Waters Corporation (WAT) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Quarter Performance: Waters Corporation exceeded both top-line and bottom-line reported guidance in Q2 2024, with organic constant currency sales 500 basis points better than Q1 levels.
• Resilient Operational Results: Earnings surpassed expectations, reflecting strong operational management and strategic initiatives.
• Product Innovation: Launched new products, including the Xevo MRD, the highest-performing bench-top mass spectrometer, and the Acquity QDa mass detector.
• Improvement in China: Sales in China declined less than expected, showing signs of recovery, especially in the pharma and industrial sectors.
• Wyatt Acquisition Synergies: Wyatt contributed 2% to sales, with synergies delivered ahead of schedule, indicating strong growth in large molecule applications.

Pessimistic Highlights

• Sales Decline: Reported a 4% decline in sales on both a reported and organic constant currency basis.
• Instrument Sales Drop: Instruments declined by 17%, although recurring revenue grew by 5%.
• Academic and Government Weakness: This sector remained weak, declining by 16% due to lumpy spending patterns and high prior year comparisons.

Company Outlook

• Cautious Guidance Revision: Revised full-year 2024 sales guidance to a more gradual improvement pace, expecting organic growth constant currency sales to be between negative 2% to negative 0.5%.
• Margin Expansion: Despite a cautious outlook, Waters aims for a 31% adjusted operating margin, reflecting confidence in operational performance.
• Recovery Anticipation: The company anticipates a return to growth in the second half of the year, with Q3 organic constant currency sales growth projected between 1% to 3%.

Q & A Highlights

• Q: Can you help us understand the guidance change in light of the strong June finish and order momentum? (Vijay Kumar, Evercore ISI)

  A: The guidance change incorporates caution despite positive trends. The company is conservatively adjusting its outlook while noting significant momentum in June, particularly in orders exceeding sales. (Udit Batra)

• Q: Could you discuss the updated instrument outlook for the back half of the year? (Dan Brennan, TD Cowen)

  A: Instruments declined by 17% in Q2, with LC down mid-teens and MS declining a bit more. For the back half, instrument growth is expected to be flat versus the previous year, with signs of recovery in LC. (Udit Batra)

• Q: How are you thinking about the China stimulus impact and the academic sector? (Tycho Peterson, Jefferies)

  A: The China stimulus is expected to impact growth in 2025, with current efforts focused on preparing customers for funding applications. The academic sector's guidance remains unchanged, with weak growth due to high prior year comparisons. (Udit Batra)

• Q: Can you elaborate on the margin dynamics as instruments start to recover? (Jack Meehan, Nephron Research)

  A: The recovery of instruments will have some negative mix impact on gross margin, but productivity initiatives and pricing discipline are expected to offset this, maintaining the goal of margin expansion. (Amol Chaubal)

• Q: What trends are you seeing in the Wyatt business, particularly in large molecule and cell and gene therapy markets? (Catherine Schulte, Baird)

  A: Wyatt is performing ahead of expectations, with strong demand for its technology in large molecule applications. Efforts are underway to integrate multi-angle light scattering technology into QA/QC processes. (Udit Batra)