Nordson Corporation — Q1 FY2023 Form 10-Q
Reporting period: Three months ended January 31, 2023; comparisons are with the three months ended January 31, 2022 unless noted. Dollar amounts below are in millions, except per-share data. Nordson provides precision technology products across Industrial Precision Solutions, Medical and Fluid Solutions, and Advanced Technology Solutions.
Financial performance
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Sales | $610.5 | $609.2 | Up 0.2% |
| Gross margin | 53.9% | 55.8% | Down 1.9 percentage points |
| Operating profit | $144.2 | $155.9 | Down 7.5% |
| Operating margin | 23.6% | 25.6% | Down 2.0 percentage points |
| Net income | $104.3 | $120.4 | Down 13.4% |
| Diluted EPS | $1.81 | $2.05 | Down 11.7% |
| Cash from operations | $123.3 | $118.1 | Up $5.3 |
Sales growth comprised 1.4% organic growth and a 2.8% acquisition contribution, offset by a 4.0% unfavorable currency effect. Cost of sales increased to $281.6 million from $269.0 million. Management attributed lower gross margin principally to inflationary cost pass-through and $2.7 million of incremental inventory step-up amortization. Operating profit also reflected CyberOptics-related fees, severance and non-cash inventory charges, as well as unfavorable currency effects. Interest expense rose to $10.5 million from $5.7 million, driven by higher average debt and interest rates. The effective tax rate was 20.5%, versus 20.8%.
Segments and regional sales
| Segment | Sales | Year-over-year sales change | Operating margin |
|---|---|---|---|
| Industrial Precision Solutions | $311.5 million | Down 3.8% | 32.8%, up from 31.5% |
| Medical and Fluid Solutions | $154.3 million | Down 2.8% | 25.5%, down from 30.9% |
| Advanced Technology Solutions | $144.6 million | Up 14.4% | 11.7%, down from 21.5% |
Industrial Precision’s margin improved on product mix. Medical and Fluid’s margin fell amid product-line mix changes and factory inefficiencies from lower volume. Advanced Technology’s margin was affected by $10.3 million of CyberOptics-related fees, severance and inventory charges, plus unfavorable mix. Regional sales were $264.9 million in the Americas (up 10.4%), $162.9 million in Europe (up 4.5%) and $182.7 million in Asia Pacific (down 14.4%). Management cited strong demand in the Americas and Europe, offset by weakness in Asia Pacific, particularly China.
Cash, debt and liquidity
Cash and cash equivalents were $122.0 million at January 31, 2023, down from $163.5 million at October 31, 2022. Investing activities used $387.1 million, including $377.8 million for the CyberOptics acquisition and $9.3 million for capital expenditures. Financing activities provided $215.7 million, including $252.3 million in net debt borrowings; dividends paid were $37.2 million and treasury-share purchases were $6.9 million.
Total debt carrying value, including current maturities, was approximately $1.017 billion, versus $738.8 million at October 31, 2022. Current maturities and notes payable were $420.9 million; long-term debt was $595.2 million. Nordson had $250 million drawn on its revolving facility. A separate $200 million unsecured term loan facility entered in January 2023 had no balance outstanding at quarter-end. The company reported compliance with debt covenants and stated that available capital, operating cash flow and financing sources were adequate for the next twelve months and foreseeable future.
Current assets were $1.178 billion and current liabilities were $825.5 million. Inventories increased to $447.7 million from $383.4 million, with the increase primarily attributed to the acquisition. Goodwill and intangible assets also rose, reflecting CyberOptics and currency effects.
Acquisition, outlook and risks
Nordson acquired CyberOptics on November 3, 2022 for approximately $377.8 million net of cash acquired, funded with revolving-credit borrowings and cash on hand. The acquisition expanded test and inspection capabilities in semiconductor and electronics markets and is included in Advanced Technology Solutions. The purchase-price allocation remained preliminary at quarter-end; recorded goodwill was $279.6 million and identifiable intangible assets were $58.6 million. Management said the acquisition was not expected to have a material impact on the consolidated financial statements.
The filing provides no numerical full-year earnings or sales guidance. Management cautioned that quarterly results are not necessarily indicative of full-year results. It described COVID-related labor shortages and business disruption in Asia Pacific, supply-chain and inflationary cost pressures, foreign-exchange exposure, interest-rate and debt risks, and risks associated with integrating CyberOptics. Forward-looking results may also be affected by economic conditions, trade and tax changes, geopolitical tensions, and pandemics. The company reported that it did not expect known litigation or environmental remediation costs to have a material adverse effect; the New Richmond, Wisconsin environmental accrual was $0.3 million.
Most important facts for investors to verify
- Whether organic demand, especially in China and Asia Pacific, stabilizes and how much reported sales continue to depend on acquisitions and currency movements.
- Whether gross and operating margins recover as inflationary pressures and CyberOptics-related inventory charges, fees and severance diminish.
- CyberOptics integration progress, final purchase-price allocation, and the returns generated on the acquisition.
- Debt repayment and refinancing plans, including the $420.9 million of current maturities and the 2023 euro-loan maturity, alongside the effect of higher interest rates.
- Working-capital trends, particularly inventory growth and operating cash conversion, and whether the stated liquidity outlook remains supported.