions us to deliver superior performance and navigate uncertainty in any environment. Before providing specifics on our third quarter results, I want to talk about Agilent's key growth drivers going forward. These include stronger commercial execution against improving conditions across our largest end markets, renewed momentum in China, innovation, the instrument replacement cycle, pharma and semiconductor reshoring, and Ignite's compounding impact on our results. Starting with our end markets, our largest end markets continue to improve, and our teams are converting that improvement into results through strong commercial execution, while a differentiated portfolio and best-in-class service drive share gain. Pharma grew 12% in the quarter, well ahead of our high single-digit expectations and growth rates reported by our peers.

As our large customers remain on a sound footing, we are starting to see stronger funding environment translating to improved spending from our small and mid-cap biotech customers, which is reflected in our excellent results. Our Advanced Therapeutics division, which includes NASD and BioVectra specialty CDMO operations, grew nearly 30%. ATD's performance reflect strong demand and disciplined execution as we expand our capacity and prepare for the next phase of our growth. Like pharma, we saw particularly strong demand across our Applied Markets portfolio. Chemicals and advanced materials grew 7%, ahead of our mid-single digit guide. Growth was led by an outstanding performance in advanced materials, despite a low double-digit year-over-year compare. Our leadership across the Applied Markets and the strength of our install base positions us well to benefit from semiconductor investment and a broader AI infrastructure build out over the near and medium term.

Diagnostics and clinical grew at the high end of the mid-single digit range, slightly below our high single-digit guide. However, underlying orders grew at a robust double-digit rate, giving us confidence in the durability of the business and its growth outlook. The improving end market picture was complemented by a notable step-up in China, which grew 9%, well ahead of our flat expectation. Our long-standing presence and deep customer relationships in the country, along with localized manufacturing, go-to-market capabilities, and exposure to attractive end markets underpinned our exceptional performance in the quarter. Importantly, we delivered this performance despite minimal China stimulus benefit and see the momentum continuing into year-end. The upside was driven by strong execution with commercial accounts, especially within the pharma and food end markets. We saw competitive wins in China that highlight the strength of our differentiated portfolio and services offering.

Those wins include two leading CXOs and an enterprise service contract win with a marquee local pharma customer. In Applied, a leading commercial testing lab chose us over the competition to serve their increasing PFAS testing needs. As we look ahead, we are well positioned to benefit from three emerging growth drivers in the region. First, biotech innovation in China, combined with investment from global pharma companies, is creating meaningful demand for our CXO customers. Our customer support and service infrastructure continues to differentiate Agilent, and our unparalleled customer intimacy positions us as a trusted strategic partner for these CXOs. Second, we are seeing an inflection in contract testing laboratory volumes, particularly testing activity related to food safety and materials exports. Demand for our differentiated PFAS testing solutions is strong.

Our complete end-to-end workflows from sample preparation and analytical instrumentation through application and regulatory expertise is enabling us to win against the competition. Finally, the AI capital investment build-out in China plays directly into our strengths in GC-MS, and spectroscopy. The recently launched 9500 Triple Quad ICP-MS is off to a strong start in the region, with semiconductor supply chain customers already contributing to a robust order funnel. Last quarter, we announced the launch of our China Innovation Center and are now in the early phase of lab automation software co-development with a leading commercial testing customer ahead of building a fully automated lab. We are also partnering with a cutting-edge local biotech company that is leveraging AI to automate drug discovery workflows on our instrument platforms.

These partnerships are generating positive momentum for us in the region while strengthening our R&D capabilities in AI and automation to better support our customers. Even as instruments such as the 1290 Infinity III LC continue to drive our performance, we're looking forward to contributions from the next wave of innovations that will strengthen our install base and support recurring consumables and service pull-through. Our recent product launches at the ASMS conference in June are all off to a strong start. The 9500 ICP-MS, the flagship GC systems, and our Altura column family are tracking ahead of plan simultaneously. This shows our innovation engine working across the portfolio, reducing our reliance on any single star product. We are seeing strong demand across all regions for the 9500 and already have exceeded our ramp to volume target despite beginning shipments in late July. The funnel now exceeds $60 million.