Q2 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Nordson Corporation second quarter fiscal year 2020 earnings Conference call.
At this time all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During this session even need to press star one on your telephone if you require any further system. Please press star zero.
I'd now like to hand, the conference over to one of your speakers today Lara Mahoney. Thank you. Please go ahead.
Thank you Casey good.
Good morning. This is learn Mahoney, Vice president of corporate Communications and Investor Relations.
I'm here with interim Nagarajan, our president and CEO and Greg.
Executive Vice President and CFO.
We welcome you to our conference call today Thursday May 20 for 2022 report nor since fiscal year 2022nd quarter results.
Our conference call is being broadcast live on our web.
What's been dotcom forward slash investors and will be available there are 14 day.
There will be a telephone replay of the conference call available until June for 2020, which can be accessed by dialing 416.
Six to one or sick or too.
You will need to reference I'd number 8187 700.
During this conference call forward looking statements maybe made regarding our future performance based upon nordson current expectation.
These statements may involve a number of risks uncertainties and other factors as discussed in the company's filings with the Securities and Exchange Commission that could cause actual results could differ.
After our remarks on the quarter, we will be happy to take your questions.
With that I'll turn the call over to Noga.
Good morning, everyone.
Thank you for joining Nordsons fiscal 2022nd quarter Conference call.
Incredible how much the world has changed in a few months since February conference call.
We hope you and your families are staying healthy and say.
In the second quarter, our team was focused on two critical priorities.
Acting the health and safety of our employees.
And responding to the needs of our customers.
So thankful to our colleagues around the world.
One of their flexibility.
Millions and commitment as we have navigated through this pandemic.
I'm proud of the Nordson team.
One of Nordsons greatest trends.
The diversity of end markets, we just secondly, contributing to our results to this point in the year.
And during this period, all up or production facilities have continued to manufactured products for critical infrastructure applications.
Going forward, our focus will continue to be on maintaining health and safety or four employees as we transition from working remotely.
Social dispensing regular cleaning temperature cheggs based coverings and other protocols will be essential.
Representatives from our global teams have been coming together to share best practices and lessons learned what all moving forward together, you know conservative manner to ensure everyone safety.
Well, we remain focused on actively managing this dynamic environment.
I'm equally committed to moving this organization forward and making progress toward our strategic objectives.
The greatest opportunity for nordson is profitable growth.
On March Thirtyth, we announced it business realignment that would make us more agile in accomplishing our strategic priorities of accelerating organic growth.
Diversifying through acquisition.
Leveraging that nordson business system and focusing on talent development.
Today, we will discuss our results in terms of part two new segments industrial position solutions and advanced technology solutions.
I'll speak more about the business in few moments, but first I'll turn the call over to Greg to provide more detail perspective on the second quarter.
You're not going to and good morning to everyone.
Second quarter, 2020 sales decreased 4% compared to the prior years second quarter.
This change included a decrease of approximately 3% in organic volume and a decrease of approximately 1% related to the unfavorable effects of currency translation.
Right in the quarter related to the first your effect of the fiscal 2019 acquisition of optical controls was not significant.
Within the industrial Precisions solutions segment, which combines our previous adhesive dispensing systems and industrial coating systems segment.
Sales decreased approximately 6% compared to the prior years second quarter.
This change included a decrease in organic sales volume of approximately 4% and a decrease of 2% related to the unfavorable effects of currency translation as compared to prior year.
Relatively strong sales performance of those product lines, serving consumer nondurable end markets, such as packaging and non wovens.
Offset by weakness in sales and product lines, serving end markets, such as automotive and general industrial.
Sales in the advanced technology solutions segment decreased approximately 1% compared to the prior years second quarter.
This change included a decrease in organic sales volume of less than 1% an increase of less than 1% related to the first year effective acquisitions, and a decrease of less than 1% related to the unfavorable effects of currency translation as compared to the prior year.
Sales volume increased in product line, serving medical end markets and fluid dispensed product lines, serving electronics end markets. This growth was offset by weakness in our test and inspection product line.
Fluid dispense product line, serving industrial landmark.
Moving down the income statement gross margin for the total company was 55% in the quarter operating profit was $125 million with reported operating margin of 24% up 20 basis points over the prior year second quarter.
I'll come on segment operating margins, specifically however, in addition to reducing our compensation accruals. This quarters operating margin reflects our focus on spending control to offset the decline in sales.
This includes our efforts to not only reduced discretionary spending but also differ open head count additions within the organization.
We would expect to continue with the conservative bias toward spending during the second half of the year as we monitor order trends were selling and administrative expenses in the second half fiscal 2020 are estimated to be inline with our prior year second half spending.
On a segment basis industrial decision solution segment operating margin was 27% in the quarter. This compares to 28% in the prior year second quarter as compared to the prior year. The current year second quarter operating margin was negatively impacted by lower sales.
Paul.
Within the advanced Technology solutions segment reported operating margin was 24% in the second quarter as compared to 23% in the prior year second quarter. This improvement in operating margin was primarily driven by product mix.
On a total company basis net income for the quarter was $92 million and GAAP diluted earnings per share were one dollar and 58 cents.
We delivered second quarter EBITDA of $152 million or 29% of sales up 30 basis points over last year's second quarter.
Free cash flow before dividends during the quarter was $90 million, resulting in cash conversion of 98% of net income.
Year to date cash conversion is 134% a net income which was positively impacted by the collection of receivables in the first quarter from the strong finish to fiscal year 2019.
Our press release includes financial exhibit reconciling net income to free cash flow before dividends and adjusted free cash flow before dividends as well as EBITDA.
From a balance sheet perspective, we had a cash balance of $306 million at the end of the second quarter as we took a conservative position to ensure appropriate liquidity.
In addition to this cash position, we have our Undrawn 850 million dollar revolving credit facility available.
Net debt to EBITDA was approximately 1.7 times trailing 12 months EBITDA at the end of the second quarter.
The company returned value to shareholders by investing $38 million to repurchase approximately 300000 shares during the quarter, which is intended to offset this year's benefit plan dilution.
And we paid $22 million in dividends during the quarter.
In summary, our top line has held up considering the challenging macro environment, where we benefit from the diversity of the end markets we serve.
Norton team has responded in a great way in supporting our customers and delivered solid performance in the quarter.
We continue to maintain a strong balance sheet with sufficient liquidity to allow us to stay focused on longer term strategic initiatives.
I'll turn the call back to you now.
Thank you Greg again, I want to thank her colleagues around the world for their incredible commitment to our customers during this quarter.
This is an uncertain time for many and the nordson steam strong execution is commendable.
Our performance through the first half of the year has been solid considering the impact of cobot 19.
That said.
This is an incredibly dynamic environment and it is difficult to accurately predict the impact. This pandemic will have on our business for the remainder of the year.
Our backlog at the end of the second fiscal quarter has increased approximately 6% compared to the same period, a year ago, which is certainly a positive sign.
The backlog is blood split evenly between the IP as an atheist segments.
On the other hand order rates have begun to soften in the last several weeks.
We measure order rates in constant currency with pro forma growth in order rates calculated as though.
The fiscal year 2019 acquisition was formed in both years.
Well the 12 week period, ending May 10, 22 any.
Order rates decreased 4% well the same period a year ago.
I'd be a segment order rates decreased 12%, while Ats segment order rates increased 6% booked as compared to the same period a year ago.
Looking at a shorter period of time over the last six weeks. The total company order rates are down 11% compared to the prior year with IP us down.
14% and 80 is down 7%.
Those six weeks may not be a trend to forecast performance for the balance with the year. These results do highlight the wallet to the we're dealing with at this time.
Because of these uncertainties and the lack of clarity about the duration and impact of the pandemic. We are suspending our previously announced annual guidance for fiscal 2020.
We have also decided to postpone our fault 2020, Investor day, which I'd refer you referenced.
In the first quarter conference call.
Why the near term demand trends are unclear I am excited about the future of Nordson, we have a solid foundation fortified by the diversity of our business, our strong customer centric business model and market leading position technologies.
Our liquidity and pass financial performance are good indicators of nordson strength and resilience and the diversity of end markets we serve.
We will stay invested in what makes nordson strong innovation and our talented global organization.
Connectivity to our customers is critical particularly in an environment like this.
We will however continue to monitor this dynamic environment to ensure we are taking appropriate actions to manage the business through these uncertain times.
Before we open the call for Q any I want to highlight our recent CFO announcement.
On May Eightth, we announced that Joseph Kelly will be joining nordson as new executive Vice President and Chief Financial Officer effective July 620 20.
Joe brings over 25 years of financial and operational expertise to the rule.
During the search process Jos experience as a public company CFO as well as his operational finance experience made in the right candidate to help us execute.
Our long term vision for nordson.
I'm excited to welcome Joe to this strong nordson leadership team that is focused on driving sustainable profitable growth in the coming decade.
Greg will be staying with the company through August to ensure Joe has a smooth transition.
On behalf of Nordson I want to thank Greg for this time energy, especially as we have navigated this current environment, Greg your support and Flexibilities greatly appreciate it.
As always I want to thank our customers employees.
And shareholders for your continued support.
With that we'll pause and take your questions.
Thank you as a reminder to ask a question you would need to press star one under telephone to withdraw your question press the pound or hash key please standby well, we compile the Q and a roster.
And your first question here comes from the line of Mike Halloran with Baird. Please go ahead. Your line is now open.
Good morning, everyone and congrats Greg in a really great Ron.
Thank you Mike so.
So first question. Thanks, Thanks, a lot for the context on the order side.
You just dig a a lear lower and talk about whether you're seeing any variance.
In the end market trends relative to what you would have talked about for the fiscal second quarter. So the non durables and medical pieces of electronics doing well and industrial softening a little bit and and also maybe put in context, where you're seeing some benefits from what's happening from an environment perspective in the common swung. Please.
Yep. Thank you Mike for the question, let's get started with.
Overall, the diversity of end markets that Nordson serves secondly came through strong and benefited us in the quarter and suddenly contributor to our results through the first first half.
As we think about the order trends as Weve talked about this.
Overall, what we see for the total company.
For the 12 week period Nordsons total order rates are down 4% and is a six week period. It is down 11% and if you go further down if you look at the I.P.S. segment.
There's really not a whole lot that disconnect between the first between the 12 weeks into six week order rates.
And mainly what you see an IP as you think about the product lines in IP as we see strength in nondurables, especially a lot of strength in nano when applications in making Madison.
Coal with testing kids, a liquid and container product lines.
It would really good strength on the nonwoven applications and some product categories that you would expect in the consumer nondurable end market.
But that is offset by some I you know significant declines in large system kinda businesses like our IC, yes.
Powdered systems as well as P. S that serves the automotive end market, So where do you have systems and when it serves industrial and automotive end market, we do see the decline, but in general for I.P.S. between the six weaken 12 week really not a lot of difference.
When you think about.
Our Ats segment.
You know coming into the quarter. The first the 12 week trends were up 9%.
But if you look at a shorter period of time really weird down 12% and this is really if you think about it. This weakness we have seen mainly in our electronic systems dispense side.
So if you think about that little bit more you know our dispensed system.
Product categories are typically higher price and they also come in larger volumes. So what we're not able to sort of.
It's attain is that is this six week weakness if foreign trend or is it just indicative of the typical wallet till the d., we would see.
To remind you the company. It really you know we use the 12 week order trend because of these capex cycles, we tend to use the 12 week as a better indicator, but given the environment and given the weakness we are seeing into shorter term I would I'd point, you to where we have seen is really in the electronic systems.
And do give you some color around you know where we see this brand's.
Mike You know what we're really seeing this trends you know we've talked about the non over into the I.P.S. segment in the NTS really our medical.
Product lines are doing really well be see pretty nice trends. There. It is it is really all around the pulmonary and cardiac bypass machine applications. We have number of connectors and things that we use in ventilators and other applications and in testing kits as well.
So we see good strength in medical applications. We have we have some really good applications that on semiconductor what our electronics dispense businesses.
PC Board in General is also really up where do we see weaknesses in.
Yes is really dispense applications for industrial and Mark.
Mhm.
No that makes a lot of sense gross you don't go ahead go ahead Greg.
Yeah, just delayed lay over that so that some great color on the end markets. So again the change from the from the 12 to sick not much in IP up and just to clarify.
On the Ats that was a plus six through 12 weeks in a negative seven in the six weeks and Naga did a good job of highlighting what was really the change from the 12 to six was around.
The system side of electronic system.
I appreciate that and really good color. So I'm on the capital strategy here strong balance sheet liquidity isn't very good position strong free cash flow. So hi, how are you thinking about balancing the near term potential challenges and the unknowns versus turning more offensives investing the long term I'm guessing on.
The internal investment sides and the growth initiatives, probably not a lot of change there, but you know maybe touching that briefly and then also touch on how you're thinking about the M&A side keep in powder dry for that as well as share buybacks.
So let me to talk about our capital allocation priorities really did remain consistent no changes there are number one priority is continuing to fund our internal organic growth initiatives.
No just remember that nordson is a asset light business model, hence we spend about 2% to 3% about revenue on Capex is for internal projects. We continue to plan to do that in.
In terms of we have a good dividend policy that you know we continue to increase dividend in line with the earnings will continue to do that and if you think about our share repurchase is our share repurchases are mainly our baseline strategy is to offset dilution from out of compensation plans and we intend to do that as we have.
Seen dislocation in the marketplace you have acted to sort of implement that strategy and that's what you saw in the last quarter.
And finally, when you think about acquisitions you know acquisition is an important key growth lever for the company, we want to use acquisitions to allow us to continue to diversify the portfolio wherein but we're going to be disciplined you know we want to acquire things that makes nordson really strong in special that.
As really all upside.
Acquiring assets and properties that allow us to create position technologies that create value for our customers. So you know we're going to stay disciplined to that you've clearly identified where we want to focus on acquisitions, which is really medical and test inspection and you know maybe is that our bolt on opportunities in our strong core businesses battery add a lot of value.
You will suddenly AG.
But given the environment you know we are going to continue to stay focused on the long term continue to act on opportunities, but you know keeping the environment in mind.
So so that's sort of where we are and you know I could add more color, if you're a little bit more interest in other areas.
No that was very helpful. Appreciate as always and stay safe everyone. Thank you.
Thank you Mike.
Your next question comes from the line of dairy borrowed at School Jefferies. Please go ahead, Sir your line is now open.
Thank you and good morning.
Following up on the question on the order trends you know you talked about slowly when it goes over the last six weeks could you just provide some color on the cadence of orders and did you see any improvement through the through this last six weeks. So maybe the I mean, no week was little bit better than the average.
Yeah. So in general you know if you think about our order trends week to week. It is very difficult to sort of say that we could have a trend and you know given the capex nature of our businesses you're going to find you know week to week changes.
Broadly speaking I would say that trends really are the two that highlighted which is really on our IP as really no difference in that it is down about that 10 to.
12% to 14% that's really that seems to have between 12 week in six weeks really no change, but in our 80 as we went from plus six to negative seven and and that weakness, we really saw in our electronic system business and there yes.
As we highlighted what you would see is just the lumpiness of electronic system orders coming in.
And you know it'd be really difficult area for us to give you an indication of the wallet diluted the from week to week, because we you know we can get a large order in a single week and and really know ordered in the following week. So it is really important for us to look at it or and time period.
And that's why the company is always use the 12 week, that's a good market off how things are moving forward.
Okay, hopefully that.
Yes. Thank you. So I appreciate the color in the weakness I listen idling General industries, and then I P. S. Can you just quantify the decline you saw in these markets and how are you thinking about the outlook for the remainder of the year.
Now let me sorry, let me have Greg Greg would you add some color to that sorry, we typically don't.
Aquatic go down to that level of quantification just for both customer as well as well as competitive dynamics, but we've got several product lines in the portfolio.
From an injection molding perspective as well as from.
Some structural dispense applications that we sell into it's not it's not a large.
Portion of the overall portfolio, we give some color on that in our investor deck, but it's just one set of end markets that we put into that industrial bucket, where we saw some softness.
In the quarter. Its you know it's around five 6% of the company's total business.
Hey, Thanks for taking my questions.
Thank you.
Your next question comes from the line of Matt Summerville with D.A. Davidson. Please go ahead. Your line is now open.
Thanks, a couple of questions first getting back to kind of be the order trends you've seen over the last 12. The six weeks I was wondering if you could add some geographic depth to that perhaps talking about what you're seeing here in North America versus Europe versus a Asia, including China. Please.
Let me, let me give you a broad color and then probably have Greg take you through some detailed in general what what we're seeing is that Asia is starting to recover and any of you think about Europe. You know, it's still still in the state of flux and.
You asked is probably steadying it out so let me turn it over to Greg. So that he can provide you. Some some more detail on on on the specific order trends, yeah, Matt and I'll pick up I knock us color that that he provided where we say generally you know the consumer nondurable the medical those kind of thing.
Things you know in each one of the geography said have held up well, where we talk about the biggest change from the 12 to the six week being in the electronic systems portion of the portfolio. You know most of that we've got a lot of those customers that are in Asia.
And then and a fair amount.
In Europe, so where we saw the softness in the 12 versus six in that electronic systems was primarily in those two geography.
Got it and then yes, just stick with specific at specific end Mark specific to those end markets generally when we think about the consumer nondurable the medical those kind of it's been pretty consistent.
The 12 week in six week.
Got it. Thank you for that color and then just as a follow up.
Is there anything any sort of conclusion to be drawn with respect to what you're seeing in electronics order rates now and what that might foretell.
Looking forward with respect to Fiveg related projects for both devices and infrastructure. Thank you.
Yes. So lets you know maybe broadly talk about our electronic system business. So if you remember in our electronic system business, we have our dispense part of it and we have our test and inspection and both of these are larger dollar value systems, when compared to say our packaging system. So.
We compare those two so you're going to see some amount of lumpiness that are associated with this set of product categories and so you know for us as we sit here today. If we did not have this macro environment, we wouldn't be talking about this near term you know disconnect with.
The 12 12 week, because we would say that is normal volatility, but given that backdrop, we thought it would be important to provide you a little additional color.
It is very difficult for us to say today that that is either the normal wallet to Libby or is it the lumpiness of our order rates, which we normally see around Fiveg, Let me talk to you little bit about what we're seeing today and where we are and what they opportunity looks like.
Fiveg in general is a growth driver for us it is going to be an important growth driver not only just in the mobile set but it's also going to be in the base infrastructure for Fiveg. We're gonna have opportunities in iOS devices, we're gonna have opportunities in auto electronics, we're gonna have opportunities in consumer electronics, So it's going be a pretty.
The broad based opportunity for the company.
The rollout of Fiveg certainly.
Slower than we had all hoped and would like you know for a number of different reasons, you know still that technology that is getting sort. It out there is some issues around supply chains.
We participate in Fiveg across a number of things you know we start with a semiconductor as we've talked to you about our electronic side, we're really highly diversified across the entire supply chain. So we started with the semiconductors, where you know when somebody is making the chip for Fiveg application, we be suddenly worked with.
But overall, it well positioned but it'll be a matter of timing and you know do this environment, it's really difficult for us to say that you know the that this would be you know we know long term, it's an important driver for us.
Thank you.
Yeah.
Yeah My question.
<unk> cargo planes go home care mine is now a pen.
Thank you and and firstly best wishes great. Thanks for all your help over the years with understanding North <unk> good luck with everything.
<unk> next [laughter] I Wanna pulling to and supply chain you know as you start to ramp or just even in production Ain't No nordson is fully producing but any supply chain challenges that you guys are noticing or <unk> kind of had to deal with in today's environment any color there.
Allison in terms of supply chain really nothing material you know, we have a very robust risk mitigation and a risk analysis program with our supply chain. The teams have done a wonderful job of really executing against us rigorous mitigation.
We we had maybe occasional one or two issues, which would have handled fairly you know.
Quick and expedient manner, you know what what we have in terms of supply chain have faced is that you know there are some constraints around freight and you know they've had to pay a little bit more afraid, but but that is just a near term issue in general we don't have any supply chain issues, China's up and running.
So you know I believe in a fairly fairly strong position that way.
Great and then <unk> incremental costs at your senior having to deal with in terms of managing three this environment. Both internally with marts any you just mentioned freight <unk> is there anyway to help quantify that is it significant or that you know I would say minimal at this point any thoughts there.
Allison pretty minimal at this point really but it is a constraint that we saw early in the process not anymore, but you.
Immaterial, Greg you have any no that although that's right. It's a it's not a material.
Okay, and then within a quarter with any of your facilities shut down just trying to get some I thought around context around that not really you know all of our facilities that really deems supporting critical infrastructure and so we were working through all of this you know there were one or two prada.
Glines, we may not have made for a short period of time, but Vanity limited really no impact on on facilities.
Great. Thanks, so much.
Thank you Ellison.
Yeah. The next question comes from the line, Jeff Hammond P. Bank. Please go ahead Carolina's smell open.
Hey, good morning guess.
<unk> Yep.
[noise] and and Greg Best of luck in your retirement and and congrats on the new hire just on the.
Just go to the mobile handset space you know I think you had kinda two years off in terms of spending. So I go on I think this year was anticipated to be a better cycle and you know I know there's been a little bit of delays, but just you know what are you hearing from the mobile handset Oh, Yeah comes in terms of your their level of investment you know kinda after two years off.
Yeah.
You know do probably put it in context right. So you've you think about when we started when we started in the pads for the company.
Mobile phone volumes.
From 30 million 1.5 billion.
A significant run over a decade, which suddenly the company fully but dissipated and and was incredibly strong growth driver.
You think about mobile volume growth.
As you would read any of scene you know, there's really not going to be significant volume. What you are going to continue to see his new technology.
That are new innovation, new features that are going to continue to come into the phone and every time that happens as you know every change every innovation notes and clearly benefits from this right and so.
From that perspective, you know we feel good about the projects we are working with our customers in in terms of every time that as an innovation we participate in it because nordson is really an innovation go to partner that we're part of People's technology toward maps. So what we're really seeing his feature.
Adds a new technologies that we are participating in and most of those features are still on track.
Where we do see some uptick is really in variables and you know those are new applications for the company and and we are really participating in those those are sort of mobile related but not quite mobile themselves. So.
I think that's a new area that we have you know we've been enjoying and we see some nice girls there.
Okay, Great and then certainly the Detrimentals good I think some of the in this quarter or some of the you know somebody that's secure attributed product mix in advance tech and just kind of looking at the order canes an A.T.S. How would you think how should we think about product mix end of the second half a impacting.
Margins for advanced Tech.
Yeah, Yeah, you know.
You want to take somebody tell him that job I think the way I would think about that is you know as we've characterized to this point medical it's been.
Very strong so we would expect to to continue that momentum.
Medical.
I think that you know the question is really around the the volatility if you will that we've seen in the order rates. When you look at that 12 week versus six week in more of the system side of the of of the business and again, it's it's not that that's six week you know make.
Forecastable trend, but it but it does.
Create in our minds you.
What is the backdrop doing to our customers in terms of their willingness to move forward with their projects were certainly working a lot of projects were involved in a lot of projects.
The uncertainty is.
You know how many of those will come to market. This year, we feel very well position with project activity is what will hit this year. So you've got one aspect of the business that you know been been very strong continues to be very strong you know, where we have product lines that sell dispense into the industrial they've.
And challenged pretty much you know through this for six months. The the you know the question Mark really is on the electronic systems side of the business. You know one of those projects are going to go forward through the year.
Okay, Great and then final one on medical I mean, it sounds like there there are certain you know product lines around markets that are saying you know unique strengths and you know one just want to understand the you know what what you're seeing in terms of visibility and sustainability there or is it a short term pop and then converse Lee.
Spent a lot of elective surgeries delayed <unk> did you see any kind of negative impact from that and and would you expect any snap back as elective surgeries kicking.
Yeah. So let's talk about you know elective surgeries first you know for for the kind of products and core components that we supply be minimal exposure to elective surgery, and so really did not see a whole lot of impact from it there was some but maybe limited right.
And broadly thinking about our medical portfolio products really that are to sort of areas that we participate in one is sort of core components very critical devices value at a device you know value added components that help our met device customers safely and effectively.
Deliver a therapies. So that is the part of the business, where you have either a pong pulmonary or a cardiac related terribly. These you know we are fully participating in you know we see very good activity that continues to be pretty strong for us we do fairly well there we see a lot of new innovation work there.
We continue to participate in that's doing well the second half of the the business really is around you know really critical connectors and things that are used for lots of other things such as you know a good example would be a ventilator application or an Ivy application, so and number two.
Areas, you know that we see a is significant pick up and we continue to expect to continue to grow there, but remember there is a baseline market growth that still intact for us yeah, very limited exposure to elective surgery. As you know this business is done well.
Order trends in those businesses up pretty strong as well.
Okay excellent thanks, guys.
Thank you.
Well next question comes from alone as Frank Labor with Oppenheimer. Please go ahead of the alignments I love them.
Thank you the morning, right right I wouldn't that.
Hey come morning, and Greg good good to various pretty encore.
[laughter].
<unk> curious on the.
Judging side.
Really both rigid in flexible with.
You know hoarding everything going on and.
A lot of a lot of your customers products in the packaging there I'm just wondering this you're seeing are particularly.
Constructive backdrop to you know create a recapitalization dynamic could be seen any differentiated points from rigid versus flexible definitely a lad affect the code the dynamic.
You know where where the benefit actually you know kicks in a little further than some of the immediate impact screw pockets of medical demand by contrast.
Yeah, the the packaging really serving the non beautiful part of the company is really held up nicely for US. This is an area that you know we we have s. you know a very strong market position and strong market leader that provides leading technology. So I would say both parts and systems fairly well held up.
During this period of time in in terms of flexible worse as rigid packaging you know for US really you know we participated in both we don't really see as significant I pick one way or the other but our Harlem are based businesses, which sort of helps the flexible side you know these.
Has been helped but you also have the overhang of.
Automotive injection molding applications that that kind of over ways that so our traditional <unk> packaging businesses look really well, we we continue to invest in technology here, we continue to be.
You know really focused on making sure. Our customers are are are really.
Having good productivity and suddenly working on cost savings. So as you can think about it right in terms of your <unk> recap of our Capitol positions.
Our businesses in our systems are such.
Their value is very small when compared to the savings we can bring to a customer when they improve efficiency.
Our productivity or materials savings. So so really we we really liked the position. We have we think we will benefit from it for now it is holding up nicely that'd be a tail wind that that potentially could be.
And Christmas is Greg I would add that generally if we see like we do across the businesses. If there's a change in packaging. So for example, when there has been a shift toward smaller or singles or a type of packaging. That's a good thing for us 'cause that often means a recap of those line.
[noise] great. Thanks, Thanks for that and then on the electronic side. It was curious you called that's strengthen fluid dispense product lines in electronics.
I didn't really recall hearing that products silo reference.
Let me talk but he's to spend system since wanting to flush that up.
Yeah Christmas as Greg you end up past you may have heard so for example last year, we talk through the year and suggested that tests and inspection product lines were holding up fairly well, where we were seeing softness was in the dispense a side of our product line settling into these electronics and market. So.
What we're suggesting this year is we've seen a return that demand for the dispense side tests inspection has been a bit soft or in his most recent period.
Both of those you know maybe the same customer buying dispense and testing inspection.
But we we will often differentiate between those two major product lines to think about you know maybe maybe to add a little bit more color to it you know if you're thinking about fluid dispensing really what we really mean is dispensing of various different things that are electronic customer would use you know component manufacture on in part.
Assembly a good a. application wouldn't be in you know a electronic type of <unk> that gets dispense as an under Phil for a chip so that any your phone drops it does not impact that particular chip, but that'd be a good way to think about it and now they're good application is that that are.
Insulating material, it's called pins are dispense.
Systems in the electronic.
Also use to dispense those t. I am right. So that's kind of why we distinguish between.
Dispense systems and testing inspection systems like Greg talked about and that comes into play sometimes on the operating margin line because as we've suggested in this quarter dispense systems and to carry higher gross margins than T.N. I.
Yeah.
Great. Thank you.
And the little from gentlemen, once again, if he would like to ask a question. Please press star one on your telephone. Your next question here comes from the line of Walter Lipstick was Seaport. Please go ahead you Airlines now up then.
Hi, Thanks, good morning.
You know any more money why you know Greg congratulations.
I want to ask just a couple of questions follow ups on.
You know kind of the order trends in what you're saying because relative to other industrial companies. The order declines using the minus 11, A.T.S. doesn't look that bad.
Or did you see any project cancellations or anything in backlog that got delayed.
Well really pretty minimal we we did have few pushouts, but not really any cancellations, so very limited impact.
Okay from other companies were hearing about.
You know systems installations, they couldn't happen because companies can get access to their customers locations because of the virus did you see any of that or is that something that's becoming a bigger issue for you.
<unk> very limited Yeah, you know say for example in and automotive plant you know sort of had some issues. When they went to a complete hard stop but but not nothing significant nothing major for us had a total company level.
Okay, Great and then the costs side.
Greg you mentioned that this the spending levels and the second house would be about flat with last year is that right.
Yeah. If you look at the spending level for last year's third and fourth quarter that that gets you in the ballpark of of what we would expect.
To see in the back half of this year.
Okay, and I heard the the cap x. it sounds like you're not making any changes there.
Right and it but it it did sound like you did do some cost control. So I wonder if you could talk a little bit about you know what it is that you're doing to try and hold back to the spending did you do any furloughs or layoffs or any kind of you know pay related costs are cutting back on bonuses pools.
Because of the virus.
Sure well, let me sort of give me a broad overview and then probably you know get right to give you a little bit more tolerant detail on it in in general you know where in a very strong position, we really want to make sure. We stay invested in our innovation, we want to stay invested in a customer centric business model really we want to stay in bed.
To be positioned to participate fully and went into recovery. So that's really an overarching theme, but given the environment. You know, we're going to be going to take a conservative approach to to our spending levels and you know we have acted on you you know cost control measures discreetly.
The quarter that 70 helped her decrementals, maybe let me get Greg to talk you through the little bit more detail on those aspects or what we did we did not implement any.
Programatic reductions or or compensation adjustments, you know given that the businesses held up fairly well and and all of our our factories are are producing products. So where you know it's the it's the north and team still serving our customers need. So we did not include.
Any any of those kind of actions what we did do you know when fairly early in the year without knowing how significant of a downturn, we would be looking at and and we feel like we're still in in a in a period of concern. We did what a lot of companies have done you know, we first started with travel.
And then other discretionary spending items, you know really cut back on on those kind of things and you know, we'll continue to to manage the business that way with our eye on on our order trends, but you know we haven't done any.
Programatic.
Compensation or you know voluntary and voluntary retirement programs. We also have focus very closely on headcount, so where are we add some attrition or some open positions. We've worked really hard if they were not customer facing positions to not built back.
Fill those positions.
So we're we're managing spending very tightly.
Okay kind of alright, thanks for that color.
Yeah. No question comes to mind as Kristin current reform binary search. Please go ahead, you align it smell open.
[laughter], Hey, good morning, everyone and congratulations to get Greg.
<unk> just to start off well the big folks as all of your leadership has been you know how do we turbo charge organic growth in and really kind of drive that for word I guess any update on what's a key initiatives are there is it further cheering is it you know increase r. and d. spend for for product development I guess, it's just.
Any comments on how we get back to to growth as we kind of move out of a virus phase hopefully.
Yeah. So it's thank you Chris for the question. It's a really you know for US. It has been really really important in this period of time to actively managed to business, but continue to stay focus in domain focus on our long term priorities and organic growth as I've talked about many number of times you sort of the best into.
Greatest opportunity for <unk> so.
You know for organic growth one of the things that we're working on through is really transforming our N.B.S. nordson business system to become the strategic grow up framework through which we would really dry sustainable profitable growth in the coming decade really it's it's really all about.
You know what is fundamental to this framework is.
Data centric segmentation approach to grow.
You know really using this data centric approach to choose and invest in the best growth opportunities. So that at every one of our businesses. We want to have a crystal clear view of what is out a growth opportunities what is already customers, what R.A. products and really.
You know focus our entire business around serving those opportunities disproportionately when compared to others. So that's one of the key things that we're working on and the second part of this framework is really integrating what makes the company and really really strong which is a commercial excellent customer passion along.
With our incredible innovation and market leading technologies. So so preserving would be god, adding one or two things do it in addition, I would say.
Equally important for us to serve our growth is to make sure that we continue to enhance.
Continuous improvement within the company you know.
Company has been on a five year journey on continuous improvement and I come from environments, where you know there are other companies who have been around this for 2030 years. So we have an opportunity to learn that but it is all in the context of driving grow it's not the context of and so when we are we you know we really.
Worked hard in the last six to nine months around transforming our N.B. is to become a strategic growth framework. That's one thing that the team is really worked hard at second is we're in the process of implementing this framework in you know five pilot businesses to really make it you know actionable within the business Oh the long.
Horizon, what we expect is hey holistic.
Framework that as practice with the <unk> and consistency across the company.
And and we believe you know such quality of practice is going to enable really top to your girl in the best opportunities. We have no continue to sustain the innovation the company does and become really <unk> delivery quality performer of the company really is so you know a company has done a nice job of grows so.
It's really as we continue to grow how do we sustain that growth and how do we sustain it in a very profitable way and so hopefully that gives you some color as to how we're thinking about it wherever you go ahead and where we are today.
Perfect. Yeah. Thank you so much for for all the color there if I can just gonna circle back to polymers for a moment you know past several years, we've been you know going through kind of manufacturing optimization cycle. There I guess, how do you feel a profitability there they executing within targets just any comments on further actions that may or may not.
Need to be taken into polymers.
Yeah I you know, there's the business that <unk> you know if we have done it they've done a lot of work over the period of time to integrate into business. You know we have recognize all of those savings and we had targeted to achieved through those planned consolidations Ah it as well on track and you know we continue to perform there.
Mm.
Perfect perfect takes so much.
Thank you Chris.
Oh no further questions about this time or 10 recalled back over to not go for closing comments.
So why don't they need to demand conditions are unclear I am really excited about the future of Norton, we have a solid foundation fortified by diversity of business and our strong customer centric business model will continue to monitor this dynamic environment.
Sure there were taking appropriate action to manage to business, while staying focused on our long term objectives of accelerating organic growth diversifying through acquisition leveraging the notes in business system and focusing on top of open again. Thank you for your time and attention.
On today's call have a great date.
<unk> conference call. Thank you for participating you may now okay.
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