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Waters Corp. (WAT) Q4 Earnings Beat on Top-Line Strength

Last quarter, Waters CorporationWAT broke its striking earnings beat streak that spanned nine quarters of back-to-back positive earnings surprises, as it reported in-line earnings. However, Waters Corp. resumed its streak in its just-reported fourth-quarter 2016 results, as its adjusted earnings of $2.21 per share trumped the Zacks Consensus Estimate of $2.12 by 4.3%.

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The bottom-line figure fared even better in year-over-year comparison, reflecting a striking growth of 12.8% from the prior-year quarter tally of $1.96. Remarkable, broad-based top-line expansion along with growth in Asia and Europe, aided the earnings beat.

Solid operational execution backed by the company's efficient business model also lent strength to the results. Further, a decline in interest expenses aided quarterly profits.

For full-year 2016, adjusted earnings came in at $6.62, reflecting an increase of 12% over 2015.

Inside the Headlines

In the reported quarter, Waters Corp.'s net sales grew 7% year over year to $629 million and also came ahead of the Zacks Consensus Estimate of $617 million.

The upside in the top line came on the back of robust performance in the industrial end markets (up 14% on a constant currency basis). Further, the bio/pharmaceutical end market and the government & academic market (both up 6% on a constant currency basis) also drove the overall top-line growth.

Also, impressive contribution from sale of key products across major geographies supplemented quarterly sales growth. In addition, Water Corp.'s recurring revenues and instrument system sales grew 8% and 9%, respectively, driving top-line growth.

In terms of geographies, Waters Corp. witnessed strong sales in Asia and Europe, which posted 16% and 9% growth at constant currency. Sales in the U.S. also rose 2% year over year.

For full-year 2016, sales for the company came in at $2,167 million, up around 6% from 2015 revenues.

Total selling and administrative expenses in the quarter came in at $130.2 million, up from $128.7 million in fourth-quarter 2015. Research and development outlay for the quarter was $32.8 million, compared with $28.3 million incurred a year ago.

Despite the rise in these expenses, operating income in the quarter climbed 14.9% year over year to $208.3million.

Liquidity

Waters Corp.'s cash, cash equivalents and investments amounted to approximately $2.8 billion, higher than $2.4 billion as on Dec 31, 2015. The company's total liabilities at quarter end increased to about $2.4 billion from $2.2 billion as on Dec 31, 2015.

Waters Corporation Price, Consensus and EPS Surprise

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

Our Take

Waters Corp.'s leading position in the high-performance liquid chromatography and mass spectrometry markets is its key strength that has acted as a strong revenue driver for the past few quarters. The company's bright pharmaceutical business ended 2016 on a healthy note and looks set to continue its momentum going into 2017.

Waters Corp.'s exposure in the pharma/biotech industry is primarily in regulated commercial lab environments, where demand is non-discretionary and not prone to cyclicality. This helps the company mitigate uncertain client spending stemming from macroeconomic volatility. Also, given the fact that liquid chromatography is used in a huge variety of applications, Waters Corp. stands to benefit significantly from this business, going forward.

However, of late, vagaries in spending by the governmental and academic customers have been hurting the company's top line. Additionally, Waters Corp.'s escalating debt levels and R&D expenditure may dent its financials.

Stocks to Consider

Waters Corp. currently holds a Zacks Rank #4 (Sell). Some better-ranked stocks in the broader sector include Exa Corp. EXA , Check Point Software Technologies Ltd. CHKP and Progress Software Corporation PRGS . While Exa and Check Point Software sport a Zacks Rank #1 (Strong Buy), Progress Software holds a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Exa Corporation develops, markets, sells, and supports software products, and provides professional services for simulation-driven design. The company has an excellent earnings surprise history, with an average beat of 68.1% for the trailing four quarters, beating estimates strongly all through.

Check Point Software offers software and combined hardware products and services for IT security worldwide. This company also has posted earning beats thrice in the trailing four quarters. It boasts an average beat of 6%.

Progress Software provides software solutions for various industries worldwide and has an average surprise of 4.3% for the last four quarters, having strongly beaten estimates twice.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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