Nordson Corporation (NDSN 0.98%) stock fell around 6% in Thursday's after-hours trading after the company released weaker-than-expected fiscal third-quarter 2015 results. With the backdrop of sustained macroeconomic headwinds, however, it doesn't mean the adhesive-dispensing products company's latest performance wasn't admirable.
Quarterly revenue rose 1% year over year, to $463 million, and translated to a 3.3% decline in adjusted earnings, to $1.16 per diluted share. Both figures fell short of analysts' estimates, which called for sales of $476.3 million and earnings of $1.25 per share.
Nordson continued to endure significant macroeconomic headwinds during the quarter; unfavorable currency exchange rates negatively affected revenue by $33 million, or nearly 7%, and earnings by $0.16 per share. For reference, Nordson's previous guidance suggested currencies would have a slightly more modest 6% impact on the top line.
On a more encouraging note, also included in revenue was strong 6% organic growth -- well within Nordson's full-year guidance for a mid-single-digit increase for the metric -- and 2% growth from acquisitions completed during the past year. "Nordson has delivered organic volume growth of 5 percent year to date," elaborated Nordson CEO Michael Hilton, "a strong level in the current macroeconomic environment, and we have leveraged sequential volume increases to improve operating margin in each quarter."
Operating margin came in at 22% in fiscal Q3, up three percentage points sequentially from last quarter. In addition, Nordson's order rates rose 5% year over year at constant currency, and its backlog climbed 10% year over year, to $270 million, including 6% organic growth and 4% growth from acquisitions. Keeping in mind that much of Nordson's business has short lead times, current backlog fell 5.9% sequentially, from $287 million last quarter.
Digging deeper
In the core Adhesive Dispensing Systems segment, revenue declined 6.7%, to $211.6 million, and would have risen 4% had it not been for the effects of currencies. Volume growth here was driven by rigid packaging, nonwovens, and general assembly lines, while polymer products were roughly flat on a year-over-year basis. Trending toward the bottom line, Adhesive Dispensing operating margin came in at 26%, or 28% excluding currencies.
In the Advanced Technology Systems segment, revenue rose 5.9% -- 8.4% excluding currencies -- over the same period, to $184.9 million. According to Hilton, lower demand for dispensing solutions continued to hold back overall growth, but was more than offset by a combination of high demand for both fluid management components for medical customers, and for Nordson's surface treatment and test and inspection products in electronics end markets. Adjusted operating margin in Advanced Technology came in at a solid 25%, with a negligible impact from foreign exchange.
Meanwhile, the smaller Industrial Coating Systems division again enjoyed strong 15.8% revenue growth -- 23.1% excluding currencies -- including double-digit organic growth in every product line with high demand from consumer durable, automotive, industrial, electronic, and food and beverage markets. Industrial Coatings' operating margin was 19%, or 21% excluding currencies.
A (still) blurry view
For the current quarter, Nordson anticipates total sales volume in the range of down 7% to down 3% year over year. That includes organic volume down 1% to up 3%, 1% growth from new acquisitions, and a negative 7% impact from foreign currency translation.
Based on the midpoint of these ranges, operating margin in fiscal Q4 should be 22%, and GAAP earnings per diluted share are expected to be $1.00 to $1.12, including a $0.14 per-share impact based on current exchange rates, and a $0.01 per-share impact related to a short-term step-up in value of acquired inventory. Either way, analysts' models were much more optimistic, with consensus estimates calling for 3% growth in fiscal Q4 revenue to $482.7 million, and earnings of $1.23 per share.
To Nordson's credit, Hilton noted the positive organic growth at the midpoint of guidance comes despite the "soft macroeconomic environment and against challenging comparisons." But he also cautioned:
Looking further ahead, most economists at this time are not forecasting significant macroeconomic improvement heading into the coming year. Our own visibility over the longer term is also limited. Given this uncertain outlook, we are taking actions in areas we can control to improve normalized margins in 2016, independent of sales volume leverage.
More specifically, those actions will start with optimizing certain Advanced Technology product lines, and continue with other cost-conscious initiatives including accelerating footprint consolidation, limiting headcount additions, and reducing other spending, where appropriate.
Patient investors might applaud Nordson's pre-emptive caution and long-term focus; but unfortunately for now, this uncertainty likely won't sit well with our fickle, short-term oriented market.
