Q4 2021 Nordson Corp Earnings Call
Good morning, My name is Christian I'll be your conference operator today.
At this time I'd like to welcome everyone to the Nordson Corporation fourth quarter fiscal year 2021 conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.
And if you'd like to withdraw your question. Please press star one again.
Thank you Lara Mahoney.
May begin.
Thank you.
Good morning. This is Lara Mahoney, Vice President of Investor Relations and corporate communications.
I'm here with <unk>, <unk>, our president and CEO, and Joseph Kelly Executive Vice President and CFO.
We welcome you to our conference call Today Thursday December 16, 2021 to report Nordson fiscal year, 2021 fourth quarter and full year results.
You can find both our press release as well as our webcast slide presentation that we will refer to during today's call on our website at nordson dotcom forward slash investors.
This conference call is being broadcast live on our Investor Web site and will be available there for 14 days.
There will be a telephone replay of the conference call available until December 30th 2021.
During this conference call references to non-GAAP financial metrics will be made 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 maybe forward looking based upon <unk> current expectations.
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 to differ.
Moving to today's agenda on slide three Naga will discuss fourth quarter and full year highlights.
He will then turn the call over to Joe to review sales and earnings performance for the total company and the two business segments.
Also we'll talk about the year end balance sheet and cash flow.
<unk> will conclude with high level commentary about our enterprise performance, including an update on the <unk> strategy as well as our fiscal 2022 first quarter and full year guidance we.
We will then be happy to take your questions.
With that I will turn to slide four and hand, the call over to Naga.
Good morning, everyone. Thank.
Thank you for joining nordson fiscal 2021 fourth quarter and full year conference call.
On the heels of 2020, a year marked by the Covid pandemic.
I think anyone you what do we expect coming into 2021.
We were well positioned having both remained invested in a cut.
Customer centric businesses.
And started deployment of NBS next growth framework.
Our focus remains sharply.
Protecting the health and safety of our employees.
Also meeting the needs of our customers.
The successful deployment of NBS next.
Should we were able to fully participate in the accelerated economic recovery.
<unk> in 2021.
Our division leaders use strategic discipline.
Identify and then focus on the best opportunities for profitable growth in their respective businesses.
As a result, we surpassed our prior record annual performance in sales by $108 million and an operating profit.
$111 million.
This new record was achieved through.
Broad based growth across most end markets and geographies.
Fourth quarter was a solid finish to this record year.
Sales were in line with our expectations, particularly in light of the timing of the approximate $25 million customer order that had been pulled forward into fiscal third quarter.
Looking at the back half of fiscal 2021.
We delivered 15% organic sales growth and 36% adjusted profit growth compared to the prior year second half.
I'll speak more about the businesses in few moments.
But first I'll turn the call over to Joe to provide more detailed perspective on our financial results for the quarter.
Thank you Naga and good morning to everyone.
On slide number five you'll see fourth quarter 2021 sales were $599 million, an increase of 7% compared to the prior year fourth quarter sales of $559 million.
The increase was primarily related to 10% organic volume growth and favorable currency.
Offset by headwinds from the screws and barrels product line divestiture.
When excluding the divested product line in the prior year for.
For comparability purposes sales growth would have been 11% and the current year fourth quarter.
This double digit organic sales increase was driven by solid growth in all product lines with particularly strong demand in the electronics industrial and medical end markets.
Test and inspection and consumer non durable product line delivered single digit growth in the quarter.
Highlighting the continued stable demand in these markets.
Geographically all regions, except Japan grew steadily.
Gross profit totaled $331 million or 55% of sales in the quarter compared to $297 million or 53% of sales in the prior year fourth quarter.
This 200 basis point increase in gross margin was driven by improved sales mix from the divested screws and barrels product line.
Sales volume leverage and process enhancements from our NBS next growth framework.
On a sequential basis, we experienced some pressure on gross margin from the third quarter to the fourth quarter.
Primarily due to elevated freight cost stemming.
Stemming from this dynamic macroeconomic demand environment.
Additionally, we incurred approximately $2 million and nonrecurring costs as we aligned our medical fluid components business with its best growth opportunities.
We believe these negative impact on gross margins are largely temporary in nature.
And we are taking appropriate pricing actions in fiscal 2022 to offset inflationary pressures.
Our differentiated product offering and market positions.
Organizational agility and.
A disciplined approach to cost control.
Combined with consistent deployment of the ascend strategy is allowing us to successfully navigate these challenges and continue to deliver profitable growth.
Operating profit.
It was $151 million in the quarter or 25% of sales.
A 16% increase from the prior year.
Double digit organic growth favorable sales mix.
Continued benefits from structural cost reduction actions taken in fiscal 2020, all contributed to incremental operating profit margin of 52% in the quarter.
EBITDA for the fourth quarter was $177 million or 30% of sales.
Looking at non operating expenses net interest expense decreased $2 million or 31% from the prior year driven by reduced debt levels.
Other net expenses increased $2 million, primarily driven by currency translation losses.
Tax expense in the quarter was $30 million for an effective tax rate of 21% in the quarter.
In line with the full year and forecasted rate.
Net income in the quarter totaled a $110 million or $1 88 per share representing a 19% increase from the prior year adjusted earnings.
This improvement is reflective of the 7% year over year increase in sales.
And more importantly, consistent application of the NBS next growth framework, which leads to steady profitable growth with attractive incremental margins.
Turning to slide number six.
I'll now share a few comments on our full year results.
Sales for the fiscal year 2021 were a record $2 $4 billion, an increase of 11% compared to the prior year.
This change in sales included an increase in organic volume of 11%.
And favorable currency impact of 3%.
All set by the net unfavorable acquisition and divestiture impact of 3%.
Also company Records operating profit was $615 million and diluted earnings per share were $7 74.
36% and 41% increase respectively from the prior year.
EBITDA for the full year increased 27% to $719 million or 30% of sales.
Now, let's turn to slide seven and eight to review the fourth quarter 2021 segment performance.
Industrial precision solutions sales.
$314 million increased 2% compared to the prior year fourth quarter.
Organic volume growth in the quarter was 8%.
Offset by an unfavorable divestiture impact of 7% and favorable currency of 1%.
Robust demand for industrial coating product plus steady growth in the consumer non durable end markets for hot melt adhesive dispensing products drove this quarter's results.
From a regional perspective.
Growth was strongest in the U S.
Americas and Europe.
Operating profit for the quarter was $103 million or 33% of sales, which is an increase of 12% compared to the prior year adjusted operating profit of $92 million.
This growth was driven by favorable sales mix and manufacturing efficiencies gained in part from the divestiture of the screws and barrels product line.
I also want to remind investors that it was this segment Ips.
That had strong third quarter organic growth of 22%.
Which included approximately $25 million of sales.
That were pulled forward from fourth quarter into third quarter per the customer's request.
Therefore this segment.
Half 2021 organic sales growth of 15% and adjusted operating profit growth of 34% or.
Are more reflective of what this business is delivering.
Advanced technology solutions sales.
Of $285 million increased 14% compared to the prior year's fourth quarter.
This change included an increase in organic sales volume of 13%.
And a 1% increase related to favorable currency impact.
Growth was particularly strong in product lines, serving electronics and medical end markets.
Fluid defense product lines, serving industrial and automotive end markets also generated double digit growth in the quarter.
All geographies contributed to this quarter's growth with particular strength in the international regions.
Fourth quarter operating profit was $67 million or 24% of sales.
With 29% year over year increase was driven by sales volume leverage and realization of benefits from cost control measures taken in fiscal 2020.
Deployment of our NBS next growth framework continues to be a key element in the success of this segment delivering profitable growth.
Finally, turning to the balance sheet and cash flow on page nine.
Through our disciplined approach to capital deployment.
We ended the quarter with a strong balance sheet.
And abundant borrowing capacity.
Cash totaled $300 million.
Partially in anticipation of the $180 million and DC technology acquisition, which we completed on November one.
Net debt was $516 million, resulting in a 0.7 times leverage ratio based on the trailing 12 months EBITDA.
Free cash flow in the quarter was $116 million, which brings the full year 2021 free cash flow total to $508 million.
Our conversion rate on net income of 112%.
As a reminder, the 2021 full year free cash flow is inclusive of our net pension contribution totaling greater than $90 million.
For modeling purposes in fiscal 2022.
Assume an effective tax rate of 21%.
Capital expenditures of approximately $40 million.
And pension contributions of approximately $10 million well below the fiscal 2021 levels.
In summary, our focus on disproportionately investing in the most profitable growth opportunities.
Has led to another year of solid execution and record performance.
While we continue Didnt advocate the near term challenges for.
Presented by this dynamic macroeconomic environment.
We remain diligent in implementing the NBS next growth framework and broader ascend strategy.
We are pleased with our focus and.
And progress on these strategic initiatives and remain committed to delivering top tier revenue growth with leading margins and returns.
I'll now turn the call back to Naga.
Thank you, Joe, let's turn to slide 10.
Again, I want to thank our team for managing safely through another year of COVID-19, as well as managing issues related to supply chain labor and other macro concerns.
With their dedication.
<unk> and focused on making nordson stronger.
Not only did we achieve record results for the full year.
Also made great progress on our <unk> strategy.
We first introduced ascend.
At our Investor Day in March 2021.
Designed to deliver top tier revenue growth with leading margins and returns.
Since strategy encompasses three interconnected pillars.
NBS next north since growth framework.
Owner mindset, our entrepreneurial division led organization.
Empowers our divisions to make decisions as close to the customer as possible and winning teams nordson Stellan strategy.
All three pillars are built on the foundation of what makes Nordson special.
<unk> and values.
As we shared at our Investor day.
The successful execution of <unk> strategy.
Deliver our financial targets of $3 billion in sales and 30% in EBITDA by 2025.
Through the cycle, we expect to achieve sales growth of 7% through an equal mix of organic and acquisitive growth.
2021 was a record year with double digit organic growth and EBITDA margins ahead of our targets were.
We're just beginning to make progress on our acquisitive growth targets.
On November one.
We completed the acquisition of MDC technologies.
This test and measurement business, that's a differentiated product portfolio that is leveraged through a customer centric business model.
It is a great fit with our strategic and financial criteria for M&A.
The integration is off to a solid start.
In November the NBC leadership team received their initial training on NBS next.
They are leaning in and asking good questions about how to incorporate our growth framework into their business.
It is proving to be a good cultural fit and I am very pleased with the level of engagement I'm seeing at all levels of the NBC organization.
M&A is a very important part of our growth strategy.
We're looking forward to executing upon our pipeline as the right opportunities present themselves.
We have a strong balance sheet and are well positioned to do so.
Over the past year investors have asked if we will adjust our long term financial targets following the strength of this year.
We strongly believe that these continued to be the right targets.
And we are pleased to have executed a very strong first year against them.
Our divisions, our focus every day on delivering profitable growth and these long term targets will not govern our potential to act on the best market opportunities.
Before I address fiscal 2022 outlook I would like to take this opportunity to highlight our new ESG report.
As discussed in more detail in the report are a sense strategy and ESG priorities.
Our closely integrated and depend on each other to refine and improve our overall performance.
The underlying elements of ESG has been central to nonsense culture and success throughout its 60 plus year history.
Don't send us a light assembly manufacturer and.
And we are committed to identifying ways to minimize iron on environmental footprint, while helping our customers do the same.
Throughout our long history of designing and developing.
Physician dispensing technology.
We have sought to reduce our customers' material cost and consumption by increasing yields and reducing scrap during their manufacturing processes.
This has been a vital part of our success.
We're also bringing solutions to the market.
Address environmentally conscious market opportunities such as advanced battery manufacturing.
To support renewable energy and manufacturing processes.
Utilize.
<unk> based manufacturing materials.
This report is a new foundation.
Our ESG strategy influenced by leading ESG frameworks.
A detailed set of efforts to better understand.
Environmental footprint, while also highlighting our progress in social and governance initiatives.
We look forward to building upon this foundation in future reports.
Now for the outlook on slide 11.
As we look to the full year.
We are conscious of the dynamic environment with strong levels of demand, creating labor material logistic availability challenges similar to what many of our peers are experiencing.
Our entrepreneurial division led organization structure has enabled us to address these ever changing dynamics head on.
Our teams are agile in identifying solutions around labor material availability and transportation challenges to meet our customers' expectations.
The strategic disciplined element of the NBS next growth framework is undoubtedly helping the teams prioritized and deliver on the best growth opportunities within each division.
We.
<unk> 2022 to be another record breaking year with sales growth in the range of 6% to 10%.
And adjusted earnings growth in the range of 8% to 18%.
As compared to fiscal 2021.
We feel very confident going into the fiscal first quarter.
As we first mentioned in the fiscal third quarter.
We are still seeing extended shipment request dates in conjunction with large orders from our customers.
This increased backlog.
Approximately 90%.
Compared to the same period a year ago.
And the trailing 12 week order entry was 25% above prior year levels.
As a result of these evolving order patterns.
Traditional seasonality, where the first quarter is much softer than the prior year fourth quarter is not applicable.
First quarter 2022.
Should be comparable to the financial performance in.
In the fourth quarter of 2021.
And a year over year growth rate comparable.
To the second half 2021 growth rates.
Based on anticipated sales timing.
We expect the first quarter of 2022 sales growth to be approximately 14% to 16%.
As compared to the fiscal 2021 first quarter.
Adjusted earnings per diluted share in the range of.
$1 80.
Two $1 95.
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 as a reminder, if you'd like to ask a question. Please press Star then one on your telephone keypad.
First question is from Mike Halloran with Baird. Your line is open hey, good.
Good morning, everyone.
Morning.
Hey, thanks.
Can we pick up re left off there. So you look at the guidance and obviously first quarter growth rates, a little stronger than what youre, assuming for the rest of the rest of the year.
Certainly gave some context on why the seasonality would be different but maybe talk about two things here, one just how youre thinking about.
But what is assumed in guidance for how you think the rest of the year plays out by segment and then.
My second question and related would just be how put this backlog in context I mean, it's.
Significantly bigger than what we would've seen historically how much of this should have shipped last year. How much of this is just pulled forward through the rest of the year and just try to give some context. So those are my two questions are related to estimate at the same time.
Great Thanks, Mike and.
What we wanted to talk a little bit about as we go into the year, we feel really good about the first quarter, just given the kind of <unk>.
Environment that our customers are in the order patterns, we are seeing.
So our first quarter is going to be more reflective of.
Back half of 'twenty one.
And.
In terms of if you think about the various end markets.
Let me start with electronics.
Electronics.
Customer order entry patterns in demand levels are pretty strong.
Medical.
Particularly biopharma and our interventional businesses.
Entry patterns are really strong.
If you think about our industrial end.
Consumer non durable businesses earnings part of the year, we feel really good about it based on the backlog rehab.
As we look into.
The back half of the year, we do see those two end markets.
Turning or normalizing in Q.
Historic levels that we shared.
At our Investor day, so that's.
Hopefully that answers the first part of your question, which is.
<unk>.
Feel really good about the full year guidance, which is going to be at the midpoint, 8% growth on a record year.
And that is really underpinning the strong demand patterns in medical electronics.
And banks have expecting some tapering off.
Industrial and consumer nondurable.
In terms of the backlog these are historical highs.
You indicated we do believe.
These backlog is really.
David.
Extended lead times that we normally don't have in our businesses of our customers that are asking us are giving us orders or shipments.
Almost into the second quarter of next year.
Which is normally not the case normally.
Sure.
Demand patterns are such that.
People will ask because of the quarter out right now people are putting their orders to be in line.
There is some amount of back and forth where customers are asking for some things to be shipped out ahead. So thats why some things get pushed and pulled forward or pushed out here.
But most often it's getting pulled forward than anything else.
So hopefully that answers the question.
Yes, no. It does I mean, if I could put that last part in context basically it seems what youre, saying is we feel really good about where the order pattern turn the backlog patterns are.
Don't overplay, the magnitude of the backlog here because of the extended lead times, but you feel good about the visibility that you have going into the second quarter, which is more than you would normally have is that a fair interpretation that is very proud of and that's exactly what we're seeing.
Yes.
I wouldn't add anything more.
You have something else to add.
I guess when you think about the backlog Mike It is largely on the system side with these longer lead times and there's a direct correlation when you look at our customer advance payments. So our customer advance payments year over year are also up 84%. So it's in line with the increase in the order backlog.
So we think about the backlog is largely system orders not necessarily pass due items.
And we've got prepayments on those at 10% of last year's backlog at 10% of this year's backlog.
Thank you really appreciate it.
Our next question is from Connor Lynagh with Morgan Stanley. Your line is open.
Yes. Thanks.
I was wondering if you could give a little bit of context on the.
Logistics costs that you called out specifically.
As one of the segments more disproportionately impacted by this and.
Is this something that was sort of isolated to the quarter or are you sort of accounting for this persisting.
And next quarter's guidance.
Yes.
Let me address that I guess holistically, when we think about the 55, 3% gross margin.
First of all gross margins coming off of a 10% organic growth to deliver 52% incremental margins at the op line.
When you look at the $55 three compared to where we were running in Q2 and Q3. It is down about 170 basis points.
And when you think about that sequential drop I would tell you. It's roughly three fold theres three relatively evenly split things one of them being the spike in freight cost.
And freight cost of inbound outbound, but it's also internal within the nordson facility and so we saw this as did the rest of the environment Spike in Q4 I can tell you.
Above where we had estimated.
And it's starting to subside in the marketplace already from those elevated levels that we saw in Q4, but we are addressing this with pricing actions in the first half here of 2022, the other impact I would tell you was the nonrecurring write offs.
Associated with aligning the factory and that was all in Ats to answer your specific question around the segments.
That factory alignment within our medical business.
So that approximately $2 million impact on gross margins impacted.
Impacted ats the freight is felt across both segments, but I would tell you it's heavier on the Ips side.
Proportionately and the remaining the third factor I would tell you is mix.
So.
If you look at our gross margins over the history here.
We view.
Prior to the screw and barrel divestiture, we will run at about 53% to 55% gross margin on any given quarter depending on mix.
Now three quarters, we've been running 55% to 57 based on the new mix.
Post the divestiture of the screw and barrel business. So we when we give our guidance for Q4 2022 I would tell you you should think about operating between that 55% and 57% gross margin range, depending on mix on any given quarter.
But those were the main factors I would tell you in the Q4 gross margin.
Got it that's helpful context I appreciate it.
So it's sort of related question here, but at a higher level as you're as you're looking into fiscal 'twenty. Two it certainly seems like you guys are feeling pretty good about margin holding up relative to where we were in 2021.
So just curious if theres any sort of.
Inflationary pressures youre worried about.
On the cost side of things is there is there anything that you're watching that sort of a swing factor on whether those margins will trend to the higher lower end of your range.
Yes.
Let me just give you a high level color and Joe will add some more to what I would say.
In general we feel good about where we've got margin.
Based on our current customer demand.
<unk>.
These end market explorations rehab.
From an inflation perspective, there are two things you want to keep in mind first and foremost.
Cost is fairly small part of our costs down.
Our gross margin given about the value we create that sort of one one thing to remember the second thing to remember is that our cost to our customers is a smaller part of their total cost stack and so what that means is that we have a differentiated position and are able to pass along price increases.
With that as necessary.
And we've already done that in some businesses overall, we don't need this being a major factor for us.
Joe you want to add any color to that.
Yes.
That covers it.
We're closely monitoring it.
And from an inflation perspective, both on the raw material side as well as the labor side and then there was the logistics side I would tell you that spike in Q4 of that.
Impacted the margin slightly.
I will also add we see NBS next efficiency.
Helping offset some of this pressure efficiencies in terms of labor and conversion cost at several of our pilot sites and so that has also helped our performance.
<unk> that continue to contribute favorably as we go into 'twenty two.
Alright, I appreciate it I'll turn it back to you.
Our next question is from Andrew Buscaglia with Baron Burke Your line is open.
Good morning, guys.
If you look into.
Your sales guidance for next year, if you back out.
And D C.
The implied organic sales is more like mid single digit.
I was wondering.
And I gave a lot of color already but I would think that in some areas like medical and even electronics.
See a reacceleration I think.
Mid to late year, and I, just wonder how conservative you are being on that.
With that.
The dynamic in the forecast.
Sure Andrew let me make one.
Naga say something else, but when you think about our sales guidance for the full year at the midpoint, 8%. There is roughly about a 2% FX headwind that we're contemplating.
And to your point the acquisitions.
Don't forget we have one quarter of screw and barrel business. So.
So the way that we're thinking about it as a negative 2% FX headwind.
Net acquisition and divestiture is roughly favorable by 3% and then 7% organic growth is what we have.
Okay.
Is there a way yes, sorry go ahead no no go ahead Andrew.
Well I was just going to say.
With medical I would think that that is being held up by recent variant activity again.
So I would just think that that would only.
Be a nice tailwind as the year progresses.
Yes.
Just historically think about the medical business is high single digits, our electronics mid single digits.
We are in the early cycle of them.
Maybe third way there on electronics. So you are right in electronics, we're going to see some pretty nice growth.
That's what is reflected in our guidance in medical we are expecting to have some pretty good.
Returning to the high single digit Biopharma doing well. So if you think about all of that.
These are going to be the big growth contributors.
Looked at directed the year on our Investor business and consumer non durable business in 2021.
Our expectation is we do we carry that strength into the first quarter.
The back half of the year it is going to be some tapering on those businesses, which had.
Double digit organic growth in consumer non durable and <unk>.
Industrial businesses.
Our expectation is some normalization in the back half for those businesses.
But youre right that is strength in medical that are strengthened in electronics, that's what we've reflected.
And what we're excited about is as you go into the first quarter.
Countering the momentum of our second half of 2021 into 'twenty.
<unk>.
Okay.
Okay. That's helpful is there a way in that backlog.
You can identify what percentage of sales.
Specific to electronics and medical.
Yes.
Yes, I would tell you pretty heavy on the <unk>.
System side.
And on the electronics there are a lot of systems businesses that we sell but I can't I can't tell you the split between electronics and medical.
Yes.
But we do have industrial systems that still needs to get shipped out in the first quarter.
Blackrock.
Okay, Alright, thank you guys.
Our next question is from Matt Summerville with D. A Davidson your line is open.
Thanks, a couple questions you commented sort of.
But we should not expect normal seasonality as it pertains to the first fiscal quarter of the year, but maybe Naga and Joe If you can comment on how we should be thinking about the quarterly earnings cadence beyond that and that should we expect calendar typical kind of fiscal Q3.
The high watermark for the year, what's the right way to be thinking about that particularly as you see some tapering as youre, describing or at least expect to see some tapering as youre describing in.
Non durables and general industrial.
Yes, I think our comments around the normal seasonality as you know Q4 used to be the strongest.
Here, we had Q4, which contributed $25 million of revenue back into Q3. So Q4 wasn't the strongest this year and therefore, what's coming off of Q4 being the strongest we used to see a big drop into Q1, So now youre not seeing the big drop in actually Q1 will be comparable.
Q4, and the way we think about then the remaining three quarters I would tell you with the current order entry pattern and the customer behavior that we're seeing I would think about those quarters relatively evenly split.
As you think about.
The remaining three quarters of 2022, so Q1 will still be relatively light compared to the other quarters, but not as dramatically light as it was in the past coming off of a strong Q4.
One comment I would add to that is the <unk>.
Ordering pattern of our customers are so different.
An expectation of shipments are still assistance so.
That's why you see us.
Sort of changing.
What was traditionally a normal ordering pattern and a seasonality to our revenues on a quarterly basis.
That's the big difference.
The question really.
Yes.
When does when do you return back to normal seasonality. The perfectly good question to ask us I wish I knew the answer to that I would say as a customer ordering patterns stabilize or some of the supply constraints questions that customers have in mind when they ease up is when we get to that we're at right now.
At the middle of this transition so.
At least for this year.
C R.
A typical seasonality.
Yes.
Got it.
Follow up relative to what you would normally do from a pricing standpoint, as what youre contemplating for fiscal 'twenty two.
More than you would normally seek to get and if so if you could maybe perhaps quantify that a little bit for us.
Also just maybe a.
A little bit of commentary on M&A action ability going forward as it pertains bolt TNI medical recognizing we just completed the bulk of the.
Former thank you.
Yes sure.
On pricing you are right.
Our expectations for pricing is going to be higher than our normal.
Price increases that we have not and the timing of them is also reflect to.
What we see out of businesses right. So in 'twenty, one we didn't talk a lot about the price increases that we've already sort of acted on in 'twenty, one because they were not materially in outflows did not move the needle for the total company, but in general.
Our view around pricing is that we are in an inflationary period, we need to adjust pricing, where we need to adjust pricing.
We are cognizant of the fact that we're the price leader in the marketplace, we are adding value will get paid for it.
So thats on pricing now.
Hi, Joe add a little bit more color on the sort of magnitude and such and then I'll come back and answer your acquisition question.
Yeah, I guess again, if you think historically I would tell you.
Would realize approximately probably 1% of price relatively correlated to inflation and so when you see the elevated inflation numbers that are being reported.
That's how you should think about our response as it relates to pricing.
But again I'll go back to Naga is original content. When you think about the composition of our cost of goods sold.
Serial cost of purchase components, if not the largest factor the largest factor is on the labor side.
That says we're generally a light assembly manufacturing.
Manufacturing operation.
But you are correct.
The pricing the historical way that we view price increases in the historical magnitude.
It is no longer applicable in an environment that we're in right now.
I think Matt is really important is the inflation of 4% or whatever four or 5% on material costs taxes lower so.
Price increase we will realize would not be the same 4% would be.
Got it.
Yes.
On the acquisition question, we feel really good about our pipeline we continue to.
<unk> two have very.
Very good conversations, but what comes to market and win silos going to act on an opportunity really we don't control.
We are actively pursuing.
Our pipeline as we always do and but we will remain financially as well as strategic new discipline and the areas, we really like our.
The inspection medical and there may be some adjacent call.
Adjacent markets to our core products.
If we have an opportunity they might act on them as well.
So.
Acquisition pipeline healthy.
Good activity, but what we.
Icon, obviously depends on what comes to the market, but you can expect us to remain disciplined.
Got it thank you guys.
Our next question is from Jeff Hammond with Keybanc. Your line is open.
Hey, good morning, everyone.
Good morning, Jeff Good morning.
Apologize for any background noise here I'm jumping on a flight but.
Just kind of back on the industrial comment around paper and into the back half is there anything thats really informing that as you talk to your customers or is that just.
Normal lack of visibility that word.
And I want you to put some caution around that.
It is couple of things one if you look at industrial Capex activity as well as GDP activity over the cycle. You can start to expect a 23 is going to be a little bit lower.
Where we have been that most of it is going to be in Nashville stabilization that goes and so we expect that to get reflected in that.
That is one the second is the key.
Comps.
We're going to be really difficult.
About the Ips business that grew 15% in the bank.
And this is the business historically.
The 3%.
So as you think about year on year comps in the back half is going to get tougher.
And you are right.
We don't have visibility to.
Thus feels customers as we as much as we have in other places.
So with that that's kind of where where that.
Hopefully the three things that are going on that sort of informs our.
Mrs.
Okay, and then just just back on the.
The nonrecurring charges and medical can you just expand.
Where youre, what youre doing there and kind of where you're shifting your focus thanks.
Yes.
It is just a single.
Single R&D projects that we were working on with one customer.
On on a product category that was.
Let just say mitigate away from where we were and where we see the best opportunities today, our best opportunities are in biopharma with that without going into specific details of the particular customer and such.
R&D project, we were working on within.
With an inventor on the outside.
<unk>.
Given the kind of.
Robust demand that we have in a very strategic discipline around where we want to grow. This business. This is one that we needed to.
We needed to sort of stop doing and there was a write off related to that asset.
Okay. Thanks, so much guys.
Thank you Jeff.
Our next question is from Chris Glynn with Oppenheimer. Your line is open.
Thank you good morning.
<unk>.
So.
Yeah.
Thanks for the update on <unk>.
<unk> strategy I'm curious where you are.
Seeing as you've been enacting this for.
A little while now where you're seeing share gain market space creation or enablement.
Yes, not necessarily in a broad stroke level, but.
Maybe some finer points on that yes.
Yes, that'd be great.
Thanks, Chris one of the areas.
Good example to share with you that actually.
Sort of updates on the question that Jeff just asked us.
As you think about our Biopharma business one of the things that.
As we.
As we deployed it spend as our <unk>.
<unk> strategic disciplined with NBS next.
Really begins as a what is my market position in Biopharma.
And how big is it what are my core competencies, how can I continued to grow this.
Really.
This just opened up a whole new opportunity for this team.
Suddenly the market environment helps them, but it allows them to really focus on this biopharma part of the business and grow it and so what we're doing is as we invest more in biopharma.
We continue to get new opportunities with existing customers as well as.
Picking up new customers and with existing customers.
Where we were let's say the number two or number three we're moving up to number two number one.
Alright, so that'll be a concrete example of how this is happening and another example, I would give you would be recording our coatings businesses.
In the past, we would take almost every project that equal weight, but now our teams are able to say if I have 15 projects with 10 projects in front of me what is the best growth.
Oriented.
And what is the most profitable projects and has the coverage to be able to.
Invest more in the most profitable and most growth oriented projects and maybe deemphasize the ones that are not so profitable.
Great Thanks for that and.
It looks like the book to Bill was.
Maybe a little over one onex I'm curious.
Couple dynamics I understand the extended lead time and behavioral aspect.
But curious of the organic book to Bill by segment.
Proximity.
Impact of the acquisition and then.
This guidance has seen a reciprocal of book to Bill at some point of the year where you.
Just naturally flow into a negative book to bill given how backlogs formed currently but maybe you might advise us not to read so much into it.
A negative book to Bill.
Reciprocate.
Yes, I guess I would repeat some of the Naga comments, if you think about the strength in the electronics that the medical end market. Those are predominantly that we see going out into 2022.
Those are predominantly in the Ats segment.
The industrial and consumer non durable, where we see the growth rate stabilizing.
In the back half of 2022, that's predominantly.
Ips so when you think about the book to Bill ratio in the movements. There is you are quoting Chris.
That's how it is going to correlate by segment.
Okay. Thanks, I'll pick it up offline.
Again as a reminder, please press star one to ask a question.
Our next question is from Saree <unk> with Jefferies. Your line is open.
Thanks for fitting me in.
The earnings guidance of 88% a pretty wide range could you just talk to the assumptions at the bottom and top end of the range. What do you need to see to hit the higher lower end, Okay got it.
When we look out the range to your point serious plus or minus I would say, 5%, 4% in terms of earnings guidance and I think it was mentioned earlier on the call.
Covid is still out there.
Covid and the variance and what that does to the supply chain what that does to the medical business I think it is a little bit uncertain.
And so that contributed.
I think to our guidance range.
The uncertainty around that and the second is the <unk>.
<unk> combined with some of the supply chain challenges that we saw a spike in Q4 some of those supply chain challenges that started to mitigate here.
Over the last I would say 30 to 45 days to a degree but how that handles is handled going forward. I think we will also impact our range, but really we were pretty specific I think in terms of our guidance for Q1, where we do have good visibility.
We are seeing top line at 15% at the midpoint growth consistent with what we've delivered over the last two quarters combined and at the midpoint the earnings growth in Q1 is at 40%.
50% incremental margins in Q1, consistent with what we've just delivered here in Q4, so we're trying to give.
I would say some some some clear guidance one quarter out, which is where we have better visibility and then leaving a little bit broader range for the back half.
Understood and just a follow up on the pricing question than you are.
The guidance you talked about organic growth from 7% the midpoint how much of this is related to price first of all here and then just on pricing given the like your backlog how should we think about pricing rolling through the P&L. Thank you.
Yes, So let me take those I guess it in reverse order.
You are correct.
And some of our businesses, we had to go out with pricing actions earlier.
What I'll call our fiscal year end traditional practice.
Given some of the inflation pressures that we were seeing other businesses stuck with their year end price increase.
And so there will be a little bit of a timing issue now although not material. It's still hopefully will be within our $55, 57% gross margin range, but it will take some time for some of our pricing to take impact effect here.
Here as we roll into 2022 when.
When you think about the organic growth on the full year of 7%.
We don't break that down specifically, but roughly when I look at the business and the timing and the price increases you can probably think that thats, roughly 2% to 3% pricing.
Great. That's helpful. Thanks for taking my questions.
Thank you.
Our next question is from Walter Liptak with Seaport Research Your line is open.
Hey, good morning, guys.
Good morning Walter.
Wanted to ask about kind of a follow on to the last one with regard to the.
The range that the gross margin.
55% to 57%.
To hit the high end of your <unk>.
Range would that imply that youre at the higher end.
Of your gross margin range as well.
I think the higher end EPS range, I think I would tell you as more and more reliant on and be at the high end of the revenue.
The margins throughout the year will fluctuate between that 55% and 57%.
As you know delivered last two quarters.
Two in Q3 were averaged 57 roughly speaking so.
It will depend on product mix, but I think it's more contingent sales than where the margins dropped out.
Okay and the sales it sounds like the if there is any kind of caution or whatever.
The big range for 2022, it's around Covid.
And supply chain, so youre talking about not demand risk, but you are talking about.
Due to shipment timing can you get those shipments out in 2022.
Is that fair.
I would also tell you that the COVID-19 impact demand, particularly in our medical space.
Okay.
Okay great.
And I wanted just to review the I think you made a comment that the.
Last 12 week orders were up 25%.
And I Wonder if you could help us just get some visibility into that was that what was the comp like.
It sounds like it was strong in.
Electronics and.
Medical.
Maybe what around.
Both of those.
Segments.
Semiconductor that's strong.
Colby related medical that shrunk.
Okay.
Walter.
We generally don't break or.
Order entry by product category, but my opening comments around where we are seeing strength in order entry is still the same which is.
Our electronic business order entry is pretty robust with a strong.
Do you think about our medical businesses, they continue to be pretty strong.
And going into the first quarter I would say the order entry for our industrial and consumer non durable are also pretty solid.
And from a title business.
Yeah, Walter I guess going back I think it was Christmas question, a book to Bill and what have you. It was really in Q2 that we started to see that the ramp up last year, so from a year over year comp standpoint.
From an order entry rate standpoint, that's what the year over year comps on growth rates start to become more challenging relate to order entry.
Okay that makes sense, okay, great alright, thank you.
We have no further questions at this time I will turn the call back over to Naga for any closing remarks.
Thank you.
Thank you for your time and attention on today's call. We are well positioned going into fiscal 2022, we remain focused on our long term objective of delivering top tier revenue growth with leading margins and returns as we deploy our NBS next growth framework to priority.
<unk> organic and acquisitive growth opportunities, while also unleashing an owner mindset within our customer focused divisions.
Wish you a happy holiday season.
Ladies and gentlemen.
This concludes today's conference call. Thank you for participating you may now disconnect.
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