Nordson Corporation — Q1 FY2015 Form 10-Q
Unaudited quarter ended January 31, 2015; comparisons are with the three months ended January 31, 2014 unless otherwise noted. Nordson supplies precision dispensing, processing, fluid-management, testing and inspection technologies across diverse industrial and consumer markets.
Financial performance
| Metric | Q1 FY2015 | Q1 FY2014 | Change |
|---|---|---|---|
| Sales | $379.0 million | $359.4 million | +5.4% |
| Gross margin | 55.1% | 54.2% | +0.9 percentage points |
| Operating profit / margin | $62.8 million / 16.6% | $53.9 million / 15.0% | Profit +16.6% |
| Net income | $42.9 million | $34.9 million | +23.0% |
| Diluted EPS | $0.69 | $0.54 | +27.8% |
| Operating cash flow | $25.9 million | $47.7 million | −45.7% |
| Capital expenditures | $16.8 million | $7.9 million | More than doubled |
Sales volume rose 10.5%—7.8% organic growth and 2.7% from acquisitions—while unfavorable currency translation reduced sales by 5.1%. Gross-margin improvement reflected product mix and higher Advanced Technology Systems sales. Selling and administrative expenses rose 3.5% to $145.9 million, but declined as a share of sales to 38.5% from 39.2%.
Segments and markets
- Adhesive Dispensing Systems sales fell 7.3% to $194.2 million; segment operating margin declined to 22.3% from 22.9%, reflecting lower volume and currency effects.
- Advanced Technology Systems sales increased 35.6% to $132.2 million, including 28.6% organic growth and 9.8% acquisition contribution; operating margin rose to 20.3% from 10.6%, led by electronics dispensing and fluid-management demand.
- Industrial Coating Systems sales increased 0.3% to $52.6 million; margin declined to 7.2% from 9.5%, primarily due to a greater mix of engineered systems.
- By geography, Asia Pacific sales rose 32.3%; Europe fell 6.8% and Japan fell 18.0%, with currency a significant headwind in both.
Cash, liquidity and debt
Cash and cash equivalents were $40.9 million at January 31, down from $42.3 million at October 31, 2014. Operating cash flow fell despite higher earnings: changes in operating assets and liabilities used $39.5 million, versus $6.3 million in the prior-year quarter. Investing activities used $16.9 million, mainly for capital spending. Financing activities used $7.2 million; the company borrowed on credit facilities while repurchasing shares and paying dividends.
Current assets were $657.6 million and current liabilities $388.2 million (current ratio approximately 1.69). Notes payable were $163.4 million and long-term debt, including current maturities, was $709.9 million; together, these borrowings totaled approximately $873.3 million, versus $799.8 million at October 31, 2014. Cash less those borrowings was approximately $832.4 million net debt. The company reported compliance with its debt covenants.
Nordson repurchased $70.9 million of shares under its repurchase programs during the quarter and paid $13.6 million in dividends. The quarterly dividend declared was $0.22 per share, up from $0.18.
Outlook, risks and notable items
- For Q2 FY2015, management expected sales down 5% to down 1% year over year, including organic volume from down 1% to up 3%, a 3% acquisition contribution and an estimated 7% negative currency effect. Expected diluted EPS was $0.80–$0.90.
- Management cited solid order growth and opportunities in consumer, medical, electronics and industrial markets, but cautioned about slow emerging-market growth, a low-growth global economy and political instability. It expected operating cash generation to support liquidity needs, dividends and strategic investment.
- The effective tax rate declined to 27.0% from 30.5%; Q1 included a $1.8 million discrete benefit, primarily related to the retroactive reinstatement of the federal R&D tax credit.
- Foreign-currency translation reduced sales and contributed to a $30.9 million translation loss in other comprehensive income. Management said currency effects on operating results cannot be precisely measured.
- On February 20, 2015, Nordson replaced its revolving facility with a new $600 million, five-year unsecured multicurrency facility, expandable to $850 million under conditions. Outstanding balances transferred to the new facility.
- Routine litigation and environmental matters were not expected to have a material effect, according to management. The New Richmond, Wisconsin remediation accrual was $615,000; the company noted actual costs could exceed its estimate.
- Disclosure controls were reported effective as of January 31, 2015; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether the Q2 sales and EPS outlook was achieved, particularly given the projected currency headwind.
- Whether organic growth and Advanced Technology Systems profitability persist, and whether weakness in Adhesive Dispensing Systems and Industrial Coating Systems improves.
- Whether working-capital movements normalize and operating cash flow better tracks earnings, given the sharp year-over-year decline in quarterly cash generation.
- How share repurchases, dividends and capital investment are funded alongside higher borrowings, and whether debt covenants remain comfortably satisfied.
- The continuing impact of currency movements, the acquisition contribution, and any changes in environmental or other contingencies.