A month has gone by since the last earnings report for Waters (WAT Quick QuoteWAT - Free Report) . Shares have added about 17.2% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Waters' Q3 Earnings & Revenues Beat Estimates

Waters reported third-quarter 2022 non-GAAP earnings of $2.64 per share, surpassing the Zacks Consensus Estimate by 2.7%. However, the bottom line declined 0.7% on a year-over-year basis. The figure includes a 13% unfavorable foreign exchange headwind.

Net sales of $708.6 million beat the Zacks Consensus Estimate of $680.3 million. The figure rose 7% and 15% on a reported and constant-currency basis, respectively, from the comparable year-ago quarter’s readings.

Top-line growth was driven by a solid momentum across the industrial, government and academic end markets. Strong performances in Asia and the Americas contributed well. Strength across the Waters and TA segments along with growing instruments was a positive.

Top Line in Detail

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

By Operating Segment: WAT operates under two organized segments, namely Waters and TA.

The Waters segment (88% of net sales) generated sales worth $623.4 million, up 7% from the year-ago quarter’s level. Sales in the TA segment were $85.1 million (12% of net sales), reflecting 10% year-over-year growth.

By Products & Services: The division comprises three segments, namely Instruments, Services and Chemistry.

Instruments sales (48% of sales) were $336.8 million, rising 14% on a year-over-year basis.

Service sales (34% of sales) were $243.6 million, increasing 1% year over year.

Chemistry sales (18% of sales) were $128.1 million, growing 4% from the year-ago quarter’s level.

Moreover, the service and chemistry segments jointly generated recurring revenues of $371.7 million, increasing 2% from the year-ago quarter’s reported figure.

By Markets: Waters serves three end markets, such as Pharmaceutical, Industrial, and Governmental & Academic.

The Pharmaceutical market (57% of net sales) generated sales of $405.9 million, which increased 2% on a year-over-year basis.

The Industrial market’s (32% of sales) sales were $223.9 million, up 14% from the year-ago quarter’s level.

Academic & Government (11% of sales) generated $78.6 million of the total sales. The figure increased 21% year over year.

By Geography: Waters’ operating regions include Asia, the Americas and Europe.

Asia (40% of net sales) generated $279.9 million of sales, up 10% on a year-over-year basis. Sales in China grew 9% from the prior-year quarter’s level.

The Americas (36% of net sales) generated $256.4 million of sales, increasing 11% year over year. Sales in the United States increased 11% year over year.

Europe (24% of net sales) generated $172.2 million of sales, down 1% from the prior-year quarter’s level.

Operating Details

In the third quarter, non-GAAP selling and administrative expenses were $161.4 million, up 7.4% from the year-ago quarter’s level. As a percentage of net sales, the figure was flat on a year-over-year basis.

Research and development spending was $43.4 million, up 3.4% from the year-ago period’s reported figure. As a percentage of net sales, the figure contracted 30 basis points (bps) year over year.

The adjusted operating margin was 27.7%, which contracted 200 bps year over year.

Balance Sheet & Cash Flow

As of Oct 1, 2022, cash, cash equivalents and investments were $444.5 million, up from $419.8 million as of Jul 2, 2022.

Account receivables stood at $600.9 million at the end of the third quarter, down from $639.4 million in the last reported quarter.

Waters generated cash from operation of $158.1 million in the reported quarter, up from $56.9 million in the prior quarter.

WAT recorded a free cash flow of $126.02 million in the third quarter.

Guidance

For fourth-quarter 2022, Waters expects non-GAAP earnings of $3.66-$3.76 per share, which includes a foreign exchange headwind of 15%.

Waters anticipates net sales growth of 6-8% on a constant-currency basis. WAT expects sales growth to decline 8% due to unfavorable foreign exchange fluctuations.

For 2022, Waters revised the guidance for non-GAAP earnings downward from $11.95-$12.05 to $11.85-$11.95 per share. This includes a foreign exchange headwind of 11%.

Waters increased its guidance for sales growth. It expects 2022 net sales growth of 11.5-12% on a constant-currency basis. Sales growth is likely to decline 6% due to currency translation. Previously, management had anticipated net sales growth of 9.5-10.5% on a constant-currency basis.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Waters has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Charting a somewhat similar path, 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Waters has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.