The Waters Aren't Flowing. Yet.

Not unlike its products that turn ugly mixtures into purer products, Waters (NYSE: WAT  ) turned an ugly top line into an acceptable earnings growth in the third quarter.

Revenue fell by 3% year over year. A currency-exchange headwind can be blamed for some of the fall, but the rest is due to laboratories that cut back on equipment purchases. Unfortunately for Waters' sales, pharmaceutical companies such as Eli Lilly (NYSE: LLY  ) and Bristol-Myers Squibb (NYSE: BMY  ) are also under pressure to cut back on expenses.

Some of the lack of capital purchases may also stem from academic labs that are waiting for long-awaited stimulus money that the National Institutes of Health is doling out. Waters expects to start seeing an impact in the fourth quarter from the added grant money, which should also help other laboratory-equipment suppliers, such as Thermo Fisher Scientific (NYSE: TMO  ) and Life Technologies (Nasdaq: LIFE  ) , not to mention Illumina (Nasdaq: ILMN  ) .

As mentioned, the bottom line is at least headed in the right direction. Adjusted earnings per share climbed by 2.5% as lower selling and administrative expenses and lower interest charges helped boost net income. EPS also got a jolt from the retirement of 930,000 shares for about $48 million during the second quarter. That works out to about $51.61 per share -- not a bad use of company cash, considering the current price of the stock.

On the conference call, Douglas Berthiaume -- chairman, president, and chief executive officer, though not a member of the Red Hat Society -- said that 2010 will be a "transitional year" for the company with revenue growing, albeit more slowly than it has historically.

Waters looks neither terribly expensive nor terribly cheap at these levels. As long as the company can continue to cut costs while it waits to open up the floodgates, investors should be content to wait for better times that are likely to lie ahead.