Waters Underperforms Estimate

Waters Corporation (WAT - Analyst Report) released its second-quarter 2011 earnings before the market opened today, reporting earnings per share from continuing operation of $1.07, below the Zacks Consensus Estimate of $1.14. Earnings in the quarter increased from 90 cents in the second quarter of 2010.

Revenue

On the top line, WAT reported total revenue of $448 million for the first quarter, up 14% year over year. Foreign currency translation added 6% to the sales. The company benefited in the quarter from rapid acceptance by customers of new product offerings and due to good business in Asia.

Income

Operating income for the quarter amounted to $120.6 million compared with $105.6 million in the second quarter of 2010. The company incurred total SG&A expense of approximately $125.4 million in the quarter versus $106.9 million in the year-ago quarter.

Balance Sheet

Cash and cash equivalents and short-term investments were approximately $1.12 billion with long-term debt of $400.0 million and shareowner’s equity of $1.23 billion.

Our Analysis

Waters enjoys a solid footing in the chromatography instrument market, which we believe will be a prime benefactor for the company. A strong customer demand in mass spectrometry and HPLC will help the company to sustain a healthy performance in its organic sales growth over the next few years.

Further, a significant portion of Waters’ revenue is derived from recurring revenue sources, including consumables and services, which are expected to continue to increase over the longer term.

However, the analytical instrument and systems market is highly competitive. Major competitors of Waters are Agilent Technologies Inc. (A - Analyst Report), Life Technologies Corporation (LIFE - Analyst Report) and Thermo Fisher Scientific Inc. (TMO - Analyst Report).

Waters competes in its markets primarily based on instrument performance, reliability, service, and to a lesser extent, price. Some competitors have instrument businesses that are generally more diversified, but are typically less focused on the company’s chosen markets. Some other competitors have greater financial and other resources compared to Waters.

Waters Corporation, an analytical instrument manufacturer, designs, manufactures, sells and services, through its Waters Division, high performance liquid chromatography, ultra performance liquid chromatography (LC) and mass spectrometry (MS) instrument systems and support products, including chromatography columns, other consumable products and comprehensive post-warranty service plans.

We currently maintain our Neutral rating on Waters, with a Zacks #3 Rank (short-term Hold recommendation) over the next one-to-three months.

Read the full analyst report on WAT

Read the full analyst report on A

Read the full analyst report on LIFE

Read the full analyst report on TMO