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Waters Q1 Revenues Down 10 Percent

NEW YORK – Waters reported on Tuesday that its first quarter revenues fell 10 percent year over year, as the company saw weak sales in China due to the SARS-CoV-2 pandemic.

Waters posted revenues of $464.9 million for the quarter compared to $513.9 million in Q1 2019, below the average Wall Street estimate of $488.5 million.

Currency translation decreased sales growth by around 2 percent, the company said.

On a conference call following the earnings release, Waters President and CEO Christopher O'Connell highlighted China as a market especially hard hit by the SARS-CoV-2 outbreak and noted that Waters' business in that country declined 45 percent during the quarter, impacting the company's overall sales by roughly 8 percentage points.

Revenue was down in the Americas by 5 percent but up in Europe by 4 percent during the quarter.

Waters instrument sales were down 20 percent in Q1, to $176.9 million from $221.3 million the previous year, or 19 percent at constant currency.  Recurring revenues fell 2 percent, or less than 1 percent at constant currency. In terms of end markets, the company's pharma business was down 7 percent compared to Q1 2019, or 6 percent at constant currency, while industrial was down 8 percent, or 7 percent at constant currency, and academic and government was down 24 percent, or 22 percent at constant currency.

Looking ahead, O'Connell said the company has "seen signs of recovery in China and other parts of Asia and Europe," though he added that it expects Q2 to be more challenging than Q1 as business slowdowns that began toward the end of Q1 in the US, India, and portions of Europe will likely persist throughout the second quarter.

In anticipation of continued weakness, Waters is taking actions to reduce its costs by around $100 million for full year 2020, O'Connell said. Those actions include reductions of executive salaries as well as salary reductions and furloughs for the company's broader workforce and a company-wide hiring freeze and adjustments to benefits programs.

Waters has also suspended its share buyback program and delayed capital expenditures.

The Milford, Massachusetts-based company said Q1 net income fell to $53.6 million, or $.86 per share, compared to $109 million, or $1.52 per share, a year ago. On a non-GAAP basis, Waters reported EPS of $1.15, below analysts' average estimate of $1.47.

The firm's R&D spending was essentially flat year over year at $35.0 million compared to $35.1 million in Q1 2018, while SG&A costs rose 10 percent to $147.7 million from $134.3 million.

The company ended the quarter with $393.9 million in cash, cash equivalents, and investments.

Due to the uncertainty caused by the COVID-19 pandemic, Waters withdrew its full-year 2020 guidance, though O'Connell provided some details regarding the company's thinking on how it might see a return to growth. He said Waters believed that the US, Japan, India, and parts of Europe are currently in the containment phase and will likely begin to see recovery in the second half of the year while China and many other parts of Asia as well as some of Europe are currently in the recovery phase.

For those geographies operating in the containment phase, O'Connell said the company expects "continuing limitations to customer sites" as well as "pauses in non-essential spending."

For areas in the recovery phase, he said the company is "expecting a pick-up in demand for recurring revenues and some stabilization in demand for instruments," though he added that government and academic purchasing would likely lag behind corporate customers.

In Tuesday morning trade on the New York Stock Exchange, shares of Waters were down 5 percent to $183.97.

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