Agilent’s expectations go from bad to worse

(Telephony) A drastic drop in new orders and $500 million worth of cancelled orders has Agilent Technologies warning of “very challenging” times ahead, despite a 10% increase in revenue posted by the company in the second quarter.

“At the end of Q1, when asked how I felt about this downturn, I said I thought the one in Asia in 1998 was worse. My view now is very different. This was the biggest, sharpest, most severe plunge I’ve ever seen,” said Bob Walker, executive vice president and chief financial officer at Agilent.

At $1.8 billion in orders, the company saw a 37% drop from the previous quarter and a 41% decline from the same quarter last year. The company expects to post a loss next quarter with revenue as low as $2 billion.

This could drive the stock down 20 to 30 cents per share, in the third quarter, said Ned Barnholt, Agilent’s president and CEO. This range would include the impact of restructuring charges of about 5 cents per share that the company expects to take in the third quarter.

The biggest decline in orders came from the U.S. market, which dropped 46%. European and Asian orders fell 35% in U.S. currency.

The company has taken action over the last two quarters to help offset the loss in revenue, such as a 10% payroll reduction that is expected to save $70 million per quarter, a 50% cut in contract work and temporary help, and implementation of short-term manufacturing closures and other time-off programs.

Agilent will continue to look for cost-cutting measures. “We're taking advantage of the soft business environment to accelerate some of our restructuring plans, which will result in additional cost savings going forward," Barnholt said.

Like Walker, Barnholt has also revised his earlier opinion on the turnaround in the business climate. “Frankly, the speed and severity of the slowdown are unlike anything I've seen in 34 years in the business,” he said.

The company is expressing guarded optimism for the end of the year. "While accurate predictions are extremely difficult, we feel we are at or near bottom and may see an improvement in orders later in the second half," said Barnholt. "We hope to return to modest profitability in the fourth quarter of our fiscal year, which ends Oct. 31, depending on the rate of order improvement."