Nordson Corporation — Q2 FY2023 Form 10-Q
Reporting period: Three and six months ended April 30, 2023. Dollar amounts below are in millions unless otherwise indicated. Nordson develops precision technology products and reports three segments: Industrial Precision Solutions, Medical and Fluid Solutions, and Advanced Technology Solutions.
Financial performance
| Metric | Q2 FY2023 | Q2 FY2022 | Six months FY2023 | Six months FY2022 |
|---|---|---|---|---|
| Sales | $650.2 | $635.4 | $1,260.6 | $1,244.6 |
| Gross margin | 54.2% | 56.3% | 54.0% | 56.1% |
| Operating profit | $172.5 | $184.0 | $316.7 | $339.8 |
| Operating margin | 26.5% | 29.0% | 25.1% | 27.3% |
| Net income | $127.6 | $109.6 | $231.8 | $230.0 |
| Diluted EPS | $2.21 | $1.88 | $4.02 | $3.93 |
Six-month operating cash flow was $287.9, versus $214.5 a year earlier. Capital expenditures were $15.3. Investing cash outflow was $393.2, including $377.8 for the CyberOptics acquisition. Cash declined $34.4 during the six months to $129.1.
At April 30, 2023, total debt carrying amount was $949.2, including $603.3 classified as current maturities and notes payable; long-term maturities were $345.9. Current assets were $1,155.4 and current liabilities were $990.4. Nordson reported compliance with debt covenants and said available cash, operating cash generation and financing sources should meet requirements for the next 12 months and foreseeable future.
Changes and operating drivers
- Q2 sales rose 2.3% year over year: organic growth of 1.3% and acquisition contribution of 2.8% were partly offset by 1.8% unfavorable currency effects. Six-month sales increased 1.3% overall, with organic growth of 1.3% and acquisition contribution of 2.8% offset by 2.8% unfavorable currency effects.
- Margins weakened. Management cited unfavorable mix and reduced manufacturing efficiency at sites affected by volume declines; six-month gross margin also reflected $2.7 of CyberOptics inventory step-up amortization. Higher selling and administrative costs included acquisition and severance-related costs.
- Q2 segment sales and operating margins: Industrial Precision Solutions $335.8 and 33.3% (margin up from 32.3%); Medical and Fluid Solutions $166.5 and 28.8% (down from 33.9%); Advanced Technology Solutions $147.8 and 17.6% (down from 27.4%). Advanced Technology sales included CyberOptics, while organic sales fell 9.9%.
- Reported net income and EPS increased in Q2, but comparison is affected by prior-year pension settlement charges of $41.2 pretax ($0.56 per diluted share after tax). Excluding that prior-year item, management attributed lower earnings to weaker margins and higher interest expense. Six-month reported net income rose 0.8%; management said performance excluding the prior-year settlement charge declined, citing lower margins, CyberOptics-related costs and higher interest expense.
- Interest expense rose to $9.9 in Q2 and $20.4 for six months, principally due to higher average debt and interest rates.
Outlook, risks and unusual items
The filing provides no specific quantified revenue or earnings guidance. Management described liquidity as adequate for the coming year and foreseeable future. It cautioned that results may be affected by economic and market conditions, currency movements, acquisition integration, trade and tax changes, geopolitical events, natural disasters and pandemics. The company noted that COVID-related labor shortages and disruption had affected Asia-Pacific revenue growth in the first quarter.
Nordson acquired CyberOptics on November 3, 2022, for approximately $377.8 net of cash acquired, funded with borrowings and cash. The purchase price allocation remained preliminary at April 30, 2023; the acquisition added $279.6 of goodwill and $58.6 of identifiable intangible assets. The company reported softness in medical fluid components and electronic dispense demand, and acquisition-related fees, severance and inventory charges.
Other notable items include $6.7 of foreign currency losses in the six-month period and the prior-year $41.2 pension settlement charge. The company is involved in ordinary-course legal matters; management did not expect losses above accruals to materially affect results or cash flows. Environmental remediation accrual was $0.266, and management did not expect remediation costs to be material. Disclosure controls were assessed as effective, with no material control changes reported.
Important facts for investors to verify
- Debt maturities and refinancing needs: $603.3 was classified as current, and the revolving credit facility and term loan mature in 2024.
- Whether weaker gross and operating margins persist, especially in Medical and Fluid Solutions and Advanced Technology Solutions.
- CyberOptics integration, final purchase accounting, and the effect of acquisition-related costs and goodwill/intangible assets.
- Demand trends in medical fluid components and electronic dispense products, alongside currency exposure and regional growth.
- Cash conversion, working-capital movements, and the company’s stated liquidity outlook; the filing gives no quantified earnings or revenue guidance.