Waters (WAT) Q3 2015 earnings summary

Executive summary

• Q3 revenue was $501M, up 9% on a constant-currency basis and 2% reported; growth reflected broad-based demand for core products and services.

• Revenue growth was 11% constant currency through 9M 2015; the new CEO identified continued operating execution, customer engagement, and preparation for 2016 as transition priorities.

Financial highlights

• Q3 non-GAAP diluted EPS rose 3% to $1.42 from $1.38; GAAP EPS was $1.40 versus $1.34. 9M non-GAAP diluted EPS increased 12% to $3.94 from $3.51.

• Q3 non-GAAP gross margin was 58.7% versus 59.0%; 9M margin was 58.5% versus 57.9%.

• SG&A was flat as reported; on a constant-currency basis it grew about in line with revenue in Q3, while 9M SG&A growth trailed revenue growth slightly. R&D expense rose 13% reported.

• Q3 free cash flow was $114M after $25M of capital spending; 9M free cash flow was $384M versus $324M in 9M 2014.

Outlook and guidance

• Q4 constant-currency sales growth guided to 4%-5%; FX at then-current rates was expected to reduce growth by 5 percentage points.

• Q4 non-GAAP diluted EPS guidance was $1.89-$1.99; gross margin was expected to approach 60%, with operating expenses growing moderately YoY.

• FY 2015 constant-currency sales growth outlook was 8%-9%, with adjusted diluted EPS of $5.83-$5.93.

• FY operating tax rate was expected to be ~13.5%, excluding any reestablishment of the U.S. R&D tax credit; renewal could add $0.02-$0.03 to EPS.