Nordson Offers a Solid Quarter, Falls on Guidance

Nordson Corporation (NDSN -0.77%) announced reasonably solid fiscal third-quarter 2018 results on Monday after the market closed, detailing another decline in organic volume that was well within the company's expectations as it lapped a particularly strong performance in the same year-ago period.

Still, shares of the adhesive-dispensing equipment leader are down around 8% in after-hours trading as of this writing, as its forward guidance left the market disappointed. Let's dig deeper, then, to see what drove Nordson this quarter, and what investors should expect in the months ahead.

IMAGE SOURCE: NORDSON.

Nordson results: The raw numbers

*FOR THE QUARTER ENDED JULY 31, 2018. DATA SOURCE: NORDSON CORPORATION. 

What happened with Nordson this quarter?

• On an adjusted/non-GAAP basis -- which excludes items like restructuring costs and acquisition expenses -- Nordson's earnings dropped 10.1% to $1.60 per diluted share.
• Nordson's change in revenue included a 3% dip in organic volume, a 1% contribution from acquisitions, and a 1% positive impact from foreign currency exchange.
• These results were within Nordson's guidance ranges provided in May, which called for revenue in the range of down 3% to up 1%, assuming a change in organic volume of down 6% to down 2%, and GAAP earnings of $1.47 to $1.63 per share.
• Adjusted EBITDA fell 10.1% year over year to $163.4 million.
• Revenue by segment included:
• 4.9% growth from adhesive dispensing systems, to $244.7 million, including 3.4% organic volume growth.
• an 8.2% decline from advanced technology systems, to $266.6 million, including an 8.9% stumble in organic volume.
• 6.5% growth from industrial coating systems, to $69.9 million, including 5.7% organic volume growth.
• Backlog increased 16% year over year to $428 million, including 15% organic growth.

What management had to say

Nordson CEO Michael Hilton stated:

Nordson delivered solid results despite challenging comparisons to our prior year's third quarter, where total company organic sales growth was 11 percent. Our commitment to delivering the best technology solutions while employing continuous improvement initiatives drove bottom line performance, generating operating margin of 23 percent and $118 million of free cash flow before dividends. Our base business is strong, and we remain focused on bringing value to our customers and the diverse end markets we serve.

Looking forward

For the current fourth quarter of fiscal 2018, Nordson expects revenue to be flat to down 4% compared to the same year-ago period, assuming a change in organic volume of up 1% to down 3%, a 1% contribution from acquisitions, and a 2% headwind from foreign currency exchange. On the bottom line, that should mean GAAP earnings per diluted share in the range of $1.38 to $1.54.

By contrast, however, most analysts were modeling earnings of $1.51 per share on higher revenue of $588.4 million.

Mr. Hilton elaborated that their outlook reflects the company's current backlog, with strength in both the adhesive and medical products offset by weakness from the advanced technology dispense product lines for electronics and automotive cold materials. 

"We remain focused on delivering value to our shareholders, driving bottom line results through continuous improvement initiatives utilizing the Nordson Business System, and providing superior customer service," Hilton added.

In the end, Nordson delivered just as it promised three months ago. But with shares up more than 25% from their 52-week low set almost exactly a year ago, it's clear the market isn't willing to overlook its guidance shortfall.