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Waters' (WAT) Earnings and Revenues Beat Estimates in Q4

Zacks Equity Research

Waters Corporation WAT delivered fourth-quarter 2018 non-GAAP earnings of $2.87 per share, surpassing the Zacks Consensus Estimate by 22 cents. The figure increased 14.3% on a year-over-year basis and 49.5% sequentially.

Net sales surged 23.7% sequentially and 4.1% year over year to $715.02 million. Further, the figure outpaced the Zacks Consensus Estimate of $702.52 million.

Top-line growth can be attributed to robust performance of the company’s TA product line. Further, its solid momentum in Asia, especially in China, and strong performance in the pharmaceutical market drove revenues.

Coming to the price performance, shares of Waters have lost 3.5% over a year compared with the industry’s decline of 8.9%.

Notably, the company remains optimistic about its strengthening growth initiatives which are likely to aidit in gaining investors’ confidence in the near term as well as the long haul. Further, its new product cycle is also a major positive.

Top Line in Detail

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

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

Waters segment (87.4% of net sales) generated $625.1 million of sales, up 3.7% from the year-ago quarter. Sales in TA segment came in $89.9 million and accounted for 12.6% of the net sales. The figure reflected year-over-year growth of 6%.

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

Instruments sales (54.8% of sales) came in $392.02 million, up 3.4% on a year-over-year basis.

Service sales (30.3% of the sales) were $216.5 million. The figure increased 4.3% year over year.

Chemistry sales (14.9% of the sales) were $106.5 million, increasing 6% from the year-ago quarter.

Moreover, service and chemistry sections together generated recurring revenues of $323 million, up 5% from the year-ago quarter.

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

Pharmaceutical market (55.5% of net sales) generated sales of $396.9 million, up 6% on a year-over-year basis.

Industrial market (30.7% of sales) sales came in $219.2 million, increasing 1% from the year-ago quarter.

Governmental & Academic (13.8% of sales) generated $98.9 million of sales. The figure was up 2% year over year.

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

Asia (36.8% of net sales) generated $262.9 million of sales for the company. The figure was up 8% on a year-over-year basis, driven by strong momentum in China.

Americas (34.8% of sales) generated $248.5 million of sales, up 5% year over year.

Europe (28.4% of sales) generated $203.6 million of sales, decreasing 3% from prior-year quarter.

Waters Corporation Price, Consensus and EPS Surprise

Waters Corporation Price, Consensus and EPS Surprise | Waters Corporation Quote

Operating Details

In the quarter under review, non-GAAP selling and administrative expenses were $143.05 million, reflecting a decrease of 1.7% year over year but increased 13.3% from the previous quarter.

Further, research and development spendingwas $38.11 million, up 8.5% year over year and 8.3% sequentially.

Adjusted operating margin was 34.5%, expanded 10 basis points (bps) from the year-ago quarter and420 bps sequentially.

Balance Sheet & Cash Flow

As of Dec 31, 2018, cash, cash equivalents and investments came in $1.73 billion, lower than $2.08 billion as of Sep 29, 2018.

Further, total liabilities were $2.16 billion, declining slightly from $2.17 billion in the previous quarter.

Waters also generated free cash flow of $160.3 million in the fourth quarter.

Guidance

For first-quarter 2019, Waters expects non-GAAP earnings in the range of $1.65-$1.75 per share. The Zacks Consensus Estimate for earnings is pegged at $1.78.

The company anticipates net sales growth between 4% and 6% on a constant currency basis. The Zacks Consensus Estimate for sales is currently projected at $546.21 million.

For 2019, Waters anticipates non-GAAP earnings to lie in the range of $9.20-$9.45 per share. The Zacks Consensus Estimate for 2018 earnings is pegged at $9.27 per share.

Further, the company expects net sales to reflect growth between 4% and 6% on a constant currency basis. The Zacks Consensus Estimate is pegged at $2.5 billion.

Zacks Rank & Stocks to Consider

Waters carries a Zacks Rank #3 (Hold).

STMicroelectronics N.V. STM, Marvell Technology Group MRVL and Pure Storage PSTG are better-ranked stocks in the broader computer and technology sector. All three sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

While STMicroelectronics is set to report on Jan 24, Pure Storage and Marvell are expected to report on Mar 7 and 14, respectively.

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