It has been about a month since the last earnings report for Nordson (NDSN). Shares have added about 10.7% 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 Beats Q2 Earnings Estimates, Withdraws View
Nordson reported better-than-expected results for the second quarter of fiscal 2020 (ended Apr 30, 2020). Both earnings and sales surpassed the consensus estimate by 23.44% and 4.13% respectively.
Adjusted earnings, excluding one-time charges and gains, in the reported quarter were $1.58 per share, surpassing the Zacks Consensus Estimate of $1.28. Moreover, the bottom line increased 2.6% from the year-ago figure of $1.54 as lower costs and expenses made up for the decline in sales.
In the reported quarter, Nordson’s net sales were $529.5 million, down 3.9% year over year. The top line suffered from a 2.5% decline in organic volumes and 1.4% adverse impact of unfavorable movements in foreign currencies, partially offset by gain from acquisitions. Further, the top line surpassed the Zacks Consensus Estimate of $508 million.
At the end of the reported quarter, backlog was $456 million, up 6% year over year.
On a regional basis, revenues from the United States dropped 0.9% year over year to $188.9 million. Revenues generated from operations in Japan grew 5.1% to $31.6 million, while that from the Asia-Pacific region declined 0.7% to $136.2 million. Revenues generated in Europe fell 9% to $136.1 million and that in the Americas declined 16% to $36.7 million.
A brief discussion on the segmental performance in the quarter under review is provided below:
The Industrial Precision Solutions segment’s revenues totaled $282.3 million, down 6.5% year over year. The segment suffered from a 4.5% fall in volumes and 2% adverse impact of foreign currency translation.
Advanced Technology Solutions’ revenues were $247.204 million, down 0.8% year over year. The fall was due to a 0.6% adverse impact of foreign currency movements and 0.2% decline in volumes.
In the quarter under review, Nordson’s cost of sales declined 3.9% year over year to $239.9 million. It represented 45.3% of net sales in the quarter. Selling and administrative expenses contracted 4.7% year over year to $164.6 million. It represented 31.1% of net sales in the reported quarter versus 31.3% in the year-ago quarter.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in the quarter under review were $151.6 million, down 2.8% year over year.
Operating profits declined 3% year over year to $125 million while the margin came in at 23.6% versus 23.4% in the year-ago quarter.
Balance Sheet & Cash Flow
Exiting the fiscal second quarter, Nordson’s cash and marketable securities were $306.3 million, up from $115.1 million at the end of the previous quarter. The company’s long-term debt increased 15.2% sequentially to $1,237.2 million.
In first-half fiscal 2020, the company generated net cash of $218.2 million from operating activities, reflecting a year-over-year increase of 34.8%. Capital spent on the addition of property, plant and equipment fell 2.9% to $25.8 million. Free cash flow was $192.4 million, reflecting an increase of 41.2% from the year-ago period.
During the reported quarter, the company used approximately $38 million to buy back 300,000 shares and pay dividends amounting to $22 million.
For fiscal 2020 (ending October 2020), Nordson withdrew its projections due to uncertainties emanating from the coronavirus outbreak. Meanwhile, the company mentioned that a well-diversified business structure and a healthy balance sheet are major positives.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -10.1% due to these changes.
At this time, Nordson has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.
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 #2 (Buy). We expect an above average return from the stock in the next few months.
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