A month has gone by since the last earnings report for Waters (WAT Quick QuoteWAT - Free Report) . Shares have added about 13.2% 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 its most recent earnings report in order to get a better handle on the important drivers.

Waters' Q3 Earnings Beat Estimates

Waters reported third-quarter 2023 non-GAAP earnings of $2.84 per share, beating the Zacks Consensus Estimate by 10.94%. The bottom line increased 7.6% on a year-over-year basis.

Net sales of $711.7 million lagged the Zacks Consensus Estimate of $725 million. The figure rose 0.4% on a reported basis but declined 4% at constant currency year over year.

Waters benefited from the Wyatt acquisition, which contributed 4% to quarterly sales.

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 (88.4% of net sales) generated sales worth $629.3 million, up 1% year over year. TA segment sales (11.6% of net sales) were $82.3 million, down 3.3% year over year.

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

Instruments sales were $319.4 million, down 5% on a year-over-year basis.

Services sales were $263.6 million, which climbed 8% year over year. Chemistry sales totaled $128.7 million, flat year over year.

On a combined basis, the Services and Chemistry segments generated recurring revenues of $392.3 million, up 6% year over year.

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

The Pharmaceutical market generated sales of $421.5 million, up 4% on a year-over-year basis. Academic & Government generated $80.7 million, up 3% year over year.

The Industrial market’s sales were $209.4 million, down 6% year over year.

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

Asia generated $238.2 million in sales, down 15% on a year-over-year basis. The company reported disappointing sales in China.

Sales in the Americas generated $275.5 million, up 7% year over year. The United States registered a 12% improvement year over year in sales.

Europe generated $198 million in sales, up 15% year over year.

Operating Details

In the third quarter, non-GAAP selling and administrative expenses were $155.7 million, down 3.6% year over year. As a percentage of net sales, the figure declined 90 basis points (bps) on a year-over-year basis.

Research and development spending of $40 million declined 7.8% year over year. As a percentage of net sales, the figure declined 50 bps.

Adjusted operating margin was 31.5%, which expanded 380 bps year over year.

Balance Sheet & Cash Flow

As of Sep 30, 2023, cash, cash equivalents and investments were $337.3 million, down from $330.6 million as of Jul 1, 2023.

Waters generated cash from operations of $157.8 million in the reported quarter, significantly up from $18.1 million in the prior quarter.

WAT recorded a free cash flow of $122.7 million in the third quarter.

Guidance

For fourth-quarter 2023, Waters expects non-GAAP earnings in the range of $3.52-$3.62 per share.

Management anticipates net sales to decline 8-5% on a constant-currency basis. WAT projects sales to decline roughly 1.5% due to unfavorable foreign exchange fluctuations. Also, the Wyatt transaction is estimated to increase sales by 4%.

On a reported basis, total sales are predicted to decline in the 6-3% band.

For 2023, Waters anticipates non-GAAP earnings in the range of $11.65-$11.75 per share. This includes a foreign exchange headwind of 3.5%.

Waters projects 2023 net sales to decline between 2% and 1% on a constant-currency basis. The Wyatt transaction is expected to increase sales by 2.5%.

On a reported basis, total sales are suggested to be between flat to down 1%.

How Have Estimates Been Moving Since Then?

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

The consensus estimate has shifted -17.51% due to these changes.

VGM Scores

At this time, Waters has an average Growth Score of C, though it is lagging a lot 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. It's no surprise Waters has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Waters is part of the Zacks Medical - Instruments industry. Over the past month, Teleflex (TFX Quick QuoteTFX - Free Report) , a stock from the same industry, has gained 14.5%. The company reported its results for the quarter ended September 2023 more than a month ago.

Teleflex reported revenues of $746.39 million in the last reported quarter, representing a year-over-year change of +8.7%. EPS of $3.64 for the same period compares with $3.27 a year ago.

Teleflex is expected to post earnings of $3.26 per share for the current quarter, representing a year-over-year change of -7.4%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.6%.

Teleflex has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.