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Waters (WAT) Down 3.6% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Waters (WAT - Free Report) . Shares have lost about 3.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Waters due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Waters' Q2 Earnings & Revenues Miss Estimates

Waters reported second-quarter 2023 non-GAAP earnings of $2.80 per share, beating the Zacks Consensus Estimate by 8.1%. Further, the bottom line increased 1.8% on a year-over-year basis.

Net sales of $740.6 million topped the Zacks Consensus Estimate of $733.5 million. The figure rose 4% on a reported basis and 3% at constant currency from the year-ago quarter’s readings.

Solid momentum in the industrial, and government and academic markets boded well. Further, strength in Waters and TA segments contributed well. Also, strong performance in the Americas and Europe was a positive.

However, softness in the pharmaceutical market was a concern.

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 $653.23 million, up 3% from the year-ago quarter’s level. Sales in the TA segment were $87.34 million (12%), reflecting 10% year-over-year growth.

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

Instruments sales (45% of sales) were $342.01 million, rising 1% on a year-over-year basis.

Services registered sales (36%) worth $262.7 million, climbing 7% year over year.

Chemistry sales (19%) totaled $135.92 million, growing 3% from the year-ago quarter’s level.

Moreover, the Services and Chemistry segments jointly generated recurring revenues of $398.6 million, up 6% 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 $426.74 million, which decreased 2% on a year-over-year basis.

The Industrial market’s (32%) sales were $229.65 million, up 10% from the year-ago quarter’s level.

Governmental & Academic market (11%) generated $84.2 million of total sales. The figure rose 23% year over year.

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

Asia (35% of net sales) generated $254.6 million in sales, down 8% on a year-over-year basis.

Sales in the Americas (38%) generated $282.93 million, growing 10% year over year. The United States registered 12% improvement year over year in sales.

Europe (27% of net sales) generated $203.03 million in sales, up 13% from the prior-year quarter’s level.

Operating Details

In the second quarter, non-GAAP selling and administrative expenses were $175.4 million, up 9.6% from the year-ago quarter’s level. As a percentage of net sales, the figure expanded 120 basis points (bps) on a year-over-year basis.

Research and development spending of $45.9 million rose 4.2% from the year-ago period’s reported figure. As a percentage of net sales, the figure remained flat year over year.

Adjusted operating margin was 29.6%, which expanded 120 bps year over year.

Balance Sheet & Cash Flow

As of Jul 1, 2023, cash, cash equivalents and investments were $330.6 million, down from $486.9 million as of Apr 1, 2023.

Accounts receivables were $693.4 million at the second-quarter end, up from $683.3 million in the last reported quarter.

Waters generated cash from operations of $18.1 million in the reported quarter, significantly down from $196.7 million in the prior quarter.

WAT recorded a free cash flow of $73.2 million in the second quarter.

Guidance

For third-quarter 2023, Waters expects non-GAAP earnings in the range of $2.50-$2.60 per share.

Management anticipates net sales to decline 4-2% on a constant-currency basis. WAT projects sales to grow 1% due to favorable foreign exchange fluctuations. Also, Wyatt transaction is estimated to increase sales by 4%.

On a reported basis, total sales are predicted to grow in the 1-3% band.

For 2023, Waters anticipates non-GAAP earnings in the range of $12.20-$12.30 per share. This includes a foreign exchange headwind of 1%.

Waters projects 2023 net sales growth of 0.5-1.5% on a constant-currency basis. Wyatt transaction is expected to increase sales by 2.5%.

On a reported basis, total sales are suggested to grow in the 3-4% band.

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 -16.51% due to these changes.

VGM Scores

At this time, Waters has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. 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 F. 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 these revisions 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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