Robert McMahon
Senior Vice President & Chief Financial Officer at Agilent Technologies
Thanks, Mike, and good afternoon, everyone. In my remarks today, I will provide some additional details on revenue in the quarter as well as take you through the income statement and other key financial metrics. I'll then finish up with our updated guidance for the year and our third quarter outlook. Unless otherwise noted, my remarks will focus on non-GAAP results. Q2 revenue was $1.72 billion exceeding our expectations. Revenues were up 9.5% core and up 6.8% on a reported basis. Currency was a 2.8 point headwind while the M&A contribution was minor as expected. In Q2 we continued to leverage our backlog and exited the quarter with our backlog at a normalized level. As Mike mentioned, our two largest end markets performed well in the quarter. Pharma, our largest end market, posted 6% growth led by biopharma while small molecule declined slightly.
Chemicals and advanced materials continued to drive strong secular growth of 16% during the quarter on top of 9% growth last year. The chemical and energy subsegments of the market are doing well with the advanced materials market continuing to lead the way. As in past quarters, semiconductors and batteries are driving demand in this space. In looking at the rest of the end markets, the food market grew an impressive 21% during the quarter driven by very strong growth in China. We also saw strong results in the Americas and in Europe. The academia and government market was up 11% led by China and Europe as the funding environment continues to be constructive. Our business in the diagnostics and clinical market grew 6% on top of 5% growth last year. Pathology again led the way for us here partially offset by genomics. The environmental and forensics business grew 2%, led by China and the Americas while Europe declined.
The Americas slowed after a very strong Q1, but still delivered mid single-digit growth. On a geographic basis, the China team exceeded our expectations, delivering 32% growth following last year's COVID lockdowns in Shanghai. As we mentioned last year, the COVID-related lockdowns deferred roughly $55 million in Q2 from last year into third and fourth quarters. So while Q2 is an easier compare, we will have much tougher compares in China going forward. Taking out the effects of the lockdown this quarter, we estimate China still grew double digits so very solid results by our China team. And the rest of Asia grew high single digits, better than expected. The Americas grew 3% with growth across all end markets. From a group perspective, both ACG and DGG grew while LSAG unexpectedly declined low single digits as we started to see the accelerated effects of the slowing capex environment. Europe grew 5%, in line with expectations led by pharma and CAM.
Now moving down the P&L. Second quarter gross margin was 55.3%, down 40 basis points from a year-ago largely due to an unfavorable product mix. The benefit of pricing was as expected. Below gross margin, we had good cost discipline in SG&A, which drove our operating margin to 25.6%, up 30 basis points from last year. Below the line, we benefited from higher-than-planned interest income due to higher interest rates and strong cash flow. Our tax rate was 13.75% for the quarter and we had 297 million diluted shares outstanding, both as expected. Now putting it all together, Q2 earnings per share were $1.27, up 12% from a year-ago, a very good result combined with our 9.5% core topline growth. During the quarter, operating cash flow was very strong generating $398 million. This result was helped in part by deferring estimated US tax payments of roughly $60 million to our fiscal fourth quarter.
This is due to the payment deferral relief made available by the IRS to taxpayers in designated counties affected by the winter storms in California. We returned $151 million to shareholders, $66 million through dividends and repurchased shares worth $85 million while also investing $57 million in capex, continuing our successful balanced approach to capital deployment. Our strong balance sheet is even more of an asset in this market environment and remains very healthy as we ended the quarter with a net leverage ratio of 0.7 times. And earlier this month, Moody's upgraded Agilent's investment grade rating on our corporate long-term debt to Baa1. This action is an important recognition of Agilent's financial strength. Now on to the revised outlook for the year and guidance for Q3. For the year, we now expect revenue to be in the range of $6.93 billion to $7.03 billion. This represents reported growth of 1.2% to 2.7% and core growth of 3% to 4.5%.
Currency is expected to be a headwind of 1.9 points while M&A will contribute 0.1 points of growth. In addition to revising our guidance, we've increased the guidance range for the second half of the year to reflect a wider range of possible outcomes. For modeling purposes, I would encourage you to use the midpoint of our guide. Our updated guidance reflects a more constrained capital market, primarily impacting our instrument business. The outlook for our recurring revenue businesses remains largely unchanged. From an end market perspective, the market most impacted is pharma where we are now expecting full-year growth of low single digits, down from high single digits. And from a geographic perspective, we see impacts focused in the US and China. With the change in revenue, we now expect full-year fiscal 2023 non-GAAP earnings per share to be between $5.60 and $5.65 representing growth of 7% to 8%. As with revenue, I encourage you to model at the midpoint of our guidance.
Now turning to Q3. We expect revenue in the range of $1.64 billion to $1.675 billion. This represents a decline of 4.5% to a decline of 2.5% for both reported and core revenue. This is on top of a tough compare of 13% growth last year. Adjusting for the China deferral in Q3 of last year would add roughly 200 basis points to both reported and core growth in the quarter. Currency and M&A impact in Q3 are minimal and are expected to offset each other. Third quarter non-GAAP earnings per share are expected to be between $1.36 and $1.38 representing growth of 1.5% to 3% versus the prior year. We are pleased with the first half performance and while we are facing a more difficult market environment than we were estimating a quarter-ago, I am confident that our team will continue to deliver for our customers.
Thanks for being on the call. And now I'll turn over things back to Mike for some closing comments before we take your questions. Mike?
