Waters Corporation (WAT)

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Waters Corporation (WAT)

Q3 2009 Earnings Call

October 27, 2009; 8:30 am ET


Douglas Berthiaume - Chairman, President & Chief Executive Officer

John Ornell - Chief Financial Officer

Arthur Caputo - President of Waters Division

Gene Cassis - Vice President of Investor Relations


Quintin Lai - Robert W. Baird

Pete Lawson - Thomas Weisel Partners

Mike - Deutsche Bank

Sung Ji Nam - JP Morgan

Marshall Urist - Morgan Stanley

Rob Hawkins - Stifel Nicolaus

Jon Groberg - Macquarie

Brigermen [ph] - Cowen & Co

Isaac Ro - Leerink Swann

Dan - UBS

Chris Arndt - Select Equity Group



Welcome to the Waters Corporation third quarter financial results conference call. All participants will be able listen only until the question-and-answer session of the conference. This conference is being recorded. If anyone has any objections, please disconnect at this time. I would like to introduce your host for today’s call Mr. Douglas Berthiaume, Chairman, President and Chief Executive Officer of Waters Corporation. Sir, you may begin.

Douglas Berthiaume

Well, thank you. Good morning, and welcome to the Waters Corporation third quarter financial results conference call. With me on today’s call is John Ornell, Waters’ Chief Financial Officer; Arthur Caputo, the President of the Waters Division; and Gene Cassis, Waters’ Vice President of Investor Relations.

As our normal practice, I will start with an overview of the quarter’s highlights and then John will follow with details of our financial results and provide you with our outlook for the remainder of the year, but before we get going, I’d like John to cover the cautionary language.

John Ornell

During the course of this conference call, we will make various forward-looking statements regarding future events or future financial performance of the company. In particular, we will provide guidance regarding possible future income statements results of the company despite Q4 2009. We caution you, that all such statements are only predictions and that actual events or results may differ materially.

For a detailed discussion of some of the risks and contingencies that could cause our actual performance to differ significantly from our present expectations, see our 10-K annual report for the fiscal year ended December 31, 2008 in part one under the caption business risk factors.

We further caution you that the company does not obligate or commit itself by provide this guidance to update predictions. We do not plan to update predictions regarding possible future income statement results except during our regularly scheduled earnings release conference call and webcasts. The next earnings release call and web cast is currently planned for January 2010.

During this call, we’ll be referring to certain non-GAAP financial metrics. A reconciliation of the non-GAAP financial measure to the most directly comparable GAAP measure is attached to the company’s earnings release issued this morning. In our discussions of results of operations, we may refer to pro forma results, which exclude impact of items such as those outlined in our schedule entitled reconciliation of net income per diluted share included in this morning’s press release.

Douglas Berthiaume

Thank you, John. Well, we are encouraged by the moderately improving demand patterns that we saw in the third quarter. I think the enthusiastic reception to our new product introductions. The sense of optimism is somewhat tempered in the recognition that our customers overall spending levels have not yet enabled us to grow our top line, as these customers continue to deal with the effects of the global recession.

However, it is our view that the weakest demand for advanced scientific instruments is most likely behind us and we believe we’re poised to begin to see organic growth as we move into 2010. The Waters Division, to remind you our business that accounts for approximately 90% of our sales, shipment volume in the quarter was about flat with last year’s result. This is an improvement in comparison to the mid-single digit declines that we saw in the first half of this year.

From a management segment viewpoint, the declines that we saw in the quarter for our economically sensitive industrial chemical segment, were more moderate and declined at a mid single digit rate in comparison to the double digit declines in the first half of 2009. Our third quarter sales to the biopharmaceutical customer base, were consistent with a moderate declines that we saw earlier in the year.

However, this result is encouraging in light of our significant back log build for new mass spectrometry instruments. Shipments to government in academic accounts were up in the quarter, despite a similarly, strong backlogs built for high end mass spectrometry systems.

Geographically, sales growth in China remains strong and declines in India were less severe than we saw in the first half of the year. In America, Europe and Japan, revenues were generally balanced and stable in light of base border comparison dynamics. Government stimulus spending in the U.S. did not significantly contribute to sales volume in the third quarter, but we think we will begin to see this governmental spending impact our fourth quarter results.

Looking at product lines for the Waters Division, our recurring revenue product lines, that is the combination of our chemistry consumables and services businesses improved in the third quarter in comparison to the second quarter result and grew in constant currency at a mid single digit rate.

Instrument system sales for the Waters division declined modestly in the quarter as customers continue to delay instrument replacements, and to focus their capital spending on research purchases. Sales of our mass spectrometers and clearly chromatography platform grew in the quarter and we continue to build a healthy water back log for our technologically leading Synapt G2, a high resolution MS platform that we showcase at this year’s ASMS conference.

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