Q2 2025 Nordson Corp Earnings Call
Thank you for standing by and welcome to the Nordson Corporation second quarter fiscal year 2025 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 followed by the number one on your telephone keypad, if you liked it.
Withdraw your question again press Star one.
I'd now like to turn the call over to Laura Mahoney you may begin.
Okay.
Good morning. Good morning. This is Lara Mahoney, Vice President of Investor Relations and corporate Communications I'm here with soon to run Naga Russian our president and CEO and Dan Hopgood, Executive Vice President and Chief Financial Officer.
We welcome you to our conference call today Thursday may 29th to report North since fiscal 2025 second quarter results.
You'll 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.
This conference call is being broadcast live on our website and will be available there for 30 days.
There will be a telephone replay of the conference call available until Thursday June 5th 2025.
During this conference call, we will make references to non-GAAP financial metrics. We have provided a reconciliation of these metrics to the most comparable GAAP metric 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 nordson current expectation.
These statements may involve a number of risks uncertainties and other factors as discussed in the company's filings with the Securities and Exchange Commission that could cause actual results to materially differ.
Moving to today's agenda on slide three NASA will discuss second quarter highlights.
Dan Hopgood: He will then turn the call over to Dan to sales and earnings performance for the total company and the three business segments.
Dan Hopgood: Dan will also discuss the balance sheet and cash flow.
Dan Hopgood: Michael will then share a high level commentary about our enterprise performance and provide an update on the fiscal 2025 third quarter guidance.
Dan Hopgood: We will then be happy to take your questions.
Naga Russian: With that I'll move to slide four and turn the call over to Naga.
Naga Russian: Good morning, everyone. Thank you for joining nordson fiscal 2025 second quarter conference call.
Dan Hopgood: We started the second quarter with increasing momentum in order entry and backlog.
Dan Hopgood: Enabling us to outperform the midpoint of our sales and earnings guidance.
Dan Hopgood: This was driven largely by strength in our.
Dan Hopgood: Our advanced technology system and parts sales order entry continues to be solid due to ongoing customer demand within semiconductor and selected electronic applications.
Dan Hopgood: We also experienced solid growth in nonwovens systems.
Dan Hopgood: And medical fluid components.
Dan Hopgood: And our precision agricultural business <unk>.
Dan Hopgood: Previously referred to as <unk> posted solid double digit year over year growth.
Dan Hopgood: Our HCM integration is going well and results continued to perform above our valuation model expectations.
Dan Hopgood: I'm very pleased with the customer adoption of.
Dan Hopgood: Differentiated products.
Dan Hopgood: As well as our new employees.
Dan Hopgood: Did the NBS next framework.
Dan Hopgood: Driving operational efficiencies and delivering solid growth results.
Dan Hopgood: The sales growth in the second quarter was partially offset by year over year weakness in select industrial systems sales, reflecting lower overall market demand.
Dan Hopgood: That said industrial systems.
Dan Hopgood: Improved sequentially compared to the first quarter as expected.
Dan Hopgood: Operational excellence during the quarter drove strong profit performance, resulting in.
Dan Hopgood: 32% overall EBITDA margins.
Dan Hopgood: This was driven by.
Dan Hopgood: Operational execution in our core businesses.
Dan Hopgood: And strong contribution.
Dan Hopgood: From the ATM acquisition.
Dan Hopgood: Ceded our expectations.
Dan Hopgood: Asset growth compounded.
Dan Hopgood: We're executing.
Dan Hopgood: Balanced capital deployment strategy.
Dan Hopgood: Buying back $85 million in shares during the quarter.
Dan Hopgood: In addition, we paid $44 million in dividends and maintained our debt leverage ratio at two four times comfortably within our targeted range.
Dan Hopgood: Let's turn to slide five.
Dan Hopgood: As investors know from our Investor day presentation used.
Dan Hopgood: Using NBS next.
Dan Hopgood: We hold our product portfolio to a high standard.
Dan Hopgood: We regularly assess the strategic fit of our businesses and product lines.
Dan Hopgood: From a market attractiveness and product differentiation perspective.
Dan Hopgood: As well as the relative financial performance in the company's portfolio.
Dan Hopgood: On May 28, we signed an agreement to divest.
Dan Hopgood: Select product lines within our medical contract manufacturing business.
Dan Hopgood: Exiting these product lines will increase focus on higher value growth opportunities.
Dan Hopgood: Within the $800 million medical and fluid solutions segment.
Dan Hopgood: Namely within our growing portfolio of proprietary medical components.
Dan Hopgood: Including devices from the recent <unk> acquisition.
Dan Hopgood: Okay.
Dan Hopgood: The transaction is expected to improve.
Dan Hopgood: Growth profile going forward.
Dan Hopgood: And will be accretive to our margins post sale.
Dan Hopgood: We expect this deal to close in the fourth quarter of fiscal 2025.
Dan Hopgood: I'll speak more about the enterprise performance in a few moments.
Dan Hopgood: But first I'll turn the call over to Dan to provide a detailed perspective on our financial results for the quarter.
Dan Hopgood: Thank you Diego and good morning to everyone.
Dan Hopgood: On slide number six you will see second quarter fiscal 2025 sales were $683 million up 5% from the prior year second quarter sales of $651 million.
Dan Hopgood: This growth was driven by an 8% increase from the <unk> acquisition.
Speaker Change: Offset Brian overall organic sales decrease of 2%.
Speaker Change: And unfavorable currency translation of a little less than 1%.
Speaker Change: Gross profit in the second quarter was $374 million.
Speaker Change: LTE and consistent 55% of sales.
Speaker Change: SG&A leverage improved year over year, leading to EBITDA adjusted for restructuring and integration costs in both periods of $217 million or 32% of sales.
Speaker Change: This is an increase of 7% compared to the prior year.
Speaker Change: EBITDA growth was driven by improving incrementals in our Ats segment.
Speaker Change: As well as strong contribution from the <unk> acquisition, which continued to perform above expectations from both a sales and margin perspective.
Speaker Change: Importantly.
Speaker Change: The impact of tariffs was not material to the company's operating and financial performance in the quarter.
Speaker Change: Looking at non operating expenses net interest expense was $26 million, an increase of $7 million versus the prior year driven by higher debt levels tied to the <unk> acquisition.
Speaker Change: Other expenses increased a nominal $3 million, primarily reflecting higher foreign exchange transactional losses compared to the prior year.
Speaker Change: Tax expense for the quarter was $26 million or an effective tax rate of 19%.
Speaker Change: In line with our guidance range for fiscal 2025, and 180 basis points lower than the prior year.
Speaker Change: Net income in the quarter totaled $112 million or $1 97 per share on a GAAP basis.
Speaker Change: Excluding nonrecurring costs related to restructuring actions and integration as well as amortization of acquisition related intangibles.
Speaker Change: Adjusted earnings per share totaled $2 42 per share.
Speaker Change: Slightly above the midpoint of our quarterly guidance and a 3% increase from the prior year adjusted earnings per share of $2.34.
Speaker Change: This improvement in year over year earnings reflect the strong overall conversion on higher sales and favorability in our tax rate modestly offset by higher acquisition related interest expense.
Speaker Change: Now, let's turn to slide seven through nine to review the second quarter 2025 segment performance.
Speaker Change: Industrial precision solutions sales of $319 million decreased 8% compared to the prior year second quarter.
Speaker Change: Down, 7% organically and 1% due to unfavorable currency impacts.
Speaker Change: Growth in non woven systems precision agriculture, and packaging product lines were offset by weaker system sales in our industrial coatings and polymer processing product lines, where.
Speaker Change: Where we're seeing lower end market demand versus 2024.
Speaker Change: Also you may recall that we initiated the transition of our primary industrial coatings manufacturing site.
Speaker Change: So a new South Carolina plant at the start of the fiscal year.
Speaker Change: That transition is now substantially completed as we move into the third quarter.
Speaker Change: We expect to see continued sequential sales improvement in our Ips segment as the year progresses.
Speaker Change: EBITDA was $114 million in the quarter or 36% of sales.
Speaker Change: This is a decrease of 12% compared to the prior year EBITDA of $128 million drip.
Speaker Change: Driven by lower sales volume in the quarter.
Speaker Change: Turning to slide eight.
Speaker Change: Youll see medical and fluid solutions sales of $203 million increased 20% compared to the prior year's second quarter.
Speaker Change: Growth was driven by the acquired <unk> business, which delivered $51 million in revenue during the quarter.
Speaker Change: This was offset by double digit declines in our medical intervention all product lines.
Speaker Change: The year over year decline in intervention volumes includes the contract manufacturing business that.
Speaker Change: That we have intentionally rationalized to prepare for the pending sale.
Speaker Change: Excluding these medical contract manufacturing product lines for.
Speaker Change: <unk> sales for the remainder of the segment were down about 4% compared to the prior year, reflecting continued destocking trends in our intervention products.
Speaker Change: We expect the impact of Destocking trends to continue to lessen as the year progresses.
Speaker Change: And we continue to see sequential improvements to validate this.
Speaker Change: EBITDA for medical and fluid solutions was $77 million.
Speaker Change: We're 38% of sales, which was an increase of 22% from prior year EBITDA of $63 million.
Speaker Change: The increase was driven by strong conversion.
Speaker Change: On <unk> sales during the quarter and solid execution to minimize decrementals on lower organic.
Speaker Change: <unk>.
Speaker Change: Turning to slide nine.
Speaker Change: Youll see advanced technology solutions sales were $161 million or an 18% increase compared to the prior year second quarter.
Speaker Change: The growth in sales was driven by broad based demand, notably in electronics dispense optical and X-ray inspection systems.
Speaker Change: All growing double digits over the prior year.
Speaker Change: We started the quarter with a strong backlog and we continue to see steady order entry as the semiconductor and electronic applications we serve.
Speaker Change: To show solid ongoing demand.
Speaker Change: Second quarter, EBITDA was $40 million or 25% of sales an increase of 43% compared to the prior year second quarter EBITDA of $28 million or 20% of sales.
Speaker Change: The improvement in EBITDA margin was driven by the organic sales growth and continued emphasis on cost management and improved manufacturing efficiencies.
Speaker Change: These margin enhancements should continue to compound as the segment demand outlook continues to improve.
Speaker Change: Finally, turning to the balance sheet and cash flow on slide 10.
Speaker Change: At the end of the second quarter, we had cash on hand of approximately $130 million.
Speaker Change: And net debt was approximately $2 1 billion.
Speaker Change: <unk> and a leverage ratio of two four times based on trailing 12 months EBITDA.
Speaker Change: This is a slight reduction from year end and within our long term targeted leverage ratio of two to two five times.
Speaker Change: Our free cash flow generation was in line with the prior year at $103 million during the quarter.
Speaker Change: Resulting in a 92% conversion rate on net income for the quarter.
Speaker Change: And a year to date cash flow conversion rate of 116%.
Speaker Change: During the quarter given market dynamics, we prioritize share repurchases over debt reduction with share repurchases totaling approximately $85 million.
Speaker Change: In addition, we returned $44 million to shareholders through dividends and we also continued to invest in our base businesses.
Speaker Change: Spending roughly $16 million on capital investments, including the final investments in our new Ics manufacturing facility.
Speaker Change: All in all we had a solid operational quarter and our teams delivered on their commitments, despite ongoing uncertainty and geopolitical and trade policies.
Speaker Change: While market conditions remain mixed for some of our businesses.
Speaker Change: We are well positioned to capitalize on profitable growth as.
Speaker Change: As the year plays out.
Mark: With that let's turn to slide 11, and I'll turn the call back to Mark.
Mark: Thanks, Dan, let's start with the implications of dynamic global tariff policies on the company's performance.
Mark: Similar to the second quarter, we believe we can manage the current tariff levels and don't expect them to have a material impact on our third quarter results.
Mark: We continue to monitor potential impact on end market demand as a result of these trade uncertainties.
Mark: However.
Speaker Change: We remain agile in our action plans, knowing there is still plenty of market uncertainty due to tariffs.
Speaker Change: Given our in region for region manufacturing strategy.
Speaker Change: <unk> centralized organizational structure.
Speaker Change: Close to the customer model.
Speaker Change: We are well positioned to offset the impact of changes in trade policies as they evolve.
Speaker Change: In the near term, we have implemented targeted price increases and adjusted supply chains to overcome the two day modest tariff related cost increases.
Speaker Change: In the medium term.
Speaker Change: Capital light nature of our businesses.
Speaker Change: Allows us to further enhance our in region for region manufacturing strategy.
Speaker Change: I am proud of the nordson team's solid execution in the quarter on multiple fronts in this uncertain environment.
Speaker Change: Our close to customer model.
Speaker Change: Innovative differentiated products.
Speaker Change: Accelerating our commercial execution and leading to positive order entry momentum in electronics.
Speaker Change: Precision agriculture.
Speaker Change: And select medical product lines.
Speaker Change: This has resulted in sustained order entry and a healthy backlog increase of 5% since last quarter.
Speaker Change: In businesses, where we are experiencing weaker customer demand.
Speaker Change: We have implemented targeted restructuring to adjust cost structure.
Speaker Change: These actions will be substantially completed by the end of our fiscal third quarter and are expected to provide.
Speaker Change: Ongoing annual benefits of over $15 million by 2026.
Speaker Change: Okay.
Speaker Change: We also continue to invest in our organic business.
Speaker Change: Okay.
Speaker Change: To support the medium term growth needs of our U S and global customers.
Speaker Change: The industrial coatings business moved into a new Greenfield facility in South Carolina.
Speaker Change: At the beginning of this fiscal year.
Speaker Change: Similarly.
Speaker Change: We have expanded manufacturing capacity for the electronics process solutions business into India.
Speaker Change: To support growing needs of our customers in the region.
Speaker Change: Yeah.
Speaker Change: Finally, as Dan mentioned earlier, our strong balance sheet allowed us to take advantage of the dynamic market conditions in the second quarter and accelerate share repurchases.
Speaker Change: Year to date, we have bought back approximately $141 million in shares at two four times EBITDA, we remain within our long term targeted leverage ratio of two to two five.
Speaker Change: Turning now to our outlook on slide 12.
Speaker Change: Based on current visibility and order entry trends.
Speaker Change: We expect third quarter fiscal 2025 sales.
Speaker Change: To be in the range of $710 million to $750 million.
Speaker Change: Third quarter adjusted earnings are forecasted to be in the range of $2 55.
Speaker Change: Two $2 and 75.
Speaker Change: Per diluted share.
Speaker Change: Okay.
Speaker Change: The third quarter guidance is in line with our full year expectations, we set at the beginning of our fiscal year.
Speaker Change: And confirmed in our Q1 earnings call.
Speaker Change: In the near term, we are comfortable managing current tariff levels.
Speaker Change: And do not expect current policies to have a material impact on our results.
Speaker Change: Despite these short term uncertainties the strategic competitive advantages of nordson that we note on slide 13 remained unchanged.
Speaker Change: Our strong growth portfolio.
Speaker Change: High recurring revenues.
Speaker Change: Diversified niche end markets.
Speaker Change: Close to the customer model.
Speaker Change: Proprietary differentiated products.
Speaker Change: The NBS next growth framework.
Speaker Change: <unk> says well for long term growth <unk>.
Speaker Change: Including potential opportunities when customers shift or modify their manufacturing footprints.
Speaker Change: This is why nordson has continuously demonstrated resilience.
Speaker Change: And the ability to deliver best in class profitability in varying market scenarios from the great recession to the pandemic and beyond.
Speaker Change: As always I want to thank our customers and our shareholders for your continued support.
Speaker Change: In particular I want to thank our nordson employees, who are passionate about meeting the needs of our customers. Your efforts show with that we'll pause and take your questions.
Speaker Change: Thank you we will now begin the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad you raise your hand and joined the queue. If you would like to withdraw your question simply press Star one again.
Speaker Change: Your first question comes from the line of Mike Halloran from Baird. Your line is open.
Mike Halloran: Hey, good morning, everyone.
Speaker Change: Good morning, Good morning, Mike.
Speaker Change: Hey can we just at a high level just talk about how you see trends playing out through the rest of the year, what's embedded in guidance and specifically talk to.
Speaker Change: Some of the major verticals.
Speaker Change: Staying ability of what youre seeing in the Ats women interventional destock.
Speaker Change: Is behind you and any other kind of key variables as we think about the back half of the year here.
Mike Halloran: Sure Mike.
Mike Halloran: Let's start with Aps, we experienced solid order entry.
Speaker Change: In the Ats business across all of our businesses.
Speaker Change: In that segment.
Speaker Change: <unk>.
Speaker Change: Stop and think about where this is coming from what you really see is incredible investment that is going on.
Speaker Change: For computing power.
Speaker Change: For AI for cloud computing or ecommerce any any of that but youre seeing really is this incredible investment happening.
Speaker Change: And at the heart of all of that investment is really.
Speaker Change: Complex, new generation computer chips and semiconductors.
Speaker Change: And notes in place really welcome Nordson so.
Speaker Change: And I think that is playing into our growth sustainability based on what we see in the business. We feel really good about the trends we see the conversations we have with our customers.
Speaker Change: We've been talking about this in pending.
Speaker Change: Order entry for a couple of quarters here.
Speaker Change: I would tell you we are now seeing it in our businesses and we're seeing it in our results right. So.
Speaker Change: So <unk> in general pretty.
Speaker Change: Good feel pretty good about it going playing out through the rest of the year.
Speaker Change: On MFS will choose what you are experiencing really is <unk> contributing to growth.
Speaker Change: Very solid performance above our modeled expectations.
Speaker Change: Our fluid components business, which was down for several quarters.
Speaker Change: That is now delivering nice growth. So we're seeing some positive order entry momentum there.
Speaker Change: Destocking continue to reduce in severity as we go through the year.
Speaker Change: And also you would see that our.
Speaker Change: A significant part or more than half so far organic decline coming from our contract manufacturing business as we have rationalized program so that reduces.
Speaker Change: Now coming to Ips.
Speaker Change: <unk>.
Speaker Change: Look Eric doing really well with double digit organic growth order entry pretty strong there.
Speaker Change: Our traditional consumer.
Speaker Change: Consumer non durable adhesives businesses doing well.
Speaker Change: Good order entry steady growth there.
Speaker Change: Our industrial systems business is where we are behind.
Speaker Change: Both industrial coding where automotive is the big.
Speaker Change: Yes.
Speaker Change: Impact there and our plastic processing business I would tell you automotive will remain a headwind for the company.
Speaker Change: For another couple of quarters, given what has been happening in that end market.
Speaker Change: But we do see pretty good momentum in our powder coating business, we see very good momentum in.
Speaker Change: A couple of product lines that are very niche applications. So the.
Speaker Change: The industrial coatings business.
Speaker Change: Continues to improve and believe that.
Speaker Change: Through the year, they will do better.
Speaker Change: <unk>.
Speaker Change: So this is the trends that we're seeing in Ips is largely in line with our expectations was largely in line with our expectations in the second quarter largely in line with what we thought at the beginning of the year.
Speaker Change: No that's super helpful.
Speaker Change: And then as far as the contract manufacturing divestiture goes in any way to size the revenue.
Speaker Change: As well as maybe talk to if there are other areas youre thinking about internally I know this is the second major one you had the screws.
Speaker Change: <unk> point earlier, which is super successful you have this one are we at the end of that journey or.
Speaker Change: Or do you think that Theres, a little more to go there as well.
Speaker Change: Let me let me give you just the.
Speaker Change: Top level cover.
Speaker Change: Color first and then Dan can walk you through some of the details.
Speaker Change: Look as we said in our Investor day.
Speaker Change: Building, a strong building and sustaining a strong growth portfolio is an important part of our strategy so to that extent.
Speaker Change: That portfolio analysis happens every year and we stay.
Speaker Change: True to that process. It is really based on product differentiation.
Speaker Change: Relative financial performance of the business within the portfolio. So that's really the criteria and nothing changed there.
Speaker Change: So it is an ongoing process.
Speaker Change: And.
Speaker Change: I'll leave it at that and so Dan.
Dan Hopgood: Yes, maybe just to add a little more color Mike.
Mike Halloran: Answered maybe a direct answer to your question no. There were not there are no other ongoing actions, but I think to <unk> point. This is a great example of.
Dan Hopgood: The small business for us to size. It for you. This is roughly 4% of our year to date sales in the medical segment.
Dan Hopgood: And this is an example of a business that we've been looking at and assessing for a while and ultimately made the decision that is better off in somebody else's hands small part of the overall portfolio.
Dan Hopgood: But.
Dan Hopgood: As you look at it as you think about margin implications.
Naga Russian: Naga mentioned on the call that it would be accretive to ongoing margins post sale.
Dan Hopgood: And I think the simple way to think about that is this.
Dan Hopgood: On a full year basis, roughly 100 basis points accretive to our medical segment margins going forward post sale.
Dan Hopgood: But a small business, but one that ultimately we determined is better off in somebody's hands. There are no further we have other active.
Dan Hopgood: Portfolio actions, but this is something that we continue to look at every year.
Dan Hopgood: Yes, Dan.
Dan Hopgood: One thing I would add to that is the main reason to continue to build the portfolio and keep the portfolio strong is the opportunity cost strides. This action allows our teams and the medical component business to focus on things. We are really good at while this contract manufacturing belongs within.
Dan Hopgood: Quasar, who is the buyer of this business and they are building. This is a great home for our teams in that business and they will do fine, but it allows our teams to focus on what strategically we are positioned to do which is to grow our medical component business, including the ones we bought <unk>.
Dan Hopgood: Quite through atria.
Dan Hopgood: That's great. Thanks, Thanks, Dan I appreciate the help.
Dan Hopgood: Yes.
Speaker Change: Your next question comes from the line of Andrew Buscaglia from BNP Paribas. Your line is open.
Andrew Buscaglia: Hey, good morning, everyone.
Speaker Change: Good morning, Andrew.
Andrew Buscaglia: Good morning.
Andrew Buscaglia: Yes.
Andrew Buscaglia: On a couple of the segments.
Andrew Buscaglia: Yes.
Andrew Buscaglia: It's been really volatile the last couple of quarters.
Andrew Buscaglia: Should we see more consistent growth in that segment going forward.
Andrew Buscaglia: And what's informing I guess give me more specific around like where in the orders youre seeing improvement either on a sequential basis or however, you want to look at it.
Andrew Buscaglia: Yes, yes.
Andrew Buscaglia: Yes.
Speaker Change: Let me, let me address sort of your first question, which is sort of the lumpiness of this business.
Andrew Buscaglia: This is a business.
Andrew Buscaglia: Inherently lumpy and inherently lumpy because of the industries that we operate in when we have customers.
Andrew Buscaglia: Who tend to expand and expand fast and wanted to expand right now right.
Andrew Buscaglia: All right or.
Andrew Buscaglia: One <unk>.
Andrew Buscaglia: Stopped buying and want to change.
Andrew Buscaglia: Investment profile right now.
Andrew Buscaglia: So that is something the company is.
Andrew Buscaglia: Difficult to control, but overall, if you think about how we think about the business within the company and that May be helpful is to really say.
Andrew Buscaglia: This is the part of the cycle, where it is starting to grow.
Andrew Buscaglia: Now it is difficult for us to sort of control customer expectations of shipments and timing of shipments so things could.
Andrew Buscaglia: Slipped from one quarter to next but.
Dan Hopgood: First half second half is a good way to think about this business.
Dan Hopgood: In terms of growth.
Dan Hopgood: Feel and what we see in our order entry is some pretty strong.
Dan Hopgood: Order entry.
Dan Hopgood: Patterns that gives us pretty good confidence that this is this is a part of the cycle where.
Dan Hopgood: This business is going to contribute nicely to the companys organic growth.
Dan Hopgood: Yeah.
Dan Hopgood: If you put it in perspective through the cycle. This is a five plus percent organic growth business.
Dan Hopgood: Okay.
Dan Hopgood: And order entry and backlog building and are supportive of that for the year. So.
Dan Hopgood: Maybe one other thing I'd just yet.
Dan Hopgood: About the.
Dan Hopgood: Just to add one additional flavor.
Dan Hopgood: Most of the growth we're seeing right now is really.
Speaker Change: With our Asian customers.
Dan Hopgood: And so as you think about some of the announcements being made around investments in the U S.
Dan Hopgood: Frankly, we're not even seeing that yet and so the cycle does have some legs to it most of the growth that we're seeing is with existing capacity, we're expanding capacity in some of our some of the Asian markets.
Dan Hopgood: There are there are additional legs to this that I think are still at the early stages.
Dan Hopgood: And the other thing to also think about is this tariff regimes that are being talked about figure it out.
Speaker Change: Our customers are going to adjust manufacturing footprint.
Dan Hopgood: And as they adjust manufacturing footprint that represents a nice opportunity for nordson in DB.
Dan Hopgood: Really think about our expansion in India.
Dan Hopgood: That's really stems from the fact that some of our customers are.
Dan Hopgood: Diversifying their manufacturing footprint, and we will benefit from it.
Dan Hopgood: Look this is this is who nordson is.
Dan Hopgood: We've had.
Dan Hopgood: Have a very close customer direct model, we work with our customers.
Dan Hopgood: Right.
Dan Hopgood: Capital light manufacturing business, and so we are able to pivot to the needs of our customers.
Dan Hopgood: Help them expand serve their needs in whatever geographies they want to so as they move as they expand as they invest in our nordson benefits.
Dan Hopgood: So hopefully that gives you some color I know you had a couple of follow up so let's just.
Dan Hopgood: Yes.
Dan Hopgood: Maybe switching.
Dan Hopgood: Yes.
Dan Hopgood: A question would be the line of sight on that kind of an interventional medicine.
Dan Hopgood: Surprising did.
Dan Hopgood: Due to Destocking, but what's your line of sight on that Destocking at this point it seems like it slowly coming plan and.
Dan Hopgood: On the other side of that is there an acceleration or is it not that type of market, where you could see.
Dan Hopgood: Pick up.
Dan Hopgood: Maybe it's more of a gradual pick up I'm not sure of the nature of how that.
Dan Hopgood: People would work in that business.
Dan Hopgood: Sure.
Dan Hopgood: Asked me prior to Covid.
Dan Hopgood: This is a business is not cyclical right. It was a secular 567% growth every year.
Dan Hopgood: If you if you think about.
Dan Hopgood: Where we are at.
Dan Hopgood: In terms of destock, what we're finding is that this destock in this business is deaf.
Dan Hopgood: Definitely reducing right definitely reducing because we can see.
Dan Hopgood: <unk>.
Dan Hopgood: We can see our order entry improve right. So we feel we feel good about where we are at in terms of.
Speaker Change: The destocking being.
Dan Hopgood: Getting played out but.
Dan Hopgood: Fluid components, which is another part of this business. It is a smaller business, but a smaller part of the business that was down significantly for.
Dan Hopgood: Six to eight quarters almost.
Dan Hopgood: It is now delivering growth and we feel really good about where they're at.
Dan Hopgood: Longer term.
Dan Hopgood: The pipeline projects that were working on for these businesses. They are they remain strong.
Dan Hopgood: In terms of how they would recover this is not the customer behaviors are not similar to what you see in electronics here. This is going to be far more steady growth people people went through COVID-19.
Dan Hopgood: Overstock destock.
Dan Hopgood: And now it is going to gradually recover to normal demand.
Dan Hopgood: Growth rates rather than <unk>.
Dan Hopgood: Significant uptick or a significant downtick so.
Dan Hopgood: So our expectations for those businesses that we continue to continue to recover on the Destocking.
Dan Hopgood: Fluid components contributing nicely, but don't forget.
Dan Hopgood: Atria.
Dan Hopgood: Is a big contributor to our growth in that business as we have shared.
Dan Hopgood: He is doing.
Dan Hopgood: Very well above our expectations.
Dan Hopgood: Okay, Alright, thanks, Doug.
Dan Hopgood: Sure.
Dan Hopgood: Your next question comes from the line of Sarah <unk> from Jefferies. Your line is open.
Sarah <unk>: Good morning, and thanks for taking the question.
Sarah <unk>: Maybe.
Speaker Change: Have you talked about API, how do you think about margin performance going forward and how do you maintain a more steady margin performance, if you're going to continue to see some of that volatility with the customer to hearing you spoke about.
Dan Hopgood: Yes, I think during the last downturn the teams really did a.
Dan Hopgood: Nice job.
Dan Hopgood: Restructuring the business.
Dan Hopgood: Our expectation is that this.
Dan Hopgood: This industry performance margin performance is different from our other businesses right because.
Dan Hopgood: Our investments in innovation are significantly higher in this business you have to invest in innovation, which is.
Dan Hopgood: Four to five times higher than what we have in our other businesses because unless you invest you are not able to participate in the growth cycle. So so the margins will be different.
Dan Hopgood: But we feel like we have adjusted the cost structure is such that.
Dan Hopgood: In in a downturn.
Dan Hopgood: The margins will be lower than where it is today, which is right now it is at 25%.
Dan Hopgood: And.
Dan Hopgood: In a down cycle could it be lower it could be but it's not going to be a place where we have.
Dan Hopgood: Have significantly lower margin performance like.
Dan Hopgood: Seven years five years ago six years ago.
Dan Hopgood: Yeah.
Dan Hopgood: And Terry maybe one way to think about it is yes.
Dan Hopgood: The.
Dan Hopgood: Kind of foundational changes or changes and improvements that we've made in the business model. We've essentially raised the water line in this business right. So if you look peak to peak or trough to trough youre going to see sustained improvement in.
Dan Hopgood: And the margin profile going forward and Thats because of the structural changes that have been made to.
Dan Hopgood: To reposition the business.
Speaker Change: That's helpful and then maybe turning to precision AG business returning to growth in the quarter I think Luis you expected after what youre seeing in that market and how what are you seeing from a margin performance and how did you perform in an up cycle.
Luis: Yes, the margins, let me just take the margin question first on.
Speaker Change: Eric.
Dan Hopgood: Physician agricultural business.
Dan Hopgood: Even in a downturn the EBITDA margins in that business was.
Dan Hopgood: As good as the company or slightly better.
Dan Hopgood: Alright.
Dan Hopgood: In the up cycle, there may be some benefits but.
Dan Hopgood: Goal is to continue to grow this business, that's where the opportunity is.
Dan Hopgood: Where we are seeing the growth the growth is coming mostly in Europe.
Dan Hopgood: And in South America.
Dan Hopgood: And so if you remember just.
Dan Hopgood: Just refresh our memories around this is that remember this is a European based business that is where their strength is that a market leader in Europe.
Dan Hopgood: Clearly we have gone through.
Dan Hopgood: And inventory adjustment in the channel in Europe, and we are growing back again.
Dan Hopgood: We're super excited about couple of new products that they've launched.
Dan Hopgood: <unk>.
Dan Hopgood: Clearly we are at the very early stages of implementing NBS next.
Dan Hopgood: Sure.
Dan Hopgood: So we are super excited about this business. It is growing our expectation it continues to grow.
Dan Hopgood: Thanks I appreciate the question.
Speaker Change: Your next question comes from the line of Christopher Glynn from Oppenheimer. Your line is open.
Dan Hopgood: Yeah.
Christopher Glynn: Thanks, Good morning, guys.
Dan Hopgood: Good morning so.
Dan Hopgood: Alright.
Dan Hopgood: Nice to hear the increasingly assertive pivot on a rig and then on your subsequent acquisition to that atria on.
Dan Hopgood: Just kind of curious about the upside you know whether that was a conservative initial posture.
Dan Hopgood: True surprise curious your current thoughts on.
Dan Hopgood: The compound.
Dan Hopgood: Growth over time.
Dan Hopgood: What we're seeing here the profile or does the current upside maybe create some growth challenges in fiscal 'twenty six is you don't.
Dan Hopgood: I don't know if you have to digest the scaling that youre seeing here in fiscal 'twenty five so just kind of surrounding some of the atrium dynamics a bit there.
Dan Hopgood: Yeah.
Dan Hopgood: A I wouldn't say it was a conservative model.
Dan Hopgood: Yes.
Dan Hopgood: Remember we have been in this.
Dan Hopgood: What kind of products that they sell a majority of the business we have very good familiarity.
Dan Hopgood: And so I understand what the.
Dan Hopgood: Performance expectations can be from both a market perspective as well as internal.
Dan Hopgood: What where we are at in that business as we are integrating nicely where suddenly performing well commercially.
Dan Hopgood: <unk> got one new product out there.
Dan Hopgood: We're doing really well they've got a couple of more coming right behind it. So I think we have a good benefit of.
Dan Hopgood: The new products that are.
Dan Hopgood: That are <unk>.
Dan Hopgood: Going to help our growth.
Dan Hopgood: We're ahead, but.
Dan Hopgood: But we still have opportunity in this business.
<unk>.
Dan Hopgood: And I think that's how I would think about it.
Dan Hopgood: Okay great.
Dan Hopgood: This symptom where they can really generate.
Dan Hopgood: No.
Dan Hopgood: A couple of material new products every couple of years.
Dan Hopgood: I don't.
Dan Hopgood: It's going to be difficult to say, but look this is a business that has significant amount of IP I don't know whether I could put a number next to it other than I would say that the innovation opportunities are pretty strong.
Dan Hopgood: And we really like where they are at.
Dan Hopgood: I think that is an important growth.
Dan Hopgood: Contributor.
Dan Hopgood: For them and the rest of Nordson right innovation has always been an important part of our play a playbook in that spot.
Dan Hopgood: That's the alignment with our strategy and ours.
Dan Hopgood: Operationally there may be more opportunities to I think.
Dan Hopgood: I think that as we are very early days there.
Dan Hopgood: Okay, Great and then.
Dan Hopgood: Pivoting over to Ats.
Dan Hopgood: Curious how the.
Dan Hopgood: Yes.
Speaker Change: The center of gravity is moving are you seeing the industrial RF chips around customer innovation starting to land is it more midstream processing, just trying to get a sense of where the piglet isn't the python.
Speaker Change: [laughter] Alright, Chris.
Speaker Change: Let me, let me try to if you're asking where we are at and how this cycle is playing out.
Speaker Change: A couple of things we see is a.
Speaker Change: The investments that are happening by our customers are pretty significant.
Speaker Change: And they're pretty rapid.
Speaker Change: Beaches, which essentially tells us that the opportunity for us to continue to benefit from it through means.
Dan Hopgood: I think the investment as Dan mentioned investments in North America is still an upside that's not played out it will take many more years to have that show up.
Dan Hopgood: But the opportunities in Asia are strong and they are happening.
Dan Hopgood: Let me say a ton of innovation that is happening and I don't think that is going to end here.
Dan Hopgood: Because I think.
Dan Hopgood: We're at very early stages of.
Dan Hopgood: The Gpus that are getting built.
Dan Hopgood: Technology around the GPU.
Dan Hopgood: It is.
Dan Hopgood: And I think so the more difficult. It is the better it is for Matson and that is this is one of those cases, where we're going to benefit from it. So we're going to continue to adapt our existing technologies that is going to be some fast innovation to customize for peoples.
Dan Hopgood: In.
Dan Hopgood: Investment, but also as we solve these bigger problems I think we have an opportunity.
Dan Hopgood: And we have new categories of products through our cyber optics acquisition, we have a new generation of in process sensors called wafers.
Dan Hopgood: And that is a product category that is growing very nicely for us we see.
Dan Hopgood: We just released.
Dan Hopgood: Two new products in that category, we have new opportunities there.
Dan Hopgood: We're working on more so.
Dan Hopgood: Innovation is going.
Dan Hopgood: Whereas to win we have to innovate.
Dan Hopgood: And we need to have we have to play at the right price points with right manufacturing footprint. So.
Dan Hopgood: Yes.
Dan Hopgood: It's Scott nice upside but.
Dan Hopgood: It is lumpy and it is cyclical.
Speaker Change: Great Thanks for that.
Speaker Change: Your next question comes from the line of Matt Summerville from D. A Davidson your line is open.
Speaker Change: So.
Speaker Change: Just a couple quick ones. If you look at your tariff exposure on an annualized basis, what does it look like.
Speaker Change: It's completely mitigated, which I realize isn't based on the current tariffs scenario I'm trying to get a feel for how much of an impact you are working to offset.
Speaker Change: Follow up.
Dan Hopgood: Dan do you want to.
Dan Hopgood: Yes, maybe I'll take the evidence and certainly appreciate the question, it's something that's top of mind for everybody but.
Dan Hopgood: What I would say certainly at the current levels I mean tariffs are very manageable and as we stated.
Dan Hopgood: Really had no material impact on our second quarter results.
Dan Hopgood: We continue to monitor it and obviously this is developing.
Dan Hopgood: Developing situation anyhow.
Dan Hopgood: Frankly announcements seem to be coming but.
Dan Hopgood: The general way I would think about it is our in region for region.
Dan Hopgood: Mitigate the large.
Dan Hopgood: Amount of the tariff exposure and so maybe I'll just give you a little bit of a framework.
Dan Hopgood: If you think about it.
Dan Hopgood: Percent of our overall sales roughly 80, 590% of our sales are fully in region for region.
Dan Hopgood: Meaning very little import export exposure.
Dan Hopgood: If you think of the 10% to 15%.
Dan Hopgood: That is not that is a broad based or very diversified set of exposure. So we do not have any concentrations of exposure. So if you think of that 10% to 15%.
Dan Hopgood: Split amongst many different arrangements and our global footprint and no single inter country exposure is more than low single digits.
Naga Russian: So for those reasons and others, including Nagas points that.
Dan Hopgood: We tend to be more nimble than most and can pivot as our customers pivot.
Dan Hopgood: We don't see a significant impact it certainly not at the current levels now.
Dan Hopgood: Things can change and that's where we're continuing to monitor the situation.
Dan Hopgood: At the situation change changes, we'll make pivots, where we need to but.
Dan Hopgood: Yes.
Dan Hopgood: I would come back to no material exposure.
Dan Hopgood: Exposure in the second quarter at the current levels. We think this is very manageable and really for us the bigger risk than the bigger consideration in all of this is what it does to end market demand with our customers right, if our customers start deferring investments or deferring.
Dan Hopgood: Capital.
Dan Hopgood: That's probably the bigger risk what the general economic impact is to the end.
Dan Hopgood: Frankly that I would say.
Dan Hopgood: We're watching it closer to that.
Dan Hopgood: Thanks.
Dan Hopgood: Thank you for that.
Dan Hopgood: Just as.
Dan Hopgood: Super helpful. Thank you.
Speaker Change: Just to maybe try and put a little bit finer point on what Youre seeing in Ats is there a way to quantify how much of that business today is being driven by various categories of high performance computing the relative to what that number would have looked like 12 to 18 months ago. Thank you.
Dan Hopgood: I would say.
Dan Hopgood: 50% of our business would be semiconductor.
Dan Hopgood: High power computing as you describe it.
Dan Hopgood: And.
Speaker Change: Hello years ago, I don't know if you go back.
Dan Hopgood: I wanted to say.
Dan Hopgood: Four five years ago, maybe that number was.
Dan Hopgood: 30% or so 2000 and look I'm guessing here 20.
Dan Hopgood: To 30% at best.
Dan Hopgood: Certainly this is an area of our teams have focused on but also the type of customers have changed.
Dan Hopgood: Not getting into specific names I would tell you we were very.
Dan Hopgood: North American centric five years ago.
Dan Hopgood: We have more Asia centric, although Asia was a big presence for us even five years ago.
Dan Hopgood: I would say the timed.
Dan Hopgood: Customer projects, we're working on the innovations we are leading.
Dan Hopgood: The demand we are creating.
Dan Hopgood: Tend to be in Asia than than North America, but I think that would also change.
Dan Hopgood: As North American semiconductor investments become.
Dan Hopgood: Real meaning in the buildings are done when things people are making.
Dan Hopgood: Half packaging lines come on.
Dan Hopgood: Nordson is going to benefit.
Speaker Change: Understood. Thank you.
Speaker Change: Again, if you would like to ask a question press Star one on your telephone Keypad. Your next question comes from the line of Walter Liptak from Seaport Research. Your line is open.
Walter Liptak: Hi, Thanks, and good morning.
Speaker Change: Good morning, Mark.
Walter Liptak: So I've got a couple of follow ons.
Walter Liptak: On the Ats.
Walter Liptak: <unk>.
Walter Liptak: Doug I think you kind of <unk>.
Walter Liptak: Alluded to like a 5% growth.
Speaker Change: I Wonder I, just wanted to clarify was that 5% growth in the second half.
Speaker Change: On an organic basis or were you just talking about kind of growth.
Speaker Change: I'm talking about through the cycle growth right. I mean, there is going to be since its cyclical or you got to take it through the cycle. Our expectation is this business grows 5% right.
Speaker Change: Have very good clarity to Q3.
Speaker Change: And that is definitely higher than 5%, but we don't guide by segment. So.
Speaker Change: I realize that sort of thing.
Speaker Change: And I think metal.
Speaker Change: <unk>.
Speaker Change: Okay, Good and then Duke.
Speaker Change: I think in your prepared remarks, you guys commented on some selling price increases.
Speaker Change: Yes.
Speaker Change: So I wonder if you could just.
Speaker Change: Help us understand was this like a price increase or like a tariff surcharge or was this uncommon you usually do like annual price increases.
Speaker Change: Or is it kind of.
Speaker Change: Normal course of business.
Walter Liptak: Yes.
Walter Liptak: Good question look our pricing focus so the answer to your question is we regularly assess pricing that's a normal part of our process.
Walter Liptak: Our focus and this is largely driven by our current margin profile. Our focus is really on maintaining competitiveness.
Walter Liptak: And maintaining our margins.
Walter Liptak: But it is something that we look at regularly in the current environment.
Walter Liptak: Certainly some of what Youre seeing is.
Walter Liptak: Tariffs impacts being passed on we're.
Walter Liptak: Where necessary.
Walter Liptak: That would include both to think about it as both the direct impact and any indirect impact through the general supply base and so that is certainly.
Walter Liptak: But but again, if I were to look at our overall pricing.
Walter Liptak: I would say.
Walter Liptak: There is no significant escalation at this point, it's really look where we have to pass things through and manage we are doing that but it's not a significant impact.
Walter Liptak: Yeah.
Walter Liptak: And the other way to also remember is that we run the company.
Walter Liptak: <unk> now 15 divisions. So what this allows us as you have a decentralized organization with business owners, who understand the market dynamics understand their cost structure.
Walter Liptak: We're able to simply read the situation and be able to adjust pricing adjust supply chain. So that we are able to keep growing.
Walter Liptak: And growing profitably so our structure, our entrepreneurial spirit in the businesses as well as our close to the customer model allows us to be able to.
Walter Liptak: Learn the market and adjust accordingly.
Walter Liptak: Okay, that's awesome.
Walter Liptak: And just maybe a follow on to that.
Walter Liptak: So the price increases went through to get benefits from it already or are you just about to announce them.
Walter Liptak: They are phased in over time.
Walter Liptak: There is no one size fits all.
Walter Liptak: I guess I just mentioned.
Speaker Change: Each of our divisions are making those decisions and managing.
Walter Liptak: As appropriate and so.
Walter Liptak: Think of it is pricing is generally an ongoing activity that takes place throughout the year.
Walter Liptak: Okay got it fair enough.
Walter Liptak: And then just one last one for me if that's okay.
Walter Liptak: Last quarter I think you guys talked about how you were feeling that things would be at the low end of your sales range.
Walter Liptak: And but I didn't hear or maybe you did make a comment about that or do you still think you're going to be at the low end of the sales range for through 2025.
Walter Liptak: Yes.
Walter Liptak: Very good question and look I'm going to come back to what we said explicitly.
Walter Liptak: What we can tell you is that Q3 guide.
Walter Liptak: Guidance provided for Q3, it's certainly fine with our full year expectations.
Walter Liptak: Yes, there is a lot of things that are still pending on the policy and trade front, namely some deadlines coming up in July and August.
Walter Liptak: It's a bit early to call Q4, and the outlook for the full year that doesn't mean that we are backing away from our guidance frankly, we just don't know what's going to happen.
Walter Liptak: Some of these decisions get made in play out so.
Walter Liptak: So Q3 is certainly in line with our full year expectations that we reiterated in the first quarter.
Walter Liptak: Q4.
Walter Liptak: Sure.
Walter Liptak: Remains to be seen and largely dependent around what happens on that front over the next couple of months and what that impacted again I'm going to go back to my earlier statements.
Walter Liptak: What are we concerned about it.
Walter Liptak: What is the impact on end market demand right across our portfolio if customers start pulling back because of these uncertainties, we haven't seen that yet.
Walter Liptak: Too soon to say.
Walter Liptak: I think that is probably what you have to remember it is uncertain, but.
Walter Liptak: But we are not seeing in our businesses yet, but these deadlines come up in summer.
Walter Liptak: Yes.
Walter Liptak: Look these are not.
Walter Liptak: These are dynamic times to say the least.
Walter Liptak: Yet our teams are doing a fantastic job.
Walter Liptak: <unk>.
Walter Liptak: Continuing to serve our customers.
Walter Liptak: Continuing to.
Walter Liptak: Innovate continuing to do all the things Nordson does really well and I think that is a testament to the team's ability.
Walter Liptak: In a very entrepreneurial way to adjust to some very uncertain times.
Walter Liptak: We would tell you that there is no impact on tariffs.
Walter Liptak: Yes, but there is a lot of work that goes behind achieving that outcome and so.
Walter Liptak: I think that's what you want to take away is that.
Walter Liptak: The impact is minimal.
Walter Liptak: So agile working and.
Walter Liptak: We will take a quarter at a time here so.
Walter Liptak: Absolutely. Thank you very much guys.
Speaker Change: Your next question comes from the line of Chris Dankert from Loop capital markets. Your line is open.
Chris Dankert: Hey, good morning, guys. Thanks for squeezing me in here.
Chris Dankert: Just as it relates to the outlook.
Chris Dankert: Hearing some more constructive commentary from the European machine builders, I guess, maybe any color on customer conversations within that business and then does that support a chance for organic growth.
Chris Dankert: And that adhesive dispense bids in the back half year.
Walter Liptak: Alright.
Walter Liptak: I think the.
Speaker Change: You are right about the European machine builders, we feel pretty good about our position there and we continue to do well.
Walter Liptak: What what we are seeing really is.
Walter Liptak: Our big cyclical big system businesses, which is not that we don't include the adhesive businesses in it because we have our plastic processing business in industrial coating businesses, which are much bigger systems. Now those are that is different and thats what is weighing on Ips, but.
Walter Liptak: These are business in general.
Walter Liptak: Our nonwovens business year to date has done extremely well and we expect that they will finish the year really nicely.
Walter Liptak: Our packaging business is doing well.
Walter Liptak: Also we expect to do well, there and our product assembly seems to be okay.
Walter Liptak: So I think.
Walter Liptak: What we are experiencing is slightly different we are seeing what youre talking about which is the machine builders and already so businesses are definitely benefiting from that.
Walter Liptak: I guess my.
Walter Liptak: On a relative basis I mean is does that seem like current demand is similar to what we saw in the first half or is there actually some improvement in that non wilpons activity.
Walter Liptak: I would say similar nothing significantly better the bed.
Walter Liptak: Pretty nice first half.
Walter Liptak: Yeah.
Walter Liptak: Got it I guess I'll leave it there thanks, a lot for the color.
Walter Liptak: Sure.
Speaker Change: And we have reached the end of our question and answer session I will now turn the call back over to <unk> for some closing remarks.
Walter Liptak: Yeah.
Walter Liptak: Thank you for your time and attention on todays call Nordson is well positioned in this dynamic environment.
Walter Liptak: Close to the customer model proprietary and niche technology.
Walter Liptak: Diversified geography, and end market exposures high level of recurring revenue and a strong balance sheets are among the many attributes that makes us a reliable compounding. Thank you.
Walter Liptak: This concludes today's conference call. Thank you for your participation you may now disconnect.
Walter Liptak: Okay.
Walter Liptak:
Walter Liptak: Yeah.
Walter Liptak: Yeah.
Walter Liptak: Yeah.