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Nordson Delivers as Promised on Acquisition Growth

By Steve Symington – May 21, 2018 at 9:00PM

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The adhesive-dispensing systems company offered a strong fiscal second quarter, but its forward guidance underwhelmed once again.

Nordson Corporation (NDSN -0.70%) announced solid fiscal second-quarter 2018 results on Monday after the market closed, including an expected decline in organic volume that was more than offset by acquisitive growth.

Thanks to its disappointing forward outlook, shares of the adhesive-dispensing systems specialist are down around 6% in after-hours trading as of this writing -- albeit after a more than 3% gain in Monday's regular session. Let's take a closer look at what Nordson accomplished over the past few months, and what investors should watch for the remainder of the year.

Nordson adhesive dispensing system with tubes and nozzles

IMAGE SOURCE: NORDSON.

Nordson results: The raw numbers

Metric

Fiscal Q2 2018*

Fiscal Q2 2017

Year-Over-Year Growth

Revenue

$553.7 million

$496.1 million

11.6%

GAAP net income

$91.2 million

$64.5 million

41.4%

GAAP earnings per share (diluted)

$1.55

$1.11

39.6%

*FOR THE QUARTER ENDED APRIL 30, 2018. DATA SOURCE: NORDSON CORPORATION. 

What happened with Nordson this quarter?

  • On a non-GAAP basis -- which notably excludes one-time items such as discrete tax adjustments, and $0.16 per share in acquisition costs in last year's fiscal Q2 -- Nordson's earnings increased 15.6% year over year to $1.56 per share -- above most investors' expectations for earnings of $1.43 per share.
  • Nordson's top line included a 1% decline in organic volume, 7% growth related to acquisitions, and a 5% favorable effect from foreign currency translation.
  • These results were roughly in line with Nordson's latest guidance (provided in February), which called for a change in organic volume of down 3% to up 1%, a 7% contribution from acquisitions, and a 5% favorable impact from currencies.
  • Adjusted EBITDA grew 15.4% year over year to $157.5 million.
  • Revenue by segment included:
    • 5.2% growth from Adhesive Dispensing Systems, to $238.8 million, including a 1.7% decline in organic volume and a 6.9% contribution from currencies.
    • 19.4% growth from Advanced Technology Systems, to $250.8 million, including 16.2% organic volume growth and a 3.2% contribution from currencies.
    • 8.5% growth from Industrial Coating Systems, to $64.1 million, including 4.3% organic volume growth and a 4.2% contribution from currencies.
    • Nordson's backlog for the quarter increased 11% year over year to $460 million, including 10% organic volume growth and 1% growth from acquisitions.

What management had to say

Nordson CEO Michael Hilton stated:

These results highlight the strategic fit of our recent acquisitions, along with the resilient performance of our base business, particularly against very challenging prior year comparisons where total company organic sales growth was 9 percent in the second quarter. Our global team helped to deliver record second quarter sales, operating profit, diluted earnings per share, and EBITDA. Adjusted EBITDA margin improved about 100 basis points, as compared to the prior year's second quarter adjusted EBITDA margin, to 29 percent of sales.

Looking forward

For the current third quarter of fiscal 2018, Nordson anticipates revenue will arrive in the range of down 3% to up 1% from the same year-ago period. This assumes a change in organic volume of down 6% to down 2%, 1% growth from first-year acquisitions, and a positive 2% contribution from currency exchange. When all is said and done, that should translate to GAAP earnings per diluted share of $1.47 to $1.63.

By comparison -- and though we don't usually pay close attention to Wall Street's demands -- consensus estimates were more optimistic in predicting year-over-year revenue growth of 5.2% and earnings of $1.91 per share.

Still, Hilton once again suggested that investors keep in mind Nordson's fiscal Q3 2018 laps an "exceptionally strong" year-ago quarter in which organic sales growth arrived at 11%.

"Our global team remains committed to delivering the best technology solutions while employing continuous improvement initiatives to drive bottom line results," Hilton elaborated, "and we expect to generate total company organic sales growth in the low single-digits on a full year basis for fiscal 2018."

All things considered, this was indeed a strong showing that shows Nordson's core business is on solid ground. But while Nordson is certainly up against a tough comparable next quarter, it's obvious investors wanted more.

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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Nordson Corporation Stock Quote
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NDSN
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