A month has gone by since the last earnings report for Nordson (NDSN). Shares have added about 2% 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 its most recent earnings report in order to get a better handle on the important drivers.
Nordson Q3 Earnings & Revenues Top Estimates, Down Y/Y
Nordson reported better-than-expected results for the third quarter of fiscal 2020 (ended July 31, 2020). Both earnings and sales surpassed the consensus estimate by 6% and 8.3%, respectively.
Adjusted earnings, excluding one-time charges and gains, in the reported quarter were $1.42 per share, surpassing the Zacks Consensus Estimate of $1.34. However, the bottom line decreased 12.3% from the year-ago figure of $1.62 on account of a decline in sales.
In the reported quarter, Nordson’s net sales were $538.2 million, down 3.9% year over year. The top line suffered from a 4% decline in organic volumes and 0.7% adverse impact of unfavorable movements in foreign currencies, partially offset by a positive impact of 0.8% from acquisitions. Notably, the top line surpassed the Zacks Consensus Estimate of $497 million.
At the end of the reported quarter, backlog was $423 million.
On a regional basis, revenues from the United States dropped 3.6% year over year to $183.5 million. Revenues generated from operations in Japan grew 2.4% to $31.2 million, while that from the Asia Pacific region increased 3.2% to $153.1 million. Revenues generated in Europe fell 7.9% to $132.1 million and that in the Americas declined 18.7% to $38.3 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 $289 million, down 5.8% year over year. The segment suffered from a 4.5% fall in volumes and a 1.3% adverse impact of foreign currency translation.
Advanced Technology Solutions’ revenues were $249.2 million, down 1.5% year over year. The fall was due to a 3.3% decline in volumes, partially offset by the positive impact of 1.8% from acquisitions.
In the quarter under review, Nordson’s cost of sales marginally increased to $257.4 million on a year-over-year basis. It represented 47.8% of net sales in the quarter versus 45.9% in the year-ago quarter. Selling and administrative expenses contracted 2% year over year to $168.8 million. It represented 31.4% of net sales in the reported quarter versus 30.8% in the year-ago quarter.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in the quarter under review were $148.2 million, down 7.1% year over year.
Adjusted operating profits declined 9.1% year over year to $119.7 million, while the margin came in at 22.2% versus 23.5% in the year-ago quarter.
Balance Sheet & Cash Flow
Exiting the fiscal third quarter, Nordson’s cash and cash equivalents were $221.8 million, down from $306.3 million at the end of the previous quarter. The company’s long-term debt decreased 1.3% sequentially to $1,221.1 million.
In the first nine months of fiscal 2020, the company generated net cash of $310 million from operating activities, reflecting a year-over-year increase of 31.1%. Capital spent on the addition of property, plant and equipment fell 21.5% to $36.1 million.
During the first nine months of fiscal 2020, the company used $51.9 million to buy back shares and pay out dividends amounting to $65.7 million.
For fiscal 2020 (ending October 2020), Nordson refrained from providing its projections due to uncertainties emanating from the coronavirus outbreak. Meanwhile, the company mentioned that it expects to generate improved revenues along with better operating profit in the fiscal fourth quarter, sequentially.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
At this time, Nordson has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. 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 D. 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 #3 (Hold). We expect an in-line return from the stock in the next few months.
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