Udit Batra
Director, President & Chief Executive Officer at Waters
Thank you, Caspar, and good morning, everyone.
We achieved strong results in the second quarter that exceeded both our top line and bottom line reported guidance. I want to begin today's call by thanking my colleagues for their dedication to commercial execution, operational management and innovation. This enables us to deliver differentiated performance and accelerate the benefits of pioneering science. In the quarter, year-over-year organic constant currency sales were 500 basis points better than Q1 levels. We saw a steady improvement in customer spending throughout the quarter with a strong finish in June. Orders outpaced sales for the quarter as we built good momentum for the second half of the year. We again delivered resilient operational results with earnings surpassing our expectations. This reflects the strength of our downstream business model, progress on our strategic and operational initiatives and our indomitable spirit.
We also continued our steady stream of new product launches releasing further innovations that address key customer needs. Waters now has a highly competitive portfolio serving attractive end markets. We expect this to benefit us as the market recovers and the instrument replacement cycle picks up pace. As we continue to build the Waters of the future, I would like to welcome Rob Carpio, who has joined us as the new Head of the Waters division. Rob is a talented leader and a seasoned operator with a record of delivering strong financial results and transformation in life sciences. With his appointment, he will further enhance Waters' performance and long-term growth strategy.
Turning now to our results. In the second quarter, sales declined 4% as reported and 4% in organic constant currency. Our non-GAAP earnings per share was $2.63 on a GAAP basis, EPS was $2.40. Excluding China, sales declined in low-single digits. Growth was consistent with our expectations across each of our end markets. Customer capex spending is showing early signs of improvement. In China, sales declined in the low teens, which was better than expected. Growth rates improved in all end markets compared to the previous quarter, especially in pharma and in industrial. While the stimulus measures announced by the Chinese government this year are still in the early stages of implementation, we are having active conversations with customers who stand to benefit from these initiatives. So far, this has led to improved quoting and funnel trends in the region. These opportunities are expected to begin converting to orders in 2025.
Overall, instruments declined 17% and recurring revenue grew 5%. Wyatt delivered a 2% M&A contribution to sales, which was better than expected. It marks a strong close to the first year following the acquisition where synergies were delivered well ahead of schedule. Wyatt operates in high-growth markets serving large molecule applications, especially across cell, gene and RNA therapies. Altogether, it should deliver 40 basis points of annualized accretion to the total company growth in the near to mid-term. Now I will talk about our operational performance. Margins remained resilient as we again successfully counteracted volume, FX and inflationary headwinds with solid operational management.
Our gross margin for the quarter was flat at 59.3% and our adjusted operating margin was solid at 29.2%. And even with recent progress, our work is far from over. We have runway towards further long-term margin expansion driven by our strategic and operational initiatives. This includes areas such as productivity enhancement, where we have various programs that are still in their early stages. At the same time, our focus on pricing continues to yield contribution that is well ahead of historical levels. Looking forward, we feel very good about our future margin opportunity given our recent success in preserving and expanding our margins during challenging business conditions. Beyond 2024 levels, we expect to deliver a more pronounced impact on our long-term margin performance, particularly when more typical volume leverage returns.
In the second quarter, we launched a steady stream of new products solving the unmet needs of our customers. At ASMS in June, we unveiled the Xevo MRT, which is now our highest performing benchtop mass spectrometer. It builds on the multi-reflecting time-of-flight technology pioneered by the SELECT SERIES MRT, which has greater throughput and a more compact form factor with up to 6 times greater resolution and 2 times better mass accuracy than competitive systems, the Xevo MRT sets new industry standards for high resolution at blazingly fast speeds. So far, our customers have been impressed by its capabilities. It will serve discovery and other upstream pharma workflows where it will accelerate R&D times for new drugs. This includes areas such as metabolite identification, where resolution, accuracy and speed are all critical value drivers.
We also launched the latest evolution of our Acquity QDa Mass Detector, one of our all-time best-selling analytical instruments. TheQDa II provides a 20% enhancement in mass range, which benefits routine identification and analysis of large molecules. It also has excellent green credentials consuming up to 70% less energy than competing products. This is a benefit of increased importance to our customers. Most importantly, the QDa II runs on Empower, which allows for seamless regulatory submission of compliance-related data for large molecules.
As we look ahead, Waters is well positioned in attractive markets with secular growth drivers where testing volume plays a pivotal role in driving long-term growth. Our full ecosystem of instruments, informatics, advanced chemistry and leading service positions us very well to help ensure the safety of medicine, food and water and batteries in electric vehicles. Along with our business model, the regulated and recurring nature of these applications results in excellent profitability and free cash flow generation. In recent years, we've made meaningful progress in aligning Waters with faster growing large molecule applications.
Now over a third of our pharma revenues comes from large molecules and novel modalities. At the same time, future testing volume is expected to grow faster than historical levels with increased prescription volumes including GLP-1s and areas such as PFAS testing. With our revitalized portfolio, we are in an excellent position to capitalize on these growth opportunities. Over the past several years, we've launched multiple innovative new products that have enhanced our competitive edge and created better pricing levers. Serving our next-generation LC platform, Alliance iS serves routine QA/QC analysis for both large and small-molecule workflows where innovation helps to drive instrument replacement. It also includes our Xevo TQ Absolute mass spectrometer, which is seeing rapid growth in areas such as PFAS testing. Within our high-growth adjacencies, we've launched new products into bioanalytical characterization, battery testing and clinical applications, all of which are gaining traction given the critical unmet needs that they solve.
Finally, recent deferral of routine instrument replacement has created a catch-up opportunity that lies ahead of us. Weak macroeconomic conditions have put temporary constraints on customer capex spending for downstream instrumentation. Historically, this dynamic has lasted for four to seven quarters and has been followed by a catch-up. Looking at the facts, while no two macro environments are the same, Q2 marks the seventh consecutive quarter of LC instrument decline. Expected instrument growth for 2024 equates to a 1% CAGR versus 2019 levels. This is significantly below the 5% long-term average growth rate. Improving funnel trends are a positive leading indicator that we are approaching the early innings of a recovery and initiation of a new replacement cycle.
I will now cover our 2024 full year guidance, while customer activity is showing signs of recovery, we're adding caution to our guide. Accordingly, we are revising our full year 2024 sales guidance to assume a more gradual pace of improvement in the second half of the year. As a result, our revised full year organic growth constant currency sales guidance is negative 2% to negative 0.5%. With our commitment to excellent operational performance, we expect to build leverage in our P&L and deliver an adjusted operating margin of around 31%. Therefore, our updated adjusted EPS guidance is in the range of $11.55 to $11.65.
Now I will pass the call over to Amol to continue covering our financial results in more detail and to provide further details on our guidance. Amol?
