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    WAT
    Earnings call· Jun 2025(Q2 FY25)

    WATERS CORP /DE/ Q2 FY25 earnings call WAT

    Aug 4, 2025 Source

    Executive summary

    Waters Corporation Q2 FY25 — Strong Sales and Raised Full-Year Guidance

    Waters Corporation delivered strong Q2 FY25 results, with sales and non-GAAP EPS exceeding guidance, driven by robust commercial execution and new product traction. The company raised its full-year outlook, reflecting confidence in its core business momentum and strategic expansion into high-growth adjacencies. Management also provided extensive details on the strategic rationale and synergy potential of the pending acquisition of BD's Biosciences and Diagnostic Solutions business, emphasizing operational improvements and cross-selling opportunities.

    Highlights

    5

    • Sales grew 9% as reported and 8% in constant currency, exceeding the high end of guidance.

    • Non-GAAP EPS was $2.95, up 12% year-on-year, above the midpoint of guidance.

    • Pharma segment grew low double digits, driven by strong instrument replacement and new product adoption.

    • GLP testing revenue grew 70% year-over-year and PFAS testing revenue grew over 50% year-over-year in H1 FY25.

    • Full-year 2025 constant currency sales growth guidance raised to 5.5%-7.5% and non-GAAP EPS guidance raised to $12.95-$13.05.

    Concerns

    3

    • TA division sales declined 6% overall, with Americas down 20% due to weakness in macro-sensitive polymer and materials testing applications.

    • Operating tax rate came in at 17.9%, creating a $0.05 headwind to adjusted EPS in Q2 FY25.

    • Chemistry sales benefited from approximately $8 million of sales pulled forward in Q2 FY25 due to tariff dynamics.

    Guidance & targets

    24
    CategoryTargetConfidence
    Full-year 2025 Constant Currency Sales Growth
    5.5% to 7.5%
    high materiality
    High
    Full-year 2025 Non-GAAP EPS
    $12.95 to $13.05
    high materiality
    High
    Full-year 2025 Reported Sales Growth
    5% to 7%
    medium materiality
    High
    Full-year 2025 Gross Margin
    approximately 59%
    medium materiality
    High
    Full-year 2025 Adjusted Operating Margin
    approximately 31%
    medium materiality
    High
    Full-year 2025 Net Interest Expense
    $40 million
    low materiality
    High
    Full-year 2025 Average Diluted Share Count
    59.7 million
    low materiality
    High
    Full-year 2025 Tax Rate
    16.7%
    medium materiality
    High
    Q3 2025 Constant Currency Sales Growth
    5% to 7%
    medium materiality
    High
    Q3 2025 Reported Sales Growth
    4.5% to 6.5%
    medium materiality
    High
    Q3 2025 Adjusted EPS
    $3.15 and $3.25
    high materiality
    High
    BD Biosciences and Diagnostic Solutions Growth Rate
    4.5%
    high materiality
    Medium
    BD Biosciences and Diagnostic Solutions Growth Rate
    5%
    high materiality
    Medium
    BD Biosciences and Diagnostic Solutions Growth Rate
    mid-single digit plus
    high materiality
    Medium
    Combined Company Adjusted EBITDA Synergies
    $345 million
    high materiality
    High
    Combined Company Cost Synergies
    $200 million
    high materiality
    High
    Combined Company Revenue Synergies
    $290 million
    high materiality
    High
    Combined Company Revenue CAGR
    7%
    high materiality
    High
    Combined Company Adjusted EPS CAGR
    mid-teens
    high materiality
    High
    BD Biosciences and Diagnostic Solutions Underlying Growth Potential
    5.5% and 6%
    medium materiality
    Medium
    BD Biosciences and Diagnostic Solutions Growth Rate
    positive growth
    medium materiality
    Medium
    BD Biosciences and Diagnostic Solutions Total Growth Profile CAGR
    7%
    high materiality
    High
    BD Biosciences and Diagnostic Solutions New Product Launches
    expected to positively impact growth
    medium materiality
    Medium
    Debt Paydown
    $100 million
    medium materiality
    High

    Segment performance

    13
    SegmentRevenueYoYQoQMargin
    Waters Division
    Led sales growth across Americas, Europe and Asia.
    		—high single digits or better——
    TA Division
    Weakness in Americas due to macro-sensitive polymer and materials testing applications, declined 20% in Americas.
    		—declined 6%——
    Pharma
    Led by strong instrument replacement activity and new product adoption, particularly among large pharma and CDMO customers. Americas, Europe and Asia each grew double digits.
    		—11%——
    Industrial
    Waters Division grew mid-teens with strong growth in food and environmental testing. PFAS-related applications again grew significantly, up more than 30% in the quarter.
    		—6%——
    Academic and Government (ANG)
    Performed better than expected. Americas declined low single digits, which was better than reflected in our assumptions. China ANG grew high single digits.
    		—declined 3%——
    Americas
    Low double-digit pharma growth was partially offset by softness in TA and academic and government.
    		—2%——
    Europe
    		—8%——
    Asia
    Driven by double-digit growth in China, India and Japan.
    		—14%——
    China
    Came in ahead of expectations with strength across all end markets. Industrial segment grew double digits behind TA's success in the battery segment. A&G segment grew high single digits. Pharma grew double digits, especially in CDMOs.
    		—double digits——
    India
    Revenues grew in the high teens in the first half of 2025.
    		—high teens——
    Instrument sales
    Led by high single-digit growth in LC and MaxPeak systems as new product demand and replacement trends remain robust.
    		—4%——
    Recurring revenue
    Service up 9% and chemistry up 16%.
    		—low double digits——
    LC and mass spec portfolio
    Led instrument growth.
    		—high single-digit growth——

    Operational metrics

    37
    Total Sales
    $771 millionup 9% as reported, 8% in constant currency YoY
    Q2 FY25

    Above the high end of guidance.

    Non-GAAP EPS
    $2.95up 12% YoY
    Q2 FY25

    Above the midpoint of guidance.

    GAAP EPS
    $2.47
    Q2 FY25
    Service Plan Attachment
    52%risen 200 basis points
    H1 FY25

    More than doubles the 100 basis point expansion objective for the year.

    E-commerce Adoption
    above 40%
    Q2 FY25
    CDMO Penetration
    27%
    Q2 FY25
    Alliance iS Sales Growth
    300%year-over-year
    Q2 FY25

    Strong traction from recent product launches.

    Xevo TQ Absolute Platforms Growth
    40%
    Q2 FY25

    Continues to lead the market with exceptional robustness and sensitivity.

    Xevo TQ Absolute XR Orders
    more than double expectations
    Q2 FY25

    Outstanding customer response.

    MaxPeak Premier Columns Growth
    north of 30%
    Q2 FY25

    High-performance chemistry for complex separations.

    GLP Testing Revenue Growth
    70%year-over-year
    H1 FY25

    Idiosyncratic growth driver.

    PFAS Testing Revenue Growth
    over 50%year-over-year
    H1 FY25

    Idiosyncratic growth driver.

    Price Contribution
    200 basis points
    Q2 FY25 and H1 FY25
    Chemistry Sales Pull Forward
    $8 million
    Q2 FY25

    Related to tariff dynamics, excluding this, overall constant currency growth was 7% with chemistry up 10%.

    PFAS-related Applications Growth
    more than 30%
    Q2 FY25

    Grew significantly within Industrial segment.

    Adjusted Operating Margin
    29.1%
    Q2 FY25

    Reflecting impact of regional sales mix and margin dilution from tariff surcharges.

    Operating Tax Rate
    17.9%
    Q2 FY25

    Due to jurisdictional mix and discrete items, creating a $0.05 headwind to adjusted EPS. Expected to normalize in H2.

    Capital Expenditures
    $23 million
    Q2 FY25

    Funded in Q2 FY25.

    US Tax Reform Payment
    $120 million
    Q2 FY25

    Made in the quarter.

    Net Debt Position
    $1.1 billion
    Q2 FY25

    At the end of the quarter.

    Tariff Impact Outlook
    —unchanged versus prior guidance
    H2 2025

    Despite improved tariff landscape, given continued variability. If tariff rates remain at current levels, there is approximately $0.06 of upside to full-year adjusted EPS guidance.

    BD Biosciences and Diagnostics CAGR
    5%
    2019-2024

    Combined CAGR.

    BD Biosciences Drug Discovery Slowdown Impact
    150 basis points
    2019-2024

    Reduced CAGR growth over this timeframe.

    BD Biosciences and Diagnostic Solutions Exposure
    low-teens percentage
    current

    Limited percentage of revenue.

    BD Biosciences and Diagnostic Solutions Revenue Synergies
    $150 million
    by year 5

    Part of $290M total revenue synergies.

    BD Biosciences and Diagnostic Solutions Revenue Synergies
    $115 million
    by year 5

    Part of $290M total revenue synergies. Composed of $35M-$40M each from bioanalytical characterization, bioseparations, and mass spec in diagnostics.

    BD Biosciences and Diagnostic Solutions Revenue Synergies
    $60 million
    by year 5

    Part of $290M total revenue synergies. Estimated for Pharma DMPK alone.

    BD Biosciences Installed Base Replacement Opportunity
    30%
    current

    Of the installed base is due for replacement, similar to Waters in 2020.

    BD Reagents Revenue
    $1.8 billion
    annual

    70% of revenue comes from reagents, with limited e-commerce penetration.

    BD Installed Base Service Plan Coverage
    40%
    current

    Of the installed base is covered under a service plan.

    E-commerce Attachment Increase
    $75 million
    annual

    Estimated additional revenue by increasing e-commerce attachment.

    Microbiology Business Gross Margin Expansion Opportunity
    700 basis points
    long-term

    Highly actionable, not included in underwriting model.

    Mass Spec for Microbial Identification TAM
    $500 milliongrowing high single digits
    current

    Attractive TAM not currently served by Waters.

    Microbiology QA/QC in Pharma Manufacturing TAM
    $300 milliongrowing at a high single-digit rate
    current

    Untapped market for Waters and BD.

    Pharma Drug Discovery Revenue Share
    5%
    current

    Remains slow.

    Microbiology Business Growth Rate vs. Competition
    trailed by 180 basis pointsCAGR basis
    2019-2024

    According to publicly available information, compared to other competitors.

    Constant Currency Sales Growth
    8%YoY
    Q2 FY25

    Overall company growth.

    Industry KPIs

    6
    MetricValueDetails
    Revenue EPS guidanceFY25 Constant Currency Sales Growth 5.5%-7.5%; FY25 Adjusted EPS $12.95-$13.05%
    China revenue exposuredouble digits%
    Pricing price realization200 basis pointsbps
    Diagnostics testing demandGLP testing revenue grew 70%; PFAS testing revenue grew over 50%%
    M a contribution synergies$345 millionUSD
    Instruments vs consumables services mixInstrument sales grew 4%; Recurring revenue grew low double digits (Service up 9%, Chemistry up 16%)%

    Product announcements

    5
    ProductTypeDetails
    BioResolve Protein A Affinity Columnslaunch
    FACSDiscover S8 Flow Cytometerlaunch
    Next-generation BACTEC Systemlaunch
    Flow Cytometry Portfolio (BD)launch
    Other launches across the portfolio (BD)launch

    Deals & partnerships

    1
    Becton, Dickinson & Company (BD)Acquisition of BD's Biosciences and Diagnostic Solutions business.

    The combined company will be anchored by leading brands generating 80% of revenue and a 70% annual recurring base. Integration will be led by Chris Ross, SVP of Global Operations at Waters.

    Risks & headwinds

    5
    Weakness in TA division / Macro-sensitive segmentsQ2 FY25

    TA declined 6% overall, Americas declined 20%.

    Mitigation: Management acknowledges short-term challenge but notes long-term strength and high margins of the business.

    Operating Tax Rate HeadwindQ2 FY25

    $0.05 headwind to adjusted EPS.

    Mitigation: Expected to normalize in the second half of the year due to jurisdictional mix and discrete items.

    Chemistry Sales Pull ForwardQ2 FY25

    $8 million of sales pulled forward.

    Mitigation: Prudently assumed to come out evenly from Q3 and Q4 guidance, but actual impact remains to be seen.

    BD Biosciences and Diagnostic Solutions Temporary Growth HeadwindsRecent quarters

    Softness in pharma drug discovery and U.S. academic and government funding; short-term supply disruption affecting BACTEC microbiology platform; U.S. export ban on flow cytometry products to China.

    Mitigation: BACTEC supply constraints alleviated, U.S. export licenses reinstated for China flow cytometry. Conservative growth assumptions for pharma research and academic/government funding (40% decline in U.S. ANG funding through 2027, flat pharma drug discovery in 2026/2027).

    Tariff Variability and Trade Policy EnvironmentSecond half of 2025

    If tariff rates were to remain only at current levels, there is approximately $0.06 of upside to our full year adjusted EPS guidance.

    Mitigation: Tariff impact outlook for H2 2025 is unchanged despite improved landscape, due to continued variability.

    What to watch in Q3 FY25

    5

    BD Biosciences and Diagnostic Solutions growth rate

    second half of calendar year 2025
    Currentslight decline in Q2 FY25
    Targetreturn to positive growth

    Why it matters

    This indicates the effectiveness of management's mitigation strategies for temporary headwind📎s and the underlying health of the acquired business.

    We expect a slight decline in the quarter ending June 30 with further sequential growth rate improvement and a return to positive growth in the second half of the calendar year, all of which is reflected in our model.

    Q&A highlights

    6

    Inquiry about the drivers of high single-digit LCMS growth, specifically the replacement cycle in LC and competitive wins for new products like Alliance iS.

    Udit Batra confirmed strong LCMS growth across pharma and industrial segments, driven by excellent replacement cycles in large pharma, CDMOs, and genetics. Alliance iS grew 300% YoY, and the new TQ Absolute XR is seeing terrific reception, enabling penetration into DMPK labs due to its robustness.

    “Alliance iS sales grew 300% year-over-year in the quarter, while Xevo TQ Absolute platforms grew 40% and continue to lead the market with exceptional robustness and sensitivity.”

    asked by Jack Meehan · answered by Udit Batra

    2 min read6 chapters

    Detailed Narrative

    01

    Q2 FY25 Performance Highlights

    Waters reported strong Q2 FY25 results, with sales growing 9% as reported and 8% in constant currency, surpassing the high end of guidance. Non-GAAP EPS reached $2.95, a 12% year-on-year increase, exceeding the midpoint of expectations. This performance was driven by robust commercial execution, revitalized innovation, and successful expansion into higher-growth areas, reflecting the company's strategic pillars.

    02

    Strategic Pillars and Execution

    The company's strategy, anchored in commercial execution, innovation, and growth accretion, continues to yield strong results. Key initiatives are ahead of 2030 targets, with service plan attachment rising 200 basis points to 52% in H1 FY25, e-commerce adoption comfortably above 40% of chemistry revenue, and CDMO penetration reaching 27% of pharma revenue. Recent product launches like Alliance iS (up 300% YoY) and Xevo TQ Absolute platforms (up 40%) are gaining significant traction.

    03

    High-Growth Adjacencies

    Waters is successfully capturing growth in idiosyncratic areas. In the first half of 2025, GLP testing revenue surged 70% year-over-year, and PFAS testing revenue grew over 50% year-over-year. India revenues also showed strong growth in the high teens. These drivers, along with a 200 basis points price contribution, underscore the company's ability to expand into new and growing markets.

    04

    BD Acquisition Rationale and Synergies

    The pending acquisition of BD's Biosciences and Diagnostic Solutions business is expected to accelerate entry into high-growth adjacencies and extend Waters' execution model. The combined entity is projected to achieve a 7% revenue CAGR and mid-teens adjusted EPS CAGR between 2025 and 2030, driven by $345 million in adjusted EBITDA synergies by year 5 ($200M cost by year 3, $290M revenue by year 5). Management expressed high confidence in achieving these targets, citing past integration successes and detailed synergy plans.

    05

    BD Business Outlook and Integration

    The acquired BD business is expected to return to positive growth in H2 CY25, reaching 4.5% in 2026 and 5% in 2027, before returning to historical mid-single-digit growth in 2028 and beyond. This outlook accounts for temporary headwind📎s and conservative assumptions for academic/government funding and pharma drug discovery. Chris Ross, SVP of Global Operations, will lead the integration office, leveraging his extensive experience from prior large-scale mergers.

    06

    Microbiology Business Opportunity

    The microbiology business within BD's Diagnostic Solutions, representing two-thirds of its $1.8 billion diagnostic revenue, presents a significant value creation opportunity. Despite trailing competitors by 180 basis points in CAGR growth (2019-2024), management believes it can replicate Waters' success through commercial execution and operational rigor. The upcoming next-generation BACTEC System launch in 2026 and a highly actionable 700 basis points gross margin expansion opportunity are key drivers, with additional unmodeled growth vectors in mass spec for microbial identification and QA/QC sterility testing.

    AI-generated summary of the company’s earnings call. Not investment advice.