Waters reported first-quarter 2023 non-GAAP earnings of $2.49 per share, missing the Zacks Consensus Estimate by 4.2%. Further, the bottom line decreased 11.1% on a year-over-year basis. The figure includes an 8% unfavorable foreign exchange headwind.

Net sales of $684.7 million lagged the Zacks Consensus Estimate of $695.5 million. The figure declined 1% on a reported basis while surging 3% on a constant-currency basis from the comparable year-ago quarter’s readings.

Softness in the pharmaceutical market, a slowdown in Instruments sales and weakening momentum across the Americas and Europe were concerns.

Waters’ net sales figure can be categorized in four ways:

By Operating Segment: WAT operates under two organized segments, namely Waters and TA.

The Waters segment (88% of net sales) generated sales worth $602.1 million, down 2% from the year-ago quarter’s level. Sales in the TA segment were $82.6 million (12% of net sales), reflecting 7% year-over-year growth.

By Products & Services: The division comprises three segments, namely Instruments, Services and Chemistry.

Instruments sales (44% of sales) were $302.9 million, falling 7% on a year-over-year basis.

Service sales (36% of sales) were $248.2 million, increasing 4% year over year.

Chemistry sales (20% of sales) were $133.5 million, growing 6% from the year-ago quarter’s level.

Moreover, the service and chemistry segments jointly generated recurring revenues of $381.7 million, increasing 4% from the year-ago quarter’s reported figure.

By Markets: Waters serves three end markets, such as Pharmaceutical, Industrial and Governmental & Academic.

The Pharmaceutical market (56% of net sales) generated sales of $384.9 million, which decreased 7% on a year-over-year basis.

The Industrial market’s (31% of sales) sales were $209.7 million, up 0.1% from the year-ago quarter’s level.

Academic & Government (13% of sales) generated $90.1 million of the total sales. The figure increased 38% year over year.

By Geography: Waters’ operating regions include Asia, the Americas and Europe.

Asia (37% of net sales) generated $253.1 million in sales, down 0.5% on a year-over-year basis. Sales in China fell 4% from the prior-year quarter’s level.

The Americas (36% of net sales) generated $246.4 million in sales, decreasing 1% year over year. Sales in the United States decreased 3% year over year.

Europe (27% of net sales) generated $185.2 million in sales, down 1% from the prior-year quarter’s level.

In the first quarter, non-GAAP selling and administrative expenses were $174.02 million, up 12.2% from the year-ago quarter’s level. As a percentage of net sales, the figure expanded by 290 basis points (bps) on a year-over-year basis.

Research and development spending was $42.7 million, up 5.5% from the year-ago period’s reported figure. As a percentage of net sales, the figure expanded by 30 bps year over year.

The adjusted operating margin was 26.8%, which contracted by 350 bps year over year.

As of Apr 1, 2022, cash, cash equivalents and investments were $486.9 million, up from $481.4 million as of Dec 31, 2022.

Accounts receivables stood at $683.3 million at the end of the first quarter, down from $722.9 million in the last reported quarter.

Waters generated cash from operations of $196.7 million in the reported quarter, down from $198.7 million in the prior quarter.

WAT recorded a free cash flow of $166.4 million in the first quarter.

For second-quarter 2023, Waters expects non-GAAP earnings of $2.52-$2.62 per share, which includes a foreign exchange headwind of 3%.

Waters anticipates net sales growth of 1-3% on a constant-currency basis. WAT expects sales growth to decline 1% due to unfavorable foreign exchange fluctuations.

For 2023, Waters anticipates non-GAAP earnings in the band of $12.55-$12.75 per share. This includes a foreign exchange headwind of 1%.

Waters expects 2023 net sales growth of 3-5% on a constant-currency basis.