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Nordson Pops on Advanced Technology Strength

By Steve Symington - Updated Dec 14, 2017 at 8:37AM

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The adhesive-dispensing systems leader set a fresh 52-week high after crushing expectations with its latest quarter. Here's what investors need to know.

Nordson Corporation (NDSN -0.91%) announced stronger-than-expected fiscal fourth-quarter 2017 results on Wednesday after the market closed, helped by a surprise increase in organic sales despite a difficult comparison to the same year-ago period. With shares up nearly 10% in after-hours trading as of this writing, let's take a closer look at what the adhesive-dispensing solutions company achieved over the past few months, as well as what investors should expect going forward.

Circuit board with machinery applying adhesive

IMAGE SOURCE: NORDSON CORPORATION.

Nordson results: The raw numbers

Metric

Fiscal Q4 2017*

Fiscal Q4 2016

Year-Over-Year Growth

Revenue

$573.9 million

$509.3 million

12.7%

GAAP net income

$79.8 million

$75.9 million

5.2%

GAAP earnings per share (diluted)

$1.37

$1.31

4.6%

*FOR THE QUARTER ENDING JULY 31, 2017. DATA SOURCE: NORDSON CORPORATION.

What happened with Nordson this quarter?

  • Revenue growth was comprised of a 2% increase in organic volume, 10% growth from the first-year effect of acquisitions, and a 1% increase related to foreign-currency exchange.
  • By comparison, Nordson's guidance (provided last quarter) was much more conservative in calling for consolidated revenue growth of 4% to 8%, assuming a decline in organic volume in the range of 7% to 3%. Nordson also predicted significantly lower GAAP earnings per share of $1.18 to $1.32.
  • On an adjusted (non-GAAP) basis, Nordson's net income declined by $0.01 per share, to $1.38, but easily beat consensus estimates for $1.33 per share.
  • Operating margin expanded 4 percentage points, to 28%, above guidance for 21%.
  • Adjusted EBITDA grew 16.4% year over year, to $149.8 million.
  • Revenue by segment included:
    • 6% growth from adhesive-dispensing systems, including 2% related to currencies and 4% organic growth. The latter was driven by strength in all product lines and nearly every region.
    • 29% growth from advanced technology systems, including better-than-expected 4% organic volume growth and a 25% increase related to acquisitions.
    • An 8% decline from industrial coating systems after lapping a particularly strong quarter for cold material product lines in last year's fiscal fourth quarter. 
  • Revenue by geography included:
    • 24.2% growth in the U.S., to $183.1 million.
    • 15.4% growth in the rest of the Americas -- 13.7% excluding currencies -- to $39.1 million.
    • 15.2% growth in Europe -- 9.3% excluding currencies -- to $149.3 million.
    • 31.7% growth in Japan -- 42.7% excluding currencies -- to $50.7 million.
    • A 5.1% decline in Asia-Pacific -- down 6.1% excluding currencies -- to $151.8 million.

What management had to say

Nordson CEO Michael Hilton stated:

Nordson delivered strong results in the quarter against very challenging prior year comparisons where total company organic sales growth was 13%. Driven largely by robust demand in electronics end markets within the Advanced Technology segment, results for the quarter exceeded our guidance. This increase in volume, coupled with our continuous improvement initiatives, contributed to EBITDA margin improvement of 1 percentage point as compared to the prior year's fourth quarter to 26 percent of sales.

Looking forward

Based on Nordson's backlog, which had climbed 45% year over year, to $402 million at the end of the quarter, Nordson expects fiscal first-quarter 2018 revenue to increase 30% to 34% year over year -- far above the roughly 11% growth investors were expecting. This guidance assumes organic volume growth of 15% to 19%, an 11% contribution from acquisitions, and a 4% favorable impact from currencies.

At the midpoint of that revenue range, operating margin should arrive at roughly 22%, and GAAP earnings per diluted share should be in the range of $1.29 to $1.39 -- including a $0.07-per-share intangible asset amortization expense related to last year's acquisitions.

Hilton added that growth next quarter once again will be driven by the Advanced Technology segment, thanks to continued strength in the electronics and medical end markets. That said, Nordson also warned: While the company doesn't have much long-term visibility, it expects growth rates to moderate later in the year as the company laps the lofty year-over-year comparisons created by its relative outperformance in recent quarters.

Nonetheless, there was nothing not to like about this quarter's strong results and Nordson's even more impressive guidance. It's no surprise to see the stock vaulting above its 52-week high in response.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of Nordson. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Nordson Corporation Stock Quote
Nordson Corporation
NDSN
$230.23 (-0.91%) $-2.12

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