Nordson 10-Q 2022-01-31

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended January 31, 2022

OR

For the transition period from to

Commission file number 0-7977

____________________________________________________

NORDSON CORPORATION

(Exact name of registrant as specified in its charter)

___________________________________________________

Ohio

(State or other jurisdiction of incorporation or organization)

28601 Clemens Road

Westlake, Ohio

(Address of principal executive offices)

34-0590250

(I.R.S. Employer Identification No.)

44145

(Zip Code)

(440) 892-1580

(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes x No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Shares, without par value as of February 22, 2022: 57,940,570

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Nordson Corporation

Part I – FINANCIAL INFORMATION

Condensed Consolidated Statements of Income

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The following is management's discussion and analysis of certain significant factors affecting our financial condition and results of operations for the periods included in the accompanying condensed consolidated financial statements.

Overview

Nordson Corporation is an innovative precision technology company that leverages a scalable growth framework to deliver top tier growth with leading margins and returns. The Company’s direct sales model and applications expertise serves global customers through a wide variety of critical applications. Its diverse end market exposure includes consumer non-durable, medical, electronics and industrial end markets. Founded in 1954 and headquartered in Westlake, Ohio, the Company has approximately 7,100 employees with operations and support offices in over 35 countries.

COVID-19 Update

In December 2019, a novel strain of coronavirus (COVID-19) emerged and has since spread to other countries, including the United States. In March 2020, the World Health Organization declared COVID-19 as a pandemic (the COVID-19 pandemic). The COVID-19 pandemic, including multiple variants, has resulted in governments around the world implementing stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business interruptions and other measures.

Throughout the COVID-19 pandemic, we have supported, and continue to support, multiple “critical infrastructure” sectors by manufacturing materials and products needed for medical supply chains, packaging, transportation, energy, communications, and other critical infrastructure industries. We have benefited from our geographical and product diversification as the end markets we serve have remained resilient in response to the COVID-19 pandemic, and we continue to invest in the businesses, people, and strategies necessary to achieve our long-term priorities as we focus on driving profitable growth. We have continued to operate during the COVID-19 pandemic in all our production facilities, having taken the recommended public health measures to ensure worker and workplace safety. As a result, there have been unfavorable impacts on our manufacturing efficiencies. Additionally, we are taking steps to offset cost increases from COVID-19 pandemic-related supply chain disruptions.

We continue to actively monitor the rapidly evolving circumstances and impact of the COVID-19 pandemic, which has negatively disrupted, and may continue to negatively disrupt, our business and results of operations in the future. The full extent of the COVID-19 pandemic on our operations and the markets we serve remains highly uncertain and will depend largely on future developments related to the COVID-19 pandemic, including infection rates increasing or returning in various geographic areas, variations of COVID-19, the ultimate duration of the COVID-19 pandemic, actions by government authorities to contain the outbreak or treat its impact, such as reimposing previously lifted measures or putting in place additional restrictions, and the widespread distribution and acceptance of an effective vaccine, among other things. These developments are constantly evolving and cannot be accurately predicted.

NDC Acquisition

On November 1, 2021, the Company acquired NDC, a test and inspection business, focused on measurement and controls solutions serving consumer non-durable, film extrusion & converting, cable & tubing and energy storage markets. Upon integration, financial reporting for NDC was integrated into the Industrial Precision Solutions segment to better leverage growth opportunities within shared industrial and consumer non-durable end markets and related sales channels.

Critical Accounting Policies and Estimates

A comprehensive discussion of the Company’s critical accounting policies and management estimates and significant accounting policies followed in the preparation of the financial statements is included in Item 7 of our Annual Report on Form 10-K for the year ended October 31, 2021 (the 2021 Form 10-K). There have been no significant changes in critical accounting policies, management estimates or accounting policies followed since the year ended October 31, 2021.

Results of Operations

Three months ended January 31, 2022

Worldwide sales for the three months ended January 31, 2022 were $609,166, an increase of 15.7% from sales of $526,566 for the comparable period of 2021. The increase consisted of a 16.0% increase in organic sales volume and a favorable net 1.6% increase due to acquisitions and divestitures, which was partially offset by an unfavorable effect from currency translation of 1.9%. The organic sales increase was driven by strong demand across most end markets.

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Sales outside the United States accounted for 68.6% of our sales in the three months ended January 31, 2022 compared to 64.8% in the comparable period of 2021. On a geographic basis, sales in the United States were $191,377, an increase of 3.3% compared to 2021, consisting of a 2.8% increase in organic sales volume and a net 0.5% increase from acquisitions and divestitures. In the Asia Pacific region, sales were $187,721, an increase of 31.4% from 2021, consisting of an organic sales volume increase of 29.4% and a net 2.1% increase due to acquisitions and divestitures, partially offset by unfavorable currency effects of 0.1%. In Europe, sales were $155,985, an increase of 15.4% from 2021, consisting of an organic sales volume increase of 16.6% and a net 3.9% increase due to acquisitions and divestitures, offset by unfavorable currency effects of 5.1%. In the Americas region, sales were $48,525, an increase of 34.3% from 2021, consisting of an organic sales volume increase of 36.6%, partially offset by unfavorable currency effects of 1.4%, and a net decrease of 0.9% due to acquisitions and divestitures. In Japan, sales were $25,558, a decrease of 5.7% from 2021, consisting of an organic sales volume increase of 3.5% offset by unfavorable currency effects of 9.0% and a net 0.2% decrease due to acquisitions and divestitures.

Cost of sales for the three months ended January 31, 2022 were $269,032, up from $236,606 in the comparable period of 2021. Gross profit, expressed as a percentage of sales, increased to 55.8% from 55.1% in the comparable period of 2021. The 0.7 percentage point increase in gross margin was primarily driven by the divestiture of the screws and barrel product line, which contributed 1.1 percentage points, partially offset by inventory step-up amortization related to acquisition of NDC Technologies (NDC) in 2022.

Selling and administrative expenses for the three months ended January 31, 2022 were $184,274, up from $180,935 in the comparable period of 2021. The 1.8% increase was primarily driven by the first year effect of acquisitions, partially offset by favorable currency translation effects.

Operating profit increased to $155,860 for the three months ended January 31, 2022, compared to $109,025 in the comparable period of 2021. Operating profit as a percentage of sales increased to 25.6% for the three months ended January 31, 2022 compared to 20.7% in the comparable period of 2021. The improved profitability was primarily driven by the 16.0% increase in organic sales volume and the product line divestiture, which combined contributed 5.4 percentage points, partially offset by inventory step-up amortization related to our acquisition of NDC. Favorable sales mix and continued cost control measures also positively impacted operating profit.

Interest expense for the three months ended January 31, 2022 was $5,650, compared to $6,932 in the comparable period of 2021. The decrease was due to lower average debt levels compared to the prior year period. Other income was $1,292 compared to other expense of $4,661 in the comparable period of 2021. Included in 2022 other income were pension income of $281 and $364 in foreign currency gains. Included in 2021 other expense were pension costs of $1,476 and $2,760 of foreign currency losses.

Net income for the three months ended January 31, 2022 was $120,409, or $2.05 per diluted share, compared to $77,582, or $1.32 per diluted share, in the same period of 2021. This represents a 55.2% increase in net income, and a 55.3% increase in diluted earnings per share.

Industrial Precision Solutions

Sales of the Industrial Precision Solutions segment were $323,933 in the three months ended January 31, 2022, an increase of 12.3% from sales in the comparable period of 2021 of $288,416. The increase was the result of an organic sales volume increase of 12.0% and a net acquisition/divestiture impact of 3.2%, partially offset by unfavorable currency effects that decreased sales by 2.9%. The organic sales volume increase was driven by continued demand in consumer non-durable and industrial end markets, particularly in Asia.

Operating profit as a percentage of sales increased to 31.5% for the three months ended January 31, 2022 compared to 28.9% in the comparable period of 2021. The 2.6 percentage point improvement in operating margin was primarily due to the organic sales volume increase of 12.0% and favorable selling and administrative expense leverage which contributed 1.8 percentage points. The net impact of product line divestiture and an acquisition contributed 0.9 of a percentage point, inclusive of inventory step-up amortization related to our 2022 acquisition.

Advanced Technology Solutions

Sales of the Advanced Technology Solutions segment were $285,233 in the three months ended January 31, 2022, an increase of 19.8% from sales in the comparable period of 2021 of $238,150. The increase was the result of organic sales volume increase of 20.6%, partially offset by an unfavorable currency effect of 0.8%. The segment had organic sales growth across all of its end markets with particular strength in its electronics dispense product lines which grew approximately 40% over prior year.

Operating profit as a percentage of sales increased to 26.8% for the three months ended January 31, 2022 compared to 19.8% in the comparable period of 2021. The 7.0 percentage point improvement in operating margin was primarily due to the 20.6% organic sales volume increase and favorable selling and administrative expense leverage. Favorable product sales mix, manufacturing efficiencies and pricing helped offset cost inflation in material, labor, and logistics.

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Income taxes

We record our interim provision for income taxes based on our estimated annual effective tax rate, as well as certain items discrete to the current period. Significant judgment is involved regarding the application of global income tax laws and regulations and when projecting the jurisdictional mix of income. We have considered several factors in determining the probability of realizing deferred income tax assets which include forecasted operating earnings, available tax planning strategies and the time period over which the temporary differences will reverse. We review our tax positions on a regular basis and adjust the balances as new information becomes available. The effective tax rate for the three months ended January 31, 2022 was 20.8% and 20.7%, respectively.

Foreign Currency Effects

In the aggregate, average exchange rates for 2022 used to translate international sales and operating results into U.S. dollars were generally unfavorable compared with average exchange rates existing during 2021. It is not possible to precisely measure the impact on operating results arising from foreign currency exchange rate changes, because of changes in selling prices, sales volume, product mix and cost structure in each country in which we operate. However, if transactions for the three months ended January 31, 2022 were translated at exchange rates in effect during the same period of 2021, we estimated that sales would have been approximately $9,800 higher while costs of sales and selling and administrative expenses would have been approximately $6,000 higher.

Financial Condition

Liquidity and Capital Resources

During the three months ended January 31, 2022, cash and cash equivalents decreased $129,433 as cash was used to fund the NDC acquisition, partially offset by cash generated from operations in the quarter. Cash provided by operations during this period was $118,087 compared to $143,289 for the three months ended January 31, 2021. Changes in operating assets and liabilities decreased cash by $29,217 in the three months ended January 31, 2022 compared to increasing cash by $16,152 in the comparable period of 2021, primarily related to investments in inventory.

Cash used in investing activities was $184,097 for the three months ended January 31, 2022, compared to $7,895 used in the comparable period of 2021. During the three months ended January 31, 2022, cash of $171,613 was used for the NDC acquisition and cash of $12,491 was used for capital expenditures. During the three months ended January 31, 2021, $7,917 was used for capital expenditures. The increase in capital expenditures related primarily to capacity expansion in our medical fluid components product line.

Cash used in financing activities was $61,902 for the three months ended January 31, 2022, compared to $122,278 used in the comparable period of 2021. The three months ended January 31, 2021 included a repayment of long-term debt of $100,000. In the three months ended January 31, 2022, cash of $29,724 was used for dividend payments and cash of $35,002 was used for the purchase of treasury shares, compared to $22,672 and $5,310, respectively, in the comparable period of 2021.

The following is a summary of significant changes in balance sheet captions from October 31, 2021 to January 31, 2022. Inventories-net increased by $39,185 to meet expected demand and exiting backlog and as a result of the NDC acquisition. Goodwill increased by $129,856 due to the NDC acquisition. Accrued liabilities decreased by $42,747 due primarily to incentive compensation payments made in the quarter ending January 31, 2022.

We believe the combination of present capital resources, cash from operations and unused financing sources are more than adequate to meet cash requirements for 2022. There are no significant restrictions limiting the transfer of funds from international subsidiaries to the parent company. We were in compliance with all debt covenants at January 31, 2022. Refer to our Long-term debt footnote in the notes to our condensed consolidated financial statements for additional details regarding our debt outstanding.

Outlook

Backlog entering the second quarter of fiscal year 2022 is over $900 million. The Company continues to see extended shipment request dates in conjunction with large orders from our customers in electronics, industrials, and medical end markets. Based on anticipated sales timing, supply chain constraints and labor availability, we expect fiscal 2022 second quarter sales growth to be in the range of 6% to 10% compared to fiscal 2021 second quarter, full-year revenue growth of 7% to 10% compared to fiscal year 2021 and earnings per share growth for the second quarter and fiscal year of 2022 compared to the same fiscal periods of 2021.

Safe Harbor Statements Under The Private Securities Litigation Reform Act of 1995

This Form 10-Q, particularly “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements within the meaning of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things,

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income, earnings, cash flows, changes in operations, operating improvements, businesses in which we operate and the United States and global economies. Statements in this annual report that are not historical are hereby identified as “forward-looking statements” and may be indicated by words or phrases such as “anticipates,” “supports,” “plans,” “projects,” “expects,” “believes,” “should,” “would,” “could,” “hope,” “forecast,” “management is of the opinion,” use of the future tense and similar words or phrases. These statements reflect management’s current expectations and involve a number of risks and uncertainties. These risks and uncertainties include, but are not limited to, U.S. and international economic conditions; financial and market conditions; currency exchange rates and devaluations; possible acquisitions including the Company’s ability to complete and successfully integrate acquisitions, including the integration of NDC; the Company’s ability to successfully divest or dispose of businesses that are deemed not to fit with its strategic plan; the effects of changes in U.S. trade policy and trade agreements; the effects of changes in tax law; and the possible effects of events beyond our control, such as political unrest, acts of terror, natural disasters and pandemics, including the current COVID-19 pandemic.

In light of these risks and uncertainties, actual events and results may vary significantly from those included in or contemplated or implied by such statements. Readers are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements speak only as of the date made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Factors that could cause actual results to differ materially from the expected results are discussed in Part I, Item 1A, Risk Factors in our 2021 Form 10-K.

Information regarding our financial instruments that are sensitive to changes in interest rates and foreign currency exchange rates was disclosed under Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our 2021 Form 10-K. The information disclosed has not changed materially in the interim period since then.

Our management with the participation of the principal executive officer (President and Chief Executive Officer) and principal financial officer (Executive Vice President, Chief Financial Officer) has reviewed and evaluated our disclosure controls and procedures (as defined in the Securities Exchange Act Rule 13a-15(e)) as of January 31, 2022. Based on that evaluation, our management, including the principal executive and financial officers, has concluded that our disclosure controls and procedures were effective as of January 31, 2022 in ensuring that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting that occurred during the three months ended January 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II – OTHER INFORMATION

See our Contingencies note to the condensed consolidated financial statements for a discussion of our contingencies and legal matters.

In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in “Item 1A. Risk Factors” of our 2021 Form 10-K. Many of the risks identified in the 2021 Form 10-K have been, and may be further, exacerbated by the impact of the COVID-19 pandemic and the actions taken by governmental entities, businesses, individuals and others in response to the pandemic.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table summarizes common stock repurchased by the Company during the three months ended January 31, 2022:

(1)Includes shares tendered for taxes related to stock option exercises and vesting of restricted stock.

(2)In December 2014, the board of directors authorized a $300,000 common share repurchase program. In August 2015, the board of directors authorized the repurchase of up to an additional $200,000 of the Company’s common shares. In August 2018, the board of directors authorized the repurchase of an additional $500,000 of the Company’s common shares. Approximately $359,097 of the total $1,000,000 authorized remained available for share repurchases at January 31, 2022. Uses for repurchased shares include the funding of benefit programs including stock options and restricted stock. stock. Shares purchased are treated as treasury shares until used for such purposes. The repurchase program is being funded using cash from operations and proceeds from borrowings under our credit facilities.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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