Nordson Corp: Form 10-Q for the period ended Jan 31, 2025

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. Throughout this Quarterly Report on Form 10-Q, components may not sum to totals due to rounding.

Overview

Nordson is an innovative precision technology company that leverages a scalable growth framework to deliver top tier growth with leading margins and returns. We engineer, manufacture and market differentiated products and systems used for precision dispensing, applying and controlling of adhesives, coatings, polymers, sealants, biomaterials, and other fluids, to test and inspect for quality, and to treat and cure surfaces and various medical products such as: catheters, cannulas, medical balloons and medical tubing. These products are supported with extensive application expertise and direct global sales and service. We serve a wide variety of consumer non-durable, consumer durable and technology end markets including packaging, electronics, medical, appliances, energy, transportation, precision agriculture, building and construction, and general product assembly and finishing.

Our strategy for long-term growth is based on solving customers’ needs globally. We were incorporated in the State of Ohio in 1954 and are headquartered in Westlake, Ohio. Our products are marketed through a network of direct operations in more than 35 countries.

As of January 31, 2025, we had approximately 8,000 employees worldwide. Our principal manufacturing facilities are located in the United States, the People’s Republic of China, Germany, Ireland, Israel, Italy, Mexico, the Netherlands and the United Kingdom.

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, 2024 (the "2024 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, 2024.

Results of Operations

Below is a detailed comparison of our results of operations for the three months ended January 31, 2025 and January 31, 2024.

As used throughout this Quarterly Report on Form 10-Q, geographic regions include the Americas (United States, Canada, Mexico and Central and South America), Asia Pacific and Europe.

Effective November 1, 2024, the MCS division was transferred from the IPS segment to the ATS segment due to an organizational change and determination that the economic and business characteristics of MCS better aligned with the Company’s ATS segment. Our segment reporting reflects this change and prior year financial information was revised to be comparable. The MFS segment was unchanged.

Consolidated Financial Results

Consolidated financial results for the three months ended January 31, 2025 and January 31, 2024 were as follows:

(In thousands except for per-share amounts)

Net Sales

Net sales for the IPS, MFS and ATS segments were as follows:

The IPS organic sales decrease of 8.4 percent was driven primarily by weaker systems demand in polymer processing and industrial coatings product lines, which was partially offset by growth in systems and parts demand for adhesive product lines. The MFS organic sales decrease of 11.2 percent was driven by lower demand and tough year-over-year comparisons in medical interventional solutions product lines, where customer destocking trends continued to impact demand. The inorganic growth of MFS is due to the acquisition of Atrion. The ATS organic sales decrease of 9.6 percent was driven by lower systems deliveries in electronics processing and x-ray product lines, partially offset by growth in optical sensors and measurement and control product lines.

Net Sales by region were as follows:

Page 23

Operating Profit

Operating profit for the IPS, MFS and ATS segments were as follows:

Consolidated operating margin decreased by 230 basis points primarily driven by reduced sales leverage. IPS operating margin declined 40 basis points, reflecting the impact of lower sales volumes. MFS operating margin declined 780 basis points, reflecting the contribution from the Atrion acquisition offset by lower organic demand. ATS operating margin improved by 140 basis points despite lower sales, due to strategic cost reduction actions and manufacturing footprint optimization actions.

Interest and Other expenses

Interest expense for the three months ended January 31, 2025 was $26,559, compared to $21,442 in the comparable period of 2024. The increase, compared to the prior year period, was primarily due to higher average debt levels, driven by acquisitions. Other income was $1,526 compared to $338 in the comparable period of 2024. Included in 2025 other income were pension and postretirement income of $1,015 and $331 of foreign currency gains. Included in 2024 other expense were pension and postretirement income of $1,025 and $822 in foreign currency losses.

Income Tax Expense

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 including 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, 2025 was 19.0% compared to 21.0% for the three months ended January 31, 2024. The effective tax rate for the three months ended January 31, 2025 is lower than the U.S. tax rate of 21% primarily due to the foreign-derived intangible income deduction.

Net Income

Net income was $94,652, or $1.65 per diluted share, for the three months ended January 31, 2025, compared to net income of $109,572, or $1.90 per diluted share, in the same period of 2024. This represented a 13.6 percent decrease in net income and a 13.2 percent decrease in diluted earnings per share. The decrease of $0.25 per diluted share was primarily driven by lower sales, higher selling & administrative expenses due to the first-year effect of acquisitions, and higher interest expense in the first quarter of 2025 compared to the first quarter of 2024.

Foreign Currency Effects

In the aggregate, average exchange rates for 2025 used to translate international sales and operating results into U.S. dollars were generally unfavorable compared with average exchange rates existing during 2024. 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, 2025 were translated at exchange rates in effect during the same period of 2024, we estimated that sales would have been approximately $12,000 higher while costs of sales and selling and administrative expenses would have been approximately $7,000 higher.

Financial Condition

Liquidity and Capital Resources

Cash and cash equivalents increased $14,472 during the three months ended January 31, 2025. Approximately 78 percent of our consolidated cash and cash equivalents were held at various foreign subsidiaries as of January 31, 2025.

A comparison of cash flow changes for the three months ended January 31, 2025 to the three months ended January 31, 2024 is as follows:

Additions to property, plant and equipment were largely driven by productivity and growth projects, including a new manufacturing facility.

We have a $1,150,000 unsecured multi-currency credit facility with a group of banks that provides for a term loan facility in the aggregate principal amount of $300,000, maturing in June 2026, and a multicurrency revolving credit facility in the aggregate principal amount of $850,000, maturing in June 2028. At January 31, 2025, we had $280,000 outstanding on the term loan facility and $220,000 outstanding on the revolving credit facility.

Our operating performance, balance sheet position and financial ratios for 2025 remained strong. The Company is well-positioned to manage liquidity needs that arise from working capital requirements, capital expenditures and contributions related to pension and postretirement obligations, as well as principal and interest payments on our outstanding debt. Our primary sources of capital to meet these needs, as well as other opportunistic investments, are a combination of cash on hand, which was $130,424 as of January 31, 2025, cash provided by operations, which was $159,122 for the three months ended January 31, 2025, and available borrowings under our loan agreements and unused bank lines of credit which totaled $808,808 as of January 31, 2025. Cash from operations, which when combined with our available borrowing capacity and ready access to capital markets, is expected to be more than adequate to fund our liquidity needs over the twelve months and the foreseeable future thereafter. The Company believes it has the ability to generate and obtain adequate amounts of cash to meet its long-term needs for cash.

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

This Quarterly Report on 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 Quarterly Report on Form 10-Q 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 forward-looking 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 and political 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 Atrion; 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, including increased tariffs; the effects of changes in tax law; and the possible effects of events beyond our control, such as political unrest, including the conflicts in Europe and the Middle East, acts of terror, natural disasters and pandemics.

In light of these risks and uncertainties, actual events and results may vary significantly from those included in or contemplated or implied by such forward-looking 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 our actual results to differ materially from the expected results are discussed in Part I, Item 1A, Risk Factors in our 2024 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 2024 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 and 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, 2025. 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, 2025 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, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors disclosed in “Item 1A. Risk Factors” of our 2024 Form 10-K. There have been no material changes to the risk factors described in the 2024 Form 10-K.