Nordson Corporation — FY2020 Form 10-K
Reporting period: Fiscal year ended October 31, 2020; the filing also reports fourth-quarter results. Unless stated otherwise, financial amounts below are in millions of U.S. dollars. Nordson engineers and manufactures precision dispensing, coating, testing, inspection and related systems. It reorganized its former three operating segments into Industrial Precision Solutions (IPS) and Advanced Technology Solutions (ATS); prior-period segment data was recast. Approximately 64% of FY2020 revenue was generated outside the United States.
Financial performance and liquidity
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Sales | $2,121.1 | $2,194.2 | Down 3.3% |
| Gross margin | 53.3% | 54.3% | Down 1.0 percentage point |
| Operating profit | $349.5 | $483.1 | Down 27.6% |
| Operating margin | 16.5% | 22.0% | Down 5.5 percentage points |
| Net income | $249.5 | $337.1 | Down 26.0% |
| Diluted EPS | $4.27 | $5.79 | Down 26.3% |
| Operating cash flow | $502.4 | $382.9 | Up $119.5 |
| Capital expenditures | $50.5 | $64.2 | Down $13.7 |
Sales volume declined 3.7%; acquisitions added 0.6%, while unfavorable currency translation reduced sales by 0.2%. IPS sales fell 5.4% to $1,143.4 million and segment operating margin fell to 18.2% from 27.2%, principally reflecting the impairment charge. ATS sales decreased 0.8% to $977.7 million and segment operating margin was 19.6%, versus 20.9%.
Cash and cash equivalents were $208.3 million, compared with $151.2 million a year earlier. Current assets were $1,020.6 million and current liabilities $363.1 million. Total debt, including current maturities and before debt issuance costs, was $1,109.3 million; the company reported $1,067.952 million of long-term debt and $38.043 million of current maturities. The $850 million revolving credit facility had no amount drawn, and Nordson reported compliance with debt covenants. Operating cash flow benefited from working-capital improvement, especially receivables. Investing cash use rose to $194.1 million, including $142.4 million for acquisitions. Financing cash use was $251.5 million, including debt repayments and dividends.
Material changes and unusual items
- In Q4, Nordson recorded an $87.4 million non-cash impairment after classifying its screws and barrels product line as held for sale. This reduced FY2020 operating profit and net income; management said the product line’s operating results were otherwise not material. A definitive sale agreement was signed in December 2020, with closing expected by Q3 2021, subject to customary conditions.
- Q4 sales were $558.5 million versus $585.5 million in Q4 2019; net income was $18.5 million versus $102.7 million. Q4 diluted EPS was $0.31 versus $1.76. The filing attributes the sharp earnings decline primarily to the impairment.
- Gross margin fell amid unfavorable product mix, cost-structure simplification costs, currency effects and acquired-inventory step-up. Operating margin also reflected lower-volume absorption and severance costs.
- FY2020 included acquisitions of Fluortek and vivaMOS, both in ATS. Their combined contribution was less than 1% of consolidated sales and net income; purchase-price allocations remained preliminary at year-end.
- Interest expense declined to $32.2 million from $47.1 million, reflecting lower average debt and variable rates. The effective tax rate was 17.2%, versus 21.8%, including a $15.7 million tax benefit from share-based payment transactions.
Outlook, commentary and risks
Management expected Q1 FY2021 sales growth of approximately 2%–3% compared with Q1 FY2020. It expressed optimism about longer-term opportunities, citing diversified end markets, recurring parts and consumables revenue, direct sales, product innovation and the NBS Next growth framework. Management said cash from operations, available borrowing capacity and capital-market access were expected to be adequate for near-term liquidity needs. No full-year FY2021 earnings or sales guidance is provided in the supplied filing text.
COVID-19 disrupted demand and supply chains and reduced manufacturing efficiency, while safety measures and logistics constraints increased costs. The company continued operating its production facilities and reported resilient demand in some markets, but uncertainty remained around pandemic duration, restrictions, customer demand, collections and suppliers. Other cited risks include global economic weakness, tariffs and trade policy, foreign-exchange and interest-rate exposure, acquisitions and integration, goodwill valuation, cybersecurity, intellectual property, regulation, pension assumptions and debt-covenant or refinancing constraints. Management reported no goodwill impairment in its annual test. Environmental and other litigation contingencies were described as not expected to have a material adverse effect based on information then available; the California labor class action was subject to settlement and court approval.
Key investor verification points
- Verify the timing, closing conditions, proceeds and final accounting for the screws and barrels disposal, including whether the recognized impairment fully reflects the transaction economics.
- Assess underlying earnings and margins excluding the non-cash impairment, while distinguishing reported GAAP results from any non-GAAP analysis.
- Track post-pandemic demand by end market and segment, especially industrial markets and medical products tied to elective procedures, and compare Q1 FY2021 performance with management’s stated sales outlook.
- Review debt maturities, variable-rate exposure, covenant headroom and the availability of the revolving facility; gross debt was approximately $1.11 billion and 51% was floating-rate.
- Monitor acquisition integration and final purchase-price allocations for Fluortek and vivaMOS, as well as goodwill and intangible-asset assumptions.
- Confirm updates to the held-for-sale transaction, litigation and environmental contingencies, and the effects of foreign exchange, supply constraints and COVID-19 on cash conversion and operating costs.