Waters Corp Q2 2025: Strong Sales Meet Rising Costs & Merger Plans

Waters Corporation, a key player in the world of analytical instruments and software for laboratories, recently released its second-quarter 2025 financial report. For anyone following the life sciences and diagnostics industry, this filing offers a look into the company's performance amidst strategic shifts and global economic crosscurrents. Let's dive into the numbers to see what they reveal.

For the three months ended June 28, 2025, Waters Corp. reported a solid 9% increase in total net sales, reaching $771.3 million compared to $708.5 million in the same period last year. However, a look beneath the surface shows that this growth came with significant costs, leading to a more complex profitability picture.

To better understand how the company's revenues flow through to the bottom line, the following chart visualizes the income statement for the quarter.

Geographic Strength and a Cautious US Market

A significant portion of Waters' growth came from its international operations.

• Asia: Sales grew 12% to $266 million, driven by a remarkable 17% jump in China. The company notes this may have been boosted by customers pulling forward an estimated $8 million in chemistry consumable orders ahead of potential new tariffs—a savvy move by customers that could affect future quarterly comparisons.
• Europe: This region also posted strong results, with sales up 14% to $225 million.
• Americas: Performance here was more subdued, with sales growing just 2%. The United States market, a crucial region, saw a 1% decline in sales.

Sales to the company's largest customer segment, pharmaceuticals, were a bright spot, growing 11% to $462 million. Industrial customer sales also increased by a healthy 7%.

The High Cost of Growth and Strategy

While revenue growth is positive, the story on the cost side is more nuanced. The company's operating income remained flat at approximately $188 million, causing the operating margin to contract from 26.7% in Q2 2024 to 24.4% in Q2 2025.

Two key factors are driving this margin pressure:

1. Cost of Sales: This expense grew by 12%, outpacing the 9% revenue growth, suggesting higher production costs or a shift in product mix.
2. Selling and Administrative (S&A) Expenses: These costs surged by 16% to $201 million. The filing attributes this jump primarily to "$14 million of transaction costs associated with the Merger" and expenses for a new Enterprise Resource Planning (ERP) system implementation, which accounted for "$5 million for the second quarter and a total of $7 million for the first half of 2025."

These strategic investments, while potentially beneficial in the long run, are clearly impacting short-term profitability.

A Merger on the Horizon

The transaction costs mentioned are tied to a significant event for Waters: a planned merger with Augusta SpinCo, a subsidiary of Becton, Dickinson and Company (BD). The deal is structured as a Reverse Morris Trust, a tax-efficient method for combining companies. This merger, expected to close around the end of Q1 2026, represents a major strategic pivot and will be a key focus for investors moving forward. The company estimates it will incur approximately $120 million in total transaction and financing fees related to the deal.

Final Thoughts

Waters Corp's Q2 2025 results paint a picture of a company successfully expanding its international footprint but facing headwinds from a sluggish US market and the high costs of its strategic initiatives. The impressive growth in China, potentially aided by tariff-related stockpiling, highlights the complex global environment.

Looking ahead, the key challenge for Waters will be managing the integration of the BD subsidiary post-merger while navigating ongoing cost pressures. The success of its ERP rollout and its ability to realize the anticipated benefits of the merger will be critical in determining whether it can translate top-line growth into improved profitability.