It has been about a month since the last earnings report for Waters (WAT - Free Report) . Shares have added about 11.6% 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 catalysts.
Waters' Earnings Beat Q3 Estimates, Revenues Up Y/Y
Waters delivered third-quarter 2018 non-GAAP earnings of $1.92 per share, surpassing the Zacks Consensus Estimate by 2 cents. The figure increased 8.5% on a year-over-year basis but declined 1.5% sequentially.
Net sales also declined 3.1% sequentially but improved 2.2% year over year to $578.02 million. However, the figure missed the Zacks Consensus Estimate of $588.1 million.
Sluggish improvement in the year-over-year top-line growth can be attributed to unfavorable foreign exchange fluctuations. Moreover, the company did not witness strong performance in the pharmaceutical and industrial markets.
Nevertheless, robust year-over-year improvement in the Governmental & Academic market aided the results. Further, the company’s solid momentum in Asia drove the top line.
Notably, the company remains optimistic about its strengthening growth initiatives which are likely to help it in gaining investors’ confidence in the near term as well as long haul.
Top Line in Detail
Waters’ net sales figure can be categorized into four ways:
By Operating Segment: The company operates in two organized segments — Waters and TA.
Waters segment (89.2% of net sales) generated $515.8 million of sales, up 2.3% from the year-ago quarter. Sales in TA segment came in $62.2 million and accounted for 10.8% of the net sales. The figure reflected mere year-over-year growth of 1%.
By Products & Services: This division comprises three segments — Instruments, Services and Chemistry.
Instruments sales (48.9% of sales) came in $282.5 million, down 0.1% on a year-over-year basis.
Service sales (34.5% of the sales) were $199.5 million. The figure increased 5% year over year.
Chemistry sales (16.6% of the sales) were in $95.9 million, increasing 3.3% from the year-ago quarter.
Moreover, service and chemistry sections together generated recurring revenues of $295.5 million, up 4.4% from the year-ago quarter.
By Markets: The company serves three end markets — Pharmaceutical, Industrial and Governmental & Academic.
Pharmaceutical market (56.3% of net sales) generated sales of $325.2 million, up 1% on a year-over-year basis.
Industrial market (29.7% of sales) sales came in $171.9 million, increasing 2.1% from the year-ago quarter.
Governmental & Academic (14% of sales) generated $80.9 million of sales. The figure was up 7.6% year over year.
By Geography: This company’s operating regions include Asia, Americas and Europe.
Asia (38.4% of net sales) generated $222.2 million of sales for the company. The figure was up 6.1% on a year-over-year basis.
Americas (35.8% of sales) generated $206.8 million of sales, up 2% year over year.
Europe (25.8% of sales) generated $149.02 million of sales, decreasing 2.7% from prior-year quarter.
In the reported quarter, non-GAAP selling and administrative expenses were $126.3 million, reflecting a decrease of 1.9% year over year and 6.7% from the previous quarter.
Further, research and development spending was $35.2 million, up 4.1% year over year but down 1.2% sequentially.
Adjusted operating margin was 30.3%, expanded 100 basis points (bps) from the year-ago quarter but contracted 20 bps sequentially.
Balance Sheet & Cash Flow
As of Sep 29, 2018, cash, cash equivalents and investments came in $2.08 billion, lower than $2.24 billion as of Jun 30, 2018.
Further, total liabilities were $2.17 billion which declined slightly from $2.18 billion in the previous quarter.
Waters also generated free cash flow of $135.6 million in the third quarter.
For fourth-quarter 2018, Waters expects non-GAAP earnings in the range of $2.55-$2.65 per share.
The company anticipates net sales growth between 3% and 4% on a constant currency basis.
For 2018, Waters revised its guidance downward for non-GAAP earnings, which are now anticipated to lie in the range of $8-$8.10 per share, from the previously guided range of $8.05-$8.20 per share.
Further, the company expects net sales to reflect growth between 3-4% on a constant currency basis.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Waters has an average Growth Score of C, a grade with the same score on the momentum front. 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
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.