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Morningstar | Agilent Ends Fiscal Year on Strong Note While 2019 Outlook Seems Conservative

Agilent reported solid fourth-quarter results with 8.5% organic growth and a 190-basis- point improvement in operating margin from last year. We don't plan a change to our fair value estimate or wide-moat rating as we make a few adjustments to our model.  Despite a pension accounting change that will slightly reduce reported operating margin going forward, we believe many of the same factors that drove performance this year will continue into next fiscal year, including tailwinds from newer products such as Intuvo and Ultivo, favorable demand in customer end markets, and ongoing operating efficiency improvements. The company will also benefit from a lower tax rate of 17% in the next fiscal year. We think management's fiscal year-end outlook for 5%-5.5% organic revenue growth looks conservative, in our view, but our adjusted EPS of $3 still falls at the low end of guidance.

Agilent reported strong underlying growth across most of its markets. The pharma and biotech customer segment, Agilent’s largest customer group, grew an impressive 14% for the quarter, which continues to suggest the company is gaining market share. The environmental and forensics as well as academic and government segments also grew double digits, up 17% and 10%, respectively. Only the food and diagnostic segments reported sluggish growth. Food sales remain affected by agency restructuring in China, but this quarter's flat sales from last year is a slight improvement from the decline in sales witnessed the two previous quarters. Clinical and diagnostics segment sales from higher growth initiatives like nucleic acid solutions were offset by the persistence of pain management and pathology headwinds. We expect sales in both segments will gradually improve, with a noticeable pick up in diagnostic segment sales by 2020 as Agilent's nucleic acid manufacturing capacity expansion comes on line.