Waters Corporation (WAT) Q2 Earnings Beat, Revenues Increase - Analyst Blog

Waters Corporation (WAT) reported second-quarter 2014 non-GAAP earnings of $1.22 per share, beating the Zacks Consensus Estimate by a penny. The adjusted earnings per share reflected a 13.0% year-over-year increase from $1.08 in the prior-year quarter.

The company reported GAAP net income of $96.5 million or $1.13 per share versus $89.3 million or $1.03 a share in the second quarter of 2013.

Waters Corporation benefited from a strong product demand in key regions like the U.S., especially in the pharmaceutical sector, leading to robust organic growth. This apart, a solid balance sheet and healthy cash generation were the other positives.

Revenues

Waters Corporation's revenues came in at $481.8 million compared with $451.1 in the prior-year quarter. Revenues surpassed the Zacks Consensus Estimate of $475 million by 1.4%. The company's sales witnessed a gain of 1% on the back of favorable currency translations in the quarter.

Margins                                          

Gross profit for the quarter was $279.9 million, rising 6.5% from $262.8 million reported in the prior-year quarter. However, gross margin for the quarter was marginally down to 58.1% from 58.3% in the year-ago quarter.

Operating income for the quarter was $118.4 million, increasing 5.1% from $112.7 million in the second quarter of 2013. The company incurred total selling and administrative expenses of approximately $131.9 million in the quarter, an increase of almost 7.1% year over year. Research and Development (R&D) expense was about $27.0 million in the quarter versus $24.7 million in the prior-year quarter. Operating margin stood at 24.6% compared with 25.0% in the second-quarter 2013.  

Balance Sheet

Exiting the year, cash, cash equivalents and investments reached approximately $1.92 billion compared with $1.80 billion as on Dec 31, 2013. The company's long-term debt declined to $1.16 billion from $1.19 billion at year-end 2013. However, its total liabilities increased to $1.88 billion compared with $1.82 billion as on Dec 31, 2013.

Moving Ahead

Waters Corporation is likely to benefit from the recovery in the pharmaceutical industry, which is its largest single market, contributing a significant share to total revenue. 

Waters Corporation currently has a Zacks Rank #4 (Sell). Some better-ranked companies that can be considered at present include Bruker Corporation (BRKR), Synaptics Inc. (SYNA) and Noble Group Limited (NOBGY). All three carry a Zacks Rank #1 (Strong Buy).