Nordson (NDSN) Down 33.4% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Nordson (NDSN). Shares have lost about 33.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Nordson due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Nordson's Q1 Earnings and Revenues Miss Estimates

Nordson reported weaker-than-expected first-quarter fiscal 2020 (ended Jan 31, 2020) results, wherein both earnings and revenues missed the Zacks Consensus Estimate.

Adjusted earnings, excluding one-time charges and gains, were 89 cents per share, missing the consensus estimate of $1.05. Also, the bottom line decreased 3.3% from the year-ago figure of 92 cents, primarily on account of to lower sales.

Inside the Headlines

In the reported quarter, Nordson’s sales were $494.9 million, declining 0.6% year over year. The decline was attributable to about 1% decrease in organic volume and 1% adverse impact of unfavorable movements in foreign currencies. Revenues missed the Zacks Consensus Estimate of $499 million. At the quarter end, backlog was $430 million, down 1% year over year.

Region wise, revenues from the United States increased 10.7% year over year to $188.5 million. Revenues generated from Japan decreased 4.8% to $27.6 million and that from Asia Pacific declined 9% to $121.4 million. Revenues from Europe fell 4.7% to $126.4 million and that from the Americas declined 4% to $31.1 million.

The company reports top-line results under three segments — Adhesive Dispensing Systems, Advanced Technology Systems and Industrial Coating Systems. A brief discussion on the fiscal first-quarter segmental performance is provided below:

Adhesive Dispensing Systems’ revenues totaled $207.2 million, decreasing 2% year over year. The decline was due to 1% fall in volume and 1% adverse impact of foreign currency translation.

Advanced Technology Systems’ revenues were $231.1 million, down 1.4% year over year. The fall was on account of 2% decrease in volume and about 1% adverse impact of foreign currency movements, partially offset by contribution of 1% from acquired assets.

Revenues generated from Industrial Coating Systems increased 8.9% year over year to $56.6 million. Volume increased 9% while foreign currency movements had a negative impact of about 1%.

Margin Details

In the quarter, Nordson’s cost of sales increased 1.2% to $231.7 million. It represented 46.8% of sales compared with 46% in the year-ago quarter. Selling and administrative expenses increased 1.8% to $188.1 million. It represented 38% of sales compared with 37.1% a year ago.

Earnings before interest, tax, depreciation and amortization were $100.9 million, decreasing 6.4% year over year.

Operating profit decreased 10.9% to $75.1 million. Margin came in at 15.2% compared with 16.9% in the year-ago quarter.

Balance Sheet & Cash Flow

Exiting the fiscal first quarter, Nordson’s cash and cash equivalents were $115.1 million, down 23.9% from $151.2 million as of Oct 31, 2019. The company’s long-term debt decreased 0.1% to $1,074.3 million on a sequential basis.

In the first three months of fiscal 2020, the company generated net cash of $116.3 million from operating activities compared with $56.8 million in the year-ago period.

In the reported quarter, free cash flow was roughly $102.5 million, up from around $43 million a year ago. Capital spent on the addition of property, plant and equipment was $13.9 million. During the quarter, the company paid out dividends of $21.9 million.

Outlook

For fiscal 2020 (ending October 2020), the company anticipates organic sales to grow in the range of 1-3%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -5.08% due to these changes.

VGM Scores

Currently, Nordson has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Nordson has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.