A month has gone by since the last earnings report for Waters (WAT Quick QuoteWAT - Free Report) . Shares have lost about 2.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Waters due for a breakout? 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' Q2 Earnings & Sales Beat Estimates, Fall Y/Y

Waters has reported second-quarter 2024 non-GAAP earnings of $2.63 per share, beating the Zacks Consensus Estimate by 3.1%. However, the bottom line decreased 6.1% on a year-over-year basis.

Net sales of $708.53 million topped the Zacks Consensus Estimate of $698 million. The figure fell 4% both on a reported basis and constant currency basis from the year-ago quarter’s readings.

Softness in the pharmaceutical, industrial, government and academic markets was a major concern. The weakening momentum in Asia, the Americas and Europe was another headwind.

Sluggishness in the Waters and TA segments was a negative.
 
Nevertheless, the growing momentum in Services and Chemistry sales was positive.

Top Line in Detail

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

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

The Waters segment (88% of net sales) generated sales worth $622.56 million, down 5% year over year. Sales in the TA segment were $85.97 million (12%), reflecting a 2% year-over-year decline.

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

Instruments sales (41%) were $294.06 million, declining 14% on a year-over-year basis.

Services registered sales (39%) worth $273.4 million, climbing 4% year over year.

Chemistry sales (20%) totaled $141.1 million, growing 4% year over year.

Moreover, the Services and Chemistry segments jointly generated recurring revenues of $414.5 million, up 4% year over year.

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

The Pharmaceutical market (58%) generated sales of $415.75 million, which decreased 3% on a year-over-year basis.

The Industrial market’s (32%) sales were $221.39 million, down 4% year over year.

The Governmental & Academic market (10%) generated $71.4 million in sales, which plunged 15% year over year.

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

Asia (34%) generated $237.43 million in sales, down 7% on a year-over-year basis.

Sales in the Americas (38%) generated $274.47 million, decreasing 3% year over year.

Europe (28%) generated $196.63 million in sales, down 3% year over year.

Operating Details

In the second quarter, non-GAAP selling and administrative expenses were $168.3 million, down 4% year over year. As a percentage of net sales, the figure expanded 10 basis points (bps) on a year-over-year basis.

Research and development spending of $44.9 million decreased 0.2% year over year. As a percentage of net sales, the figure expanded 20 bps year over year.

The adjusted operating margin was 29.2%, which contracted 40 bps year over year.

Balance Sheet & Cash Flow

As of Jun 30, 2024, cash, cash equivalents and investments were $327.4 million, down from $338.2 million as of Mar 31, 2024.

Waters generated cash from operations of $54.5 million in the reported quarter, down from $262.9 million in the prior quarter.

WAT recorded a free cash flow of $143.5 million in the second quarter.

Guidance

For third-quarter 2024, Waters expects non-GAAP earnings of $2.60-$2.70 per share.

Management anticipates organic sales to grow 1-3% on a constant-currency basis. WAT projects sales growth to dip 1.5% due to unfavorable foreign exchange fluctuations. 

On a reported basis, total sales growth is predicted to be in the range of (0.5)-1.5%.

For 2024, Waters anticipates non-GAAP earnings of $11.55-$11.65 per share.

Waters projects 2024 organic sales to decline 2-0.5% on a constant-currency basis. The Wyatt transaction is expected to increase sales growth by 1.3%. WAT projects sales growth to be affected by 1.5% due to unfavorable foreign exchange fluctuations.

On a reported basis, total sales are suggested to decline 2.2-0.7%.

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 -7.57% due to these changes.

VGM Scores

Currently, Waters has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, 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, Edwards Lifesciences (EW Quick QuoteEW - Free Report) , a stock from the same industry, has gained 13.4%. The company reported its results for the quarter ended June 2024 more than a month ago.

Edwards Lifesciences reported revenues of $1.39 billion in the last reported quarter, representing a year-over-year change of -9.4%. EPS of $0.70 for the same period compares with $0.66 a year ago.

Edwards Lifesciences is expected to post earnings of $0.68 per share for the current quarter, representing a year-over-year change of +15.3%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.2%.

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