Waters Corporation (WAT)

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Waters (WAT)

Q4 2011 Earnings Call

January 24, 2012 8:30 am ET

Executives

Douglas A. Berthiaume - Chairman, Chief Executive Officer and President

John A. Ornell - Chief Financial Officer and Vice President of Finance & Administration

Analysts

Ross Muken - Deutsche Bank AG, Research Division

Amit Bhalla - Citigroup Inc, Research Division

Jonathan P. Groberg - Macquarie Research

Daniel Arias - UBS Investment Bank, Research Division

Jeff Ares - Goldman Sachs Group Inc., Research Division

Nandita Koshal - Barclays Capital, Research Division

Derik De Bruin - BofA Merrill Lynch, Research Division

Peter Lawson - Mizuho Securities USA Inc., Research Division

Jon Davis Wood - Jefferies & Company, Inc., Research Division

Doug Schenkel - Cowen and Company, LLC, Research Division

Sung Ji Nam - Cantor Fitzgerald & Co., Research Division

Daniel L. Leonard - Leerink Swann LLC, Research Division

Quintin J. Lai - Robert W. Baird & Co. Incorporated, Research Division

Tycho W. Peterson - JP Morgan Chase & Co, Research Division

Presentation

Operator

Good morning. Welcome to the Waters Corporation Fourth Quarter 2011 Financial Results Conference Call. [Operator Instructions] This conference is being recorded. [Operator Instructions] 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 A. Berthiaume

Thank you. Well and good morning, and welcome to this, the Waters Corporation Fourth Quarter Financial Results Conference Call. With me on today's call as usual is John Ornell, Waters' Chief Financial Officer; and Gene Cassis, the Vice President of Investor Relations. And as it's our normal practice, I'm going to start with an overview of the quarter's highlight, and then John will follow with details of our financial results and provide you with an outlook for the first quarter of 2012 and for the full year. But before we get going, I'd like John to cover the cautionary language.

John A. Ornell

During the course of this conference call, we will be making various forward-looking statements regarding future events or future financial performance of the company. In particular, we will provide guidance regarding possible future income statement results of the company this time for Q1 and full year 2012. 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 ending December 31, 2010, under Part I, captioned Business Risk Factors. We further caution you that the company does not obligate or commit itself by providing 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 calls and webcasts. The next earnings release call and webcast is currently planned for April 2012.

During this call, we will be referring to certain non-GAAP financial measures. 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 the results of operations, we may refer to pro forma results, which exclude the 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 A. Berthiaume

Thank you, John. Well, 2011 was a second consecutive year of double-digit sales growth and even faster earnings growth for Waters. Successful new product launches and healthy demand from our pharmaceutical customer base have been key factors in driving our growth. In addition, we continue to benefit from faster growth in developing countries and opportunities associated with our applied markets such as food testing and clinical diagnostics.

In short, we have offered industry-leading products and enjoy superior access to faster growing market segments, positions our organizations have worked high to achieve over a multiyear period.

I think it's also important to note that 2011 was a year of investment for Waters. During the year, we continued to bring new systems to market across all our major product lines and expanded field personnel to support rapidly expanding customer bases in these developing regions. We're confident that we have an adequate foundation to grow top and bottom line results in 2012, while maintaining our reputation for industry-leading customer service and support.

If you'll look at the fourth quarter, our sales grew organically 8%, and our adjusted earnings per share were up 13%. And all these results were a bit ahead of our expectations and represent the impact of continued strong business momentum.

For the Waters division, we saw strongest growth in our pharmaceutical and industrial chemical end markets. The pharmaceutical growth was particularly strong in Western Europe and in the U.S., indicative of a continuation of an instrument upgrade cycle that I cited earlier this year.

The combination of government and university shipments held up reasonably well during the quarter, most notably for the SYNAPT G2 system shipments that were delivered to academic institutions throughout the quarter. Going forward, as a result of continuing austerity measures, we expect less robust global sales to government agencies in Europe, Japan and the U.S. That's a segment that has recently accounted for about 5% of our worldwide sales.

A tough base of comparison limited the growth rate of our food analysis business in the quarter. You may recall, we benefited from food safety-related business in late 2010, especially from sales resulting from dairy product testing in China. As a result of these strong results in the prior year quarter, our Chemical Analysis business, which includes food and environmental testing, grew more slowly in this quarter.

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