Prepared remarks
Welcome to the Waters Corporation Second Quarter 2026 Financial Results Conference Call. Operator instructions were provided. This call is being recorded. If anyone has objections, please disconnect at this time. It is now my pleasure to turn the call over to Mr. Caspar Tudor, Head of Investor Relations. Please go ahead, sir.
Thank you, Leila, and good morning, everyone. Welcome to Waters Corporation's Second Quarter Earnings Call. Joining me today are Dr. Udit Batra, our President and Chief Executive Officer; and Amol Chaubal, our Senior Vice President and Chief Financial Officer. Before we begin, I will cover the cautionary language. In this conference call, we will make various forward-looking statements regarding future events or future financial performance of the company, including the financial and operational impact of Waters Biosciences and Diagnostic Solutions businesses acquired from Becton, Dickinson & Company, or BD. We'll provide guidance regarding possible future results and commentary on potential market and business conditions that may impact Waters Corporation over the third quarter of 2026 and full year 2026. These statements are only our present expectations and are subject to risks and uncertainties. Please see the risk factors included within our Form 10-K, our Form 10-Qs, our other SEC filings and the cautionary language included in this morning's earnings release. During today's call, we will refer to certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are attached to our earnings release and in the appendix of the slide presentation accompanying today's call. Unless stated otherwise, all organic revenue growth rates are presented on a constant currency basis and are in comparison to the second quarter of 2025. For acquired business revenue, unless stated otherwise, all growth rates are presented on an as-reported basis, covering the current period in comparison to the revenue as reported by BD for the prior year comparable period that predates Waters ownership. Finally, we do not intend to update our guidance, predictions or projections, except as part of a regularly scheduled earnings release or as otherwise required by law. On today's call, Udit will begin with our key messages and business highlights. Amol will then review our financial results and updated guidance. After that, we will open up the lines for questions. I will now turn the call over to Udit.
Thank you, Caspar, and good morning, everyone. We delivered an excellent second quarter, executing ahead of guidance across all 4 divisions as a powerful new era of growth extends across Waters. We sustained industry-leading results at our legacy businesses, fueled by strong commercial performance and pioneering innovation in our product portfolio. While recovery in our end markets broadened into previously lagging customer segments, and further augmented our growth. We built outstanding momentum in our newly acquired businesses in their first full quarter under Waters' leadership, driving an acceleration to mid-single-digit growth as the controlled actions from a 180-day plan have quickly taken hold and are already reshaping their trajectory. We also took further decisive steps towards building our new platform for sustained long-term growth, executing flawlessly on our revenue synergies and cost actions as we enter our next phase of growth. Over the last few months, I visited many sites and many customers. Our teams are executing with rigor and speed and advancing our value creation road map faster than we expected. I want to thank them for their dedication before we turn to the results. In the second quarter, total company as reported revenue was USD 1.645 billion, comprising of $828 million of organic revenue and $817 million of Waters Bioscience and Diagnostic Solutions. Organic revenue grew 7% as reported and 9% in constant currency, exceeding the high end of our currency guidance range by approximately 100 basis points, with orders again outpacing sales. Underlying growth was double digits as this performance absorbed a 1% headwind from pull forward in last year's second quarter. Bioscience and Diagnostic Solutions revenue also exceeded our guidance. Revenue outpaced guidance by $15 million and grew 4% on a reported basis versus the prior year comparable period. With these businesses under our leadership for the entirety of the quarter, we achieved a 400 basis point improvement in reported growth versus last quarter's flat full quarter growth rate. Our strong momentum and disciplined cost management offset adverse foreign exchange translation as the U.S. dollar strengthened since our last call. Adjusted EPS grew 3% to $3.05, landing at the high end of our guidance range. Let me now cover these drivers of strength in more detail. Beginning with the Analytical Sciences division, growth was 7% as reported and 9% in constant currency, with instruments up 8%, chemistry up 10% and service up 9%. We grew double digits in both our pharma and academic and government end markets for the second consecutive quarter, driven by improving market conditions, strong commercial execution and the merits of new product innovation in our industry-leading portfolio. Thanks to continued cross-divisional collaboration, we placed approximately $10 million of mass spec instruments into pharma DMPK settings in the quarter as early revenue synergies continued to build. In Analytical Sciences, we have continued to build our innovation leadership position with a number of new product launches in recent months. At ASMS, we launched 2 new high-resolution mass spec products, the Cyclic IMS P20 and the Xevo MRT P10. Both deliver step change improvements in sensitivity as the Cyclic IMS P20 raises the bar in structural and spatial omics, while the Xevo MRT P10 not only sets a new standard for speed and throughput in multi-omics, but does so in a highly efficient benchtop format, which is unique in high-resolution mass spec. In Bioseparations, we launched our BioResolve Peptide and GTxResolve Lipid columns. Both delivered industry-first particle optimization, reliably separating structurally and chemically similar impurities in GLP-1 peptides, insulin and nanoparticles with twice the resolving power and sensitivity of competing products. The Biosciences division grew 3% as reported, improving 400 basis points from the 1% full quarter decline in the first quarter. Excluding China, which represented a 2% headwind to growth, the division grew 5%. The growth acceleration was primarily driven by Flow Clinical, which grew 8% on a reported basis, improving versus both the 7% partial growth rate and flat full quarter growth rate in the first quarter. Performance was led by mid-teens growth outside of China, reflecting sharpened execution, greater commercial activity from new KPIs and early benefits of our incremental pricing initiatives. In Flow Research, reagents returned to positive growth in the quarter, reflecting an improvement in customer activity levels. At the divisional level, Advanced Diagnostics grew 7% on a reported basis, even with China remaining a notable drag on growth due to ongoing DRG headwinds. Within the division, the acquired Diagnostic Solutions business grew 5% as reported, accelerating versus the 1% full quarter growth rate in Q1. Excluding China, growth was 7%. In Microbiology, we grew mid-single digits as we drove relentless focus on execution, improved utilization of BACTEC bottles and began to enact list price increases across the portfolio. In Molecular Diagnostics and Point of Care, we grew high single digits, driven by strong placements in Molecular diagnostics related to HPV testing on BD COR. Also within the division, the organic clinical business unit grew 15% as reported and 14% in constant currency, led by double-digit strength in the Americas and Europe. We recently launched the Xevo TQ Absolute XR IVD mass spec, the industry's most sensitive and robust clinical IVD system. It delivers 5x greater sensitivity and a sixfold increase in robustness for critical applications, including women's health, cancer assessment and toxicology, further expanding our technological advantage in the IVD market. The Materials Science division returned to high single-digit growth in constant currency. Strength was driven by electronics research testing, semiconductor and data center applications, together with advanced materials testing in aerospace and defense applications. Our leadership in battery safety testing was recently expanded with the launch of our Coin Cell Differential Scanning Calorimeter, which represents a significant advancement in battery thermal analysis, simultaneously capturing thermal, evolved gas and electrochemical data. Our organic growth results reflect a successful strategy that has played out over the past several years across commercial execution, new product innovation and entering faster-growing adjacencies. Having delivered in each of these areas, we have achieved our promise of high single-digit growth over the past 7 quarters. This is the long-term trajectory our strategy was built to deliver and legacy Waters is now structurally a durable high single-digit growth business. So far, in 2026, our organic business has accelerated further, marked by 10% constant currency growth for the first half of the year. These industry-leading results reflect outstanding growth momentum now amplified as our end markets have continued to strengthen and early cross-selling revenue synergies have continued to build. Looking within Analytical Sciences, the breadth of this performance is clear. In Pharma, we've grown double digits this year, driven by robust CapEx spending trends across large pharma, contract organizations and generics. This has been augmented by our idiosyncratic growth drivers tied to GLP-1 testing, India and biologics, which includes bioseparations and bioanalytical characterization. Notably, though, U.S. biotech and CROs have improved over the past 2 quarters, adding a new layer of demand to the recovery. At the same time, we have seen a strong recovery from our pharma customers in China with double-digit growth in the first half of the year, accelerating versus last year's 6% growth rate and making China now accretive to our growth again. This reflects excellent commercial execution alongside a resurgence in biotech, CDMOs and CRO activity as Chinese companies buoyed by the commercial success of their research and out-licensing model, attract investment and reinvest into R&D. Beyond the near-term recovery, this points to a broader structural tailwind. As Chinese discovery output continues to scale and the out-licensing model matures, we are well indexed to the theme since molecules developed on Waters platforms transfer cleanly into Western development and regulatory pathways. In our non-pharma end markets, we have seen growth rate acceleration led by double-digit growth in academic and government. Performance was broad-based across geographies, including a return to positive growth in the Americas in the second quarter. In Industrial, which grew low single digits in the Analytical Sciences division, PFAS has remained a source of strength and has grown double digits this year. Our growth is led by food analysis, which has now surpassed environmental analysis as our largest PFAS application for the first time. The broad strength of our customers bodes well for the instrument replacement cycle, where we remain firmly in the middle innings with a significant runway still ahead. Despite recent strong growth trends, our instrument revenue has grown only 2.5% on an organic constant currency CAGR basis versus 2019, well below the 5% long-term historical growth rate from 2009 to 2019. This gap reflects the multiphase recovery that has emerged since the middle of 2024, which has elongated the replacement cycle beyond what has historically been a 2- to 3-year typical duration. Beyond the replacement cycle, pharma reshoring also represents an increasingly well-defined incremental growth opportunity for Waters in the years ahead. We've been tracking 76 expansion sites linked to U.S. pharma investment announcements. Roughly half are now under active construction, representing approximately $100 billion in CapEx spend, confirming that at least a portion of these commitments are beginning to translate into real capital deployment on the ground. Weighing the focus, modality and analytical intensity of each site, we expect instrument outfitting to drive a revenue tailwind for our Analytical Sciences division over the next 3 to 5 years. As sites move from construction to equipping, we are well positioned to capture a disproportionate share of the resulting demand given that approximately 70% of the tracked sites are linked to customer accounts where Waters holds a high market share. We are already seeing funnel activity tied to a number of these sites. In our acquired businesses, we have continued to drive positive impact from our 180-day growth revitalization plan with each of our 3 near-term rapid execution initiatives already contributing to our results. Our first priority, driving urgency, accountability and transparency, the commercial discipline and KPI focus we quickly established at the close of the transaction is now embedded and compounding across the acquired businesses. As a result, funnel conversion rates are rising, field activity has stepped up materially and the outbound momentum we built in Q1 has progressed further through the second quarter. On our second priority, pricing excellence and contract compliance, we have made fast moves to embed the same discipline at Biosciences and Diagnostic Solutions that we established at legacy Waters. We have hired dedicated pricing directors for each division, structured our 2026 and 2027 pricing actions to drive incremental price realization and have already enacted list price increases across parts of the acquired portfolio, achieving 90 basis points of net price realization in the second quarter alone. We are well on our way towards our goal of achieving 150 basis points of price contribution in the acquired businesses. On reagent rental compliance, a review of global Diagnostic Solutions contracts remains active. Remediation efforts are underway across the approximately 700 U.S. contracts already identified as out of compliance. To supplement this effort, we have brought in a dedicated operational leader with deep industry experience who has managed similar programs before. On our third priority, regaining share in Flow Research, we have made meaningful progress across several fronts. In China, we have significantly improved the speed and efficiency of export license approvals, generating twice the number of license approvals in the second quarter versus the first full quarter and helping to reverse the share loss dynamics that constrained prior performance. The results have been tangible. China Flow Research, which declined 30% in the full first quarter, improved to mid-single-digit decline in the second quarter, a swing of approximately 25 percentage points. Meanwhile, our localized manufacturing program for flow instruments is well underway and expected to begin contributing to growth in the fourth quarter. With a successful transformation behind him, Ching Lee, our General Manager for the ASD's China business has now taken on the added responsibility of revitalizing growth for Biosciences in China. Ching and his team are moving decisively to implement new commercial rigor and accountability while sharpening our focus on the pharma market given the resurgence in Chinese biotech, CDMO and CRO activity. Across our geographies, we also have an attractive share recapture and instrument replacement opportunity in flow cytometry with the FACSDiscover A7 Cell Analyzer, which we unveiled at CYTO and is set to launch on September 15. The A7 fills a key gap in our portfolio while setting a new benchmark in spectral flow cytometry, bringing IVD level standardization and reproducibility to a spectral analyzer for the first time. Leveraging automation and cell calibration, it also enables workflows to easily transition between instruments and users representing meaningful innovation for our customers. In Advanced Diagnostics, BACTEC FXI, our next-generation blood culture system, recently received FDA 510(k) clearance, enabling U.S. commercialization as we scale the launch globally in microbiology. With placements now beginning in Japan and Europe, we are excited about the instrument replacement potential that BACTEC FXI holds, particularly given the early customer feedback we've received. BACTEC FXI is a groundbreaking system. It detects bloodstream infections up to 3 hours faster than competing systems, offers 2x to 3x the input capacity and provides customers with meaningful productivity advantages and labor cost savings. It leads across each of the critical attributes that matter to our customers and is now the flagship product of the industry. Depending on daily volume, customers can expect up to 10 days of annualized time savings versus the prior generation systems. We are already seeing benefits in practice as one of our early adopter sites in Japan reported an 80% reduction in hands-on time after switching to FXI. With these notable new advantages, the funnel is building and the commercial opportunity ahead is substantial. With over 12,000 aged BACTEC systems past due for replacement, we have a large, well-defined installed base that we intend to convert. Much like how Alliance iS has driven durable replacement revenue in HPLC, we expect BACTEC FXI to be a multiyear growth engine in microbiology. Beyond our near-term execution, we're also making early strides into high-growth adjacency in biosciences that we believe will become increasingly important over time. As AI models grow more capable of designing new antibodies, proteins and genetic constructs, the limiting factor is shifting from computation to biology. Generating large-scale immune and disease data sets, these models depend on and require physical biology testing. Flow cytometry is well positioned as an enabling hardware layer given its unique ability to capture high parameter single cell resolution at real-time clinical scale. Our recently announced strategic partnership with IMU Biosciences is an early proof point of our important role supporting next-generation immune profiling and AI-enabled precision medicine in clinical diagnostic applications. IMU has raised over $50 million to date as it accelerates its work to decode the immune system and transform how we understand, diagnose and treat disease. Together, we're scaling a precision immunology platform for population-wide immune mapping and disease characterization in what is expected to become the world's largest immune data set. Turning now to our cost actions and updated guidance. We have completed our planned cost actions for 2026 as our teams flawlessly implemented our restructuring plan with speed and discipline. In operations, we've unlocked spend control, driven by early direct procurement savings, restructured field operations and service and begun optimizing manufacturing and supply chain costs. Across functions, we've made significant progress on cost efficiency by optimizing spans and layers, eliminating redundancy and achieving a leaner centralized cost structure. These actions also carry an important strategic dimension beyond the cost benefit. They sharpen the structure of acquired businesses, reduce bureaucracy and accelerate information flow. They also support the direction of accountability and commercial focus that will make them structurally stronger over time. Together, these actions reflect $75 million in cumulative cost savings expected in 2026 supporting solid margin progression in the second half of the year. They also represent approximately $200 million of expected run rate savings, placing us ahead of schedule that we had already laid out. They put us in a strong position to hit our margin expansion goals and drive mid-teens adjusted EPS growth over the next several years. To close, let me frame our 2026 guidance and give an update on our value creation road map. With momentum building across our portfolio and end markets, we are raising every component of our full year 2026 guidance, which Amol will detail shortly. Our growth strategy has delivered and legacy Waters is now a sustainable high single-digit grower. For the acquired businesses, we are running ahead of our goals for the first half of the year and are positioned for growth acceleration in the second half of the year. The 180-day plan has progressed rapidly. Revenue synergies are already contributing to our results, and we are launching category-defining new products. This positions us to build further momentum in the second half where cross-selling synergies are joined by instrument replacement, service plan attachment and digital channel adoption. In total, we remain well on track to deliver $50 million of revenue synergies this year. In Biosciences, we will benefit from China localization and new commercial leadership in the second half, positioning us well with the local biotech and CDMO community and driving faster growth while the launch of FACSDiscover A7 coincides nicely with the strengthening biotech and academic end market in the U.S. In Advanced Diagnostics, we delivered high single-digit growth despite a 2% China DRG headwind that rolls into the baseline in the fourth quarter. With BACTEC FXI and Onclarity HPV at-home testing solution now launching, the setup for the second half is excellent. As end market conditions continue to strengthen and our growth strategy compounds, Waters is better positioned today than at any point in recent history with a broad portfolio, a larger installed base and the cleanest set of growth catalysts we've ever had. With that, I will now turn the call over to Amol to cover our financial results and guidance in more detail.
Thank you, Udit, and good morning, everyone. In the second quarter of 2026, we delivered total company as reported revenue of $1.645 billion. Organic revenue was $828 million, growing 7% as reported and 9% in constant currency. Versus our guidance, constant currency sales were 100 basis points above the high end of the guidance range, while foreign exchange translation was 150 basis points adverse. Biosciences and Diagnostic Solutions generated $817 million of revenue, representing 4% reported growth versus the prior year comparable period, led by 6% growth outside of China. By geography, as reported revenue was $690 million in Americas, $505 million in Europe and $450 million in Asia. Total company adjusted gross margin came in line with our expectations at 54%, reflecting an anticipated sequential step down as our ownership of the acquired businesses normalized to a full quarter versus a partial quarter in the last period. Total company adjusted operating margin was also consistent with our expectations at 25%. Our tax rate was 15.6%, and net interest expense was $55 million with adjusted EPS of $3.05, landing at the high end of our guidance range. On a GAAP basis, we reported a diluted loss per share of $1.39, reflecting acquisition-related purchase accounting charges, including amortization of acquired intangibles and inventory step-up as is typical following a transaction of this scale. Free cash flow for the quarter was $202 million after approximately $21 million in severance payments, $27 million of integration cost payments and given timing of net cash settlement. At the end of June, the net cash settlement due to orders from BD was $157 million. Turning to our results by operating segments. The Analytical Sciences Division delivered as reported revenue of $669 million, up 7% as reported and 9% in constant currency. In constant currency, instruments grew 8%, chemistry grew 10% and service grew 9%. By end market, pharma grew 11%, while non-pharma grew 4% as academic and government grew 11% and industrial grew 1%. Within pharma, strength was driven by robust replacement activity, our idiosyncratic growth drivers and further traction in pharma DMPK clinical settings. We also saw further improvement in market conditions with stronger U.S. biotech and CRO spending, adding a new layer of demand to the recovery. Growth was led by the U.S., China and the rest of Asia, each up double digits or better. Within academic and government, strength was driven by mid-teens growth in Europe, double-digit growth in Asia and 6% growth in the Americas. Demand remains strong for our revitalized mass spectrometry portfolio in discovery applications, including for the Xevo MRT, which is seeing strong customer traction. We also saw an emerging growth contribution in A&G from semiconductor research. Within industrial, continued strength in food and environmental, led by double-digit growth in PFAS applications, was partially offset by softness in chemical analysis, where customer ordering pattern can be lumpy and more macro sensitive. The Biosciences Division delivered as reported revenue of $368 million, representing 3% reported growth versus the prior year comparable period and a 400 basis points acceleration in year-over-year growth versus the full first quarter trends. Flow Clinical grew 8% on strong commercial execution, pricing and improving end market conditions. Flow Research declined 2% with the trajectory improving through the quarter as the reagents returned to growth. In Flow Clinical, we grew mid-teens outside of China, while China declined 20% due to ongoing DRG constraints and lack of localized product portfolio, which we are in the process of addressing. In Flow Research, the return to positive growth for RUO reagents reflects an improvement in execution, pricing and underlying customer activity levels as market conditions continue to strengthen. Our initial wave of commercial actions tied to RUO share recovery also began to contribute such as improvement in China research instrument growth trends tied to export license approval volumes. The Advanced Diagnostics Division comprised the formal BD Diagnostic Solutions business and the Clinical Business Unit previously reported within Waters Division. Total as reported revenue for the division was $521 million, representing 7% reported growth versus prior year comparable period. Within the division, Diagnostic Solutions delivered $449 million of as reported revenue, representing 5% growth in the quarter and also a 400 basis points acceleration in growth versus full first quarter trend. The Clinical Business Unit delivered $72 million of revenue, up 15% as reported and 14% in constant currency. In microbiology, reported revenue was $319 million, reflecting 4% growth driven by improved commercial execution and incremental pricing actions. Growth outside of China was 6%, while China declined 13%, which was better than expected. In Molecular Diagnostics and Point of Care, reported revenue was $129 million, reflecting 9% growth in the quarter, driven by strong placements in HPV testing on our BD COR platform. In the Clinical Business Unit, growth was led by double-digit strength in the Americas and Europe, with early commercial collaboration across Advanced Diagnostics also beginning to contribute. The Material Sciences Division delivered as reported revenue of $87 million in the quarter, representing an increase of 6% as reported and 8% in constant currency as spending trends improved across a range of applications, including aerospace and defense and electronics testing for semiconductors and data center applications. Now I will share further commentary on our full year outlook and provide our third quarter guidance. Beginning with organic revenue, we have achieved excellent results so far in 2026 as our sustained growth trajectory is being augmented by additional customer segments now returning to growth. With this strong momentum, we are raising our full year 2026 organic constant currency revenue growth guidance to 7% to 9%. Foreign exchange translation is now expected to be a headwind of approximately 60 basis points, resulting in 2026 organic reported revenue of $3.37 billion to $3.431 billion. Turning to our acquired businesses. We now expect Biosciences and Diagnostic Solutions to deliver approximately $3.045 billion of reported revenue in 2026, raising our prior guidance by $10 million, which reflects an underlying improvement of $25 million, offset by $15 million of FX. Together, total 2026 reported revenue is expected to be approximately $6.415 billion to $6.476 billion based on latest FX rates. Our full year adjusted EBIT margin is expected to be 28.2% in 2026, consistent with our prior expectations as foreign exchange translation is offset by the $20 million of overachievement from our 2026 cost actions. Net interest expense is now expected to be approximately $190 million and our full year tax rate is now expected to be approximately 15.5%. Putting all this together, full year 2026 adjusted earnings per fully diluted share is now expected to be $14.45 to $14.65. This represents year-over-year growth of 10% to 12% and is 12% to 14% in constant currency. For the third quarter of 2026, we expect organic constant currency revenue growth to be in the range of 8% to 10%. Including the effect of currency translation, organic reported revenue is expected to be in the range of $850 million to $867 million. We expect revenue from Biosciences and Diagnostic Solutions to be approximately $895 million in the third quarter of 2026, in line with the typical sequential seasonality for these businesses. Together, this results in total reported third quarter 2026 revenue of $1.745 billion to $1.762 billion. Third quarter adjusted earnings per fully diluted share is expected to be in the range of $3.95 to $4.05, which is 16% to 19% growth. Turning to our implied guidance assumptions during the second half of the year. At the midpoint, our organic revenue guidance prudently calls for a 3.6% quarter-over-quarter step-up between the second and the third quarter, below the seasonality patterns we've seen over the last 2 years. Additionally, it prudently implies a 12.8% step-up in the fourth quarter, which is also below recent seasonal patterns. In the overall P&L, our cost actions are expected to yield a $25 million adjusted operating income benefit in the third quarter and a $50 million benefit in the fourth quarter for a combined positive estimated P&L impact of approximately $75 million, underwriting the solid margin progression in the second half guidance. With that, I will now hand it back to Caspar.
Thanks, Amol. That concludes our prepared remarks. We are now happy to open the lines and take your questions.
Questions and answers
Our first question will come from Vijay Kumar with Evercore ISI.
Congrats on a nice print here. Udit, maybe a first one for you on BD Life Sciences. It likely grew north of a 5% constant currency. This is well above deal model, right? We're like 5 months into the deal, we're doing north of 5%. This is despite China headwinds persisting before any contribution from new products like your BACTEC FXI and pricing actions. Like how should we think about BDLS in the medium term? Is this now like a north of 6% asset in your mind?
Vijay, thanks for the question, and good morning to you. Look, first just setting the context, I am ecstatic about the execution that we're seeing from our teams in Life Sciences and BD Biosciences and Diagnostics. It is A-plus. Waters is an execution machine, but I rate this as A-plus, really fantastic. Mid-single-digit growth for the acquired businesses already. As we move into the second half of 2026 and into 2027, enabled by leadership changes, strengthened execution, as you mentioned, across pricing, instrument replacement, digital commerce, we have a fantastic operating rhythm. For Bioscience, A7, FACSDiscover A7 is launching on September 15, in now a much improved biotech and academic funding environment. In China, we've localized our portfolio and we have the full flow cytometry portfolio available in Q4. So that should bring some nice growth there. For Diagnostic Solutions, FXI has launched well in Japan and in Europe and now available in the U.S. with the 510(k) approval, roughly 4,500 instruments in the U.S. alone waiting for replacement. And in China in Q4, the DRG headwinds will be in the baseline. So you put it all together, we expect to exit the year with 6% or better growth rate for the 2 businesses. And that sets us up really well entering into 2027. So could not be more pleased with the execution we are seeing.
That's helpful, Udit. And Amol, maybe one for you. Organic revenues were raised. Your cost action estimates were raised, but EPS increase of $0.05, that just reflects the second quarter beat being carried forward, right? Are we being conservative here on the EPS fall through? And can you just clarify if any tariff refund assumptions were baked into this EPS?
There's a couple of things there. Between the organic sales raise and the higher cost actions, we get about $0.30 of EPS, but then about $0.25 of EPS are eaten up by a stronger U.S. dollar. And that's why you see a $0.05 EPS raise for the full year. If you look at how the implied guide is for Q4 for the organic business, it is at about 4% constant currency growth. No doubt, we have about 3 fewer working days in Q4, which will translate to about a 1% to 1.5% headwind to growth. Given where the business trajectory is at this point, we're quite confident that the business is performing really well and will relatively stay there. So it's a prudent guide for Q4, and we see how it plays out in Q4 in that context. On the tariff refund side, as you know from last year, we were the first ones out of the gate to rapidly neutralize the impact of tariffs in our P&L. By early October, the P&L was neutralized. So when the tariff refunds would come, we would also have to go back on some of the surcharges we've charged customers. Net-net, it will be neutral.
Your next question will come from Evie Koslosky with Goldman Sachs.
So you mentioned you're starting to see pricing flow through in the BD business. Maybe walk us through how much of the guidance raise in the acquired business is related to pricing? And then how quickly we could ramp to the 150 basis points? And I guess, anything you're hearing from customers as you work through these implementations?
In Q2 we delivered 0.9% net price versus the traditional 0.5% that was embedded in our guide last time. So we've increased it to 0.9% for the remainder of the year. The goal and aspiration is still to get as quickly as possible to 150 basis points.
You will also remember we talked about the reagent rental compliance. We have about 700 accounts in the U.S. that we've profiled and segmented. We've hired an expert from outside who is actually used to renegotiating these contracts and getting benefit for the company. So we expect that to help not just improve pricing, but also accelerate the uptake of our new products in those customer segments. Very excited about what we're seeing on that front.
Okay. Great. And then I wanted to touch on some of your comments on reshoring. How much of this is incremental versus just kind of shifting geographies? And then should we expect this to be additive to your organic growth expectations or more of just kind of a shifting forward? And then anything you could provide in terms of timing of when you expect this to flow through?
First, on incremental growth: we've been growing 8% on average for the last 7 quarters in what's been an up and down market for many of our peers. So we don't need reshoring to add on, but it is incremental in the short to medium term. Over the long term, it's probably left pocket, right pocket as you look at the global picture. In the short term, by short term I mean 2027 to 2030. We have incredible visibility on customers who have broken ground. About half of the tracked 76 sites are under active construction, representing roughly $100 billion in CapEx. We feel we have a very strong position: roughly 70% of those customers are Waters accounts. So as they shift from one geography to the other, we expect to maintain our share or gain share. Overall, the reshoring benefit is a concrete opportunity from 2027 to 2030, and we are well placed to capture it. I won't quantify it now; you'll see that coming through over the next few quarters, but we are very happy with the visibility and the position we have there.
Your next question will come from Tycho Peterson with Jefferies.
Udit, I want to touch on some of the flow cytometry initiatives. Good to see the return of growth in Clinical. Just on the Research side, how much of the pressure do you think is just lingering headwinds on U.S. academic and government and biotech versus other factors? You mentioned the China initiatives, but I'm just curious about some of the other initiatives to turn around the Flow Research business?
On the flow reagent side, that grew this quarter, so low single digits. The headwinds are largely based on the instrument side and the bulk of it is from China. In fact, the U.S. saw growth on the instrument side in Bioscience and we are seeing benefits of an improving academic and biotech market in the U.S. For China, there are two independent variables: one, we have a broader flow cytometry portfolio available starting Q4 as we've localized our portfolio; and two, from an execution standpoint, we've appointed Ching Lee, who has driven outsized growth in China for the Analytical Sciences business, to lead Biosciences in China. We feel very good about the setup for Biosciences. As I said in my prepared remarks, we expect to exit this year in Bioscience north of 6%.
Just to add, S8 and A8 are doing well. The remaining gap will be addressed with the launch of A7, and that will take care of the ex-China remaining headwind.
On A7, this is in Waters' fairway. It's an instrument designed for high-volume use where you can transfer methods from one flow cytometer to another, one user to another. So we feel very good about the product.
That's helpful. And then a follow-up on the guidance. Maybe just a little bit more color. I mean you're raising BD by more than the beat, obviously. How much of that is bioscience versus microbiology versus molecular? And then on margins, you're maintaining the guide despite taking up cost synergies. I guess how should we think about the underlying margin trajectory? Really thinking about 2027 here is 100 basis points still on the table for next year.
On the BD raise, we are raising the underlying by about $25 million, partially offset by about $15 million due to a stronger U.S. dollar, so the net raise is about $10 million. The raise is relatively evenly spread between Flow and Diagnostic Solutions and even within Diagnostic Solutions spread between molecular and microbiology, with a little bit lopsided to clinical versus research on the Biosciences side. Regarding margin: the $20 million of additional cost actions brought about 30 basis points of better margin, but because of the currency mix, the stronger U.S. dollar took away that 30 basis points on margin, returning us to 28.2%. We're still ahead of our underwriting on margin relative to our long-term plan of improving margins by roughly 100 basis points per year.
Your next question will come from Subbu Nambi with Guggenheim.
Our checks suggest that you've already implemented a change in how discounting is managed at BD in general. We've heard that even in flow cytometry and to some extent in microbiology, where are you in the process of how BD manages discounting? How is this driving you towards your eventual pricing goals? Meaning is this still early innings? And then lastly, as you make these changes, is there a risk that as you potentially require more approvals to discount, you become less nimble relative to competitors? How do you manage that?
We've implemented the deal desk playbook from legacy Waters. From a bureaucracy standpoint, it actually reduces bureaucracy because everyone is clear on escalation. Sometimes approvals even come to my desk. The deal desk model is efficient and has been adopted by both divisions now. We have deal desks across every region and clear escalation protocols that allow us to manage discounting well. If anything, it's faster. In terms of pace, it's just the beginning. We've already seen 90 basis points in Q2 due to implementation of the deal desk and execution discipline, up from the historical 50 basis points. We're well on our way to getting to 150 basis points and you should expect faster approvals rather than slower.
Fantastic. And recently, you had a competitor come out and adjust their outlook for China microbiology. Can you give us your latest thoughts on how you see growth potential in that market? And the specific ways you expect to maintain your outlook in the region despite reform?
If you step back on China as a whole on the Diagnostics side, it's mostly microbiology for us. It came in better this quarter than we had predicted. It declined low teens as opposed to the 30% decline that was in some models. For the future, we've localized our FX portfolio, which should be available in Q4. We've made leadership changes and execution changes on the ground. With the availability of FX and FXI that is locally made and the leadership changes, we feel pretty good about China going forward and expect to maintain our outlook in the region despite reform.
Your next question will come from Puneet Souda with Leerink.
Congrats on a great print here. Good to see the BD acceleration here, Udit. The first one is actually on Waters, core instrumentation and GLP-1s. Pharma is clearly strong for you here. But just wanted to see how much contribution you saw from GLP-1s in the quarter? And how should we think about that trajectory going forward, both in the developed markets and in India as well? I recall this being a major contributor you had talked about at the prior Investor Day, so I wanted to get some color there.
GLP-1 testing grew over 40% this quarter. It was very broad-based across virtually every geography: Americas over 30%, Europe over 36%, India almost doubling the business itself. Also in China, one of the leading contract manufacturers supporting Eli Lilly's contract manufacturing uses platforms where we have meaningful share. There are no signs of slowing down. The pipeline is very good, and the funnel looks strong on both instruments and chemistry. GLP-1s are running well ahead of what we had previously modeled for their contribution.
Broadly, we've said the idiosyncratic growth drivers will add about 200 basis points. The GLP-1 contribution within that was about 30 basis points and GLP-1s are running well ahead of that.
Got it. Great. And then on the BD side, with the 180-day plan, it seems that that's run its course. You're seeing strong results across the BD enterprise. Which of the initiatives are more permanent run rate versus one-timers in the enterprise? How should we start to think about the annualized revenue contribution here in 2027? How should we think about 2027 with the BD raise here in 2026?
There will be ample time to talk about 2027, but broadly, these are systemic improvements. The first is commercial execution improvements on funnel management and pricing—those should be embedded. The second is pricing and reagent compliance: we are already at 90 basis points and working toward 150 basis points. Reagent rental compliance targets known delinquent customers and will be implemented over time. The third is China localization. Once we localize our portfolio in China, that's a gift that keeps giving. These are systemic improvements that will contribute going forward. Our revenue synergies this year are $50 million and include cross-selling, instrument replacement, digital commerce, service and pricing. Those synergies will augment the growth from the 180-day plan and set us up favorably as we enter 2027.
Your next question will come from Jack Meehan with Operon Research.
First question, I wanted to follow up on Tycho's second question more around the cost actions. So you've built in $75 million for 2026 with a $200 million run rate. Is that $50 million in Q4 a good starting point for thinking about what 2027 could look like? Or is there a different way we should think about the building blocks in the next year on the cost synergy side?
The $50 million in Q4 is largely in hand because we've already taken these cost actions. People have been communicated and they have their dates, so that already puts us at a $200 million run rate. That covers a big portion of the scope we outlined. As we continue to optimize, there are additional opportunities such as network consolidation and inventory management that will take time and produce outcomes over the years to come.
You may recall our benchmark from previous deals was about 7.5% of total cost base. The $200 million is roughly 4%. We have additional initiatives beyond the $200 million we've already delivered. It's too early to add that into 2027 guidance, but there is more opportunity and we'll discuss as it matures.
Great. And then, Amol, one just phasing question for you. When I look at the acquired revenue, you did $817 million this quarter. You're guiding to $895 million next quarter. How much of that is the historical seasonality of these BD businesses? They had a different fiscal year-end than Waters. So I'm wondering whether the seasonality should look similar in Waters' hands in terms of how the sales force is being incentivized?
Pretty much so. Our transformation is running ahead of plan and that could normalize some of that seasonality, but otherwise it's consistent with how the businesses have been performing over the last few years.
Your next question will come from Dan Leonard with RBC Capital Markets.
At risk of being a bit redundant here, I just want to talk a bit more about the sustainability of the improved trajectory in BD and reconcile some of the math. So Udit, I hear you that the exit is greater than 6% growth, but you have a negative 10% comp in Q4. And that $895 million Q3 guide, that does assume a deceleration in growth compared to your Q2 trend. So sort of similar to Jack, I'm not sure if there's a fiscal versus calendar dynamic, but just hoping you could reconcile some of that math.
There is some seasonality and timing. Specifically, last year there was about $20 million of trade inventory build in Q3 that unwound in Q4, which created about a 3% headwind in Q3 and a 3% tailwind in Q4. We do not plan to replicate that this year.
Q3 had a higher base and Q4 had a lower base. The better way to think about it is the second half of the year: we're accelerating from the first half to the second half. The quarterization in a newly acquired business is difficult to predict, as I've seen in prior large acquisitions. We feel very good about the momentum in the business, and the 6% exit rate gives you a solid starting point as we enter 2027.
Also, ex-China the two businesses are already growing about 6% and China starts coming back into the baseline in Q4.
Understood. And then as a follow-up, I was hoping you could share more of your early insight into the diagnostics replacement opportunity with the FXI. Would you compare it to the Alliance iS, but given that the markets are different between diagnostics and pharma, I was hoping to get some of your early learnings.
There are some similarities and differences. Similarity: it's a replacement business with a large installed base—over 12,000 BACTEC systems ripe for replacement, 4,500 in the U.S. Excellent uptake of FXI where launched and a differentiated product with a clear value proposition. The difference: it's a reagent rental model, which is an advantage because it allows us to address delinquent accounts and accelerate replacement with FXI while also adding recurring revenue. The reagent rental model presents opportunities for both remediation of past compliance and sustainable pricing. Like Alliance iS, this will be a multiyear replacement process driven by a differentiated product and a well-understood installed base.
This concludes the Q&A portion of the call. I will now hand it back to Caspar.
Thank you, Leila. This concludes our call. We look forward to connecting with many of you at upcoming events and conferences.