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Waters Corporation (WAT - Analyst Report) reported second-quarter 2013 earnings per share from continuing operations of $1.08, missing the Zacks Consensus Estimate of $1.21 by 10.7%. In addition, earnings also declined 8% year over year. Decline in profits was primarily attributable to an unexpected slowdown in orders in the instrument system.


Total revenue in the second quarter was almost flat year over year at $451.1 million. Unfavorable currency translation impacted the top line by 2%. The difficult market condition was a challenge for the company.


Gross profit for the quarter was $262.8 million, which was down 3.5% from $272.2 million reported in the prior-year quarter. Gross margins for the quarter were down 204 basis points (bps) to 58.3%. The decline was primarily attributable to unfavorable currency translation and additional software amortization due to the release of the UNIFI products.   

Operating income for the quarter stood at $112.7 million, which declined 6.2% from $120.1 million in the second quarter of 2012. The company incurred total SG&A expense of approximately $123.0 million in the quarter, down 0.3% year over year. R&D expense was around $24.6 million in the quarter versus $23.9 million in the prior-year quarter. The operating margin was down 163 bps to 24.9%.  

Balance Sheet

Exiting the quarter, cash, cash equivalents and short-term investments reached approximately $1.65 billion compared with $1.54 billion at the end of 2012. Long-term debt was $1.13 billion. Debt-to-capitalization ratio was 42.7% compared with 41.6% in the prior-year quarter. Shareowner’s equity was $1.5 billion at the end of the quarter.

Moving Ahead

Waters Corporation continues to see considerable stability in its end markets and continued momentum in the acceptance of new products. However, the analytical instrument and systems market is highly competitive. Waters carries a Zacks Rank #3 (Hold).

Other companies worth considering at the moment and which operate in the same industry include Synaptic Inc. (SYNA - Snapshot Report), Analogic Corp. (ALOG - Snapshot Report) and Logitech International S.A. (LOGI - Analyst Report). All three carry Zacks Rank #2 (Buy).

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