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 full year and our fourth quarter outlook. Unless otherwise noted, my remarks will focus on non-GAAP results.
Q3 revenue was $1.67 billion, a decline of 2.3% core and down 2.7% on a reported basis. This compares with 13.2% core growth last year. Currency was a 0.5 point headwind while M&A contribution was minimal. As you may recall, Q3 of last year benefited from roughly $35 million in revenue deferred from the second quarter as we ramp back up from the Shanghai shutdown in China. Accounting for this, our Q3 core growth would be roughly flat versus a year ago.
As Mike mentioned, Pharma, our largest end market, declined 8%. This is in line with our reduced expectations coming out of Q2 with underperformance in China, offset by better performance in the rest of the world. The Chemicals and Advanced Materials market was down 3% off a very tough 22% compare, but dollar-wise was flat sequentially.
The academia and government market was up 5% and with all regions showing growth except the Americas, which was flat. Our business in the diagnostics and clinical market grew 3%, driven by high single-digit growth in pathology, partially offset by genomics weakness.
The environmental and forensics business grew 2%, driven by double-digit growth in the Americas and Europe. The growth was generated by the build-out of water infrastructure projects and an expansion of funding for PFAS-related activities. The food market grew 1% based on strength in Asia outside of China and mid-single-digit growth in Europe, driven by new food testing regulations. On a geographic basis, while China underperformed, the Americas and the rest of Asia were better than expected, while Europe was in line with our expectations.
Moving down the P&L. Third quarter gross margin was 56.3%, down 10 basis points from a year ago. Like last quarter, this was largely due to the product and services mix, and pricing was slightly better than our expectations. Below gross margin, the expense reduction actions we initiated in the second quarter helped strengthen operating margins. We also benefited from a reduction in variable pay expenses.
As Mike mentioned, margins were 29.3%, up 180 basis points from last year. Below the line, our interest income was higher than planned, while our tax rate was 13.75% and we had 295 million diluted shares outstanding. Putting it all together, Q3 earnings per share were $1.43, up 7% from a year ago, a very good result given declining revenue.
Now let me turn to cash flow and the balance sheet. I continue to be pleased with our cash flow generation this year. Cash flow from operations was $562 million in the quarter and is $1.3 billion year-to-date. In Q3, we invested $81 million in capital expenditures, totaling $214 million year-to-date, effectively flat year-on-year as we continue to optimize our Capex spending. Given the strong year-to-date results, we are increasing our free cash flow forecast for the year to $1.2 billion, comprised of operating cash flow of $1.5 billion and capex of $300 million. This is an increase of $250 million from the midpoint of our previous guidance.
Despite the challenging macroeconomic conditions, our balanced capital allocation strategy is intact. During the quarter, we returned $401 million to shareholders. $66 million through dividends and repurchase shares worth $335 million. This ongoing balanced approach to capital deployment is another example of the confidence we have in our team and our belief in the long-term strength of our markets. Before getting into the revised full year outlook, I want to mention we have taken a $291 million pretax charge in Q3 associated with the decision to shut down the Resolution Bioscience business. This charge, which is excluded from non-GAAP results, includes an impairment write-down along with charges associated with the wind-down and exit of the business. We expect the wind down to continue through Q4 and into early FY '24.
Now to the revised outlook for the year in Q4. Given the more challenging macroeconomic environment we are seeing, particularly in China, we now expect full year revenue to be in the range of $6.80 billion to $6.85 billion. This represents a decline of 0.7% to flat on a reported basis and core growth of 0.8% to 1.5%. This is a core growth reduction of 260 basis points from the midpoint of our last guide. Roughly 85% of the change is related to reduced expectations in China while the remainder is due to some incremental cautiousness from our customers on capex spend as well as softness in genomics and the shutdown of Resolution Bioscience. As Mike said earlier, we are not assuming any incremental stimulus in China or any material year-end budget flush in these revised projections.
Given the large change in China, I wanted to provide some additional perspective on how we are forecasting the rest of the year, recognizing that the market continues to be very dynamic. To provide some context, in Q3 through June, our business in China was tracking to a mid-single-digit decline in revenue, which was in line with our expectations. However, in July, we saw a further deterioration in China, resulting in the 17% decline for the quarter.
And while the Q3 decline in China was centered in pharma, which was down 30%, we did see weakness in the other end markets as well. We expect the conditions we've seen in July to persist in China for Q4. In addition, we are facing our most difficult quarterly compare in China, where we grew 44% in Q4 of last year. We are now expecting Q4 to decline in the mid-30s year-on-year. For the full year, we are expecting China to decline mid-single digits versus growing mid-single digits. With the change in revenue, we now expect full year fiscal 2023 non-GAAP earnings per share to be between $5.40 and $5.43, representing leveraged earnings growth of 3% to 4% and roughly 6% to 7% growth net of currency.
The change in full year guide results in Q4 revenue being in the range of $1.655 billion to $1.705 billion. This represents a decline of 8% to 10.5% on a reported basis and a decline of 9.5% to 12% on a core basis. The recovery last year in Q4 of the remaining revenue deferred from the Shanghai Q2 shutdown negatively impacts the year-on-year results by roughly a point. In fourth quarter, non-GAAP earnings per share are expected to be between $1.33 and $1.36.
Thanks for being on the call. And now I will turn things back over to Mike for some closing comments before taking your questions. Mike?
