Waters (WAT) Down 0.1% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Waters (WAT). Shares have lost about 0.1% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Waters due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Waters' Earnings & Revenues Miss Q1 Estimates

Waters Corporation reported first-quarter 2019 non-GAAP earnings of $1.6 per share, missing the Zacks Consensus Estimate by 13 cents. The figure increased 0.6% on a year-over-year basis but declined 44.2% sequentially.

Net sales came in $513.9 million, lagging the Zacks Consensus Estimate of $545.5 million. Further, the figure was down 3% year over year and 28.1% from the previous quarter.

Lower-than-expected results can primarily be attributed to adverse effects of foreign exchange fluctuations and macro-economic headwinds in China and Europe.

Further, weak demand environment throughout the quarter especially in the pharmaceutical and industrial market due to sluggish customer spending affected the sales figure.

Nevertheless, the company remains optimistic about its strengthening growth initiatives and new product introductions which are likely to aid it in gaining investors’ confidence in the near term.

Top Line in Detail

Waters’ net sales figure can be categorized in four ways:

By Operating Segment: The company operates in two organized segments — Waters and TA.

Waters segment (89.5% of net sales) generated $459.91 million of sales, down 2% from the year-ago quarter. Sales in TA segment came in $53.95 million and accounted for 10.5% of the net sales. The figure reflected year-over-year decline of 9%.

By Products & Services: This division comprises three segments — Instruments, Services and Chemistry.

Instruments sales (43.1% of sales) came in $221.25 million, down 8% on a year-over-year basis.

Service sales (37.6% of the sales) were $193.36 million. The figure increased 1% year over year.

Chemistry sales (19.3% of the sales) were $99.25 million, increasing 1% from the year-ago quarter.

Moreover, service and chemistry sections together generated recurring revenues of $292.61 million, up 1% from the year-ago quarter.

By Markets: The company serves three end markets — Pharmaceutical, Industrial and Governmental & Academic.

Pharmaceutical market (57.3% of net sales) generated sales of $294.51 million, down 4% on a year-over-year basis.

Industrial market (30.2% of sales) sales came in $155.22 million, down 4% from the year-ago quarter.

Governmental & Academic (12.5% of sales) generated $64.13 million of sales. The figure was up 2% year over year.

By Geography: This company’s operating regions include Asia, Americas and Europe.

Asia (39% of net sales) generated $200.51 million of sales for the company. The figure was up 0.1% on a year-over-year basis.

Americas (35.4% of sales) generated $181.87 million of sales, remaining flat year over year.

Europe (25.6% of sales) generated $131.48 million of sales, down 12% from prior-year quarter.

Operating Details

In the first quarter, non-GAAP selling and administrative expenses were $124.3 million, suggesting a decline of 3.5% from the year-ago quarter.

Further, research and development spending was $35.1 million, indicating a decline of 1.7% form the year-ago reported figure.

Adjusted operating margin was 26%, contracting 150 basis points (bps) from the year-ago quarter.

Balance Sheet & Cash Flow

As of Mar 30, 2019, cash, cash equivalents and investments came in $1.17 billion, lower than $1.73 billion as of Dec 31, 2018.

Further, total liabilities were $2.28 billion, increasing from $2.16 billion in the previous quarter.

Waters also generated free cash flow of $157.61 million in the first quarter.

Guidance

For second-quarter 2019, Waters expects non-GAAP earnings in the range of $2.05-$2.15 per share.

The company anticipates net sales growth between 2% and 4% on a constant currency basis.

For 2019, Waters lowered guided range for non-GAAP earnings from $9.20-$9.45 per share to $9.05-$9.25 per share.

Further, the company guided net sales growth in the band of 2-4% on a constant currency basis, lower than the previously anticipated range of 4-6%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.31% due to these changes.

VGM Scores

Currently, Waters has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Waters has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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