(The following statement was released by the rating agency)
CHICAGO, June 18 (Fitch) Fitch Ratings has assigned a 'BBB+'
rating to Agilent
Technologies, Inc. (Agilent) (NYSE: A) senior note offering. The
KEY RATING DRIVERS
The ratings and Positive Outlook reflect Agilent's strengthening
profile due to ongoing revenue diversification. As a result,
mid-cycle annual free cash flow (FCF) approaching $1 billion.
The ratings and
Outlook also reflect Agilent's conservative financial policies.
Fitch expects flat revenue growth in fiscal 2013 with solid
demand and revenues from the 2012 Dako acquisition offsetting
government spending, European recession, and more volatile
patterns. Fitch expects emerging markets and increasing
recurring revenues to
fuel mid-single-digit revenue growth beyond the near term.
Solid profitability from productivity initiatives should drive
nearly $1 billion
of FCF for fiscal 2013. Agilent's reduction in flexible
of manufacturing facilities and streamlining order fulfillment
will enable the
company to maintain operating margins near current levels.
Fitch expects Agilent will maintain global cash levels at more
than $1 billion
and manage total leverage (total debt to operating EBITDA) below
Nonetheless, share repurchase activity will likely increase. The
incorporates some headroom for debt-financed domestic
subsequent FCF used to bring total leverage back below 2x.
The Dako acquisition further diversified Agilent's revenue
strengthens the company's capabilities and customer reach in
markets. Dako also expands Agilent's recurring revenues to 30%
from 25% of
total. Future acquisitions are likely to be smaller in size,
outside the U.S.,
and focused on bio-analytical markets.
Agilent's ongoing focus on higher growth bio-analytical markets
reduce the company's still significant exposure to the more
Measurement (EM) segment. Fitch expects EM to represent less
than 45% of total
revenues in fiscal 2013, down from nearly 55% five years ago.
Fitch believes Agilent's commitment to high levels of research
(R&D) investment support the company's technology leadership and
rates of its significant installed base. R&D spending should
remain near 10% of
revenues, down slightly from historical levels but higher than
Fitch believes positive rating actions could result from
consistent annual FCF
of $1 billion, from share gains resulting in higher than
growth, or solid execution of cost reduction initiatives driving
Negative rating actions could occur if there is:
--Negative organic revenue growth or sustained operating profit
compression in EM, likely due to reduced competitiveness or
penetration in communications markets;
--Reduced gross profit margin in the company's bio-analytical
product commoditization or less robust growth within developing
--Material borrowing to support share buybacks.
Fitch expects credit protection measures will remain near
current levels, driven
by Fitch's expectations that profitability will remain near
current levels over
the intermediate term and that Agilent will refinance upcoming
Fitch estimates total leverage was approximately 1.6x for the
latest 12 months
(LTM) ended April 30, 2013 and should remain below 2x over the
term. Interest coverage (operating EBITDA to gross interest
expense) was nearly
13x for the LTM ended April 30, 2013 and should remain in excess
The ratings are supported by:
--Leading market positions in faster growing and more stable
chemical analysis, and diagnostics and genomics markets;
--Global footprint and increasing end-market, customer, and
--Conservative financial policies with sufficient overall
liquidity, as well as
expectations for lower but still solid annual FCF in a downturn.
Ratings concerns include:
--Mature growth rates and trends toward reduced testing within
electronic measurement markets;
--Substantial R&D requirements to maintain technology
--Potential for higher debt levels over the longer term to
spending, due to anticipated overseas cash build.
As of April 30, 2013, Fitch believes Agilent's liquidity was
solid and supported
--Approximately $2.5 billion of cash and cash equivalents,
billion of which was located overseas;
--An undrawn $400 million senior unsecured RCF expiring Oct. 20,
Agilent's liquidity is also supported by expectations for
mid-cycle annual FCF
approaching $1 billion.
Total debt was approximately $2.4 billion as of Jan. 31, 2013
and consisted of:
--$250 million of 2.5% senior notes due Jul. 15, 2013;
--$500 million of 5.5% senior notes due Sep. 14, 2015;
--$600 million of 6.5% senior notes due Nov. 1, 2017;
--$500 million of 5% senior notes due Jul. 15, 2020;
--$400 million of 3.2% senior notes due Oct. 1, 2022.
Fitch Ratings, Inc.
70 West Madison St.
Chicago, IL 60602
Jason Paraschac, CFA
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Evaluating Corporate Governance' (Dec. 12, 2012);
--'Cash Flow Measures in Corporate Analysis - Amended' (Aug. 9,
Applicable Criteria and Related Research:
Corporate Rating Methodology
Evaluating Corporate Governance
Cash Flow Measures in Corporate Analysis
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