Nordson Corporation Reports Fiscal Year 2018 Fourth Quarter and Record Full Year Results

Nordson Corporation (Nasdaq: NDSN) today reported results for the fourth quarter of fiscal year 2018. For the quarter ended October 31, 2018, sales were $569 million, a 1 percent decrease compared to the prior year’s fourth quarter. This change in sales included a decrease of 1 percent in organic volume, growth related to the first year effect of acquisitions of approximately 1 percent, and a decrease related to the unfavorable effects of currency translation as compared to the prior year’s fourth quarter of 1 percent.

In the fourth quarter of fiscal year 2018, reported operating profit was $115 million, net income was $87 million, and GAAP diluted earnings per share were $1.47, inclusive of a $0.03 per share benefit related to one-time items. Free cash flow before dividends increased 5 percent over the prior year to $118 million in the quarter, reflecting strong cash conversion of 136 percent of net income. Prior year fourth quarter sales, operating profit, net income and GAAP diluted earnings per share were $574 million, $125 million, $80 million and $1.37, respectively. A reconciliation of GAAP diluted earnings per share to adjusted diluted earnings per share and calculations for EBITDA, adjusted EBITDA, free cash flow before dividends, and adjusted free cash flow before dividends are included in the attached financial exhibits.

The current quarter’s results include a non-recurring restructuring charge of $3 million, or $0.04 per diluted share. Additionally, discrete tax benefits of $4 million, or $0.07 per diluted share, were recognized in the quarter.

Fourth Quarter Segment Results

Adhesive Dispensing Systems sales increased 1 percent compared to the prior year’s fourth quarter, inclusive of 3 percent organic growth and a 2 percent decrease related to the unfavorable effects of currency translation as compared to the prior year. Reported operating margin in the segment was 27 percent in the quarter, or 28 percent on an adjusted basis to exclude non-recurring restructuring charges of $2 million related to a previously announced facility consolidation. The adjusted fourth quarter fiscal 2018 margin performance was equal to the prior year’s fourth quarter.

Advanced Technology Systems sales decreased approximately 1 percent compared to the prior year’s fourth quarter, inclusive of a decrease in organic volume of approximately 2 percent, an increase of approximately 3 percent related to the first year effect of acquisitions, and a decrease of approximately 1 percent related to the unfavorable effects of currency translation as compared to the prior year. The fourth quarter’s acquisitive growth includes the fiscal 2018 acquisition of Sonoscan. Reported operating margin in the segment was 20 percent in the quarter. As compared to the prior year’s fourth quarter margin, acquisition dilution, product mix, and higher spending contributed to the margin decline.

Industrial Coating Systems sales volume decreased 8 percent compared to the prior year’s fourth quarter, inclusive of a decrease in organic volume of 7 percent and a 1 percent decrease related to the unfavorable effects of currency translation as compared to the prior year. Compared to the prior year’s fourth quarter, reported operating margin in the segment improved 200 basis points to 20 percent, driven by improved product mix and focus on continuous improvement initiatives.

Detailed results by operating segment and geography are included in the attached financial exhibits.

"Despite tough comparisons to the prior year’s fourth quarter, Nordson delivered solid results,” said Michael F. Hilton, Nordson President and Chief Executive Officer. "Reported operating margin in the current quarter was negatively impacted by certain long-term investments, including facility consolidation efforts within the Adhesives segment and costs related to the launch of our new centralized shared service center in the United States. These investments will benefit both our customers and shareholders over the long-term.”

Fiscal 2018 Full Year Results

Sales for the fiscal year ended October 31, 2018 were $2.3 billion, an increase of 9 percent compared to the same period a year ago. This change in sales included organic volume growth of 2 percent, a 5 percent increase related to the first year effect of acquisitions, and a 2 percent increase due to the favorable effects of currency translation as compared to the prior year. Full year operating profit was $495 million, net income was $377 million, and GAAP diluted earnings per share were $6.40, or $5.94 on a normalized basis to exclude one-time items. Prior year sales, operating profit, net income, and GAAP diluted earnings per share were $2.1 billion, $458 million, $296 million, and $5.08, respectively.

"Our global Nordson team delivered full year organic sales growth of nearly 2.5 percent in the current year, against two challenging prior year comparisons where we generated organic sales growth of 8 percent and 7 percent in fiscal years 2017 and 2016, respectively,” said Hilton. "In fiscal 2018, sales, operating profit, GAAP diluted earnings per share, and EBITDA were company records, highlighting our continued commitment to deliver the best technology solutions to our customers and to generate growth through innovation and superior customer service.”

Full year EBITDA increased 11 percent to $605 million and adjusted EBITDA increased 8 percent to $609 million, both compared to the prior year. EBITDA margin and adjusted EBITDA margin were both 27 percent of sales. Free cash flow before dividends increased 44% over the prior year to $415 million, or 110 percent of net income. In addition to funding organic and acquisitive growth initiatives, Nordson returned value to its shareholders by distributing $72 million in dividends in the fiscal year 2018 and investing $19 million for the repurchase of shares during the fourth quarter. The company also reduced net debt leverage on the balance sheet to 2-times trailing-twelve-months EBITDA at the end of the fiscal year.

Backlog

Backlog for the quarter ended October 31, 2018 was approximately $394 million, a decrease of 1 percent compared to the same period a year ago, inclusive of a 3 percent decline in organic growth offset by 2 percent growth due to acquisitions. Backlog amounts are calculated at October 31, 2018 exchange rates.

Outlook

"We continue to diversify our business into more steady growth end-markets, and we have consistently delivered annual organic sales volume growth, as evidenced by the new exhibit included with this press release. We believe investors are best served by focusing on our annual growth performance,” said Hilton. "We are forecasting that the strength of our end markets and our ability to execute on our growth initiatives will enable another year of solid organic sales growth in fiscal 2019, recognizing that the first quarter faces a very challenging comparison. In addition to driving top line growth, we expect to leverage the Nordson Business System to generate further operational improvements over 2018.”

For the full year fiscal 2019, organic sales volume is forecasted to increase in the range of 3 to 5 percent compared to fiscal year 2018, offset by an unfavorable currency translation effect of 2 percent based on the current exchange rate environment as compared to the prior year. In addition to this sales growth, reported operating margin and EBITDA margin are forecasted to improve by approximately 100 to 150 basis points compared to fiscal 2018 results when excluding $3 million related to short-term purchase accounting for the step-up in value of acquired inventory and approximately $7 million of restructuring charges. For fiscal year 2019, the company expects interest expense to be approximately $45 million and maintenance capital expenditures to be approximately $50 million. The company’s estimated effective tax rate is approximately 23 percent.

Nordson management will provide additional commentary on these results and outlook during a conference call Thursday, December 13, 2018 at 8:30 a.m. eastern time which can be accessed at www.nordson.com/investors. For persons unable to listen to the live broadcast, a replay will be available for 14 days after the event. Information about Nordson’s investor relations and shareholder services is available from Lara Mahoney, Vice President, Investor Relations and Corporate Communications at (440) 414-5639 or lara.mahoney@nordson.com.

Except for historical information and comparisons contained herein, statements included in this release may constitute "forward-looking statements,” as defined by the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors, as discussed in the company’s filing with the Securities and Exchange Commission that could cause actual results to differ.

Nordson Corporation engineers, manufactures and markets differentiated products and systems used for the precision dispensing of adhesives, coatings, sealants, biomaterials, polymers, plastics and other materials, fluid management, test and inspection, UV curing and plasma surface treatment, all supported by application expertise and direct global sales and service. Nordson serves a wide variety of consumer non-durable, durable and technology end markets including packaging, nonwovens, electronics, medical, appliances, energy, transportation, construction, and general product assembly and finishing. Founded in 1954 and headquartered in Westlake, Ohio, the company has operations and support offices in more than 35 countries. Visit Nordson on the web at http://www.nordson.com, @Nordson_Corp, or www.facebook.com/nordson.

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