Waters Corp (WAT)

Guidance Change and Conservatism
Q: Why did you lower guidance despite strong order momentum?
A: Management explained that although they saw progressive improvement from Q1 to Q2, with sales declining less and significant momentum in June, they have taken a conservative stance on the guidance. They are factoring in caution, especially for the fourth quarter, assuming a slightly lower ramp than historically seen, with the constant currency guidance lowered by about $50 million. This approach reflects their philosophy of cautious guidance despite positive trends. - -

Margin Outlook and Cost Actions
Q: How are operating margins holding up despite revenue guidance changes?
A: Management highlighted that they have been able to defend and even expand margins during down volume cycles through productivity initiatives with a long runway. In the second half, operating margins are expected to be relatively flat versus last year, with actions such as cost measures and accelerated productivity initiatives helping in the fourth quarter. - -

Instrument Sales and LC Recovery
Q: What is the outlook for instrument sales, particularly LC and Mass Spec?
A: Instrument sales declined 17% in Q2, with LC declining in the mid-teens and Mass Spec declining more. TA declined around 2%. However, there is steady improvement, and the funnels look extremely strong, especially for LC. For the second half of the year, they expect instrument growth to be flat versus the previous year, with the LC replacement cycle poised for recovery after seven quarters of negative growth. - -

China Performance and Stimulus Impact
Q: How did China perform, and what's the expected impact of the stimulus?
A: China came in ahead of expectations, improving from a 26% decline in Q1 to about a 10% decline in Q2. LC decline in China was less than the rest of the world, declining in the high single digits. Management doesn't expect the current stimulus to impact revenue this year but anticipates it will positively affect growth in 2025. They are assisting customers with preparations to benefit from the stimulus aimed at instrument replacements. - -

LC Replacement Cycle and Recovery
Q: Are you seeing signs of the LC replacement cycle picking up?
A: Yes, management is starting to see customers initiate their replacement cycles across the globe. Historically, the LC business experiences 4 to 7 quarters of negative growth during a trough; Q2 was the seventh quarter. They are seeing signs of recovery in LC, with strong orders and funnels, and expect improvement in the second half of the year. - - -

2025 Outlook and Exit Rate
Q: How does your exit rate at Q4 underpin 2025 expectations?
A: Management expects that by the end of Q4, the exit rates, even excluding China, for LC and Mass Spec will be a good couple of hundred basis points below historical averages. They believe they are at the bottom of the slowdown in the replacement cycle, with fleets aging and needing replacement, providing confidence in future growth. -

Wyatt Acquisition Performance
Q: How is the Wyatt acquisition performing?
A: The Wyatt business is coming in ahead of expectations, with synergies being delivered well ahead of target. Demand remains strong due to exposure to large molecules and cell and gene therapy. They are working on integrating multi-angle light scattering into QA/QC processes with their Empower software, offering significant benefits for customers. -

Share Buybacks and Debt Reduction
Q: Any updates on returning to share buybacks?
A: As they continue to pay down debt from the Wyatt acquisition, currently at 1.7x leverage, they are actively considering the switch between paying down debt and buying back shares. Their intention is to gain strategic flexibility, and they are reviewing options. -

Margin Expansion Opportunities
Q: How are you thinking about long-term margin expansion?
A: Management outlined several levers for margin expansion, including volume leverage, mix and pricing benefits, and long-term productivity initiatives expected to cover approximately 300 basis points over about eight years. They aim to achieve about 100 basis points of margin expansion annually, using gains to fund higher growth adjacencies, with productivity initiatives providing a long runway. -

Performance in India and Japan
Q: How did India and Japan perform this quarter?
A: India continues to be a strong performer, growing in excess of 20%, largely driven by Pharma, with LC growing close to 50%. Japan's growth was 1% on a constant currency basis, impacted by currency headwinds. They see healthy demand and good funnel activity in both regions. -