Interview: Agilent C.E.O.
>> welcome back, everybody. shares of agilent have been down as much as 7% this morning. this is the company that’s the biggest maker of scientific testing equipment. they said second quarter profits went up 21%, but the forecast for the third quarter sales was lower than analysts were forecasting. joining us now by phone is agilent c.e.o. bill sullivan. mr. sullivan thanks for being with us this morning.
>> it’s a pleasure.
>> we have to start off obviously talking and addressing the stock declines we’re seeing this morning at 7.5% drop. why do you think that that’s happening?
>> well, i’m not sure. again, it’s hard to react to momentary movements in the stock but agilent had a very solid q-2. we delivered revenue and earnings per share at the high end of expectations. the guidance we have given for the second half of the year is consistent with the outlook we provided when we announced the restructuring of the company august 15 of last year.
>> i think part of the reason why the stock may be down is some analysts were concerned about the next quarter. they saw some signs of moderating growth in certain businesses and in certain areas. is that true?
>> well, based on the performance we delivered in q2, our order growth of 21% from last year was really good. we have good strong backlog going into q-3, and we are confident of the guidance we provided.
>> nonetheless, the third quarter sales numbers that you talked about, they are less than what the analysts were expect were analyst expectations just unreasonably high?
>> i believe the guidance we have given and again we have been very cheer clear, is consistent with the guidance that the analysts have taken. q3 tends to be our seasonally weakest quarter for revenue and q4 tends to be highest we reflected that in guidance.
>> doug cliggott of racepoint, mr. sullivan. could you talk about what you are seeing either across geographyes or industries and any surprises in strength or lack thereof from client orders? >> overall, i think the business is okay. i mean, the business is robust, and in terms of investment and measurement equipment around the world. our business in china, and in india continues to grow, and high double digits. we’re very pleased with that. we’re pleased with the increased business in japan, as they economy turns around. likewise as we mentioned in the conference call, our aerospace and defense business and north america had a strong quarter, and europe continues to do well. if there’s anything that we have some concern, and has been well documented in the industry is big u.s. pharmaceutical industry is going through a process of adjustment, and you know, there could be weakness on our analytical equipment to big pharma.
>> and how do you mitigate against that, that potential weakness?
>> well, we’re very excited with our whole new product launch in our bioanalytical segment in q2. not only have we upgraded our gas and liquid cloe matography lines we have entered into the market for high performance mass spec. this is an instrument that goes right into biotech and pharma. the market acceptance has been quite good. we’re excited in our communities to grow and take market share even in a soft market .
>> in terms of the balance sheet how much of the 4.5 billion stock acquisitions have been -- i mean―stock repurchase plan have you completed so far? >> we have completed over 80% of our stock repurchase plan, and again, assuming normal market conditions, we will complete the 4.5 billion stock repurchase by the end of the fiscal year. >> and then what? do you reconsider opening up another man or do you possibly reconsider a dividend. i know that you have told thaws you would consider a dividend. where are the considerations now? >> our position really hasn’t changed. we have three options. one is it to continue to invest in the business, look for opportunities to grow, and create shareholder value. the second opportunity is to continue stock repurchase plans, and the third opportunity is to declare a stock dividend. of course, we’ll need to review the options as we go into fiscal year 2007. all right
>> in terms of overall trends, what are you seeing. you mentioned that you are expecting a weakness in the u.s. pharmaceutical industry. what is the probabilities of that?
>> i think there’s no doubt right now that the u.s. pharmaceutical industry is looking at ways to improve efficiency, productivity, and so activity going on in big pharma is going on as we speak. and as i had mentioned, though, we have a very strong new product portfolio. we have also made investments in bioinfomatics, the software to help big pharmas to manage their businesses. we’re okay.
>> mr. sullivan, thank you very much for your time. we take a quick break.
点击播报
Listen Open Exchange--Suzy (fast)
hello, everybody, from world headquarters in new york. i’m suzy assaad. you’re watching “open exchange.” thank you for being with us today. top stories at this hour, the new data that shows u.s. inflation staying in check. producer prices crept up just about .10% for core prices, and it suggests that the fed may pause in june. also, housing construction slowed for a third straight month. the pace of starts slipped to the lowest annual rate in a year-and-a-half. in earnings news, wal-mart and home depot topping analyst estimates last quarter. wal-mart benefited from the sharpest sales growth in two years. the company said high gas prices could hurt results for this quarter. home depot increased their share of the appliance market and expanded into the business of supply and contractors, and that helped them in the last quarter. you can see, home depot shares are down on the expectations and the concerns that the consumer and housing will slow down in the next several quarters while wal-mart is up almost 2%. let’s get a quick comment from our featured guest this morning, doug cliggott, on these markets . we start off talking about housing starts that came out this morning. much lower than expected, and then another month of lower than expected numbers. what do you think of that?
>> i think, suzy, we had a disconnect at the end of last year and the beginning of this year where we saw demand for housing slow down. new home sales have slowed, mortgage originations are down very sharply, and at first, builders just kept accelerating their rate of building through the winter, and now i think we’re getting a pretty big unwanted inventory out there, and so we’re seeing, i think you would call it a violent adjustment now as they try to slow the pace of building, more in line with the rate of demand they’re seeing. >> this is where everyone starts to get concerned that you will have an actual decrease in prices, right? how substantial do you think it’s going to be?
>> i don’t think anyone knows, suzy. it would be great to know, but we have never seen the kind of run in housing that has occurred in the past three or four years. it hit really, an unprecedented share of the total economy. you have to go back to the 1950’s after the second world war when we created the suburbs in america to come anywhere close to the boom in housing we have had. what happens on the other side of this―i think truly it’s impossible to tell.
>> you did say that you thought it was a violent correction. these numbers―give us an idea of why that―i mean, that’s a very strong word to use associated with this market .
>> well, i think the idea being you have seen a build in housing a build in starts continuing to climb even as demand softened. now, so we’re going to see a strong decline in starts, and the uncertainty really is not will starts come down to the pace of sales. of course, they will. the real uncertainty is what happens to demand, what happens to sales over the next six, nine 12 months, and that’s where i think no one really could give you an accurate answer. >> you’re shorting the homebuilding stocks?
>> we are, yes.
>> we’re going to talk about that a lot more over the next hour, but let’s just get a check on the markets today. they are really lackluster at this point with the dow jones industrial average up only 12 points, the s&p and nasdaq are a little changed. the treasury mar markets are seeing a little more buying because of the data that came out today indicating that the fed may be closer to pausing in their june meeting. yield is at 5.12% in the ten-year and the two-year note is yielding at 4.95%. the dollar is declining because of the data and again because of the expectations that the fed may halt. the dollar/yen is down to 110. euro is 1.28 and british pound at 1.88.5. oil markets , prices are lower for two days in a row. we’re below $70 a barrel. we are seeing a decline of .4% in the stock market at this hour. for little more on today’s rally in the bonds, we have john brady at the chicago merchantile exchange. john, we’re seeing certainly a bid coming into the market . tell us how strong it is and who is buying?
>> i think it’s important, suzy, to remember that there is a tremendous overhang of speculative short positions compared to the speculative long positions in the treasury market as registered by the commissioners of traders data. that having been said, we see the markets have a good short base. we have seen short covering here this morning. we probably have further to go. there are shorts that want to maintain the positions ahead of tomorrow’s c.p.i. data. of course, there are fed speakers in the next few days and we will be watching those speeches carefully. i will suggest it appears that the real time demand data, whether it’s housing starts or retail sales from last week, and the market continues to soften and the idea is eventually going to be what will the fed do? will the fed stop and perhaps skip more than one meeting in order to keep demand from falling off a cliff, or will they continue to tighten with the idea of fighting inflation? there’s an interesting argument that seems to be sort of becoming more intense and swelling as we enter summertime trading.
>> john, it’s doug cliggott. a question, with the fed fund’s rate at 5% now, doesn’t that really put a floor under how far down ten-year yields can move?
>> it does, doug. actually, what it does it puts a floor down in terms of what the entire term structure can do. you see he excellent institutional buying of two-year treasury notes against 5%. with funding at 5%, you see the notes trading closer to 4.95, 4.94% this morning. to reiterate what i may have seed earlier, that seems to be a tremendous short base in the market with ten-year treasury notes at 5.12% and 5.12125 and we compare this to the data in the next two days to the massive numbers and i think the path of the least resistance may be higher prices and lower yields.
>> john, thank you very much for being with us today.
>> thank you.
>> john brady at the chicago merchantile exchange. he is talking about not pausing for just one meeting. he is is talking about pausing possibly for two meetings?
>> right. i―there’s such a mixed set of data now, suzy. i mean, clearly, if all of the • if all there were were the housing data, the fed may not have raised rates last time, but there’s a lot of conflicting information with what’s going on in the commodity markets like everyone is speaking about, and i think another real frustration has to be for our policymakers the fact that so much of existing treasury stock is ownedded by people outside the u.s.. i don’t think the direction of interest rates in the united states is completely in our own hands right now.
>> nonetheless, though, i mean, you bring up the commodity markets and the sales, isn’t that something that the fed is actually happy to see, that the prices are finally starting to pull back. isn’t that going in the direction they intend to go in terms of rates?
>> well, i think it depends on your time perspective, suzy. they came down last week, but you know, let’s draw a chart for a year or two years or three years. you can hardly see that little downtick.
>> it’s just a blip at 100% and 200% returns. in terms of equities, though, do you think that part of the reason we have seen an equities gaining over this quarter was -- has been earnings. earnings have done very well. we have seen very good levels of earnings. is the earnings growth at these levels sustainable for the equity markets ?
>> we don’t think so. to us, that’s a hugely different picture than, say, three years ago when we were starting this very powerful bull market . may, 2003, expectations for earnings for the rest of 2003 and for 2004 were pretty modest, even i guess you could call them dismal. we had the fed moving aggressively during may to lower rates for 1%, then we got enormous tax cuts just before the memorial day weekend. that made those low earnings expectations just vaporize. you really had conditions for a very, very strong move as earnings beat expectations.
>> none of these conditions exist anymore?
>> not anymore. now you have the fed raising rates trying to slow us down. when we look ahead through 2007, the consensus is for combined 25% earnings growth this year, and next year. that’s an incredibly high bogey. we just don’t see those numbers being hit.
>> does that mean equities have to retreat? we have seen the dow going up almost 8% just a couple of weeks ago, will the dow have to come back from that?
>> not necessarily. it can work out at least a couple of different ways. we might be absolutely right on earnings that they’re going to miss by a lot. what that might mean is the market stays stable orrell tiffly stable for a very long period of time. alternatively, we―you could get a fairly meaningful price correction. could the market go down 10% or 15%, sure it could, but there’s -- i think you need some kind of combination of negative surprises for that. our guess is that the best bet is literally no increase, maybe a modest decline. maybe this year is virtually flat.
>> from these levels?
>> from these levels, yes.
>> okay. let’s take a break, everybody. when we come back, we’ll have more on agilent. the shares are moving lower today, after the company came out and said that the forecast disappointed some investors and analysts out there. their c.e.o., bill sullivan, will join us after this break. shares of agilent down 7% this morning.
