Nordson 10-Q 2022-04-30

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended April 30, 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 May 25, 2022: 57,511,790

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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 7,200 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. For example, in the second quarter of 2022, our revenue growth in Asia-Pacific was negatively impacted by COVID-19 lockdowns in China. 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 April 30, 2022

Worldwide sales for the three months ended April 30, 2022 were $635,403, an increase of 7.8% from sales of $589,538 for the comparable period of 2021. The increase consisted of a 7.0% increase in organic sales volume and a favorable 3.6% increase due to acquisitions, which was partially offset by an unfavorable effect from currency translation of 2.8%. The organic sales increase was driven by strong demand across most end markets, offset by unfavorable impacts from COVID-related lockdowns in China.

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Nordson Corporation

Sales outside the United States accounted for 65.6% of our sales in the three months ended April 30, 2022 and in the comparable period of 2021. On a geographic basis, sales in the United States were $218,508, an increase of 7.7% compared to 2021, consisting of a 3.9% increase in organic sales volume and a 3.8% increase from acquisitions. In the Asia Pacific region, sales were $163,952, an increase of 4.2% from 2021, consisting of an organic sales volume increase of 1.8% and a 3.3% increase due to acquisitions, partially offset by unfavorable currency effects of 0.9%. In Europe, sales were $172,256, an increase of 10.1% from 2021, consisting of an organic sales volume increase of 14.4% and a 3.7% increase due to acquisitions, offset by unfavorable currency effects of 8.0%. In the Americas region, sales were $55,244, an increase of 23.0% from 2021, consisting of an organic sales volume increase of 20.8%, an increase due to acquisitions of 1.9%, and favorable currency effects of 0.3%. In Japan, sales were $25,443, a decrease of 8.7% from 2021, consisting of an organic sales volume decrease of 5.0% and unfavorable currency effects of 10.0%, partially offset by a 6.3% increase due to acquisitions.

Cost of sales for the three months ended April 30, 2022 were $277,768, up from $251,839 in the comparable period of 2021. Gross profit, expressed as a percentage of sales, decreased to 56.3% from 57.3% in the comparable period of 2021. The 1.0 percentage point decrease in gross margin was primarily driven by unfavorable sales mix and cost inflation in material, labor and logistics.

Selling and administrative expenses for the three months ended April 30, 2022 were $173,662, up from $171,308 in the comparable period of 2021. The 1.4% increase was primarily driven by the first year effect of acquisitions, partially offset by favorable currency translation effects and improved cost controls.

Operating profit increased to $183,973 for the three months ended April 30, 2022, compared to $166,391 in the comparable period of 2021. Operating profit as a percentage of sales increased to 29.0% for the three months ended April 30, 2022 compared to 28.2% in the comparable period of 2021. The improved profitability was primarily driven by the 7.0% increase in organic sales volume and continued selling and administrative expense leverage, partially offset by unfavorable currency translation effects and unfavorable sales mix.

Interest expense for the three months ended April 30, 2022 was $5,361, compared to $7,139 in the comparable period of 2021. The decrease was primarily due to lower average debt levels compared to the prior year period. Other expense was $39,764 compared to other expense of $3,843 in the comparable period of 2021. Included in 2022 other expense were non-cash pension settlement charges of $41,221 related to the purchase of an annuity contract to relieve the Company of certain pension benefit obligations, pension and postretirement income of $746 and $1,000 in foreign currency gains. Included in 2021 other expense were pension and postretirement costs of $3,499 and $777 of foreign currency losses.

Net income for the three months ended April 30, 2022 was $109,634, or $1.88 per diluted share, compared to $124,144, or $2.12 per diluted share, in the same period of 2021. This represents a 11.7% decrease in net income, and a 11.3% decrease in diluted earnings per share. Net income for the three months ended April 30, 2022 includes after tax non-cash pension settlement charges of $32,450, or $0.56 per diluted share, related to the purchase of an annuity contract to relieve the company of certain pension benefit obligations.

Industrial Precision Solutions

Sales of the Industrial Precision Solutions segment were $316,434 in the three months ended April 30, 2022, an increase of 5.9% from sales in the comparable period of 2021 of $298,775. The increase was the result of an organic sales volume increase of 2.8% and a 7.1% increase from acquisitions, partially offset by unfavorable currency effects that decreased sales by 4.0%. The organic sales volume increase was driven by continued demand in consumer non-durable and industrial end markets, which was offset by weakness in Asia-Pacific related to the COVID-19 shutdowns in China.

Operating profit as a percentage of sales decreased to 32.3% for the three months ended April 30, 2022 compared to 34.9% in the comparable period of 2021. The 2.6 percentage point decline in operating margin was primarily due to favorable sales volume leverage being more than offset by unfavorable sales mix and unfavorable currency translation effects.

Advanced Technology Solutions

Sales of the Advanced Technology Solutions segment were $318,969 in the three months ended April 30, 2022, an increase of 9.7% from sales in the comparable period of 2021 of $290,763. The increase was the result of organic sales volume increase of 11.3%, partially offset by an unfavorable currency effect of 1.6%. The organic sales growth was driven by robust demand across electronics dispense, test and inspection, and biopharma fluid component product lines.

Operating profit as a percentage of sales increased to 30.9% for the three months ended April 30, 2022 compared to 26.3% in the comparable period of 2021. The 4.6 percentage point improvement in operating margin was primarily due to the 11.3% 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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Nordson Corporation

Six months ended April 30, 2022

Worldwide sales for the six months ended April 30, 2022 were $1,244,569, an increase of 11.5% from sales of $1,116,104 for the comparable period of 2021. The increase consisted of an 11.2% increase in organic sales volume and a net 2.7% increase due to acquisitions and divestitures, partially offset by an unfavorable effect from currency translation of 2.4%. Strength in electronics dispense, test and inspection, and industrial end markets were the primary drivers of the growth.

Sales outside the United States accounted for 67.1% of our sales in the six months ended April 30, 2022 compared to 65.2% in the comparable period of 2021. On a geographic basis, sales in the United States were $409,885, an increase of 5.6% compared to 2021, consisting of a 3.3% increase in organic sales volume and a net 2.3% increase from acquisitions and divestitures. In the Asia Pacific region, sales were $351,673, an increase of 17.1% from 2021, consisting of an organic sales volume increase of 14.8% and a net 2.8% increase from acquisitions and divestitures, partially offset by unfavorable currency effects of 0.5%. In Europe, sales were $328,241, an increase of 12.6% from the comparable period of 2021, consisting of an organic sales volume increase of 15.5% and a net 3.8% increase from acquisitions and divestitures, partially offset by unfavorable currency effects of 6.7%. In the Americas region, sales were $103,769, an increase of 28.0% from 2021, consisting of an organic sales volume increase of 27.7% and a net increase of 0.7% due to acquisitions and divestitures, partially offset by unfavorable currency effects of 0.4%. In Japan, sales were $51,001, a decrease of 7.2% from the comparable period of 2021, consisting of an organic sales volume decrease of 0.9% and unfavorable currency effects of 9.5%, partially offset by a net 3.2% increase due to acquisitions and divestitures.

Cost of sales for the six months ended April 30, 2022 were $546,800, up from $488,445 in the comparable period of 2021. Gross profit, expressed as a percentage of sales, decreased slightly to 56.1% from 56.2% in the comparable period of 2021. The 0.1 percentage point decrease in gross margin was primarily driven by unfavorable mix, increased freight and other inflationary pressures, principally offset by favorable sales volume leverage, manufacturing efficiencies, and pricing actions.

Selling and administrative expenses for the six months ended April 30, 2022 were $357,936, up from $352,243 in the comparable period of 2021. The 1.6% increase was primarily driven by the first year effect of acquisitions, partially offset by favorable currency translation effects and improved cost controls.

Operating profit increased from $275,416 in the six months ended April 30, 2021 to $339,833 in the comparable period of 2022. Operating profit as a percentage of sales increased to 27.3% for the six months ended April 30, 2022 compared to 24.7% in the comparable period of 2021. The 2.6 percentage point increase in operating margin was driven by the 11.2% organic sales volume increase and continued selling and administrative expense leverage, partially offset by unfavorable currency translation effects.

Interest expense for the six months ended April 30, 2022 was $11,011, compared to $14,071 in the comparable period of 2021. The decrease was due primarily to lower average debt levels. Other expense was $38,472 compared to $8,504 in the comparable period of 2021. Included in 2022 other expense were non-cash pension settlement charges of $41,221 related to the purchase of an annuity contract to relieve the Company of certain pension benefit obligations, other pension and postretirement income of $1,027 and $1,364 in foreign currency gains. Included in 2021 were pension and postretirement costs of $4,975 and $3,537 of foreign currency losses.

Net income for the six months ended April 30, 2022 was $230,043, or $3.93 per diluted share, compared to $201,726, or $3.44 per diluted share, in the same period of 2021. This represents a 14.0% increase in net income, and a 14.2% increase in diluted earnings per share. Net income for the six months ended April 30, 2022 includes after tax non-cash pension settlement charges with a second quarter impact of $32,450, or $0.56 per diluted share, related to the purchase of an annuity contract to relieve the company of certain pension benefit obligations.

Industrial Precision Solutions

Sales of the Industrial Precision Solutions segment were $640,367 in the six months ended April 30, 2022, an increase of 9.1% from sales in the comparable period of 2021 of $587,191. The increase was the result of an increase of 7.3% in organic sales volume and a net increase of 5.3% due to acquisitions and divestitures, partially offset by unfavorable currency effects of 3.5%. Growth occurred in all regions except for Japan.

Operating profit as a percentage of sales decreased slightly to 31.9% for the six months ended April 30, 2022 compared to 32.0% in the comparable period of 2021. The comparable operating margin reflects the first year effect of acquisitions and unfavorable product mix, principally offset by benefits of the divestiture and favorable selling and administrative expense leverage.

Advanced Technology Solutions

Sales of the Advanced Technology Solutions segment were $604,202 in the six months ended April 30, 2022, an increase of 14.2% from sales in the comparable period of 2021 of $528,913. The increase was the result of an organic sales volume increase of 15.4%, partially offset by unfavorable currency effects that decreased sales by 1.2%. Sales growth occurred in all product lines, with particular strength in electronic dispense, test and inspection, and biopharma fluid component product lines.

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Nordson Corporation

Operating profit as a percentage of sales increased to 28.9% for the six months ended April 30, 2022 compared to 23.4% in the comparable period of 2021. The 5.5 percentage point improvement in operating margin was principally driven by greater selling and administrative expense leverage which contributed 4.7 percentage points and the 15.4% organic sales volume increase.

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 and six months ended April 30, 2022 was 21.3% and 21.0%, respectively, compared to 20.3% and 20.5%, respectively, for the comparable periods a year ago.

Due to our share-based payment transactions, our income tax provision included a discrete tax benefit of $309 and $1,424 for the three and six months ended April 30, 2022, respectively, compared to $1,796 and $2,595 in the comparable periods of 2021, 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 April 30, 2022 were translated at exchange rates in effect during the same period of 2021, we estimated that sales would have been approximately $16,500 higher while costs of sales and selling and administrative expenses would have been approximately $8,400 higher. If transactions for the six months ended April 30, 2022 were translated at exchange rates in effect during the same period of 2021, we estimated that sales would have been approximately $26,300 higher while costs of sales and selling and administrative expenses would have been approximately $14,400 higher.

Financial Condition

Liquidity and Capital Resources

During the six months ended April 30, 2022, cash and cash equivalents decreased $179,080 as cash was used to fund the NDC acquisition and purchase of shares for treasury, partially offset by cash generated from operations in the period. Cash provided by operations during this period was $214,501 compared to $247,714 for the six months ended April 30, 2021. Changes in operating assets and liabilities decreased cash by $85,070 in the six months ended April 30, 2022 compared to increasing cash by $20,206 in the comparable period of 2021, primarily related to investments in inventory and an increase in receivables. As a result of our pension annuitization transaction, we remeasured the periodic benefit obligation of pension plan and recorded non-cash settlement charges of $41,221 in the second quarter of 2022.

Cash used in investing activities was $196,374 for the six months ended April 30, 2022, compared to $13,681 used in the comparable period of 2021. During the six months ended April 30, 2022, cash of $171,613 was used for the NDC acquisition and cash of $24,776 was used for capital expenditures. During the six months ended April 30, 2021, $18,743 was used for capital expenditures. The increase in capital expenditures related primarily to capacity expansion in our medical fluid dispensing and components product lines.

Cash used in financing activities was $192,935 for the six months ended April 30, 2022, compared to $310,333 used in the comparable period of 2021. In the six months ended April 30, 2022, cash of $59,301 was used for dividend payments and cash of $140,466 was used for the purchase of treasury shares, compared to $45,342 and $30,274, respectively, in the comparable period of 2021. The six months ended April 30, 2021 included net repayments of long-term debt of $250,101.

The following is a summary of significant changes in balance sheet captions from October 31, 2021 to April 30, 2022. Inventories-net increased by $56,020 due to our efforts to manage supply chain disruptions and to meet expected demand and existing backlog and as a result of the NDC acquisition. Goodwill increased by $129,856 due to the NDC acquisition in the first quarter of 2022. Accrued liabilities decreased by $24,318 due primarily to incentive compensation payments made in the first quarter of 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 the next twelve months and for the foreseeable future thereafter. 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 April 30, 2022. Refer to our Long-term debt footnote in the notes to our condensed consolidated financial statements for additional details regarding our debt outstanding.

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Outlook

Backlog entering the second half of fiscal year 2022 exceeds $1 billion, as the Company continues to see extended shipment request dates in conjunction with large orders from its customers in electronics, industrial and medical end markets. For the fiscal year 2022, the Company expects year-over-year revenue growth of 8% to 9% and earnings per share growth compared to fiscal year 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, 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, including the conflicts between Russia and Ukraine, 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 April 30, 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 April 30, 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 April 30, 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 April 30, 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 $253,782 of the total $1,000,000 authorized remained available for share repurchases at April 30, 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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