Scientific instruments company Waters Corporation (NYSE: WAT) reported Q2 CY2025 results topping the market’s revenue expectations, with sales up 8.9% year on year to $771.3 million. Guidance for next quarter’s revenue was better than expected at $781 million at the midpoint, 0.7% above analysts’ estimates. Its non-GAAP profit of $2.95 per share was in line with analysts’ consensus estimates.

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StockStory’s Take

Waters Corporation reported results for Q2 that exceeded investor expectations, with both sales and adjusted earnings per share meeting or surpassing Wall Street projections. Management attributed growth to robust demand for liquid chromatography and mass spectrometry instruments, particularly in pharmaceutical replacement cycles and contract development manufacturing organizations (CDMOs). CEO Udit Batra pointed to recurring revenue growth, especially in chemistry and service segments, as well as strong adoption of new products like the Alliance iS platform and Xevo TQ Absolute XR. However, operating margins declined, impacted by tariffs and regional sales mix, which CFO Amol Chaubal described as a combination of “geographical mix and…costs associated with tariff remediation.”

Looking ahead, management is focused on leveraging commercial execution, continued product launches, and integration planning for the pending acquisition of BD’s Biosciences and Diagnostic Solutions business. CEO Udit Batra highlighted that expansion into high-growth adjacencies, alongside operational improvements, are expected to drive mid-single-digit sales growth and non-GAAP EPS gains. He cautioned, though, that ongoing tariff variability and cautious assumptions for academic and government funding will influence the pace of improvement, and noted, “We have still been quite conservative for the back half of the year and assume that the decline continues at the high single-digit-ish sort of range for the balance of the year.”

Key Insights from Management’s Remarks

Management pointed to strong product demand in pharmaceuticals and industrials, recurring revenue momentum, and early progress on integration plans with BD’s businesses as key performance drivers this quarter.

• Instrument replacement cycle: Waters saw high single-digit growth in liquid chromatography and mass spectrometry, driven by a robust replacement cycle among large pharmaceutical and CDMO customers in the U.S., Europe, and China. CEO Udit Batra emphasized that the Alliance iS platform’s 300% growth and Xevo TQ Absolute XR’s adoption—enabling 30,000 uninterrupted plasma injections—were standout contributors.

• Recurring revenue strength: Recurring revenue, including service and chemistry, grew at double-digit rates, aided by increased service plan attachment rates and e-commerce adoption, now above 40% of chemistry revenue. Management noted that chemistry sales temporarily benefited from an $8 million pull-forward related to tariffs.

• Geographic performance: China delivered notable double-digit growth across pharma, industrial, and academic segments, supported by product localization and stimulus. Battery testing in China’s industrial sector offset weaker demand in the U.S. and Europe for materials and polymers.

• Tariff and margin pressures: Operating margin compression stemmed from regional sales mix and costs tied to tariff remediation. CFO Amol Chaubal clarified that gross margin was mainly affected, with discrete tax items creating temporary EPS headwinds this quarter.

• Integration and synergy planning: The pending acquisition of BD’s Biosciences and Diagnostic Solutions business was a major focus, with management outlining potential cost and revenue synergies. Plans include cross-selling, service plan expansion, and leveraging BD’s channel to accelerate Waters’ entry into new diagnostics and microbiology markets.

Drivers of Future Performance

Waters expects mid-single-digit growth as new product launches and integration with BD’s business drive expansion, but margins remain pressured by tariffs and sales mix.

• Product innovation momentum: Management anticipates ongoing growth from recently launched platforms such as Alliance iS and Xevo TQ Absolute XR, with further adoption in both pharma and industrial end markets. The company is also pursuing new bioseparation and affinity column products to support complex molecule analysis, which are expected to gain traction in regulated labs.

• Integration with BD’s businesses: The planned combination with BD’s Biosciences and Diagnostic Solutions business is expected to provide access to new customer segments, accelerate instrument replacement, and enable commercialization of new solutions in microbiology and diagnostics. Waters expects to realize $290 million in revenue synergies over five years, with early benefits from enhanced e-commerce, service attachment, and operational discipline.

• Ongoing tariff and funding risks: Management continues to build conservatism into its outlook, particularly regarding tariff variability and uncertain academic and government funding. The company assumes limited recovery in these segments and expects any upside from tariff reductions or funding improvements to be incremental rather than core to its guidance.

Catalysts in Upcoming Quarters

Over the coming quarters, our analysts will be watching (1) early signs of synergy realization and operational improvements following the BD integration, (2) sustained momentum in recurring revenue and adoption of new product launches, and (3) any stabilization or improvement in operating margins amid ongoing tariff and regional sales mix headwinds. Developments in academic and government funding, as well as China’s market trajectory, will also be closely monitored for their impact on growth.

Waters Corporation currently trades at $285.52, down from $290.71 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free).

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