Waters Management Discusses Q2 2012 Results - Earnings Call Transcript

Waters (WAT)

Q2 2012 Earnings Call

July 24, 2012 8:30 am ET


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

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


Daniel Brennan - Morgan Stanley, Research Division

Ross Muken - ISI Group Inc., Research Division

Nandita Koshal - Barclays Capital, Research Division

Daniel L. Leonard - Leerink Swann LLC, Research Division

Jonathan P. Groberg - Macquarie Research

Amit Bhalla - Citigroup Inc, Research Division

Doug Schenkel - Cowen and Company, LLC, Research Division

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

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

Isaac Ro - Goldman Sachs Group Inc., Research Division

Sung Ji Nam - Cantor Fitzgerald & Co., Research Division

Derik De Bruin - BofA Merrill Lynch, Research Division



Good morning. Welcome to the Waters Corporation Second Quarter 2012 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 Second Quarter Financial Results Conference Call. With me on today's call is John Ornell, the Waters Chief Financial Officer; Art Caputo, the President of the Waters division; and Gene Cassis, Vice President of Investor Relations.

As is our normal practice, I will start with an overview of the quarter's results, and John will follow with details of our financials and provide you with our outlook for the third quarter of 2012 and 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 profitable future income statement results of the company this time for Q3 and full year 2012. 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 present expectations, see our 10-K Annual Report for the fiscal year ended December 31, 2011, in part one under the caption Business Risks, factors and the cautionary language included in this morning's press release and 8-K.

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 result except during our regularly scheduled quarterly earnings release conference calls and webcasts. The next earnings release call and webcast is currently planned for October 2012.

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

Douglas A. Berthiaume

Thank you, John. Well, overall the second quarter's organic results were close to our original estimates, but they do suggest that we have a need for a moderately higher level of caution, as we look into the second half of 2012.

The second quarter started up positively for us, as most orders that we had identified as delayed in the first quarter were booked in April and as business momentum initially improved in India with the issuance of new capital budgets.

In May, we had a strong presence at ASMS, where our new products were well received and where we felt encouraged that demand for research-focused instrumentation might hold up better than expected, this despite heavily publicized concerns that academic and government budgets were under pressure.

On the other hand, as the quarter unfolded, we began to see general economic conditions weaken in Europe and in some Asian countries. The value of the euro and the rupee fell from levels that we saw in April. And it seems as if the approval processes for instrument purchases in nearly all of our larger accounts were dragging on a little longer than anticipated. In general, a greater level of conservatism was marginally impacting demand across almost all of our end markets.

Consequently, our orders and shipments in the second quarter came in a little lighter than we had hoped, and our current outlook for sales growth in the remainder of the year is accordingly tempered to account for market uncertainties.

Fortunately, we ended the quarter with a conservative spending plan and throughout the quarter, tightly controlled our spending while maintaining disciplined pricing policies. Flexibility of our business model allowed us to deliver operating leverage despite a foreign exchange headwind and lower-than-anticipated shipment volume.

All in, we managed to deliver adjusted 8% EPS growth on sales that grew organically at about 4.5% and at 1% after foreign currency translation.

For the Waters division and geographically, Asian markets outside of China and Japan were weaker than we had expected, as industrial chemical and applied market segments declined in the quarter.

Shipments in India were slightly down year-over-year, as ordering delays seem to materialize with the weakening of the local currency. Our business in China held up well with sales up in the double-digit rate in the quarter and with all major customer segments delivering consistent growth. Developing markets in Eastern Europe, the Middle East and Latin America also were under pressure during the quarter and adversely impacted the division's overall sales growth. In these regions, nonlife science applications were most negatively affected.

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