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Waters (WAT) Q3 Earnings In Line, Revenues Miss Estimates

Zacks Equity Research

Waters Corporation WAT reported third-quarter 2019 non-GAAP earnings of $2.13 per share, which matched the Zacks Consensus Estimate. However, the figure improved 11% on a year-over-year basis but declined 0.5% sequentially.

Net sales of $577.3 million were marginally down 0.1% from the year-ago quarter and 3.6% from the previous quarter. Further, the figure missed the Zacks Consensus Estimate of $589.3 million.

The company encountered softness in the U.S. market, which impacted sales growth negatively in the Americas region during the third quarter. This was primarily responsible for sluggish top line.

Further, weakness in the Governmental & Academic market remains a concern.

Nevertheless, Waters witnessed solid momentum across Asia throughout the reported quarter.

Further, the company remains optimistic regarding its strengthening growth initiatives and new product introductions, which are likely to instill investor optimism.

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 (88.7% of net sales) generated $515.15 million of sales, down 0.7% from the year-ago quarter. Sales in TA segment came in $65.13 million and accounted for 11.3% of the net sales. The figure reflected year-over-year growth of 4.7%.

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

Instruments sales (46.8% of sales) came in $270.32 million, down 4% on a year-over-year basis.

Service sales (35.8% of the sales) were $206.71 million, improving 4% year over year.

Chemistry sales (17.4% of the sales) were $100.26 million, advancing 4.5% from the year-ago quarter.

Moreover, service and chemistry sections together generated recurring revenues of $306.96 million, up 4% from the year-ago quarter.

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

Pharmaceutical market (56.8% of net sales) generated sales of $328.23 million, up 1% on a year-over-year basis.

Industrial market (29.7% of sales) sales came in $171.35 million, down 0.4% from the year-ago quarter.

Governmental & Academic (13.5% of sales) generated $77.69 million of sales. The figure decreased 3.9% year over year.

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

Asia (41.2% of net sales) generated $237.78 million of sales, up 7% on a year-over-year basis.

Americas (34% of sales) generated $196.46 million of sales, decreasing 5% year over year.

Europe (24.8% of sales) generated $143.04 million of sales, down 4% from prior-year quarter.

Waters Corporation Price, Consensus and EPS Surprise

 

Waters Corporation Price, Consensus and EPS Surprise

Waters Corporation price-consensus-eps-surprise-chart | Waters Corporation Quote

Operating Details

In the third quarter, non-GAAP selling and administrative expenses were $124.4 million, suggesting a decline of 1.5% from the year-ago quarter.

Per the company, research and development spending was $34.3 million, indicating a decline of 2.4% form the year-ago reported figure.

Adjusted operating margin was 30.7%, which expanded 40 bps year over year.

Balance Sheet & Cash Flow

As of Sep 28, 2019, cash, cash equivalents and investments came in $404.65 million, lower than $675.77 million as of Jun 29, 2019.

Further, total liabilities were $2.45 billion, up from $2.27 billion in the previous quarter.

Waters also generated free cash flow of $124.45 million in the third quarter.

Guidance

For fourth-quarter 2019, Waters expects non-GAAP earnings in the range of $2.95-$3.05 per share. The Zacks Consensus Estimate for earnings is pegged at $3.22.

The company anticipates net sales growth between 0% and 2% on a constant currency basis. The Zacks Consensus Estimate for sales is currently projected at $738.08 million.

For 2019, Waters lowered guided range for non-GAAP earnings from $8.95-$9.10 per share to $8.73-$8.83. The Zacks Consensus Estimate for 2019 earnings is pegged at $9.01 per share.

Further, the company’s net sales growth on a year-over-year basis is projected at 1% on a constant currency basis. The Zacks Consensus Estimate for sales is pegged at $2.44 billion.

Zacks Rank & Key Picks

Waters currently has a Zacks Rank #2 (Buy).

Some better-ranked stocks in the broader technology sector are NetEase NTES, Itron, Inc. ITRI and Five9 FIVN. All the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for NetEase, Itron and Five9 is currently pegged at 31.93%, 25 and 10%, respectively.

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