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Waters Corp. (WAT) Q2 Earnings Beat on Top Line Strength

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Waters Corporation (WAT - Free Report) added yet another beat to its impressive earnings streak, as its second-quarter 2016 adjusted earnings of $1.58 per share trumped the Zacks Consensus Estimate of $1.45 by almost 9%. Remarkable top line expansion along with growth in Asia and Europe, aided the earnings beat.

The bottom line figure fared even better in year-over-year comparison, reflecting a striking growth of nearly 20% from the prior-year quarter tally of $1.32.

Strong operational execution backed by the company’s efficient business model also lent strength to the results. Further, a decline in interest expenses aided quarterly profits.

Inside the Headlines

In the quarter, Waters Corp.’s net sales grew 8.5% year over year to $537 million and also beat the Zacks Consensus Estimate of $522 million.

The upside in the top line came on the back of solid performance in the bio/pharmaceutical end markets (up 12% on a constant currency basis). The industrial market achieved growth of 7% in sales, while a 4% decline in sales within the government and academic market somewhat offset the otherwise strong performance.

Also, impressive contribution from sale of key products across major geographies supplemented quarterly sales growth. In addition, Water Corp.’s recurring revenues and instrument system sales grew 10% and 7%, respectively, driving top line growth.

In terms of geographies, Waters Corp. witnessed strong sales in Asia and Europe, which posted 9% and 12% growth at constant currency. Sales in the U.S. also rose 5% year over year.

Gross profits in the quarter totaled $316.2 million, up from $286 million reported in the prior-year quarter. Also, operating income in the quarter surged 16.3% year over year to $151.6 million.

Total selling and administrative expenses in the quarter was $129.6 million, up from $122.7 million in second-quarter 2015. Research and development expenses stood at $32.6 million, compared with $30.6 million incurred a year ago.

Liquidity

Waters Corp.’s cash, cash equivalents and investments amounted to approximately $2.6 billion, higher than $2.4 billion as on Dec 31, 2015. The company’s total liabilities at quarter end increased to about $2.3 billion from $2.2 billion as on Dec 31, 2015.

WATERS CORP Price and Consensus

WATERS CORP Price and Consensus | WATERS CORP Quote

Our Take

Waters Corp.’s leading position in the high-performance liquid chromatography and mass spectrometry markets is its key strength that has acted as a strong revenue driver over the past few quarters. The company’s bright pharmaceutical business kick-started 2016 on a healthy note, and is continuing its momentum.

Waters Corp.’s exposure in the pharma/biotech industry is primarily in regulated commercial lab environments, where demand is non-discretionary and not prone to cyclicality. This helps the company mitigate uncertain client spending stemming from macroeconomic volatility.

Also, given the fact that liquid chromatography is used in a variety of applications including drug discovery, development, quality control of drug products, therapeutic drug monitoring, proteomics, metabolomics, environmental analysis and food analysis, Waters Corp. stands to benefit significantly from this business going forward.

Waters Corp. currently carries a Zacks Rank #2 (Buy). Some other favorably-ranked stocks within the sector include Bruker Corp. (BRKR - Free Report) , PerkinElmer Inc. and Mettler-Toledo International Inc. (MTD - Free Report) . While Bruker sports a Zacks Rank #1 (Strong Buy), Mettler-Toledo and PerkinElmer hold the same Zacks Rank as Waters Corp.

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