Waters Corporation (NYSE: WAT) Reports Second Quarter 2018 Financial Results
Jul. 24, 2018
MILFORD, Mass.--(BUSINESS WIRE)--Jul 24, 2018--Waters Corporation (NYSE: WAT) today announced second quarter 2018 sales of $596 million, a 7% increase as reported, versus sales of $558 million for the second quarter of 2017. Foreign currency translation increased sales growth by approximately 2% for the quarter.
On a GAAP basis, diluted earnings per share (EPS) for the second quarter increased 21% to $1.98, compared to $1.63 for the second quarter of 2017. On a non-GAAP basis, EPS for the second quarter increased 11% to $1.95, compared to $1.76 for the second quarter of 2017. A description and reconciliation of GAAP to non-GAAP results appear in the table 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 for the second quarter of 2018 decreased to $101 million from $177 million for the second quarter of 2017. On a non-GAAP basis, adjusted free cash flow decreased to $144 million from $159 million for the second quarter of 2017.
For the first half of 2018, the Company’s sales were $1,127 million, up 7% as reported, compared with sales of $1,056 million in the first half of 2017. Foreign currency translation increased sales growth by approximately 4% during the first half of 2018. On a GAAP basis, EPS for the first half of 2018 was up 15% to $3.39, compared to $2.94 for the first half of 2017. On a non-GAAP basis and including adjustments in the attached reconciliation, EPS increased 10% to $3.54 in 2018 as compared to $3.22 for the first half of 2017. On a GAAP basis, net cash provided by operating activities for the first half of 2018 decreased to $277 million from $351 million for the first half of 2017. On a non-GAAP basis, adjusted free cash flow decreased to $304 million from $316 million for the first half of 2017.
Commenting on the Company’s performance, Chris O’Connell, Chairman and Chief Executive Officer, said, “We are pleased that we saw sequential improvement in our second quarter results, highlighted by strong growth in China, our TA product line, and our recurring revenues. In addition, we delivered meaningful operating leverage, which enabled us to achieve double-digit earnings per share growth. Our second quarter results give us confidence in the ongoing growth trajectory of our business.”
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 found below.
During the second quarter of 2018, sales into the pharmaceutical market grew 6% as reported and 4% in constant currency, sales into the industrial market grew 5% as reported and 3% in constant currency, and sales into the governmental and academic markets grew 16% as reported and 13% in constant currency. During the first half of 2018, sales into the pharmaceutical market grew 7% as reported and 4% in constant currency, sales into the industrial market grew 3% as reported and were flat in constant currency, and sales into the governmental and academic markets grew 13% as reported and 10% in constant currency.
During the second quarter, recurring revenues, which represent the combination of service and precision chemistries revenues, grew 11% as reported and 8% in constant currency, while instrument system sales grew 3% as reported and 2% in constant currency. For the first half of 2018, recurring revenues grew 11% as reported and 7% in constant currency, while instrument system sales grew 2% as reported and were flat in constant currency.
Geographically, sales in Asia during the quarter grew 10% as reported and 8% in constant currency, sales in Europe grew 10% as reported and 5% in constant currency, and sales in the Americas grew 1%, while U.S. sales declined 2%. For the first half of 2018, sales in Asia grew 6% as reported and 4% in constant currency, sales in Europe grew 13% as reported and 4% in constant currency, and sales in the Americas grew 2%, with U.S. sales also growing 2%.
Third Quarter and Fiscal Year 2018 Financial Outlook
Waters Corporation expects third quarter 2018 constant currency sales growth to be in a range of 4% to 6%, and, as of today, currency translation is expected to decrease third quarter sales growth by approximately 1% to 2%. The Company also expects third quarter 2018 non-GAAP earnings per fully diluted share to be in the range of $1.85 to $1.95. Please refer to the table below for a reconciliation of the projected GAAP to non-GAAP financial outlook for the third quarter.
The Company maintains its full-year 2018 guidance for constant currency sales growth in the range of 4% to 6%. As of today, currency translation is expected to increase 2018 sales growth by less than 1%. The Company is revising its guidance for full-year 2018 non-GAAP earnings per fully diluted share to the range of $8.05 to $8.20, from the prior guidance range of $8.10 to $8.30. Please refer to the table below for a reconciliation of the projected GAAP to non-GAAP financial outlook for the full year.
Waters Corporation will webcast its second quarter 2018 financial results conference call today, July 24, 2018 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 July 31, 2018 at midnight Eastern Time on the same website by webcast and also by phone at 402-661-5143.
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 nearly 60 years. With approximately 7,000 employees worldwide, Waters operates directly in 31 countries, including 15 manufacturing facilities, 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.
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 from economic, sovereign and political uncertainties; 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, 2017 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.
* The Company adopted new accounting guidance which requires that an employer disaggregate the service cost component from other components of net benefit cost. As a result of the adoption of this standard, the components of net periodic benefit cost other than the service cost component are included in other (expense) income in the consolidated statements of operations and all previous periods have been adjusted accordingly.
** The provision for income taxes for the three and six months ended June 30, 2018 includes a $9 million benefit and a $4 million expense, respectively, related to the tax on the change in foreign currency exchange rates on the earnings taxed on December 31, 2017 under the Tax Cuts and Jobs Act. 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 June 30, 2018.
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