Nordson's (NDSN) Q2 Earnings and Revenues Miss, Down Y/Y

Nordson Corporation’s NDSN second-quarter of fiscal 2019 (ended Apr 30, 2019) earnings lagged expectations, the negative earnings surprise being 3.1%. This was the third consecutive quarter of weaker-than-expected results.

Adjusted earnings, excluding one-time charges and gains, were $1.54 per share, missing the Zacks Consensus Estimate of $1.59. Also, the bottom line decreased 1.3% from the year-ago figure of $1.56 primarily due to decline in sales, increase in cost of sales, and higher interest expenses.

Forex Woes Affect Revenues

In the reported quarter, Nordson’s net sales were $551.1 million, decreasing 0.5% year over year. The top line suffered from 4% adverse impact of unfavorable movements in foreign currencies, partially offset by 3% increase in organic volume. Further, the top line missed the Zacks Consensus Estimate of $556.7 million.

At the reported quarter end, backlog was $436 million, down 2% year over year.

Nordson Corporation Price, Consensus and EPS Surprise

Nordson Corporation Price, Consensus and EPS Surprise

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

On a regional basis, revenues sourced from the United States grew 6.7% year over year to $190.7 million. Revenues generated from operations in Japan declined 9.1% to $30 million while that from the Asia Pacific decreased 7.4% to $137.2 million. Revenues generated in Europe decreased 3.4% to $149.5 million and that in the Americas increased 12.1% to $43.7 million.

The company reports top-line results under three segments, namely, 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 $236.8 million, decreasing 0.9% year over year. The segment suffered from 5% adverse impact of foreign currency translation, partially offset by 4.1% increase in volume.

Advanced Technology Systems’ revenues were $249.3 million, down 0.6% year over year. The fall was due to 2.4% adverse impact of foreign currency movements, partially offset by 1.8% increase in volume.

Revenues generated from Industrial Coating Systems increased 1.6% year over year to $65.1 million. Volume improved 4.3% while foreign currency movements had a negative impact of 2.7%.

Margin Details

In the quarter under review, Nordson’s cost of sales increased 1.2% year over year to $249.6 million. It represented 45.3% of net sales versus 44.6% in the year-ago quarter. Selling and administrative expenses declined 3.1% to $172.6 million. It represented 31.3% of net sales in the reported quarter versus 32.2% a year ago.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $156.1 million, decreasing 2.4% year over year.

Operating profit was relatively flat at $128.9 million while the margin came in at 23.4% versus 23.3% in the year-ago quarter.

Balance Sheet & Cash Flow
 
Exiting the fiscal second quarter, Nordson’s cash and marketable securities were $149.2 million, up roughly 55.9% from $95.7 million as of Oct 31, 2018. The company’s long-term debt decreased 5.1% to $1,220.4 million from fiscal year end 2018.

In the fiscal second quarter, the company generated net cash of $105.1 million from operating activities, reflecting a year-over-year increase of 2%. Capital spent on the addition of property, plant and equipment decreased 23.7% to $12.5 million. Adjusted free cash flow was roughly $93.3 million, increasing 5.2%.

During the reported quarter, the company paid dividends amounting to $20 million.

A few days before releasing results, Nordson announced that its board of directors approved payment of a quarterly cash dividend for the third quarter of fiscal 2019 (ending July 2019) of 35 cents per share. The payment will be made on Jun 11, 2019, to shareholders on record as of May 28.

Outlook

For fiscal 2019 (ending October 2019), organic volume is anticipated to grow in low single digits. Further, EBITDA and operating margins are predicted to increase 100 basis points year over year.

Zacks Rank & Key Picks

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

Some better-ranked stocks in the space are DXP Enterprises, Inc. DXPE, Dover Corporation DOV and Flowserve Corporation FLS. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DXP Enterprises delivered average earnings surprise of 48.47% in the trailing four quarters.

Dover pulled off average positive earnings surprise of 8.61% in the trailing four quarters.

Flowserve delivered average earnings surprise of 0.49% in the trailing four quarters.

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