Nordson Corporation — Q3 2021 Form 10-Q
Business context and period: The filing covers the quarter and nine months ended July 31, 2021, Nordson’s fiscal third quarter. Nordson supplies precision technology to industrial, consumer non-durable, medical, electronics and related markets through Industrial Precision Solutions (IPS) and Advanced Technology Solutions (ATS).
Financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Sales | $646.9 million | $538.2 million | $1,763.0 million | $1,562.6 million |
| Operating profit | $188.3 million | $112.1 million | $463.7 million | $312.2 million |
| Net income | $142.2 million | $87.0 million | $343.9 million | $231.1 million |
| Diluted EPS | $2.42 | $1.49 | $5.86 | $3.96 |
- Q3 sales increased 20.2%; management attributed growth to stronger organic volume across end markets, with favorable currency translation partly offset by the net effect of acquisitions and divestitures. Nine-month sales rose 12.8%.
- Gross margin was 56.5% in Q3 and 56.3% for nine months, versus 52.2% and 53.3%, respectively, in 2020. Operating margin rose to 29.1% in Q3 and 26.3% for nine months, from 20.8% and 20.0%.
- Q3 segment sales were $345.4 million for IPS and $301.4 million for ATS; operating margins were 35.8% and 26.8%, respectively. Nine-month segment sales were $932.6 million for IPS and $830.3 million for ATS.
- The effective tax rate was 21.2% in Q3 and 20.8% for nine months, compared with 8.9% and 16.0% in 2020. The smaller share-based compensation tax benefit in 2021 affected the comparison; the 2020 periods included larger discrete tax benefits.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $375.5 million, up from $310.0 million. Capital expenditures were $28.1 million. Cash and equivalents declined $34.1 million to $174.2 million.
- Cash used in financing was $388.1 million, including $298.0 million of debt repayments, $68.0 million of dividends and $46.8 million of share repurchases. The term loan was fully repaid in Q2.
- Debt, including current maturities and notes payable, was approximately $821.1 million at July 31, versus $1,109.3 million at October 31, 2020. The $850 million revolving credit facility had no borrowings outstanding; the company reported compliance with debt covenants.
- Current assets were $1,045.8 million and current liabilities were $420.8 million. Pension and postretirement plan cash funding was $82.6 million during the nine months; expected fiscal 2021 pension contributions were approximately $98 million.
Outlook, commentary and risks
- Management raised fiscal 2021 guidance to sales growth of approximately 11%–12% and diluted EPS of $7.75–$7.95. The sales outlook includes an approximately 3% headwind from the screws and barrels product-line divestiture.
- Backlog entering Q4 was approximately $700 million, about 70% above the prior year. Management cited changed order volumes and requested shipment dates, and expected to enter fiscal 2022 with backlog approximately 70% higher year over year.
- The screws and barrels product line was sold on February 1, 2021. Its 2020 held-for-sale impairment charge was $87.4 million and was recorded in the prior fiscal year.
- On August 24, 2021, Nordson agreed to acquire NDC Technologies for $180 million in cash, subject to customary adjustments. The proposed acquisition is to be funded with operating cash and borrowings and is not expected by management to materially affect the consolidated financial statements.
- Management noted continuing COVID-19 uncertainty, pandemic-related manufacturing inefficiencies and supply-chain cost pressures. Other disclosed exposures include foreign exchange movements, acquisition execution, and litigation and environmental matters. The company said the described matters were not expected to have a material adverse effect; the New Richmond environmental accrual was $0.3 million.
Investor items to verify
- Whether the raised fiscal 2021 sales and EPS guidance was achieved, and how the divestiture headwind affected reported growth.
- Whether the unusually strong backlog converted into shipments and earnings, given management’s comments on extended shipment requests and changing order patterns.
- Whether margins remained resilient as supply-chain costs, manufacturing efficiency and product mix evolved.
- Completion, funding and integration of the announced NDC acquisition, and its actual contribution to ATS.
- Debt repayment, cash generation and pension funding trends; the filing states results for the nine months are not necessarily indicative of full-year results.
- Developments in COVID-19 impacts, foreign currency exposure, and the disclosed class-action and environmental matters.