Nordson Corporation — Q2 FY2022 Form 10-Q
Reporting period: Three and six months ended April 30, 2022. Nordson makes precision technology products serving industrial, consumer, medical, electronics and other markets. Unless noted, dollar amounts below are in millions.
Financial performance
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Sales | $635.4 | $589.5 | $1,244.6 | $1,116.1 |
| Operating profit | $184.0 | $166.4 | $339.8 | $275.4 |
| Operating margin | 29.0% | 28.2% | 27.3% | 24.7% |
| Net income | $109.6 | $124.1 | $230.0 | $201.7 |
| Diluted EPS | $1.88 | $2.12 | $3.93 | $3.44 |
| Operating cash flow | — | $214.5 | $247.7 |
Q2 sales rose 7.8%, including 7.0% organic volume growth and a 3.6% acquisition benefit, partly offset by 2.8% unfavorable currency translation. Six-month sales grew 11.5%, including 11.2% organic growth. Gross margin was 56.3% in Q2 (57.3% prior year) and 56.1% for six months (56.2% prior year). Management attributed pressure primarily to mix and inflation in materials, labor and logistics; pricing, efficiencies and sales volume helped offset these factors.
Q2 net income and diluted EPS declined 11.7% and 11.3%, respectively, principally reflecting a $41.2 million non-cash pension settlement loss ($32.5 million after tax, or $0.56 per diluted share). Six-month net income and diluted EPS increased 14.0% and 14.2%, respectively. Other expense was $39.8 million in Q2 and $38.5 million for six months, including the settlement charge; foreign-currency results also affected the comparison. Interest expense declined year over year, primarily due to lower average debt.
Segments and material changes
- Industrial Precision Solutions: Q2 sales increased 5.9% to $316.4 million; operating margin fell to 32.3% from 34.9%, as unfavorable mix and currency offset volume leverage. Six-month sales rose 9.1%; margin was 31.9% versus 32.0%.
- Advanced Technology Solutions: Q2 sales increased 9.7% to $319.0 million; operating margin improved to 30.9% from 26.3%, reflecting organic growth and expense leverage. Six-month sales rose 14.2%; margin improved to 28.9% from 23.4%.
- Nordson acquired NDC Technologies on November 1, 2021, for $171.6 million net of cash and adjustments, funded with cash on hand. NDC was included in Industrial Precision Solutions; its results were not material to consolidated results. Purchase-price allocation remained preliminary.
Cash, debt and liquidity
Cash and equivalents were $120.9 million at April 30, 2022, down $179.1 million from October 31, 2021. Six-month operating cash flow was $214.5 million, versus $247.7 million; working-capital changes used $85.1 million, mainly due to inventory investment and higher receivables. Investing cash use was $196.4 million, including the NDC acquisition and $24.8 million of capital expenditures. Financing cash use was $192.9 million, including $140.5 million of treasury-share purchases and $59.3 million of dividends.
Total debt, including current maturities, was $791.9 million, compared with $817.5 million at October 31, 2021; $310.9 million was classified as current versus $34.2 million at the prior year-end. The filing describes debt maturities and a $850 million revolving facility due in April 2024. Nordson reported compliance with debt covenants and said available capital, operating cash and unused financing were adequate for the next 12 months and foreseeable future.
Outlook, risks and contingencies
Management expected FY2022 year-over-year revenue growth of 8% to 9% and EPS growth compared with FY2021. Backlog entering the second half exceeded $1 billion, with extended requested shipment dates and large orders in electronics, industrial and medical markets. No specific EPS-growth rate was provided.
Management cited COVID-related lockdowns in China as a drag on Q2 Asia-Pacific growth, alongside continuing supply-chain disruption, cost inflation, unfavorable currency effects and manufacturing-efficiency impacts. The filing also identifies uncertainty from economic and market conditions, currency movements, acquisitions and integration, policy and tax changes, geopolitical events including Russia-Ukraine, and pandemics. Management did not expect litigation or environmental matters, including the New Richmond, Wisconsin remediation, to have a material adverse effect; the related environmental accrual was $0.3 million. The partial pension annuitization transferred benefits for approximately 1,500 retirees and beneficiaries to Prudential. Disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting.
Key facts for investors to verify
- How much of reported growth and the greater-than-$1 billion backlog converts to shipments and revenue, particularly given extended shipment dates and China-related disruption.
- Whether inflation, product mix, foreign exchange and supply-chain constraints continue to affect gross margins and segment profitability.
- The composition and timing of the $310.9 million current debt balance and the company’s liquidity and refinancing plans for upcoming maturities.
- Whether the FY2022 revenue and EPS-growth outlook remains achievable, and how results compare after considering the one-time pension settlement charge.
- Final NDC purchase-price allocation and integration progress; the allocation was preliminary at quarter-end.