Q1 2025 Nordson Corp Earnings Call
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Speaker Change: Thank you I would now like to turn the call over to Lara Mahoney. Please go ahead.
Lara Mahoney: Thank you. Good morning. This is Lara Mahoney, Vice President of Investor Relations, and corporate Communications and hear what Sundar Randazzo, Boston, our president and CEO, and Dan Hopgood, Executive Vice President and Chief Financial Officer.
Speaker Change: We welcome you to our conference call today Thursday February 20th.
Speaker Change: Nordson in fiscal 2025 first quarter results.
Speaker Change: 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 www Dot Nordson dotcom forward Slash investor.
Speaker Change: This conference call is being broadcast live on our Investor website and will be available there for 30 days.
Speaker Change: There will be a telephone replay of the conference call.
Speaker Change: <unk> until Thursday February 27, 2025.
Speaker Change: During this conference call, we will make references to non-GAAP financial metrics.
Speaker Change: We've provided a reconciliation of these metrics to the most comparable GAAP metrics in the press release issued yesterday.
Speaker Change: 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 north to current expectation.
Speaker Change: These statements may involve a number of risks uncertainties and other factors as discussed in the company's filings with the security and exchange Commission that could cause actual results to materially differ.
Speaker Change: I also want to take a moment to highlight that effective November one 2024, which is the beginning of our fiscal year.
Speaker Change: Measurement and control solutions Division, formerly reported as part of the industrial precision solutions segment.
Speaker Change: It has been realigned to the advanced technology solutions segment based on a reassessment of our portfolio.
Speaker Change: Our segment reporting reflects this change and prior year financial information has been revised to be comparable.
Speaker Change: Please refer to the appendix in our earnings press release for comparative segment data by quarter for fiscal 2024.
knockout: Now moving to today's agenda on slide three knockout will discuss first quarter highlights. He will then turn the call over to Dan to review sales and earnings performance for the total company and the three business segments.
Dan: Dan will also discuss the balance sheet and cash flow now.
<unk> will then share a high level commentary about our enterprise performance and provide an update on the fiscal 'twenty 'twenty five second quarter guidance.
Dan: We will then be happy to take your questions.
Speaker Change: With that I'll turn the call over to knock off.
Speaker Change: Good morning, everyone. Thank you for joining north since fiscal 2025 first quarter conference call.
Speaker Change: We're starting the year with the sales of $615 million, which is at the low end of our guidance range due to soft demand in key end markets, particularly electronics and industrial and foreign exchange headwinds.
Slightly worse than expectations.
Speaker Change: This more than offset the solid performance of our <unk> acquisition.
Speaker Change: <unk>.
Speaker Change: As well as organic growth within our consumer non durable product lines.
Speaker Change: So definitely.
Speaker Change: Order entry rates accelerated throughout the quarter.
Speaker Change: Growing double digits above the prior year order entry run rate.
Speaker Change: Yeah.
Speaker Change: You can see this growth in our backlog, which increased sequentially from fiscal year end.
Speaker Change: Approximately $85 million ending.
Speaker Change: Ending at approximately.
Speaker Change: $670 million.
Speaker Change: We exited the first quarter.
Speaker Change: The improvement in order entry rates.
Speaker Change: Backlog is particularly encouraging to see in our electronics businesses.
Speaker Change: Our continued focus on top customers and products.
Speaker Change: Coupled with leveraging envious next to drive factory efficiencies and manage costs led to another strong quarter of <unk>.
Speaker Change: Operational performance.
Speaker Change: The team delivered 56% gross margin.
Speaker Change: 56% operating profit margin.
Speaker Change: 31% EBITDA margin and converted free cash flow at nearly 150% of net income.
Speaker Change: We achieved adjusted earnings per share of $2 six slightly above the midpoint of our guide despite.
Speaker Change: Despite weaker sales.
Speaker Change: That's the growth compound or we remained steadfast with our balanced capital deployment strategy.
Speaker Change: Purchasing approximately $60 million in shares during the quarter.
Speaker Change: In addition, we paid $45 million in dividends.
Speaker Change: And decreased our net leverage ratio to two four times exiting the first quarter comfortably within our targeted range.
Speaker Change: Our consistently strong operating performance quarter over quarter.
Speaker Change: Physicians as well.
Speaker Change: To capitalize profitably on growth as demand improves throughout fiscal 2025.
Dan: I'll speak more about the enterprise performance in a few moments, but first I'll turn the call over to Dan to provide detailed perspective.
Dan: On our financial results for the quarter.
Dan: Thank you Diego and good morning to everyone.
Dan: On slide number five you'll see a summary of our overall operating company results.
Dan: First quarter 2025 sales were $615 million down 3% from the prior year first quarter sales of $633 million.
Dan: This was driven by an 8% increase from the <unk> acquisition.
Dan: Offset by an overall organic sales decrease of 9% and unfavorable currency translation of about 2%.
Dan: Demand was choppy to start the year and we experienced headwinds in several end markets as we exited the calendar year.
Dan: Particularly in selected systems and medical businesses.
Dan: Coupled with a 2% FX headwind.
Dan: This drove sales at the bottom end of our guidance range.
Dan: As Naga mentioned, we were encouraged to see order entry rates accelerate throughout the quarter, which is reflected in our backlog growth since the start of the quarter.
Dan: In addition, organic growth in packaging nonwovens optical sensors and measurement and controls businesses helped soften the revenue decline.
Dan: Gross profit remains strong in the first quarter at 56% of sales.
Dan: And EBITDA adjusted for special items in both periods totaled.
Dan: Total of $188 million or 31% of sales.
Dan: While overall EBITDA was down 4% from the prior year driven by lower sales volume.
Dan: EBITDA margins were flat year over year inclusive of the newly acquired <unk> business.
Dan: Looking at non operating expenses net.
Dan: Net interest expense was $26 million, an increase of $5 million versus the prior year.
Dan: Driven by higher debt levels tied to the atria on acquisition.
Dan: This was partially offset by a $2 million improvement in other income and expense.
Dan: Primarily reflecting foreign exchange transactional variations compared to the prior year.
Dan: Tax expense for the quarter was $22 million or an effective tax rate of 19%.
This is in line with our guidance range for fiscal year 2025.
Dan: And 200 basis points lower than the prior year.
Dan: Net income in the quarter totaled $95 million or $1 65 per share.
Dan: Excluding $10 million of nonrecurring costs related to the atrium acquisition and selected restructuring actions as well as $19 million in amortization of acquisition related intangibles.
Dan: Adjusted earnings per share totaled $2 <unk> per share.
Dan: Slightly above the midpoint of our quarterly guidance.
Speaker Change: But a 7% decrease from the prior year adjusted earnings per share of $2 21 sucks.
Speaker Change: The decrease in year over year earnings reflects the impact of lower organic sales volume.
Speaker Change: And higher acquisition related interest expense I referenced just a moment ago.
Speaker Change: Now, let's turn to slide six through eight to review the first quarter of 2025 segment performance.
Speaker Change: Starting with industrial precision solutions.
Speaker Change: We had sales of $300 million.
Speaker Change: A decrease of 11% compared to the prior year first quarter.
Speaker Change: Down, 8% organically and 3% due to unfavorable currency impacts.
Speaker Change: Weaker system sales in our industrial coatings and polymer processing product lines.
Speaker Change: Were partially offset by growth in packaging and nonwovens product lines.
Speaker Change: Both our industrial coatings and polymer product lines are coming off a strong system delivery years in 2024.
Speaker Change: And you May also recall that we're in the midst of transitioning selected <unk>.
Speaker Change: Industrial coating manufacturing into our new South Carolina plant.
Speaker Change: Which should be substantially completed in the second fiscal quarter.
Speaker Change: EBITDA for the segment was $113 million in the quarter or 38% of sales.
This is a decrease of 10% compared to the prior year EBITDA of $126 million drew.
Speaker Change: Driven by lower sales volumes in the quarter.
Speaker Change: EBITDA margin improved 1%, despite lower sales year over year due to a higher mix of parts and consumables versus the prior year.
Speaker Change: Turning to slide seven you'll see medical and fluid solutions sales of $194 million increased 21% compared to the prior year's first quarter.
Speaker Change: Growth was driven by the acquired <unk> business.
Speaker Change: Which delivered $53 million in revenue during the quarter.
Speaker Change: This was offset by double digit declines in our medical intervention product lines.
Speaker Change: We're destocking trends continue to impact demand and we completed some strategic program rationalization to reposition the business for profitable growth.
Speaker Change: It is important to note that these destocking trends began in our second quarter of fiscal 2024.
Speaker Change: Impacting the year over year decline on a comparative basis.
Speaker Change: We expect our interventional product lines to return to sequential growth heading into the second quarter of this year.
Speaker Change: EBITDA for medical and fluid solutions was $64 million or.
Speaker Change: 433% of sales, which was an 8% increase from prior year EBITDA of $60 million.
Speaker Change: The increase was driven by higher sales from the <unk> acquisition.
Speaker Change: EBITDA margins were down 400 basis points, reflecting the lower contribution from Adrianne.
Speaker Change: But as a reminder, we expect our EBITDA margins to improve sequentially for the atrium business as we continue to integrate and implement NBS next to improve manufacturing efficiencies and overall profitability.
Speaker Change: Importantly, <unk> first quarter performance was actually well ahead of our initial targets for this business.
Speaker Change: Turning to slide eight Youll see advanced technology solutions sales were $121 million, an 11% decrease compared to the prior year first quarter.
Speaker Change: The decrease included a 10% organic volume decline as well as an unfavorable currency translation of 1%.
Speaker Change: The decrease in sales was driven by double digit declines in electronics processing and X-ray product lines.
Speaker Change: Actually offset by growth in our optical sensors and measurement and control businesses.
Speaker Change: Despite weaker Q1 performance, we continue to see improvement in order intake as the semiconductor and electronic applications. We serve continue to show signs of improvement.
Speaker Change: Orders were up double digits in the quarter versus the prior year and backlog grew double digits sequentially from the end of the year for this segment.
Speaker Change: In short we continue to see encouraging signs in Etfs for the balance of 2025 despite.
Speaker Change: Despite a slow start to the year.
Speaker Change: First quarter EBITDA was $23 million for the segment or 19% of sales.
Speaker Change: In line with the prior year for for EBITDA of $23 million or 17% of sales.
Speaker Change: The improvement in EBITDA margin was driven by continued emphasis on cost management and manufacturing efficiencies.
Speaker Change: The margin enhancements, we've implemented positioned the Ats segment, well as demand continues to improve.
Speaker Change: Finally, let's turn to the balance sheet and cash flows on slide nine.
Speaker Change: At the end of the first quarter net cash on hand of $130 million.
Speaker Change: Net debt was $2 1 billion.
Speaker Change: Pumping and a leverage ratio of two four times based on trailing 12 months EBITDA.
Speaker Change: This is a slight improvement from year end and within our long term targeted leverage range of two to two five times.
Speaker Change: Our free cash flow generation continues to be a compounding strength at $138 million during the quarter.
Speaker Change: <unk> and a 146% conversion rate on net income.
Speaker Change: And we continue to strategically deploy the strong cash flow.
Speaker Change: During the quarter, we repurchased approximately $60 million in shares in addition to our quarterly dividend of <unk> $45 million.
Speaker Change: As a reminder, we increased by 15% at the end of last year.
Speaker Change: We also reduced net debt by $20 million during the quarter.
Speaker Change: While continuing to invest in our base businesses funding $21 million on capital investments during the quarter.
All in all we had a solid operational quarter.
Speaker Change: Spike a slower sales start and we're well positioned to capitalize on profitable growth as demand normalizes and selected key end markets.
Nick: With that let's turn to slide 10, and I'll turn the call back to Nick.
Nick: Thanks, Dan.
Nick: So wanted to thank the nordson team for delivering strong operating performance in a challenging demand environment.
Nick: Well first quarter was a slow start to the year from a revenue perspective.
Nick: I am encouraged by our ability to deliver best in class profitability.
Nick: In varying market scenarios, while remaining invested in our best growth opportunities.
Nick: Among our bright spot is the ongoing integration of the atrium acquisition.
Nick: During the quarter I had the opportunity to visit our three new atria and manufacturing sites.
Nick: Excited about the strong product portfolio that we acquired as well as <unk>.
Nick: <unk> colleagues are quickly embracing it.
Nick: To deploy the NBS next growth framework.
Nick: We're also seeing growing acceptance of atriums newest generation myocardial detection system, which is used during open heart procedures.
Nick: Positive market acceptance is accelerating.
Nick: <unk> for this product, including an attractive opportunity to recapitalize it.
Nick: Installed base.
Nick: Also during the quarter several of our product lines.
Nick: Elaborated with notable industry achievements.
Nick: Nordson spin.
Nick: Stick inspection system won three awards for its industry leading.
Nick: Wafer inspection throughput and best in class image quality.
Nick: Defect capture and footprint.
Nick: Our Quadro Pro manual X-ray system received the product Sonic Innovation award for its exceptional image clarity and defect detection capabilities within <unk>.
Nick: Backend semiconductor SMT applications.
Nick: And our precision agriculture divisions, New Orient Pro product was recognized for technical innovation at the E. M. A 2024 international agriculture machinery exhibition.
Nick: Orient Pro.
Nick: As an integrated system for regulating and measuring the actual amount of product sprayed by liquid fertilizer distribution systems.
Nick: Two notable electronics customers also recognized our market leading collaboration.
In December we received supplier awards, both from TSMC and Jabil.
Nick: Recognizing our product performance in support of critical under fill applications.
Nick: Our dedicated responsive and talented local nordson teams.
Nick: We remain committed to product innovation.
Nick: Banking strong vitality metrics in our packaging Assembly and nonwovens product lines. This is reflected in the strong performance of those product lines in the quarter.
Nick: We also have new products currently being launched in our medical fluid components and polymer processing product lines.
Nick: In all cases.
Nick: These new products are designed to solve the unique needs of our customers.
Nick: Regardless of dynamic environment.
Nick: <unk> remains steadfast.
Nick: Our commitment to innovation through differentiated products.
Nick: Our customer intimate sales model and protecting the diversified niche end markets we operate.
Nick: These competitive advantages.
Nick: Our position as a high quality growth compound or <unk>.
Nick: Even in challenging macro environments.
Nick: Our division led organization.
Nick: Our wider team.
Nick: With a clear view of our end markets and they know where we need to focus and where we're doing well.
Nick: We will continue to manage costs in weaker sales environments, while balancing investment.
Nick: Third the increasing order entry trends.
Nick: We experienced throughout the quarter.
Nick: Turning now to our outlook on slide 11.
Nick: We are entering the second quarter of fiscal 2025, approximately $670 million in backlog and order entry that continued to improve throughout the quarter across all three segments.
Nick: Based on these factors as well as current foreign exchange rates.
Nick: And market expectations.
Nick: Anticipate delivering second quarter sales in the range of $615 million to $690 million.
Nick: And adjusted earnings in the range of $2 30.
Nick: Two $2 50 per diluted share.
Nick: At this point in time, we're not updating our full year guidance range.
Nick: Although we would now expect our sales for the year to be on the lower end of our full year expectations.
Nick: Given the slower start to the year and.
Nick: Geopolitical macro environment dynamics.
Nick: As always I want.
Nick: I think our customers general holders and the nordson team.
Nick: Your continued support.
Nick: With that we will pause and take your questions.
Yeah.
Nick: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session. At this time I would like to remind everyone that in order to.
Speaker Change: Asked a question press the button and the number one on your telephone keypad one moment. Please for your first question.
Speaker Change: Your first question comes from the line of Matt Summerville of D. A Davidson. Please go ahead.
Speaker Change: Thanks.
Matt Summerville: Couple of questions help me understand a little bit more about what played out in your electronics related business in the quarter I guess I was under the impression that you had seen order inflection.
Speaker Change: Porting a returned and sustained.
Speaker Change: The pathway to organic growth in that business. So help me understand kind of how the quarter played out and then all in.
Speaker Change: Coming orders inform the go forward view on stemming slash electronics, and then I have a follow up thank you.
Matt Summerville: Thanks, Matt.
Speaker Change: The Miss of R. A T.
Speaker Change: <unk> business really was largely timing of orders, particularly in our X-ray and electronic processing product lines.
Speaker Change: In short, we expect that more of our backlog to ship in the quarter.
Speaker Change: At the beginning of the quarter was what happened.
Speaker Change: But that said order entry throughout the quarter progressed.
Speaker Change: Very positively and we expect that.
Speaker Change: Sales of shipments of Ats to continue to be strong through the year end.
Speaker Change: In this segment order entry is up double digit backlog is up double digits.
Speaker Change: Probably the strongest we have seen in this cycle.
Speaker Change: And then as a follow up.
Speaker Change: Just getting over to the intervention will side of your medical related business.
Speaker Change: Many anniversary that destock.
Speaker Change: You've mentioned you expect to see quarter on quarter growth when do we start to see year on year growth more aligned to the long term trajectory you lay out for that business.
Speaker Change: Yes, I think the inflection of that but as we said the destocking really started in earnest in the.
Speaker Change: Second quarter of last year.
Speaker Change: So from a year over year comp I think we'll continue to see tough comps through the first half of the year and then we would.
Speaker Change: To see that inflection point, starting in really Q3 and heading into Q4.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Your next question comes from the line of Andrew Buscaglia of BNP Paribas. Please go ahead.
Andrew Buscaglia: Hey, good morning, guys.
Speaker Change: Morning morning.
Andrew Buscaglia:
Speaker Change: Yes in the Ats segment, if you were to exclude that the movement of that measurement and control solutions.
Speaker Change: But what organic growth have been and then whats the rationale behind moving that out about Ips and into Etfs.
Speaker Change: Yes, let me take that question for US look there is significant overlap in customers for Mcs with the Ips customers, but if you look at it from a product perspective, and the technology perspective. It is more of a test and measurement kind of.
Speaker Change: Division and so it belongs better without.
Speaker Change: Further analysis, we have decided they're just going to have that in there.
Speaker Change: S business.
Speaker Change: And you have you can you answer the part of that without and with.
Speaker Change: Yes.
Speaker Change: It's not to be honest, it's not a huge impact certainly.
Speaker Change: Organically they were a positive contributor to the segment, but when you look at the materiality of the Mcs business versus the total segment its not a big needle mover on the overall <unk>.
Speaker Change: Growth or organic impact your year on year, certainly Mcs grew year over year and it mitigated a little bit of the decline that we saw in some of the electronics processing and.
Speaker Change: And X-ray that we mentioned.
Speaker Change: But it's not a it's not a big needle mover.
Speaker Change: <unk> I would say.
Speaker Change: Okay.
Speaker Change: Yes, and yes.
Speaker Change: A slower start to the year than you expected and you are trending towards the low end of that guidance range or the top line for the full year are there are there things that are working on to still achieve at least the midpoint of EPS, whether it's further restructuring or some sort of margin enhancement.
Speaker Change: Yes, great.
Speaker Change: Great question, let me take that one and.
Speaker Change: Look I would say as we think about the full year and the reason, we're not changing our guidance ranges. It's frankly, a little soon to call exactly how the year is going to play out we're in a very dynamic environment.
Speaker Change: Depending on the headlines you read changing day to day.
Speaker Change: What I would say is just based on the soft start to the year, we see our sales toward the lower end of our range, but as we've demonstrated in Q1, we're still quite confident that we can deliver on our earnings commitment even with sales towards the lower end of that range. So for those reasons.
Speaker Change: We're not going to tightened things up I think as we get into as we finish out the second quarter.
Speaker Change: We reassess, where our backlogs and order rates, which as Naga mentioned have been quite strong.
Speaker Change: We'll reassess what that looks like for the full year and tightened things up.
Speaker Change: I would say is we're comfortable and our sales range.
Speaker Change: Pretty comfortable with our earnings commitments. Despite the slow start to the sales year and Thats really demonstrated in our first quarter profit delivery.
Speaker Change: Let me, let me maybe add to that.
Speaker Change: So if you think zoom up and say look let me look at it broadly and think about the market and where the company's at and what we're thinking about for the full year I would tell you on the positive side order entry is up in all three segments backlog building in all three segments.
Speaker Change: Being a significant contributor to.
Speaker Change: The backlog increases.
Speaker Change: Operational performance is strong in a weak environment like Dan mentioned, we had a very strong operating <unk>.
Speaker Change: Operating income performance very.
Speaker Change: Very well positioned to grow.
Speaker Change: Third thing I would tell you is our innovation.
Speaker Change: In many of our businesses are starting to deliver on growth.
Speaker Change: Our adhesive business.
Speaker Change: <unk>.
Speaker Change: The applicator that is in the market is contributing nicely to our growth.
Speaker Change: If you think about.
Speaker Change: <unk>, a new edition that is not contributing to growth yet, but it positions us really well to continue to grow if you look in the medical side.
Speaker Change: Fluid components business, the new product line called pharma large starting to launch so <unk>.
Speaker Change: Innovation.
Speaker Change: Operational performance order entry all three positives for the outlook that we are thinking about clearly one negative is this environment we live in.
Speaker Change: If you don't if you ignore the environment and if you look let's look at our order entry and backlog it would be very confident in but one negative.
Speaker Change: There is a broader.
Speaker Change: Happiness in.
Speaker Change: Geopolitical as well as macroeconomic environment.
Speaker Change: So hopefully that helps you.
Speaker Change: Okay. Thank you.
Your next question comes from the line of Jeff Hammond with Keybanc capital markets. Please go ahead.
Jeff Hammond: Hey, good morning.
Speaker Change: Morning.
Speaker Change: Morning, Bob.
Speaker Change: Just real quick on the guide.
Speaker Change: It sounds like you think right now lower end of the sales guide, but youre still kind of closer to the midpoint.
Speaker Change: One is that correct and two what are kind of.
Speaker Change: The drivers that are kind of offsetting.
Speaker Change: The weaker sales.
Speaker Change: Yes, I appreciate the question, Mike and I think that's the right way to think about it.
Speaker Change: And I would say the best indicator is.
Speaker Change: Look at our performance for the first quarter, we were at the very low end of our sales guidance and still deliver the midpoint or slightly above the midpoint of our earnings guidance that is not a fluke, we think thats replicate able for the balance of the year.
Speaker Change: Again, the sales outlook.
Speaker Change: I think it's too soon to call typically I'll remind you guys. We typically see a much stronger second half in general.
Speaker Change: If you look at our history across the company.
Speaker Change: In a market, where we see accelerating orders that trend could be even exacerbated.
Speaker Change: It's a bit of a wait and see.
Speaker Change: And continue to monitor how demand continues to play out for the year.
Speaker Change: Indicators today are very good.
Speaker Change: If that continues.
Speaker Change: We will see how the second half plays out but.
Speaker Change: What I would say in general is even if we don't see any continued acceleration we're comfortable with our sales on the lower end that we can still deliver on our profit commitments by.
Speaker Change: By simply managing our operations and our cost structure to ensure that we can we can deliver on those commitments.
Speaker Change: You know me.
Speaker Change: Maybe add a little bit color to where do we take segment by segment right. So if you think about Ats.
Speaker Change: We've got this business positioned from a cost perspective through the last down cycle.
Speaker Change: And if you looked at the decremental performance of this segment in the first quarter. It has been very strong I mean, they had a tough.
Speaker Change: <unk> revenue growth, but their decrementals.
Speaker Change: We're pretty much flat in terms of dollar or dollar income that generated when compared to last fall last year right. So from an EPS perspective, and nice performance.
Speaker Change: Performance and if you think about Decrementals for Ips again their very strong performance. This is a solid business. This is a business where we have implemented.
Speaker Change: NBS next.
Speaker Change: And has delivered great. So yeah.
Speaker Change: Do you think about those two were in very.
Speaker Change: Very good shape and if you look at MFS. If you look at MFS with the atrium together there is a mix issue and you could think that our operating performance. Our operating margin performance was not that good but I would remind you that you have atrium, which is at a lower margin when compared to our core MFS biz.
Speaker Change: And if you keep your.
Speaker Change: Accounting for that our core MFS businesses again at strong decremental performance. So so.
Speaker Change: So that is the confidence we have to think about it and and in businesses, where we had weaker sales.
Speaker Change: We are taking.
Speaker Change: Action to reduce cost.
Speaker Change: It is not broad based its not across all of our businesses, but in places where our.
Speaker Change: Sales is weak we are.
Speaker Change: <unk> costs so.
Speaker Change: Maybe adding a little bit more color towards the end is telling you.
Speaker Change: <unk>.
Speaker Change: Our expectations are.
Speaker Change: No that's very helpful.
Speaker Change: Just wanted to follow up on that.
Speaker Change: Medical.
Speaker Change: Margin dynamic can you give us a sense of how much of the margin dilution was <unk>.
Speaker Change: Atria on coming in and what the Decrementals were.
Speaker Change: On the base.
Speaker Change: And then and then how it looks.
Speaker Change: From a dilution perspective as we go forward and then just on the medical Destocking I mean I.
Speaker Change: Understand that the comps get easier, but just any update on.
Speaker Change: Where we're at in that process is it still the view that.
Speaker Change: That carries through the first half and then.
Thanks.
Speaker Change: Yes.
Speaker Change: Simple way to think of it.
Speaker Change:
Speaker Change: Our core medical business were basically in line with what we would expect.
Speaker Change: Alright.
Speaker Change: No.
Speaker Change: <unk>.
Speaker Change: B.
Speaker Change: Overall, I am speaking to EBITDA margins.
Speaker Change: EBITDA.
Is tied to.
Speaker Change: Yes look the growth.
Thus came from atrium, which is <unk>.
Speaker Change: Lower EBITDA margin from our base business.
Speaker Change: I would say to <unk> point our deck.
Speaker Change: Decrementals in our base business are right in line with what we expect.
Speaker Change: And you throw on top of that adding $53 million.
Speaker Change: Let's say mid.
Speaker Change: Mid Twenty's EBITDA.
Speaker Change: A majority of the dilution that art.
Speaker Change: And year over year.
Speaker Change: Let me.
Speaker Change: I'm not sure.
Speaker Change: At least the language cutting out a little bit let me make sure we.
Speaker Change: I'll repeat what some of what.
Dan: Dan mentioned here.
Dan: Let's start with our core MFS business clearly our core MFS business EBITDA margins are.
Dan: Better than <unk> HCM margins are sort of in the mid twenties and suddenly have a very good line of sight for that business to continue to improve and get to our valuation model expectations around.
Dan: High <unk> to low thirties, right. So that this pathway is there sort of long term <unk> continues to improve.
Dan: Add to MFS right in terms of MFS core decremental the core Decrementals in line with what we have for the company.
Dan: So that is.
Dan: For us the MFS performance was mainly due to mix issues with atrium contributing wild core businesses organically being down.
Dan: And then just the.
Dan: The Destocking, yes.
Dan: Yes from the Destocking perspective, if you remember the Destocking started some some time last year. There are two things going on here and this is probably something that we have not talked about you have.
Dan: Organically down, 11% and MFS in half of that is from Destocking, but half of it is also for the first time, you're seeing a reset.
<unk>.
Dan: The strategic repositioning of some programs that we have in our finished devices.
Dan: And so.
Dan: That restocking is that repositioning programs is.
Dan: Substantially complete and so you will start to see it from second quarter of sequential growth in that.
Dan: And Destocking should abate sometime in the fourth quarter.
Dan: Quarter.
Dan: And we're starting to see order rates. So I think what is what is important to know is that order rates in our medical interventional component business are picking up.
Dan: Our order rates and our medical fluid components.
Dan: I have been very strong. So this is a business that had undergone a lot of destocking from our biopharma and surgical perspective that is coming back very nicely.
Dan: And we are beginning to see sequential improvement on M. I.
Dan: Yes, I think thats, an important point in August our medical businesses contributing to both the order growth and backlog growth as I said, all three of our segments.
Dan: And so we're we see very good line of sight to sequential improvement the year over year comp will be tough until the second half.
Dan: Okay. Thank you.
Dan: Okay.
Dan: Okay.
Speaker Change: Your next question comes from the line of Mike Halloran of Baird. Please go ahead.
Mike Halloran: Hey, good morning, everyone.
Speaker Change: Good morning.
Mike Halloran: No.
Mike Halloran: Not to overly harp on the guide I just want to make sure I understand what's embedded on the revenue side of things obviously, the first quarter. As you said it was a little below your expectations FX a little worse.
Mike Halloran: Is that a majority of the move.
Mike Halloran: Excuse me for the revenue to be at the low end and maybe I suppose what is the assumption then for end market recovery curves normal seasonality.
Mike Halloran: Backlog conversion that's embedded in that.
Mike Halloran: Assumption is it pretty normal sequential from here pretty normal backlog outlay.
Mike Halloran: Any kind of color around those things would be super helpful.
Mike Halloran: Yes no.
Mike Halloran: I appreciate the question.
Mike Halloran: So I'll start with a couple of things as you look at our backlog I can't say, 100% because there is there are some one offs in there, but the vast majority of our backlog will ship in 2025. These arent.
Mike Halloran: Were not taken multi year orders, we're not this isn't a replay of Covid where were taken three orders three years out. This is these are these are current year deliveries.
Mike Halloran: And so.
Mike Halloran: I think as you as you look at ongoing book to Bill and our backlog I think thats the way to think about it is that these are a normal recurring orders that we're taking in that not any type of long term.
Mike Halloran: Long term preorders like we've had coming out of Covid and some of our businesses.
Mike Halloran: As I think about the full year again, if you just play out the first quarter mess.
Mike Halloran: The first quarter shortfall of sales I mean, that's naturally if you flow that through for the year going to put us towards the lower end of our sales guidance.
Mike Halloran: We are in.
Mike Halloran: Some level of recovery in the second half.
Mike Halloran: That is supported by a number one I would say our normal cyclical.
Mike Halloran: Cyclicality of the business, we typically have a stronger second half to begin with but it is also supported by the acceleration that we're seeing in order intake throughout the first quarter and frankly, even into the early days of the second quarter.
Mike Halloran: And so.
I think if you think about that.
Mike Halloran: That outlook I'll, maybe talk about what underlies our revenue assumptions for the year.
Mike Halloran: I think at the low end of our guidance.
Mike Halloran: That basically says we're going to see low single digit growth for the year in Etfs.
Mike Halloran: We're going to see basically flattish to slightly down.
Mike Halloran: <unk> within our Ips.
Mike Halloran: And our medical business.
Mike Halloran: And then we're going to see the contribution comes through from the <unk> acquisition.
Mike Halloran: If you think of the higher end of our guidance that anticipates I would say a more accelerated more historical recovery in our Ats segment, which we're not banking on.
Mike Halloran: So let's call that a bigger ramp in Etfs as well as recovery in some of the capital investment cycles in industrial.
Mike Halloran: And a bigger rebound from the Destocking and medical so.
Mike Halloran: We're not counting on significant recoveries that doesn't mean it couldn't happen.
Mike Halloran: And so as we look at it today, we are simply following it based on what we see today.
Mike Halloran: And that would say the first quarter mess is going to kind of flow through.
Mike Halloran: But the rest of the year seems to be playing out in line.
Mike Halloran: Okay, Alright Super helpful. There.
Mike Halloran: Then just kind of a question on once that recovery happens in these markets no earlier, Michael was talking about the <unk>.
Mike Halloran: Positive decremental margin performance, particularly in the ETF side.
Mike Halloran: And I suppose as well on the MSS side.
What is the torque look like to the upside.
Mike Halloran: Honestly, the Ips margins are already at.
Mike Halloran: Really healthy levels.
Mike Halloran: Aided by mix, but still really strong levels, what kind of Mark would you expect to see in those margins or incremental margins as the volume recovers and normalizes to a more historically normal pattern.
Mike Halloran: Yeah.
Mike Halloran: Let me make sure I understand your question Youre asking from from an incremental margin performance, what we would expect going forward.
Mike Halloran: <unk>.
Mike Halloran: Correct.
Mike Halloran: Yes.
Mike Halloran: I think our.
Speaker Change: My best guidance for that would be in line with what we said.
Mike Halloran: Historically, which is.
Mike Halloran: Yes look overall, we've said about a 35% incremental mixed between acquisition and organic and as you think about that obviously the organic growth comes with a higher incremental.
Mike Halloran: Acquisition as we talked about with atriums margins comes at a lower incremental so I would I would think of that blended rate, 35% is still a good long term planning target.
Mike Halloran: Obviously the organic.
Mike Halloran: That the inorganic below that but that 35% mix is kind of a good good blended range to use.
I appreciate it thank you.
Mike Halloran: Yes.
Mike Halloran: Okay.
Speaker Change: Next question comes from the line of semi Brian <unk> of Jefferies. Please go ahead.
Brian: Thanks for taking my question. So maybe building on the last question as we think specifically on ETS.
Brian: That business has seen margin has decreased substantially over the last few years. So how should we think about incrementals in the segment once demand and flex and what would it take to get back to that timeframe question. Mike as you saw in 2022 or is that sort of a one time event.
Brian: Yes.
Brian: In general we expect that as the sales recover as we get back to where the margins are we were in 2022.
Brian: There may be some upside, but it does.
Brian: Remember this is a business where our.
Brian: R&D investments are critical to our growth and so youre always going to see this business have higher R&D investments, but as the sales recover I have.
Brian: Every confidence that we would get back to the margins we were at in 2022.
Speaker Change: That's helpful and maybe just on the weaker growth in Ips and how much of this is related to underlying demand versus the challenging comparables that you had from a strong backlog from last year.
Speaker Change: I think the Ips, let me I'll give you a broad overview and then Dan can help you a little bit more detail on Ips is the biggest comparable issues out in our system businesses are two large system businesses.
Speaker Change: TPS in Ics, where we had shipments from.
Speaker Change: Prior huge backlogs.
Speaker Change: But if you think about our consumer non durable business at our DSO business. They are growing nicely in line with our expectations already.
Speaker Change: Yes.
Speaker Change: And I think maybe just to add some additional color on the industrial coatings in pilot in our businesses to your point. If you go back to last year large backlogs large multiyear backlogs that we were working off that that has normalized.
Speaker Change: And so from a year over year comparability standpoint that does create some tough comps this year, but importantly, when we talk about orders strengthening in backlog growth, we are seeing it in those businesses as well.
Speaker Change: So we see a clear path to that starting to rebuild and its flat.
Speaker Change: And I think you'll see that play out in the form of sequential growth in those businesses going forward.
But we'll have this year over year comparability to work through because of the large system backlog that we had coming out of the last couple of years.
Speaker Change: Okay.
Speaker Change: Im sorry necessary one additional point to make here is we're also beginning to see modest sequential improvement in our <unk> business and I know.
Speaker Change: The general era agricultural market is still down, but we're beginning to see some modest improvement in order entry.
Speaker Change: And backlog in that business.
Speaker Change: Thank you.
Speaker Change: Once again, ladies and gentlemen, if you would like to ask a question press the star button, followed by the number one on your telephone keypad.
Your next question comes from the line of Chris Dankert Loop capital markets. Please go ahead.
Chris Dankert: Hey, good morning, guys.
Speaker Change: Good morning, good morning, maybe <unk>.
Chris Dankert: Maybe just a conceptual question I guess if.
Chris Dankert: If we go back to the medical segment <unk> been doing really well on an organic basis.
Chris Dankert: Is there anything to learn from atrium. The operations in terms of they didn't seem to get destock. The same way that legacy interventional did so I mean is there a difference in customer set is there a difference in how they Stockton, maybe just conceptually whats how do we think about that.
Chris Dankert: Yeah, I think it's a great question Chris.
Chris Dankert: There are two things going on which you need to recognize.
Chris Dankert: <unk> serves the fluid components and the ATM has two parts to it one is the consumable component part and the other is the system part so.
Chris Dankert: In their system. This is the myocardial protection system that they are launching the new generation product, which is the third generation and that X market acceptance as I mentioned in my comments.
Chris Dankert: Is going really well so you have the benefit of a new product launch and a recap of existing business existing systems, which is different and has got no resemblance to arm.
Chris Dankert: Business right medical interventional business, that's one on the component side of the business, which is their hockey Roberts business in that business. They went through Destocking long before we started seeing it in our medical interventional business. So there is a timing difference there and.
Chris Dankert: And then the third thing I would tell you is our fluid component business resemble more the atrium component business than our medical interventional business right. So there are different products different end markets.
Chris Dankert: We are seeing the same patterns, we are seeing in hockey Rob its business in the <unk> component business as we are seeing in our medical fluid component business right hopefully that helps you.
Speaker Change: That's extremely helpful. Thank you noga.
Speaker Change: Sure and then maybe just to circle back I mean back in October and that could be interpreting this wrong, but you sound fairly optimistic about just the deals that were out there from an acquisition perspective.
Speaker Change: But what kind of coming across your desk I guess would you echo that same level of optimism today.
Speaker Change: Yes, we.
Speaker Change: We continue to be actively continue to look at deals, but we're going to be pretty strategic.
Speaker Change: Strategically and financially disciplined.
Speaker Change: And so we continue to work the pipeline our pipeline continues to build.
Speaker Change: Number of inbound maybe lesser but.
Speaker Change: We still have a pretty good pipeline. So what you read in the papers around inbound is lesser.
Speaker Change: The activity level continues to be pretty good for us.
Speaker Change: But we're going to be.
Speaker Change: We're gonna be thoughtful in what we choose to do.
Speaker Change: Makes sense, thanks, a lot for the color.
Speaker Change: Yep.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Walter Liptak of Seaport Global. Please go ahead.
Walter Liptak: Hi, good morning, guys.
Speaker Change: Good morning.
Walter Liptak: I wanted to ask go back to that.
Walter Liptak: 25 guidance on sales.
Walter Liptak: No questions again.
Dan: I think Dan when you were going through you gave some some good kind of delineation around the segments.
Walter Liptak: And so just to repeat it back.
Walter Liptak: I heard him right, you're thinking that MFS could be mid to high end.
Walter Liptak: Of the revenue guide Etfs.
Walter Liptak: At the low end and Ips at the low end is it is it kind of what you guys are thinking on a segment basis.
Walter Liptak: No. So what I was referring to is if you think of the upper and lower bounds of our guidance what I would say.
Walter Liptak: If you think of the lower end of our guide that would say yes.
Walter Liptak: Ips or the industrial businesses are down low single digits for the year.
Walter Liptak: And MFS is down low single digits or near flat year over year, excluding atria right satisfied adrianne.
Walter Liptak: And then the.
Walter Liptak: <unk> low low end of our guidance would contemplate what I would say a very modest recovery.
Walter Liptak: So think of Ats being up low single digits.
Walter Liptak: That's kind of our that's our low end thinking right.
Walter Liptak: That with the upper end of our guidance would be.
Walter Liptak: Our more traditional ramp in etfs of higher growth.
Walter Liptak: Again, which we're not counting on but what happened.
Walter Liptak: And it would also contemplate a faster recovery from some of the Destocking that we're seeing in the medical business. So thank you all.
Walter Liptak: Low single digit growth in medical as well as the general recovery in the industrial markets.
Walter Liptak: So I would say the upper end is more.
Walter Liptak: Stronger recovery in Etfs low single digit growth in other <unk>.
Walter Liptak: Medical and industrial versus the low end of our guidance would say theres very little recovery and medical very little recovery in industrial and just modest recovery in Etfs.
Walter Liptak: It helps with some color.
Walter Liptak: Okay, Yeah I appreciate that.
Walter Liptak: That's very helpful.
Walter Liptak: And just kind of drilling into the industrial precision part of it a little bit.
Walter Liptak: Happy to hear that.
Walter Liptak: Error that theres, a potential plus there.
Walter Liptak: I Wonder if you could go into maybe a little bit more detail about this new product is it Europe is it rest of the world, where youre seeing some green shoots.
Walter Liptak: Maybe talking about some of those other sectors beyond polymers and coatings.
Walter Liptak: Now I know you know the auto sector very well, what's going on there what's happened.
Walter Liptak: And with others.
Walter Liptak: So.
Walter Liptak: Great question, maybe I'll start and then let <unk> add some comments I'll start with you respond and maybe it's the Eric question. So as Naga mentioned, so on the product side, we are continuing to evolve and bring new products to market. In fact, I think we mentioned one that we received some awards for recently.
Walter Liptak: More generally as far as demand in that business.
Walter Liptak: We've certainly seen that.
Walter Liptak: Business stabilized we are seeing good.
Walter Liptak: What I'll say ongoing recovery in order rates.
Walter Liptak: We would expect that business to return to year over year growth in the second quarter as they're continuing to.
Walter Liptak: To show.
Walter Liptak: Strength in order rates I will tell you.
Really Q1, and I think we've mentioned this before Q1 really the last tough comparison for them.
Walter Liptak: If you recall last year at this time or in the first quarter. They were working off a large backlog.
Walter Liptak: And so the first quarter last year was kind of the last tough comp for them, we've seen that business stabilized I would say even going back to Q4, we're now starting to move back into this growth mode as their forecast the year over year comparisons.
Walter Liptak: Tough comparisons so good stability good ongoing demand improvement.
Walter Liptak: And a good path to returning to growth in that business in the next quarter.
Walter Liptak: So let me let me follow up with that one other additional data point on the Iraq is that during during last year.
Walter Liptak: <unk> performed really well on the margin side as well and partly that was because they took they used the short work week program that is available is Italy floor.
Walter Liptak: Industrial businesses now what is interesting is that in the first quarter given their order dynamics. They have brought back their workforce completely so essentially getting ready and being able to make products. So that they can start to.
Walter Liptak: Start to make the cars meet the commitments they've made with their customers. So that is kind of another data point that gives us confidence that that our <unk> business will start to turn.
Walter Liptak: Return to growth so now, let's take the broader industrial businesses and we've already talked about.
Walter Liptak: Plastic business, we've talked about on Ics business interestingly, even in both of those businesses. We have two new product introductions on the Ics side, we have a new manual powder coating business.
Walter Liptak: That has been launched which is doing really well and you also have a prior to achieve die that is in the plastics business that is getting very good market acceptance. So so we have some new products, but it's very difficult to overcome the system declines so that they have but interesting comments to sort of share with you.
Walter Liptak: In terms of our other adhesive businesses, our nonwovens business is doing extremely well.
Walter Liptak: We have new products. There we have a harmony applicator that I mentioned that is doing very well, adding to the work that they're doing on parts growth that is also doing well the system business through product peering.
Walter Liptak: <unk> has been very successful for them so that business after a couple of years.
Walter Liptak: Down.
Walter Liptak: Years, it is coming back nicely, our packaging business adhesive packaging business is.
Walter Liptak: Is holding its own and they have some pretty exciting new products that they are working on that we expect towards the end of the year that will be in market with so.
Walter Liptak: Pretty good movement across our industrial businesses.
Walter Liptak: One thing to note and I'm not sure how it came across in our conversations.
Walter Liptak: Our parts mix in the diesel business is up pretty pretty pretty strong and they have done well and they have mitigated some of the system weaknesses.
Walter Liptak: Having said all of that.
Walter Liptak: The order entry is up in this segment. It is up in plastics. It is up in the Ics and it was also up in our businesses that have grown in the quarter. So.
Speaker Change: Hopefully that gives you a little bit more data points. Okay. Yes. Thanks, thanks for the detail appreciate it.
Speaker Change: There are no further questions at this time with that I will now turn the call back over to <unk> for final closing remarks. Please go ahead.
Speaker Change: Thank you for your time and attention on today's call have a great day.
Speaker Change: Ladies and gentlemen that concludes your conference call. We thank you for participating and ask that you. Please disconnect your lines.
Speaker Change: Yes.
Speaker Change:
Speaker Change: Yeah.
Speaker Change: