Q4 2020 Nordson Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Nordson Corporation fourth quarter and fiscal year Twentytwenty Conference call. At this time all participant lines are on mute. Please be advised that todays conference is being recorded after this.
There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you would like any further assistance. Please press star Zero I would now like to turn the call over to your speaker today Lara Mahoney. Please go ahead.
Thank you.
Good morning. This is Lara Mahoney, Vice President of Investor Relations and corporate communications.
I'm here with syndrome, Nagarajan, our president and CEO, and Joseph Kelly Executive Vice President and CFO.
We welcome you to our conference call Today Wednesday December 16, 2022 report nordson fiscal year, 2024th quarter and full year results.
You can find both our press release as well as our new webcast slide presentation that we will refer to during today's call on our website at nordson Dot com forward slash investors.
This conference call is being broadcast live on our Investor website and will be available there for 14 day.
There will be a telephone replay of the conference call available until December Thirtyth 2020.
During this conference call references to non-GAAP financial metrics will be make a complete reconciliation of these metrics to the most comparable GAAP metric has been provided in the press release issued yesterday.
Before we begin please refer to slide two of our presentation, where we note that certain statements regarding our future performance that are made during this call may be forward looking based upon nordson current expectations.
These statements may involve a number of risks uncertainties and other factors as discussed in the Companys filings with the Securities and Exchange Commission that could cause actual results to differ.
Moving to today's agenda on slide three non-GAAP will discuss fourth quarter and full year highlights yeah.
He will then turn the call over to Joe to review sales and earnings performance for the total company and the two business segments.
So also will talk about the year end balance sheet and cash flow.
Now I will conclude with high level commentary about our enterprise performance.
As well as our fiscal 2021 first quarter guidance.
We will then be happy to take your questions.
With that I'll turn to slide for and hand, the call over to non-GAAP.
Good morning, everyone.
Thank you for joining Martin on the scope for any company fourth quarter and full year attendance growth.
In this unprecedented fiscal.
Fiscal year, we did not just weather.
Challenging macro environment, we advanced our long term strategy.
Solid financial results.
First I want to thank our nordson employees for their flexibility resilience and commitment as we navigated this quote for anything.
From the beginning of the spend them.
Our leadership team has worked together with cash.
The health and safety for our employees and respond to the needs of for questions.
Representatives from our global Peter came together to share best practices and lessons learned as growth 19 spend the growth.
We implemented new protocols, social distancing and faced headwinds as well as regular cleaning and temperature checks.
All of which continues to this day.
By protecting our employees, we were able to offer uninterrupted service for customers many of whom they are deemed to support critical infrastructure.
Nordson products are very diverse set of end markets, including medical electronics consumer non durables and general industrial.
This diversity helps us drive relative stability of our results.
We've also stated invested in our direct sales application and service model.
And committed.
For the innovation in our position technology.
For the full year sales.
Sales decreased only three per cent compared to prior year interest commendable interest from them.
Simultaneously, we made meaningful progress on our long term objectives.
He built and started to deployed for next generation of Nordson business system.
Which we are calling NBS next our growth framework.
Using critical insights generated by MBS next.
Segmentation tools, our divisional leaders are prioritizing investments in our debt.
As growth opportunities and simplifying non value added paths in operations to deliver best in class product quality and delivery.
Use of the data driven growth for anymore.
It is to take action.
Strategically position our portfolio.
For sustainable long term profitable growth.
In September we announced the technology acquisition of vivo March.
Designs develops and fabricates.
Hi, and image sensors that will further differentiate on.
X-ray inspection product off.
Earlier this year, we acquired Flotek.
Acquisition plastic extrusion manufacturer in medical devices on this.
For Tech brings highly differentiated PFM medical keeping expertise.
Which is complementary to our current value added components offering for minimally invasive therapies such as well.
Well replacement.
Scaling up our highly differentiated test and inspection and medical product lines will continue to be a priority for capital deployment strategy.
We also took actions to simplify our portfolio in less differentiated areas.
On December 3rd.
We announced the divestiture of our screws and barrels product line from our polymer processing systems Division two out there.
Vessels.
While this business is a respected leader in the plastics industry.
It does not meet nordson is long term profitable growth objectives we.
We believe it will be better positioned with Altair.
By divesting this business, we will focus our resources on growing more differentiated profitable product line that will deliver on our long term growth objectives.
We believe our remaining PPS division has the right degree of differentiation and related technical competitors advantages to deliver naturally like growth and returns.
I'll speak more about the business in few moments, but first I'll turn the call over to Joe to provide more detailed perspective on our financial results for the Corp.
Thank you Naga and good morning to everyone as Laura mentioned, we have provided slides to complement the narrative during todays earnings call.
On slide number five you see fourth quarter 2020 sales for $559 million, a decrease of five per cent compared to the prior year's fourth quarter sales for $585 million.
The decrease was primarily related to organic volume offset by favorable currency and benefits from the floor Tech and Veeva mosque acquisitions.
Adjusted inspection product line were solid again this quarter and we continue to see growth in our product line, serving medical end markets.
Sales declined in the quarter was largely driven by weakness in the industrial and automotive end markets.
Gross profit totaled $297 million or 53% of sales in the quarter compared to $319 million or 54% of sales in the prior year for.
On 100 basis point decrease in gross margins, primarily relates to the $1.3 million in amortization of acquired inventory step up from the fiscal 2020 acquisitions.
Looking sequentially gross margins improved 100 basis points as the manufacturing inefficiencies related to our response to the COVID-19 pandemic and unfavorable product sales mix experienced in the third quarter of 2020 for primary.
Early temporary in nature.
Operating profit was $37 million in the quarter.
This included an $87 million non cash impairment charge related to classifying the screw and barrel product line within the IPO segment as assets held for sale.
This classification aligns with the Companys strategic decision to divest this product line to improve the ongoing earnings and overall profitable growth profile of the business.
Excluding this item.
Plus cost reduction actions and the amortization of acquired inventory step up.
Adjusted operating profit totaled a $130 million for 23% of sales.
EBITDA.
For the fourth quarter was $159 million for 29% of sales.
Which is 5% below the prior year EBITDA of $168 million.
Looking at non operating expense.
Net interest expense decreased $4 million for 37% from the prior year levels associated with lower effective borrowing rate.
Other net expense increased $2 million for.
Given primarily by a $1 million increase in pension costs.
Tax expense in the quarter total $8 million or an effective tax rate of 30% in the quarter.
Excluding the tax impact on non recurring items and a 2 million dollar discrete tax benefit associated primarily with stock option exercises.
For the fourth quarter and full year normalized tax rate is approximately 21%.
Net income in the quarter totaled $18 million for 31 cents per share.
Adjusted net income and earnings for $93 million or a $1.59 per share.
This represents an 11% decrease from the prior year adjusted earnings reflective primarily of a 5% year over year decrease in sales.
Turning to slide number six.
I'll now share a few comments on our full year results.
Sales for the full year 2020 were $2.1 billion, a decrease of 3% compared to the prior year.
This change in sales included the decrease in organic volumes of 4%.
Offset by growth related to acquisitions.
For full year impact of currency translation differences was not significant.
Excluding the non cash impairment charge.
Cost reduction initiatives acquired inventory step up amortization and the discrete tax benefits adjusted operating profit was $454 million and diluted earnings per share for $5.48, a 7% decrease from the per.
Prior year adjusted earnings of $5 and Gd seven cents.
EBITDA for the full year was $567 million for 27 per cent of sales.
Which is in line with our prior year EBITDA margin percentage of sales.
Now, let's turn to slide seven and eight to review the fourth quarter 2020 segment performance.
Industrial precision solution sales of $308 million decreased 8% compared to the prior year fourth quarter.
This decline was driven in part by weaker demand in industrial and automotive end markets.
Where we had record sales in the prior year fourth quarter.
Currency was favorable two per cent, primarily driven by the strengthening of the euro offset by an organic volume decrease of 10%.
Adjusted operating profit for the quarter was $92 million for 30% of sales, which excludes the $87 million non cash impairment charge and $4 million and structural cost reduction actions. Despite the decrease in sales volume.
Cost control measures and sales mix improvements enabled the segment to deliver the same 30% operating margin as the prior year fourth quarter.
Structural cost reductions taken in the fourth quarter were primarily related to early retirement incentives offered to employees in the industrial coatings systems Division.
These actions will generate $3 million to $4 million in annualized savings starting in fiscal 2021.
Advanced technology solutions sales of $250 million increased approximately 1% compared to the prior year fourth quarter.
This change included a decrease in organic sales volume of 3% an increase of approximately 2% related to acquisitions and a 1% increase related to currency.
Continued sales volume growth in test and inspection product lines, serving electronic end markets and steady demand and medical product line were offset by weakness in fluid dispense product line, serving industrial and automotive end markets.
Reported operating profit for the segment was $51 million, excluding onetime charges associated with the amortization of acquired inventory step up adjusted operating profit was $52 million or 21% of sales.
The year over year decrease of 100 basis points and operating margin in the fourth quarter and the full year was driven by unfavorable product sales mix within the segment.
Finally, turning to the balance sheet and cash flow on page nine.
We ended the quarter with a strong balance sheet and plenty of available borrowing capacity.
Cash totaled $208 million and net debt was 898 million.
Ending the quarter with a 1.6 times leverage ratio based on the trailing 12 months EBITDA.
Free cash flow in the quarter was $178 million. This brings the full year 2020 free cash flow total to $452 million.
A conversion rate on adjusted net income of 141%.
As working capital liquidation and lower cash taxes paid contributed favorably to free cash flow in 2020.
For modeling purposes in fiscal 2021 assume an estimated effective tax rate of 21% and capital expenditures of 50 to 55 million.
In summary.
Our top line has held up well considering the unique challenges of fiscal 2020.
The team has taken constructive actions to manage costs.
While also aligning our resources and product portfolio with the best profitable growth opportunities.
We continue to maintain a strong balance sheet with sufficient liquidity to allow us to stay focused on long term strategic initiatives to drive profitable organic and inorganic growth.
I will now turn the call back to non-GAAP.
Thank you, Joe, let's turn to slide 10.
We're well positioned going into fiscal 2021.
We have been operating safely and efficiently we this pandemic environment.
We also have found creative ways to connect with our customers well.
Whether it is virtual training and tech support.
Safely distance on site product implementations.
For example, our leasing team recently participated in the annual tactics flow, which is the largest north American packaging trade show.
The growth to the challenge of this virtual event.
Total casing.
Our recent innovation too low.
Virtual demonstrations and videos.
No matter the environment.
Nordson employees there.
Remain focused on innovation and delivering on the need for both customers.
I'm also pleased the day engagement of the team in adopting our MBS mix growth framework.
This is truly about making a strong nordson even stronger.
Fundamental for this framework.
He is to select and invest in the best profitable growth opportunities.
Data driven customer and product segmentation approach.
We continue to effort to add strategic discipline.
Identifies where we create the greatest value for our customers.
It is the new capability that our team is learning.
Using a data driven segmentation approach in a consistent and disciplined way.
Division leaders across the board.
Have been working to define the strategic business priorities.
This framework and powers.
Our division leaders to take action on the data and focus on the areas, where we grant.
Our decision to divest the schools and belts product line.
Was based on critical insights gained from this data driven segmentation approach.
Realigning our portfolio is another step forward in positioning nordson for long term profitable growth.
This divestiture will improve earnings on a go forward basis.
But it also gives our PPS leaders more time and energy.
To focus their resources on their differentiated and profitable product line.
This action exemplify the power of NBS net.
Identify our businesses coal.
Simplify the areas that distract you from focusing and growing with your core strengths.
The consistent deployment.
Well for a data driven growth framework.
Will complement nordson great strength on.
Innovation.
Customer passion and culture and balance.
We'll continue to strengthen our newer capability.
By unleashing and entrepreneurial mindset at the division level, while also building deep and diverse lending teams.
We are excited to announce that we will be hosting a virtual investor day on March Thirtyth 2021.
At this event, we will share more details about our long term strategy on.
Our differentiated product portfolio and our growth objectives.
We will be sharing more information about the details of this event in January but.
But please save the date for the account lenders for the morning of March Thirtyth.
Now for the outlook on slide 11.
I think previously mentioned.
We are well positioned entering 2021.
During the challenging year of 2020.
We remained invested in what mix margin strong.
The direct sales model and our innovative position technology portfolio.
Additionally.
We were successful in advancing several aspects of our long term growth strategy.
As we begin fiscal 2021.
Backlog has increased approximately five.
Five per cent compared to the same period a year ago.
And the trailing 12 week order entry is 5% above prior year levels.
That said it.
It remains a dynamic environment and our business conditions are changing frequently as the world response.
Challenges of researching for with 19 buyers.
Given these factors we.
We're not providing annual guidance at this time.
However.
We have a good line of sight.
For the fiscal 2021 first quarter.
Based on current order entry trends.
Backlog amounts.
And the correlation to sales timing.
We expect the first quarter of 2021 sales growth to be approximately.
2% to 3%.
With adjusted earnings growth in the range of 15% to 20% as compared to fiscal 2021st quarter.
As always.
I want to thank our customers employees and shareholders for your continued support.
With that we will pause and take your questions.
Thank you.
This time, we'll be conducting a question and answer session in order to ask a question. Please press Star then the number one on the telephone keypad. Your first question comes from the line of Allison Poliniak weighted towards cadence outside your line is open.
Great. Thanks, Good morning, guys.
Well in the 5% order rate for this this past couple of weeks is there any noted vertical that's driving that or is it fairly broad based care.
Yes, Allison good morning. Thank you. Thank you for your question.
Let's just may be talk in terms of specific end markets, that's probably the better way to answer that question. So if you think about on consumer non durable business.
What you really finding is this is a recession resilient.
End market for us food and beverage packaging.
At leases on.
Trending.
Slightly up and so our expectations are.
This is a.
On a better growth than what we've seen in some time.
In the medical business.
No order rates remain stable.
It's still remains a dynamic environment remember there are parts of our medical business that is.
Certainly.
Impacted by.
Selective surgeon so selective surgeries.
But we also have lumen component.
Parts of our business that has been.
Moving biopharma end markets, and so and disposable single use plastics as well so that part of that is doing really well. So overall medical is stable still continuing to growth.
In electronics I would tell you the test and inspection business is really doing extremely well, they're driven by advanced components in semiconductors camera modules.
Yeah in the quarter, we experienced double digit growth.
Yes, I would my expectations would be.
Slightly lesser than that but.
Suddenly high single digits is put on where this is trending are.
Our industrial business I would tell you use.
On challenged but things are starting to look up we expect some recovery in the first quarter.
Our OEM business is moderating.
And automotive is a small part of the company. So it's it's not one single verticals, but.
Differing rates of growth.
And trends that are trending up based on end market.
Got it that's helpful and then interest and touching on net divestitures I know on your comment about it not necessarily being for nordson longer term is there is somewhat of an impact on mix impact that you guys are thinking about when we're looking at these businesses flower in terms on the long term profitability of the company or is that sort of just as an aside at this point.
Good day.
Joe you want to take this one.
Yes.
So when you think about the divestiture.
Mega mentioned in his script. This this divestiture, which we hope to conclude I would say at the end of Q1 or early Q2, it will improve the ongoing earnings of Nordson.
Specifically I guess to your question the EPS segment and.
And we will also improve there for the profitability profile, but I would tell you no different the Maggie mentioned in his script the most important.
Impact for the prioritization on the allocation of resources to those more attractive growth opportunities and so thats, what really came through the MBS next port.
Portfolio analysis, and driving that focus in terms on a growth framework going forward.
Great. Thanks, so much.
Thank you.
Your next question comes from the line of Matt Summerville with D.A. Davidson. Your line is open.
Thanks, So a couple of questions for you just follow up on the last point. This internal review process that led to this divestiture announcements have you fully concluded that at this point and should we expect any additional portfolio shaping actions here in the more immediate term.
Yes, we will.
Matt. Thank you for your question on NBS snacks portfolio analyses recent core part of MBS, Max which is really what we call. The strategic discipline. It is based on product segmentation and customer segmentation. It is an ongoing process. So.
Based on what we looked at today with our bps business. Our decision was this part of the business doesn't really fit.
The kind of long term differentiation as well as the growth potential that we are looking to have in the business for that sort of what it is but there are parts of our debt.
Vs business in this analysis, you know the new credit and debit has some pretty strong.
Differentiation characteristics, some technical advantages, which we believe will allow us to continue to grow this business with the nordson like profitability on so.
Now for the rest of the businesses. This is an ongoing process and does not so much about what you are not going to do this as much as what you are going to do more sites.
Right.
So as you think about our businesses each of our divisions on going for portfolio analysis and they figure out what are the best growth opportunities, but didnt create the greatest value how do we win and focused disproportionately our resources and investments in that part of the company. So it's an ongoing.
Process and hopefully that gives you some color.
Yes. Thank you and then as a follow up when you look at kind of your implied.
Organic guidance for the first quarter, probably flat to maybe down slightly because you'll have some FX tailwind on them. Some acquisitions here on can you maybe talk about.
Square that up a little bit with respect to your trailing order entry being up mid single digits and you mentioned some things maybe around.
Correlation with timing et cetera can you maybe expand on outlets for that.
Yeah, I guess, let me expand on that.
Moving now you can expand on the trends that you're seeing on the orders that you are correct. I mean, if you look at our Q.
Q1 guidance as it relates to the revenue.
We assume there FX rates similar to what we had experienced in Q4.
And so therefore when you when you look at the Q1 guidance the FX and the acquisition will be favorable to about the same degree they were in our Q4 performance, which to your point implies organic growth.
Relatively flat on a year over year basis, now I'll point out that that organic growth for relatively flat is a significant improvement from the 7% decrease that we saw.
Organically in Q4.
And the 4% organic decrease in the full year 2020.
Also I would add if you look at what the revenue forecast implies for Q2 thousand Q1, 2021, not only set up 2% to 3% over 2022, one but it's also up over Q1 2019, So said differently from a run rate standpoint, we're starting out the year north of.
2019 levels.
And then one other comment I would make is and your observation 5% on the order entry in the 5% on the backlog that five percentage calculated on a constant dollar basis. So so thats really whats driving our optimism.
In our attitudes and our positive outlook as we enter Q1 2021 now.
Now that being said.
Clearly see there is a difference between timing and lead times in terms of shipments and order entry and backlog and so that will have to be taken into consideration when we get the Q1 guidance, but when we look at that backlog in that order entry trend Thats for provides us that optimism heading into 2021.
Matt what I would add to that is really that timing really depends on various different businesses right. So thats net of certain businesses like on medical business is pretty much kind of backlog kind of business. It's more on book and ship kind of business, but if you contrast that with an ice CS business that is more.
Backlog oriented you get the order that you have a large system that you have to put together and then on aftermarket parts revenues on pretty much book and ship and in our adhesive business is somewhere in between.
This more on standard products that you are customizing, our considering too for the cell. So.
Moving on a business depending on where it is there is a correlation on timing that we talk about.
Thank you guys.
Your next question comes from the line of Jeff Hammond with Keybanc, Jeff Your line is open.
Hey, good morning.
Good morning, Jeff.
Maybe just give us a five g. update we're seeing new phones get rolled out for Fiveg. Just what are you seeing in terms of capex cycle and.
On the mobile side as well as as well as Fiveg infrastructure.
Yes.
Let me, let me talk about that broadly.
Jeff what we are seeing in the businesses.
Fiveg related but more broadly digital acceleration is really driving the electronics supply chain.
In our businesses and most prominently where we are seeing this kind of activity in digital acceleration is in the semiconductor side of the business. So on the Semicon business, we're seeing some incredible.
Really nice demand patterns that are emerging product testing inspection business and that is really what you're seeing the strength.
In terms of Fiveg on some of the semicon on.
Our related to financing, but not entirely right. This is really mostly because of.
Contact with an economy that is beginning to emerge virtual conferences.
Virtual Investor day.
Discussions.
Hi, you order your Christmas gifts.
The ordering it goes.
All of this is really an example of how this contact for the economy and digital acceleration that is really driving the growth of semiconductor. So you want to think about on electronic business not so much.
The mobile Revolution, how we thought about our business then.
In the last decade, where mobile Revolution was really the biggest growth driver for us for going forward you want to think about on electronic business more interest. So digital acceleration so that will need two to three times GDP kind of growth over the long cycle.
And on the infrastructure, even still slow.
No. We are continuing to get orders will continue to work on those things.
But it is not at the same rate as one day you would expect.
So for.
Fiveg in our mind is still an emerging opportunity.
Okay, and then medical you characterize is stable on I guess I think its business is historically, a kind of a high single digit low double digit grower and maybe maybe I'm, just assuming stable means a little bit of growth but for now.
Just trying to understand the.
How you think the growth rate share so for medical and kind of these puts and takes around.
Elective surgeries, maybe coming back as we get no vaccine distribution versus kind of comps from.
Pp equipment et cetera.
Yes, so I think Thats a great question, Jeff in terms of our medical business. There are really two parts to the medical business that sort of allow us to have flat to low single digits, but you got it remember the context context really years, our med device customers are down and Christy.
Percentage, that's the context and so why are we doing better than in that context, it's really because we have a fluids component business, which is really.
Certainly the bio pharma end markets as well as you know.
Fluid components for.
Covert type counties right. So so what you're finding what you're finding is our fluid components business is doing incredibly well, which is yielding some of the declines we are seeing in our interventional component business, which is directly correlated to the selective so do send elective surgeries.
So big picture as you think about on elect to selective surgery kind of related component business is down a little bit.
Down a bit.
In the long term.
On the all of the drivers aging population.
Single use component outsourcing on meant device components all of those are intact as things normalize.
We have longer term.
Mid to high single digit kind of growth for this business and Thats our expectation.
And right now in this transition the incumbent elective surgeries.
In July they were down about 75%.
For 75% up pre quarterly levels elective surgeries were and our expectation was that we're going to improve but they have not so as you know as these elective surgeries improve what you're referring to.
Line is that we will benefit from that.
And we will we will return to our.
On mid single digits high single digits kind of growth in the medical business.
So let me stop there.
Do you have any for.
Follow office and the happy too.
No. That's great just maybe last one I understand the uncertainty just give us a sense of what you need to see or on an off just a couple more quarters before you kind.
Kind of flip to a more full year kind of outlook. Thanks.
Yes, Joe you want to take that.
Yes.
Our hope is that debt.
Our visibility will improve or I should say our competence.
As it relates to the volatile time that we're in with the pandemic.
Here in Q1, and Q2 and so our hope is that by the time, we have our investor day that lag I referenced we will resume annual guide that time.
Okay. Thanks, so much on.
Thank you. Thank you.
Your next question comes from the line of entry for Scott Graham with Aaron Berg, Andrew Your line is open.
Yes, I wanted to ask on.
Fifth day, a little deeper in that electronics component within Ats.
Yes, there is on attracted a lot of optimism growing.
And to 2020 and obviously.
Yes, there is a lot of that thing debt to navigate.
Doing that trade and.
Then the pandemic, so I guess the.
Entered into this year I guess, how do you early on.
Do you view things and on a relative basis versus historical cycles for that segment.
And so.
So as the year progresses, I guess what are some of the time, we should be on public outboard see how that how that business shapes up.
Yes, Andrew.
Andrew Thank you for the directory business.
What has happened with on electronic business something that we've been talking about for awhile.
If you think of on historical.
Non bank debt.
A decade ago over the last decade Nordson benefited by this incredible mobile Revolution, where you went from 30 million loans to about 100 billion phones worldwide.
It was an incredible time of change incredible amount of things changing in the mobile technology Nordson played contributed incredible technology and value for customers benefited from it and Thats what we saw.
As you think about the next decade, and Thats sort of what we are in right now.
That mobile Revolution is a once in a lifetime kind on the back and what you're going to see is a much more normal kind of growth.
Look pretty strong growth two to three times GDP and so the way we plan and think about our businesses. We think about two to three times growth across the line.
Electronics supplies non gizmo, but really in our view as we work with our customers and will be seen on businesses, what requiring greater drivers our digital exploration, which we've talked about right at contact free economy virtual conferences virtual way of doing business virtually on.
Buying grocery virtual wary of ordering Christmas gifts many different ways, you think about it this virtual economy. This contact for economies continue to grow which is leading to digital acceleration on infrastructure is capable.
Capabilities certainly all of this adds to supply.
On improvement in order trends that are across the supply chain and nordson has done a really nice job over the last decade to diversify.
Just one particular product category two month for semiconductors components and products PCB, So, we'll demasi, Brian across electronics supply chain and so we'll benefit from that.
And you know, we diversified the test and inspection and so what you really see is this busy legs for acceleration all of this leading to complex devices complex components, leading to 100% inspection.
In line inspection in some cases on leading to our test and inspection business doing really well. So our expectation is two to three times.
And it is a debt credit credit growth when compared to what you experienced in the.
Last decade, yeah.
Okay.
At this.
Next.
Using data to.
I understand your business for the better.
You talked about a divestment in there, but what about.
Is that influencing any change potentially on the acquisition side to maybe another adjacent.
Sub segment that you'd like to be in are the is the focus on and remain on toughmet infection medical.
So as as you think about it we didn't talk about this when we.
Which when we clarified our focus is going to be on test and inspection on medical but really GAAP is what was behind.
Moving on.
At that time did not.
Publicly talk about NBS snacks, because we were still on the profitability, yet, but really what drove our focus to focus on test and inspection and medical is really a concerted view inside the company on how the portfolio was and where was the greatest growth opportunities what goes on.
Let's differentiate accounts of the company, which had the greater growth potential is sort of what has led us to this focus around test and inspection and medical.
We have opportunities scale on both these businesses and have a meaningful impact on growth of the company share.
Should we ever get in a place where we run out of ideas and scaling up. These two businesses. We have a innovation team within the company that is always looking for new market spaces that have.
Characteristics that are very similar to nordson do we like the company to write the market.
What is the growth potential what is the level of differentiation. So.
You should be able to run on a right here you know.
It will lead on.
It will not be opportunity to expand into newer space on should that need to happen.
Thanks, Doug.
Thank you for Andrew appreciate the question.
Your next question comes on line of Scraper debt key with Jefferies. Sir Your line is open.
Thank you for mining.
Good morning, how does that have to be asked next portfolio analysis was there any businesses or product line based on might be understanding that you want to focus on growing organically client for line.
And I think Thats a great question and that is one of the things that we are really laser focused on is this decision also there are two ways to pick up on this one it's a consistent disciplined way of looking at opportunities in the company, but more importantly that analysis on that.
Decision, making now happens at our division level.
At the company level. It is great to understand whether you want to be but it is even more powerful when you look at the businesses and you look at some segments within the business, where the greatest opportunities are and as our division leaders have set their strategic growth priorities, what we're finding.
Is that.
Our leaders are making those decisions.
The company has done a really nice job on staying invested in customer passion and stay invested in innovation. So I wouldn't say it is a complete.
On a stretch, but but are rediscovering opportunities, yes, and I think I am more excited about the fact that now these decisions are made much closer to the customer much closer to the action and knowledge and I think thats, probably the the shift that we are making.
Thank you and then lastly, as we think about the backdrop for industrial spending next year, what do you change for customers. This price advocate for capital spending.
Yes.
As we talked a little bit about our industrial business unit remains challenged.
But we are starting to from from the middle of the year to now sequentially. The orders have continued to improve and continued good growth and we see some of that in our.
Industrial businesses, so as we think about it it remains a dynamic environment.
But our expectations are.
It is trending up.
And we expect some recovery in the first quarter.
Great. Thanks, so much Greg certainly an average so I would just add to your comment on the MBS next if you look at our SGN a we did take several actions during the back half, particularly 2020 to lower our structural costs that said those actions were very strategic.
Focused on on business as identified in areas identified through the vs. Next framework at the same time. It also allowed us to areas where line as best as Michael mentioned, So if you look at our product development cost on the for the year in the quarter is actually.
It was actually flat for the full year.
For the quarter, so that there are areas, where we continue to invest in.
And there are areas, where where we are taking strategic I would say structural cost reduction actions.
Okay.
Thank you.
Your next question comes from the line of Mike Halloran with Baird. Michael Your line is open.
Good morning, everyone.
Moving so so some thoughts on the margin profile as we look to fiscal 21, maybe just focus on puts and takes hold taking on incremental margins on what some of the structural cost improvement initiatives can can provide as a tailwind mix any other puts and takes when you think about obviously the divestitures coming on that will help with the mix but.
And then how should we think about on some of the key buckets on the fiscal 2001.
Okay. My time I think in general let me give you add growth.
Brian broadly, how we think about this and then Bob.
Joe can walk you through the presentation on that right. So in general on expectation for us is that.
As our revenues grow.
Our expectation on incremental should be north of 45% Thats sort of how we're thinking about it in the business.
So that allows us to the credit pretty focused on growth.
And the ability to invest back into the business to continue to grow so would that when one I guess Joe to talk to you about.
As detailed on the various for two days yes.
Yes so.
When you think about the incremental margin I mean, our guidance here in Q1 I think.
On our high incremental margin sequentially.
And our stay on a year over year basis.
Because that is where you are seeing the benefits us on both structural cost reduction actions in the Q1 numbers, but I will go back to Q4 and I just point out I mean, we're quite pleased with the Ts 30% LP.
As a percent of.
Sales and net was nice nice sequential incremental margins there when you look at it compared to Q3 and so adjusted highlights that.
On that particular business when you get on some modest growth.
Can really drops nice incremental margins north of 50% and so that 30% of those back to the queue for 2019 level, but also even if you look at Q2 Q3 back in 19 for that business is north of 300 million due on 29, 30% margins as something they can do so nice to see.
That bounced back from a Q3, which was a little bit depressed.
Some of those items, we viewed as temporary as nice to see that they were temporary in nature.
And then on the capital deployments on on the extra awareness and in turn on the priority, but with the acquisition side look like how are you thinking about buybacks or anything like that and what the prioritization looks like in total as well as.
What the opportunity set how realistic on lupita moving on the acquisition side.
Yes, so from a priority standpoint.
You mentioned on organic generally generates the best return at the lowest risk. So we continue to organically invest in business that being said, it's relatively capital light and doesn't demand a lot from our free cash flow of our cash flow from operations, which are quite strong.
And so we're committed dividend payer as you know and dividend increase or.
We would like to do share buybacks to offset dilution.
But beyond that were really focused on the acquisition side and it's been a challenging 2020.
On the M&A market that being said quite pleased that we were able to make progress with the for tech with Veeva losses.
And that day, the announced divestiture as well.
I will tell you the no different than the factories are learning how to operate for these products safely in this environment. The M&A community is also figuring out how to do deals in this environment and so the market for M&A I would tell you or activity level is improving.
And so we do remain active we are very strategically focus based on the MBS next framework that Naga has reviewed with you and where our growth opportunities are so we are actively I would say Mike actively working.
And then to deploy capital.
Through the acquisitions.
And on.
The pipeline is growing as our cash crisis.
I appreciate the time the color. Thank you.
Good night.
Your next question comes from the line as Christopher Glynn with Oppenheimer Mr. for your line is open.
Thanks, Good morning, and good luck and had a question about the.
Just want to kind of go for a high level.
Visited the Tia nine momentum and review of the compounding dynamics you had there I'm really curious about.
What what you're driving in terms of.
Succession pattern news.
New capabilities versus debt.
Adoption for the iterations the technology iterations, you've introduced over the past year plus.
And you know how those two factors converge towards.
This ideal on 100% online testing capabilities.
And on I think it's a great great question, Chris and it's an area that we are doing on lot of work and it is an area that has a lot of promise for the company debt.
Just sort of maybe step back a bit if you think of on our test and inspection business today. It is yes.
You know.
It has two major.
So maybe three major product technologies for says X Ray inspection second on the SEC acoustic emission third one is mechanical testing will reduce on wire bond capacity, we do optical inspection NAV growth, but it is a smaller part of the company. So major product line really B R.
On X Ray imaging on.
Think about acoustic inventory and think about mechanical testing, we fundamentally believe that the acoustic imaging and X Ray imaging are going to continue the growth for us as these devices get more complex and couple of applications.
Take a little bit one more step deeper into the product application. So if you think about a complex semiconductor package that as the manufacturer.
In the past they were sampled.
And on.
You ensure that the manufacturing process was stable and the product quality was really good but as these devices get lot more complex now you're really interested in because these devices now have greater functionality the.
The risk of failure.
And then potentially impact on the customers' experience is so high that the semiconductor packages are now getting on spec and so that's sort of the need in terms of what is the EBITDA customers are looking for the customers are really looking for not only whether the bonds were made and they are looking for.
For all the things that they need to get that in there is it in the right size. So now all of those seven threed metrology with extra inspection becomes much more greater brand real.
And on line rather than one was a good feature behalf. So actually translates to the company. What it really leads is do we have that resolution, which we have always be really go that do we have the speed and do we have the lowest signal noise low.
Right. So those three things really now matter as you think about the new acquisition, we made into the technology acquisitions as Cmos sensor image sensor and it provides all those three provides a unique combination of higher speed higher resolution and low or not and so.
So we as we build out our inspection capability youre going to find is and technologies.
Technology can allow us to help our customers inspect things more in real time and.
At a faster rate higher resolution on work flow and obviously and we're going to add capability that allows us to do more threed metrology than we've done in the past. So that's another one that's coming on.
And I would say the third is today on our business is very focused on on elektron.
We do and we are beginning early stages of diversifying debt exposure into adjacent end markets and this new mines for acquisition allows us to now think about is it possible for us to become a component supply.
It allows us to sell on.
Our.
Image sensors and allows us to sell our tubes into end markets to other Oems in end markets that we don't have a right to play yet, but we have a right to be a component supplier because we have the best resolution on the market. We have the best lowest noise level on on a mark.
And we have hired a street. So it's an exciting time in the test and inspection business is an area, where we will continue to invest in.
One that we did not talk about it.
Some early days here is debt defect classification.
This is another big trend right I talked to you about MH speed low noise, but it also defect classification is important because that allows our customers again to identify whether it's a good chip package on patch. It back so a lot of detailed there, but hopefully that gives you how we think.
Thing about this business, where it is headed on it.
It clearly has some good opportunities for organic growth and you.
Opportunities for us to acquire the will be really thoughtful as always around on what we acquire how we acquire will be disciplined around acquiring things that.
Makes nordson stronger.
We're not going to acquire for growth say for I'm going to acquire on differentiated commoditize products investors section, we're going to be very focused in on what makes nordson strong which is positioned technology customer intimacy.
Really customer critical applications in how we add value and create value and so that's where we're going to be focused on.
That's great detail on Great Bang Bang for the Buck on the question. Thanks, just a little housekeeping for close up.
DNA in bias on working capital through the cash flow statement for fiscal 21 any comment there Jeff.
Yes so.
Quite pleased with our progress on on working capital liquidation, there and 2020, particularly the strength in Q4.
We improved our I would say our efficiency around on the A.R. side. So when you look at the cash flow statement, you'll see it was the other day are and it's not just for selling.
No, 3% or 5% less than we did in Q4 I should say it was really proving the dxi as we implement the NBS next and see that rollout I think going forward. There is an opportunity on the inventory side. So.
Really anxious.
We go into 2021, just to continue to focus on the cash flow and do feel that there is some opportunities from an inventory efficiency sites there.
Thank you have a DNA figure for fiscal 2001.
DNA I don't have a figure yet it's going to depend on price.
Many of us accelerate our sunset screw and barrel divestiture.
Okay. Thanks.
Yes.
Your final question comes from the line of Chris Dankert with Longbow Research. Your line is open.
Hey, more on thanks for fitting me in here.
Ran over this quickly, but just want to make sure I'm understanding the dynamics when we're looking at the Ats business, specifically as you characterize medical stable test and inspection up low double digits high single.
That really does come.
Kind of give a sense at that distance was extremely weak in the quarter hand, despite on the other strength going on in PCB and semi is.
Am I thinking about that right and I guess, just what was the key driver of the weakness on the quarter than on on that core dispense business and advanced technology.
Yes income.
And it's a good question, Chris our dispense business as you think about it you know the new benefited beams on last decade from this mobile revolution on.
This incredible investment on the mobile Revolution, where we are and so we.
We are benefiting from some projects that are related to semiconductor in that business certainly.
Certainly benefiting from.
Some projects in some newer features but not for the same extent as we benefited in the past. So so you had a comp issue there for that business that we're working our way through in general our expectation for that business is as this comp issues get worked on what you're going to find is going to be a nice two to three.
Percent grower you signed on to be the same kind of go on that it was but you know the company was very thoughtful in diversifying into test inspection and so accustomed to sanction Oliver seven is a really nice growth engine for us in the semiconductor side and will benefit from it and.
Hopefully that gives you.
How were thinking about it internally.
Net that's fair that's fair. Thanks Saga, and then I guess, just lastly for me when we look back at the other half the business.
He for dispensing I guess, the coatings business versus hot melt my assumption is that coatings is down pretty substantially and really driving the weakness in the fourth quarter here on hot melts was much more stable is that correct and then just kind of thoughts going forward yes.
Yes, yes, I think but but you want to remember our coatings business was one of those businesses that have an order substantial amount of orders net from third quarter of 19 to fourth COVID-19. So if you think about for quarter by itself, yes, the coatings business had significant.
As Lynn, but if we look at it from second half perspective for the coatings business was about mid teens still still pretty high and low.
Was essentially one of the things. So so there is a cost issue and that is in industrial.
For sure issue and you're right about being in a much better flow Joe you want to add some color to it.
Yes, I will just add one thing that your two questions there the flow of dispense within Ats.
And then the IC ATM business within ideas like that.
Sorry.
Yes sequentially, we're we're seeing.
And on some nice improvement there those are the businesses that have the heavier industrial exposure and so when you talk about non I guess comments as we went through the back half of 20.
We saw that steady improvement in order rates, so while it's down year over year from a trend standpoint.
Those are both businesses are seeing some some improvement sequentially.
Got it got it Thats all very helpful color. Thanks, So much guys on and best of luck into 21 here.
Thank you Chris.
This concludes our question answer session I will now turn the call back over to non-GAAP for closing remarks.
Alright.
Thank you for your time and attention on todays call, we are well positioned going into fiscal 2021 day.
We remain focused on on long term objective of making a strong nordson, even stronger as we deploy MBS next growth framework to prioritize organic and acquisitive growth opportunity.
Also unleashing and owner mindset within our customer focus divisions, we wish you a happy holiday season. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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