Waters Corporation WAT has a brilliant earnings beat streak, spanning 13 quarters of positive earnings surprises, which the company broke just once as it reported in-line earnings once last year. In fourth-quarter 2017, Waters Corp. continued its impressive trend, as the company’s adjusted earnings of $2.51 per share trumped the Zacks Consensus Estimate of $2.44 by 2.9%.

The bottom-line figure fared even better in year-over-year comparison, reflecting striking growth of 13.6% from the prior-year quarter tally of $2.21. Remarkable broad-based top-line expansion, along with spectacular growth in 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.

On a GAAP basis, Waters Corp. reported a loss of $4.44 per share compared with earnings of $2.15 in fourth-quarter 2016. The company’s GAAP profitability was adversely affected by a huge, one-time expense of income tax of about $550 million.

For the full year, the company reported adjusted earnings of $7.49 per share, reflecting impressive growth of 14% over the previous year.

Inside the Headlines

In the reported quarter, Waters Corp.’s net sales grew 9% year over year to $687 million and also came ahead of the Zacks Consensus Estimate of $671 million. For the full year, revenues grew 7% year over year to $2.3 billion.

The upside in the quarter’s top line came on the back of robust performance in the bio/pharmaceutical end markets (up 11% year over year), and the government and academic market (up 17% year over year). The momentum was further backed by 3% growth in the industrial end markets.

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 climbed 12% and 7%, respectively, driving top-line growth.

In terms of geographies, Waters Corp. witnessed strong sales in Europe, United States and Asia, which posted 16%, 9% and 7% growth, respectively. Overall sales in the Americas rebounded from the earlier weakness, and rose 6% year over year.

Total selling and administrative expenses in the quarter came in at $148.8 million, up from $130.2 million incurred in fourth-quarter 2016. Research and development outlay for the quarter was $35.1 million compared with $32.8 million incurred a year ago.

Despite the rise in these expenses, operating income in the quarter advanced 10.5% year over year to $230.2 million.

Waters Corporation Price, Consensus and EPS Surprise


Waters Corp.’s cash, cash equivalents and investments at the quarter end amounted to $3.4 billion, higher than the $2.81 billion recorded as on Dec 31, 2016. The company’s total liabilities at quarter end increased to about $3.1 billion from $2.4 billion as on Dec 31, 2016.

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 sturdy revenue driver for the past few quarters. The company’s bright pharmaceutical business ended 2017 on a healthy note and looks set to continue its momentum into 2018 as well. It is also seeing encouraging trends in its industrial businesses. The governmental and academic markets have also turned its performance around and look poised to maintain the growth trend, in the coming quarters.

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. Additionally, given the fact that liquid chromatography is used in a huge variety of applications, Waters Corp. is well poised to benefit significantly from this business in the near future.

Zacks Rank & Key Picks

Waters Corp. currently holds a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader sector include Nutanix Inc. NTNX, DXC Technology Company DXC and Applied Materials, Inc. AMAT, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Nutanix has an outstanding positive average earnings surprise of 18.5% for the trailing four quarters, beating estimates all through.

DXC Technology also has a robust earnings surprise history, with an average beat of 25.4% for the trailing four quarters, beating estimates each time.

Applied Materials has a decent earnings surprise history for the last four quarters, having beaten estimates all through, for an average beat of 2.8%.

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