Release Date: August 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nordson Corp (NDSN, Financial) reported third-quarter sales of $662 million, in line with expectations and driven by strong organic growth in the IPS segment.
- The company achieved a top-quartile EBITDA margin of over 31%, reflecting effective cost management and a favorable product mix.
- Free cash flow for the quarter was $143 million, representing 122% of net income, showcasing strong cash generation.
- The recent acquisition of Atrion Medical is expected to expand Nordson's addressable market in medical fluid components by over 50%.
- Nordson Corp (NDSN) maintained its full-year adjusted earnings per share guidance, reflecting confidence in its diversified portfolio and strategic initiatives.
Negative Points
- The electronics segment experienced continued softness, impacting overall sales growth.
- Medical and fluid solutions sales decreased by 2% year-over-year due to lower demand in certain product lines.
- Net interest expense increased by approximately $6 million due to higher debt levels associated with the ARAG acquisition.
- The advanced technology solutions segment saw an 11% decrease in sales compared to the prior year, driven by declines in electronics processing and X-ray product lines.
- The company faces challenging demand conditions in select end markets, particularly in medical interventional solutions and certain fluid component product lines.
Q & A Highlights
Q: The margins at Atrion have come down significantly since 2022. Could you talk about the right margin profile for this business and the steps you're taking to get the margins to Nordson levels?
A: Sundaram Nagarajan, President, Chief Executive Officer, Director: The business has faced supply chain issues, leading to degraded margins. Historically, Atrion's EBITDA margins align with Nordson's. We are confident in returning the business to those margins over time.
Q: You noted year-over-year growth in some test and inspection products on an order basis. Could you quantify this and provide additional color on what's driving this improvement and how you see it expanding into 2025?
A: Sundaram Nagarajan, President, Chief Executive Officer, Director: We see strong momentum in our optical and acoustic product lines, particularly in our CyberOptics business. This growth is driven by new products and the semiconductor manufacturing cycle. We expect continued year-on-year growth.
Q: How have your thoughts progressed relative to the prior quarter on IPS, ATS, and MFS organic growth?
A: Sundaram Nagarajan, President, Chief Executive Officer, Director: Our underlying guidance remains steady. IPS is expected to be flat to modestly up, ATS is seeing modest order entry pickup, and MFS is facing tough comparisons and cautious customer order patterns.
Q: Across the broader industrial space, we've seen project activity get pushed out. How is this affecting Nordson, and what does it imply for 2025?
A: Sundaram Nagarajan, President, Chief Executive Officer, Director: Nordson's diversified portfolio and recurring revenue model provide stability. IPS remains steady with strong recurring revenue, ATS is seeing sequential revenue growth, and MFS faces cautious order patterns but has strong long-term growth drivers.
Q: How long do you think the normalization or destocking in the medical interventional business will persist before supply chains are back to normal?
A: Sundaram Nagarajan, President, Chief Executive Officer, Director: It's tough to call. While procedure volumes are up, supply chain teams are cautious. We expect some slowness but remain confident in long-term growth drivers.
Q: Can you unpack the deal impact of Atrion, including revenue run rate, EBITDA margins, and incremental interest?
A: Sundaram Nagarajan, President, Chief Executive Officer, Director: Atrion is a mid-single-digit growth company. We expect to resolve supply chain and operational issues over two years, achieving Nordson-like EBITDA margins by 2026.
Q: With the strong free cash flow profile and manageable leverage, how are you thinking about M&A and what remains in the pipeline?
A: Sundaram Nagarajan, President, Chief Executive Officer, Director: Our commitment to balanced acquisition-led growth remains. Our pipeline is healthy, and we are open to various deals. We maintain strategic and financial discipline in our acquisitions.
Q: What areas are you seeing as opportunities for further improvement in the business?
A: Daniel Hopgood, Senior Vice President, Controller: Our best opportunity is continuing to grow organically. Our margins and cash flow are healthy, so our focus is on growth rather than squeezing margins.
Q: Can you provide more color around the stable low single-digit outlook for IPS, including geographic regions and market share gains?
A: Sundaram Nagarajan, President, Chief Executive Officer, Director: IPS operates in diversified end market niches, allowing us to shift resources dynamically. NBS Next helps us gain market share in growing markets. The US remains strong, Asia-Pac is recovering, and Europe is weaker but stable.
Q: Can you comment on the backlog and how systems are normalizing as part of that mix?
A: Sundaram Nagarajan, President, Chief Executive Officer, Director: Our backlog is still weighted towards system businesses, but regular book-and-ship businesses have returned to normal order entry and backlogs. The current backlog of $650 million is higher than historical levels due to business growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
