Nordson Corporation — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2013, ended July 31, 2013. Nordson makes precision dispensing and processing equipment and related technologies serving industrial, consumer, medical and technology markets.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Sales | $403.0 million | $379.9 million | $1,132.1 million | $970.9 million |
| Operating profit | $93.2 million | $98.5 million | $237.0 million | $231.9 million |
| Net income | $65.4 million | $66.7 million | $162.0 million | $157.1 million |
| Diluted EPS | $1.01 | $1.03 | $2.50 | $2.41 |
| Gross margin | 55.9% | 58.8% | 56.5% | 60.0% |
| Operating margin | 23.1% | 25.9% | 20.9% | 23.9% |
- Growth and mix: Sales rose 6.1% in Q3 and 16.6% year to date. Nine-month sales volume increased 17.6%, including 13.2% from the first-year impact of acquisitions and 4.4% organic growth; unfavorable currency reduced sales by 1.0%. Q3 volume growth was 6.7%, largely acquisition-driven.
- Profitability: Q3 net income and diluted EPS each declined 1.9%; nine-month net income rose 3.1% and diluted EPS 3.7%. Management attributed margin pressure principally to lower-margin acquired product lines and a higher systems-revenue mix. Q3 operating profit fell despite higher sales.
- Segment trends: Q3 Adhesive Dispensing Systems sales increased 11.9%, Industrial Coating Systems 9.8%, while Advanced Technology Systems declined 1.8%. Nine-month sales grew in all three segments; acquisition effects were significant in Adhesive Dispensing and Industrial Coating.
- Cash flow and investment: Nine-month operating cash flow was $194.6 million, versus $177.6 million. Capital expenditures were $34.6 million, compared with $21.6 million. Investing activities used $32.9 million, versus $423.3 million in the prior-year period, which included $405.2 million for acquisitions.
- Liquidity and debt: Cash was $75.4 million at July 31, compared with $41.2 million at fiscal 2012 year-end. Notes payable were $5.1 million; long-term debt including current maturities was $553.9 million. The company reported compliance with debt covenants and availability under its $500 million multicurrency credit facility.
- Shareholder returns: Nine-month dividends paid were $28.9 million and share repurchases were $28.8 million. The board authorized a new $200 million repurchase program after quarter-end, replacing the prior $100 million program.
Outlook, commentary and notable items
- For fiscal Q4 2013, management forecast sales of $391 million to $408 million, down 7% to 11% year over year, including an expected 6% to 10% decline in organic volume and a 1% adverse currency effect. Expected diluted EPS was $0.87 to $0.98.
- Management cited uncertainty about the Eurozone recovery, U.S. deficit reduction, slowing emerging-market growth and a low-growth global economic outlook. It emphasized operational efficiency, product and market development, and expected operating cash flow to support liquidity needs, dividends and strategic investment.
- On August 30, 2013, Nordson completed its acquisition of Germany-based Kreyenborg for €135 million, subject to adjustments. The business reported approximately €62 million in fiscal 2012 revenue. The purchase was funded with a €100 million loan facility and existing cash.
- Q3 other income included a $2.1 million gain on the sale of real estate in China. Nine-month income taxes included a $1.7 million benefit related to the retroactive reinstatement of the U.S. research and development tax credit; other favorable tax adjustments also affected the period.
- Restructuring costs were $1.0 million for the first nine months of 2013, with approximately $76,000 of additional severance costs expected for the remainder of the year. The environmental remediation accrual for the New Richmond, Wisconsin site was $668,000; management said resolution of pending or potential legal matters was not expected to materially affect results, while noting remediation estimates are uncertain.
Important facts for investors to verify
- Whether the Q4 sales and EPS outlook was achieved, given management’s expected organic-volume decline and macroeconomic uncertainty.
- Whether acquisition-related dilution and systems mix continued to weigh on gross and operating margins, and how acquired businesses performed organically.
- The financing, integration and subsequent performance of Kreyenborg, including the impact of the new loan facility on debt and interest expense.
- Cash generation, capital spending, repurchases and debt levels, including continued compliance with credit-facility covenants.
- Whether currency movements, tax benefits and the China property-sale gain materially affected comparisons with recurring operating performance; also monitor developments at the environmental remediation site.