Nordson Corporation (NDSN Quick QuoteNDSN - Free Report) reported weaker-than-expected results for the fourth quarter of fiscal 2018 (ended Oct 31, 2018). The negative earnings surprise of roughly 2% came in after the company reported two consecutive quarters of earnings beat.

Adjusted earnings, excluding charges related to the restructuring measures and discrete tax gains, in the reported quarter were $1.44 per share. This lagged the Zacks Consensus Estimate of $1.47. On a year-over-year basis, the bottom line increased 4.3% from the year-ago tally of $1.38 primarily on the back of lower taxes.

For fiscal 2018, Nordson’s adjusted earnings per share were $5.94, reflecting growth of 10.6% from the year-ago tally of $5.37. However, results lagged the Zacks Consensus Estimate of $5.98.

Lower Organic Volume & Forex Woes Affect Revenues

In the reported quarter, Nordson’s net sales were $569.3 million, decreasing 0.8% year over year. The poor performance was due to 1% decline in organic volumes and 1% adverse impact of unfavorable movements in foreign currencies, partially offset by 1% benefit from acquired assets. However, the top line surpassed the Zacks Consensus Estimate of $560.4 million by 1.6%.

At the reported quarter end, backlog was $394 million, down 1% year over year.

On a regional basis, revenues, sourced from the United States, inched up 0.9% year over year to $184.7 million. Revenues generated from operations in Japan declined 31.9% to $34.5 million while that from the Asia Pacific region decreased 15.2% to $128.7 million. Sales in Europe improved 17% to $174.7 million and that in the Americas increased 19.5% to $46.7 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 in the quarter under review is provided below:

The Adhesive Dispensing Systems segment’s revenues totaled $250.8 million, increasing 1.2% year over year. Results were driven by 3.3% volume growth, partially offset by 2.1% forex woes.

Advanced Technology Systems’ revenues were $250.2 million, down 0.6% year over year. The fall was due to 0.8% adverse impact from foreign currency movements, partially offset by 0.2% growth in volumes.

Revenues generated from Industrial Coating Systems decreased 8.2% year over year to $68.2 million. Volume declined 7% and foreign currency movements had a negative impact of 1.2%.

For fiscal 2018, the company’s net sales were $2,254.7 million, increasing 9.1% year over year. The result was roughly in line with the Zacks Consensus Estimate.

Margin Weak

In the quarter under review, Nordson’s cost of sales declined 0.1% year over year to $261.6 million. It represented 45.9% of net sales versus 45.6% in the year-ago quarter. Selling and administrative expenses increased 3.1% year over year to $193.2 million. It represented 33.9% of net sales in the reported quarter versus 32.6% in the year-ago quarter.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in the quarter under review were $143.4 million, decreasing 4.3% year over year. Operating profits declined 8.2% year over year to $114.6 million while the margin came in at 20.1% versus 21.7% in the year-ago quarter. Operating margins suffered from the adverse impacts of investments made to launch a service center in the United States and facility consolidations in Adhesives segment.

Balance Sheet & Cash Flow
 
Exiting the fiscal fourth quarter, Nordson’s cash and marketable securities were $95.7 million, down roughly 64.1% from $266.8 million in the previous quarter end. The company’s long-term debt decreased 15.5% sequentially to $1,285.4 million.

In the fiscal fourth quarter, the company generated net cash of $161.7 million from its operating activities, reflecting year-over-year growth of 19.8%. Capital spent on the addition of property, plant and equipment grew 97.1% to $43.8 million. Adjusted free cash flow was $118.1 million, increasing 4.6% year over year.

During the reported quarter, the company used approximately $19 million to buy back shares and also paid dividends amounting to $72 million in fiscal 2018.

A day before releasing results, Nordson announced that its board of directors approved payment of a quarterly cash dividend of 35 cents per share. The payment — pertaining to the first quarter of fiscal 2019 (ending October 2019) — will be made on Jan 8, 2019, to shareholders of record as on Dec 21.

Outlook

For fiscal 2019, Nordson believes that strengthening end-markets and its growth initiatives will support growth of organic sales. Organic volumes are anticipated to grow 3-5%, higher than 2.5% registered in fiscal 2018. Unfavorable foreign currency movements will have an adverse impact of 2%.

Further, EBITDA and operating margins are predicted to increase 100-150 basis points year over year. Interest expenses will likely total $45 million while effective tax rate will be roughly 23% and capital expenditure (for maintenance) will total $50 million.

Nordson Corporation Price, Consensus and EPS Surprise