Waters (WAT) Q3 2025: Chemistry Up 13% as Bioseparations and Pharma Drive Multi-Year Growth
Waters delivered a standout Q3, propelled by double-digit chemistry and pharma growth, as innovation and execution outpaced sector peers. The company’s bioseparations and informatics portfolios, alongside robust demand in China and India, fueled record recurring revenue and set up a strong 2026. Prudent guidance and a pending BD integration signal further upside, but investors should watch for normalization in stimulus-driven markets and evolving regulatory tailwinds.
Summary
- Bioseparations Outperformance: New product launches and strong pharma demand drove chemistry revenue well above historical trends.
- Instrument Replacement Cycle Momentum: Waters’ instrument sales and backlog reflect a multi-year upgrade wave, with orders outpacing shipments.
- BD Integration Readiness: Integration planning with BD’s bioscience and diagnostic assets is on track, with near-term synergy capture prioritized.
Performance Analysis
Waters posted 8% constant currency sales growth in Q3, with recurring revenue up 9% and chemistry surging 13%, reflecting the company’s ability to capitalize on both instrument replacement and expansion in high-growth segments. Instrument sales rose 6%, led by high single-digit gains in LCMS (liquid chromatography-mass spectrometry) systems, while service revenue increased 7%. The standout was chemistry, which benefited from both price optimization and new bioseparation products, outpacing the typical 7% segment growth rate.
Pharma was the primary engine, growing 11% globally, driven by double-digit expansion in the Americas and Asia, and more than 20% growth in China. Industrial and academic segments contributed, but at a slower pace. Orders exceeded shipments, expanding backlog and underscoring robust demand visibility. Gross margin improved 70 basis points sequentially to 59%, aided by tariff normalization. Adjusted operating margin reached 30.3%, and free cash flow generation remained solid despite ongoing investment in innovation and transaction costs.
- Pharma and Chemistry Growth Surged: Double-digit performance in both segments reflects successful innovation and customer adoption of new products.
- Asia and China Outperformed Peers: China sales rose 12%, with strong execution in pharma and academic markets, bucking broader industry softness.
- Recurring Revenue Expansion: Service and chemistry growth highlight Waters’ increasing mix of predictable, high-margin revenue streams.
The quarter’s results reinforce Waters’ strategic pivot toward high-growth, innovation-driven opportunities, with chemistry and informatics now major contributors to both top-line and margin expansion.
Executive Commentary
"We are pleased to report another excellent quarter with top and bottom line results exceeding the high end of our guidance. This performance reflects the combined positive impact of innovation and execution, along with clear benefits from our strategic expansion into high growth areas."
Dr. Udit Bhattra, President and Chief Executive Officer
"Momentum remains strong, with as reported sales increasing 4% quarter over quarter, while orders continue to outpace shipments, leading to backlog growth. Our strong chemistry performance was driven by price optimization and volume growth in small and large molecule applications and new product introductions, which more than offset the pull forward dynamics from the second quarter."
Amol Charbel, Senior Vice President and Chief Financial Officer
Strategic Positioning
1. Bioseparations and Chemistry Innovation
Waters’ deliberate focus on unmet needs in bioseparations and large molecule workflows is yielding outsize returns. New product launches—such as SEC (size exclusion chromatography) and affinity columns—drove chemistry up 13%, with bioseparations alone growing over 20%. The MaxPeak Premier platform, launched five years ago, remains the industry benchmark, and continued innovation is expanding the addressable market in both pre- and post-clinical applications.
2. Instrument Replacement Cycle and Backlog Expansion
The multi-year instrument replacement cycle is in full swing, with instrument sales up 6% YoY and orders exceeding shipments for a second consecutive quarter. Waters is benefiting from both replacement and capacity expansion, particularly in pharma and CDMO (contract development and manufacturing organization) customers. Management sees “meaningful runway ahead,” with the replacement cycle tracking below long-term averages, suggesting further upside.
3. Informatics Transition to Subscription
Waters’ Empower software, the dominant compliant informatics platform in pharma QA/QC labs, is evolving toward a cloud-native, subscription-based model. The company is layering in AI and machine learning features, targeting reduced manual intervention and improved compliance. Early customer transitions indicate significant revenue accretion potential, with large pharma fleets representing material upside as adoption scales.
4. BD Biosciences and Diagnostics Integration
Waters’ pending acquisition of BD’s biosciences and diagnostics business is a catalyst for both near-term and long-term value creation. Integration planning is advanced, with 120+ leaders engaged in detailed synergy execution across business and functional workstreams. Immediate revenue synergies are expected from cross-selling, service plan attachment, and channel leverage, while product and operational synergies will accrue over time.
5. Regulatory and Policy Tailwinds
Recent FDA draft guidance for biosimilars elevates advanced analytical characterization as the primary approval gatekeeper, potentially accelerating demand for Waters’ LC-MS, multi-angle light scattering, and compliant informatics. Management sees this as a “significant volume growth opportunity” that could expand the company’s role in the global biologics market, though ramp timing remains uncertain.
Key Considerations
This quarter’s results highlight Waters’ ability to out-execute peers through targeted innovation, global commercial strength, and disciplined operational management. However, underlying market cyclicality and stimulus-driven demand in China and academia warrant careful monitoring.
Key Considerations:
- Chemistry Outperformance Is Innovation-Driven: New product launches in bioseparations and affinity columns are structurally raising segment growth rates.
- Instrument Replacement Cycle Still Early: Orders and backlog signal multi-year tailwind, but some customer segments (CROs, branded generics China) remain on the sidelines.
- Subscription Informatics Model Adds Recurring Revenue: Empower’s transition is in early innings, with large fleet transitions offering step-change upside.
- BD Integration Planning Is Advanced: Synergy capture is prioritized, with day-one readiness and cross-sell opportunities identified.
- China Growth Supported by Execution, Not Macro Alone: Waters’ localized portfolio and commercial actions enabled outperformance, but management models a return to mid-single digit growth longer-term.
Risks
Stimulus-driven demand in China and academia may normalize, creating air pockets as government funding wanes. Tariff volatility and regulatory unpredictability remain external risks, while integration of BD’s assets carries execution and synergy realization risk. Early-stage subscription informatics adoption could be slower than anticipated if large pharma customers delay fleet transitions or regulatory headwinds emerge.
Forward Outlook
For Q4 2025, Waters guided to:
- Constant currency sales growth of 5% to 7%
- Adjusted EPS of $4.45 to $4.55, up 9% to 11% YoY
For full-year 2025, management raised guidance:
- Constant currency sales growth of 6.7% to 7.3% (7% midpoint)
- Adjusted EPS of $13.05 to $13.15, representing double-digit growth
Management highlighted prudent Q4 assumptions, with chemistry expected to grow 6% and service 8%, reflecting normalization after prior pull-forwards and an extra day in the quarter. 2026 is expected to benefit from continued instrument replacement, bioseparation innovation, and BD integration synergies.
- Momentum in pharma and chemistry expected to persist
- New product cadence and regulatory shifts support multi-year growth
Takeaways
Waters’ Q3 results validate its innovation-led growth strategy and operational discipline, with chemistry and informatics now critical levers for recurring revenue and margin expansion.
- Bioseparations and Chemistry Are the Growth Engine: Innovation and unmet need targeting have structurally raised growth rates, with new launches quickly scaling to material revenue.
- Multi-Year Instrument Replacement Cycle Is Intact: Backlog and order momentum suggest continued tailwind into 2026, with upside as lagging segments recover.
- Subscription Informatics and BD Integration Offer Step-Change Upside: Early adoption and detailed integration planning de-risk execution, but require sustained commercial focus and customer engagement.
Conclusion
Waters’ Q3 performance demonstrates the power of targeted innovation and disciplined execution, positioning the company for sustained high-single-digit growth and margin expansion. The BD integration and regulatory tailwinds in biologics offer additional upside, but investors should monitor normalization in stimulus-driven regions and the pace of informatics adoption.
Industry Read-Through
Waters’ chemistry and bioseparations outperformance signals a broader shift toward high-value, innovation-led growth in life sciences tools, with recurring revenue and informatics playing a larger role in business models. China’s ongoing strength for Waters, despite peer softness, highlights the importance of local execution and portfolio localization. The FDA’s move to prioritize analytical characterization for biosimilars could accelerate demand for advanced instrumentation and software across the sector, benefitting peers with strong bioanalytical and compliance portfolios. Integration discipline in large transactions, as evidenced by Waters’ BD planning, will be a key differentiator as industry consolidation accelerates.