Waters Corporation (WAT)

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Waters (WAT)

Q3 2012 Earnings Call

October 23, 2012 8:30 am ET


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

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

Arthur G. Caputo - Executive Vice President and President of the Waters Division


Ross Muken - ISI Group Inc., Research Division

Jonathan P. Groberg - Macquarie Research

Timothy C. Evans - Wells Fargo Securities, LLC, Research Division

Daniel L. Leonard - Leerink Swann LLC, Research Division

Doug Schenkel - Cowen and Company, LLC, Research Division

Daniel Brennan - Morgan Stanley, Research Division

Charles Anthony Butler - Barclays Capital, Research Division

Amit Bhalla - Citigroup Inc, Research Division

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

Isaac Ro - Goldman Sachs Group Inc., Research Division

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

Peter Lawson - Mizuho Securities USA Inc., Research Division

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

Derik De Bruin - BofA Merrill Lynch, Research Division

Daniel Arias - UBS Investment Bank, Research Division

Steve Willoughby - Cleveland Research Company

Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division



Good morning. Welcome to the Waters Corporation Third Quarter 2012 Financial Results Conference Call. [Operator Instructions] This conference is being recorded. If you have any objections, you may 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 A. Berthiaume

Thank you. Well, and good morning, and welcome to the Waters Corporation Third Quarter Financial Results Conference Call. With me on today's call, as is usual, is John Ornell, the Waters' Chief Financial Officer; Art Caputo, the President of the Waters Division; and Gene Cassis, Vice President of Investor Relations.

And as is our normal practice, I will start with an overview of the quarter's results. John will follow with details of our financials and provide you with our outlook 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 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 statement results of the company this time for Q4 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 ended December 31, 2011 in Part I under the caption Business Risk Factors, and the cautionary language included in this morning's press release and 8-K.

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 conference call and webcast is currently planned for January 2013.

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 our 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 listed 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, our third quarter in total was much like we saw in the first half of 2012. Constant currency sales were up about 2% in the quarter, and within the range that we had discussed 3 months ago. Looking at our results by customer category, we also saw a general continuation of first half trends with pharmaceutical end markets delivering more stable growth in an otherwise challenging demand environment.

In the third quarter, there was a more pronounced spread in our geographically defined segments, with Asia delivering relatively strong revenue growth with more constrained demand in the U.S. than we had earlier anticipated.

Throughout the quarter, we focused our field organizations towards promoting the superior value of Waters' offering in order to maintain a disciplined pricing strategy, and at the same time, we've closely monitored our expenses. These steps, in combination with the continuation of our share repurchase program, allowed us to grow our adjusted earnings per share despite the demand and currency headwinds we encountered in the quarter.

As in prior periods of economic pressure, our recurring revenue, the combination of our service and chemical consumables product lines, stabilized our overall business performance, and in the third quarter solid growth for these recurring lines largely offset a modest decline in instrument system sales. In general, order flow through the quarter did not suggest an overall weakening or strengthening of demand as we approach the fourth quarter.

Looking at the quarter's performance for the Waters division geographically, China was the engine of our Asian growth in the quarter, and we saw nice increases in all segments of our business there. General concerns that we have recently heard regarding a slowing of economic growth in China are not apparent in our third quarter results or in the outlook that we have in the fourth quarter. Our business in Japan declined modestly in constant currency terms, with strength in life science segments offsetting most of the weaknesses in the chemicals sector. India continued to be problematic for us in the quarter, and performed similarly as it had earlier in the year with a weak local currency and cautious customer base delaying instrument purchases in spite of what we see as increasing drug production requirements. We are hopeful that growth in India will show some improvement as we close out this calendar year.

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