Nordson Corporation — Form 10-Q Summary
Reporting period: First quarter of fiscal 2013, the three months ended January 31, 2013; comparisons are with the three months ended January 31, 2012 unless noted. Dollar amounts below are in millions, except per-share data. The financial statements are unaudited.
Financial performance
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Sales | $347.0 | $275.8 | +25.8% |
| Gross margin | 56.8% | 61.4% | −4.6 percentage points |
| Operating profit | $61.6 | $56.5 | +9.0% |
| Operating margin | 17.7% | 20.5% | −2.8 percentage points |
| Net income | $42.0 | $38.3 | +9.6% |
| Diluted EPS | $0.65 | $0.58 | +12.1% |
| Operating cash flow | $39.8 | $44.3 | −10.3% |
- Sales volume rose 26.2%: 7.8% organic growth and 18.4% from acquisitions; unfavorable currency reduced sales by 0.4%.
- Cost of sales grew 40.7%, faster than revenue. Management attributed lower gross margin primarily to the lower margins of 2012 acquisitions and product-line and geographic mix in Adhesive Dispensing Systems. Selling and administrative expense rose 20.6% to $135.1 million, but declined to 38.9% of sales from 40.6% as fixed costs were better absorbed.
- Segment sales were $183.4 million for Adhesive Dispensing Systems (+31.8%), $108.7 million for Advanced Technology Systems (+8.6%), and $55.0 million for Industrial Coating Systems (+50.3%). Adhesive Dispensing Systems had a 0.3% organic volume decline; its reported growth mainly reflected EDI and Xaloy acquisitions. Advanced Technology growth reflected demand in mobile electronics, medical and other niche markets. Industrial Coating growth included 38.2% organic growth and 12.7% from the SEE acquisition.
- The effective tax rate fell to 25.5% from 31.1%. Q1 2013 included a $1.7 million discrete benefit from the retroactive R&D tax credit and a $0.9 million favorable adjustment to unrecognized tax benefits.
Cash flow, balance sheet and debt
- Cash from operations was $39.8 million; investing activities used $8.7 million, including $7.5 million of capital expenditures and $1.2 million for the Kodama asset acquisition. Financing activities used $18.8 million, including $10.5 million of net long-term debt repayment and $9.6 million of dividends paid.
- Cash and cash equivalents increased $13.2 million to $54.4 million. At January 31, current assets were $574.5 million and current liabilities were $292.4 million.
- Notes payable, current maturities of long-term debt and long-term debt totaled $623.2 million at January 31, compared with $633.7 million at October 31, 2012. Capital lease obligations were additional. The company reported compliance with debt covenants. Long-term debt, including current maturities, had a disclosed fair value of $567.7 million.
- Inventory rose $13.8 million from October 31, 2012; management cited anticipated higher second-quarter activity. Receivables fell $42.8 million, consistent with seasonal lower first-quarter sales compared with the fourth quarter.
Management outlook, risks and notable items
- For Q2 fiscal 2013, management forecast sales growth of 18%–23% versus the prior-year quarter, including 16% from acquisition effects, 3%–8% organic growth and a negative 1% currency impact. Diluted EPS guidance was $0.78–$0.87.
- Management said it was approaching 2013 cautiously given uncertainty around European sovereign debt, U.S. deficit reduction and slower growth prospects in Asia. It cited market expansion, application expertise and continued operational improvement as growth priorities; it expected operating cash flow to cover liquidity needs, dividends and investment in applications and markets.
- Q1 2013 severance and restructuring costs were $0.6 million; approximately $0.37 million of additional severance costs were expected over the remaining three quarters of fiscal 2013. Q1 2012 included $0.8 million of restructuring costs.
- Interest expense increased to $4.1 million from $2.0 million, primarily because of higher borrowings following 2012 acquisitions. Other-net was a $1.2 million expense versus $1.0 million of income in the prior-year quarter; the filing also reports foreign-exchange losses on balance-sheet positions, partly offset by contract gains.
- 2012 acquisitions EDI, Xaloy and SEE contributed to sales growth and margin dilution. The November 2012 Kodama asset acquisition expanded the EDI operation in Japan and Taiwan. Acquisition-related goodwill and intangible assets were significant.
- The company disclosed ordinary-course litigation and an environmental remediation obligation accrued at $0.75 million. It said these matters were not expected to have a material adverse effect, while noting remediation estimates could increase. The filing reported no material subsequent events and no material change in risk factors from its 2012 Form 10-K.
Important facts for investors to verify
- Whether organic demand—particularly in Adhesive Dispensing Systems—improves, and whether acquisition-driven sales growth can be sustained.
- Whether gross and operating margins recover as acquisition and product mix effects evolve, and whether Q2 guidance is achieved.
- Debt repayment, borrowing costs, maturities and covenant capacity, including the February 2013 repayment of a $50 million note and amendment increasing the New York Life facility to $175 million.
- The contribution of discrete tax benefits to reported earnings and the effective tax rate in future periods.
- Whether working-capital movements and operating cash flow support dividends, investment and debt reduction; and whether environmental remediation costs remain within the recorded estimate.