WAT Q1 2025: Pricing up 200bps as instrument growth guides 4–5%
- Robust Instrument Replacement Cycle: Executives highlighted strong double-digit growth in instruments – particularly in liquid chromatography and mass spectrometry – driven by a vigorous replacement cycle in pharma, generics, and CDMOs, which supports sustained demand and long-term revenue growth.
- Strong Pricing Power: Management noted 200 basis points of like-for-like pricing gains in Q1, with additional incremental increases from selective tariff surcharges, indicating significant pricing leverage that can help offset macro headwinds and drive profitable growth.
- Effective Tariff Impact Mitigation: The team’s proactive supply chain and cost management strategies have limited the net impact of tariffs to a modest figure, preserving operating margins and maintaining EPS guidance, which underpins confidence in resilient financial performance.
- Tariff Risks and Exposure: The company disclosed a gross tariff exposure of $45 million—with only a modest net reduction of $10 million—which, if mitigation fails or further global trade disruptions occur, could pressure margins further .
- Weak U.S. Academic & Government Segment: The U.S. Academic & Government segment, though only about 3% of total revenue, is expected to decline by 20% over the remainder of the year, potentially dragging overall revenue growth and indicating vulnerability in a key account group .
- Headwinds in Pharma Research and Drug Discovery: There is continued pressure on the biotech, drug discovery, and pharma research segments—comprising less than 20% of the overall pharma business—which may signal slower recovery in these higher-margin areas if current macro uncertainties persist .
| Metric | YoY Change | Reason |
|---|---|---|
Total Assets | Increased from ~$4,553,795 thousand in FY2024 to ~$4,591,576 thousand in FY2025 | Total Assets saw a modest increase of approximately $37,781 thousand driven by improvements in liquidity—most notably an increase in cash by ~$57,517 thousand—and a rise in inventories, which together offset relatively stable intangible asset levels. |
Total Liabilities | Decreased from ~$2,725,288 thousand in FY2024 to ~$2,629,179 thousand in FY2025 | Total Liabilities declined by roughly $96,109 thousand mainly because of ongoing debt repayments and lower credit facility utilization, reflecting the company’s proactive reduction in long-term debt components and a net reduction in overall liabilities. |
Total Stockholders’ Equity | Increased from ~$1,828,507 thousand in FY2024 to ~$1,962,397 thousand in FY2025 | Total Stockholders’ Equity grew by about $133,890 thousand, primarily fueled by strong net income (notably $121,381 thousand in Q1 FY2025) along with positive contributions from stock-based compensation and stock plan proceeds, which more than offset the negative impact of treasury share repurchases. |
Notes Payable and Debt | Reduced to ~$1,456,727 thousand in FY2025 compared to prior period levels | Notes Payable and Debt declined significantly with a further reduction of approximately $170,000 thousand, driven by lower credit agreement borrowings, the repayment of short-term notes, and overall proactive debt management compared to FY2024. |
Cash and Cash Equivalents | Increased from ~$325,355 thousand in FY2024 to ~$382,872 thousand in FY2025 | Cash and Cash Equivalents improved by about $57,517 thousand as a result of robust operating cash flows and lower outflows from financing activities, specifically a smaller net debt repayment compared to the previous period. |
Accounts Receivable | Decreased from ~$733,365 thousand in FY2024 to ~$713,278 thousand in FY2025 | Accounts Receivable fell by roughly $20,087 thousand, reflecting improved collection efficiency despite a minor increase in Days Sales Outstanding (from 78 to 79 days), indicating that the timing of customer payments has slightly tightened. |
Inventories | Increased from ~$477,261 thousand in FY2024 to ~$511,499 thousand in FY2025 | Inventories rose by approximately $34,238 thousand, suggesting a deliberate adjustment to bolster inventory levels in anticipation of higher demand—building on the better inventory management observed in FY2024. |
Goodwill | Remained relatively stable (around ~$1,295,720–$1,300,020 thousand) | Goodwill showed minimal change, maintaining its level following the significant adjustment from the Wyatt acquisition in FY2023; this stability indicates that post-acquisition integration has largely been completed with no further material remeasurement. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Constant Currency Sales Growth | Q2 2025 | no prior guidance | 5% to 7% | no prior guidance |
Reported Sales Growth | Q2 2025 | no prior guidance | 4% to 6% | no prior guidance |
Non-GAAP EPS | Q2 2025 | no prior guidance | $2.88 to $2.98 | no prior guidance |
Constant Currency Sales Growth | FY 2025 | 4.5% to 7% | 5% to 7% | raised |
Reported Sales Growth | FY 2025 | 2.5% to 5% | 4% to 6% | raised |
Gross Margin | FY 2025 | 59.6% | ~59% | lowered |
Adjusted Operating Margin | FY 2025 | 31.2% | ~31% | lowered |
Net Interest Expense | FY 2025 | ~$46 million | ~$40 million | lowered |
Tax Rate | FY 2025 | ~16.5% | ~16.5% | no change |
Average Diluted Share Count | FY 2025 | ~59.3 million | ~59.7 million | raised |
EPS | FY 2025 | $12.70 to $13.00 | $12.75 to $13.05 | raised |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Reported Sales Growth | Q1 2025 | 1% to 4% | 3.9% year-over-year (661.7Vs. 636.839) | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Instrument Replacement Cycle & Product Transitions | In Q2 2024, Waters noted a seven‐quarter decline with early signs of recovery , and in Q4 2024, the narrative focused on a recovering replacement cycle with deferred opportunities and solid traction from new products. | In Q1 2025, the replacement cycle is in full swing with strong demand in pharma, double‐digit instrument growth, and accelerated adoption of the Alliance iS HPLC system. | Consistent recovery with an acceleration in growth momentum, moving from an early recovery phase in Q2/Q4 2024 to robust replacement-driven growth in Q1 2025. |
Tariff Exposure Risk and Pricing Power with Mitigation Strategies | Q4 2024 emphasized broader macro risks without detailed tariff strategies , and Q2 2024 focused on supply chain adjustments and FX headwinds along with modest mitigation measures. | Q1 2025 detailed targeted mitigation steps—supply chain changes, surcharges, cost actions—limiting net impact to $10 million, while pricing power yielded 200 basis points plus incremental gains. | More detailed and proactive mitigation, with a sharper focus on pricing leverage and quantifiable net impacts emerging in the current period. |
Mixed Sentiment on Liquid Chromatography Performance | Q2 2024 contained mixed messages: seven consecutive quarters of declines were noted along with early signs of funnel recovery , while Q4 2024 highlighted strong, robust LC performance with doubling sales in flagship systems. | Q1 2025 features an unambiguous story of robust LC growth, with mid-teens percentage growth and significant adoption of new systems. | A clear shift from earlier mixed sentiment to consistent robust growth, indicating that earlier declines are being successfully overcome. |
Innovative Product Launches and Technology Enhancements | In Q2 2024, innovations like the Alliance iS, Xevo TQ Absolute, and integration with Empower (including launches like the Xevo MRT and QDa II) were highlighted as drivers for improved capabilities. In Q4 2024, these products continued to be emphasized with strong revenue contributions and positive customer adoption. | Q1 2025 reiterated the strong momentum: Alliance iS sales more than tripled, Xevo TQ Absolute achieved over 50% growth, and Empower software continued to expand integration and regulatory support capabilities. | Sustained and accelerating innovation, with product launches and technology enhancements remaining a core strength and consistently fueling growth. |
Emerging Markets Growth in India with Sustainability Concerns | Q2 2024 noted India’s growth (over 20%) alongside the achievement of ACT Ecolabel Certification for LC columns, while Q4 2024 reported high growth figures (34% quarterly, 27% for the year) without sustainability details. | Q1 2025 reported strong growth in India at around 20% constant currency, with a focus on embedding innovative products into generics supply chains, and without any specific sustainability concerns mentioned. | Consistent strong growth in India, though sustainability messaging was more prominent in Q2 2024; Q1 2025 focuses solely on growth dynamics. |
New Focus on Biologics Revenue Growth and Large Molecule Applications | Q2 2024 emphasized shifting pharma mix from around 20% to over 35% biologics, and Q4 2024 highlighted new chemistry consumables (e.g., Max Premier columns growing 30%+) to boost large molecule applications. | Q1 2025 continued this focus by citing significant growth in biologics-linked revenues and strong performance in chemistry consumables, reinforcing their position in large molecule analysis. | A steadily strengthening strategic focus on biologics and large molecule applications, with momentum building consistently across the periods. |
Acquisition Synergies from Strategic Moves (e.g., Wyatt acquisition) | Q2 2024 provided detailed coverage of the Wyatt acquisition’s contributions (2% of sales, margin and EPS accretion, and future accretion expectations) ; Q4 2024 did not mention acquisition synergies. | Q1 2025 re-emphasized the success of the Wyatt acquisition as a “poster child,” highlighting its strategic fit, integration benefits (including Empower software compatibility), and potential to drive future acquisitions. | A positive and recurring theme, with acquisition synergies being highlighted strongly again in Q1 2025 after a brief omission in Q4 2024. |
Macro Headwinds and Guidance Uncertainty | Q2 2024 adopted a cautious guidance approach with concerns over lumpy academic spending, FX impacts, and gradual recovery, while Q4 2024 focused on prudence in guidance given macro headwinds and potential academic funding cuts. | Q1 2025 discussed macro challenges (academic funding adjustments and FX headwinds) but showcased effective mitigation strategies and maintained moderate guidance, with details on offsetting factors like favorable FX. | Continued macro uncertainty with evolving mitigation measures, where detailed counterstrategies in Q1 2025 are mitigating earlier concerns and leading to more balanced guidance outlooks. |
Decline of U.S. Academic & Government Segment and Pharma Research & Drug Discovery Headwinds | Q2 2024 noted a 16% decline in the Academic segment and a modest decline in pharma, while Q4 2024 hinted at choppiness and conservative long-term growth expectations for A&G, with Pharma Research headwinds less sharply emphasized. | In Q1 2025, the U.S. A&G segment is sized at about 3% of revenue with an anticipated 20% decline for the remainder of the year, and headwinds in the Pharma Research & Drug Discovery space are acknowledged as persisting challenges. | A consistent decline in the U.S. academic segment and continued challenges in pharma research, although these headwinds are partly offset by stronger performance in other key segments. |
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Pricing Strategy
Q: Pricing impact and pushback?
A: Management noted 200 basis points of like-for-like pricing gains plus an additional 50 basis points surcharge due to tariffs, with most customers accepting the increases, reinforcing confidence in their pricing approach. -
M&A & Balance Sheet
Q: Acquisition appetite and debt status?
A: They emphasized a strong balance sheet with net debt around $1.1 billion and highlighted readiness for strategic acquisitions like Wyatt—if the numbers and fit are right—without derailing share buybacks. -
Instrument Guidance
Q: Instrument growth guidance update?
A: Despite robust double-digit Q1 performance, management now expects a balanced year with instrument growth in the 4-5% range, reflecting a maturing replacement cycle. -
Supply Chain & Tariffs
Q: Supply chain realignment and IP impact?
A: They detailed that most of the $45 million tariff exposure is being mitigated through strategic supply chain adjustments, including selective surcharges and cost management, ensuring minimal long‐term impact. -
Pharma Order Timing
Q: Any ordering change pre-tariffs?
A: Management reported no noticeable pull forward or acceleration in orders, with stable demand driven by a robust replacement cycle even amid tariff discussions. -
PFAS Growth
Q: PFAS acceleration details and outlook?
A: PFAS testing surged by 90% in Q1, building on previous years’ 40% growth, fuelled by regulatory focus and enhanced detection needs that promise continued momentum. -
Pharma Replacement
Q: How is the replacement cycle progressing?
A: They highlighted double-digit growth in large pharma, generics, and CDMOs, indicating that the instrument replacement cycle is well underway across key customer classes. -
Pharma Tariff Impact
Q: Tariff effects on pharma behavior?
A: Management observed no material change in behavior among pharma customers, who remain focused on replacement cycles despite tariff uncertainties. -
Regional Pharma Outlook
Q: How do pharma regions differ?
A: US and European pharma show steady demand, while variations in China and India reflect localized dynamics, with each region contributing distinct growth profiles. -
China Outlook
Q: China revenue outlook for remainder?
A: Although China delivered 5% growth in Q1, expectations have been moderated to low single digits for the rest of the year. -
India Growth
Q: Is India growth sustainable amid reshoring?
A: India reported nearly 20% constant currency growth, and while reshoring trends are on the horizon, management remains optimistic about sustaining this momentum. -
Reshoring Impact
Q: Impact and timeline for reshoring tailwinds?
A: Reshoring announcements are very recent, and while they may offer future tailwinds, there are no immediate changes to current order flow or guidance. -
Academic Revenue
Q: US academic demand and prospects?
A: With US academic revenue representing roughly 3% of total sales, strong early growth was noted in Q1, though the outlook has been prudently adjusted to a 20% decline for the remainder. -
Services Revenue
Q: Explain lower service revenue this quarter?
A: Reduced service revenue is explained by having 2 fewer days in the quarter along with lower third-party parts purchases, resulting in mid-single-digit performance. -
TA Business
Q: Explain TA performance differences and outlook?
A: The TA segment achieved modest 1% growth, driven by strong battery testing in China even as timing issues in the US led to a slightly subdued overall performance. -
Mass Spec Biopharma
Q: Mass spec opportunity in biopharma insight?
A: Enhanced software and regulatory improvements are beginning to boost mass spectrometry uptake in biopharma, notably within drug metabolism and clinical testing segments. -
Discovery & R&D
Q: Status of discovery and development orders?
A: There remains ongoing pressure in biotech, drug discovery, and pharma research segments, though these still constitute under 20% of overall pharma business. -
Share Buybacks
Q: Why no share repurchase guidance?
A: Adjustments in share count have been balanced by lower interest expense, resulting in a net-neutral impact that precludes new buyback assumptions. -
Upstream Investment
Q: Invest upstream or stay commercially focused?
A: The focus remains on high-volume, commercially driven activities rather than on diverting resources into upstream investments amid current market conditions.