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Nordson (NDSN) Up 5% Since Last Earnings Report: Can It Continue?

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Zacks Equity Research
·5 min read
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It has been about a month since the last earnings report for Nordson (NDSN). Shares have added about 5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Nordson due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Nordson Q4 Earnings Surpass Estimates, Down Y/Y

Nordson reported better-than-expected fourth quarter of fiscal 2020 (ended Oct 31, 2020) results. Both earnings and sales surpassed the Zacks Consensus Estimate by 3.9% and 0.04%, respectively.

Adjusted earnings, excluding one-time charges and gains, in the reported quarter were $1.59 per share, surpassing the consensus estimate of $1.53. However, the bottom line decreased 11.2% from the year-ago figure of $1.79 owing to decline in sales.

In fiscal 2020, the company’s adjusted earnings came in at $5.48, down 6.6% from $5.87 reported in the previous fiscal year.

Revenue Details

In the reported quarter, Nordson’s net sales were $558.5 million, down 4.6% year over year. The top line suffered from a 7% decline in organic volumes, partially offset by a positive impact of 1% from acquisitions and 2% positive impact of foreign currency translation. Notably, the top line marginally surpassed the Zacks Consensus Estimate of $558 million.

At the end of the reported quarter, backlog was $416 million.

In fiscal 2020, Nordson’s net sales were $2,121.1 million, down 3.3% on a year-over-year basis.

On a regional basis, revenues from the United States fell 5.9% year over year to $194.7 million. Revenues generated from operations in Japan declined 2.5% to $36.2 million, and that from the Asia Pacific region decreased 0.6% to $150 million. Revenues generated from Europe fell 2.6% to $142.1 million and that in the Americas declined 20.3% to $35.5 million.

The company reports under Industrial Precision Solutions and Advanced Technology Solutions. A brief discussion on the segmental performance in the quarter under review is provided below:

The Industrial Precision Solutions segment’s revenues totaled $308.4 million, down 8.3% year over year. The segment suffered from a 10% fall in volumes, partially offset by 1.7% positive impact of foreign currency translation.

Advanced Technology Solutions’ revenues were $250.1 million, up 0.5% year over year. The increase was backed by the positive impact of 2.2% from acquisitions and 1.4% positive impact of foreign currency translation 3.3%, partially offset by a 3.1% decline in volumes.

Margin Profile

In the fiscal fourth quarter, Nordson’s cost of sales decreased 1.8% to $261.7 million on a year-over-year basis. It represented 46.9% of net sales in the quarter compared with 45.5% in the year-ago quarter. Selling and administrative expenses contracted 4% to $172.1 million. It represented 30.8% of net sales in the reported quarter compared with 30.6% in the year-ago quarter.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in the quarter were $159.3 million, down 5.3%.

Adjusted operating profits declined 7.9% to $130.2 million, while the margin came in at 23.3% compared with 24.2% in the year-ago quarter.

Balance Sheet & Cash Flow

Exiting the fiscal fourth quarter, Nordson’s cash and cash equivalents were $208.3 million, down from $221.8 million at the end of the previous quarter. The company’s long-term debt decreased 12.5% sequentially to $1,068 million.

In fiscal 2020, the company generated net cash of $502.4 million from operating activities, reflecting a year-over-year increase of 31.2%. Capital spent on the addition of property, plant and equipment fell 21.3% to $50.5 million.

During fiscal 2020, the company used $52.6 million to buy back shares and pay out dividends amounting to $88.3 million.

Outlook

For first quarter of fiscal 2021 (ending January 2021), Nordson anticipates adjusted earnings growth of 15-20% on a year-over-year basis. Also, in the quarter, it expects year-over-year sales growth of 2-3%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Nordson has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Nordson has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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