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As Acquity, Synapt Sales Help Waters Post 13 Percent Q4 Growth, Firm Misses Forecast

A 20-plus-percent jump in sales of its Acquity UPLC, Synapt High Definition mass spectrometry, and TA instruments helped Waters post a 13-percent rise in total fourth-quarter sales, though the results missed company expectations.
The quarter was marked by “mixed results” from Waters’ largest pharma clients, where “a minority of firms depress[ed] the sales growth of the group as a whole,” according to CEO Douglas Berthiaume.
He said better sales to smaller drug firms, generic pharmas, and contract research organizations made up for that weakness.
Total receipts for the three months ended Dec. 31, 2007, increased to $437 million from $386.9 million a year ago. Profits during the period rose 23.9 percent to $98.9 million, compared to $79.9 million a year ago.
However, the results fell short of Waters’ expectations due to an unexpected increase in the company’s tax rate, a sharp dip in sales in Japan due to changes in water regulations there, and slower European business, Berthiaume said during a conference call accompanying the earnings release.
Since the earnings release, Waters’ stock had fallen by more than 24 percent as of early Thursday afternoon.
Berthiaume, however, called the period “by far the strongest sales quarter in Waters history.”
Waters’ instrument business grew 3 percent during the quarter, and sales of its Acquity, Synapt, and TA instruments each grew by more than 20 percent.
The company has trumpeted the financial performance of the Acquity and Synapt platforms since they debuted in 2004 and 2006, respectively. This week, Berthiaume said the Acquity has become “a mainstream separations technology with applications across all market segments and successful installations all over the world.”
During the quarter, he said, there were a number of multi-system orders for the Acquity placed by “large firms,” though he did not elaborate.
Throughout 2008, Waters will continue to work at cutting manufacturing costs of the platform, resulting in higher margins, officials said. “We have some engineering cost reductions that we’re working on that will improve the margins on that product by a few percentage points or more as we go across the year,” Waters’ CFO John Ornell said during the conference call.
The company did not provide further details of its cost-reduction plan.
New Market Segment
Also in 2007, Berthiaume said, Waters established a new research mass-spec market segment, high definition mass spectrometry, with the launch of the Synapt HDMS a year earlier. “This advanced instrument has brought a new dimension into the field of mass spec, the ability to analyze and identify [molecules] based on shape,” said Berthiaume. “We’re confident that HDMS will continue to expand the application reach of mass spectrometry.”
This week, the company also launched the Synapt MS system, a next-generation quadrupole, orthogonal acceleration, time-of-flight mass spec platform [See related story this issue].
Performing softer than expected during the fourth quarter were Waters’ low-end mass specs, particularly its single-quadrupole bench top instruments that traditionally have been used by the pharmaceutical industry, Berthiaume said.

“We made a few smaller acquisitions over the last few years [that] are still somewhat indicative of what we might be likely to do as we move forward.”

Its mass spec-based systems business was strongest in North America and Asia, driven by sales to proteomics laboratories, CROs, and industrial chemical applications, he said.
Looking ahead, Ornell said that “improved production efficiencies on higher volumes of Acquity products and a favorable mass-spec sales mix that contains more high-end mass systems sales mixture” is expected to increase gross margins by 20 basis points company-wide in 2008.
The company expects total instrument sales for the year to grow in the high-single digits, Ornell said. Hoping to realize this will be new instrument systems the company plans to launch at this year’s Pittcon and the American Society for Mass Spectrometry conference. Company officials did not further elaborate.
Throughout the second half of 2007, Berthiaume repeatedly referenced an improving pharmaceutical market, particularly in the US, as key to the company’s financial uptrend. This week, he said the fourth quarter was marked by “mixed results” from Waters’ largest pharma clients with a few companies dragging down the overall sales performance of its largest clients.  
However, he said business from generic drug manufacturers, contract research organizations, and smaller drug firms made up for that sector’s weakness.
On mergers and acquisitions, Berthiaume reiterated earlier remarks that Waters is targeting smaller opportunities. “We made a few smaller acquisitions over the last few years [that] are still somewhat indicative of what we might be likely to do as we move forward,” Ornell said.
During the fourth quarter, Waters repurchased 250,000 shares for $19.9 million as part of a stock buyback plan, and the company plans to continue to move ahead on that plan during the year, the company said.
Total sales in the US, the company’s largest market, grew 12 percent during the quarter, while European sales rose 5 percent before the effects of currency. Sales in Japan fell 12 percent, but the rest of Asia saw sales climb 18 percent, Ornell said.
R&D spending in the quarter rose 7 percent to $20.8 million. The company had $693 million in cash and cash equivalents as of Dec. 31, 2007.
For full-year 2007, sales rose 15 percent to $1.47 billion from $1.28 year over year. Net income rose 20.6 percent to $268 million from $222 million.
Waters spent $80.6 million on R&D for the year, up 4.3 percent from $77.3 million in 2006. The 2007 figure includes a one-time contribution of $2.2 million to the company’s 401(k) plan.
For the first quarter of 2008, the company projects sales to grow 13 percent compared with the first quarter of 2007. For full-year 2008, the company expects revenue to grow 10 to 12 percent, with 8 to 10 percent of that organic.

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