It has been about a month since the last earnings report for Waters (WAT). Shares have added about 4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Waters due for a pullback? 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' Q3 Earnings In Line, Revenues Lag Estimates
Waters Corporation reported third-quarter 2019 non-GAAP earnings of $2.13 per share, which matched the Zacks Consensus Estimate. Further, 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.
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.
For fourth-quarter 2019, Waters expects non-GAAP earnings in the range of $2.95-$3.05 per share.
The company anticipates net sales growth between 0% and 2% on a constant currency basis.
For 2019, Waters lowered guided range for non-GAAP earnings from $8.95-$9.10 per share to $8.73-$8.83.
Further, the company’s net sales growth on a year-over-year basis is projected at 1% on a constant currency basis.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -6.39% due to these changes.
At this time, 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.
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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