Waters (WAT) Q2 Earnings Beat On Broad-Based Sales Growth

Waters Corporation (NYSE:WAT) has a brilliant earnings beat streak, spanning 11 quarters of positive earnings surprises, which the company broke with in-line earnings in one of the quarters last year. In second-quarter 2017, Waters Corp. continued its impressive streak, as the company’s adjusted earnings of $1.76 per share trumped the Zacks Consensus Estimate of $1.72 by 2.3%.

The bottom-line figure fared even better in year-over-year comparison, reflecting striking growth of 11.4% from the prior-year quarter tally of $1.58. Remarkable broad-based top-line expansion, along with spectacular growth in Asia, aided the earnings beat.

Solid operational execution backed by the company’s efficient business model also lent strength to the results. Further, a decline in interest expenses aided quarterly profits.

Inside the Headlines

In the reported quarter, Waters Corp.’s net sales grew 4% year over year to $558 million and also came ahead of the Zacks Consensus Estimate of $552.9 million.

The upside in the top line came on the back of robust performance in the industrial end markets (up 7% on a constant currency basis) and the bio/pharmaceutical end market (up 4% on a constant currency basis). The momentum was further aided by growth of 5% (on a constant currency basis) in the government and academic markets.

Also, impressive contribution from sale of key products across major geographies supplemented quarterly sales growth. In addition, Water Corp.’s recurring revenues and instrument system sales grew 5% and 3%, respectively, driving top-line growth.

In terms of geographies, Waters Corp. witnessed strong sales in Asia and Europe, which posted 14% and 5% growth, respectively, at constant currency. However, sales in the Americas continued to reflect weakness and declined 3% year over year.

Total selling and administrative expenses in the quarter came in at $130.2 million, up from $129.6 million incurred in second-quarter 2016. Research and development outlay for the quarter was $32.9 million compared with $32.6 million incurred a year ago.

Despite the rise in these expenses, operating income in the quarter climbed 1.4% year over year to $118.9 million.

Waters Corporation Price, Consensus and EPS Surprise

Liquidity

Waters Corp.’s cash, cash equivalents and investments at the quarter end amounted to just over $3 billion, higher than the $2.81 billion recorded as on Dec 31, 2016. The company’s total liabilities at quarter end increased to about $2.48 billion from $2.36 billion as on Dec 31, 2016.

Our Take

Waters Corp.’s leading position in the high-performance liquid chromatography and mass spectrometry markets is its key strength that has acted as a strong revenue driver for the past few quarters. The company’s bright pharmaceutical business started 2017 on a healthy note and looks set to continue its momentum, going ahead. It is also seeing encouraging trends in its industrial businesses. The governmental and academic markets have also turned its performance around and look poised to maintain the growth trend, in the coming quarters.

Waters Corp.’s exposure in the pharma/biotech industry is primarily in regulated commercial lab environments, where demand is non-discretionary and not prone to cyclicality. This helps the company mitigate uncertain client spending stemming from macroeconomic volatility. Additionally, given the fact that liquid chromatography is used in a huge variety of applications, Waters Corp. is well poised to benefit significantly from this business, moving ahead.

Zacks Rank & Other Stocks to Consider

Waters Corp. currently holds a Zacks Rank #2 (Buy).

Some other similarly-ranked stocks in the same space include Bruker Corporation (NASDAQ:BRKR) , Mettler-Toledo International, Inc. (NYSE:MTD) and PerkinElmer, Inc. (NYSE:PKI) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bruker Corporation generated two huge beats in the trailing four quarters, for an average positive surprise of 21.1%.

Mettler-Toledo has a striking earnings surprise history for the last four quarters, having beaten estimates all through, for an average beat of 5.3%.

PerkinElmer also has a decent earnings surprise history, with an average beat of 0.73% for the trailing four quarters, beating estimates thrice.

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