No Suprises With Challenging 3Q23 and Outlook for Waters Following Peer Reports; Profitability Exceeds Expectations Though
11-7-23 (by: Scott Gleason) Life science tools company Waters Corporation revealed its financial results for the third quarter of 2023 with reported sales of $712 million for the third quarter of 2023. This marked a modest increase of less than 1% as reported compared to the third quarter of 2022. Notably, the company’s recent acquisition of Wyatt added 4% to sales so organic sales declined 4%. Analysts had forecasted total sales of $724.1 million in the quarter. Similar to other life science tools companies, Waters noted headwinds from the macro environment and China where management noted a 30% decline in revenue. Excluding China organic revenue was flat in the quarter. Management believes China is close to bottoming despite guiding to continued deterioration in the fourth quarter.
During the third quarter of 2023, sales into the pharmaceutical market increased by 4% as reported. Sales into the industrial market decreased by 6%. Sales into the academic and government markets increased 3%. Instrument system sales decreased by 5% and recurring revenues, which encompass both service and precision chemistries, increased by 6%.
The company showed strong expense control with adjusted operating margins improving 60 basis points year-over-year. This led to reported adjusted EPS of $2.84, an increase of 8% compared to $2.64 in the third quarter of 2022. Consensus estimates called for adjusted EPS of $2.56.
The company revised its full-year 2023 guidance downward. For the fourth quarter of 2023, Waters now anticipates a decline in organic constant currency sales growth in the range of -8% to -5%, with currency translation expected to decrease sales growth by approximately 1.5%. The Wyatt transaction is expected to increase reported sales growth by around 3.5%. Consequently, the reported sales growth for the fourth quarter of 2023 is projected to be in the range of -6% to -3%. Non-GAAP EPS for the fourth quarter is estimated to be in the range of $3.52 to $3.62. Management noted that its guidance implies China continues to deteriorate which is the driver of lower year-over-year growth in the fourth quarter. The company is also assuming more muted instrument revenue in what is typically a seasonally strong quarter for purchases by customers.
Dr. Udit Batra, President & CEO of Waters Corporation, noted that pharmaceutical growth in the U.S. and Europe exceeded expectations, while challenges in China extended beyond pharmaceuticals and affected industrial and academic/government segments. Dr. Batra also expressed satisfaction with the successful integration of the Wyatt acquisition and the launch of innovative products.