Not unlike its products that turn ugly mixtures into purer
products,
Waters (NYSE: WAT) turned an ugly top line
into an acceptable earnings growth in the third quarter.
Revenue fell by 3% year over year. A currency-exchange
headwind can be blamed for some of the fall, but the rest is
due to laboratories that cut back on equipment purchases.
Unfortunately for Waters' sales, pharmaceutical companies
such as
Eli Lilly (NYSE: LLY) and
Bristol-Myers Squibb (NYSE: BMY) are also
under pressure to cut back on expenses.
Some of the lack of capital purchases may also stem from
academic labs that are waiting for long-awaited stimulus
money that the National Institute of Health is doling out.
Waters expects to start seeing an impact in the fourth
quarter from the added grant money, which should also help
other laboratory-equipment suppliers, such as
Thermo Fisher Scientific (NYSE: TMO) and
Life Technologies (Nasdaq: LIFE), not to
mention
Illumina (Nasdaq: ILMN).
As mentioned, the bottom line is at least headed in the
right direction. Adjusted earnings per share climbed by 2.5%
as lower selling and administrative expenses and lower
interest charges helped boost net income. EPS also got a jolt
from the retirement of 930,000 shares for about $48 million
during the second quarter. That works out to about $51.61 per
share -- not a bad use of company cash, considering the
current price of the stock.
On the conference call, Douglas Berthiaume -- chairman,
president, and chief executive officer, though not a member
of the Red Hat Society -- said that 2010 will be a
"transitional year" for the company with revenue growing,
albeit more slowly than it has historically.
Waters looks neither terribly expensive nor
terribly cheapat these levels. As long as the company can
continue to cut costs while it waits to open up the
floodgates, investors should be content to wait for better
times that are likely to lie ahead.
This article was originally published as
The Waters Aren't Flowing. Yet.on
Fool.com
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