Nordson (NDSN +0.26%) released fiscal third-quarter 2019 results on Tuesday after the markets closed, detailing lighter-than-expected sales and profits as the ongoing U.S.-China trade war persists.
Still, with shares trading up only slightly over the past year, Nordson stock is down a modest 2% in Wednesday's afternoon trading as of this writing. Let's dig deeper for a better idea of what drove Nordson as it kicked off the second half.
Nordson results: The raw numbers
| Metric | Q3 2019* | Q3 2018 | Change (Decline) |
|---|---|---|---|
|
Sales |
$559.7 million |
$581.2 million |
(3.7%) |
|
GAAP net income |
$93.9 million |
$94.9 million |
(1.1%) |
|
GAAP earnings per share (diluted) |
$1.62 |
$1.61 |
0.6% |
Data source: Nordson. *For the quarter ended July 31, 2019. GAAP = generally accepted accounting principles.
Image source: Nordson.
What happened with Nordson this quarter?
- On an adjusted (non-GAAP) basis, which accounts for offsetting restructuring costs and discrete tax items, Nordson's earnings were still $1.62 per share, up 1.3% from $1.60 in the same year-ago period.
- Nordson does not currently provide specific quarterly financial guidance. So while we don't usually lend much credence to Wall Street's near-term models, most analysts were expecting adjusted earnings closer to $1.81 per share on revenue of $588 million.
- Nordson's revenue decline was driven by both a 2% decrease in organic volume and a 2% foreign currency headwind.
- Adjusted EBITDA declined 3% year over year to $158.3 million.
- By segment:
- Adhesive dispensing systems revenue grew 1.7% to $249 million, as 3.7% organic volume growth more than offset a 2% currency headwind.
- Advanced technology systems revenue fell 5.1% to $253.1 million, including a 3.9% organic volume decline and a 1.2% currency headwind.
- Industrial coating systems revenue dropped 17.5% to $57.7 million, including a 16.7% drop in organic volume and a 0.8% currency headwind.
- Backlog grew 3% year over year to $431 million as of the end of this July.
- Per a previously announced CEO transition plan, Sundaram Nagarajan was appointed Nordson's new CEO subsequent to the end of the quarter on Aug. 1.
What management had to say
Former CEO Michael Hilton -- who retired from his post at the end of July and is now a senior adviser -- stated:
The third quarter was weaker than expected, primarily impacted by the ongoing uncertainty related to the international trade dispute and its effect on customer investments. The softness in product lines serving electronics end markets and those within the industrial coatings segment offset solid organic growth in our adhesives dispensing segment and the non-electronics product lines within the advanced technology segment. The industrial coatings segment sales volume was impacted by some customers moving deliveries into the fourth quarter, so we are expecting a strong fourth quarter from this segment. Even with this decline in total company sales in the quarter and the pressure from tariffs, the Nordson team held adjusted operating margin, which excludes one-time charges in both years, equal to the prior year.
Looking forward
As such, for the full fiscal-year 2019, Nordson reduced its outlook to call for flat to modest organic sales growth, down from previous expectations for growth in the low-single-digit percent range. At the same time, the company said it will focus on cost savings and operational-efficiency initiatives to help "hold or modestly improve" its operating and EBITDA margins.
Hilton said: "As we approach the end of our fiscal year, the effect of recent macroeconomic trends has had a more significant impact than most anticipated, particularly on electronics end markets. That said, the strength of our position as a valued solutions provider to our customers combined with the diversity of our end markets gives us confidence that we will continue to drive organic growth going forward."
