Cantillon Capital lowers its shares in Waters Corp. in 1Q14
Cantillon Capital Management's key 1Q 2014 positions (Part 7 of 7)
Cantillon Capital and Waters Corp.
William von Mueffling’s Cantillon Capital Management’s saw one new position in its 1Q 2014 portfolio, in Sirona Dental Systems Inc. (SIRO), but no stake sales. Existing position increases included Fidelity National Information Services (FIS), W.W. Grainger Inc. (GWW), and Ambev SA-ADR (ABEV). Stake reductions included The Coca-Cola Co. (KO) and Waters Corp. (WAT).
Cantillon Capital position in Waters Corp. (WAT) was reduced from 2.5% of the total portfolio last quarter to 0.35% in 1Q 2014.
Waters Corp. is an analytical instrument manufacturer. It has two operating segments—the Waters Division and the TA Division (or TA). The Waters Division’s products and services primarily consist of high-performance liquid chromatography (HPLC), ultra-performance liquid chromatography (UPLC), mass spectrometry (MS), and chemistry consumable products and related services. TA’s products and services primarily consist of thermal analysis, rheometry and calorimetry instrument systems, and service sales. The company’s products are used by pharmaceutical, life science, biochemical, industrial, nutritional safety, environmental, academic, and governmental customers.
Shares fell after company’s results for 1Q 2014 came below estimates. Waters reported first quarter 2014 sales of $431 million, essentially flat versus sales of $430 million in the first quarter of 2013. On a GAAP basis, earnings per diluted share were $0.82, compared to $1.39 for the first quarter of 2013. Both the TA and Waters divisions saw a decline in sales in the quarter. Management noted that sales in the quarter were below expectations, due primarily to a combination of slower growth in Asia and delays in the release of capital budgets, most significantly in the United States. Foreign currency translation and a higher operating tax rate negatively affected EPS in comparison to the first quarter 2013 results. The unfavorable effect of foreign currency was primarily the result of movements in the exchange rates for the Japanese yen and British pound compared to the prior year. Japan saw sales growth across all product lines and customer classes but continued to be negatively impacted by foreign currency translation, which decreased sales by 9%.
The decrease in instrument system sales was primarily attributable to lower sales for the higher-priced UPLC-MS and TA instrument system sales largely across all regions, resulting from delays in the timing of customer capital spending. Sales in the U.S. declined 2%, as sales to industrial chemical, nutritional safety, and environmental customers decreased 5%, while sales to governmental and academic customers increased and sales to pharmaceutical customers were flat. Geographically, weakness in Latin America and Canada and slower sales growth in China came below expectations.
Water Corp.’s peer Agilent Technologies (A) recently noted that it saw a mixed business environment with continued steady growth in life science and applied markets.
To learn more about the latest hedge fund positions, see Market Realist’s 13Fs for Hedge Fund Ownership page.
Browse this series on Market Realist:
