Nordson Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended April 30, 2021. Dollar amounts below are in millions unless noted. Nordson supplies precision dispensing, fluid management, test and inspection, and related technologies across industrial, medical, electronics, and other markets.
Financial performance
| Metric | Three months | Six months |
|---|---|---|
| Sales | $589.5; up 11.3% year over year | $1,116.1; up 9.0% |
| Gross margin | 57.3%, versus 54.7% | 56.2%, versus 54.0% |
| Operating profit / margin | $166.4 / 28.2%, versus $125.0 / 23.6% | $275.4 / 24.7%, versus $200.1 / 19.5% |
| Net income | $124.1, up 34.8% | $201.7, up 40.0% |
| Diluted EPS | $2.12, versus $1.58 | $3.44, versus $2.47 |
Quarterly sales growth reflected 10.4% organic volume growth and favorable currency translation, partly offset by acquisitions and divestitures. Electronics and consumer non-durables led demand, with medical and industrial markets strengthening. Six-month organic volume growth was 7.0%.
For the quarter, Industrial Precision Solutions (IPS) sales were $298.8 million, up 5.8%, and operating margin was 34.9%, versus 27.1%. Advanced Technology Solutions (ATS) sales were $290.8 million, up 17.6%, and margin was 26.3%, versus 23.7%. The filing attributes improved margins chiefly to sales leverage and the favorable mix following the screws and barrels product-line divestiture.
Cash flow, balance sheet and liquidity
- Six-month operating cash flow was $247.7 million, compared with $218.2 million. Capital expenditures were $18.7 million; operating cash flow less capital expenditures was approximately $229.0 million.
- Cash and equivalents were $133.3 million at April 30, down from $208.3 million at October 31, 2020. Cash declined by $75.0 million during the six months, largely reflecting financing outflows.
- Current assets were $949.4 million and current liabilities $385.3 million. Total debt, including current maturities, was approximately $867.1 million; long-term debt on the balance sheet was $829.0 million.
- Nordson repaid its $255.0 million term loan during the second quarter. Six-month net debt repayments were $250.1 million. The $850 million revolving credit facility expires in April 2024; the company reported covenant compliance and said borrowing capacity was not limited by covenants.
- Six-month dividends paid were $45.3 million and treasury-share purchases were $30.3 million. The board-authorized repurchase program had approximately $422.3 million remaining at April 30.
Changes, outlook and risks
- Compared with the prior-year quarter, sales and earnings rose substantially and operating margin expanded. Gross-margin improvement included 1.8 percentage points attributed to the screws and barrels divestiture and favorable volume leverage. The divestiture closed February 1, 2021.
- For fiscal 2021, management forecast sales growth of approximately 8%–10% over 2020 and diluted EPS of $7.20–$7.50, based on backlog, order-entry trends, and shipment timing.
- Management said COVID-19 impacts remain uncertain and could affect 2021 and beyond. Pandemic-related supply-chain disruptions increased costs, and safety measures adversely affected manufacturing efficiency. The company also cited foreign-exchange exposure and ongoing uncertainty in global markets.
- Other expense was $3.8 million in the quarter and $8.5 million for six months, with management citing higher foreign-currency losses. Pension contributions are expected to total approximately $68 million in fiscal 2021, including an additional $20 million contribution in Q2.
- Pending matters include a California wage-and-hour class action settlement subject to written agreement and court approval, and environmental remediation obligations. Management does not expect the disclosed matters to materially affect financial condition or results; the environmental accrual was $0.3 million.
- Management stated disclosure controls were effective as of April 30, 2021 and reported no materially affecting change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether demand, backlog, and order trends support the full-year sales and diluted-EPS guidance.
- How much margin improvement is sustainable apart from the divestiture-related mix benefit, and whether supply-chain costs or manufacturing inefficiencies worsen.
- Cash generation and working-capital trends, pension funding needs, and the pace of debt repayment and share repurchases.
- Foreign-currency effects and the outcome of the class action settlement approval process.