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Nordson's (NDSN) Q3 Earnings and Revenues Miss Estimates

Zacks Equity Research

Nordson Corporation’s NDSN third-quarter fiscal 2019 (ended Jul 31, 2019) earnings lagged expectations, the negative earnings surprise being 10%. This was the fourth consecutive quarter of weaker-than-expected results.

Adjusted earnings, excluding one-time charges and gains, were $1.62 per share, missing the Zacks Consensus Estimate of $1.80. However, the bottom line increased 1.3% from the year-ago figure of $1.60 primarily due to decline in cost of sales, fall in interest expenses and lower share count.

Forex Woes Affect Revenues

In the reported quarter, Nordson’s net sales were $559.7 million, decreasing 3.7% year over year. The top line was hurt by 2% decrease in organic volume and 2% adverse impact of unfavorable movements in foreign currencies. Further, the top line missed the Zacks Consensus Estimate of $588.1 million.

At the reported quarter end, backlog was $431 million, up 3% year over year.

On a regional basis, revenues from the United States fell 0.5% year over year to $190.5 million. Revenues generated from operations in Japan increased 5.9% to $30.5 million while that from the Asia Pacific decreased 11.7% to $148.3 million. Revenues from Europe decreased 1% to $143.4 million and that from the Americas increased 21.5% to $47 million.

Nordson Corporation Price, Consensus and EPS Surprise

Nordson Corporation Price, Consensus and EPS Surprise

Nordson Corporation price-consensus-eps-surprise-chart | Nordson Corporation Quote

The company reports top-line results under three segments — Adhesive Dispensing Systems, Advanced Technology Systems and Industrial Coating Systems. A brief discussion on the segmental performance for the quarter is provided below:

Adhesive Dispensing Systems segment’s revenues totaled roughly $249 million, increasing 1.7% year over year. The improvement was driven by 3.7% increase in volume, partially offset by 2% adverse impact of foreign currency translation.

Advanced Technology Systems’ revenues were $253.1 million, down 5.1% year over year. The fall was due to 1.2% adverse impact of foreign currency movements, and 3.9% decrease in volume.

Revenues generated from Industrial Coating Systems decreased 17.5% year over year to $57.7 million. Volume declined 16.7% while foreign currency movements had a negative impact of 0.8%.

Margin Details

In the quarter, Nordson’s cost of sales decreased 1.4% to $257.1 million. It represented 45.9% of net sales compared with 44.9% in the year-ago quarter. Selling and administrative expenses declined 5.8% to $172.3 million. It represented 30.8% of net sales compared with 31.5% a year ago.

Adjusted earnings before interest, tax, depreciation and amortization were $158.5 million, decreasing roughly 3% year over year.

Operating profit declined 5.2% to $130.3 million while the margin came in at 23.3% compared with 23.7% in the year-ago quarter.

Balance Sheet & Cash Flow
 
Exiting the fiscal third quarter, Nordson’s cash and marketable securities were $147.8 million, up roughly 54.4% from $95.7 million as of Oct 31, 2018. The company’s long-term debt decreased 8.2% to $1,179.9 million at the end of fiscal 2018.

In the fiscal third quarter, the company generated net cash of $74.5 million from operating activities, reflecting a year-over-year decrease of 43%. Capital spent on the addition of property, plant and equipment increased 50.4% to $19.4 million. Adjusted free cash flow was roughly $55.3 million, decreasing 53.1%.

During the reported quarter, the company paid dividends amounting to $20.1 million.

A few days before releasing results, Nordson announced that its board of directors approved a hike of 9% in its quarterly cash dividend to 38 cents per share from 35 cents. Notably, the payment will be made on Sep 10, 2019, to shareholders on record as of Aug 27.

Outlook

For fiscal 2019 (ending October 2019), the company anticipates flat to modest organic sales growth.

Zacks Rank & Key Picks

Nordson currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same space are Roper Technologies, Inc ROP, DXP Enterprises, Inc. DXPE and Graham Corporation GHM. All these companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Roper exceeded estimates in each of the trailing four quarters, the average being 6.92%.

DXP Enterprises outpaced estimates thrice in the preceding four quarters, the average positive earnings surprise being 18.06%.

Graham’s earnings surprise in the last reported quarter was 100.00%.

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