My long awaited thoughts on WAT's warning.
The company could not offer great visibility into the near future nor offer a simple explanation for the shortfall. The general reason is a general slowdown in pharma spending on WAT's MS products (which is why BDAL, and likely TMO, also got whacked). This was especially true of U.S. and U.K. pharmas that had recently done mergers.
There are two factors at work there. As operations are consolidated, purchasing decisions are put on hold, is one. The other is that there have been an unprecedented number of recent new product launches in this industry. WAT is right in there with theirs, but it means that customers have more to choose from, both from WAT, which broadened its triple quad line, and from comps. So WAT's days of capturing share in chunks there may be over for the moment. And pharmas, never known for blazing speed in decision-making, now additionally distracted with merger streamlining and a host of new products, are going to be slooow. In europe everyone's about to go on vacation; this makes the third q seasonally weak. They mentioned no orders from Germany except in HPLC. Not a surprise given the patent turmoil over there. The good news is that HPLC is still on track, despite slight weakening in pharma sales. This is in part due to its less volatile nature. One thing that no one mentioned in the call I think needs notice here . . .
I mentioned a while back that I attended a talk by Ruedi Aebersold on the methods of analysis in proteomics in the near future. He said that a wave of the near future would be more separation steps prior to analysis in the MS. Ruedi is a proteomics pioneer who is widely followed -- indeed the auditorium was packed -- and that prognostication is to be taken seriously. It has implications for sales. It is good news for the front end people. WAT is among them. The HPLC business could take an unexpected jump (I will seek peer review on this thought from some combination of Doc Voodoo, td, or a friend I know). Thus, while WAT is seeing delays, they are still getting plenty of interest in demos and quotations, and there have been no cancellations.
Note that WAT's excuses are pretty much AFFX's excuses. Other possible effects. ABI, having launched its new 4000, is cutting prices on the older models, possibly pressuring WAT products.
Bottom line. This is a near term blip. Accumulate under 30 through the summer and early fall. then things should be better for all the big ticket trickle companies. Consumables an innocent buystander today? We shall see soon. If no warnings, buy. I am very close to buying a little QGENF, whose business is 78% consumables. BDAL is not innocent, because they haven't warned. DPII and AGNT both warned into the fall, and they did not get slaughtered today. Both subject to the same strategy of buying as WAT or BDAL.
FromCBSMarketWatch:
>>On heavy volume, the shares grudgingly made back some of the ground they lost as investors bailed out early in the session. They traded at $29.95 in recent dealings, off $12.62 or about 30 percent.
In an announcement late Monday, Chairman and Chief Executive Douglas Berthiaume said that sales in the company's mass-spectrometry business have slowed in the wake of what's been a "sustained period of dramatic growth."
In particular, Waters Corp. (WAT: news, msgs, alerts) believes that pharmaceutical customers have been delaying purchases as they evaluate a number of new products that analytical equipment makers have introduced into the market, according to Berthiaume.
Against this backdrop, the company scaled back expectations for the second quarter to a profit of 29 cents per share on sales growth estimated at 7 percent to 10 percent compared to the year-ago period.
At the end of April, Waters Corp. management had projected a quarterly profit of 33 cents a share on a year-over-year increase in sales of 14 percent to 16 percent. The top-line projections exclude the effects of currency translations.
The company posted earnings of $37.3 million, or 55 cents a share, on sales of $195.3 million in last year's second quarter.
Waters Corp. didn't offer much comfort for a quick rebound beyond the second quarter, saying its ability to forecast results for the second half of 2001 is "somewhat limited."
Gauging the sales downturn
A J.P. Morgan Securities analyst downgraded his rating on Waters shares to "long-term buy" from "buy" in the wake of the company's warning.
However, analyst David Molowa believes any downturn in Waters Corp.'s business may be short-lived as its "mass-spec" products rebound, perhaps as soon as this year's fourth quarter.
"In our minds, Waters' mass-spec products will fare quite well form a technological standpoint ... once customers have had time to evaluate them fully," Molowa said in a research note.
Waters Corp.'s warning served as another piece of anecdotal evidence of a slowing in the market for equipment used in life-sciences applications.
In a similar vein, Affymetrix (AFFX: news, msgs, alerts) recently noted a slowdown in its business as a supplier of specialized chip arrays used in biotechnology settings. Affymetrix shares stood at $21.02, down 6.2 percent.
Shares of Thermo Electron (TMO: news, msgs, alerts) , another supplier of instrument systems, sank about 3 percent in recent action, trading at $24.08.
Mike Maynard is a news editor for CBS MarketWatch.com in Washington.<<
Cheers, Tuck |
