Waters Corporation WAT reported second-quarter 2020 non-GAAP earnings of $2.10 per share, which surpassed the Zacks Consensus Estimate by 37.2%. Further, the bottom line improved 82.6% sequentially but declined 2% on a year-over-year basis.
Net sales of $519.9 million beat the Zacks Consensus Estimate of $490 million. The top line was up 11.8% from the prior quarter. However, the figure was down 13% from the year-ago quarter on reported basis and 12% on constant currency basis.
The decline can be attributed to coronavirus-induced disruptions, which led to sluggish demand across all the geographies. Further, foreign currency headwinds hurt sales by 1%.
Further, softness in pharmaceutical, industrial, and academic and governmental markets remained a headwind. Further, the company encountered weakness in the Americas, Europe and Asia regions during the second quarter owing to the coronavirus pandemic.
Nevertheless, solid execution of the company’s cost-cutting strategies was a major positive during the reported quarter. Further, Waters’ new product pipelines remained a tailwind.
Waters Corporation Price, Consensus and EPS Surprise
Waters Corporation price-consensus-eps-surprise-chart | Waters Corporation Quote
Top Line in Detail
Waters’ net sales figure can be categorized in four ways:
By Operating Segment: The company operates in two organized segments — Waters and TA.
Waters segment (89.6% of net sales) generated $465.7 million of sales, down 12% from the year-ago quarter. Sales in TA segment were $54.3 million, which accounted for 10.4% of net sales. The figure reflected year-over-year decline of 20%.
By Products & Services: This division comprises three segments — Instruments, Services and Chemistry.
Instruments sales (42.3% of sales) came in $219.8 million, down 23% on a year-over-year basis.
Service sales (39.4% of the sales) were $205.1 million, declining 3% year over year.
Chemistry sales (18.3% of the sales) were $95.1 million, down5% from the year-ago quarter.
Moreover, service and chemistry sections together generated recurring revenues of $300.2 million, down 4% from the year-ago quarter.
By Markets: The company serves three end markets — Pharmaceutical, Industrial and Governmental & Academic.
Pharmaceutical market (59.8% of net sales) generated sales of $311.02 million, down 11% on a year-over-year basis.
Industrial market (29.3% of sales) sales came in $152.1 million, down 14% from the year-ago quarter.
Governmental & Academic (10.9% of sales) generated $56.9million of sales. The figure declined 22% year over year.
By Geography: This company’s operating regions include Asia, Americas and Europe.
Asia (40% of net sales) generated $208.2 million of sales, down 13% on a year-over-year basis. This was primarily due to softness in China where sales declined 20% from the year-ago quarter.
Europe (26% of sales) generated $136.9 million of sales, decreasing 11% year over year.
Americas (34% of sales) generated $174.8 million of sales, down 15% from prior-year quarter. Sales in United States declined 14% year over year.
In the second quarter, non-GAAP selling and administrative expenses were $111.7million, reflecting a decrease of 14.4% from the year-ago quarter.
Research and development spending was $31.2 million, indicating a decline of 14.6% from the year-ago reported figure.
Adjusted operating margin was 31.5%, which expanded 100 basis points (bps) year over year.
Balance Sheet & Cash Flow
As of Jun 27, 2020, cash, cash equivalents and investments came in $355.8 million, lowerthan $393.9 million as of Mar 28, 2020.
Further, total liabilities were $2.8 billion, down from $3 billion in the prior quarter.
Waters generated cash from operation of $198.8 million in the second quarter, up from $151.6 million in the prior quarter.
Further, free cash flow of $175.4 million in the reported quarter.
Zacks Rank & Stocks to Consider
Currently, Waters carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology sector are Dropbox, Inc. DBX, Shopify Inc. SHOP and Etsy, Inc. ETSY. While Dropbox sports a Zacks Rank #1 (Strong Buy), Shopify and Etsy carry a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The long-term earnings growth rate for Dropbox, Shopify and Etsy is currently pegged at 32.51%, 33.97% and 22.4%, respectively.
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