Nordson, Digging Into the Numbers
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Nordson (NASDAQ: NDSN) posted another quarter of stellar earnings growth, setting company records on the top and bottom lines. Share earnings were $1.07 excluding items, versus $0.81 in the prior year. The manufacturer is fortunate to be operating in numerous strengthening product markets. Indeed, sales in its core Adhesives dispensing systems business soared 36% year over year, driving segment operating profits 13% higher. Acquisitions were a moderate contributor.
Prospective investors will want to keep an eye on a couple of factors that could impact the shares’ appeal. For one, the second largest division, Advanced technology systems, that reported a 47% jump in operating earnings in the quarter, is crucial to Nordson’s upturn. The unit derives much of its income from the consumer electronics industry (computers, smartphones, tablets, and other digital devices), and thus acts like a tech company somewhat. Of course, Nordson’s diverse end market presence helps to mitigate this effect. Secondly, order levels in those two major segments rose only slightly in the October period, and the technology increase was particularly slower. The weaker conditions are reflected in management’s guidance for considerably softer growth in the January quarter.
A Solid Global Entity
Nordson thanks a long-term and worldwide focus for its robust profitability. With 75% of last year’s revenues stemming from non-U.S.-based customers, its clientele is as varied as its product mix. Despite this, it continues to add to its repertoire through both internal means and acquisition. During 2012, it has purchased two modestly-sized plastics processing related companies, after last year’s buyout of Value Plastics, a participant in the medical and life sciences sector. Generally, Nordson is targeting productive and growing sectors for investment.
On a larger scale, two other industrial producers appear on the verge of combining. SPX Corp.’s (NYSE: SPW) offer to acquire Gardner Denver (NYSE: GDI) for more than $4 billion would bring together two firms both nearly the size of NDSN. SPW’s Flow Technology strategy includes acquisitions and it is also expanding its global foothold. Its profit downturn this year is due to weakness in the thermal equipment operations. As such, the bid for GDI, an industrial products firm, looks like a move to offset softness elsewhere. GDI shares received a boost and SPW sunk a bit on the news.
Nordson’s guidance for the 2013 first quarter (ending in January) has to be viewed in light of its long-term plan. To illustrate, sales are poised to advance 24% to 28%, while the share-net gain is apt to be much lower, the reasons being acquisition integrations and spending for organic “growth opportunities.” A backlog, up 38% year over year indicates still healthy order trends heading into next year. The Industrial Coatings business, less prominent that NDSN’s other two, saw orders climb 26% year over year, gaining steam from capital project spending on plant expansions for instance. Otherwise, NDSN should largely remain well positioned to benefit from ongoing decent demand for cellphones and from the non-durable markets it serves through its adhesives business.
Over the next several years, investments should bear fruit and a better product mix ought to support margins. The technology business is prone to cause earnings to fluctuate. Still, those willing to endure may well be rewarded with capital appreciation.
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