Earnings Call Transcript
Agilent Technologies, Inc. (A)
Earnings Call Transcript - A Q1 2026
Operator, Operator
Thank you for joining us for the Q1 2026 Agilent Technologies Inc. Earnings Conference Call. I will now turn it over to Tejas Savant, Vice President of Investor Relations. Tejas, please proceed.
Tejas Savant, Vice President, Investor Relations
Thank you, and welcome, everyone, to Agilent's conference call for the first quarter of fiscal year 2026. With me on the line are CEO, Padraig McDonnell; and CFO, Adam Elinoff. Joining for the Q&A will be Simon May, President of the Life Sciences and Diagnostics Markets Group; Angelica Riemann, President of the Agilent CrossLab Group, and Mike Zhang, President of the Applied Markets Group. This presentation is being webcast live. The press release for our first quarter financial results, investor presentation and information to supplement today's discussion, along with a recording of this webcast are available on our website at investor.agilent.com. Today's comments will refer to non-GAAP financial measures. Non-GAAP measures are supplemental and should not be considered a substitute for GAAP results. You'll find the most directly comparable GAAP financial metrics and reconciliations in the press release and 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. All references to profitability metrics are on a non-GAAP basis. Core revenue growth is adjusted for the impact of currency exchange rates, and any acquisitions and divestitures completed within the past 12 months. Guidance is based on forecasted exchange rates. During this call, we will 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. Agilent assumes no obligation to update them. Please refer to the company's recent SEC filings for a more detailed description of the risks and other factors that would cause our performance to differ from these forward-looking statements. And now I'd like to turn the call over to Padraig.
Padraig McDonnell, CEO
Thanks, Tejas, and welcome, everyone. It was a solid start to the year with the Agilent team executing well in a generally improving, albeit dynamic market environment. For the first quarter, Agilent reported $1.8 billion in revenue, growing 4.4% on a core basis within our November guidance range. End market conditions were largely consistent with our expectations with top line results affected by the winter storm in the U.S. during the last week of January. The storm drove roughly a $10 million revenue impact with the majority recovered at the beginning of February. The impact primarily came from our logistics providers not being able to ship products from our main Americas Logistics Center in Memphis, Tennessee for 3 days. This is typically the busiest shipping week of the quarter. Despite the weather, operating margins of 24.6% were in line with our expectations, setting a solid jumping off point for the remainder of the fiscal year. Moving forward, we anticipate benefiting from leverage on increasing volumes, and we expect to see tariff headwinds continuing to decrease, as well as incremental benefits from our Ignite Operating System that together will drive sequential margin improvement throughout the rest of the year. First quarter EPS of $1.36 also was within expectations. Adjusted for the impact of the storm, our first quarter revenue, operating margin and EPS all would have been above the midpoint of our November guidance ranges. A healthy underlying outcome. Throughout the quarter, the Agilent team remained as always committed to delivering for our customers. Before getting into the specifics of our first quarter results, I want to share my thoughts on 3 key business initiatives that are fueling our growth. These include our highly differentiated service organization that reinforces our customer intimacy, a theme you've heard me talk about frequently. An update on recent innovations. Finally, how the Ignite Operating System continues to drive Agilent's transformation. I want to start by talking about our differentiated customer intimacy. Last quarter, I highlighted our field service engineers' outsized contribution to our deal funnel and conversion rates. This time, I want to focus on our enterprise services business where we had several marquee customer wins with major pharma accounts. Our enterprise services offerings allow us to cement our extraordinary customer intimacy and is a key strategic differentiator for Agilent that unlocks significant downstream value. This business represents roughly 10% of our total services revenue today and has grown nicely at a low double-digit CAGR. Beyond the direct revenue contribution, the relationship we build with our customer creates tremendous long-term value for Agilent and uniquely position us to gain wallet share over time. The offering includes embedding our expert on-site support technicians and customer sites and leveraging digital capabilities through CrossLab Connect that provide monitoring, alerting and performance analytics. This allows us to gain unique insights and visibility into lab operations and critically deliver improved efficiency and economics for our customer labs. These successful outcomes position us as a trusted partner, one customers can count on to provide critical data and insights that inform their future technology needs and instrument purchasing decisions. We have agreements with nearly all of the top 20 biopharma companies. In addition, we won 18 competitive displacements across our end markets over the past 3 years. Early customer feedback from a recent marquee win reinforces the value of having our specialists on site, including faster response times, improved parts availability and better advice on consumable and system usage. The insights that we gain from our leading services team are a key success factor in driving customer-focused innovation that underpins durable long-term growth at above market rates. I want to highlight several recent examples that are resonating particularly well with our customers. Starting with our Altura ultra-inert column portfolio. In October, we launched our first Altura column to support biopharma workflows, including GLP-1s. Already, 50% of the top 20 biopharma companies have ordered these columns since we launched. And Altura has more than doubled our biocolumn growth to over 30%, a testament to Altura's compelling performance. Just last month, we launched our next column in the Altura family, focused on improving PFAS workflows. These columns are specifically developed to solve key workflow challenges and address new EU regulations. Plus the double throughput for customers by enabling separation of both short and long chain PFAS in a single workflow. The launch is off to an excellent start with strong demand out of the gate and extremely positive customer feedback versus competitor offerings. You can expect continued expansion of the Altura family for new use cases later this year and beyond. Next, I want to highlight the Pro iQ LC/MS, which continues to build momentum since its mid-summer launch. We're seeing a robust uptake, with growth of our single-quad family exceeding 40% in the quarter. The value proposition of an advanced single-quad LC/MS with expanded mass ranges resonating and is particularly compelling for pharma customers who are transitioning from small molecule to biologics and monoclonal antibodies. Our cancer diagnostics business also is innovating to meet customer needs. Last quarter, I talked about the expansion of our most advanced automated platform, Omnis to a broader set of customers. This launch is off to a very strong start, offering medium throughput labs access to the latest technology with attractive economics. Also within cancer diagnostics is our new S-540-MD Slide Scanner System, which we announced in late January as part of our continued effort to enable the latest digital tools for our cancer diagnostic customers. Finally, early in the quarter, our market-leading spectroscopy business announced the release of our Raman Insight BRT series alarm-resolution system. The new system offers next-generation throughput and sensitivity to enhance safety and streamline operations at airport security checkpoints. This new instrument has secured a $9 million TSA contract during the quarter, and we are confident that we are well-positioned to win larger aviation security tenders in the coming years. The last topic I want to focus on is our Ignite Operating System. As you know, we launched Ignite at the beginning of 2025 to drive execution excellence, accelerate decision-making and unlock the full value of Agilent as an integrated enterprise. Over the past year, Ignite has evolved into our enterprise operating system, a core differentiator that aligns strategy, resources and accountability to drive sustainable growth, margin expansion and long-term shareholder value. Ignite has already delivered clear financial results in its first 12 months, including doubling our pricing realization, generating substantial procurement savings, simplifying our organization structure, and launching our tariff mitigation program. Also, Ignite demonstrated its effectiveness in M&A execution through the successful BIOVECTRA integration, establishing a repeatable playbook to accelerate value capture in future transactions. In this fourth quarter alone, Ignite delivered nearly 200 basis points of pricing, continued tariff expense reductions, and a very successful launch of our new agilent.com website that helped drive growth in digital orders at more than 2 times our overall order book. Looking ahead to the remainder of FY '26, we are expanding Ignite into new value creation work streams and leveraging a portion of savings to reinvest in the business. These work streams include increasing returns and innovation investments by improving speed to market, advancing digital and e-commerce capability to enhance commercial productivity, and deploying targeted artificial intelligence initiatives with clear ROI to enhance customer insights, automate routine work and compress manufacturing cycle times. We are also accelerating software development and enhancing our supply chain capabilities by executing no regret investments that improve efficiency, resilience and proximity to customers in an evolving geopolitical environment. Now let me share some additional details about our Q1 results, starting with our end markets. The improvement that we saw in our end markets across last year was generally maintained throughout the first quarter. Overall, we are seeing underlying momentum in our markets. Importantly, secular trends in our largest end markets remain on a strong footing. That includes reshoring of pharma and semiconductor manufacturing, GLP-1 uptake and LC and GC instrument replacement cycles. Pharma growth was 7%, in line with expectations with double-digit growth in the biotech space supported by increased funding and M&A activity late in the calendar year. Mid-single-digit small molecule growth was also solid showing continued momentum from 2025. The quarter saw a modest benefit from continued normalization in the calendar year-end budget flush in line with our expectations. We delivered excellent GLP-1 growth of 50%, with healthy contributions coming from our specialty CDMO as well as our analytical lab business. Our specialty CDMO business grew low double digits during the quarter, and we continue to expect mid-teens growth for the year. We saw continued strength in chemicals and advanced materials market. The 9% growth in CAM was above our expectations with exceptional strength on the material side of the business with growth of more than 20%. This strong result in advanced materials demonstrates our leadership in providing solutions for the top semiconductor manufacturers globally. The current shortage of memory chips and a global effort to achieve semiconductor supply chain independence, has driven investment by these firms in our leading atomic spectroscopy tools. With support from the recent Omnis family launch, the diagnostics and clinical business continued to perform well, growing at 7% again this quarter. Environmental forensics was flat, with continued softness in government funding in the U.S. and China offset by growth in the rest of Asia and Europe. In Q1, the food business declined 4%, which outperformed our expectations with strong low double-digit growth ex China. As a reminder, the food market was the primary beneficiary of the large China stimulus that boosted growth in the first quarter of FY '25. And finally, academia and government, our smallest market, was down 8%, more than expected in the quarter. Academia and government conditions in the U.S. continue to be soft, where customers are using available funding to keep their labs running as opposed to investing in new capital equipment. Excluding academia and government, our instruments grew at a healthy mid-single-digit rate. Our instrument book-to-bill has now been at or above 1 for the eighth consecutive quarter. The Infinity III HPLC continues to delight our customers. The LC instrument replacement cycle momentum built by our differentiated Infinity III system during FY '25 continued through the first quarter of FY '26. And with LC growth in the high single digits, we are gaining share globally versus our competition. On the GC side of the replacement cycle, we saw low single-digit growth, a strong result considering the tough year-over-year compare from significant volumes associated with last year's Chinese stimulus. Ex China, GC instrument growth was mid-single digits, in line with our expectations of around 100 basis points of lift during the GC replacement cycle. And even with these strong results, the upside from pharma reshoring has yet to impact our numbers. We're seeing increased activity in U.S.-based pharmaceutical manufacturing as companies rethink resilience and capacity. Based on announced investments and recent customer activity, we estimate this will represent a $1 billion addressable market opportunity through 2030. We continue to expect the first orders from reshoring to be booked late this year and the revenue impact from those orders to bolster top line growth in FY '27 and beyond. As we look to the rest of the year, our priorities remain unchanged. Advance our Ignite Operating System, further enhance commercial execution, and capture opportunities from improving end markets, innovative new products and a multipronged replacement cycle. With a stellar start to the year and the outlook for end markets broadly consistent with our original expectations, we are maintaining our expected core growth range of 4% to 6% for the full year. We now expect between $5.90 and $6.04 of earnings per share in FY '26, with a $0.04 increase due to favorable currency impact. For Q2, early trends are encouraging, and we are expecting core growth of approximately 4% to 5.5%, which includes a majority of the $10 million storm impact from late in the first quarter. EPS is expected to be between $1.39 and $1.42, representing a 7% growth at the midpoint of our range. We remain highly disciplined around capital deployment, investing for organic growth through innovation and capacity expansion. Simultaneously, we are focused on M&A targets that are both a strategic fit and financially attractive.
Adam Elinoff, CFO
Thanks, Padraig, and good afternoon, everyone. In my comments today, I will provide additional details on revenue in the quarter, as well as walk through the income statement and cover other key financial metrics. I'll then cover our updated full year and second quarter guidance. Starting with Q1. Revenue was $1.8 billion. On a core basis, we posted growth of 4.4%, while reported growth was 7%. Currency had a favorable impact of 2.6%, in line with our November guidance. At a business segment level, ACG grew 6%. That's in line with expectations, driven by strong consumables growth in the high single digits, solid performance in services and balanced growth globally with all regions growing mid-single digits or better. AMG grew 4% ahead of expectations. Growth was led by double-digit performance in spectroscopy, fueled by the excellent results in the semiconductor space that Padraig mentioned earlier. LDG grew 3%, a bit below expectations. In addition to the weather impact, we saw softness in academia and government that challenged our cell analysis and genomics results. On a geographic basis, we saw our strongest growth in Asia, with China growing 6% and the rest of Asia growing a robust 13%. Europe was a bit slower than expected with 4% growth as transient discussions around higher tariffs caused some customers to slow purchasing decisions late in the quarter. Americas growth of 1% was directly impacted by the weather as well as pockets of softness in our smaller end markets. Q1 gross margins were 53.7%. On a year-over-year basis, they were down by 100 basis points, primarily due to tariff headwinds. Operating margin was 24.6%, in line with our expectations, and down 50 basis points year-over-year on increased tariff expenses and normalized performance-based pay in the current year. Now moving below the line. We had $10 million of other income, while our tax rate was 14.5% as expected. Finally, we had 284 million diluted shares outstanding in the quarter, slightly better than expected with some incremental share repurchases during the quarter. Putting it all together, Q1 earnings per share were $1.36 and grew 4%. Adjusted for the weather, we would have been above the midpoint of our first quarter guidance range. We are confident we will see improved earnings growth through the remainder of the year, driven by improving volumes and easier tariff and performance-based pay compares. Now let me turn to cash flow and balance sheet. Operating cash flow was $268 million in the quarter, and we invested $93 million in capital expenditures. We purchased $152 million in shares and paid $72 million in dividends during the quarter. And we ended the quarter with a net leverage ratio of 0.8 turns, maintaining our strong balance sheet. Now let me share some additional details on the updated outlook for the year and the guidance for our second quarter. Because of changes in FX, we now expect fiscal year '26 revenue to be in the range of $7.3 billion to $7.5 billion on a reported basis. This continues to represent growth of 4% to 6% on a core basis, as currency is now expected to be a 1.5% tailwind during the year. This revenue guidance embeds full year business segment, end market and geographic growth assumptions that are consistent with what we shared in November. Our largest end markets, pharma, CAM and diagnostics and clinical are all off to a strong start. Across our smaller end markets, we saw some pockets of softness relative to our expectations in the first quarter, especially in our cell analysis business where academic customer budgets are most heavily indexed to government funding. Going forward, we continue to expect low single-digit full year decline in academia and government, flat performance in food, and low single-digit growth in environmental and forensics, partially helped by easier comps for the remainder of the year. Moving down the P&L. We continue to expect to deliver 75 basis points of operating margin expansion at the midpoint. And while we continue to evaluate the evolving tariff situation in light of recent developments, this guide does not incorporate material changes in tariff rates relative to our view at the start of the year. While we still await the details, we do not expect a meaningful change to our outlook based on the high-level proposals that have been discussed. Our expected tax rate for fiscal year '26 is unchanged at 14.5%. We also expect $22 million of other income and 283 million diluted shares outstanding for the year. Fiscal year non-GAAP earnings per share are now expected to be between $5.90 and $6.04, representing earnings growth of 5.5% to 8% with the $0.04 increase due to a favorable currency outlook versus our original guide. For your modeling, let me share some additional expectations we have incorporated into our guidance for the year. We continue to expect pricing growth of at least 100 basis points, supported by Ignite. Although the tariff situation is evolving, we expect to fully offset tariff impact over the course of the year through a combination of cost savings and pricing actions. The tariff dynamics will drive a modestly more than typical sequential improvement in operating margin over the course of the year. As we have said before, this translates into a slight second half weighting on operating profit and EPS versus what we typically see. There is no change to our operating cash flow range of $1.6 billion to $1.7 billion, and we are still expecting to invest approximately $500 million in capital expenditures. Now moving to the second quarter. We expect our reported revenue to be in the range of $1.79 billion to $1.82 billion. This represents growth of roughly 4% to 5.5% on a core basis, while currency is expected to be approximately a 3% tailwind. This outlook includes weather delayed revenue from Q1. It also assumes our academia and government end market declines in the mid-single digits in Q2. We expect our operating margin to improve by approximately 100 basis points relative to the first quarter. Our guide assumes 283 million diluted shares outstanding in the second quarter. Second quarter EPS guidance is $1.39 to $1.42, representing growth of 6% to 8%. With that, I'll turn the call back over to Padraig for closing comments.
Padraig McDonnell, CEO
Thanks, Adam. As you've heard, FY '26 is off to a good start. Our unique growth drivers, including superior customer intimacy developed by our best-in-class services team, a healthy innovation pipeline to deliver products that solve real-world customer problems, and the Ignite Operating System that brings together our best attributes for the benefit of all stakeholders, combined to drive growth and operational leverage that fuels our success. As the year unfolds, we are well positioned to benefit from the instrument replacement cycle and continuing recovery across our largest end markets, to win share and deliver resilient above-peer growth and margin performance over the long term. I also wanted to take this opportunity to express my gratitude to the Agilent team for their exceptional efforts throughout the quarter. I especially want to recognize our global operations and logistics colleagues who worked tirelessly to meet the challenges presented by the weather and deliver for our customers. Thank you for your attention. I'll turn it back over to Tejas for Q&A.
Tejas Savant, Vice President, Investor Relations
Thanks, Padraig. Nicole, can you please share the instructions for the Q&A?
Operator, Operator
Your first question comes from Tycho Peterson with Jefferies.
Jack Melick, Analyst
This is Jack on for Tycho. Just wanted to walk through the impact of the snowstorm and expectations for catch-up there. I appreciate you said $10 million in revenues. Just curious if that's already in hand for 2Q, or something that's still being recouped? And then any color on margin impact that would have had in the quarter gross margins and operating if it would have been without the snowstorm?
Padraig McDonnell, CEO
Yes. So I'll start off, and I'll hand it over to Adam. So first of all, a really solid finish overall with 4.4% growth in high single digits in our 3 markets. But Adam, can you give some color around the weather?
Adam Elinoff, CFO
Yes, thank you. I didn't expect to be discussing the weather on this call, which makes it a bit of fun. Regarding the weather's impact, we estimated it to be about $10 million, and we've already seen most of that come back. There are some components that will take a bit longer to recover, particularly related to services that don't have an immediate effect. Overall, we've recovered the majority. As for your second question about margins, the impact would have been quite minimal. What we reported this quarter is a reasonable reflection of our actual performance.
Jack Melick, Analyst
Okay. That's helpful. And then sticking on margin. I appreciate you're still guiding to 75 bps for the year. Can you just give a little bit more color on the cadence from here in the bridge to that improvement after being down a little bit in 1Q? I think you said slight second half weighting. I guess just what's baked in for 2Q versus the second half? And then what do you see as the biggest swing factors to that step-up?
Adam Elinoff, CFO
Yes, I'll address this. Year-over-year, we anticipate a 50 basis point improvement in the second quarter, primarily driven by pricing, volume, and Ignite savings. This is somewhat countered by performance-based pay and tariffs. However, as we have previously mentioned, the impact of tariffs will be fully offset in the second half of the year. Looking ahead, we'll see an acceleration in margin expansion, fueled by ongoing volume growth, leverage, pricing, and Ignite, although there will be some offset due to increased personnel costs and investments throughout the year.
Operator, Operator
Your next question comes from the line of Vijay Kumar with Evercore ISI.
Vijay Kumar, Analyst
Maybe, Padraig, my first one, high level. When I look at this cadence for the year, right, first half versus back half, your guidance for first half implies slightly less than 5 and the back half to hit the midpoint it needs to be above 5. Can you just talk about what drives the back half step up comps to get tougher? Is this some new product cycles? Or is there something else that's going on in the business that gives us this back half visibility?
Padraig McDonnell, CEO
Yes. We are experiencing strong underlying momentum in our major markets. For example, in pharmaceuticals, we are seeing significant growth driven by GLP-1s and a successful replacement cycle. Our Infinity III numbers are growing in double digits, and our latest market share report indicates we are capturing a substantial share in that segment. Additionally, our CAM markets show numerous secular drivers, with a 20% growth in advanced materials due to semiconductor onshoring, among other factors. Overall, we have good visibility in our sales funnels and are observing strong win-loss rates. We will continue to monitor this, but we expect the positive momentum to persist.
Adam Elinoff, CFO
And then I would just jump in. The step-up between the first half and the second half isn't that big. It's really 49 in the first half and then 51 in the second half on revenue.
Vijay Kumar, Analyst
Understood. And then maybe one on tariffs, just given the Supreme Court ruling. How are you thinking about the tariff assumptions, right? Are you assuming now a global minimum of 15%? And how does that change versus your prior assumptions?
Padraig McDonnell, CEO
Adam, I'll give this one to you.
Adam Elinoff, CFO
Sure. The situation remains dynamic, and we don't have detailed information about what the 15% will look like or how it will unfold. However, if we assume the 15% is consistent across all markets, we wouldn't alter our guidance on it. We've made several strategic moves focused on optimizing our supply chain and bringing manufacturing closer to customers, which will remain unchanged. Additionally, we've been careful in using pricing and surcharges where appropriate, which has also been beneficial. What gives me confidence in these changing market conditions is the capability of the Ignite Operating System, which has allowed us to adapt and maintain resilience. For now, we won't adjust our guidance based on what we know, but we are prepared to respond as the situation evolves.
Padraig McDonnell, CEO
Yes. I would just close it off by saying the actions we've taken to bring manufacturing close to our customers and strengthen supply chains are no regret moves. We have that planned for a long time now. And outside of surcharges, we would not expect to reverse them in any way.
Operator, Operator
Your next question comes from the line of Doug Schenkel with Wolfe Research.
Douglas Schenkel, Analyst
I want to discuss two topics: the capital equipment environment and mergers and acquisitions. First, can you describe the demand on a month-by-month basis starting from November and December and into the beginning of this year? Some of your peers have indicated that demand may have decreased slightly in recent weeks, and I’m trying to determine if this is just typical seasonal variation or if there are other environmental factors at play, such as uncertainty related to policy issues that may be affecting sales. Alternatively, is this simply what you'd expect transitioning from the fourth quarter to the first quarter? The second topic is about mergers and acquisitions. Can you share your perspective on the current environment and your readiness and interest in pursuing a multibillion-dollar deal?
Padraig McDonnell, CEO
Thanks, Doug. I'll address the first question, and Adam will handle the second. If you examine the pharmaceutical sector alongside our replacement cycle, you'll notice we had a very strong quarter, with biotech driving that segment. We experienced a reasonable budget flush at the end of December, though not excessive. In January, we mentioned some of the disruptions we observed in Europe, such as weather impacts. Overall, the performance has remained very steady, with our sales funnels continuing to be stable and, in many instances, growing. This stability can be attributed to improving capital expenditure conditions, particularly with the MFN deals easing tariff uncertainties, which is significant for our pharmaceutical clients. The strong growth in GLP-1 and the healthy performance of our CDMO base are noteworthy. We are very pleased with the ongoing order trajectory in capital expenditures and are closely monitoring our sales funnels moving forward. There are no signs of deterioration in capital expenditures. As for capital allocation, which is a frequent topic, I'll let Adam respond to that.
Adam Elinoff, CFO
Thank you for the question. It's essential to start with our capital allocation priorities, which remain unchanged. First, we are emphasizing investments in growth through internal innovation. Second, we focus on mergers and acquisitions. Third, we are investing in strategic capacity expansion. Simultaneously, we will continue to return excess capital to shareholders through increasing dividends and share repurchases. I also want to highlight that we are confident in our organic business and our strategy. We do not need to pursue any transformative deals to reach our growth objectives. While we do not have a set size limit for potential deals, I want to emphasize that the criteria for a transformative deal are very high, and such opportunities are limited. We are committed to ensuring that any acquisition aligns with our fundamental business principles, involves areas where we have a competitive advantage, is manageable for integration, and is priced appropriately to generate returns above our target. We believe there are promising opportunities in the market, and we are actively evaluating them while keeping our priorities in mind. Again, we are satisfied with our organic business and do not require transformative transactions to fulfill our goals.
Operator, Operator
Your next question comes from the line of Patrick Donnelly with Citi.
Patrick Donnelly, Analyst
Padraig, I wanted to focus on the LDG segment. I understand the weather impact. It did come in light, even backing that out. It sounds like it's around the cell analysis and genomics piece, maybe some softer purchasing in Europe. It does sound like LC/MS and the CDMO overall held in well. Can you just expand on what you saw there? And then also staying in the LDG segment, just the profitability probably for Adam. What drove the softness there? Is that just mix with the cell analysis? I wanted to get a little more color there.
Padraig McDonnell, CEO
Yes. Thanks, Patrick. And I think LDG grew 3% in the quarter. It was a bit below our mid- to high-digit expectations. And I think in addition to the weather impact, we saw softness in academia and government that challenged our cell analysis and genomics business. But our larger end markets, pharma biotech and diagnostic grew high single digits. But Simon, do you want to give some more color on the LDG what you saw in the quarter, particularly on those businesses?
Simon May, President of Life Sciences and Diagnostics Markets Group
Yes. Thanks, Padraig. As Padraig already mentioned there, we were challenged by the weather situation and also the ongoing softness that we're seeing in academic research markets, most notably in the U.S. And in our cell analysis portfolio as well. We've got a relatively lower portion of recurring revenue mix than we have elsewhere in our portfolio. When we've got a bit more exposure on the smaller capital equipment side there. So as we think about the macro situation going forward, the exposure to academic and government is always going to be there. And we still see a lot of cautious spending. But we also think we've got reasons to believe we're at or near the bottom. U.S. academic science budgets appear to be plateauing. Europe is more stable. I think we're anticipating some modest incremental improvement in academia and government in Europe. And also the feedback I've been getting from the teams as I've been seeing customers and attending the sales meetings over the past few weeks is that there's a sense of optimism in the field. We've got a strong portfolio. We've got very strong conviction in the portfolio on a medium, long-term basis, and I think we'll see that improvement begin to unfold as time passes.
Adam Elinoff, CFO
The only thing I'd add on margin is beyond the weather, the academic and government softness is there's the CDMO batch cadence that also impacts the margin in the first quarter. With CDMO, obviously, a batch is not a batch is not a batch. They're all a little bit different and have different revenue profiles and different timing. So just given the cadence we had in Q1, that also impacted the margin.
Patrick Donnelly, Analyst
Okay. That's helpful. And then, Adam, I wanted to pick up right there in terms of CDMO. Can you guys just talk about NASD, BIOVECTRA, what you saw in the quarter? It sounded like overall, it was low double-digit growth for specialty CDMO. Can you just give a bit more color? And again, it sounds like the mid-teens, still very much on the table. So just the visibility and pacing of those businesses as we work our way forward.
Adam Elinoff, CFO
Yes. So I'll start off and then I'll pass it over to Simon if he has anything to add. But yes, absolutely. So we saw low double-digit growth in the first quarter as expected. And once again, it really is about the batch cadence, and it's the normal kind of quarter-over-quarter revenue variance that you'd expect. We continue to expect mid-teens growth for the full year, and that's based on our production schedules and the demand dynamics we're currently seeing in the market. And I guess the only other thing I would add that may be helpful for you is our mix of business in NASD continues to skew towards larger commercial batches with about 60% coming from commercial programs. And then on the other hand, commercial programs represent about only 1/3 of the BIOVECTRA revenue. So they have a little bit different profile. But we expect, based on what we have now, that it will continue to ramp through the year.
Simon May, President of Life Sciences and Diagnostics Markets Group
I think Adam covered most of it there. Just to add a couple of points. We did see strong year-over-year order intake in the first quarter. As Adam said, NASD continues to skew favorably towards commercial programs. And as we look to the rest of the year, we've got good visibility to the pipeline, and we see revenue ramp in the second half of the year.
Operator, Operator
Your next question comes from the line of Dan Brennan with TD Cowen.
Daniel Brennan, Analyst
Maybe just to start off, I understand if you back out the $10 million, the growth would have been right in line with the 5% and you kind of walked through all the puts and takes. But just kind of stepping back, you guys have been on a pretty consistent pace of like coming in ahead of guidance, 5% growth is still solid in this environment. Just wondering how we might think about the rest of your guidance in terms of what would drive here to the higher end to lower end, given that trend of consistently beating numbers and now it looks like more in line this quarter?
Padraig McDonnell, CEO
Yes, I think we are really set up for success. If you look at our innovative products, they are performing exceptionally well, including Infinity III and the Pro iQ replacement cycles. We have a strong commercial team, solid connections with customers, and effective enterprise service capabilities as I mentioned earlier. Overall, I believe we had a solid first quarter with excellent growth despite the challenging weather conditions. We are confirming our top line expectations, which I believe is a prudent approach given the ongoing macroeconomic uncertainty. The operating profit growth of 10% and 75 basis points of margin expansion at the midpoint is impressive. We've recently had numerous sales kickoffs worldwide, and our sales funnels look very robust. In fact, we've seen our best market share report to date. Everything is moving in the right direction, which gives us optimism as we progress through the year.
Adam Elinoff, CFO
Sure, I can provide more detail on the factors that could either positively or negatively impact our guidance. There are three main areas to consider. First, there is potential growth in the small and mid-cap biotech sector, where we still see signs of improvement. However, there is a delay in how additional investments, IPOs, and mergers and acquisitions translate into actual spending. Second, if the academic sector shows more stability, that could also contribute positively. Lastly, while we believe China's market will remain stable at around a $300 million quarterly run rate, a larger stimulus toward the year's end would be beneficial. We had a small stimulus in the first quarter that yielded good results, so a second similar stimulus later in the year would give us confidence that we could perform well. On the downside, if the small and mid-cap sectors continue to be pressured, and if the academic and government sectors worsen, we could see a decline in China, which we would expect to be in the low single-digit range against our previous flat assumption.
Padraig McDonnell, CEO
Yes. If you look at small and medium-sized biotech, we have a relatively small exposure, but we're actually encouraged by improving biotech funding and increased M&A. You see that a lot. If you look at the macros in January, total biopharma financing rose about $11 billion, that's a 2-year high. So we watch that. You have the patent cliff that's looming, of course, with heightened biopharma focus on M&A. And I think '25 is one of the strongest years in M&A for pharma, which, of course, I think about $240 billion. I think it's too early to cause an inflection on it. And there's a lag, I think, between improving funding environment and customer spending. But we're extremely well placed with our tools. If you look at the Pro iQ LC/MS on that side, also on our Infinity III. And of course, we'll see a recovery in our cell analysis business for those two as we go forward on it. So that's the way I would say that it's really a relatively small exposure for us, but we're really encouraged by the improving funding environment.
Operator, Operator
Your next question comes from the line of Brandon Couillard with Wells Fargo.
Brandon Couillard, Analyst
The 6% growth in China, was that all stimulus related and would be helpful if you can just touch on a couple of the end markets there. Curious if you're seeing any of them turn more positively or if it's really just still status quo?
Padraig McDonnell, CEO
Yes, we were very pleased with our 6% growth, which exceeded expectations. When compared to our peers, it was also quite favorable. There was a slight increase in spending before the Lunar New Year, but it wasn’t excessive. Last year, we experienced a strong stimulus business, and while this year it was smaller, we captured about 30% of that. Looking ahead, we anticipate about $300 million in quarterly business from it. Overall, we are under-indexed in diagnostics and pharmaceuticals but over-indexed in applied markets where we continue to see strength. We expect China to grow in the mid- to high single digits over the long term, not the double-digit growth we saw a decade ago. Our strong manufacturing capabilities in China and the proximity of our commercial teams to customers is crucial. Additionally, Adam mentioned a larger stimulus anticipated toward the end of the year, which we haven't included in our guidance, but if it materializes, we expect it to be significantly larger than previous stimuli with positive implications for us. We're optimistic about China because we hold the largest installed base there. The rapid innovation in life sciences and applied markets supports the demand for our instruments and solutions. The 15th five-year plan in China emphasizes AI application, healthcare, green sustainable developments, and new pollutant regulations like PFAS, positioning us favorably in light of these priorities. Overall, we feel very confident about our prospects in China.
Adam Elinoff, CFO
Yes. And so you mentioned the 6%. It is a combination of both the stimulus and just solid commercial activity. And what I'd say is, in our applied markets, we continue to perform well in the region, and I think we have uptake in the pharma segment as well. So we feel good.
Operator, Operator
That's helpful. And then, Adam, it'd be great to get some color on the AMG markets by region. I think Simon said Europe was pretty solid. So just curious where you're seeing the weakness is it all in the Americas? Any color would be helpful by region.
Adam Elinoff, CFO
Yes. So the softness we've been seeing is really primarily in the Americas. And I guess there's reason to be optimistic. The NIH budget came in, in line with flat to slightly up. The 15% cap on overhead research cost was blocked. That said, it goes back to what Simon talked about, which is we're still seeing a little bit of hesitancy in our customers to make bigger investments as they're really focused on operating their labs.
Simon May, President of Life Sciences and Diagnostics Markets Group
And just to clarify the Europe comment, that was a forward-looking comment that we envision more stability in Europe than in the Americas with academic and government, and cautious optimism around incremental improvement. That was a forward-looking statement.
Operator, Operator
Your next question comes from the line of Casey Woodring with JPMorgan.
Casey Woodring, Analyst
I'll ask my two upfront. The first is just on LC and LC/MS pacing over the course of the year. LC grew high singles in 1Q. Can you just talk about what LC/MS grew in the quarter and walk through the growth phasing for LC and LC/MS over the course of the year? And then secondly, Padraig, you called out the three marquee enterprise service wins in ACG, and you talked a little bit about it in your script. Can you maybe just elaborate on what the financial impact could look like from those contracts and how we should think about the impact to the model and how those ramp over time?
Padraig McDonnell, CEO
Yes. Let me discuss enterprise services first and then address LC/MS. On the enterprise services front, it plays a critical role in our future as we work closely with customers on lab management and productivity. The insights we gain from the replacement cycle are crucial for our progress. It's not merely about the services; it also encompasses consumables and instrument replacements. We've secured significant placements in competitive accounts, which is a unique approach for us in the market, and we view this as a driving force for continuous growth. Additionally, in accounts with enterprise service agreements, we observe a higher rate of consumables and services attachment. Furthermore, we have developed an early warning system for replacement cycles that allows us to initiate discussions ahead of time.
Simon May, President of Life Sciences and Diagnostics Markets Group
Well, just to reiterate on LC, we saw high single-digit growth in the quarter, particular strength in China and APAC. And as we've mentioned already, very strong performance in Infinity III. Customers continue to love it, and I still think we're relatively early mid on the replacement cycle there. Win-loss rates continue to be positive, notable share gains based on the industry data, and we're now seeing additional tailwind there with the Altura columns. On the LC/MS side, we were in line with expectations in the first quarter. Coming off a tough sequential and year-over-year compare, it has to be said. But again, we were very pleased with Pro iQ with the 40% growth, really exceptional adoption there. And in LC/MS, similar story with respect to win-loss rates and the industry data, which signifies some notable share gains. And then beyond the Pro iQ, which is off to a very strong start, we're also very encouraged by our broader LC/MS innovation pipeline.
Padraig McDonnell, CEO
Yes. Just going back to the enterprise services part. I just want to bring in Angelica because she's been very close to some of these marquee wins under the growth trajectory and what you're seeing with the customers.
Angelica Riemann, President of the Agilent CrossLab Group
Thanks, Padraig, and thanks for the question, Casey. I think we're very excited about the enterprise business and the opportunity that unlocks. I think Padraig used the word flywheel earlier. And when you think about it, it allows us to really embed our service experts into the accounts, and they're looking at managing assets across the laboratory. So not only does it give us the opportunity to help customers with their lab operations and keep their labs up and running and producing those scientific results. It gives us visibility and access more broadly in these laboratory environments. So that we're not only looking at our own replacement cycles, but we're also looking at competitive displacement opportunities. We're looking for incremental wallet share opportunities. And over the course of time, the relationships that we're building, they compound. They compound from a growth perspective, but they also compound from insights that we get from customers and how we bring that back into the innovation muscle that we have here at Agilent, and how we can continually grow, evolve and continue to serve our customers on all different levels, whether it's lab operations, it's scientific outcomes or its ongoing value over time.
Operator, Operator
Your final question comes from Evie Koslosky with Goldman Sachs.
Tejas Savant, Vice President, Investor Relations
Operator, if Evie is not there, I think we can leave it there. It's all the time we have for this afternoon, and thank you to everyone for joining us. We look forward to speaking with you soon.
Operator, Operator
This concludes today's call. Thank you for attending. You may now disconnect.