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Waters Corp. (WAT) Q1 Earnings Top on Operational Strength

Waters Corporation WAT reported first-quarter 2016 adjusted earnings of $1.26 per share, beating the Zacks Consensus Estimate of $1.23 by 2.4% and the prior-year quarter figure of $1.21 per share by 4.1%.

Bottom-line growth during the quarter was largely attributable to strong operational execution backed by the company’s efficient business model. Also, a decline in interest expenses aided the quarterly results.

Inside the Headlines

In the quarter, Waters Corp.’s net sales grew 3.2% year over year to $475 million and also beat the Zacks Consensus Estimate of $472 million. Adverse foreign currency translation had a negative impact of about 2% on the top line.

The upside in the top line came on the back of solid performance in the bio/pharmaceutical end markets (up 9% on a constant currency basis). 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 8% and 2%, respectively, driving growth.

In terms of geographies, Waters Corp. witnessed strong sales in Asia which posted 11% growth at constant currency. Also, strong demand in China and India added to the positives. However, U.S. and Europe managed to garner a modest sales growth of 2%.

Gross profits in the quarter totaled $274.1 million, down from $271.2 million reported in the prior-year quarter, hit by higher costs. Also, operating income in the quarter fell 6.1% year over year to $112.7 million.

Total selling and administrative expenses in the quarter was $129.3 million, up from $119.7 million in first-quarter 2015. Research and development expenses stood at $29.4 million, compared with $28.9 million incurred a year ago.


Waters Corp.’s cash, cash equivalents and investments amounted to approximately $2.5 billion, higher than $2.4 billion as on Dec 31, 2015. The company’s total liabilities increased to about $2.3 billion from $2.2 billion as on Dec 31, 2015.

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 over the past few quarters. The company started 2016 on a healthy note with its pharmaceutical business prospects being bright. 

Notably, 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. Also, given the fact that liquid chromatography is used in a variety of applications including drug discovery, development, quality control of drug products, therapeutic drug monitoring, proteomics, metabolomics, environmental analysis and food analysis, Waters Corp. stands to benefit significantly from this business going forward.

Waters Corp. currently carries a Zacks Rank #2 (Buy). Some other favorably ranked stocks within the sector include Bruker Corporation BRKR, MTS Systems Corporation MTSC and Mettler-Toledo International Inc. MTD. While Bruker and MTS Systems sport a Zacks Rank #1 (Strong Buy), Mettler-Toledo International holds the same Zacks Rank as Waters Corp.

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