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Nordson Corporation Reports Record Quarterly Results and Guides to Record Full Year Performance

Nordson Corporation (Nasdaq: NDSN) today reported results for the third quarter of fiscal year 2014. For the quarter ending July 31, 2014, sales were $459 million, a 14 percent increase over the prior year’s third quarter. This increase in sales included an 8 percent increase in organic volume, a 5 percent increase related to the first year effect of acquisitions, and a 1 percent increase related to the favorable effects of currency translation. Operating profit was $114 million, net income was $78 million, and GAAP diluted earnings per share were $1.21. Prior year third quarter sales, operating profit, net income and diluted earnings per share were $403 million, $93 million, $65 million and $1.01, respectively. A reconciliation of GAAP diluted EPS to normalized amounts and a calculation of free cash flow are included in the attached tables.

“Our team continued to apply our model of innovative products, application expertise and global customer support across our diverse and growing end markets, resulting in organic growth in every segment and geography and all-time quarterly records in sales, operating profit and earnings per share,” said Nordson President and CEO Michael F. Hilton. “Operating margin in the quarter was 25 percent, two percentage points higher than the strong level we delivered in the third quarter a year ago. We also continued our balanced approach to capital deployment during the quarter, investing $36 million for the repurchase of shares and distributing approximately $11 million in dividends during the quarter. Free cash flow in the quarter before dividends was $70 million and our balance sheet has significant capacity for ongoing capital deployment. Shortly after the end of the quarter, we also announced the purchase of Avalon Laboratories, a high performing manufacturer of single use specialty medical tubing. This business is a great strategic addition to our existing range of fluid management solutions for the global medical device market, and we’re pleased to welcome all Avalon employees to Nordson.”

Third Quarter Segment Results

Sales volume in the Adhesive Dispensing Systems segment improved 15 percent compared to the third quarter a year ago, inclusive of 5 percent organic growth and 10 percent growth from the first year effect of the Kreyenborg acquisition. “The organic growth was driven by disposable hygiene, rigid packaging and polymer processing end markets, and by growth in every region,” said Hilton. The Adhesive Dispensing segment’s operating margin was 27 percent, an improvement of 1 percentage point over the same period a year ago.

The Advanced Technology Systems segment generated third quarter sales volume growth of 15 percent over the prior year. “Strong organic growth in all segment product lines during the quarter was led by demand for automated dispensing equipment related to electronic mobile device assembly, as well as continued solid demand for our electronic test and inspection and surface treatment equipment,” said Hilton. “We also are pleased by robust growth in our semi-automated dispensing systems and single use fluid management components related to medical and industrial end markets.” Geographically, organic sales growth was strongest in Japan, Asia Pacific and the Americas. Operating margin for the Advanced Technology segment was 32 percent in the third quarter, an improvement of 4 percentage points over the same period a year ago, with incremental operating margin of 57 percent.

Industrial Coating Systems segment sales volume increased less than 1 percent compared to the third quarter a year ago. “Solid growth in the U.S. and Europe led by cold material dispensing equipment for automotive and industrial end markets was offset by softness in other regions and in selected durable goods end markets,” said Hilton. “Overall segment operating margin was 13 percent in the third quarter, a solid level for this business given the quarter’s level of revenue and product mix, and equal to the prior year’s third quarter.”

Detailed results by operating segment and geography are included in the attached tables.

Fiscal Year-to-Date Results

For the first nine months of fiscal year 2014, sales were $1.2 billion, a 9 percent increase over the same period a year ago. This increase in sales included a 4 percent increase in organic volume and a 5 percent increase related to the first year effect of acquisitions. The effect of currency translation compared to the same period a year ago was not material. First nine months operating profit was $261 million, net income was $175 million and GAAP diluted earnings per share were $2.71. Prior year first nine months sales, operating profit, net income and diluted earnings per share were $1.1 billion, $237 million, $162 million and $2.50, respectively.

“Order rates began to gain momentum during our second quarter and continued to be strong into our third quarter, resulting in year-to-date performance that has outpaced the levels of a year ago,” said Hilton. “Diluted earnings per share increased by 11 percent compared to the first nine months a year ago, excluding one-time items in both periods.”

Order Rates and Backlog

Order rates for the 12-week period ending August 17, 2014, measured in constant currency, increased by 4 percent over the same period a year ago. Order rates by segment and geography are provided in the accompanying financial tables, with pro-forma growth in order rates calculated as though fiscal year 2013 and 2014 acquisitions were owned in both years.

Backlog for the quarter ended July 31, 2014 was approximately $266 million, an increase of 36 percent compared to the same period a year ago, and inclusive of 25 percent organic growth and 11 percent growth due to the Kreyenborg acquisition. Current backlog increased 9 percent compared to the second quarter ended April 30, 2014. Backlog amounts are calculated at July 31, 2014 exchange rates.

Outlook

For the fourth quarter of fiscal 2014, sales growth is expected to be in the range of 10 percent to 14 percent as compared to the fourth quarter a year ago. This growth is inclusive of organic volume growth of 7 to 11 percent and 3 percent growth from the first year effect of the Kreyenborg and Avalon acquisitions. The effect of currency translation is expected to be immaterial as compared to the prior year’s fourth quarter based on the current exchange rate environment. GAAP diluted earnings per share are expected to be in the range of $1.07 to $1.17, inclusive of a $0.02 short term purchase accounting charge related to the step-up in value of inventory acquired in the Avalon acquisition.

“We are forecasting a strong fourth quarter based on our backlog and current 12 week order rates,” said Hilton. “The midpoint of our guidance includes organic sales growth of 9 percent over the prior year’s fourth quarter. We expect this growth to be broad based across the diverse consumer durable, non-durable, medical, electronics and industrial end markets we serve. Operating margin at the midpoint of our guidance, excluding the charge related to the Avalon acquisition, is expected to be approximately 24 percent in the fourth quarter, an improvement of three percentage points over the prior year. Our team remains focused on delivering value to customers, driving continuous improvement throughout the business, and providing strong returns for our shareholders.”

Nordson will broadcast its third quarter conference call on its web site at www.nordson.com/investors on Friday, August 22, 2014 at 8:30 a.m. eastern time. For persons unable to listen to the live broadcast, a replay will be available for 14 days after the event. Information about Nordson’s investor relations and shareholder services is available from James R. Jaye, Director of Communications & Investor Relations at (440) 414-5639 or [email protected].

Except for historical information and comparisons contained herein, statements included in this release may constitute “forward-looking statements,” as defined by the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors, as discussed in the company’s filing with the Securities and Exchange Commission that could cause actual results to differ.

Nordson Corporation delivers precision technology solutions that help customers succeed worldwide. The company engineers, manufactures and markets differentiated products and systems used for precision dispensing of adhesives, coatings, sealants, biomaterials, fluids and other materials, plastic extrusion and injection molding, electronics testing and inspecting, and surface preparation, all supported by application expertise and direct global sales and service. Nordson serves a wide variety of consumer non-durable, durable and technology end markets including packaging, nonwovens, electronics, medical, appliances, energy, transportation, construction, and general product assembly and finishing. Founded in 1954 and headquartered in Westlake, Ohio, the company has operations and support offices in more than 30 countries. Visit Nordson on the web at www.nordson.com, www.twitter.com/Nordson_Corp or www.facebook.com/nordson.

 

NORDSON CORPORATION

FINANCIAL HIGHLIGHTS

(Dollars in thousands except for per-share amounts)

   
THIRD QUARTER PERIOD
Period Ending July 31, 2014
(Unaudited)
   

CONSOLIDATED STATEMENT OF INCOME

Third Quarter Year-to-Date
2014 2013 2014 2013
 
Net sales $ 458,550 $ 402,960 $ 1,235,431 $ 1,132,103
Cost of sales 201,039 177,877 547,586 492,853
Selling & administrative expenses   143,056       131,867     426,697       402,268  
 
Operating profit 114,455 93,216 261,148 236,982
 
Interest expense - net (3,673 ) (3,241 ) (10,451 ) (10,741 )
Other income (expense) - net   (236 )   2,699     (851 )   934  
 
Income before income taxes 110,546 92,674 249,846 227,175
Income taxes   32,667     27,250     75,153     65,135  
 
Net Income $ 77,879   $ 65,424   $ 174,693   $ 162,040  
 
 
 
Return on sales 17 % 16 % 14 % 14 %
Return on average shareholders' equity 33 % 34 % 25 % 30 %
 
                 
 
Average common shares outstanding (000's) 63,482 64,137 63,888 64,242

Average common shares and common share equivalents (000's)

64,141 64,854 64,519 64,923
 
Per share:
 
Basic earnings $ 1.23 $ 1.02 $ 2.73 $ 2.52
Diluted earnings $ 1.21 $ 1.01 $ 2.71 $ 2.50
 
Dividends paid $ .18 $ .15 $ .54 $ .45
 
Total dividends $ 11,421 $ 9,622 $ 34,525 $ 28,930
 

CONSOLIDATED BALANCE SHEET

    July 31   October 31
2014 2013
 
Cash and marketable securities $ 53,223 $ 42,375
Receivables 358,189 308,707
Inventories 210,352 198,401
Other current assets   58,027   51,087
Total current assets 679,791 600,570
 
Property, plant & equipment - net 209,285 200,979
Other assets   1,220,369   1,240,740
$ 2,109,445 $ 2,042,289
 
Notes payable and debt due within one year $ 20,160 $ 14,436
Accounts payable and accrued liabilities   239,897   221,035
Total current liabilities 260,057 235,471
 
Long-term debt 612,358 638,158
Other liabilities 278,255 280,797
Total shareholders' equity   958,775   887,863
$ 2,109,445 $ 2,042,289
 
           
 
Other information:
 
 
Employees 5,766 5,801
 
Common shares outstanding (000's) 63,328 64,218
 

NORDSON CORPORATION

FINANCIAL HIGHLIGHTS

(Dollars in thousands)

 

THIRD QUARTER PERIOD

Period Ending July 31, 2014

(Unaudited)

           
 
 
Third Quarter % Growth over 2013 Year-to-Date % Growth over 2013

SALES BY BUSINESS SEGMENT

2014 2013 Volume Currency Total 2014 2013 Volume Currency Total
 
 
Adhesive dispensing systems $ 226,762 $ 195,992 14.7 % 1.0 % 15.7 % $ 668,187 $ 575,750 16.4 % -0.3 % 16.1 %
Advanced technology systems 174,636 150,280 15.0 % 1.2 % 16.2 % 399,805 388,990 2.2 % 0.6 % 2.8 %
Industrial coating systems   57,152     56,688   0.3 % 0.5 % 0.8 %   167,439     167,363   0.3 % -0.3 % 0.0 %
 
Total sales by business segment $ 458,550   $ 402,960   12.8 % 1.0 % 13.8 % $ 1,235,431   $ 1,132,103   9.1 % 0.0 % 9.1 %
 
 
 
Third Quarter Year-to-Date

OPERATING PROFIT BY BUSINESS SEGMENT

2014 2013 2014 2013
 
Adhesive dispensing systems $ 60,806 $ 50,998 $ 171,425 $ 146,011
Advanced technology systems 56,444 42,465 97,664 96,310
Industrial coating systems 7,471 7,585 21,762 22,896
Corporate   (10,266 )   (7,832 )   (29,703 )   (28,235 )
 
Total operating profit by business segment $ 114,455   $ 93,216   $ 261,148   $ 236,982  
 
 
 
Third Quarter % Growth over 2013 Year-to-Date % Growth over 2013

SALES BY GEOGRAPHIC REGION

2014 2013 Volume Currency Total 2014 2013 Volume Currency Total
 
United States $ 119,705 $ 115,809 3.4 % - 3.4 % $ 360,904 $ 341,926 5.6 % - 5.6 %
Americas 31,296 28,017 13.5 % -1.8 % 11.7 % 89,705 91,851 0.9 % -3.2 % -2.3 %
Europe 126,639 103,877 16.8 % 5.1 % 21.9 % 365,172 297,708 18.7 % 4.0 % 22.7 %
Japan 34,593 26,704 32.2 % -2.7 % 29.5 % 89,727 93,914 3.7 % -8.2 % -4.5 %
Asia Pacific   146,317     128,553   13.9 % -0.1 % 13.8 %   329,923     306,704   7.9 % -0.3 % 7.6 %
 
Total Sales by Geographic Region $ 458,550   $ 402,960   12.8 % 1.0 % 13.8 % $ 1,235,431   $ 1,132,103   9.1 % 0.0 % 9.1 %
 
                                           
 
 
Third Quarter Year-to-Date

FREE CASH FLOW BEFORE DIVIDENDS

2014 2013 2014 2013
 
Net income $ 77,879 $ 65,424 $ 174,693 $ 162,040
Depreciation and amortization 14,608 13,366 43,839 39,555
Other non-cash charges 3,003 2,282 13,307 12,705
Changes in operating assets and liabilities   (14,721 )   10,883     (48,881 )   (19,716 )
Net cash provided by operating activities 80,769 91,955 182,958 194,584
 
Additions to property, plant and equipment (11,442 ) (10,855 ) (27,936 ) (34,569 )
Proceeds from the sale of property, plant and equipment   179     3,730     278     3,760  
 
Free cash flow before dividends $ 69,506   $ 84,830   $ 155,300   $ 163,775  
 

NORDSON CORPORATION

ORDER RATES FOR 12-WEEK PERIOD ENDING AUGUST 17, 2014
CHANGE FROM PRIOR YEAR
     
 

BUSINESS SEGMENT

% CHANGE GEOGRAPHY % CHANGE
 
Adhesive dispensing systems - United States 11 %
Advanced technology systems 4 % Americas -1 %
Industrial coating systems 18 % Europe 2 %
Japan 39 %
Total 4 % Asia Pacific -8 %
 
Total 4 %
Notes:

1. Numbers in this table are unaudited and exclude the effects of currency movements.

2. Pro-forma changes in order rates were calculated as though 2013 and 2014 acquisitions were owned in both years.

 

NORDSON CORPORATION

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

     
THIRD QUARTER PERIOD

Period Ending July 31, 2014

(Unaudited)
Third Quarter   Year-to-Date
2014 2013 2014 2013
 
Diluted EPS as reported (U.S. GAAP) $ 1.21 $ 1.01 $ 2.71 $ 2.50
 
Short-term inventory purchase accounting adjustments - - 0.02 -
Acquisition costs - 0.01 - 0.01
Severance and restructuring - - 0.01 0.01
Gain on sale of real estate - (0.02 ) - (0.02 )
Discrete tax items   (0.01 )   (0.01 )   (0.01 )   (0.05 )
 
Diluted EPS as adjusted (Non-GAAP) $ 1.20   $ 0.99   $ 2.73   $ 2.45  

Adjusted EPS is not a measurement of financial performance under GAAP, and should not be considered as an alternative to EPS determined in accordance with GAAP. Management believes that EPS as adjusted to exclude the items in the table above assist in understanding the results of Nordson Corporation. Our calculation of this non-GAAP measure may not be comparable to the calculation of a similarly titled measure reported by other companies.

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