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Waters (WAT) Up 3.2% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Waters (WAT - Free Report) . Shares have added about 3.2% in that time frame, underperforming 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' Q1 Earnings & Revenues Miss Estimates
Waters Corporation reported first-quarter 2020 non-GAAP earnings of $1.15 per share, which missed the Zacks Consensus Estimate by 19%. Further, the bottom line declined 28% on a year-over-year basis and 64.1% sequentially.
Net sales of $464.9 million lagged the Zacks Consensus Estimate of $481.3 million. The top line was down 10% from the year-ago quarter on the reported basis and 8% on constant currency basis. Further, the figure declined 35.1% from the prior quarter.
The decline can be attributed to coronavirus-induced disruptions, which led to sluggish demand in China during the reported quarter. Further, foreign currency headwinds hurt sales by 2%.
Further, softness in pharmaceutical, industrial, and academic and governmental markets remained a headwind. Further, the company encountered weakness in the Americas and Asia regions during the first quarter.
Nevertheless, Waters witnessed growth in European region during the quarter under review.
However, the company has withdrawn full-year 2020 guidance owing to uncertainty in demand environment.
Top Line in Detail
Waters’ net sales figure can be categorized in four ways:
By Operating Segment: The company operates in two organized segments — Waters and TA.
Waters segment (89.1% of net sales) generated $414.2 million of sales, down 10% from the year-ago quarter. Sales in TA segment came in $50.7 million and accounted for 10.9% of the net sales. The figure reflected year-over-year decline of 6%.
By Products & Services: This division comprises three segments — Instruments, Services and Chemistry.
Instruments sales (38% of sales) came in $176.9 million, down 20% on a year-over-year basis.
Service sales (41% of the sales) were $190.8 million, declining 1% year over year.
Chemistry sales (21% of the sales) were $97.2 million, declining 2% from the year-ago quarter.
Moreover, service and chemistry sections together generated recurring revenues of $288 million, down 2% from the year-ago quarter.
By Markets: The company serves three end markets — Pharmaceutical, Industrial and Governmental & Academic.
Pharmaceutical market (59% of net sales) generated sales of $272.6 million, down 7% on a year-over-year basis.
Industrial market (31% of sales) sales came in $143.3 million, down 8% from the year-ago quarter.
Governmental & Academic (10% of sales) generated $49 million of sales. The figure declined 24% year over year.
By Geography: This company’s operating regions include Asia, Americas and Europe.
Asia (34.2% of net sales) generated $159.1 million of sales, down 21% on a year-over-year basis. This was primarily due to softness in China where sales declined 48% from the year-ago quarter.
Americas (37% of sales) generated $172.2 million of sales, decreasing 5% year over year. Sales in United States declined 4% year over year.
Europe (28.8% of sales) generated $133.7 million of sales, up 2% from prior-year quarter.
Operating Details
In the first quarter, non-GAAP selling and administrative expenses were $127.2 million, reflecting an increase of 2.4% from the year-ago quarter.
Research and development spending was $34.9 million, indicating a decline of 0.2% from the year-ago reported figure.
Adjusted operating margin was 19.8%, which contracted 620 basis points (bps) year over year.
Balance Sheet & Cash Flow
As of Mar 28, 2020, cash, cash equivalents and investments came in $393.9 million, higher than $337.1 million as of Dec 31, 2019.
Further, total liabilities were $3 billion, up from $2.8 billion in the prior quarter.
Waters generated cash from operation of $151.6 million in the first quarter, down from $191.9 million in the previous quarter.
Further, free cash flow of $121.05 million in the reported quarter.
Outlook
Waters’ cost structure is expected to realize $100 million for the full-year 2020 owing to its current salary deduction strategy, freezing hiring and controlling non-essential operating expenses.
Further, the company has postponed capital expenditures. This along with its working capital reduction initiatives is expected to improve cash flow by $45 million for the full year.
Additionally, it has put a halt on its share repurchase program and withdrawn previous plans to repurchase $800 million of shares during 2020.
All these initiatives are likely to help Waters to combat COVID-19 induced crisis situation throughout 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -19.95% due to these changes.
VGM Scores
Currently, Waters has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of this revision 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.
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Waters (WAT) Up 3.2% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Waters (WAT - Free Report) . Shares have added about 3.2% in that time frame, underperforming 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' Q1 Earnings & Revenues Miss Estimates
Waters Corporation reported first-quarter 2020 non-GAAP earnings of $1.15 per share, which missed the Zacks Consensus Estimate by 19%. Further, the bottom line declined 28% on a year-over-year basis and 64.1% sequentially.
Net sales of $464.9 million lagged the Zacks Consensus Estimate of $481.3 million. The top line was down 10% from the year-ago quarter on the reported basis and 8% on constant currency basis. Further, the figure declined 35.1% from the prior quarter.
The decline can be attributed to coronavirus-induced disruptions, which led to sluggish demand in China during the reported quarter. Further, foreign currency headwinds hurt sales by 2%.
Further, softness in pharmaceutical, industrial, and academic and governmental markets remained a headwind. Further, the company encountered weakness in the Americas and Asia regions during the first quarter.
Nevertheless, Waters witnessed growth in European region during the quarter under review.
However, the company has withdrawn full-year 2020 guidance owing to uncertainty in demand environment.
Top Line in Detail
Waters’ net sales figure can be categorized in four ways:
By Operating Segment: The company operates in two organized segments — Waters and TA.
Waters segment (89.1% of net sales) generated $414.2 million of sales, down 10% from the year-ago quarter. Sales in TA segment came in $50.7 million and accounted for 10.9% of the net sales. The figure reflected year-over-year decline of 6%.
By Products & Services: This division comprises three segments — Instruments, Services and Chemistry.
Instruments sales (38% of sales) came in $176.9 million, down 20% on a year-over-year basis.
Service sales (41% of the sales) were $190.8 million, declining 1% year over year.
Chemistry sales (21% of the sales) were $97.2 million, declining 2% from the year-ago quarter.
Moreover, service and chemistry sections together generated recurring revenues of $288 million, down 2% from the year-ago quarter.
By Markets: The company serves three end markets — Pharmaceutical, Industrial and Governmental & Academic.
Pharmaceutical market (59% of net sales) generated sales of $272.6 million, down 7% on a year-over-year basis.
Industrial market (31% of sales) sales came in $143.3 million, down 8% from the year-ago quarter.
Governmental & Academic (10% of sales) generated $49 million of sales. The figure declined 24% year over year.
By Geography: This company’s operating regions include Asia, Americas and Europe.
Asia (34.2% of net sales) generated $159.1 million of sales, down 21% on a year-over-year basis. This was primarily due to softness in China where sales declined 48% from the year-ago quarter.
Americas (37% of sales) generated $172.2 million of sales, decreasing 5% year over year. Sales in United States declined 4% year over year.
Europe (28.8% of sales) generated $133.7 million of sales, up 2% from prior-year quarter.
Operating Details
In the first quarter, non-GAAP selling and administrative expenses were $127.2 million, reflecting an increase of 2.4% from the year-ago quarter.
Research and development spending was $34.9 million, indicating a decline of 0.2% from the year-ago reported figure.
Adjusted operating margin was 19.8%, which contracted 620 basis points (bps) year over year.
Balance Sheet & Cash Flow
As of Mar 28, 2020, cash, cash equivalents and investments came in $393.9 million, higher than $337.1 million as of Dec 31, 2019.
Further, total liabilities were $3 billion, up from $2.8 billion in the prior quarter.
Waters generated cash from operation of $151.6 million in the first quarter, down from $191.9 million in the previous quarter.
Further, free cash flow of $121.05 million in the reported quarter.
Outlook
Waters’ cost structure is expected to realize $100 million for the full-year 2020 owing to its current salary deduction strategy, freezing hiring and controlling non-essential operating expenses.
Further, the company has postponed capital expenditures. This along with its working capital reduction initiatives is expected to improve cash flow by $45 million for the full year.
Additionally, it has put a halt on its share repurchase program and withdrawn previous plans to repurchase $800 million of shares during 2020.
All these initiatives are likely to help Waters to combat COVID-19 induced crisis situation throughout 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -19.95% due to these changes.
VGM Scores
Currently, Waters has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of this revision 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.