Waters (WAT -1.37%), the analytical instruments and laboratory technology leader, released its Q2 2025 earnings on August 4, 2025. The company's results topped Wall Street estimates, reporting revenue of $771 million compared to the $748.66 million expected, and non-GAAP earnings per share of $2.95 versus estimates of $2.94. The quarter was notable for robust growth in pharmaceutical and industrial end-markets, strong performance in recurring revenue streams, and improved free cash flow (non-GAAP). Management also increased its full-year 2025 revenue and non-GAAP earnings guidance, reflecting confidence in the ongoing strength of its replacement cycle for core products and steady demand from regulated, high-volume industries. Overall, the quarter demonstrated solid operational execution and resilience while certain segments, like TA Instruments and Academic & Government, remained under pressure.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| Revenue (Non-GAAP) | N/A | N/A | N/A | N/A |
| EPS (Non-GAAP) | $2.95 | $2.94 | $2.63 | 12.2% |
| Operating Income (Non-GAAP) | $224.6 million | $207.1 million | 8.5% | |
| Operating Margin (Non-GAAP) | 29.1% | 29.2% | (0.1 pp) | |
| Free Cash Flow (Non-GAAP) | $158.7 million | $143.5 million | 10.6% |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.
What Waters Does and Where It’s Succeeding
Waters designs, manufactures, and sells high-performance instruments used for chemical analysis, including high-performance liquid chromatography (HPLC), ultra-performance liquid chromatography (UPLC), and mass spectrometry (MS) systems. These technologies are vital for quality control, drug development, and regulatory testing in sectors like pharmaceuticals, environmental monitoring, and food safety. The company generates revenue through the sale of these instruments as well as through ongoing service contracts and consumables, such as chromatography columns.
Recent strategy has centered on technological innovation, particularly by rolling out new products and extending its analytical capabilities. Key success factors for Waters include expanding its broad global manufacturing and distribution footprint, diversifying its customer mix beyond pharmaceuticals, and growing its recurring service and consumable business to create a stable revenue foundation. Sustained investment in research and development, evidenced by the $48.5 million spent in Q2 2025, underpins the company’s ongoing product refresh cycle and ability to adapt to evolving customer requirements.
Quarterly Highlights: Financial and Operational Developments
During Q2 2025, Waters posted GAAP revenue of $771 million, up 8.9% from the prior year and about $22 million above analysts’ consensus. Non-GAAP earnings per share grew 12% to $2.95, with operating income (excluding certain items) rising to $224.6 million. Recurring revenue streams, which include service agreements and consumables, grew 12% as reported to $462.9 million and now account for about 60% of total company sales. The combination of recurring revenue stability and strong demand in its largest markets gave Waters the confidence to update its full-year revenue growth estimate.
Growth was driven primarily by the pharmaceutical end market, accounting for $462 million in GAAP sales and marking an 11% increase. Demand for replacement instruments from large pharmaceutical, generic drug, and contract manufacturing customers fueled high-single-digit constant currency growth in core product categories like liquid chromatography and mass spectrometry systems. Notably, the company cited ongoing instrument replacement cycles as a key demand catalyst.
Geographically, Asia experienced double-digit sales increases in constant currency. In China, battery testing and environmental applications showed strength, while in India, robust pharmaceutical production needs lifted demand. Americas growth was more modest at 2% (as reported). Segment growth was mixed: while core analytical instruments drove expansion, the TA Instruments division—which focuses on thermal analysis used in materials and battery testing—declined 4%, attributed to timing of large orders and softer U.S. results.
Waters also responded to a shifting global trade environment, as new tariffs posed a potential $45 million gross impact for 2025. By stockpiling inventory and adjusting pricing, the company limited the net impact on adjusted operating margin to about $10 million. There was no adverse effect on its full-year earnings guidance, as tariff-related surcharges and operational changes offset these headwinds. The integration of recent acquisitions, such as those in biopharma quality control, continued. The company's balance sheet, with notes payable and debt at $1.46 billion and cash rising to $367 million as of Q2 2025, offers flexibility for strategic investments and further acquisitions.
Business Model, Focus Areas, and Innovation
Waters’ core business is closely tied to regulated markets with high-volume analytical needs. The product family includes HPLC and UPLC systems, which are used to separate and identify chemical components in both small and large molecule drugs, as well as Xevo TQ Absolute mass spectrometers, which are known for high sensitivity in applications like pharmaceutical manufacturing, environmental monitoring, and food safety. The TA Instruments section offers equipment for thermal analysis, used in material and battery testing, supplying key industries amid energy transition and sustainability efforts.
A major company focus has been boosting recurring revenue streams. The service business—supporting installed equipment—and the chemical consumables segment both posted notable gains, with service revenue growing 9% and chemistry revenue growing 17% in constant currency. Meanwhile, innovation remains central, as Waters cited rapid uptake of new offerings like Alliance iS HPLC systems and software upgrades for enhanced data integration and regulatory compliance. The company's robust R&D investment supports these new product launches and maintains its competitive edge.
Looking Forward: Guidance and Trends to Watch
For the remainder of FY2025, management expects constant currency sales growth of 5.5% to 7.5% and non-GAAP EPS between $12.95 and $13.05. Third-quarter guidance calls for 5% to 7% constant currency sales growth and non-GAAP EPS of $3.15 to $3.25. These targets reflect the company's confidence in sustained instrument demand, growing recurring revenues, and pricing gains, as well as an ability to offset tariff expenses through operational changes and select customer surcharges.
Investors should track the sustainability of instrument replacement demand, the trajectory of recurring revenue growth, and the evolution of segments like TA Instruments and Academic & Government, where industry funding challenges remain. The integration of new acquisitions and continued supply chain adaptation to global tariff shifts will also play a role in shaping future margins and growth.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
