Nordson Corporation — Q1 FY2022 Form 10-Q
Reporting period: Three months ended January 31, 2022. Amounts below are in U.S. dollars; financial statement amounts are generally shown in millions unless stated otherwise.
Business context and results
Nordson makes precision technology and dispensing, processing, and inspection products for industrial, consumer, medical, and electronics markets. It reports Industrial Precision Solutions (IPS) and Advanced Technology Solutions (ATS). On November 1, 2021, Nordson acquired NDC Technologies and included it in IPS.
- Sales: $609.2 million, up 15.7% year over year. Management attributed the change to 16.0% organic growth and a 1.6% net acquisition/divestiture contribution, partly offset by 1.9% unfavorable currency translation.
- Profitability: Gross margin was 55.8%, versus 55.1%. Operating profit was $155.9 million, up from $109.0 million; operating margin rose to 25.6% from 20.7%.
- Net income and EPS: Net income was $120.4 million versus $77.6 million. Diluted EPS was $2.05 versus $1.32.
- Segments: IPS sales were $323.9 million, up 12.3%, with a 31.5% operating margin versus 28.9%. ATS sales were $285.2 million, up 19.8%, with a 26.8% operating margin versus 19.8%. ATS electronics dispensing sales grew approximately 40% year over year.
- Cash flow: Operating cash flow was $118.1 million, compared with $143.3 million. Capital expenditures were $12.5 million, versus $7.9 million.
- Liquidity and debt: Cash was $170.5 million at quarter-end, down from $300.0 million at October 31, 2021. Debt carrying value, including current maturities, was approximately $807.3 million. The $850 million revolving credit facility had no borrowings outstanding; Nordson reported compliance with debt covenants.
Changes, significant items, and management commentary
- Profit growth reflected higher organic volume, the divestiture of the screws and barrel product line, favorable sales mix, and cost control. The divestiture contributed to higher gross margin; inventory step-up amortization related to NDC partly offset the benefit.
- Cash declined primarily because Nordson used $171.6 million for the NDC acquisition. Inventory rose $39.2 million from October 31, 2021, reflecting expected demand, backlog, and the acquisition.
- NDC’s purchase price allocation remained preliminary. The acquisition added $129.9 million of goodwill and $31.1 million of identifiable intangible assets; its reported results were not material to the consolidated statements.
- Management cited supply-chain disruption, labor availability, cost inflation, and COVID-19 as ongoing operating uncertainties. The company said it was taking steps to offset pandemic-related cost increases and expected its capital resources, operating cash, and available financing to meet 2022 cash requirements.
- Backlog entering fiscal Q2 exceeded $900 million. Management expected Q2 sales growth of 6%–10% and full-year FY2022 revenue growth of 7%–10% versus the comparable FY2021 periods. It expected EPS growth for both periods but did not quantify it.
- Foreign-currency changes reduced reported sales; management estimated that sales and related costs would each have been higher if translated at prior-year exchange rates. Nordson also identified acquisition integration, economic conditions, currency movements, and pandemic developments among forward-looking risks.
- A California labor class action settlement was approved during the quarter and fully resolved; it had been fully reserved. The company’s environmental remediation accrual was $313,000, and management did not expect remediation costs to materially affect results or financial condition.
Important facts for investors to verify
- Whether the greater-than-$900 million backlog converts to shipments and revenue on the timing assumed in management’s outlook, given supply and labor constraints.
- Whether FY2022 revenue and EPS growth expectations are achieved; EPS growth guidance was not quantified.
- How NDC integration, its preliminary purchase-price allocation, and related amortization affect future margins and cash generation.
- Whether inventory growth and lower operating cash flow persist, and how acquisition-related cash use affects liquidity.
- Potential effects of COVID-19, inflation, foreign exchange, and other risks described in the filing and the company’s FY2021 Form 10-K.