Udit Batra
President and Chief Executive Officer at Waters
Thank you, Caspar, and good morning, everyone. Before diving into the results, I would like to start by saying that I'm very proud of how our teams have executed this quarter. We delivered a solid performance across our end markets despite a challenging environment and a stronger-than-expected slowdown in China. Our revitalized portfolio is driving results in areas of high unmet need as our newly launched products continue to gain traction. And we're well positioned for future growth as we make meaningful progress and make further investment in our high-growth adjacencies. Turning to our results. In the second quarter, we delivered at the high end of our guidance with 3% organic constant currency growth. We also had a great start to the Wyatt acquisition, which performed ahead of expectations and contributed 2% growth for the quarter.
Overall, constant currency growth was 5% and our as-reported growth was 4%. Our organic constant currency performance was led by strong growth in the Industrial segment, which grew low double digits and the academic and government segment, which grew over 20%. In both of these end markets, Mass Spec grew over 40% as our revitalized portfolio saw continued strong demand. In the Pharma segment, which declined 4%, both the U.S. and Europe grew high single digits, showing initial signs of recovery in Pharma spend. However, this was more than offset by significant worsening in the China Pharma market as weakness broadened beyond CDMOs. The weakness in China also impacted our instrument growth, which declined 2% in the quarter. When excluding China, instrument growth was 8%, led by mid-teens instrument growth in the U.S. and low double-digit growth in Europe. Meanwhile, our recurring revenue grew high single digits, driven by increased service plan attachment and chemistry e-commerce adoption.
Our non-GAAP earnings per fully diluted share came in above our expectations at $2.80, driven by operational excellence across pricing and procurement as well as our cost actions. On a GAAP basis, our earnings per fully diluted shares were $2.55. Despite the challenging macro conditions, our commercial execution remains strong. So far this year within instruments, Mass Spec has grown high-teens on both a year-over-year and 2-year stack basis as our commercial teams have capitalized on the strength of our renewed product portfolio. Our TA Instruments division has also seen strong results despite macro challenges, having grown low double digits year-over-year and on a 2-year stack basis. Our commercial initiatives and strong execution have enabled high single-digit growth in recurring revenue. We have already achieved our goal of increasing service plan attachment by a further 100 basis points in 2023.
We're now targeting an additional 100 basis points of expansion over the remainder of the year. The strength of our execution and the quality of our service offering is helping us drive this growth, and there is further runway ahead. Price is also a key part of our execution where we built commercial muscle and discipline in recent years. We've achieved strong results in price over 200 basis points so far this year. With our operational excellence, we expect to meaningfully expand our margins this year. For the first half of 2023, our gross margin is 58.9%, which is an expansion of 110 basis points versus the first half of 2022. For the full year, we expect to deliver a gross margin of 59%, which is 100 basis points of expansion versus last year. We also expect to deliver an operating margin of 30.5% this year, which is 30 basis points higher than last year. Our revitalized portfolio is also driving results in areas of high unmet need. I would like to share a few specific examples. First, in the Industrial segment, we're seeing strong growth in PFAS testing, and we are towards the beginning of a multiyear growth opportunity.
Our growth in PFAS testing is twice as fast as the 20% estimated market growth rate as we continue to take share with our Xevo TQ Absolute mass spec. In the academic and government segment, our high-res mass spec portfolio is seeing strong adoption at a time where global funding for R&D applications continues to be elevated. Select Series MRT is unique in the high-res mass spec market due to its enhanced resolution at high speeds, which gives it unique capabilities for Metabolomics and imaging applications where throughput requirements are high. At ASMS recently, we announced new enhancements for the MRT, which increases imaging resolution by 50% and boost sample throughput even further. Earlier this year, we launched Alliance iS, which we believe is the most significant innovation to hit pharma QA/QC in the past decade. We've continued to see strong interest in its launch and several customers have already made plans to replace their LCs with this new industry-leading platform.
We now have not one but two new industry-leading LCs for QA/QC applications in pharma, Alliance iS and Arc HPLC. Both of these instruments answer significant unmet needs in the market, which continue to drive long-term growth in instrument replacement. And in our TA division, new product launches such as Powder Rheology accessory and the Battery Cycler Microcalorimeter have supported growth in battery testing for electric vehicles. Battery testing is a fast-growing market, and we are well positioned to support demand for characterization that will lead to safer and better performing batteries. The strong results we've achieved in growing markets like batteries have allowed us to deliver double-digit growth in TA so far this year despite the challenging environment. We remain well positioned for future growth and the long-term fundamentals of our business have never been better.
While instruments are always prone to short-term fluctuations in spending patterns, instrument growth has been highly resilient on a long-term basis with average growth of about 5%. As we look ahead, the demand profile for our instruments has only strengthened versus this historical trend. Total global prescription drug sales, which is a key driver of instrument volume growth are expected to exceed historical growth rates for the foreseeable future. And our potential is further enhanced by the measures we have put in place to improve pricing where we expect to sustain 100 to 200 basis points improvement versus historical levels. In addition, the growing adoption of analytical instruments in process development and process optimization of large molecule therapeutics is a new growth vector for our business. Here, novel modalities require more advanced characterization techniques like mass spec and light scattering that have not been used in the past.
We believe that this trend will not only continue, but will also pave the way for adoption of analytical instruments in high-volume, recurring applications and large molecule manufacturing. We expect this to occur as they become embedded within process control, QA/QC and raw material testing over time. We remain focused on nurturing this growth opportunity with our continued investment in Bioanalytical characterization and bio separations. In Bioanalytical characterization, which is a $1.8 billion total addressable market with a 10% to 12% projected annual growth rate, we've been investing both organically and inorganically. We recently closed the acquisition of Wyatt, which expands our ability to characterize large molecules across various stages of production beyond that of what we can do with LC-UV and LC-mass-spec alone. We also recently announced an expansion in our collaboration with Sartorius from upstream development into downstream manufacturing.
So far, in upstream process development, we've demonstrated that pairing bioAccord at-line with the Sartorius Ambr 15 and 250 bioreactors, has enabled bioprocess engineers to accelerate clone selection results from weeks to a matter of hours. Now our expanded collaboration will integrate our technologies further. We will develop analytical solutions that are in line and offer real-time monitoring of process controls and critical quality attributes in the bioreactor. By offering bioprocess engineers access to comprehensive analytical data for downstream batch and continuous manufacturing, we can support improved yields while reducing waste and lowering biomanufacturing costs. Finally, in Bioseparations, which is a $1.4 billion total addressable market with an 8% to 10% projected annual growth rate, we recently announced a multiyear research collaboration with Princeton University. The goal of this partnership is to advance research in drug discovery and development using novel bioseparation techniques that we're developing for large complex biomolecules.
We also just introduced our first release in the new line of Size Exclusion Chromatography Columns, which are designed for the separation and analysis of viral vectors in applications such as gene therapy. Our new xBridge Premier GTx BEH SEC columns, reduced the cost of gene therapies by using three to 10 times less sample than other methods while generating faster results and providing more drug substance information. They can measure aggregation, titer and low molecular weight impurities at twice the speed of existing columns at 50% greater resolution. The combination of these columns with wired multi-angle light scattering will deepen the level of information that can be acquired from a single experiment. This will accelerate development times of modalities such as adeno-associated viruses or AAV and allow for more optimized manufacturing, which can reduce costs.
Turning now to our updated 2023 guidance. The slowdown in the pharma end market in China has progressed beyond CDMOs resulting in broader weakness. As a result, we now expect China to decline low double digits this year versus our prior expectation of low digit -- low single-digit growth. This translates to a full year growth headwind of approximately 200 basis points versus our previous guide. Our guide does not assume any benefit from a new round of stimulus in the second half of the year. While our funnel remains healthy, we also continue to see slower than usual funnel velocity from customers more broadly. Assuming that this trend continues through the rest of the year, we expect this to translate to a full year growth headwind of approximately 100 basis points versus our previous guide. As a result, we now expect our revised full year organic constant currency growth to be in the range of 0.5% to 1.5%. Despite our lower revenue guide, we are proactively managing our cost and productivity while continuing to preserve our investments in future growth.
In July, we made some very difficult but necessary decisions to realign the workforce in our core business, which impacted just under 5% of our employees. These actions allow us to better align our resources with our growth strategy and offset the incremental demand weakness that I just described. This, together with our focus on operational excellence across pricing and procurement is expected to deliver a gross margin of 59% this year, an increase of 100 basis points versus 2022. We also expect to expand our operating margin approximate -- to approximately 30.5%, which is an increase of 30 basis points versus 2022. These actions allow us to mitigate EPS headwind from lower expected revenue, resulting in our updated full year EPS guidance of $12.20 to $12.30. Now I will pass the call to Amol to continue covering our second quarter financial results and give additional commentary on our guidance. Amol?
