Nordson Falls as Light Guidance Overshadows a Strong Quarter

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Nordson Corporation (NASDAQ: NDSN) announced stronger-than-expected fiscal third-quarter 2017 results on Monday after the market closed, beating expectations on the top and bottom lines thanks to continued strong organic growth and solid contributions from acquisitions.

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But shares of the adhesive dispensing systems company plunged more than 10% in after-hours trading as its forward outlook left Wall Street underwhelmed. Let's take a closer look at what Nordson accomplished over the past few months, as well as what investors can anticipate from the company going forward.

Nordson results: The raw numbers

Metric

Fiscal Q3 2017*

Fiscal Q3 2016

Year-Over-Year Growth

Revenue

$589.4 million

$489.9 million

20.3%

GAAP net income

$101.5 million

$84.2

20.5%

GAAP earnings per share (diluted)

$1.74

$1.46

19.2%

What happened with Nordson this quarter?

  • For perspective, Nordson in May told investors to expect lower revenue growth of 15% to 19% and lower GAAP earnings per diluted share in the range of $1.51 to $1.65.
  • On an adjusted (non-GAAP) basis, which excludes items like acquisition and restructuring expenses, earnings per diluted share grew 21.1% year over year to $1.78 -- well above the $1.67 Wall Street was modeling.
  • Top-line growth include 11% organic growth (above guidance for 6% to 10%), 10% growth from acquisitions over the past year (in line with guidance), and a less than 1% of headwind from foreign currency exchange.
  • Operating margin improved 1 percentage point to 26%, above guidance for 24%.
  • Revenue by segment included:
    • 6% growth in sales volume from adhesive dispensing systems, driven by strength in packaging, nonwovens, and polymer product lines
    • 42% growth from advanced technology systems, thanks to high demand for automated dispensing, surface treatment, and test and inspection solutions
    • 3% growth from industrial coating systems, helped by higher volumes in the cold material, liquid painting, and UV curing products
  • Revenue by geography included:
    • 35.5% growth in the U.S. to $183 million
    • 36.3% growth (35.6% excluding currency) in the rest of the Americas to $41.6 million
    • 4.1% growth (4% excluding currency) in Europe to $133.8 million
    • 19.5% growth (25.4% excluding currency) in Japan to $41.5 million
    • 17.7% growth (17.9% excluding currency) in the Asia-Pacific region to $189.6 million

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What management had to say

Nordson CEO Michael Hilton added:

Nordson delivered the strongest quarter in its history with excellent organic growth across the business, strong contributions from recent acquisitions, and continued execution by our global team. Robust customer demand for our technology in all segments and nearly all geographies drove organic revenue growth of 11 percent in the third quarter compared to the prior year period, exceeding the high end of our expectations. [...] We also continued to execute on continuous improvement initiatives across the enterprise during the quarter employing tools from the Nordson Business System.

Looking forward

For the current (fiscal fourth) quarter, however, Nordson anticipates revenue to increase in the range of 4% to 8% year over year, including a decline in organic volume in the range of 7% to 3%, positive 10% growth from acquisitions, and a positive 1% contribution from foreign currency exchange. Operating margin at the midpoint of that range should be roughly 21%, which should translate to GAAP EPS of $1.18 to $1.32 (including a $0.07-per-share impact related to acquisitions' amortization of intangibles).

By contrast -- and though we don't lend much credence to Wall Street's near-term demands -- consensus models predicted Nordson would deliver greater fiscal fourth-quarter revenue growth of 10.8%, as well as higher quarterly adjusted earnings of $1.49 per share.

"Our fourth quarter guidance reflects our backlog, currency 12 week order rates, and very challenging comparisons to the same period a year ago where we generated 13 percent organic growth," Hilton explained. "At the low end of our guidance, Nordson is on pace to deliver record full year performance for most metrics, including revenue, earnings, and EBITDA."

To be fair, Nordson has shown a propensity for underpromising and overdelivering in recent quarters. Nordson stock was also up more than 35% over the past year as of Monday's close, even setting a fresh all-time high a week earlier. But given its light outlook relative to the market's expectations, it's no surprise to see Nordson shares pulling back right now.

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Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of Nordson. The Motley Fool has a disclosure policy.