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Waters (WAT) Q3 Earnings Surpass Estimates, Sales Rise Y/Y

Waters Corporation WAT reported third-quarter 2022 non-GAAP earnings of $2.64 per share, surpassing the Zacks Consensus Estimate by 2.7%. However, the bottom line declined 0.7% on a year-over-year basis. The figure includes a 13% unfavorable foreign exchange headwind.

Net sales of $708.6 million beat the Zacks Consensus Estimate of $680.3 million. The figure rose 7% and 15% on a reported and constant-currency basis, respectively, from the comparable year-ago quarter’s readings.

Top-line growth was driven by a solid momentum across the industrial, government and academic end markets. Strong performances in Asia and the Americas contributed well. Strength across the Waters and TA segments along with growing instruments was a positive.

Waters Corporation Price, Consensus and EPS Surprise

Waters Corporation Price, Consensus and EPS Surprise
Waters Corporation Price, Consensus and EPS Surprise

Waters Corporation price-consensus-eps-surprise-chart | Waters Corporation Quote

Top Line in Detail

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

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

The Waters segment (88% of net sales) generated sales worth $623.4 million, up 7% from the year-ago quarter’s level. Sales in the TA segment were $85.1 million (12% of net sales), reflecting 10% year-over-year growth.

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

Instruments sales (48% of sales) were $336.8 million, rising 14% on a year-over-year basis.

Service sales (34% of sales) were $243.6 million, increasing 1% year over year.

Chemistry sales (18% of sales) were $128.1 million, growing 4% from the year-ago quarter’s level.

Moreover, the service and chemistry segments jointly generated recurring revenues of $371.7 million, increasing 2% from the year-ago quarter’s reported figure.

By Markets: Waters serves three end markets, such as Pharmaceutical, Industrial, and Governmental & Academic.

The Pharmaceutical market (57% of net sales) generated sales of $405.9 million, which increased 2% on a year-over-year basis.

The Industrial market’s (32% of sales) sales were $223.9 million, up 14% from the year-ago quarter’s level.

Academic & Government (11% of sales) generated $78.6 million of the total sales. The figure increased 21% year over year.

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

Asia (40% of net sales) generated $279.9 million of sales, up 10% on a year-over-year basis. Sales in China grew 9% from the prior-year quarter’s level.

The Americas (36% of net sales) generated $256.4 million of sales, increasing 11% year over year. Sales in the United States increased 11% year over year.

Europe (24% of net sales) generated $172.2 million of sales, down 1% from the prior-year quarter’s level.

Operating Details

In the third quarter, non-GAAP selling and administrative expenses were $161.4 million, up 7.4% from the year-ago quarter’s level. As a percentage of net sales, the figure was flat on a year-over-year basis.

Research and development spending was $43.4 million, up 3.4% from the year-ago period’s reported figure. As a percentage of net sales, the figure contracted 30 basis points (bps) year over year.

The adjusted operating margin was 27.7%, which contracted 200 bps year over year.

Balance Sheet & Cash Flow

As of Oct 1, 2022, cash, cash equivalents and investments were $444.5 million, up from $419.8 million as of Jul 2, 2022.

Account receivables stood at $600.9 million at the end of the third quarter, down from $639.4 million in the last reported quarter.

Waters generated cash from operation of $158.1 million in the reported quarter, up from $56.9 million in the prior quarter.

WAT recorded a free cash flow of $126.02 million in the third quarter.

Guidance

For fourth-quarter 2022, Waters expects non-GAAP earnings of $3.66-$3.76 per share, which includes a foreign exchange headwind of 15%. The Zacks Consensus Estimate for earnings is pegged at $3.87 per share.

Waters anticipates net sales growth of 6-8% on a constant-currency basis. WAT expects sales growth to decline 8% due to unfavorable foreign exchange fluctuations. The Zacks Consensus Estimate for sales is pegged at $843.6 million.

For 2022, Waters revised the guidance for non-GAAP earnings downward from $11.95-$12.05 to $11.85-$11.95 per share. This includes a foreign exchange headwind of 11%. The Zacks Consensus Estimate for 2022 earnings is pegged at $11.96.

Waters increased its guidance for sales growth. It expects 2022 net sales growth of 11.5-12% on a constant-currency basis. Sales growth is likely to decline 6% due to currency translation. The Zacks Consensus Estimate for sales is pegged at $2.93 billion. Previously, management had anticipated net sales growth of 9.5-10.5% on a constant-currency basis.

Zacks Rank & Stocks to Consider

Currently, Water has a Zacks Rank #4 (Sell).

Investors interested in the broader Zacks Computer & Technology sector can consider some better-ranked stocks like US Foods USFD, The Trade Desk TTD and Tencent Music Entertainment Group TME, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

US Foods is set to report third-quarter 2022 results on Nov 10. The Zacks Consensus Estimate for USFD’s earnings is pegged at 59 cents per share, suggesting an increase of 22.9% from the prior-year period’s reported figure. USFD has lost 14.6% in the year-to-date period. Its long-term earnings growth rate is currently projected at 20%.

The Trade Desk is scheduled to release third-quarter 2022 results on Nov 9. The Zacks Consensus Estimate for TTD’s earnings is pegged at 24 cents per share, suggesting an increase of 33.3% from the prior-year quarter’s reported figure. TTD has lost 41.4% in the year-to-date period. TTD’s long-term earnings growth rate is currently projected at 24%.

Tencent Music is scheduled to release third-quarter 2022 results on Nov 15. The Zacks Consensus Estimate for TME’s earnings is pegged at 11 cents per share, suggesting an increase of 22.2% from the prior-year quarter’s reported figure. TME has lost 46.5% in the year-to-date period. TME’s long-term earnings growth rate is currently projected at 17.9%.


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