Zacks Investment Research downgraded Nordson Corporation (NDSN) to a Zacks Rank #5 (Strong Sell) on Aug 31, 2013.
Why the Downgrade?
Nordson Corporation’s financial results for the fiscal third quarter of 2013 (ended Jul 31), reported on Aug 22, were quite a disappointment. Share price since the release has fallen 6.4%. The company reported 6.6% year over year decline in its earnings per share that came in at 99 cents and was below the company’s guidance range of $1.00-$1.09 per share. Compared with the Zacks Consensus Estimate of $1.04, a fall of 4.8% was recorded.
Revenue in the quarter increased 6.1% year over year driven primarily by 7% contribution from acquisitions, and offset by 1% negative foreign currency translation impact. Organic growth was flat. Results fell below Nordson Corporation’s guidance range of $404-$419 million. Backlog exiting the quarter was down 21% compared with the year-ago period while orders were flat.
Talking of costs and margins, Nordson Corporation posted 13.5% increase in its cost of sales. Higher costs partially offset revenue growth in the quarter leading to 280 basis points fall in operating margin.
For the fiscal fourth quarter of 2013, management of Nordson Corporation anticipates sales to range within $391-$408 million, down 7%-11% year over year. Organic growth is predicted to decline in 6%-10% range while currency translation is likely to impact results negatively by 1%. Earnings per share are expected to be within the 87-98 cents range, the mid-point being lower than third quarter results.
Weak results and outlook for the fiscal fourth quarter has led to downward revision in earnings estimates in the last 30 days. The Zacks Consensus Estimate for Nordson Corporation has gone down by 6.9% to $3.37 for fiscal 2013 and has declined 7.5% to $3.80 for fiscal 2014. Also, Nordson Corporation had negative earnings surprise in two out of four trailing quarters, with the average being a negative 3.3%.
Other Stocks to Consider
Nordson Corporation is a $4.3 billion company, operating in the diversified machinery industry. Other stocks to watch out for in the industry are Gorman-Rupp Co. (GRC) and Graham Corp. (GHM), each with a Zacks Rank #1 (Strong Buy) while Barnes Group Inc. (B) carries a Zacks Rank #2 (Buy).
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