Q3 2020 Nordson Corp Earnings Call

[music].

Session, you'll need to press star one on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.

I'd now like the hand, the conference over to MS. Lara Mahoney. Please go ahead.

Thank you. Good morning. This is learning how many vice president of Investor Relations and corporate communications.

Here with syndrome, not garage on our president and CEO and Joseph Kelly Executive Vice President and CFO.

We welcome you to our conference call today Thursday August Twentyth 2020 to report north since fiscal year 2023rd quarter results.

Our conference call is being broadcast live on our audio web page at Nordson Dotcom forward slash investors and will be available there for 14 days.

We'll be a telephone replay of the conference call available until September 30, 2020.

During this conference call references to non-GAAP financial metrics will be made a complete reconciliation of these metrics to the most additionally forward looking statements may be made regarding our future performance based upon nordsons current expectations.

These statements may involve a number of risk uncertain.

Cost 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 Nada.

Good morning, everyone. Thank you for joining Nordsons fiscal 2023rd quarter Conference call.

Today, you Joe Kelley.

The new Chief Financial Officer North.

I'm pleased to welcome due to the call. This morning.

You are doing nordson on July six and brings over 25 years financial and operational expertise to norm.

Most recently, serving as Chief financial officer material on.

Global advanced materials company.

I'm very excited to have them onboard is already bringing great energy and perspective.

Our leadership team.

First.

I want to thank our nordson employees for their continued flexibility resilience and commitment as we have navigated 2020.

We remain focused on protecting the health and safety or for employees and responding to the need support customers.

Monkey products are very diverse set of end markets, including medical.

Electronics consumer nondurable and general industrial.

This diversity has helped drive the relative stability of auto results to this point in the year.

By maintaining new safety measures our team has risen to the challenge and continue to meet the needs of our customers who depend on us to help them drive efficiencies and hands, it innovation and continuously supply aftermarket parts and consumables that keep their manufacturing.

Lines running smoothly.

While we remain focused on managing this dynamic environment. The nordson leadership team and I are equally committed to making progress towards our strategic priorities of accelerating organic growth.

Diversifying through acquisitions.

Leveraging the nordson business system.

And building winning teams.

On June four as we announced the acquisition of Flotek It position Astec extrusion manufacturer the medical device industry.

Vertex brings highly differentiated VP of fee medical tubing expertise, which is complementary to our current value added component offering for minimally invasive therapies such as.

Heart valve replacements.

Growing our launch and medical business continues to be a priority of our capital deployment strategy.

We're pleased to have the flotek employees as part of the Nordson Pete.

Also during the quarter, we continue to develop the next generation of the Nordson business system, which we're calling NBS mix.

Nordsons growth framework.

Our new segment realignment, which unleashes and owners mindset at the division level allows our teams to make decisions as close to the customer as possible.

Using critical insights created by segmentation tools and NBS mix, our divisional leaders were empowered to prioritize investments and simplify.

Non value added pass to deliver best in class product quality and delivery.

They invested in what makes nordson strong our customer centric business model and physician technologies.

Position us to accelerate profitable growth and the economy recovers.

I'll speak more about the business in few moments.

But first I'll turn the call over to Joe to introduce himself and provide a more detailed perspective on our financial results for the quarter.

Thank you Naga and good morning to everyone I'm very pleased to join Nordson, which has a long established reputation as a high quality company that consistently delivers top tier financial results.

I look forward to partnering was Naga and the leadership team to drive the next chapter of profitable growth for nordson.

We have an extremely solid and rich foundation on which to build and I am honored to be part of the team.

With that mine, let's turn our attention to the fiscal third quarter financial results.

Third quarter, 2020 sales decreased 4% compared to the prior year third quarter.

The decrease was primarily related to organic volume as unfavorable currency effects were offset by the benefits from the floor Tech acquisition.

The company's diverse end market and geographic exposure as well as broad product applications contributed to the relatively strong commercial performance in these challenging times.

Our combined Asia region led the way by delivering 3% growth in the quarter.

Gross margins totaled $281 million or 52% of sales in the quarter compared to 303 million and 54% of sales in the prior year.

The 200 basis point decrease in margins is attributable to $1.2 million of inventory step up amortization related to the floor Tech acquisition.

Unfavorable sales mix and covert 19 manufacturing inefficiencies.

As our factories address employee safety needs in this challenging time with precautionary quarantining of employees implementing social distancing rotational staffing et cetera. The combination of these three factors contributed to the lower gross margin percentage in the.

Quarter.

We anticipate the majority of these headwinds to be temporary in nature and forecast returning to our historical gross profit margin levels.

Operating profit in the quarter was $112 million or 21% of sales.

Excluding nonrecurring items in the quarter related to cost reduction actions and the acquired inventory step up amortization adjusted operating profit totaled $120 million, a 9% decrease from the prior year adjusted operating profit.

EBITDA for the third quarter was $148 million or 28% of sales, which is a 7% below the prior year EBITDA of $159 million.

Looking at non operating expense.

Net interest expense decreased $4 million or 37% from the prior year levels associated primarily with the lower effective borrowing rate.

Other net expense increased $10 million associated with an unfavorable 5 million dollar a year over year swing in currency gains and losses.

And a $5 million increase in pension costs.

3 million of the pension increase was related to a noncash pension settlement charge associated with the prior CEO.

Tax expense in the quarter totaled $9 million or an effective tax rate of 9% in the quarter.

The rate was driven lower by a $12 million discreet tax.