- Sales of $514 million declined 3% as
reported and were flat in constant currency
- Recurring revenue growth offset by
declines in instrument sales
- Growth in broader Asia and the U.S.
offset by weakness in China and Europe
- GAAP EPS of $1.51; non-GAAP EPS of
$1.60, a slight increase from prior year
Waters Corporation (NYSE: WAT) today announced first quarter
2019 sales of $514 million, a 3% decrease as reported, compared to
sales of $531 million for the first quarter of 2018. Foreign
currency translation negatively impacted sales growth by
approximately 3% for the quarter.
On a GAAP basis, diluted earnings per share (EPS) for the first
quarter of 2019 increased to $1.51, compared to $1.40 for the first
quarter of 2018. On a non-GAAP basis, EPS increased to $1.60,
compared to $1.59 in the first quarter of 2018. A description and
reconciliation of GAAP to non-GAAP results appear in the tables
below and can be found on the Company’s website at
http://www.waters.com under the caption “Investors.”
On a GAAP basis, net cash provided by operating activities was
$176 million for the first quarter of both 2019 and 2018. On a
non-GAAP basis, adjusted free cash flow for the first quarter of
2019 was $158 million versus $160 million for the first quarter of
2018.
“Sales in the first quarter fell short of our expectations.
Softer demand during the quarter was driven by
greater-than-expected macro impacts in China and Europe, as well as
a slow release of budgets by key pharmaceutical and industrial
customers,” commented Chris O’Connell, Chairman and Chief Executive
Officer of Waters Corporation. “We remain confident in our strong
market position, underlying customer activity, and the contribution
of new product introductions underway and planned for 2019.”
Unless otherwise noted, sales growth and decline percentages are
presented on an as-reported basis and are the same as the sales
growth and decline percentages presented on a constant-currency
basis as compared with the same period in the prior year, each of
which is detailed in the reconciliation of sales growth rates to
constant-currency growth rates in the tables below.
During the first quarter of 2019, sales into the pharmaceutical
market declined 4% as reported and were flat in constant currency,
sales into the industrial market declined 4% as reported and 2% in
constant currency, and sales into the academic and governmental
markets grew 2% as reported and 4% in constant currency.
During the first quarter, recurring revenues, which represent
the combination of service and precision chemistries revenues, grew
1% as reported and 4% in constant currency, while instrument system
sales declined 8% as reported and 6% in constant currency.
Geographically, sales in Asia during the quarter were flat as
reported and grew 2% in constant currency, sales in the Americas
were flat (with U.S. sales growing 2%), and sales in Europe
declined 12% as reported and 5% in constant currency.
Second Quarter and Fiscal Year 2019 Financial Outlook
The Company expects second quarter 2019 constant currency sales
growth in the range of 2% to 4%. As of today, currency translation
is expected to decrease second quarter sales growth by one to two
percentage points. The Company also expects second quarter 2019
non-GAAP earnings per fully diluted share in the range of $2.05 to
$2.15. Please refer to the tables below for a reconciliation of the
projected GAAP to non-GAAP financial outlook for the second
quarter.
In addition, the Company is updating its previously issued
full-year guidance, and currently expects full-year 2019 constant
currency sales growth in the range of 2% to 4%, compared to the
prior range of 4% to 6%. As of today, currency translation is
expected to decrease full-year sales growth by one to two
percentage points. The Company also now expects full-year 2019
non-GAAP earnings per fully diluted share in the range of $9.05 to
$9.25, compared to our prior range of $9.20 to $9.45. Please refer
to the tables below for a reconciliation of the projected GAAP to
non-GAAP financial outlook for the full year.
Conference Call
Waters Corporation will webcast its first quarter 2019 financial
results conference call today, April 23, 2019 at 8:00 a.m. Eastern
Time. To listen to the call, please visit www.waters.com, choose
“Investors,” and click on the “Live Webcast.” A replay will be
available through April 30, 2019 at midnight Eastern Time on the
same website by webcast and also by phone at 203-369-0637.
About Waters Corporation
Waters Corporation (NYSE: WAT), the world's leading specialty
measurement company, has pioneered chromatography, mass
spectrometry and thermal analysis innovations serving the life,
materials and food sciences for more than 60 years. With
approximately 7,000 employees worldwide, Waters operates directly
in 35 countries, including 15 manufacturing facilities, and with
products available in more than 100 countries. For more
information, visit www.waters.com.
Non-GAAP Financial Measures
This press release contains financial measures, such as constant
currency growth rate, adjusted operating income, adjusted net
income, adjusted earnings per diluted share and free cash flow,
among others, which are considered “non-GAAP” financial measures
under applicable U.S. Securities and Exchange Commission rules and
regulations. These non-GAAP financial measures should be considered
supplemental to, and not a substitute for, financial information
prepared in accordance with generally accepted accounting
principles (GAAP). The Company’s definition of these non-GAAP
measures may differ from similarly titled measures used by others.
The non-GAAP financial measures used in this press release adjust
for specified items that can be highly variable or difficult to
predict. The Company generally uses these non-GAAP financial
measures to facilitate management’s financial and operational
decision-making, including evaluation of Waters Corporation’s
historical operating results, comparison to competitors’ operating
results and determination of management incentive compensation.
These non-GAAP financial measures reflect an additional way of
viewing aspects of the Company’s operations that, when viewed with
GAAP results and the reconciliations to corresponding GAAP
financial measures, may provide a more complete understanding of
factors and trends affecting Waters Corporation’s business. Because
non-GAAP financial measures exclude the effect of items that will
increase or decrease the Company’s reported results of operations,
management strongly encourages investors to review the Company’s
consolidated financial statements and publicly filed reports in
their entirety. Reconciliations of the non-GAAP financial measures
to the most directly comparable GAAP financial measures are
included in the tables accompanying this release.
Cautionary Statement
This release may contain “forward-looking” statements regarding
future results and events. For this purpose, any statements that
are not statements of historical fact may be deemed forward-looking
statements. Without limiting the foregoing, the words “feels”,
“believes”, “anticipates”, “plans”, “expects”, “intends”,
“suggests”, “appears”, “estimates”, “projects”, and similar
expressions, whether in the negative or affirmative, are intended
to identify forward-looking statements. The Company’s actual future
results may differ significantly from the results discussed in the
forward-looking statements within this release for a variety of
reasons, including and without limitation, foreign exchange rate
fluctuations potentially affecting translation of the Company’s
future non-U.S. operating results; the impact on demand for the
Company’s products among the Company’s various market sectors or
geographies from economic, sovereign and political uncertainties,
particularly regarding the effect of new or proposed tariff or
trade regulations or changes in the interpretation or enforcement
of existing regulations; the effect on the Company’s financial
results from the United Kingdom voting to exit the European Union;
fluctuations in expenditures by the Company’s customers, in
particular large pharmaceutical companies; introduction of
competing products by other companies and loss of market share;
pressures on prices from competitors and/or customers; regulatory,
economic and competitive obstacles to new product introductions;
other changes in demand for the Company’s products from the effect
of mergers and acquisitions by the Company’s customers; increased
regulatory burdens as the Company’s business evolves, especially
with respect to the U.S. Food and Drug Administration and U.S.
Environmental Protection Agency, among others; impact of the newly
enacted tax reform legislation in the U.S.; shifts in taxable
income in jurisdictions with different effective tax rates; the
outcome of tax examinations or changes in respective country
legislation affecting the Company’s effective tax rate; the effect
of the adoption of new accounting standards; the ability to access
capital, maintain liquidity and service the Company’s debt in
volatile market conditions, particularly in the U.S., as a large
portion of the Company’s cash is held and operating cash flows are
generated outside the U.S.; environmental and logistical obstacles
affecting the distribution of products and risks associated with
lawsuits and other legal actions, particularly involving claims for
infringement of patents and other intellectual property rights.
Such factors and others are discussed more fully in the sections
entitled “Forward-Looking Statements” and “Risk Factors” of the
Company’s annual report on Form 10-K for the year ended December
31, 2018 as filed with the Securities and Exchange Commission,
which “Forward-Looking Statements” and “Risk Factors” discussions
are incorporated by reference in this release. The forward-looking
statements included in this release represent the Company’s
estimates or views as of the date of this release and should not be
relied upon as representing the Company’s estimates or views as of
any date subsequent to the date of this release.
Waters Corporation and
Subsidiaries
Consolidated Statements of
Operations
(In thousands, except per share data) (Unaudited)
Three Months Ended March 30, 2019
March 31, 2018 Net sales $ 513,862 $ 530,670
Costs and operating expenses: Cost of sales 221,031 221,421 Selling
and administrative expenses 134,339 130,407 Research and
development expenses 35,060 34,480 Purchased intangibles
amortization 2,281 1,659 Litigation settlement - (1,672 )
Operating income 121,151 144,375 Other (expense) income (525
) 346 Interest expense, net (3,248 ) (4,172 ) Income from
operations before income taxes 117,378 140,549 Provision for
income taxes(1) 8,392 28,598 Net income $ 108,986 $ 111,951
Net income per basic common share $ 1.52 $ 1.42
Weighted-average number of basic common shares 71,704 78,883
Net income per diluted common share $ 1.51 $ 1.40
Weighted-average number of diluted common shares and
equivalents 72,415 79,715
(1) The provision for income taxes for the three months ended
March 30, 2019 and March 31, 2018 included a $3 million benefit and
a $12 million expense, respectively, related to the tax on the
change in foreign currency exchange rates on the earnings taxed in
December 31, 2017 under the Tax Cuts and Jobs Act and the
subsequent finalization of the tax regulations during the first
quarter of 2019. The difference is due to the change from the
foreign currency exchange rates required by the U.S. Department of
the Treasury on December 31, 2017 to the foreign currency exchange
rates on either the date of distribution of assets into the U.S. or
the foreign currency exchange rates as of March 30, 2019 and March
31, 2018, respectively.
Waters Corporation and Subsidiaries Reconciliation
of GAAP to Adjusted Non-GAAP Net Sales by Operating Segment,
Products & Services, Geography and Markets Three Months
Ended March 30, 2019 and March 31, 2018 (In thousands)
Current Period Constant Three Months
Ended
Percent
Currency Currency March 30, 2019 March 31,
2018
Change
Impact Growth Rate (a) NET SALES -
OPERATING SEGMENT Waters $ 459,914 $ 471,146 (2%) $ (13,957)
1% TA 53,948 59,524 (9%) (878) (8%)
Total $ 513,862 $
530,670 (3%) $ (14,835) -
NET SALES - PRODUCTS & SERVICES Instruments $
221,250 $ 240,407 (8%) $ (5,869) (6%) Service 193,359
191,553 1% (5,848) 4% Chemistry 99,253 98,710 1%
(3,118) 4% Total Recurring 292,612 290,263 1% (8,966) 4%
Total $
513,862 $ 530,670 (3%) $
(14,835) - NET SALES - GEOGRAPHY
Asia $ 200,512 $ 200,280 - $ (4,197) 2% Americas 181,868 181,710 -
(485) - Europe 131,482 148,680 (12%) (10,153) (5%)
Total $ 513,862
$ 530,670 (3%) $ (14,835)
- NET SALES - MARKETS Pharmaceutical $
294,512 $ 305,328 (4%) $ (10,522) - Industrial 155,218 162,330 (4%)
(3,206) (2%) Academic & Governmental 64,132 63,012 2% (1,107)
4%
Total $
513,862 $ 530,670 (3%) $
(14,835) -
(a) The Company believes that referring to comparable constant
currency growth rates is a useful way to evaluate the underlying
performance of Waters Corporation's net sales. Constant currency
growth rate, a non-GAAP financial measure, measures the change in
net sales between current and prior year periods, ignoring the
impact of foreign currency exchange rates during the current
period. See description of non-GAAP financial measures contained in
this release.
Waters
Corporation and Subsidiaries Reconciliation of GAAP to
Adjusted Non-GAAP Financials Three Months Ended March 30,
2019 and March 31, 2018 (In thousands, except per share
data) Income from Operations Selling
& Research & Operating before
Provision for Diluted Administrative
Development Operating Income Income
Income Net Earnings
Expenses(a)
Expenses
Income
Percentage
Taxes
Taxes
Income
per Share
Quarter Ended March 30, 2019 GAAP $
136,620 $ 35,060 $ 121,151
23.6% $ 117,378 $ 8,392 $
108,986 $ 1.51 Adjustments: Purchased
intangibles amortization (b) (2,281) - 2,281 0.4% 2,281 494 1,787
0.02 Restructuring costs and certain other items (c) (10,061) -
10,061 2.0% 10,061 2,633 7,428 0.10 Tax reform (d) - - - - - 3,229
(3,229) (0.04) Certain income tax items (e) - -
- - - (674) 674 0.01
Adjusted Non-GAAP $ 124,278 $
35,060 $ 133,493 26.0% $
129,720 $ 14,074 $ 115,646
$ 1.60 Quarter Ended March 31, 2018
GAAP $ 130,394 $ 34,480 $
144,375 27.2% $ 140,549 $
28,598 $ 111,951 $ 1.40
Adjustments: Purchased intangibles amortization (b) (1,659) - 1,659
0.3% 1,659 202 1,457 0.02 Restructuring costs and certain other
items (c) (568) - 568 0.1% 568 132 436 0.01 Litigation settlement
(f) 1,672 - (1,672) (0.3%) (1,672) (401) (1,271) (0.02) Stock award
modification (g) (1,014) - 1,014 0.2% 1,014 243 771 0.01 Tax reform
(d) - - - - - (12,450) 12,450 0.16 Certain income tax items (e)
- - - - - (692)
692 0.01
Adjusted Non-GAAP $ 128,825
$ 34,480 $ 145,944 27.5%
$ 142,118 $ 15,632 $
126,486 $ 1.59
(a) Selling & administrative expenses include purchased
intangibles amortization and litigation provisions.(b) The
purchased intangibles amortization, a non-cash expense, was
excluded to be consistent with how management evaluates the
performance of its core business against historical operating
results and the operating results of competitors over periods of
time.(c) Restructuring costs and certain other items were excluded
as the Company believes that the cost to consolidate operations and
reduce overhead and certain other income or expense items are not
normal and do not represent future ongoing business expenses of a
specific function or geographic location of the Company.(d) The
provision for income taxes for the three months ended March 30,
2019 and March 31, 2018 included a $3 million benefit and a $12
million expense, respectively, related to the tax on the change in
foreign currency exchange rates on the earnings taxed in December
31, 2017 under the Tax Cuts and Jobs Act and the subsequent
finalization of the tax regulations during the first quarter of
2019. The difference is due to the change from the foreign currency
exchange rates required by the U.S. Department of the Treasury on
December 31, 2017 to the foreign currency exchange rates on either
the date of distribution of assets into the U.S. or the foreign
currency exchange rates as of March 30, 2019 and March 31, 2018,
respectively. The impact of the tax on the change in foreign
currency exchange rates was excluded as the Company believes this
expense is not indicative of the Company’s normal or future income
tax expense.(e) Certain income tax items were excluded as these
non-cash expenses and benefits represent updates in management's
assessment of ongoing examinations or other tax items that are not
indicative of the Company’s normal or future income tax expense.(f)
Litigation settlement gains were excluded as these costs are
isolated, unpredictable and not expected to recur regularly.(g) The
non-cash expense associated with accelerating the vesting of
certain stock awards was excluded as the Company believes these
expenses are not indicative of normal operating costs.
Waters Corporation and
Subsidiaries Preliminary Condensed Unclassified Consolidated
Balance Sheets (In thousands and unaudited)
March 30, 2019 December 31, 2018
Cash, cash equivalents and investments $ 1,167,263 $ 1,735,224
Accounts receivable 508,285 568,316 Inventories 333,308 291,569
Property, plant and equipment, net 355,965 343,083 Intangible
assets, net 243,415 246,902 Goodwill 356,632 355,614 Other assets
284,860 186,718 Total assets $ 3,249,728 $ 3,727,426
Notes payable and debt $ 1,148,546 $ 1,148,350 Other liabilities
1,133,440 1,011,818 Total liabilities 2,281,986 2,160,168
Total equity 967,742 1,567,258 Total liabilities and equity $
3,249,728 $ 3,727,426
Waters
Corporation and Subsidiaries Preliminary Condensed
Consolidated Statements of Cash Flows Three Months Ended
March 30, 2019 and March 31, 2018 (In thousands and
unaudited) Three Months Ended
March 30, 2019 March 31, 2018 Cash flows from
operating activities: Net income $ 108,986 $ 111,951 Adjustments to
reconcile net income to net cash provided by operating activities:
Stock-based compensation 9,941 9,892 Depreciation and amortization
24,764 28,640 Change in operating assets and liabilities, net
32,088 25,358 Net cash provided by
operating activities 175,779 175,841 Cash flows from
investing activities: Additions to property, plant, equipment and
software capitalization (25,666 ) (15,992 ) Investment in
unaffiliated company - (3,215 ) Net change in investments
459,705 915,046 Net cash provided by investing
activities 434,039 895,839 Cash flows from financing
activities: Net change in debt 86 (749,919 ) Proceeds from stock
plans 27,631 24,287 Purchases of treasury shares (753,105 )
(282,370 ) Other cash flow from financing activities, net
2,254 1,937 Net cash used in financing
activities (723,134 ) (1,006,065 ) Effect of exchange rate
changes on cash and cash equivalents 2,006
8,588 (Decrease) increase in cash and cash equivalents
(111,310 ) 74,203 Cash and cash equivalents at beginning of
period 796,280 642,319 Cash and cash
equivalents at end of period $ 684,970 $ 716,522
Reconciliation of GAAP Cash Flows
from Operating Activities to Free Cash Flow (a)
Net cash provided by operating activities - GAAP $
175,779 $ 175,841 Adjustments: Additions to property, plant,
equipment and software capitalization (25,666 ) (15,992 ) Major
facility renovations 7,496 - Free Cash Flow -
Adjusted Non-GAAP $ 157,609 $ 159,849
(a) The Company defines free cash flow as net cash flow from
operations accounted for under GAAP less capital expenditures and
software capitalizations plus or minus any unusual and non
recurring items. Free cash flow is not a GAAP measurement and may
not be comparable to free cash flow reported by other
companies.
Waters Corporation and
Subsidiaries Reconciliation of Projected GAAP to Adjusted
Non-GAAP Financial Outlook (In thousands, except per share
data) Three Months Ended Twelve Months
Ended June 29, 2019 December 31, 2019
Range Range Projected Sales Projected
constant currency sales growth rate 2% - 4% 2% - 4%
Projected currency impact (2%) - (1%) (2%) - (1%)
Projected sales growth rate as reported 0% - 3% 0% -
3%
Projected Earnings Per Diluted Share
Range Range Projected GAAP earnings per
diluted share $ 2.01 - $ 2.11
$
8.84
-
$
9.04
Adjustments: Purchased intangibles amortization $ 0.03 - $ 0.03 $
0.11 - $ 0.11 Certain other items $ - - $ -
$
0.11
-
$
0.11
Certain income tax items $ 0.01 - $ 0.01 $ (0.01 ) -
$ (0.01 ) Projected adjusted non-GAAP earnings per diluted share $
2.05 - $ 2.15 $ 9.05 - $ 9.25
Constant currency growth rates are a non-GAAP financial measure
that measures the change in net sales between current and prior
year periods, ignoring the impact of foreign currency exchange
rates during the current period. These amounts are estimated at the
current foreign currency exchange rates and based on the forecasted
geographical sales in local currency, as well as an assessment of
market conditions as of today, and may differ significantly from
actual results.
These forward-looking adjustment estimates do not reflect future
gains and charges that are inherently difficult to predict and
estimate due to their unknown timing, effect and/or
significance.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190423005233/en/
Bryan Brokmeier, CFA, Senior Director, Investor Relations,
508-482-3448
Waters (NYSE:WAT)
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