Patrick Donnelly: Bob, maybe one for you first. Just in terms of the EPS guide. It looks like you guys got an additional $20 million on the kind of net interest other income. Can you just kind of flag if that’s rolling through, did that core earnings number move a little lower? Is any moving pieces there? And then secondarily, just on the margin piece, you guys have that cost savings plan. Can you just talk about how that paces as the year goes, would be helpful.
Robert McMahon: Yes. Thanks, Patrick. Great question. And what I would say is a couple of things. We are on track to have more interest income than what we anticipated at the beginning of the year that $20 million and some of that in the first quarter as well and that’s really a result of actually having better-than-expected cash flow in the first quarter and great work by the treasury team. I would say that the savings — we’re on track for the savings targets for the full year. And as I think about the year, it’s still very early in the year and this provides us what I would say is more confidence in the guide.
Patrick Donnelly: And then, maybe just on kind of the book-to-bill. How are you guys thinking about — I think last quarter, you said the book-to-bill for the year would be above 1 but you’d have quarters kind of in and out on the instrument side which obviously we’re seeing this quarter. How are you thinking about just the order trends and the book-to-bill trends on the instrument side as we work our way through the year given what you’re seeing today?
Robert McMahon: Yes, no change to what we said back in November. Q1 is a proof point for what we said.
Operator: Your next question comes from the line of Dan Brennan with TD Cowen.
Daniel Brennan: Maybe just going to beat the dead horse but just for the instruments, did you guys say — I know in the Q, you usually put out what the instrument number actually was. So what did actually instruments do in the quarter? And then given how much easier comps go as we get through the year? Can you just kind of give us a sense of pacing like what should we expect on Q2 in instruments and then we can kind of have at the back half of the year?
Mike McMullen: I know the team did a calculation on that because LSAG was down 11% but that includes our consumables business which was up.
Robert McMahon: Yes, I would say we typically don’t give all that information but it was down — we were down 11%. It was down, puts 20%, in the quarter but that was better than expected, offset by 6% growth in our consumables business. If we look at the LSAG thinking for Q2, it’s down low teens. So — and a lot of that has to do with some of the timing associated with that $15 million shift. That’s almost all capital equipment from Q1 — from Q2 back into Q1. So if you look at it, it is in line with where we expect it to be.
Mike McMullen: And then, we go into more favorable compares in Q3 and Q4.
Robert McMahon: Correct, correct.
Daniel Brennan: Got it. Okay. And then I know there’s been a handful of questions running on China. But can you just — would you mind spending a bit more color on kind of what maybe by segment, pharma, applied? Any color you can give us kind of what you’re seeing within the different businesses in China? And is down mid-single still the expectation for China for the full year? Or is there a chance you can kind of see some upside for that number.
Mike McMullen: I think we’ve have raised it up a bit. It’s still down…
Robert McMahon: Yes, yes. I think we’re cautiously optimistic there. I’d say it’s still within a range that we had before, so I don’t want to call an inflection. But if you looked at the markets we were down that 9% was roughly down 20%-ish [ph] in pharma. So that continues to be the area of really around the globe but China is no different. The great thing is many of the other markets performed much better. So even when you think about like academia and government, that grew, so did our chem and advanced material business now grew very low single digits. And then our forensics in environmental was down low single digits. So you’re actually starting to see the continued stabilization and then you’ll get into very much easier compares in the back half of the year in China because that down 22% was down compared to up 12% last year.
We had another strong compare in Q2 and then we actually started seeing the pretty significant declines year-on-year. And so there’s reasons to be optimistic about that continued stabilization that Mike talked about but we’re not ready yet to call an inflection. But when it happens, we’ll take it.
Mike McMullen: And Padraig, I know you want to jump in this as well.
Padraig McDonnell: Yes. And I think what we see is as also consumables and services continue to outperform expectations in China, so that’s kind of we expect that to continue.
Mike McMullen: Yes, I think the story is a great. I think the story really was in pharma, Q1, the instrument and the CapEx side of things. But we’re pleased with the start there.
Operator: Your next question comes from the line of Catherine Schulte with Baird.
Catherine Schulte: Maybe first, when pharma was down 12% in the quarter. I think you said biopharma was up 2% ex China. What was small molecule performance ex China. And maybe the outlook for biopharma versus a small molecule for the rest of the year?
Robert McMahon: So small molecule on a global basis was down roughly 18%. And it was ex China, it was down 20% and down roughly 14% for China. So pretty consistent across the globe. I would say, in China, the big area in China that has been impacted is on the small molecule side, where we’ll start to see better comps going forward after Q2.
Catherine Schulte: Okay. And then maybe on consumables, it’s great to see a return to growth there this quarter. Can you talk through what you saw outside of China on the consumables side?
Robert McMahon: Our consumables business was pretty consistent across the globe in terms of growth.
Mike McMullen: So I don’t know if you have anything you want to add to that on the — or we’ve seen the consumables, I think we’re really pleased to see that because it really speaks to the lab activity being robust. So anything else you want to jump in on with?
Phil Binns: Yes. Probably just one item there, Mike. I think we are seeing really good traction around our workflow development. So end-to-end solutions which obviously is also drives our services business as well. But around the consumables, the — in most of our end markets, we’ve been pretty heavily focused on developing workflows and making our customers’ lives easier and more integrated in our labs and that’s showing some really good traction and that’s reflected in solid connected attach rates in the consumable space.
Mike McMullen: Thanks, Phil. I’m really glad you close with the comments about connect rates. We talked about that relative to our services business, we’re also seeing a very strong positive trend on consumables as well which bodes well to our future in terms of recurring revenue business growth.
Operator: Your next question comes from the line of Jack Meehan with Nephron Research.
Jack Meehan: Just had a couple of follow-ups. The first one was, could you just talk about what you’re seeing in the genomics business within DGG. I know it’s still been a bit of a drag. Just when do you think that’s going to start to turn?
Mike McMullen: I think I’ll invite Bob in on this one but I think it’s been sort of a tale of two cities. When we talk about our genomics business, there’s really two pieces to it. The half of it’s in QA/QC activities for NGS workflows and we’re seeing really solid growth in the consumables on that side of things as well as you’re starting to see signs of life on the CapEx, not the current because the call churn there yet but that’s in a reasonably good shape. I think we’ve seen really in our U.S.-based genomics business, some really market challenges have been hitting us. And Bob, maybe you can elaborate on that?
Robert McMahon: That’s right. Thanks, Mike. And as you said, our NGS QC portfolio from an instrument and consumable side actually grew mid-single digits in the quarter which was very nice. The genomics chemistry side that we referenced in the prepared remarks was down. We faced some very difficult comps. We had a couple of companies that reorganized and exited some businesses. They had some lifetime buys at the end of Q1. I would expect that the performance of that to improve starting in the second half of the year.
Jack Meehan: Great. And I also wanted to ask about the academic end market. I know that’s been very stable for you guys. But just what you’re seeing in the U.S. here with the continuing resolution for the NIH, just thoughts on the durability moving forward.
Mike McMullen: Yes, Jack, thanks for noticing that. That was a real bright spot for us. We actually grew, I think, 2% in the quarter. And this is — we’ve been working on this thing for some time to really build out our portfolio and really change our market position in academia research and I think it’s starting to show up in the numbers. I think stabilization really is what we’re seeing which is the funding is there. And NIH is a relatively really small part of Agilent’s business, so really is immaterial. But we’re seeing universities have increasingly been funded through private sector. So the money is there. And even so, we saw money in China as well. So it was really a nice global story for us and we’re fairly optimistic that, that kind of stabilization can be there for us for the rest of the year.
Operator: Your next question will come from the line of Doug Schenkel with Wolfe Research.
Doug Schenkel: I want to ask a question on guidance and then a question on capital deployment.
Mike McMullen: Surely, absolutely. Go ahead, Doug.
Doug Schenkel: So for the year, on one hand, around 48% of sales is in the first half, at least that’s how you’ve guided, I believe. Yes, that’s lower than last year but it’s not outside the norm for the last several years. On the other hand, just given some math, your guidance for the first half embeds the assumption that revenue declines around 7% organically and then improves 7% to 9% positive organic in the second half. Can you could do that just as a function of the comps? Or do you actually really need to see improvement in certain geographies or certain end markets or categories? And then again, just a math question. Does guidance assume Q4 revenue kind of exiting around like $1.8 billion?
Robert McMahon: Doug, this is Bob. I’ll take that last one. We’ll tell you when we get to Q4 and what I would say but your math is — in all seriousness, your math is spot on as usual. I think one of the things that we look at is, we look at it a couple of different ways. I think the way to look at it is that first half, second half kind of looking at seasonality, that’s probably more instructive given kind of the changes in the growth rates. And when you look at it, as you noticed — as you mentioned, it is in line with our historical seasonality. And when you look at the growth rates, you’re right, we are expecting growth in the back half of the year. A lot of that is, in fact, the easier the compares. And when we actually look at — what I would ask you to take a look at also is a 2-year stack basis relative to implied Q1 and first half and second half.
And what you would see there is a much more smooth number that we also looked at as well. So as usual, you’re spot on there.
Mike McMullen: And Bob, I think that’s why we really emphasized in the script, the word stabilization because as things, as we have kind of a stabilization, we’re going to get a lift in the growth rate just by the comps as they go.
Doug Schenkel: Yes, I know there’s a lot of focus on how much improvement is necessary to get there. So if a lot of this is stability is just math that I think obviously makes people more comfortable. I know I’ve taken up a lot of air time already. Real quick. Capital deployment, the cash flow remains robust. The balance sheet is super clean. Can you just talk about your thinking right now on capital deployment and what the environment looks like right now?
Mike McMullen: Yes. I think we remain very interested in deploying capital in a balanced way which is inclusive of investing for in the business. And that speaks directly to we are interested in M&A. It’s our build and buy growth strategy. I just have to say that the funnel pipeline is more robust than I’ve seen in a number of years and nothing to obviously announce but we’re very much engaged.
Operator: Your next question comes from the line of Josh Waldman with Cleveland Research.
Josh Waldman: Yes. Just a couple on my end and maybe Bob, starting with you first, a follow-up on the guide. Can you comment a bit more on how Q2 guide moved versus the framework and the initial outlook? I assume core outlook came down a bit but just wanted to confirm the moving pieces there. And then, does the core guide reflect any changes in Q3 or Q4? Or is it really just reflecting an update on H1?
Robert McMahon: Yes, that’s a good question. It’s a little of both, Josh. So Q2 is relatively intact for what we had originally thought with the exception of that small movement of the China business, that’s roughly a point of core growth from Q1 and Q2 switching. What I would say is Q1 also had a beat into it and what we’re taking is some of that out of the second half of the year. And so the takeaway is Q2 is spot on from where we expected it to be, absent that kind of shifting the timing shift of China and then the Q2 or the rest of Q1 kind of the beat really helps us in the second half of the year.
Josh Waldman: And then, Mike, can you talk about how visibility in the business as you’ve covered the last three months? Has there been any improvement in the ability of the funnel to predict near-term sales or still seeing an elongation of kind of opportunity and quoting, flipping to orders. Curious, total company and then also what you’re seeing in pharma specifically.
Mike McMullen: Yes. No, I’ll have Padraig jump in as well. I think the business remains the same. I don’t think it’s any better or any worse. And so I think it’s the normal kind of cadence of business. And that’s why, as Bob just mentioned, when we’re talking about the second half, we bank some of the beat to put again the second half because we’ve yet to see the second half materialize in terms of the order book which is typical at this time of the year.
