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Nordson (NDSN) Up 1% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Nordson (NDSN - Free Report) . Shares have added about 1% in that time frame, underperforming 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's Q4 Earnings Surpass Estimates, Rise Y/Y

Nordson’s fourth-quarter fiscal 2019 (ended Oct 31, 2019) earnings beat expectations, the positive earnings surprise being 1.1%.

Adjusted earnings, excluding one-time charges and gains, were $1.79 per share, surpassing the Zacks Consensus Estimate of $1.77. Also, the bottom line increased 24.3% from the year-ago figure of $1.44 primarily due to higher sales, fall in net interest expenses and lower share count.

For fiscal 2019, Nordson’s adjusted earnings per share were $5.87, down 1.2% from the year-ago figure of $5.94.

Inside the Headlines

In the reported quarter, Nordson’s sales were $585.5 million, increasing 2.8% year over year. The top line gained from 4% increase in organic volume, partially offset by 1% adverse impact of unfavorable movements in foreign currencies. However, revenues missed the Zacks Consensus Estimate of $605 million. At the quarter end, backlog was $385 million, down 1% year over year.

On a regional basis, sales from the United States increased 12% year over year to $206.9 million. Sales generated from Japan increased 7.8% to $37.2 million while that from the Asia Pacific improved 17.3% to $150.9 million. Sales from Europe decreased 16.5% to $145.9 million and that from the Americas declined 4.7% to $44.5 million.

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’ sales totaled $253.7 million, increasing 1.1% year over year. The improvement was driven by 3% increase in volume, partially offset by 2% adverse impact of foreign currency translation.

Advanced Technology Systems’ sales were $249 million, down 0.5% year over year. The fall was due to 1% adverse impact of foreign currency movements, and about 1% decrease in volume.

Sales generated from Industrial Coating Systems increased 21.3% year over year to $82.8 million. Volume increased 22% while foreign currency movements had a negative impact of 1%.

For fiscal 2019, the company’s sales were $2,194.2 million, decreasing 2.7% year over year.

Margin Details

In the quarter, Nordson’s cost of sales increased 2% to $266.5 million. It represented 45.5% of sales compared with 45.9% in the year-ago quarter. Selling and administrative expenses declined 6.2% to $179.3 million. It represented 30.6% of sales compared with 33.5% a year ago.

Adjusted earnings before interest, tax, depreciation and amortization were $164.8 million, increasing 14.9% year over year.

Operating profit increased 20% to $139.7 million. Margin came in at 23.9% compared with 20.5% in the year-ago quarter.

Balance Sheet & Cash Flow

Exiting the fiscal fourth quarter, Nordson’s cash and marketable securities were $151.2 million, up roughly 58% from $95.7 million as of Oct 31, 2018. The company’s long-term debt decreased 16.3% to $1,075.4 million at the end of fiscal 2019.

In the fiscal fourth quarter, the company generated net cash of $146.5 million from operating activities, down 9.4% year over year. Adjusted free cash flow was roughly $128.7 million, increasing 9%. Capital spent on the addition of property, plant and equipment was $18.2 million.

During the reported quarter, the company paid dividends amounting to $21.8 million.

Outlook

For fiscal 2020 (ending October 2020), the company anticipates organic sales to grow in the range of 1-3%. The effective tax rate is estimated to be about 22%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.06% due to these changes.

VGM Scores

At this time, Nordson has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Nordson has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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