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WATERS CORP /DE/ (WAT)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered above-guide execution: revenue $771.3M (+9% reported, +8% cc) and non-GAAP EPS $2.95; GAAP EPS $2.47 . Consensus beat: revenue by $20.9M (≈+2.8%) and a slight EPS beat ($0.01)*.
  • Instrument growth mid‑single digits (LC/MS high‑single digits), recurring revenue +11% cc, Pharma +11% cc, Industrial +6% cc; A&G −3% cc but better than expected . Gross margin 58.3% and adjusted operating margin 29.1% .
  • Full‑year 2025 guidance raised: cc sales growth +5.5% to +7.5% (reported +5.0% to +7.0%); non‑GAAP EPS $12.95–$13.05 (≈+9%–10% y/y) . Q3 2025 non‑GAAP EPS guided to $3.15–$3.25 on cc sales growth +5%–+7% .
  • Positive call tone: robust instrument replacement (Alliance iS, Xevo TQ Absolute XR), strong Pharma/China, and idiosyncratic growth vectors (GLP‑1s, PFAS, India); tariff mitigation progressing, with potential ~6¢ EPS upside if rates remain favorable .
  • Watch items: TA softness in Americas (materials/polymer testing), ~$8M chemistry pull‑forward tied to tariffs, and near‑term A&G volatility; management still expects margin improvement 2H as tax and tariff remediation normalize .

What Went Well and What Went Wrong

What Went Well

  • Robust top‑line and slight EPS beat: Sales $771.3M (+9% reported/+8% cc) with non‑GAAP EPS $2.95, above guidance midpoint; instruments up mid‑single digits, LC/MS high‑single digits .
  • Recurring and Pharma strength: Recurring revenue +11% cc (service +9%, chemistry +16% cc); Pharma +11% cc led by instrument replacement at large pharma and CDMOs .
  • Product & commercial execution: Alliance iS sales +300% y/y; Xevo TQ Absolute XR demand exceeded expectations (30,000 uninterrupted plasma injections cited by a customer); service plan attachment up 200 bps to 52%; e‑commerce >40% of chemistry revenue .

What Went Wrong

  • TA headwinds in Americas: TA −6% y/y (cc −6%); management cited macro‑sensitive materials/polymer testing; ~20% decline in TA U.S. noted in Q&A .
  • Gross margin mix/tariff remediation: Gross margin 58.3% impacted by regional mix and costs tied to tariff remediation; ~5¢ EPS headwind from tax rate in the quarter expected to normalize 2H .
  • Tariff‑related pull‑forward: Chemistry benefited from ~$8M sales pull‑forward; guidance prudently assumes this reverses evenly in Q3/Q4, though timing uncertain .

Financial Results

Headline P&L and Margins (actuals)

MetricQ2 2024Q1 2025Q2 2025
Revenue ($M)$708.5 $661.7 $771.3
GAAP EPS ($)$2.40 $2.03 $2.47
Non‑GAAP EPS ($)$2.63 $2.25 $2.95
Gross Margin (%)—58.2% 58.3%
Adjusted Operating Margin (%)29.2% 25.5% 29.1%

Q2 2025 vs S&P Global Consensus

MetricConsensus*ActualSurprise
Revenue ($M)750.5*771.3 +20.9
Non‑GAAP EPS ($)2.94*2.95 +0.01

*Values retrieved from S&P Global.

Segment/Category Breakdown (Q2 2025 vs Q2 2024)

CategoryQ2 2024 ($000s)Q2 2025 ($000s)YoY % (reported)Const‑Currency Growth
Waters Segment622,561 688,837 +11% +10%
TA Segment85,968 82,495 −4% −6%
Instruments294,059 308,415 +5% +4%
Service273,385 297,932 +9% +9%
Chemistry141,085 164,985 +17% +16%
Total Recurring414,470 462,917 +12% +11%
Asia237,431 265,940 +12% +14%
Americas274,468 280,740 +2% +2%
Europe196,630 224,652 +14% +8%
Pharma415,747 461,968 +11% +11%
Industrial221,385 237,655 +7% +6%
Academic & Government71,397 71,709 0% −3%

KPIs and Cash Flow

KPIQ1 2025Q2 2025
Service plan attachment—52%
Chemistry e‑commerce mix—>40%
CDMO share of Pharma revenue—27%
Adjusted Free Cash Flow ($M)233.8 158.7
Net Debt (approx, $B)~1.1 ~1.1
Operating tax rate16.0% 17.9%
Tariff‑related pull‑forward (Chemistry)—~$8M

Guidance Changes

MetricPeriodPrevious Guidance (as of Q1)Current Guidance (Q2)Change
Sales growth (cc)FY 2025+5.0% to +7.0% +5.5% to +7.5% Raised
Sales growth (reported)FY 2025+4.0% to +6.0% +5.0% to +7.0% Raised
Non‑GAAP EPS ($)FY 2025$12.75–$13.05 $12.95–$13.05 Raised lower end
Sales growth (cc)Q3 2025—+5.0% to +7.0% New
Sales growth (reported)Q3 2025—+4.5% to +6.5% New
Non‑GAAP EPS ($)Q3 2025—$3.15–$3.25 New

Management also expects FY gross margin ≈59% and adjusted operating margin ≈31%; net interest expense ≈$40M; average diluted shares ≈59.7M; tax rate ≈16.7% . Third‑party tariffs could add ~6¢ upside if rates stay at current levels .

Earnings Call Themes & Trends

TopicQ4 2024 (Q‑2)Q1 2025 (Q‑1)Q2 2025Trend
Instrument replacement cycleInstruments grew high‑single digits; Alliance iS 20% of HPLC; replacement cycle beginning Instruments +11%; replacement cycle ramping across large pharma/CDMOs High‑single digit LC/MS; robust funnels; continued replacement strength Improving, sustained
PFAS/GLP‑1/India driversPFAS +40% in Q4; GLP‑1, India tailwinds; ~30 bps each (PFAS, GLP‑1), 70–100 bps India to growth algos PFAS +90% in Q1; GLP‑1 testing and India (~20% cc) strong PFAS >30% growth in quarter; India high‑teens; idiosyncratic drivers ahead of targets Strong, persistent
Tariffs & mitigationRecognized FX/tariff risks for 2025; committed to margin preservation Net $10M operating margin impact in 2025 mitigated; surcharges, supply chain, spend actions; guide intact Q2 gross margin impacted by remediation costs; ~6¢ FY upside if current tariff rates persist Managed; potential upside
ChinaQ4 returned to growth; low single digit Q1 +5% overall; A&G double digits; prudent outlook Q2 double‑digit growth across end markets; still guiding low‑to‑mid‑single digit 2H Improving with prudence
TA InstrumentsQ4 TA high‑single digits (batteries, materials) Q1 +1%; lumpy but supported by batteries Q2 TA −6% overall; U.S. −20% in materials/polymer testing Near‑term pressure in US

Management Commentary

  • “Sales grew 9% as reported and 8% in constant currency... Non‑GAAP EPS were $2.95... driven by robust instrument replacement trends—particularly among large pharma and CDMO customers.”
  • “Alliance iS sales grew 300% year over year... Zevo TQ Absolute XR orders were more than double our expectations... a leading customer completed over 30,000 uninterrupted plasma injections.”
  • “Recurring revenue grew 11%... chemistry benefited from approximately $8 million of sales pull forward... Adjusted operating margin was 29.1%; gross margin 58.3%.”
  • “We are raising our full‑year 2025 constant currency sales growth guidance to 5.5% to 7.5% and our non‑GAAP EPS guidance to $12.95 to $13.05.”

Q&A Highlights

  • LC/MS dynamics: High‑single digit LC/MS growth, with Alliance iS and TQ Absolute XR expanding into DMPK via improved robustness; replacement cycle intact despite macro/tariff noise .
  • TA weakness in Americas: TA down ~20% in U.S. tied to materials/polymer testing softness; longer‑term attractive, near‑term headwind .
  • China sustainability: Q2 double‑digit growth across Pharma/Industrial/A&G (battery testing, localized portfolio); stimulus modest; guidance remains conservative for 2H .
  • Margins & tariffs: Gross margin pressured by tariff remediation and mix; ~5¢ EPS tax headwind in Q2 should normalize; FY margin trajectory improving into Q4 .
  • Chemistry pull‑forward: ~$8M impact identified; guide assumes even reversal across Q3/Q4, though timing uncertain .

Estimates Context

  • Q2 2025 results vs S&P Global consensus: Revenue $771.3M vs $750.5M*, a beat of $20.9M (+2.8%); non‑GAAP EPS $2.95 vs $2.94*, a slight beat (~$0.01).*
  • Estimate breadth: 15 revenue and 15 EPS estimates for Q2 2025.*
  • Forward consensus snapshot: Q3 2025 revenue $783.0M*, EPS $3.22* (actuals subsequently at $799.9M and $3.40, respectively); Q4 2025 revenue $928.8M*, EPS $4.51*; Q1 2026 revenue $709.4M*, EPS $2.54*; Q2 2026 revenue $817.7M*, EPS $3.31* (context for pacing into 2H/2026).*

*Values retrieved from S&P Global.

Key Takeaways for Investors

  • Core beat-and-raise quarter: Revenue outperformance and a raised FY guide (both sales and EPS) underscore durable momentum in Waters’ replacement‑led cycle and recurring resiliency .
  • Product flywheel accelerating: Alliance iS and TQ Absolute XR are driving mix/pricing and opening new use‑cases (e.g., DMPK), while new bioseparation columns and MALS‑on‑Empower broaden large‑molecule workflows .
  • High‑quality growth vectors: GLP‑1, PFAS, and India continue to add idiosyncratic growth on top of the cycle; management still assumes conservative contributions in 2H, suggesting upside if trends persist .
  • Margins poised to improve in 2H: Tariff remediation and tax headwinds dampened Q2 optics; cost actions and mix should support sequential margin progress; ~6¢ potential EPS upside if tariff rates remain benign .
  • Watch TA exposure: U.S. TA remains a swing factor given materials/polymer end‑market softness; offset by strong Waters division and recurring growth .
  • Near‑term trading: Revenue beat, EPS in‑line/slight beat, and guidance raise are positive catalysts; monitor China trajectory, tariff developments, and TA order trends into Q3.
  • Medium term: Execution on service attachment/e‑commerce, large‑molecule expansions, and potential BD transaction synergies (post‑close) support a multi‑year mid‑teens EPS CAGR ambition discussed by management .

Additional Relevant Press Releases (Q2 2025)

  • Empower now supports MALS/RI for QC, potentially saving up to six months of validation time and reducing biotherapeutic analysis time by ~20% .
  • BioResolve Protein A Affinity Columns launched, targeting up to 7× sensitivity improvements and earlier titer readouts for biologics .
  • Alliance iS HPLC System Software v2.0 enhances traceability and data integrity with authenticated touchscreen access integrated with Empower .

Appendix: Cash, Balance Sheet and Free Cash Flow Snapshots (Q2 2025)

  • Cash & equivalents $367.2M; Notes payable & debt $1,457.0M; Total assets $4,718.1M; Equity $2,159.8M .
  • Adjusted free cash flow $158.7M in Q2; $392.5M YTD (6M) . Management plans to pay down ~$100M debt in 2H .