Nordson Corporation — Q1 FY2021 Form 10-Q
Business context and reporting period. The unaudited quarter covered the three months ended January 31, 2021; comparisons are with the three months ended January 31, 2020. Nordson supplies precision dispensing, fluid management, test and inspection, and related technologies across industrial, consumer, medical and electronics markets. It reports two segments: Industrial Precision Solutions (IPS) and Advanced Technology Solutions (ATS).
Financial performance and position
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Sales | $526.6 million | $494.9 million | +6.4% |
| Gross margin | 55.1% | 53.2% | +1.9 percentage points |
| Operating profit | $109.0 million | $75.1 million | +45.2% |
| Operating margin | 20.7% | 15.2% | +5.5 percentage points |
| Net income | $77.6 million | $52.0 million | +49.2% |
| Diluted EPS | $1.32 | $0.89 | +48.6% |
| Operating cash flow | $143.3 million | $116.3 million | +$27.0 million |
Sales growth comprised 2.6% organic volume growth, 2.8% favorable currency translation and 1.0% acquisition contribution. Gross-margin improvement reflected volume and mix, currency, acquisitions and lower costs from simplification actions. Lower service and employee costs and improved volume absorption also lifted operating margin. Selling and administrative expense fell 3.8% to $180.9 million. The effective tax rate rose to 20.7% from 17.6%, partly because share-based payment tax benefits were lower year over year.
IPS sales increased 9.3% to $288.4 million; segment operating margin rose to 28.9% from 21.4%. ATS sales increased 3.0% to $238.2 million, although organic volume declined 1.3%; margin rose to 19.8% from 14.0%. ATS growth in test and inspection and fluid dispense was offset by weaker electronic dispense and medical interventional shipments.
Cash and cash equivalents were $225.7 million at quarter-end, up $17.4 million from October 31, 2020. Cash used in investing was $7.9 million, including $7.9 million of capital expenditures. Financing used $122.3 million, including $100.0 million of debt repayment and $22.7 million of dividends. Total debt, including current maturities and before unamortized issuance costs, was $1,022.2 million; cash-adjusted debt was approximately $796.5 million. The company had no borrowings under its $850 million revolving facility and reported covenant compliance. Current assets were $1,028.1 million and current liabilities $359.6 million.
Material changes, outlook and risks
- Compared with the prior-year quarter, revenue, margins, earnings and operating cash flow improved. Interest expense declined to $6.9 million from $9.7 million, reflecting lower average debt and variable rates. Other expense increased to $4.7 million, including $2.8 million of foreign-currency losses.
- Management forecast FY2021 sales growth of approximately 4%–6% over FY2020 and diluted EPS of $6.30–$6.70. The company cited backlog and order-entry trends as support; actual results remain subject to forward-looking risks.
- Management said end markets had remained resilient, while warning that COVID-19 could adversely affect 2021 and beyond. Pandemic-related manufacturing inefficiencies and supply-chain cost increases persisted; the outlook depends on evolving health and economic conditions.
- The screws and barrels product line was classified as held for sale; its sale was completed in February 2021, after quarter-end. A non-cash impairment charge of $87.4 million had been recorded in Q4 FY2020; the line’s operating results were not material.
- Nordson acquired vivaMOS in September 2020 and Fluortek in June 2020; both were assigned to ATS and reported as not material to consolidated results. Purchase price allocations remained preliminary pending income-tax assessments.
- Pending matters include a California wage-and-hour class action settlement subject to written agreement and court approval, and environmental remediation obligations. The environmental accrual was $0.36 million; management did not expect these matters to materially affect results or financial condition.
- Management stated that resources, operating cash flow and available financing were adequate for 2021, with no significant restrictions on transfers from international subsidiaries. Disclosure controls were deemed effective as of January 31, 2021.
Key facts for investors to verify
- Whether organic demand and segment momentum continue, particularly the ATS recovery after its organic volume decline.
- Progress against FY2021 sales-growth and diluted-EPS guidance, including the effects of COVID-19, supply-chain costs, currency and product mix.
- Debt repayment, interest-rate exposure and liquidity; the term loan and euro loan carry variable rates, while the revolving facility was unused at quarter-end.
- Completion and final financial effects of the February 2021 screws and barrels sale, and whether any further adjustments arise from the preliminary acquisition accounting.
- Developments in the class action and environmental matters, and any changes to related accruals or management’s assessment.