Nordson Corporation Cements Another Great Quarter

By Markets Fool.com

Continue Reading Below

Image source: Nordson Corporation

Nordson Corporation (NASDAQ: NDSN) released better-than-expected fiscal third-quarter 2016 results Monday after the market closed. And with shares up around 3% in after-hours trading as of this writing, the maker of adhesive dispensing equipment is rightly pleased with its performance as it continues to successfully weather today's sluggish macroeconomic environment.

Nordson's headline numbers

Quarterly revenue rose 6% year over year, to $489.9 million, as a less than 1% negative impact from foreign currencies was more than offset by both organic volume growth of 4% and a 2% contribution from acquisitions over the past year. Meanwhile, operating margin expanded by 3 percentage points, to 25%, which translated to net income of $84 million, or $1.46 per diluted share, up 28% from earnings of $1.14 per share in last year's fiscal Q3.

By comparison, Nordson's guidance provided three months ago called for quarterly revenue to increase a more modest 1% to 5%, with operating margin of 24% and earnings per diluted share in the range of $1.25 to $1.37.

Continue Reading Below

"Nordson delivered record revenue and profitability in the third quarter as our global team continued meeting customer needs across our diverse end markets and driving efficiency throughout our operations," added Nordson CEO Michael Hilton. "We generated very solid organic growth of 4% in the quarter, compared with a period of robust growth a year ago, outperforming the continuing low-growth global macroeconomic environment."

Breaking it down

On a segment basis, organic volume at Nordson's adhesive dispensing systems business grew 4% year over year, driven by strength in the consumer non-durable and general product assembly markets, whilelast year's acquisition of WAFO contributed additional volume growth of 1%. Operating margin for the segment was 27% as reported, and 28% adjusting for non-recurring restructuring expenses.

Next, advanced technology systems (ATS) organic sales rose 6% year over year, helped by demand for automated and semi-automated dispense equipment in electronic end markets, as well as fluid management components in medical end markets. ATS operating margin expanded 7 percentage points year over year, to 31%, thanks to a combination of volume leverage, favorable product mix, and Nordson's ongoing margin enhancement initiatives.

Finally, industrial coating systems segment sales fell 3% year over year, which, similar to last quarter, came after an unusually strong performance for the segment in the the same year-ago period. Hilton elaborated that growth in powder and liquid coating product lines was more than offset by softness in Nordson's other industrial coating product lines. Operating margin for the segment was 17%, or 18% excluding the impact of restructuring charges.

Broken down by geography, revenue from the U.S.climbed4.5% year over year, to $135.1 million, or 27.6% of sales. Revenue from the rest of the Americas declined 12.6% (or down 7.1% excluding currencies), to $30.5 million, or 6.2% of total sales. Revenue from Europe grew 7.6%, to $128.6 million, or 26.2% of total sales. Revenue from Japan increased 30.3% (12.5% excluding currencies), to $34.7 million, or 6.8% of total revenue. And Asia-Pacific revenue grew 6.4% (8.7% excluding currencies), to $161 million, or 32.9% of sales.

Looking ahead

Next, order rates for the 12-week period ending Aug. 14 grew 16% at constant currency, and backlog increased 22% year over year, to $333 million, including 20% organic growth and 2% from acquisitions.

As such, for the fiscal fourth quarter of 2016, Nordson expects revenue to climb 6% to 10% year over year, or to an approximate range of $473 million to $490.8 million. This assumes organic volume growth of 5% to 9%, and a 1% contribution from acquisitions. At the midpoint of that revenue range, operating margin for the quarter should be 22%, while diluted earnings per share should be in the range of $1.15 to $1.27.

For perspective -- and keeping in mind we normally don't pay much attention to Wall Street's quarterly demands -- analysts' consensus estimates predicted that Nordson's revenue in the current quarter would increase just 4.5% year over year, to $466.1 million, and translate to earnings per share at the low end of Nordson's new guidance range.

Further, Hilton noted that even at the low ends of its guidance ranges, Nordson is on track to achieve full-year company records for revenue, operating profit, and earnings per share.Given Nordson's relative outperformance -- and as I suggested in myearnings previewa few days ago -- it should be no surprise that the company increased its quarterly dividend by 13%, to $0.24 per share, a little over a week ago. So even with shares up more than 20% in the three months preceding today's report, it's equally unsurprising to see investors bidding Nordson stock up further yet today.

A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of Nordson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.