Waters (WAT) Q2 Earnings call transcript Jul 31, 2024

Waters Corporation, a leading provider of analytical science solutions, held its second quarter earnings call, showcasing a strong financial performance and a promising outlook for the future. The call, led by Head of Investor Relations Caspar Tudor, featured insights from President and CEO Dr. Udit Batra and Senior Vice President and CFO Amol Chaubal, addressing key trends, operational highlights, and future guidance.

Financial Performance and Guidance

For the second quarter, Waters reported a decline in sales by 4% as reported and 4% in organic constant currency. However, the company's non-GAAP earnings per share reached $2.63, exceeding both reported and expected guidance. The decline in sales was primarily due to challenges in China, where sales declined in the low teens, but growth rates improved compared to the previous quarter. The company's operational performance remained resilient, with earnings surpassing expectations, reflecting the strength of its downstream business model and strategic initiatives.

Looking ahead, the company revised its full-year sales guidance, assuming a more gradual pace of improvement in the second half of the year. The revised guidance anticipates negative 2% to negative 0.5% organic constant currency sales growth for the full year, with a commitment to delivering an adjusted operating margin of around 31%.

Product Innovation and Strategic Initiatives

Waters continued its stream of new product launches, releasing the Xevo MRT, its highest performing benchtop mass spectrometer, and the latest evolution of the Acquity QDa mass detector. These innovations address key customer needs and position Waters well for the market recovery and instrument replacement cycle. The company also welcomed Rob Carpio as the new Head of the Waters Division, further enhancing its performance and long-term growth strategy.

Operational and Financial Highlights

The company's operational performance remained strong, with margins remaining resilient despite volume, FX, and inflationary headwinds. Gross margin was flat at 59.3%, and adjusted operating margin was solid at 29.2%. Waters also achieved its goal of increasing service plan attachment by a further 100 basis points this year, driving high single-digit growth in service revenue.

Future Outlook and Market Positioning

Looking ahead, Waters is well positioned in attractive markets with secular growth drivers, particularly in testing volume-driven applications. The company's full ecosystem of instruments, informatics, advanced chemistry, and leading service positions it well to ensure the safety of medicine, food, and water, as well as batteries in electric vehicles. With a commitment to excellence, Waters is poised for a more pronounced impact on its long-term margin performance, especially when volume leverage returns.

Addressing Investor Concerns

During the Q&A session, key investors and analysts raised concerns regarding the company's guidance, particularly in light of the strong momentum in June and the improving trends in China. Udit Batra and Amol Chaubal addressed these concerns, emphasizing the company's cautious approach to guidance and its commitment to delivering solid operational performance and margin expansion. They also highlighted the company's focus on strategic initiatives, including productivity enhancement and pricing, to drive long-term growth.

Conclusion

Waters Corporation's second quarter earnings call underscored the company's strong financial performance, operational resilience, and strategic initiatives. The company's focus on product innovation and customer needs, combined with its commitment to operational excellence and margin expansion, positions it well for future growth. With a well-positioned portfolio and a clear vision for the future, Waters is confident in its ability to capitalize on market opportunities and navigate challenges, ensuring long-term value creation for its stakeholders.