Prepared remarks
Good morning. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to Avantor's Second Quarter 2026 Earnings Conference Call. I would now like to turn the conference over to Chris Fidyk, Vice President of Investor Relations. Chris, you may begin.
Thank you, operator. Good morning, everyone, and thank you for joining us. Our speakers today are Emmanuel Ligner, President and Chief Executive Officer; and Steve Eck, the Senior Vice President, Interim Chief Financial Officer and Chief Accounting Officer. The press release and our presentation accompanying this call are available on our Investor Relations website at ir.avantorsciences.com. Following our prepared remarks, we will open the call for questions. A replay of the call will be made available on our website later today. During this call, we will make forward-looking statements within the meaning of the U.S. federal securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings. Actual results may differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date they are made. We do not assume any obligation to update these forward-looking statements as a result of new information, future events or other developments. This call will include a discussion of non-GAAP measures. A reconciliation of these non-GAAP measures can be found in the press release and in the supplemental disclosure package on our Investor Relations website. I will now turn the call over to Emmanuel.
Thank you, Chris, and good morning, everyone. Thank you for joining our call today. I will begin with a high-level update on our second quarter performance. I will then reflect on the actions we've taken since I came into this role nearly 12 months ago and discuss the progress we are making in executing Revival, our comprehensive program to sharpen strategic focus and improve execution. Turning to Slide 4. Let me highlight a few key messages. First, we remain highly focused on executing Revival, and I am very happy with the progress we have made to date. Revival delivered measurable results and put us on a path to sustainable growth. Second, I'm pleased that our second quarter results exceeded expectations across several key financial metrics. Those results were driven by improved performance in our VWR distribution and services segments which returned to positive organic revenue growth during the quarter. Our Bioscience & Medtech Products segments performed near the high end of our expectation and are positioned to return to growth in the second half. Third, we delivered excellent free cash flow, enabling us to invest in the business while also paying down debt. We remain committed to reducing our adjusted net leverage ratio below 3x. Finally, we raised our 2026 organic revenue growth and adjusted EPS guidance. Our updated outlook reflects both our second quarter performance as well as higher expectations for the second half of the year. Please turn to Slide 5, where I will review our Q2 performance highlights. In Q2, we generated $1.69 billion of revenue, which declined 0.4% on an organic basis and was up 0.5% on a reported basis. Revenue was stronger than we had anticipated, driven primarily by VWR, which grew 1.7% organically in the quarter. VWR returned to growth earlier than we anticipated, reflecting the deliberate action taken by segment President, Corey Walker and his team to strengthen the business. The segment entered the second half of 2026 with broad-based momentum, and we continue to expect growth to accelerate through the remainder of the year. I will talk more about the drivers of VWR's return to growth later in my remarks. Turning to BMP. Revenue was near the high end of our expectation, driven by solid execution across the segments. On a year-over-year basis, revenue declined 5.6% organically, reflecting the impact of the discrete factors we had discussed previously. Importantly, BMP delivered sequential revenue growth from Q1 to Q2 and, as anticipated, demonstrated a stable trend. In BMP, we saw strong order intake and improving operations in the second quarter. Those leading indicators provide evidence that our Revival initiatives are gaining traction and, when combined with reduced comparison headwinds from discrete factors, give us confidence that BMP will return to organic growth during the second half of 2026. I will discuss Revival's impact on BMP shortly. Moving down the P&L, adjusted EBITDA grew more than 15% sequentially from Q1, driven by increased volumes in both segments. Adjusted earnings per share was $0.21, above our expectations for the quarter. Finally, one of Avantor's key strengths is our ability to consistently generate strong free cash flow. In the second quarter, excluding cash restructuring costs, we generated $152 million of free cash flow. This reflected strong conversion of adjusted net income and keeps us on track to achieve our full year free cash flow guidance. We used this strong cash generation to repay $112 million of debt during the quarter, further strengthening our balance sheet and underscoring our commitment to reduce our adjusted net leverage ratio to below 3x. Please turn to Slide 6. Last year, we launched Avantor Revival, our comprehensive program to sharpen strategic focus and improve execution across the enterprise. Revival is built on five pillars: commercial excellence, operational performance, portfolio optimization, simplification and talent. Guided by insights from customers, suppliers and associates at Gemba, we have launched initiatives across each pillar that are producing measurable results. Some examples are on Slide 7. We have made important go-to-market changes. We have resegmented Avantor into VWR and BMP to sharpen our focus, simplify the organization and better serve customers. We revived the VWR brand and accelerated our digital roadmap, including the relaunch of vwr.com which has driven stronger customer engagement and e-commerce performance. Across both segments, we are extremely focused on commercial excellence to drive every product and service in a way that delights customers. In BMP, our commercial teams are executing with greater consistency and focus, resulting in stronger customer engagement and higher win rates. This translates into double-digit order growth for BMP and a book-to-bill ratio of 1.1x during the second quarter while also expanding our funnel of future growth opportunities. Those go-to-market efforts are reflected not just in BMP's order momentum, but also in VWR's return to growth. In the manufacturing pillar, we have invested across our supply chain to improve productivity and strengthen customer service. Those investments, combined with the ongoing implementation of a new sales and operations planning process, are driving execution improvements. For example, during the quarter, we increased the throughput of certain key product lines at a large manufacturing site by more than 25% on average versus the first quarter. This progress is the direct result of Revival initiatives, including the use of Lean and Six Sigma tools to enhance equipment uptime, reliability and overall productivity. The simplification pillar delivers benefits both inside and outside the organization. One example is the recent redesign of our customers' onboarding process. Drawing on insights from multiple Gemba works and a cross-functional kaizen event, we redesigned the process from end to end, reducing onboarding from 14 steps to just 8 and cutting completion times from up to 4 days to as little as 2 days for complex accounts or to just minutes for simple accounts. Finally, as I have said before, Revival begins and ends with people. We moved quickly to complement our strong internal talent with experienced external leaders, refreshing approximately 25% of our senior leadership team, and we are driving a culture transformation across Avantor. We are communicating more effectively, collaborating more closely in the field, holding ourselves more accountable through a disciplined focus and measurable outcomes and putting customers at the center of all we do. The positive impact of Revival is evident not only in our improved second quarter results, but also in leading indicators such as the strength of our order book and the expansion of our commercial funnel that will ultimately lead to sustainable profitable growth. Please turn to Slide 8. VWR's return to growth in Q2 marks an important milestone for the segment. While the growth inflection itself is encouraging, the underlying drivers are broad-based, as I will describe, giving us confidence that we are building sustainable momentum. The leadership team Corey has built over the past year has implemented meaningful changes to VWR's organization structure and operating model, setting the stage for the segment's improved performance. With the team structure and operating model in place, we made a deliberate decision to strengthen our capabilities, operations, brand and commercial excellence. Together, those actions have laid the foundation for the stronger performance we are seeing today. Customers turn to VWR for our growth scale, the depth and breadth of our product-agnostic catalog, strong supplier relationships and excellent service. Combined with the changes we have taken over the past year, our strengths have translated into stronger financial results, including stronger growth across key customer segments. Let me review the key factors driving VWR's return to growth in Q2. The first factor was stronger performance with large global customers. As a reminder, revenue from new business wins is realized gradually due to the complexity of customer implementation processes, so it can take time before the benefit of strong commercial performance is reflected in our results. Previously, we discussed several elements impacting our large global customer segments, including recontracting activity and other industry dynamics. While our commercial focus and execution have improved significantly over the past year, those historical pressures phased in over the course of 2025, with the cumulative impact moderating in the first quarter of this year. While they continue to represent a headwind in 2026, their impact is diminishing as we move forward and offsetting action has been successful in driving stronger-than-anticipated results in this segment. Accordingly, year-over-year comparisons will become increasingly favorable as the year progresses, allowing our results to more fully reflect our underlying commercial momentum. Our growth rate in the second quarter benefited modestly from this improving comparison dynamic. Over the past year, the VWR team has taken thoughtful and deliberate steps to expand our relationship with large global customers. The team focused on retaining and expanding large global customer relationships, strategically developing our new customer pipeline and accelerating the onboarding process for new contracts. We have executed well against the growth opportunity that our efforts have generated and this new business is contributing to our results sooner and more meaningfully than we anticipated. Another important driver of VWR performance is improving growth in our small and midsized customer segments, with better e-commerce outcomes playing an important role. On our last earnings call, we highlighted early signs of improving trends following multiple upgrades to our platform as well as the successful relaunch of vwr.com. We advanced our digital roadmap in the second quarter, and customers have responded positively to those enhancements, driving direct traffic, higher conversion and improved daily sales, particularly among smaller customers who tend to have higher margin. As a result, e-commerce growth accelerated as the quarter progressed and was accretive to the segment growth for the quarter. Although our recent progress is encouraging, our digital transformation remains in the early stages. We continue to see substantial opportunity to enhance the customer experience, deepen engagement and drive sustained growth in the channel particularly in Europe. Finally, while deliberate action drove the majority of VWR's improved performance, an increase in pharma and biotech customer activity provided a modest tailwind during the quarter, reinforcing our decision last year to focus significant commercial resources on those customer groups. It is important to note that activity levels in several important end markets, such as education and in certain geographies, particularly Europe, remain stable but at a lower level than we would like to see. An improvement in those end markets could represent an additional tailwind to our growth. Overall, we are pleased by VWR's improved results but remain focused on execution to sustain and build the positive momentum. I will now turn the call over to Steve to discuss the numbers. Steve?
Thank you, Emmanuel, and good morning, everyone. Please turn to Slide 10, where I will review our consolidated financial results. In Q2, we generated $1.69 billion of revenue which declined 0.4% on an organic basis and was up 0.5% on a reported basis. Adjusted EBITDA was $254 million, resulting in a margin of 15%, and adjusted earnings per share of $0.21. Free cash flow for the quarter was $143 million. Excluding cash restructuring costs, free cash flow was $152 million. Both figures were ahead of expectations and underscore Avantor's strong cash flow profile. During the quarter, we repaid approximately $112 million of debt and ended the period with an adjusted net leverage ratio of 3.3x adjusted EBITDA. Leverage was flat sequentially. Please turn to Slide 11. Revenue for the VWR Distribution & Services segment was $1.24 billion in the second quarter, up 1.7% organically versus the prior year. The primary driver of sequential and year-over-year organic revenue growth was increased volumes from strong commercial execution. Adjusted operating income for VWR was $126 million in Q2 and represented an adjusted operating margin of 10.2%. The year-over-year decline in margin is due primarily to mix and inflationary pressures. Sequentially, margins increased approximately 100 basis points from the first quarter due to increased volumes and improved mix. There are two key takeaways from the VWR quarter. First, VWR returned to growth ahead of our expectations, and the majority of this improved performance reflects steps that we have taken to grow the segment. Second, VWR demonstrated stable sequential trends, with revenue increasing from the first quarter primarily due to strong commercial execution. Let me now discuss the performance in the Bioscience & Medtech Products segment, or BMP. I'm on Slide 12. In the second quarter, BMP revenue was $452 million, down 5.6% organically versus the prior year. This was near the high end of our expectations, driven by solid performance across product lines. Process chemicals grew faster than expectations, driven by healthy end market conditions, improving operations and strong order performance. Fluid Handling and NuSil were down mid-teens in the quarter, as anticipated, while Research and Specialty Chemicals declined mid-single digits organically, primarily reflecting the anticipated growth headwinds from Serum and Electronic Materials. Last quarter, we indicated that NuSil and the Serum and Electronic Materials businesses within Research and Specialty Chemicals would be headwinds to our quarterly growth rate due to the normalization of discrete customer ordering patterns and shipments in 2025. We also indicated that we faced a difficult comparison in Fluid Handling. Collectively, these factors were a headwind of roughly 600 basis points to BMP organic revenue growth in the second quarter. Adjusted operating income for BMP was $118 million in the quarter, representing an adjusted operating margin of 26%. The year-over-year decline in margin was primarily driven by lower volumes. Margins increased sequentially due to increased volumes and mix. There are two key takeaways from the BMP quarter. First, commercial performance was strong as evidenced by our order trends. During the quarter, BMP delivered double-digit order growth and a book-to-bill ratio of 1.1x. Order trends were healthy across all business units, and we saw particular strength in our process chemicals and Fluid Handling order books. Second, BMP demonstrated stable sequential trends with performance near the high end of our expectations. Please turn to Slide 13. Our ability to consistently generate strong free cash flow is a key strength of Avantor. In the second quarter, excluding cash restructuring costs, we generated $152 million of free cash flow reflecting strong conversion of adjusted net income. Our capital allocation priorities support Revival and our intention to create sustainable shareholder value over the long term. First, we're focused on purposeful investments in the business to enhance customer service and drive top line organic growth. Next, we are focused on strengthening our balance sheet by prioritizing excess free cash flow towards debt repayment. During the quarter, we repaid $112 million of debt and ended the period with net debt of $3.4 billion. And over the trailing 12 months, we've repaid nearly $500 million of debt. Our adjusted net leverage ratio was 3.3x at the end of the quarter. We've made significant progress in strengthening our balance sheet, and that momentum was recognized by Moody's, which revised our ratings outlook to positive. In addition, we recently capitalized on favorable market conditions and demand for our credit to reprice one of our term loans on attractive terms in July. We remain committed to reducing our adjusted net leverage ratio to below 3x, driven both by continued debt paydown and a return to positive adjusted EBITDA growth as performance improves. Our objective is to finish the fiscal year at or below this target. Please turn to Slide 14, where I will discuss our increased 2026 guidance. For 2026, we have raised our organic revenue growth outlook to a range of negative 0.5% to positive 0.5%. This increase reflects our Q2 revenue outperformance as well as higher growth expectations for VWR in the second half of the year. Given the recent strength of the U.S. dollar, foreign exchange is expected to be a headwind to the reported revenue in the second half. As a result, we now expect FX to contribute about 50 basis points to full year revenue. In terms of segment performance, we continue to expect VWR's growth rate to improve sequentially through the balance of the year. We expect BMP to return to growth during the second half, driven by improved execution and more favorable discrete comparisons. BMP growth is expected to be stronger in Q3 than in Q4 due to more favorable year-over-year comparisons. Moving to profitability. Our adjusted EBITDA margin guidance remains unchanged as operational outperformance enables us to absorb macro inflationary pressures while also making targeted growth investments. We remain highly focused on cost discipline as reflected in our overall headcount, which has declined by approximately 3% this year. Looking ahead, our objective is to deliver a more leveraged P&L. Moving down the income statement. We now expect that net interest expense will decline modestly versus 2025, and we also assume a weighted average diluted share count for the year of 677 million shares. All other model assumptions are unchanged. Taken together, this translates to an adjusted EPS outlook that has been raised to $0.80 to $0.83 for 2026. Finally, we continue to expect free cash flow between $500 million and $550 million in 2026, reflecting Avantor's strong cash generation profile. In terms of phasing, in Q3, we expect to generate adjusted EPS between $0.20 and $0.21 per share. The midpoint of our Q3 guidance assumes total company organic revenue growth of about 250 basis points in the third quarter, and we expect FX to be a headwind of about 125 basis points to Q3 reported revenue. We assume that BMP reported revenue in Q3 will be about flat sequentially and year-over-year, with year-over-year organic revenue growth largely offset by FX headwinds. For BMP, the impact of discrete customer ordering patterns and shipments will represent a headwind of about 150 basis points to organic growth in Q3. Finally, we expect the underlying operating margin drivers in both segments to remain relatively stable sequentially with volumes, mix and inflationary pressures expected to be the primary factors influencing any sequential changes in segment margins. I'll turn the call back over to Emmanuel.
Thank you, Steve. In closing and on Slide 15, I would like to leave you with three key takeaways. First, nine months into Revival, the operational changes we have implemented are delivering measurable results. Those improvements are increasingly evident in our operating and financial performance and reinforce the positive trajectory of the business. Second, our growth outlook has improved. The VWR team is executing extremely well, and the investments and strategic initiatives taken over the past year are translating into growth. We also expect BMP will return to growth in the second half, underpinned by a strong order book, improving operations and more favorable comparisons. Third, we continue to generate strong free cash flow, enabling us to invest in the business while supporting our commitment to reduce debt and strengthen our balance sheet. Let me thank our Avantor associates around the world for their dedication to serving our customers. Thank you for embracing Revival and our new ways of working. I am very pleased with the progress we've made together this year. And finally, I am excited to share an important announcement. We plan to host our Investor Day on Tuesday, December 8, in New York City. We're looking forward to sharing a comprehensive overview of our business, strategy and financial objectives, while providing an opportunity for investors to engage more broadly with our leadership team. Operator, we are happy to take questions.
Questions and answers
Operator instructions. And your first question comes from Eve Burstein.
Let's start with VWR. So you said that the growth there was driven primarily by actions that you took to strengthen the franchise. How do you assess whether it really was your actions versus broader market recovery and improvement? And your guidance raise was attributed to improved expectations for VWR in the year. Is that due to expectations for broader market recovery? Or is it due to the actions you've been able to take?
Eve, thank you for your question. Indeed, we evaluated this carefully. Let me start by saying we are very pleased with VWR's performance and the very strong execution by the team. More than half of the growth that we delivered in Q2 comes from deliberate actions that we're taking. Maybe let me share a few things, splitting the market into large global customer accounts and midsized and smaller customers. For the large global customer accounts, in the past, we talked about some headwinds that we had in contract renewals. We have begun to lap those headwinds from history. That's point number one. Point number two, we also shared that over the past year we have won many large contracts. Each time we did that, we negotiated opportunities. The team has worked very hard to convert those opportunities into growth. The team is actually gaining share of wallet inside those large accounts. It's working well. We are a bit advanced relative to where we thought we would be, and this is sustainable. The second thing is on mid and small customers. E-commerce is really the highlight of Q2 for us. It's part of Revival and part of the go-to-market. It is working. We've relaunched vwr.com, and customers have reacted very well. We see really positive momentum in that segment as well. The remainder of the growth, of course, is coming from better pharma and biotech end markets, primarily in the U.S. So it's a broad-based momentum that we see. The team is completely focused on customers, focused on execution, finding the opportunity, grabbing those opportunities, turning those opportunities into growth, and this is why we're confident that VWR's growth will accelerate in H2.
Great. That's really helpful. Maybe just to clarify one of your points in follow-up. So obviously, you've talked quite a lot about the recontracting with those large global customers and how you're mostly done with that process, and so we'll start to see more of the underlying strength of the business as we move past that. If you had to quantify how much of a headwind has that been to overall growth? And so even without an underlying improvement in the market, or in other elements of your execution, how much of a tailwind are you now going to start seeing from moving past those pricing actions and just growing with a lower base?
Yes. I think, Eve, this is a very good question. We quantified it as more than half. We don't go into customers-by-customer detail as a matter of practice.
Your next question comes from the line of Kallum Titchmarsh with Morgan Stanley.
Maybe just following up on the previous one. But on the channel specifically, good to see the organic growth coming through, but those growth rates are still below peers. So maybe just help us to better understand the market share dynamics you're seeing there? And any KPIs you could perhaps give us to show that that's shifting back in your favor?
Sure. We have many KPIs that we are looking at. We are tracking the number of new accounts, activity on the e-commerce platform such as clicks, number of baskets, conversion rates, and we measure many of these things on a daily basis. Here's what we're doing to regain market share. We've relaunched the VWR brand and vwr.com. We've made significant upgrades to the platform and we're not done. We have a whole program in place and we are continuing to invest. We have a robust funnel review process that drives customer focus by region and by segment. When we renew a contract, we assess the opportunities and how those opportunities are being converted. We recently implemented stronger pricing tools and a more robust pricing review on a monthly basis that the executive team participates in. Corey is leading this initiative with his team. We also work closely with our suppliers and partners. This is all part of the Revival go-to-market program. We are very pleased that VWR is back to growth at 1.7% year-over-year and we are committed to continuing to grow and accelerate this performance. The majority of the growth is coming from actions the team is implementing, and we expect it to accelerate in H2.
This is Steve. I'd like to add a little bit to what Emmanuel said and highlight that while the 1.7% growth is not yet at broader market levels, we moved from negative 4.8% in 1Q to positive 1.7% in 2Q, and we expect that growth rate to continue to accelerate in the second half. Part of that is the sustainable improvements we've made and part of it is the comparisons from last year. So it's a nice development in the growth rate.
Totally understood. And then, Emmanuel, nearly a year now since you took over here. So maybe just as we think about the kind of areas for investment you identified in 2026 with Revival, as we've worked our way through the year, how comfortable are you that those commitments are sufficient to address the issues you had, as we think about potential costs remaining elevated into 2027?
That's a good question, Kallum. Revival is constantly evolving. When we arrived, we did thorough listening to the market, suppliers and our associates. We identified priorities and have been executing. Mary in supply chain has led investments, and we've brought more talent into the organization, including a new digital leader who joined from Medline. All initiatives are reviewed on a monthly basis. Ludovic Brellier, who joined as Head of BMP segments and transformation leader, has a clear operating plan for Revival programs. We take projects one by one, deliver them, then move to the next. There's still a lot to do. For example, we recently completed the onboarding redesign, which reduced steps and time, and then we moved on. We will continue to invest. Our approach is to simplify, save and then reinvest for growth. That is the formula we are applying.
Your next question comes from the line of Dan Brennan with TD Cowen.
I thought I would just, if you don't mind, go back to VWR distribution and the investments that you made there to kind of stabilize the business. I know there was a question asked earlier. Could you just remind us, in the back half of the year, is that fully baked in because it looks like it might have been like a three-point benefit in Q2? Just wondering what's baked in for the back half of the year on that investment.
The majority of the investment in VWR is on the e-commerce platform and the relaunch of vwr.com, and we will continue to invest. All our investments are baked into our guidance today.
Okay. Maybe zooming out on the BMP segment then for a moment. Book-to-bill has been above 1x in the last couple of quarters. Obviously, growth has been challenged, but you have idiosyncratic factors. Can you speak a little bit about the backlog there, how much of that business is backlog driven, how we translate that strong book-to-bill into the outlook in the back half and then in '27? And any specific color on NuSil, which I know you have market leadership in? Just wondering volumes and pricing on NuSil and what the outlook is on that front.
Sure. BMP spans a diverse set of end markets including electronic materials, NuSil, Medtech and bioprocessing with process chemicals. Overall, we are pleased with the go-to-market activity in BMP. We had double-digit order intake and a book-to-bill above 1x in the first half, which we find encouraging. Subsegments are seeing growth across BMP. The market is solid for these subsegments. We have discrete factors that create comparison headwinds, but the team is focused on converting opportunities into orders and the supply chain team is working to supply customers. This is working well. Regarding NuSil, it's performing well with good order intake and modest price improvement but nothing extreme. We are seeing good volumes and activity not only in implants but in new markets like aerospace. We'll provide more detail at Investor Day.
Your next question comes from the line of Vijay Kumar with Evercore ISI.
This is Mackenzie on for Vijay. First one from us. I was wondering if you could talk a little bit more about the guide cadence in the second half? Specifically, you've talked a few times about expecting VWR to accelerate. Could you give us any color on the size of the ramp or some of the levers to the upside or downside? And how we might think about exit rates in the fourth quarter?
Sure, Mackenzie. Welcome to the call. I'll pass it to Steve.
Thanks, Emmanuel, and good morning, Mackenzie. I'll step you through our assumptions around the updated full year guidance. Starting with the top line, the update is driven by the flow-through of VWR's outperformance in Q2 and our raised expectations for that business in the second half. BMP's outlook is generally unchanged and continues to perform in line with our plan. We reaffirmed our adjusted EBITDA margin guidance for the full year despite continued inflationary pressure, for example, freight costs which remain significant for both segments. A couple of other items: we expect FX to be a headwind in the second half, we have slightly lower assumptions for share count and interest expense. Putting this together drives the updated adjusted EPS guidance of $0.80 to $0.83 for the full year.
Great. That's super helpful. And then a follow-up on end markets. Advanced tech was pretty strong, and education and government also grew off of a slightly tougher comp, whereas biopharma and healthcare declined a little bit. Can you talk about the puts and takes here? What drove these end markets and how we should think about them into the second half?
Generally speaking, for VWR we see more pharma and biotech activity, especially in the U.S. Other markets are more stable at levels we expected; education and Europe are stable but a bit low. For BMP, the set of markets is healthy which is reflected in our order book, particularly process chemicals which had double-digit order growth in the quarter.
Your next question comes from the line of Matt Larew with William Blair.
Emmanuel, over the last year, a number of initiatives you've laid out within Revival have moved from evaluation to execution. By the time we get to the December Investor Day, do you feel like it'll largely be set in terms of management team changes and the implementation of the big items you identified last year? And as part of that, the portfolio review — is that something you expect to be complete by the Investor Day as well?
Thanks, Matt. We're working hard on all Revival pillars, and the portfolio work is ongoing. We are assessing every business, product line and market position to decide where we are the best owners. We hope to give you an update at Investor Day. Revival is a continuous improvement program and culture, so while we'll make substantial progress by December, we'll continue to evolve and improve beyond that day. We'll provide more updates on the portfolio at Investor Day.
Okay, that's great. And the discrete headwinds in BMP referenced roughly 600 basis points in Q2 and about 150 in Q3. What is that in the fourth quarter? I assume that's largely behind us for next year and thus sets up a path to return to durable growth in BMP.
Matt, happy to comment. Q2 was the most challenging quarter. We expect a roughly 150 basis point headwind in Q3 as noted. For Q4, the comparison will be more difficult due to our Electronic Materials business — about a 400 basis point headwind. Despite these comparisons, the sequential performance of the business shows consistent improvement across the year. We expect gradual strengthening in volumes driven by operational improvements and a strong order book. The profile within 2026 is gradual improvement, which gives us confidence in building momentum.
Maybe I'll add that regarding 2027, while it's early to give guidance, both VWR and BMP teams are executing well and we've embraced Revival and the new ways of working. We will exit 2026 with momentum. We won't be completely done with initiatives, but we will exit the year in a stronger position. My confidence in 2027 as a growth year is increasing every day and I am optimistic that 2027 will be a growth year.
Your next question comes from the line of Casey Woodring with JPMorgan.
Yes, I wanted to push on the margin piece. You reiterated adjusted EBITDA margins for the year. Can you talk about gross margin expectations for the back half? I know you have easier comps in VWR given last year's reset, but you talked about inflationary pressure ramping. Could you quantify that and walk through the moving pieces and levers you can pull, whether that's productivity, pricing or elsewhere on gross margins?
Casey, consolidated gross margin was essentially flat from Q1 to Q2 and we expect that rate to remain steady through the end of the year. While stability is positive, we are pursuing margin expansion. Our priorities include driving volume, managing inflationary pressures constructively with customers and suppliers, improving product mix toward higher-margin sales, and leveraging digital investment to connect with smaller customers who tend to be higher margin. These are the main levers: volume, pricing negotiations, mix and productivity improvements driven by operational initiatives.
That's helpful. How are you balancing investment into the business versus margin expansion for next year? And can you grow EPS next year?
Our philosophy is simplify, save and reinvest for growth. We are focused on driving a leveraged P&L. Headcount has declined roughly 3% this year, and we continue to look for opportunities to simplify and redeploy resources toward growth initiatives while maintaining cost discipline. That approach should support margin improvement and EPS growth over time.
Your next question comes from the line of Michael Ryskin with Bank of America.
I want to follow up on BMP pacing through the rest of the year. You talked about Q3 improving a little and Q4 being more difficult on comps. Is it fair to think that Q4 BMP should be roughly flat organic or maybe down a little bit? And when you talk about exit rates and going into next year, if we look at Q4 for both VWR and BMP, from a sequential perspective, is that the right jumping-off point for 2027 as we model next year?
Michael, for BMP we expect modest organic growth in Q3. Organic growth in Q4 will be more muted due to the more difficult comparisons I described. Sequentially on a reported basis, BMP should be roughly flat in Q3 with a modest uptick in Q4. Using Q4 sequential trends as a starting point for modeling 2027 makes sense in terms of exit momentum, though we will provide more clarity as we approach next year.
Okay. Going back to the earlier comment on end markets, it looks like the biggest step-up in Q2 relative to Q1 was advanced technologies. Can you go deeper into where in advanced technologies you saw the increase, by customer type or product you sell? Was it more on equipment or consumables? Any lumpiness there and what drove that uptake?
On VWR, a meaningful portion of the uplift came from large global customers where we've won and implemented contracts; it's a mix of equipment and consumables depending on the customer's investments. The U.S. and the Americas are driving much of the increase. For smaller customers through e-commerce, the uplift is primarily consumables. So it's broad-based: large-account spending is a mix and e-commerce is largely consumables across many applications.
Your next question comes from the line of Paul Knight with KeyBanc.
Emmanuel, now that you've been in charge for a while, what's your view on self-manufacturing? Do you want to increase the level of self-manufacturing? Or do you think expanding vendor relationships is the way to go, being a noncompetitor? What's your view on self-manufacturing at this time?
Great question, Paul. We see opportunities in self-manufacturing and it's a valuable service we provide. For VWR, being product-agnostic and offering the broadest catalog is a key differentiator and valuable to customers. We maintain strong supplier relationships and also provide VWR-branded products. Self-manufacturing is an internal capability and service we provide as an OEM; it's growing and allows us to offer high-quality products to customers. So a mix of both strategies — strong supplier partnerships plus selective self-manufacturing — is the right approach for us.
And regarding BMP, you had a great build-out over the years. What's the next step for BMP in your view?
For BMP, the next steps are to continue driving operational excellence, fully implementing the S&OP process for better demand and supply visibility, reducing lead times, improving on-time delivery and ensuring we serve customers effectively. In process chemicals in particular, we've seen strong commercial and supply chain execution. We've increased throughput by more than 25% at a major site through Revival initiatives. Improving service levels and quality remain priorities, and we'll continue to invest in these areas.
And ladies and gentlemen, that does conclude our question-and-answer session. I would now like to turn the conference back over to Emmanuel for closing comments.
Thank you, Krista. Let me conclude the call with a reminder of the key takeaways for Q2. First, Revival is working and the team is committed to continue to improve. Second, our growth trajectory is improving. Third, we continue to generate excellent free cash flow. Thank you for joining the call, and have a great day.
And ladies and gentlemen, that does conclude today's conference call. Thank you for your participation, and you may now disconnect.