A month has gone by since the last earnings report for Waters (WAT Quick QuoteWAT - Free Report) . Shares have added about 7.9% 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' Q4 Earnings & Sales Beat Estimates, Fall Y/Y

Waters reported fourth-quarter 2023 non-GAAP earnings of $3.62 per share, beating the Zacks Consensus Estimate by 1.7%. However, the bottom line declined 5.7% on a year-over-year basis.

Net sales of $819.5 million topped the Zacks Consensus Estimate of $813.7 million. The figure fell 4.5% on a reported basis and 8% at constant currency from the year-ago quarter’s readings.

Softness in the pharmaceutical, industrial, government and academic markets was a major concern. Also, weakening momentum in Asia remained a headwind.

Sluggishness in the Waters and TA segments was a negative.
 
Nevertheless, growing momentum across the Americas and Europe 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 (87% of net sales) generated sales worth $716.93 million, down 5% year over year. Sales in the TA segment were $102.54 million (13%), reflecting a 1% year-over-year decline.

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

Instruments sales (47%) were $397.2 million, declining 14% on a year-over-year basis.

Services registered sales (35%) worth $278.9 million, climbing 9% year over year.

Chemistry sales (18%) totaled $143.4 million, growing 3% year over year.

Moreover, the Services and Chemistry segments jointly generated recurring revenues of $422.3 million, up 7% year over year.

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

The Pharmaceutical market (56%) generated sales of $463.7 million, which decreased 6% on a year-over-year basis.

The Industrial market’s (33%) sales were $260.25 million, down 3% year over year.

Governmental & Academic market (11%) generated $95.53 million of total sales. The figure plunged 2% year over year.

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

Asia (33%) generated $261.9 million in sales, down 18% on a year-over-year basis.

Sales in the Americas (36%) generated $303.7 million, growing 4% year over year. The United States registered a 12% year-over-year improvement in sales.

Europe (31%) generated $253.8 million in sales, up 3% year over year.

Operating Details

In the fourth quarter, non-GAAP selling and administrative expenses were $172.95 million, down 0.03% year over year. As a percentage of net sales, the figure expanded 100 basis points (bps) on a year-over-year basis.

Research and development spending of $44.4 million decreased 8.1% year over year. As a percentage of net sales, the figure contracted 20 bps year over year.

Adjusted operating margin was 34.9%, which expanded 120 bps year over year.

Balance Sheet & Cash Flow

As of Dec 31, 2023, cash, cash equivalents and investments were $395.97 million, up from $337.3 million as of Sep 30, 2023.

Waters generated cash from operations of $230.12 million in the reported quarter, up from $157.8 million in the prior quarter.

WAT recorded a free cash flow of $191.65 million in the fourth quarter.

Guidance

For first-quarter 2024, Waters expects non-GAAP earnings of $2.05-$2.15 per share.

Management anticipates organic sales to decline 11-9% on a constant-currency basis. WAT projects sales to decline by 1% due to unfavorable foreign exchange fluctuations. The Wyatt transaction is estimated to increase sales by 3.5%.

On a reported basis, total sales are predicted to decline 8.5-6.5%.

For 2024, Waters anticipates non-GAAP earnings of $11.75-$12.05 per share. This includes a foreign exchange headwind of 1%.

Waters projects 2024 organic sales growth of -0.5-1.5% on a constant-currency basis. The Wyatt transaction is expected to increase sales by 1.3%.

On a reported basis, total sales are suggested to grow 0-2%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -15.97% due to these changes.

VGM Scores

Currently, Waters has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

Performance of an Industry Player

Waters belongs to the Zacks Medical - Instruments industry. Another stock from the same industry, Hologic (HOLX Quick QuoteHOLX - Free Report) , has gained 1.8% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.

Hologic reported revenues of $1.01 billion in the last reported quarter, representing a year-over-year change of -5.7%. EPS of $0.98 for the same period compares with $1.07 a year ago.

Hologic is expected to post earnings of $0.98 per share for the current quarter, representing a year-over-year change of -7.6%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Hologic. Also, the stock has a VGM Score of D.