Nordson Corp (NDSN) Q1 2021 Earnings Call Transcript

Image source: The Motley Fool.

Nordson Corp (NDSN -0.15%)
Q1 2021 Earnings Call
Feb 23, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Nordson Corporation First Quarter Fiscal Year 2021 conference call.. [Operator Instructions].

I would now like to hand the conference over to Lara Mahoney, thank you. Please go ahead.

Lara Mahoney -- Vice President, Investor Relations & Corporate Communications

Thank you. Good morning. This is Lara Mahoney, Vice President of Investor Relations and Corporate Communications. I am here with Sundaram Nagarajan, our President and CEO and Joseph Kelley, Executive Vice President and CFO. We welcome you to our conference call today, Tuesday, February 23, 2021, to report Nordson's fiscal 2021 first quarter results.

You can find both our press release as well as our webcast slide presentation that we will refer to during today's call on our website at www.nordson.com/investor. This conference call is being broadcast live on our investor website and will be available there for 14 days. There will be a telephone replay of the conference call available until Tuesday, March 2nd.

During this conference call, references to non-GAAP financial metrics will be made. A complete reconciliation of these metrics to the most comparable GAAP metric was provided in the press release issued yesterday.

Before we begin, please refer to slide 2 of our presentation, where we note that certain statements regarding our future performance that are made during this call may be forward-looking based upon Nordson's current expectation. These statements may involve a number of risks, uncertainties, and other factors as discussed in the company's filings with the Securities and Exchange Commission that could cause actual results to differ.

Moving to today's agenda on slide 3. Naga will discuss first quarter highlights. He will then turn the call over to Joe to review sales and earnings performance for the total company and the 2 business segment. Joe also will talk about the balance sheet and cash flow. Naga will conclude with high level commentary about our enterprise performance as well as our fiscal 2021 full-year guidance. We will then be happy to take your questions. With that, I'll turn to slide 4 and hand the call over to Naga.

Sundaram Nagarajan -- President and Chief Executive Officer

Good morning, everyone. Thank you for joining Nordson's fiscal 2021 First Quarter Conference Call. Nordson was well positioned as we entered fiscal 2021. Our COVID-19 safety measures and protocols have ensured we continue to operate safely in this environment. This has allowed us to be agile and responsive to the needs of our customers who serve a very diverse set of end markets including consumer non-durable, medical, electronics and general industrial. During 2020, we remained invested in what makes Nordson strong, the direct sales model and our innovative precision technology portfolio. Additionally, we were successful in advancing several aspects of our long-term growth strategy. Using the NBS Next growth framework, our employees have been investing their resources in our best opportunities for profitable growth. While this remains a dynamic macroeconomic environment, our team has delivered a very solid first quarter on both the top and bottom line. It is noteworthy that our first quarter sales and profits are about both fiscal ' 20 and fiscal 2019 comparisons. In particular, our Industrial Precision Solutions team delivered strong year-over-year growth benefiting from improvements in consumer non-durable and industrial end markets. They also achieved profit margin expansion as volume leverage, improved sales mix, and manufacturing efficiency gains all combined within the quarter. In the Advanced Technology Solutions segment, our test and inspection product lines continue to grow. Advancements in technology are causing electronics customers to shift from sampling to 100% inspection and we are benefiting from this trend. And our Medical Fluid Components product line delivered double-digit organic growth, largely driven by biopharmaceutical application such as tamper proof packaging for vaccine delivery.

As the first quarter progressed, we were encouraged by the order entry momentum that we are starting to see in the product lines serving the broader medical and electronics end markets. We are particularly pleased to see the profit margin expansion ATS delivered on modest growth as the strategic actions taken throughout 2020 to right-size the cost structure of several businesses within this segment delivered the desired results. I will speak more about the business in a few moments, but first, I'll turn the call over to Joe to provide a more detailed perspective on our financial results for the quarter.

Joseph P. Kelley -- Executive Vice President and Chief Financial Officer

Thank you, Naga and good morning to everyone. On slide number 5, you see first quarter 2021 sales were $527 million, an increase of 6% over prior year's first quarter sales of $495 million. The increase was primarily related to organic volume and favorable currency with additional benefits from the Fluortek and vivaMOS acquisitions. The organic growth was driven by strength in consumer non-durable and industrial end markets, plus particular strength in the Asia region. Gross profit totaled $290 million or 55% of sales in the quarter compared to $263 million or 53% of sales in the prior year. This 190 basis point increase in gross margin was driven by the combination of volume leverage, improved sales mix, and benefits from structural cost reduction measures taken in fiscal 2020. It is noteworthy that 55% is the highest quarterly gross margin since the 3rd quarter of fiscal 2018.

Operating profit in the quarter was $109 million or 21% of sales, a 39% increase from the prior year adjusted operating profit of $78 million. It is here in the operating profit growth rate that you see additional benefits from the fiscal 2020 cost reduction efforts as SG&A decreased 4% from the prior year first quarter level of $188 million. EBITDA for the quarter was $135 million or 26% of sales which is 26% higher than the prior year EBITDA of $107 million. Looking at non-operating expense, net interest expense decreased $3 million or 28% from the prior-year level associated with reduced debt levels and the lower effective borrowing rate. Other expenses increased $2 million largely driven by currency translation losses associated with the weakening of the US dollar. Tax expense in the quarter totaled $20 million or an effective tax rate of 21% in the quarter. Net income in the quarter increased year-over-year 49% to $78 million or a $1.32 per share. This significant growth is reflective of a 6% increase in sales as well as benefits from cost-control measures and efficiencies driven by the NBS Next growth framework. Additionally, the first quarter of 2020 included a pre-pandemic cost structure and therefore profitability was lower.

Now, let's turn to slide 6 and 7 to review the first quarter 2021 segment performance. Industrial Precision Solutions sales of $288 million increased 9% compared to the prior year first quarter. The organic volume increase of 6% was driven by strong demand and flexible packaging and nonwovens product lines, as well as industrial end markets. A strengthening euro and RMB also contributed to 3% in currency benefits during the quarter. Operating profit in the segment was $83 million or 29% of sales compared to $57 million of adjusted operating profit in the prior year period. This 47% percent profit growth was driven by sales volume leverage, favorable sales mix, improved manufacturing efficiency and lower year-over-year SG&A including reduced travel expense. Advanced Technology Solutions sales of $238 million increased approximately 3% compared to the prior year first quarter. This change included an increase of approximately 2% related to acquisitions as well as currency gains of 2%. These benefits were offset by a decrease in organic sales volume of 1%. The lower organic sales volume was a mixture of increased demand for test and inspection, medical fluid component, and fluid dispense product lines offset by continued softness in the medical interventional solutions and certain electronic dispense application. It is particularly encouraging to see the return to growth in our fluid dispense product lines serving industrial and automotive end markets.

First quarter 2021 operating profit for the segment was $47 million or 20% percent of sales. This increase of 450 basis points over prior year adjusted operating margin of $35 million or 15% of sales was driven by favorable sales mix and the realization of benefits from cost control measures taken in fiscal 2020.

Finally, turning to the balance sheet and cash flow on page 8. We again end the quarter with a very strong balance sheet and significant available borrowing capacity. Cash totaled $226 million and net debt was $794 million, ending the quarter with a 1.3 times leverage ratio based on trailing 12 months EBITDA. Free cash flow in the quarter was strong at $135 million, a 32% increase above the prior year free cash flow for a conversion rate on net income of 175%. Higher net income and working capital liquidation contributed favorably to the free cash flow in the quarter.

I will now turn the call back to Naga.

Sundaram Nagarajan -- President and Chief Executive Officer

Thank you, Joe. Let's turn to slide 9.

First, I want to thank the team for delivering a very strong first quarter. Over the past 2 months, Joe and I have been actively engaged in business reviews and virtual facility tours around the world. I'm very excited about the energy within our divisions and the steady deployment of the NBS Next growth framework whether that is in how teams are organizing data to fuel decision making or the prioritization of best products in the manufacturing processes. We're also seeing the strategic analysis of product lines to identify the best growth opportunities and filling the sales funnel with these targeted accounts. One tangible results from the strategic discipline element of NBS Next was seen on February 1, 2021 as we successfully closed the divestiture of our screws and barrels product line. Our decision to divest this product line was based on critical insights gained from the NBS Next data driven segmentation approach. While this business is a respected leader in the plastics industry, it did not fit Nordson's profitable growth objectives. By divesting this business, we will focus our resources on growing more profitable product lines that will deliver on our long-term objectives. We believe our remaining PPS division as the right degree of differentiation and related technical competitive advantages to deliver over time Nordson like growth and returns.

I would like to take a moment to recognize recent changes to our Board of Directors. At the end of November, we welcome Dr. John DeFord, the Executive Vice President and Chief Technology Officer of Becton Dickinson and Company and Jennifer Parmentier, Vice President and President of the Motion Systems Group of Parker Hannifin to our Board of Directors. John's technical and regulatory experience in the medical device end market will enrich the strategic perspective of our Board as we continue to grow in this attractive market. Jenny brings strong operational, industrial, and M&A experience to the Board, which will be important as we continue to deploy our NBS Next growth framework. John and Jenny's appointments follow the retirement Joe Keithley, Randy Carson, and Lee Banks. I would like to thank Joe, Randy, and Lee for their many insights and contributions throughout their time on the board. Our board now stands at 9 directors, 56% of whom are diverse, the average tenure is now 7 years. I would also like to remind you of our upcoming Virtual Investor Day, the morning of March 30th. We will share more about the ongoing deployment of NBS Next as well as our long-term strategic priorities and financial goals. We will also use this time to give investors a better understanding of our strong competitive advantage differentiated product portfolio and diversified end markets and growth drivers. Please visit our website to register.

Now, for the outlook on slide 10. As we exit the fiscal first quarter, backlog was approximately $495 million, an increase of 7% compared to the same period a year ago. Trailing 12 week order entry is above prior year levels across the majority of our product lines and geographic regions. These very positive indicators suggest continued year-over-year sales growth despite the divestiture of the screw and barrels product line. For full year fiscal 2021, we expect sales growth to be approximately 4% to 6% over fiscal year 2020. Excluding the 3% headwind from the revenue the divested screws and barrels product line in the prior year, our forecasted full-year sales growth would be approximately 7% to 9% our forecasted sales growth combined with strategic actions taken around efficiency and cost this forecast is to deliver earnings in the range of $6.30 to $6.70 per diluted share. The midpoint of this guidance reflects 19% earnings growth compared to prior year. While it remains a dynamic environment and business conditions are changing frequently as the world responds to the challenges of COVID-19 virus and its variants, we are confident in the diversity of our end markets and the strength of our backlog. Nordson is well positioned to deliver on the needs of our customers.

As always, I want to thank our customers, employees, and shareholders for your continued support. With that, we will pause and take your questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question is from Saree Boroditsky with Jefferies. Your line is open.

Saree Boroditsky -- Jefferies -- Analyst

Hi, thanks for taking my questions. So, sales guidance [Phonetic] implies 5% growth for the remainder of the year, which is slightly below 1 quarter despite having some easier comparables, so could you just talk about if there is anything that you're seeing in the market to make more cautious on improving growth rates.

Sundaram Nagarajan -- President and Chief Executive Officer

Joe, you want to take them.

Joseph P. Kelley -- Executive Vice President and Chief Financial Officer

Yes. So when you think about our sales guidance Saree for the remainder of the year, you have to consider that we have the divestiture of the screw and barrel business. So excluding the divestiture of the screw and barrel business, it suggests a 7% to 9% growth rate when you look at our guidance. Now, I will remind you that is comparable to our Q1 growth rate excluding the screw and barrels business which was over 7% and entering the Q2 our backlog is approximately $500 million, which is approximately 7% above when we entered Q2 last year. Now a little bit further color we mentioned Q1 was strong, particularly in Asia. When you look at the timing of Chinese New Year, it is important to understand that Chinese new year fell into Q1 in the prior year whereas this year it falls into Q2. So that will be a little bit of a headwind in Q2. When you look at our guidance, the range from an incremental margin standpoint, it would suggest that the remainder of fiscal '21 would be in the incremental margins from the mid-40s to about 55% that is lower incremental margin than the 97% that we delivered in Q1, but when you think about it going forward in '21 there is a couple of issues that make the comparisons more challenging. One is we started taking cost out in 2020 throughout the year and so from a cost structure standpoint, the Q1 was a much easier comparison than Q2 and Q3 as we took those actions throughout the year last year. The other issue I would tell you is incentive comp, which naturally behaves variable and last year, particularly in Q2, the incentive comp, our SG&A included a reversal of the long-term incentive comp that had been accrued, so that'll be a particular headwind in Q1 -- I'm sorry in Q2 to the incremental margins. And then the other thing, as volumes continue to recover, travel expense should come back as we continue to be invested in our direct sales model and so that will near closer to historical levels. So these headwinds, I would tell you going forward is what has the incremental margins dropping from the 97, we just saw in Q1, down to about the mid '40s to 55 is what the guidance would suggest and so these headwinds are being offset clearly by the divestiture of the screw and barrel business, which will improve margins and the continued benefits as we deploy NBS Next throughout the organization.

Saree Boroditsky -- Jefferies -- Analyst

Thanks. That's a lot of great color. And then more of a high-level question, there's been a lot of semiconductor capacity announcements out there. Can you talk about how you could benefit from this expansion activity and you've seen any of this flow through your order rates. Thank you.

Sundaram Nagarajan -- President and Chief Executive Officer

Yeah. Saree that's a great question. As we have talked about semiconductor devices and the opportunities for Nordson, this is an area of particular strength for the Company. Clearly we see advantages for us in the test and inspection, as well as our dispense business. What you find is that are 2 things going on here, with semiconductor device demand increases, you're going to get capacity additions. Those capacity additions will take the form of both dispense product lines as well as test and inspection product lines, but in the shorter term, you're going to find more test and inspection because our customers, it takes a little bit of time to bring on new capacity, but what they are really spending a lot of time is using test and inspection to improve yields that will help them meet some of the accelerating demand. So very excited about this, this is a great opportunity for the company, well positioned to win here ourselves. If you have any additional questions, I would be happy to answer.

Saree Boroditsky -- Jefferies -- Analyst

I guess one more then, you talked about renewed growth in the auto end market, could you just talk about where you're seeing that space and how Nordson can benefit from increase in capex and facilities for EVs and thank you.

Sundaram Nagarajan -- President and Chief Executive Officer

Yeah. On the EV side, clearly we're, this is an emerging market for us and an emerging opportunity where we find the greatest opportunities are in the battery manufacturing. So you could think about batteries that put together, many different ways. One of the ways, as you know you're combining multiple [Phonetic]cells, so we have a lot of opportunity in manufacturing of the battery, that is one way. The second is that you could think about our test and inspection. Test and inspection business definitely benefits from power electronic components like IGBTs which are increasing demand, becoming more complex and hence we have an opportunity here both to benefit in battery as well as in electronic components.

Saree Boroditsky -- Jefferies -- Analyst

That is great color. Thanks for taking my questions today.

Sundaram Nagarajan -- President and Chief Executive Officer

Thank you.

Operator

Your next question is from Matt Summerville with D.A. Davidson. Your line is open.

Matt J. Summerville -- D.A. Davidson & Co. -- Analyst

Thanks. Couple of questions. Maybe just back to test and inspection. Now, I guess you were to use a baseball analogy in terms of how much in line testing is being performed and how much runway is in front of that business, what do you, I mean, would you say we're in with what you're seeing in T&I right now.

Sundaram Nagarajan -- President and Chief Executive Officer

T&I 100% inspection is early in it, so you see that a lot in auto electronics, you're beginning to see some of that in semiconductor, but clearly early in it.

Matt J. Summerville -- D.A. Davidson & Co. -- Analyst

And then just maybe one on corporate expense, in the fiscal first quarter, I think it was some $8 million above the prior year, that seemed unusually high. Can you talk about what drove that variance and what sort of quarterly run rate we should be utilizing going forward. Thank you.

Sundaram Nagarajan -- President and Chief Executive Officer

Hey, Joe. you want to take that.

Joseph P. Kelley -- Executive Vice President and Chief Financial Officer

Yes. The increase, when you look year-over-year as I mentioned in some of my comment is from incentive comp and so while that was a tailwind last year, it's a headwind this year, and so from a year-over-year standpoint, that's what you see in the drive in some of the corporate expense increase when you think about it from a full-year run rate historically that fluctuate between $50 million on an annualized basis and call it $65 million depending on performance.

Matt J. Summerville -- D.A. Davidson & Co. -- Analyst

Got it. Thank you.

Operator

Your next question is from Allison Poliniak-Cusic with Wells Fargo. Your line is open.

Allison Poliniak-Cusic -- Wells Fargo Securities -- Analyst

Hi guys, good morning.

Sundaram Nagarajan -- President and Chief Executive Officer

Good morning.

Allison Poliniak-Cusic -- Wells Fargo Securities -- Analyst

Just going back to the semi challenges that are happening right now. I know you talked specifically to that market, but are you hearing or any sort of project delays related to maybe your other electronics end market auto comes to mind just given some of the plant closures that have been happening lately. Any color there.

Sundaram Nagarajan -- President and Chief Executive Officer

Yeah, sure, Allison. No, we have not really heard a lot in terms of, if you remember we are more involved in setting up the line and in -- in platform launches. We are not really in the direct production line, which is sort of where you are seeing some of the delays. So no, we do not anticipate any delays, have not noticed, but what we are seeing is pickup in expectations from specifically auto electronic customers who are looking to the ramp up capacity by increasing yield and so you see that in test and inspection growth.

Allison Poliniak-Cusic -- Wells Fargo Securities -- Analyst

That's helpful. And then just looking at leverage -- obviously a very healthy range for you. As we're sort of hopefully getting out of this COVID -- the COVID

Challenges, any thoughts or changes to how, what you would view as an optimal leverage range for Nordson going forward here.

Sundaram Nagarajan -- President and Chief Executive Officer

Joe?

Joseph P. Kelley -- Executive Vice President and Chief Financial Officer

Yeah. So we ended the quarter at approximately 1.3 times leverage. We continue to be very comfortable at leverage ratios higher than that. And when you think about 2 times to 3 times leverage, we would be comfortable, we have the capacity to go up based on our current debt structure to 3.75 times. But as we look at it and look at the opportunities, we do continue to prioritize M&A and would be looking to take the leverage ratio up closer to the 2 to 2.5 range to support.

Allison Poliniak-Cusic -- Wells Fargo Securities -- Analyst

Great, thank you. I'll pass it along.

Operator

Your next question is from Chris Dankert with Longbow Research. Your line is open.

Chris Dankert -- Longbow Research -- Analyst

Hey, good morning guys. I guess Joe, definitely appreciate the comments around incremental and how guidance moves forward from here, but I guess to dig in a little bit on an IPS specifically 1Q typically the low watermark for IPS margin 29% is quite impressive I guess, is that level of margin execution repeatable, do we build from here as the rest of the year, is flat, good performance, if any, if you could put that 29% margin number in context that would be really helpful.

Joseph P. Kelley -- Executive Vice President and Chief Financial Officer

Yeah, part of what we see going on here is this acceleration of demand in Q1, I think makes some of our normal seasonality a little bit in question, perhaps this acceleration overrides the normal seasonality we would see throughout the year. But specifically related to that 29%, they had a very, very favorable mix, particularly parts volumes were up and there was nice leverage going on, it was in that business, where we did take some cost out. If you recall the cost action there in Q4, which was delivering benefits here in Q1 to cost structure. But when you think about that segment going forward, the divestiture of the screw and barrel business will provide further margin improvements to that. So when you think about it going forward the margins there should expand off of this what you referenced as a very high watermark here in Q1.

Chris Dankert -- Longbow Research -- Analyst

Got it. And not to press my luck too much here, but I guess, are you willing to break out what the impact of mix was on the quarter.

Joseph P. Kelley -- Executive Vice President and Chief Financial Officer

Yeah, I would not, I mean you referenced of 29% was a very high watermark, we haven't seen that since back in 2019. And so we're pleased with the profitability levels back there at this lower range. A lot of it is coming from the improvement in the mix within the business. So if you think about NBS Next and as we focus on our most profitable opportunities, really that has allowed us not just to take cost out, but also to drive an improvement in the sales mix. And so that's what you see in that 29%.

Chris Dankert -- Longbow Research -- Analyst

Got it. I got it.

Sundaram Nagarajan -- President and Chief Executive Officer

Chris, one more of that I would add is that if you think about the volume, the volume leverage in this business is really good and so we had a pretty strong volume growth that helped us deliver some pretty nice incrementals, so you're, you've got an accelerated recovery that is helping us. And as you go into the out quarters that volume is going to come down a bit, but we're comfortable with the current margin rates. But I think it's important to remember the volume play here as well.

Chris Dankert -- Longbow Research -- Analyst

Got it, yeah., thank you for that color. Really appreciate it. And I guess one last one from me what is the FX benefit assumed in guidance, when historically FX swings can be fairly significant, just any comment on FX and kind of what you're baking in here to be great yeah.

Joseph P. Kelley -- Executive Vice President and Chief Financial Officer

Yeah, FX in the quarter proved to be more favorable than we had originally anticipated. And so for our forecast we are assuming the current exchange rates maintained throughout the remainder of the year. And so that had or that benefit should continue, it starts to moderate a little bit on a year-over-year basis in Q4.

Chris Dankert -- Longbow Research -- Analyst

But I should still be and not to pin it down but about 2% to 3% benefit for the full year at current rates, correct.

Joseph P. Kelley -- Executive Vice President and Chief Financial Officer

You are correct.

Chris Dankert -- Longbow Research -- Analyst

Got it. Thanks so much. Yeah.

Joseph P. Kelley -- Executive Vice President and Chief Financial Officer

Yep.

Operator

Your next question is from Christopher Glynn with Oppenheimer. Your line is open.

Christopher Glynn -- Oppenheimer & Company -- Analyst

Thank you, good morning guys.

Sundaram Nagarajan -- President and Chief Executive Officer

Good morning.

Christopher Glynn -- Oppenheimer & Company -- Analyst

I was curious. Couple of questions on IPS, wondering if any markets production processes that you serve are currently showing any nice shift to adhesive centeric assembly from stitch or fasteners.

Sundaram Nagarajan -- President and Chief Executive Officer

Chris, couple of things. First and foremost the Adhesive business is pretty strong, one of the areas that we are beginning to see some really nice pick up is in electric vehicles and in battery manufacturing, it is an area that we continue to benefit from. Ongoing automation across a wide variety of application is also beneficial to this business. So, think about adhesive dispensing allowing our customers to automate their manufacturing processes so we see a lot of benefit there, not any particular one end market than the other, but I would say a broad set of end markets, clearly consumer electronics, interestingly enough, as you have some wearables and other new consumer opportunities. So if you think about our Adhesive business really is dependent -- it has grown mainly through new applications at big lever and that is pretty strong and we continue to benefit from automation, so the 2 things I would tell you on a big driver would be battery and number 2, automation.

Christopher Glynn -- Oppenheimer & Company -- Analyst

Okay, thank you for that. And wondering relative to the 2 segments within your organic outlook. Do you see ATS kind of following up so where IPS started the year and kind of coupling the type of organic growth we expect for the balance of the year.

Sundaram Nagarajan -- President and Chief Executive Officer

Yeah, what we are really, let me give you some end market trend. And then, Joe, can add some color about how we are thinking about the actual growth rates. Yes, what we expect is in the back half. There are 2 things here. One is, if you know, our medical business as COVID eases and as elective surgeries come back, we said, we expect our medical business to get back to the high-single digit rates in the back half of the year. So that's one big driver for us. Second is you begin to see some very strong electronic orders in our business today, that will show up in the second half as a growth driver for us. In terms -- so those 2 will certainly help -- help our ATS business. One thing that we have not talked about is that our medical fluid component business, which is primarily driven biopharma applications, has a solid growth in the quarter, we expect that to continue that continued strength in the out quarters. It's a big -- it's a small business today, but we are very excited about this opportunity. This is really because of all of the single-use components.

Christopher Glynn -- Oppenheimer & Company -- Analyst

Sounds great. Thanks. Just a last one if I can sneak it in. The FX impact on the top line, does that still sort of drop-through as a 2 to 3 times multiplier to the earnings impact.

Joseph P. Kelley -- Executive Vice President and Chief Financial Officer

Yeah. So the FX to the bottom line our cost structure aligns I would say with our sales structure quite well. In terms of the FX, euro denominated and GBP denominated cost as well as revenue, so that does flow through. There is a little bit of a margin expansion within our IPS business when you see the dollar weaken against the euro and the GDP.

Christopher Glynn -- Oppenheimer & Company -- Analyst

Thanks for the color.

Operator

[Operator Instructions] Your next question is from Andrew Buscaglia with Berenberg. Your line is open. Morning, guys.

Sundaram Nagarajan -- President and Chief Executive Officer

Good morning.

Joseph P. Kelley -- Executive Vice President and Chief Financial Officer

Good morning.

Andrew E. Buscaglia -- Berenberg Capital Markets -- Analyst

I just want to touch on the ATS. So I thought -- I thought we would do that turning to growth just given a difficult -- given that we're [Phonetic]lapping some easier comps and yeah, your overall guidance really for organic growth is not quite that high if you exclude FX, it doesn't really include -- it doesn't really seem to be assuming much of a snap back in ATS in the back half. I'm just trying to figure out, you just being conservative or just like it hasn't quite grown. What do you say, can grow 2 to 3 times GDP in 3 years now. So what can or can you give some investors some confidence that is growth is coming or is it just conservatism.

Joseph P. Kelley -- Executive Vice President and Chief Financial Officer

So I guess when you think about the growth rate of 4% to 6% and going forward, it's important that excluding the divestiture again at 7% to 9%. And so if you think about FX, that would suggest 3 -- or sorry 4% to 6% organic in that range. So just -- so we're clearly I guess [Speech Overlap] components.

Sundaram Nagarajan -- President and Chief Executive Officer

And one of the things that I would add to is that on the ATS side as COVID eases our medical business today is primarily flat because COVID declined -- COVID related surgery decline putting a damper on our component business, but offset by very strong growth in biopharma OK. But as COVID eases in the back half we do expect this business to get back to high single digits in the back half. So the -- so the ATS, what we have baked in, is we are expecting medical to come back. We certainly on the electronic side, it is important for you to remember that broadly Nordson plays in high-precision application. What we are really good at test and inspection is growing nicely for us. So that is baked in to our outlook as we have forecasted it today. Test and inspection continues to grow and if you think about Electronic Dispense business, we are seeing some pretty nice order entry that is starting to grow in the second half. Maybe level set here on the electronics dispense side of our business, if you think about our Electronics Dispense business, what we're really good at is high precision reliable dispense at very high speeds, that's what we are good at, and this has greater application across a broad category of electronic end markets, not specifically one particular product category like a smart phone or other things like that. What we are finding is that the demand is pretty high for this level of position driven by all of this digital acceleration that you're seeing driven by automotive electronics and so what we really like here is that we have a new team in place. That is looking -- that is using NBS Next and looking at opportunities, clearly what we are seeing is that mobile phone manufacturing has matured, it has matured and hence these applications don't require that level of precision that is needed and so we've got a new team looking at, we're looking at this opportunity, but more focused around semiconductor package -- more focus on the digital acceleration across a broad spectrum of end markets and we are confident that this business gets back to mid single digits growth and you'll start to see some of that in the second half of the year. [Speech Overlap].

Joseph P. Kelley -- Executive Vice President and Chief Financial Officer

When you think about our growth rate organic of, let's call it 4% to 6%, don't forget that in 2020, our sales only dropped about 3% to 4%, so the drop-off from 19 wasn't as significant as others. So therefore the bounce back opportunity is not as significant.

Andrew E. Buscaglia -- Berenberg Capital Markets -- Analyst

Yeah. And I think, yeah you sound like China had a good as expected, was pretty strong Q2, it going to be a little dampened over there, but yeah, I guess, exiting the year in the second half presumably, all 3 regions China, Europe and US yeah, it sounds like those. I'll have to be -- or what you're assuming those are growing in tandem exiting '21, just based on easy comps and the pandemic lifting. is there any other like regional I guess regional color you can provide, you know that would

Sundaram Nagarajan -- President and Chief Executive Officer

Yeah, Andrew, I think kind of if anything, what I would tell you is that Asia is strong today. Europe is flat organically. We do expect that to change. US is starting to strengthen. But right now, it's slightly low in the first quarter but I wouldn't add anything more than what you've already captured.

Andrew E. Buscaglia -- Berenberg Capital Markets -- Analyst

All right, thanks guys.

Operator

Your final question is from Walter Liptak with Seaport. Your line is open.

Walter S. Liptak -- Seaport Global -- Analyst

Hi, good morning guys.

Sundaram Nagarajan -- President and Chief Executive Officer

Good morning.

Joseph P. Kelley -- Executive Vice President and Chief Financial Officer

Good morning.

Walter S. Liptak -- Seaport Global -- Analyst

I wanted to ask about the NBS Next and can you maybe elaborate a little bit about the cost savings that you got benefited this quarter versus the benefits from NBS Next, is it possible to differentiate one from the other.

Sundaram Nagarajan -- President and Chief Executive Officer

No, I mean, it's really not, because when you say on the cost savings that we referenced. I think at several points when you step back and think about our cost actions. It was all driven by the strategic discipline within our NBS Next growth framework and so as we focus on the best growth opportunities we stayed invested in those opportunities so that we could capitalize on that and then where there weren't the best growth opportunities that is where we took action to rightsize I would say our cost footprint or the example of the screw and Barrel divestiture -- improve our profitability there. So at the heart of it, Walt, I would tell you the margin expansion when we referenced sales mix improvement within IPS when we reference benefiting from the cost structure reduction actions all of that is rooted in the NBS Next strategic discipline growth framework and so it's really when I look at it, when we look at the incremental margins of 97% we say that's a lot of NBS Next delivering the benefit.

Walter S. Liptak -- Seaport Global -- Analyst

Okay. Okay. And let me, let me try this way, as you look at your SG&A overall for the remainder of the year. Is there like a dollar level or percentage of sales, so you can help us with, so we can, we can think about that -- the cost benefits and some of these costs coming back into Nordson.

Joseph P. Kelley -- Executive Vice President and Chief Financial Officer

Yes. I guess let me just give a little color commentary specifically on costs. Last year we had several actions that referenced incremental annualized cost savings some of them were 10 million, one was 5 million and some of those started at different points throughout 2020. And so those are hitting at the full, I would say, benefit run rate here in Q1, so that you see that -- that should be maintained going forward. I will tell you also on the cost side, we are benefiting on a year-over-year basis of about $6 million for lower T&E expense as Q1 last year did not have the pandemic cost structure of no travel, and so as that starts to come back going forward, there is a potential of another $6 million. I don't think it all come back right away, but as you think about it from this run rate, it is about 6 million on the T&E that we benefited in Q1 so and the other thing I referenced is that Q1 typically is our heavy SG&A quarter, if you look, last year and the prior year for different employee benefit reasons. And so that trend should continue as we go forward throughout 2021.

Walter S. Liptak -- Seaport Global -- Analyst

Okay, OK thanks for that color. And then maybe just the last one for me about, you mentioned in the prepared remarks, the vaccine packaging. I wonder if you could just talk a little bit more about that, is there a revenue size or these orders that came in last year, that, that shift is there more orders that will -- will benefit or come through sales and second quarter or second half.

Sundaram Nagarajan -- President and Chief Executive Officer

Sure. You know, this is a really strong growth driver for us and one that we have been working on for some number of years, Walter, and starting to show up in the marketplace right now. This is single use plastic components, which are used in the manufacture of biopharma and in this particular case vaccines as well and we saw some pretty strong growth in the quarter, we expect that growth to continue in the out quarters and maybe even further out. And the biggest reason we are able to have a sort of a flat medical revenue when compared to our customers being down 15% is mainly because of this biopharma growth driver. And so it is more of our single-use plastic components that are used in critical biopharma manufacturing steps.

Walter S. Liptak -- Seaport Global -- Analyst

Okay got it, all right, thank you.

Operator

We have no further questions, I will turn the call back to presenters for closing remarks.

Sundaram Nagarajan -- President and Chief Executive Officer

Thank you for your time and attention on today's call. We look forward to talking to you further during our virtual Investor Day on March 30. Have a great day. Thank you.

Operator

[Operator Closing Remarks]

Duration: 51 minutes

Call participants:

Lara Mahoney -- Vice President, Investor Relations & Corporate Communications

Sundaram Nagarajan -- President and Chief Executive Officer

Joseph P. Kelley -- Executive Vice President and Chief Financial Officer

Saree Boroditsky -- Jefferies -- Analyst

Matt J. Summerville -- D.A. Davidson & Co. -- Analyst

Allison Poliniak-Cusic -- Wells Fargo Securities -- Analyst

Chris Dankert -- Longbow Research -- Analyst

Christopher Glynn -- Oppenheimer & Company -- Analyst

Andrew E. Buscaglia -- Berenberg Capital Markets -- Analyst

Walter S. Liptak -- Seaport Global -- Analyst

More NDSN analysis

All earnings call transcripts