Conference Call Highlights
-Despite the lower than originally anticipated sales volume the strength of our business model enabled to us maintain our operating profitability and we finished the year with record annual free cash flow.
-Other customer segment dynamics of interest in the quarter include continued strong uptick of instrument systems for food safety testing in Asia and for medical diagnostic applications.
-Before passing you on to John I'd like to comment on our overall financial and operating performance in 2008. For the full year we achieved 20% adjusted EPS growth, accompanied by free cash generation at record levels. Our ability to post these results in light of an obviously tightening global economy and following a 2007 performance where sales grew by 15% and where EPS also grew by 20% clearly indicates the strength and resiliency of our business strategy. Our new product flow was strong particularly in mass spectrometry technology and our application focus in areas such as food safety testing, clinical diagnostics and life science research allowed to us solidify strong foundations in business segments with high growth potential. Geographically we continue to expand in our developing markets in Asia and Latin America and in these markets we've made investments to provide better service and support in a rapidly growing base of customers.
-We finish the year with a strong balance sheet as we used our cash flow to reduce our net debt, execute a share repurchase program and continue M&A effort. Our M&A activity is consistent with our strategy and we added complimentary product lines to our existing operating division.
-Now I would like to comment on our non-GAAP financial performance. Gross margin remained strong this quarter. It came in at 58.9% versus prior year, margin expanded by about 50 basis points. Additionally, product cost reductions continue to favorably impact margins this quarter. SG&A expenses declined slightly compared to prior year as a result of favorable foreign translations. R&D expenses declined modestly
-On the balance sheet, cash and short term investments totaled $428 million debt totaled $536 million, bringing to us a net debt position of about $108 million.
-On the stock buy back front, we continued to purchase our shares in the open market and during the fourth quarter we purchased 635,000 shares of our common stock for $26 million. For the full year 2008 we purchased 4.1 million shares for $235 million.
-We define free cash flow as cash from operations less CapEx plus any non-cash tax benefit from FAS 123R accounting excluding unusual non-recurring item. For full year 2008 free cash flow was up 13% over 2007 and a record high of $369 million after funding $69 million of CapEx and adding back $7 million of FAS 123R benefits and excluding a $12 million payment associated with transition from the pension plan to a 401k plan in the US
2009
-Therefore, on a reported basis, we are expecting sales to decline by 3% to 8% for 2009.
Moving down the P&L we expect gross margins to be down about 150 basis points versus 2008 where favorable effects of higher consumables volumes and favorable currency effects from our UK based production are more than offset by a less favorable manufacturing variances from lower production volumes and a higher proportion of service sales at a 50% margin
Waters currently has an EV of $3.915 Billion and TTM FCF of $369 billion. WAT is currently trading at an EV/FCF ratio of 10.60. They have had a 10 year FCF growth rate of around 14% with an ROA of 16.6% and an ROE of 58.5%. The business has very high margins, with a Gross Margin of 58% and an Operating Margin of 25.3%. WAT has paid down a substantial amount of debt and plans to continue to buy back their shares very cheaply. WAT is an extremely well run company and the executive team owns around 6% of the common stock.
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