Waters Tops Growth Outlook as AI Demand, BD Integration Fuel Momentum

Waters exceeded expectations in the second quarter, delivering 9% organic growth versus guidance of 6% to 8%, with high-single-digit growth in instruments and services and double-digit growth in chemistry.

AI demand and replacement cycles are creating new growth opportunities, particularly for laboratory software, consumables and quality-control workflows; Waters also has visibility into instrument replacement demand through 2027.

The integration of acquired Becton Dickinson businesses is progressing ahead of schedule, with the company targeting a $200 million annualized cost-synergy run rate by year-end and pursuing additional procurement, manufacturing and distribution savings.

Waters NYSE: WAT President and Chief Executive Officer Udit Batra said the company’s second-quarter performance exceeded expectations, supported by broad-based growth in its legacy analytical-science operations and early progress integrating acquired Becton Dickinson businesses.

Speaking at a JPMorgan event with Casey Woodring, JPMorgan’s vice president of equity research, Batra said Waters delivered 9% organic growth in the quarter, above its 6% to 8% guidance range. Orders also outpaced sales, according to Batra.

Batra said instruments and service each grew at high-single-digit rates during the quarter, while chemistry revenue rose at a double-digit rate. He said chemistry growth would have been 16% after accounting for what he described as prior-year demand pulled forward around “Liberation Day.”

Geographically, Waters recorded mid- to high-single-digit growth in the U.S. and mid-single-digit growth in Europe. India grew more than 20%, while China posted double-digit growth; Batra said China’s growth would have been in the mid-teens when adjusted for the prior-year pull-forward effect.

Pharmaceutical end markets grew at a double-digit rate, helped by an instrument replacement cycle among large pharmaceutical companies in the U.S. and Europe and demand from generic-drug customers in India. Pharmaceutical revenue in China grew more than 24%, Batra said, following roughly 50% growth in the first quarter.

Academic and government demand also grew at a double-digit rate, driven principally by budget releases in Europe. Industrial revenue increased at a low-single-digit pace.

Batra described Waters’ base business as a “sustainably high single-digit grower,” noting that it has averaged approximately 8% growth over the past seven quarters and grew at a double-digit average rate during the first half.

Batra said Waters is seeing early evidence that artificial intelligence is increasing demand for laboratory consumables and software, especially in quality-control, quality-assurance and late-stage drug-development workflows. He said AI adoption can occur faster in quality-control environments because reagents, instrument protocols and data workflows are more standardized than in early drug discovery.

Waters’ Empower software is used as a software-of-record platform in pharmaceutical quality-control applications, Batra said, adding that customers are purchasing additional software seats to train AI agents on established workflows.

Waters is also seeing higher consumption of columns and reagents in discovery settings, although at a slower pace than in quality-control workflows. Batra said the company intends to provide a quantitative assessment of AI-related demand once it has more customer data points.

On instruments, Batra said the compan...