Earnings Call Transcript - A Q4 2020

Operator, Operator

Good afternoon, and welcome to the Agilent Technologies Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. And now, I'd like to introduce you to the host for today's conference, Ankur Dhingra, Vice President of Investor Relations. Sir, please go ahead.

Ankur Dhingra, Vice President of Investor Relations

Thank you, and welcome everyone to Agilent's fourth quarter and full-year conference call for fiscal year 2020. With me are Mike McMullen, Agilent's President and CEO; and Bob McMahon, Agilent's Senior Vice President and CFO. Joining in the Q&A after Bob's comments will be: Jacob Thaysen, President of Agilent's Life Sciences & Applied Markets Group; Sam Raha, President of Agilent's Diagnostics and Genomics Group; and Padraig McDonnell, President of Agilent CrossLab Group. This presentation is being webcast live. The news release, Investor presentation, and information to supplement today's discussion along with the recording of this webcast are made available on our website at investor.agilent.com. Today's comments by Mike and Bob will refer to non-GAAP financial measures. You will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year, and references to revenue growth are on a core basis. Core revenue growth excludes the impact of currency, and the acquisitions and divestitures completed within the past 12 months. Guidance is based on exchange rates as of October 31, 2020. We will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties, and are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors. Also, as announced, we will hold our virtual investor day in a few weeks, on December 9. The event will include presentations from our CEO, CFO, and the three group Presidents, followed by a Q&A. We look forward to having you join us on December 9. And now, I would like to turn the call over to Mike.

Mike McMullen, President and CEO

Thanks, Ankur, and thanks to everyone for joining us on our call today. Today, I want to get straight to our quarterly results, because they tell a very compelling story. The Agilent team delivered a very strong close to 2020. We posted revenues of $1.48 billion during the quarter. Revenues are up 8% on a reported basis, and up 6% core. Operating margins are a healthy 24.9%. EPS of $0.98 is up 10% year-over-year. These numbers tell the story of a strong resilient company that's built for continued growth. Our better-than-expected results are due to the strength of our core business, along with signs of recovery in our end markets. Geographically, China continues to lead the way with double-digit growth. From an end-market view, both our pharmaceutical and food businesses grew double-digits. In addition, our chemical and energy business grew after two quarters of declines, exceeding our expectations. We also saw a rebound in U.S. sales during the quarter. Overall, COVID-19 tailwinds contributed just over two points of core growth. Achieving these results in the face of a global pandemic is a tribute to our team and the company we've built over the last five years. I couldn't be more pleased with the way the Agilent team has performed over the last quarter and throughout 2020. We have again proven our ability to work together and step up to meet any challenge that comes our way. During the quarter, all three of our business groups grew high single-digits on a reported basis. Our Life Sciences and Applied Markets Group generated $671 million in revenue, up 8% on a reported basis, and up 4% core. LSAG growth is broad-based. The cell analysis and mass spec businesses both grew at double-digit rates. In terms of end markets, chemical and energy returned to growth, food grew double-digits, and pharma high single-digits. LSAG remains extremely well-positioned and is outperforming the market. The Agilent CrossLab Group came in with revenues at $518 million. This is up a reported 9% and up 7% core. ACG's growth is also broad-based across end markets and geographies. Our focus on on-demand service is paying off as activities in our customers' labs continue to increase. The ACG team continues to build on its already deep connections with our customers, helping them operate through the pandemic, and continue to drive improved efficiencies in lab operations. In the Diagnostics and Genomics Group, revenues were $294 million, up 9% reported, and up 7% core. Growth was broad-based, with NASD oligo manufacturing revenues up roughly 40%. The Genomics and pathology businesses continue to improve during the quarter. I'm also very proud of our NASD team for successfully ramping production at our new Frederick site this year. We have built a very strong position in this attractive market, with excellent long-term prospects for high growth. Let's now shift gears and look at our full-year fiscal 2020 results. Despite the disruption, uncertainty, and economic turmoil dealing with a global pandemic, the Agilent team delivered solid results. We generated $5.34 billion in revenue, up 3% on a reported basis and up nearly 1% core. To put this in perspective, it's helpful to recall the progression of our growth. In Q1, we delivered 2% core growth, as you saw the first impact of COVID-19 in our business in China. Both Q2 and Q3 declined low single-digits as the pandemic spread across the globe and governments instituted broad shutdowns. With 6% core growth, 8% reported in Q4, we're seeing business and economies start to recover. As a result, we are clearly exiting 2020 with solid momentum. Our recurring types of businesses, represented by ACG and DGG proved resilient, growing low to mid single-digits for the year. In a very tough CapEx market, our LSAG instrument business declined only 2% for the year, and returned to growth in the final quarter. China led the way for our recovery with accelerating growth as the year progressed. In our end markets, pharma remained the most resilient, and food markets recovered most quickly. Full-year earnings per share grew 5% during fiscal 2020, to $3.28. The full-year operating margin of 23.5% is up 20 basis points over fiscal 2019. As we head into 2021 we do so with tremendous advantage. Our diverse industry-leading product portfolio has never been stronger. Our building and buying growth strategy, with the focus of high growth markets continues to deliver. Our ability to respond quickly to rapidly changing conditions is also serving us well. The way our sales and service teams have been able to quickly pivot to meet customer requirements during the pandemic has been nothing short of remarkable. You know, last year this time, I used this call to remind you of the Agilent shareholder value creation model. Our approach is focused on delivering above-market growth while expanding operating margin, along with a balanced deployment of capital. We prioritized the plan of our capital both internally and externally on additional growth. A few proof points on our growth-oriented capital deployment strategy. A year ago, we spoke about recently closing the BioTek acquisition and the promise of growth that BioTek represented. Today, BioTek is no longer a promise, but a driver of growth. In total, the cell analysis business generated more than $300 million in revenue for us during the year, with double-digit growth in Q4, and continued strong growth prospects. Similar to last year, I was talking about ramping up our new Frederick site facility, a $185 million capital investment. In addition to successfully ramping Frederick as we planned, we did so with an expanding book of business. We also recently announced an additional $150 million investment to add future manufacturing capacity. We are aggressively adding capacity to capture future growth opportunities in this high-growth market. Even in the face of a pandemic, we stayed true to our build and buy strategy. We have clearly seen the advantages of our approach. I'm confident our strategy will continue to produce strong results for us. The strength of our team and resilience of our business model has served us well, and as you can see from the numbers, our growth strategy is producing outstanding results for our customers, employees, and shareholders. While uncertainty remains as we begin fiscal 2021, we're operating from a position of strength. Because of this, we're cautiously optimistic about the future. We have built and will sustain our track record of delivering results, and working as a one Agilent team on behalf of our customers and shareholders. As I noted earlier, I couldn't be more pleased with the results the Agilent team delivered in the fourth quarter and throughout the year. Thank you for being on the call today, and I look forward to your questions. I will now hand the call off to Bob. Bob, you're up.

Bob McMahon, Senior Vice President and CFO

Thanks, Mike, and good afternoon, everyone. In my remarks today, I'll provide some additional revenue detail, and take you through the fourth quarter income statement, and some other key financial metrics. I'll then finish up with our outlook for 2021, and the first quarter. Unless otherwise noted, my remarks will focus on non-GAAP results. We are very pleased with our fourth-quarter results as we saw strong growth exceeding our expectations, especially considering the ongoing challenges associated with COVID-19. For the quarter, revenue was $1.48 billion, reflecting core revenue growth of 5.6%. Reported growth was stronger, at 8.5%, currency contributed 1.7%, while M&A added 1.2 points of growth. From an end market perspective, pharma, our largest market, showed strength across all regions, and delivered 12% growth in the quarter. Both small and large molecule businesses grew, with large molecule posting strong double-digit growth. We continue to invest and build capabilities in faster growth biopharma markets, and offer leading solutions across both small and large molecule applications. The food market also experienced double-digit growth during the quarter, posting a 16% increase in revenue. While our growth in the food business was broad-based, China led the way. And as Mike noted earlier, our chemical and energy market exceeded our expectations growing 3% after two quarters of double-digit declines. Well, one quarter does not a trend make, we are certainly pleased with this result, and the growth came primarily from the chemical and materials segment. Diagnostics and clinical revenue grew 1% during Q4 led by recovery in the U.S. and Europe. We continue to see recovery in non-COVID-19 testing as expected, although the levels are still slightly below pre-COVID levels. Academia and government was flat to last year, continuing the steady improvement in this market, and revenue in the environmental and forensics market declined mid-single digits against a strong comparison to last year. On a geographic basis, all regions returned to growth. China continues to lead our results with broad-based growth across most end markets. For the quarter, China finished with 13% growth and ended the full-year up 7%, just a great result from our team in China. The Americas delivered a strong performance during the quarter, growing 5% with results driven by large pharma food and chemical and energy, and in Europe, we grew 2% as we saw lab activity improve sequentially benefiting from our on-demand service business in ACG, as well as from a rebound in pathology and genomics as elective procedures and screening started to resume. However, while improving CapEx demand still lags our servicing consumables business. Now turning to the rest of the P&L, fourth-quarter gross margin was 55%. This was down 150 basis points year-over-year, primarily due to a shift in revenue mix and an unfavorable impact of FX on margin. In terms of operating margin, our fourth-quarter margin was 24.9%. This is down 20 basis points from Q4 of last year. As we made some incremental growth-focused investments in marketing and R&D, which we expect to benefit us in the coming year. The quarter also capped off with full-year operating margin of 23.5%, an increase of 20 basis points over fiscal 2019. Now wrapping up the income statement, our non-GAAP EPS for the quarter came in at $0.98, up 10% versus last year. Our full-year earnings per share of $3.28 increased 5%. In addition, our operating cash flow continues to be strong. In Q4, we had operating cash flow of $377 million, more than $60 million over last year, and in Q4, we continued our balanced capital approach to repurchasing $2.48 million shares for $250 million. For the year, we repurchased just over 5.2 million shares for $469 million, and ended the fiscal year in a strong financial position with $1.4 billion in cash and just under $2.4 billion in debt; all-in-all, a very good end to the year. Now let's move on to our outlook for the 2021 fiscal year. We and our customers have been dealing with COVID-19 for nearly a full-year and are seeing our end markets recover. Visibility into the business cadence is improving, and as a result, we're initiating guidance for 2021. There is still a greater than usual level of uncertainty in the marketplace across most regions and so while we're providing guidance, we're doing so with a wider range than we have provided historically. It is with this perspective that we're taking a positive, but prudent view of Q1 in the coming year. For the full-year, we're expecting revenue to range between $5.6 billion and $5.7 billion, representing reported growth of 5% to 7% in core growth of 4% to 6%. This range takes into account the steady macro environment we're seeing. It does not contemplate any business disruptions caused by extended shutdowns like we saw in the first half of this year. In addition, we're expecting all three of our businesses to grow led by DGG. We expect DGG to grow high single-digits with the continued contribution of NASD ramp and the recovery in cancer diagnostics. We believe ACG will return to its historical high single-digit growth, while LSAG is expected to grow low to mid single-digits. We expect operating margin expansion of 50 to 70 basis points for the year, as we absorb the build-out costs of the second line and our Frederick Colorado NASD site, and then helping you build out your models, we're planning for a tax rate of 14.75%, which is based on current tax policies, and 309 million of fully diluted shares outstanding, and this includes only anti-dilutive share buybacks. All this translates to a fiscal year 2021 non-GAAP earnings per share expected to be between $3.57 and $3.67 per share, resulting in double-digit growth at the midpoint. Finally, we expect operating cash flow of approximately $1 billion to $1.05 billion and an increase in capital expenditures to $200 million, driven by our NASD expansion. We have also announced raising our dividend by 8%, continuing an important streak of dividend increases, providing another source of value to our shareholders. Now let's finish with our first quarter guidance, but before we get into the specifics, some additional context. Many places around the world are currently seeing renewed spikes in COVID-19 that could cause some additional economic uncertainty, and while we're extremely pleased with the momentum we have built during Q4, we are taking a prudent approach to our outlook for Q1 because of the current situation with the pandemic. For Q1, we're expecting revenue to range from $1.42 billion to $1.43 billion, representing recorded growth of 4.5% to 5.5%, and core growth of 3.5% to 4.5% and first quarter 2021 non-GAAP earnings are expected to be in the range of $0.85 to $0.88 per share. Before opening the call for questions, I want to conclude by echoing Mike's comments about the amazing work the Agilent team performed during fiscal 2020. To be where we are now, after knowing where we stood in March, is truly remarkable. Add to this the strong momentum we saw in Q4, I truly believe we are well-positioned to accelerate our growth in fiscal 2021. With that, Ankur, back to you for Q&A.

Ankur Dhingra, Vice President of Investor Relations

Thanks, Bob. David, let's provide the instructions for Q&A.

Operator, Operator

Certainly. Your first question comes from the line of Vijay Kumar with Evercore ISI. Your line is open.

Vijay Kumar, Analyst

Hey, guys, congrats on the good prints here, and a couple of questions for me.

Mike McMullen, President and CEO

Hey, Vijay.

Vijay Kumar, Analyst

Mike, regarding the guidance, can you clarify if the Q1 guidance of 4.5% to 5.5% core incorporates any core tailwinds? Looking at Q4, which was 6% core, is there a reason for the core to slow down sequentially?

Mike McMullen, President and CEO

Yes, let me start by thanking Vijay for the earlier comments. Our Q1 guidance can be characterized as positive, but we are taking a very cautious approach. We have a lot of confidence in reinstating the guidance as we saw strong momentum in Q4. After reviewing the backlog, we feel assured about reinstating guidance. However, the virus is still a factor, and we believe there is a higher level of uncertainty that necessitates this cautious approach. Therefore, while our outlook is positive, it is also prudent. If conditions improve, we would be happy to consider raising our outlook for the year. For now, we believe it is best to adopt a positive yet cautious stance for our initial guidance for the year, including Q1, given the ongoing presence of the virus. Bob, would you like to add anything?

Bob McMahon, Senior Vice President and CFO

Yes, Vijay, I believe there are a couple of important points to make. First, we did not end the year with depleted resources, which is a positive. However, some areas of our business are more vulnerable, leading to increased visibility or variability in certain diagnostics segments. As Mike mentioned, we are adopting a cautious approach in these areas. Additionally, we would like to observe more than just one quarter in the chemical and energy sector. We are optimistic about this segment, especially considering the potential for recovery. We anticipate some benefits from COVID, likely around one-and-a-half to two points, similar to what we've experienced in recent quarters. This summarizes our perspective on the situation.

Vijay Kumar, Analyst

That's helpful, Bob. Mike, I have a broader question for you. You mentioned that NASD was up 40% in the quarter. Did that business contribute to the growth of NASD? I'm also curious about the long-term potential here. Do you think this could become a $500 million product for Agilent in four to five years? I would like to hear your thoughts. Bob, you mentioned the margin expansion of 50 to 70 basis points, which includes investments in the Frederick facility. What do you think the effect of those investments has been on the margins? Specifically, I’m asking what the margin expansion would have looked like without those investments. Thank you.

Mike McMullen, President and CEO

Thank you for the questions, Vijay. I’ll address the first part, and you can handle the second. Regarding the long-term revenue potential for Agilent, we previously hinted at more information to come during our December analyst and investor day, where we will discuss NASD in detail. We're very pleased with our progress towards achieving an exit rate of over $200 million in business. While we have established the necessary physical capacity, we are just completing our first operational year. As we did with our Boulder site, we are continuously seeking ways to enhance productivity and efficiency with this asset. Additionally, we recently announced an expansion of another production line within the existing facility. I want you to sense the positive outlook we have, both in terms of market growth and our ability to capture a larger share of that growing market.

Bob McMahon, Senior Vice President and CFO

Yes, Vijay, this is Bob. To elaborate on what Mike mentioned, the great aspect of that business is its continued acceleration throughout the year, with the 40% in Q4 being the highest rate all year. The team has done an excellent job of scaling that business, and there's still more to come. As Mike noted, we are making incremental investments to expand that capacity, which will continue into next year. This is likely to present about a 20 basis point headwind for the operating margin next year, just to give you some rough numbers, Vijay. I'm extremely pleased with the work that team has accomplished and their ability to drive growth, so we feel very positive about that business.

Vijay Kumar, Analyst

Thank you, guys.

Mike McMullen, President and CEO

You're welcome.

Operator, Operator

Your next question comes from the line of Puneet Souda with SVB Leerink. Your line is open.

Puneet Souda, Analyst

Yes, hi, Bob and Mike. Thanks for taking the question. So, Bob, actually on one of the question on guidance, and this is probably a favorite topic for you, the Chinese Lunar New Year.

Mike McMullen, President and CEO

Oh yes. That's the New Year again, isn't it?

Puneet Souda, Analyst

That time of the year. So, this time, obviously, you are seeing how the troops are acting on the ground, how things are there, and I would suspect it would be a lesser impact this year, lesser travel, but correct me if I'm wrong on that, and then in light of that, I mean the guidance again appears conservative. Is there anything that we ought to keep in mind for a market that is growing double-digit for you already, and is a sizable portion of your revenue? So just walk us through how you're thinking about the Lunar New Year impact here.

Bob McMahon, Senior Vice President and CFO

Yes, that's a great question, Puneet. Our expectation is that the impact this year will be much less than last year due to factors like reduced travel and timing considerations related to Q1. We are observing a very strong ongoing recovery and performance in our China business, and I anticipate Q1 will reflect that robust trend. We're adopting a more cautious approach in Europe, especially in light of some shutdowns in certain areas. Regarding potential upsides or downsides, we expect continued recovery in the chemical and energy sectors across the business, along with solid performance in the Americas. Additionally, we are anticipating a typical budget flush by the end of the year, which could exceed expectations.

Mike McMullen, President and CEO

Yes, Bob, I could just jump into that, just amplify the point, Puneet, that Bob made. We're very, very happy with our China business, and we exited the year with momentum, and that's carrying forward into 2021. We're positioning ourselves with a wait-and-see moment on C&E, and that could be a source of upside for the year, and like I said earlier, we're fully prepared to reflect that in a revised outlook, and I would just use the word, maybe, prudent as a way to describe as the adjective Bob and I have been using to describe our guide.

Puneet Souda, Analyst

Thank you for the helpful information. I would like to understand more about the cell analysis business, which continues to perform strongly for you. Specifically, could you elaborate on the key drivers behind this growth? Is it primarily due to the cell and gene therapy market, cellular products, or drug products? Additionally, are there factors within the academic sector or particularly in China that are contributing to this growth? I would appreciate any insights into what is transpiring in this area and the long-term opportunities it presents.

Mike McMullen, President and CEO

Yes, Puneet, thanks for the question, and as I mentioned in my call script, we're really pleased with how we've been able to integrate the BioTek team, make them part of the Agilent family, and then how that collective has lead to having us have a very healthy cell analysis, just north of $300 million, growing nicely for us, and I know that Jacob would love to be able to have an opportunity to talk a little bit more about the cell analysis, back to Jacob, your thoughts on the specific questions that Puneet put forward?

Jacob Thaysen, President of Agilent's Life Sciences & Applied Markets Group

I want to start by saying how impressive Agilent's accomplishments have been over the past year. The growth has come from various areas. For instance, a lot of our BioTek portfolio has been utilized for ELISA testing. Additionally, imaging is proving to be very relevant in both academic and biopharma markets, with our flow cytometry portfolio also attracting significant interest. Overall, we see a wide interest across academic, biopharma, and COVID-related areas. A few years ago, we identified lifestyle analysis as a key growth area, and particularly regarding immune-oncology, we are pleased that understanding of the immune system has broadened. This focus will likely persist for many years ahead, and we are optimistic about continued growth in that business.

Mike McMullen, President and CEO

Yes, and hey, Puneet, just one thing because you mentioned China, and we see really China as a huge opportunity for us going forward. The real growth has been primarily in the U.S. and Europe. I mean, it's growing in China as well, but it's off a very small base. So when we think about the opportunities going forward, leveraging the large infrastructure that Agilent has is really a big opportunity for us for many, many years to come in the cell analysis space.

Puneet Souda, Analyst

Great. Okay, thank you.

Operator, Operator

The next question comes from the line of Tycho Peterson with J.P. Morgan. Your line is open.

Tycho Peterson, Analyst

Hey, good afternoon. Mike, I wondering if you could talk a little more on the biopharma strength, 12% on a 7% comp is obviously phenomenal. I know you had 2% from NASD, and you just talked about cell analysis, but can you maybe just talk more broadly on the strength in biopharma. Was any of this a catch-up from slower setting in the first half of the year? And how do you think about the sustainability of demand. I know you mentioned you're thinking about an average budget flush, but can you just talk to the broader strength in biopharma?

Mike McMullen, President and CEO

Certainly, Tycho. I'm happy to share insights without revealing too much that I want to expand on in a few weeks. There hasn't been any catch-up here; this reflects the ongoing strength in the biopharma sector. It's a key focus for us, and we will provide more detailed information soon. We're seeing increased investments in our biopharma tools and instrumentation, alongside a chemistry platform that emphasizes workflow across the entire value chain. We're experiencing growth, as you've noted with the NASD, but the overall narrative is much larger and more significant. Additionally, we are also seeing growth in cell analysis. Our approach is quite multifaceted, which drives this growth, and we believe it is sustainable. We consider a double-digit growth outlook for the biopharma segment of Agilent's business to be realistic. We're thrilled about this opportunity, and it remains a priority for our investments.

Bob McMahon, Senior Vice President and CFO

Yes, and Tycho, I would like to add to Mike's point. It's not just the platforms in our portfolio that we've been heavily investing in; it's also the informatics and software components that enable us to integrate with the analytical labs. Additionally, our ACG services portfolio assists in managing these labs. Given the current circumstances, the last thing scientists want is to be handling the instrumentation; they want to focus on their research. We believe we have a compelling software and tools offering, and it is gaining traction in the marketplace across various technology platforms.

Tycho Peterson, Analyst

Great, and then Mike, you used the phrase, wait and see mode for C&E a couple minutes ago, and it's good to see that back to growth, can you maybe just talk on some of the data points you're watching in your customer base and how you're thinking about the recovery curve there?

Mike McMullen, President and CEO

Yes, thanks Tycho. So, my comments come back from my first year as a CEO when I tried to call the trend of the C&E business, and eventually it turned out I think it was all by several quarters. So I learned my lesson, so to speak. So as Bob mentioned, one quarter trend does not make but we're very encouraged by that, because it's the first time we've seen some growth after those two double-digit declines earlier this year. And we look at a couple of things, Tycho one is the PMIs and the positive moves in the PMIs are indicative of improved end market strength, particularly in C&E, we also look at what we estimate to be the age of the installed base, because a lot of aged equipment out there, and that's been probably at very high levels, and then we look at the deal flow. So, kind of all those factors, the macro outlook from PMIs what we know to be the current environment for customers in terms of the age of their installed base, and then also overseeing in our funnels, and you know, Agilent has a real strength in this market. So I think we will benefit from return to growth, again we're not ready yet to put it into numbers for Q1 in the full-year, but we're hopeful that that trend will continue. There're some indications that it could, but let's give it another quarter or so.

Tycho Peterson, Analyst

Okay, and then lastly before I hop off, one quick one on China, one of your closest companies, Mettler, talked about pent-up demand kind of suggested that what they saw may not be sustainable. Have you seen anything in your order book that would suggest what you're seeing in China?

Mike McMullen, President and CEO

Yes, no, Tycho really appreciate you asking that question because not at all, I mean, this has been a continuing steady flow of business. We think the end markets are really strong here. We see a lot of strength in China Government funding to make sure they stimulate the economy, and then we talked earlier about just overall their investments in improving the quality of life, you noticed the strong growth in the food market, continued strength in pharma. So no, we've seen this. Now, I think we really look closely at the pacing and it's all nothing unusual.

Bob McMahon, Senior Vice President and CFO

Yes, Tycho, I think we've been extraordinarily pleased with the way our China businesses performed throughout the course of this year, and when you think about kind of our cadence through Q1, Q2, Q3, and Q4, we've seen accelerated growth. So we saw our lowest growth in the first quarter where we saw the impact of COVID-19, but then what we've seen is improvements as opposed to this real huge increase, and then kind of a drop-off. So, we're not expecting any drop-off, and we haven't seen that in our order book or any of the conversations that we've had with our customers that there was sort of a material catch-up.

Tycho Peterson, Analyst

Okay, thank you.

Mike McMullen, President and CEO

You're quite welcome, Tycho.

Operator, Operator

Your next question comes from the line of Brandon Couillard with Jefferies. Your line is open.

Brandon Couillard, Analyst

Hi, thanks. Good afternoon; Mike, a couple of questions on LSAG.

Mike McMullen, President and CEO

Sure.

Brandon Couillard, Analyst

I'm curious, if you could speak to the order book in the fourth quarter, and to the extent that you may have built some backlog there, and curious to speak to perhaps the margin compression in the fourth quarter, but that was mostly mix or is today's dynamics there?

Mike McMullen, President and CEO

Happy to see you, Brandon. So, one of the reasons why we were able to reinstate guidance this year was what we saw in the LSAG order book, and as you know, we stopped a few years ago talking about specifics around orders, but I think in today's call, it's really prudent for us to give you a sense of why Bob and I have this confidence around the outlook. So we didn't guessed as we ran across the finish line for 2020, order book was strong in LSAG and as continued into the fairly few weeks of this year. So again, all the other caveats aside being prudent and recognition of the virus, we feel pretty good about our ability to reinstate guideline because as we mentioned earlier reinstate guidance as mentioned earlier, LSAG was one where we hit the most early on the year, and I think we're feeling pretty good about that. And Bob, as I recall, most of the gross margin is really just a mix of the various instrument platforms.

Bob McMahon, Senior Vice President and CFO

Yes, that's right. I mean, I think Brandon, to read what Mike is saying, I mean we feel very good, orders exceeded revenue and exceeded our expectations, and so, it was a bit of a mix shift that is impacting that, but we would expect that to kind of normalize out throughout the course of next year, and so, we feel very good about kind of where that business is going into 2021.

Mike McMullen, President and CEO

Yes, Brandon, just one additional thought here, which is, we've seen a real change in the price environment. So, that's why we can say pretty common that has happened to be the mix product this quarter.

Brandon Couillard, Analyst

Super, and one more for Bob, you mentioned currency with the drag to margins in the fourth quarter, could you quantify that, the magnitude of the operating line, and then what you penciled in for impact of FX to operating margins in '21?

Bob McMahon, Senior Vice President and CFO

Yes, it was roughly about 40-ish, 45-ish on the COGS line, and some of that was offset through the bottom line, and for next year less impactful, much less impactful than that, probably less than about 10 points, 10 basis points.

Brandon Couillard, Analyst

Super, thanks.

Mike McMullen, President and CEO

You're welcome.

Operator, Operator

Your next question comes from the line of Dan Leonard with Wells Fargo. Your line is open.

Dan Leonard, Analyst

Thank you. So, to start off, on the guidance, a question for probably you Bob, you've touched on this in pieces, but can you give us at a high level what your key assumptions are, by region and by end-markets?

Bob McMahon, Senior Vice President and CFO

Yes, so by at the highest level, we're expecting steady improvement throughout the course of the year from the standpoint of the economic perspective, if I think about it from geography first, China's going to lead the way with high single-digit growth continuing the momentum that we've seen, we ended this year FY '20 about 7%, and we're expecting that or better into next year, and then what you would see as a recovery in the Americas getting back to kind of mid to high single-digits, and then followed by Europe, which would be kind of the low to mid single-digits. So that's kind of on an end-market perspective, how we would think about it, it's predicated on that continued recovery, and that we would as I mentioned before, not have any extended periods of shutdown that would disrupt business. I think the good thing is what we're seeing not only ourselves, but our customers are being able to operate in a different environment than they had the first time these were shut down. So we're not expecting any material impact there, and from an end-market perspective, the strength is really going to be the continued strength that we've seen in the last several years really driven behind our pharma business, which is probably high single-digits with biopharma as one of the earlier questions came out, probably growing double-digits going forward. And then food, we'll probably expect maybe a little tempering, where it'd be great to have 16% every quarter, but we're not ready to put that into our plan, but I would expect continued recovery there probably in the mid-single-digits and also recovery in our diagnostics and clinical business, particularly in that same kind of mid-single-digits, and probably ramping throughout the course of the year, probably more muted on the academia, and government probably flattish to low, and as we talked about before chemical and energy flattish, but that's really one where we're hoping that we're biased, and there's more upside than downside here, but certainly given the momentum, but one quarter is too early to put a forecast on there, and so, we're assuming roughly flat and then probably recovery in the environmental and forensics market low-single-digits.

Dan Leonard, Analyst

Okay, thanks for that overview, and that's my follow-up, you touched on there being a wider range of outcomes in '21 and typical and mentioned at the bottom end doesn't capture any threats around reestablishment of lockdowns or whatnot. Do you feel the high-end of guidance really captures all the benefits from easy comparisons, any potential upside there might be or how would you frame, what you're capturing in the high-end there?

Bob McMahon, Senior Vice President and CFO

Yes, I'd say it's continued momentum, but I think there's probably more upsides and downsides in the way that we're trying to capture that certainly exiting at a 6% growth rate, there are we're probably the biggest areas are around chemical and energy and the pace of recovery in academia and government, and if those continue, I would say - let me put it this way, if chemical and energy continued at 3% and growing, we'll be that number.

Mike McMullen, President and CEO

Yes, absolutely. Thank you.

Operator, Operator

Your next question comes from the line of Douglas Schenkel with Cowen. Your line is open.

Douglas Schenkel, Analyst

Hi, good afternoon guys.

Mike McMullen, President and CEO

Good evening, Doug.

Douglas Schenkel, Analyst

Maybe I have a few cleanup guidance questions, but before I get to that one, I just wanted to talk about your performance specific to your mass spec product line. You talked about another quarter of double-digit growth. I'm just wondering if you'd be willing to unpack that a bit more and just talk about what's driving this, and specifically is China and more specifically China food, a major driver, I guess I'm just trying to get at which segments of the portfolio or specific end markets or geographies that really stand out within a pretty robust and impressive growth rate there?

Mike McMullen, President and CEO

Hi, Doug really appreciate the opportunity to have Jacob comment more deeply on that, but as you know, I highlighted that in my script, we were able to call out that double-digit growth. We're extremely proud of that. And Jacob, I think you've got some additional insights that you could share with Doug.

Jacob Thaysen, President of Agilent's Life Sciences & Applied Markets Group

Yes, that's an excellent question. I'm very proud of the team's achievements over the past few years. This isn't just a quarterly impact; we have significantly overhauled our master portfolio, especially the LC/MS portfolio, including both the high-end triple quad and the single quad, as well as the team applications. This aligns well with what our customers are currently seeking. It's clear that our investments are resonating with our customer base across most regions and end markets, particularly in biopharma and China, which are significant parts of this narrative. Additionally, we quickly shifted to remote customer engagement at the start of this year, supporting customers when they had to close their labs. This assistance has paid off, as customers continue their partnerships with Agilent. I truly believe we are experiencing strong momentum with the mass aide business.

Douglas Schenkel, Analyst

Yes, all right. Yes, that sure does. Thank you for that, and then maybe just a few guidance questions, yes, so this'll be kind of a speed round in a way, because you have got some questions about these already, but on China, did you expect double-digit growth in fiscal '21? On gross margin, you talked about some of the headwinds you saw in Q4 becoming less pronounced moving forward. So, do you expect gross margin overall to get back up to the 56 plus level? And then on COVID-19, I think you talked about just over two points of COVID tailwinds in the quarter. I'm just wondering if looking forward either fiscal Q1 or for the full-year, if you could see a scenario where this would accelerate over time if serology volumes began to inflect in a positive way and same thing on the antibody business, could those in combination drive more of a tailwind moving forward, so China gross margin and COVID-19?

Bob McMahon, Senior Vice President and CFO

Yes, for China, we're anticipating high single-digit to possibly low double-digit growth based on the COVID situation. We do expect less incremental growth, but the elements you've mentioned are included in our guidance. Additional volumes from serology, antigen-based testing, or even vaccinations are not completely factored into our projections yet, as it’s still too early to determine their impact, but they definitely represent potential upsides. Regarding your second question about gross margin, I expect it to stabilize without experiencing the same level of decline. There will be some mix shifts since our ACG business, while having a lower gross margin compared to the instrument business, offers a much higher operating margin that helps offset this. Therefore, although there may be some dampening on the gross margin side, we will compensate for it on the operating margin front.

Douglas Schenkel, Analyst

Okay, Bob. Sorry.

Bob McMahon, Senior Vice President and CFO

Doug specific to COVID-19 we'll hit a little bit more of that when we have our Analyst Day, but we are planning to launch in early 2021 our serology test, and there are some things that we're working on that aren't baked into the guide. We'll see how that they play out.

Douglas Schenkel, Analyst

Okay, that's great. Thank you guys for all the time and happy Thanksgiving everybody.

Bob McMahon, Senior Vice President and CFO

Same to you.

Operator, Operator

Your final question comes from the line of Derik de Bruin with Bank of America. Your line is open.

Derik de Bruin, Analyst

Hi, good afternoon.

Mike McMullen, President and CEO

Hi, Derik.

Bob McMahon, Senior Vice President and CFO

Hi, Derik.

Derik de Bruin, Analyst

Hi, so I'm going to do this similar to Doug. I've got a couple of focus questions. I got one guidance cleanup. So I guess specifically, Bob, you mentioned some software pushes in business between the pharma business. Can you be a little bit more specific on that? I mean, is OpenLab taking share against Empower, you winning have be replaced Empower and some of the accounts there, I'm just sort of curious on what the dynamics are in the CDS market?

Mike McMullen, President and CEO

Yes. What I would say, Doug, excuse me, Derik, is that we feel very good about our competitive positioning with OpenLab and the rest of our products.

Derik de Bruin, Analyst

Okay. Now I'll live with that I guess. Yes, and by the way, I'm better looking than Doug. On the Core Genomics business, I mean, we don't really have talk about that. I mean, you talk about the NASD and some other things here, but what is going on in your Core Genomics business, you've got SureSelect, I mean, you've had some pressures and some of that end market there. What is that underlying business growing?

Bob McMahon, Senior Vice President and CFO

Yes, actually a great question because we didn't highlight that, but actually when you look at sequential performance, that was one of the things that was very, very positive in the DDG business. It recovered very nicely into Q4, and maybe I'll let Sam talk about some of the details there.

Sam Raha, President of Agilent's Diagnostics and Genomics Group

Yes, sure. Thanks, Bob. As you said, as we went into the heavy part of the pandemic, if you will, late Q2, Q3, some of the Genomics business also serves clinical diagnostic customers be it for SureSelect being the backbone and some of the leading cancer diagnostic and US-based tests as well as other inherited diseases. So we definitely saw the effect of that, but coming into Q4, we've seen a steady stream of increase there, and we've also seen a positive effect in parts of our portfolio that are related to qPCR be it instruments, be it our consumables that are used and also we have the leading Genomics QC portfolio as you're probably aware of, and we see a number of those products, including our fragment analyzer being used increasingly for picking up conventional or sorry, would the pickup of conventional clinical testing, but also being used for example for some siRNA vaccines that are in development. So, all-in-all, the trend is looking encouraging for our Core Genomics business.

Derik de Bruin, Analyst

Great, and then just one housekeeping question. For '21, the other income expense line, how should we think about that for '21? Bob do you want to handle that or you want to take that?

Bob McMahon, Senior Vice President and CFO

Yes, that'd be slightly better than where it is this year.

Tycho Peterson, Analyst

Okay, thank you.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.