Waters (WAT)

Q3 2011 Earnings Call

October 25, 2011 8:30 am ET


Douglas A. Berthiaume - Chairman, Chief Executive Officer and President

Arthur G. Caputo - Executive Vice President and President of the Waters Division

John A. Ornell - Chief Financial Officer and Vice President of Finance & Administration


Charles Anthony Butler - Barclays Capital, Research Division

Ross Muken - Deutsche Bank AG, Research Division

Steve Willoughby -

Jonathan P. Groberg - Macquarie Research

Daniel Arias - UBS Investment Bank, Research Division

Jeff Ares - Goldman Sachs Group Inc., Research Division

Stephen S. Unger - Lazard Capital Markets LLC, Research Division

Peter Lawson - Mizuho Securities USA Inc., Research Division

Jon Davis Wood - Jefferies & Company, Inc., Research Division

Julian Cochran - Leerink Swann LLC, Research Division

Tycho W Peterson - JP Morgan Chase & Co, Research Division

Quintin J. Lai - Robert W. Baird & Co. Incorporated, Research Division

Derik De Bruin - UBS Investment Bank, Research Division

Unknown Analyst -



Good morning. Welcome to the Waters Corporation Third Quarter 2011 Financial Results Conference Call. [Operator Instructions] This conference is being recorded. [Operator Instructions] I would like to introduce your host for today's call, Mr. Douglas Berthiaume, Chairman, President and Chief Executive Officer of Waters Corporation. Sir, you may begin.

Douglas A. Berthiaume

Thank you. Well, good morning, and welcome to the Waters Corporation Third Quarter Financial Results Conference Call. With me on today's call is John Ornell, Waters' Chief Financial Officer; Art Caputo, the President of the Waters Division; and Gene Cassis, the Vice President of Investor Relations. And as it is our normal practice, I will start with an overview of the quarter's highlight, John will follow with details of our financial results and provide you with an outlook for the full year. But before we get going, I'd like John to cover the cautionary language.

John A. Ornell

During the course of this conference call, we will make various forward-looking statements regarding future events or future financial performance of the company. In particular, we will provide guidance regarding possible future income statement results of the company, this time for Q4 2011. We caution you that all such statements are only predictions and that actual events or results may differ materially.

For a detailed discussion of some of the risks and contingencies that could cause our actual performance to differ significantly from our current expectations, see our 10-K Annual Report for the fiscal year ended December 31, 2010, in Part I under the caption Business Risk Factors. We further caution you that the company does not obligate or commit itself by providing this guidance to update predictions. We do not plan to update predictions regarding possible future income statement results, except during our regularly scheduled quarterly earnings release conference calls and webcasts. The next earnings call and webcast is currently planned after January 2012.

During this call, we will be referring to certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measure to the most directly comparable GAAP measure is attached in our company's earnings release issued this morning. In our discussions of the results of operations, we may refer to pro forma results, which exclude the impact of items such as those outlined in the schedule entitled Reconciliation of Net Income Per Diluted Share included in this morning's press release.

Douglas A. Berthiaume

Thank you, John. Well our sales grew 13% in the third quarter, and our adjusted earnings were up 15%. This growth in revenue is, I think, indicative of continued health in our end markets and the strength of our product offerings. During the quarter, we began shipping the new instrument systems that we launched at ASMS while enjoying the continued ramp of the performance leading platforms that drove our growth during the first half of 2011. Our key customer segments including biopharmaceutical, chemical and the combination of government and academic, all grew in the quarter while geographically, growth was more balanced than we might have expected with the Americas, Europe and Asia all delivering constant currency sales growth within a few percentage points of one another.

Overall, I think it was a very solid quarter. Within the Waters division, constant currency sales to the pharmaceutical industry grew at about the same rate as the overall business with no significant changes in drivers from what we saw during the first half of the year. Applications within pharma that are driving growth include regulated bioanalysis, biological pharmaceutical development and QC testing. Businesses CROs in the quarter was robust while sales to our largest accounts was sequentially above the second quarter's results and up year-over-year. Global government and university revenue growth was stronger in the third quarter than the second quarter, and continued shipments of research products such as our newly introduced SYNAPT G2-S should benefit university revenues as we close the year.

Instrument sales to industrial chemical customers, a business you should know that represents less than 10% of our overall sales held up fairly well in the quarter with strength in Asian markets offsetting slower growth in Europe and the United States.

You look at TA, the division delivered yet another double-digit sales growth quarter. Sales growth for TA was also geographically balanced with strong growth across the division's product line. New business opportunities associated with high temperature and biological applications, along with broader adoption of recently introduced discovery platform instruments, provide us with confidence that the division can continue to grow in future quarters despite ongoing economy-related concerns.

Sales within our applied markets dominated by food and environmental applications grew at a double-digit rate in the quarter. On the food safety front, during the quarter, Waters participated in the opening of the International Food Safety Training Laboratory located on the campus of the University of Maryland and in cooperation with the University and the U.S. FDA together with Waters Corporation. It's the world's only permanent food safety lab that provides hands-on lab training and classroom lessons on regulatory standards, educating both international government agencies and food exporters. I think this is a great strategic investment for us, and I think you can look for more of these kinds of things as we go forward.

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