The following is management's discussion and analysis of certain significant
factors affecting our financial condition and results of operations for the
periods included in the accompanying condensed consolidated financial
statements.
Overview
Nordson Corporation is an innovative precision technology company that leverages
a scalable growth framework to deliver top tier growth with leading margins and
returns. The Company's direct sales model and applications expertise serves
global customers through a wide variety of critical applications. Its diverse
end market exposure includes consumer non-durable, medical, electronics and
industrial end markets. Founded in 1954 and headquartered in Westlake, Ohio, the
Company has approximately 6,800 employees with operations and support offices in
over 35 countries.
Segment Update
Effective in the second quarter of 2020, we made changes to realign our
management team and our operating segments. We realigned our former three
operating segments into two: Industrial Precision Solutions and Advanced
Technology Solutions. Refer to our Operating segments footnote for further
discussion.
The financial information presented herein reflects the impact of the preceding
changes and prior periods have been revised to reflect these changes.
COVID-19 Update
We continue to support multiple "critical infrastructure" sectors by
manufacturing materials and products needed for medical supply chains,
packaging, transportation, energy, communications, and other critical
infrastructure industries. We have benefited from our geographical and product
diversification as the end markets we serve have remained resilient in response
to the COVID-19 pandemic. We continue to actively monitor the impact of the
COVID-19 pandemic, which may negatively impact our business and results of
operations for 2021 and potentially beyond. However, the full extent of the
COVID-19 pandemic on our operations and the markets we serve is uncertain and
will depend largely on future developments, including the availability and
effectiveness of vaccines and their widespread adoption, new information which
may emerge concerning the severity of the pandemic, including the evolving
strains of COVID-19, some of which may be more transmissible or virulent than
the initial variant, and actions by government authorities to contain the
pandemic or mitigate its economic, public health and other impacts. These
developments are constantly evolving and cannot be accurately predicted. We
continue to invest in the business, people, and strategies necessary to achieve
our long-term priorities as we focus on driving profitable growth. We have
continued to operate during the course of the COVID-19 pandemic in all our
production facilities, having taken the recommended public health measures to
ensure worker and workplace safety. As a result, there have been unfavorable
impacts on our manufacturing efficiencies. Additionally, we continue to take
steps to offset cost increases from pandemic-related supply chain disruptions.
Critical Accounting Policies and Estimates
A comprehensive discussion of the Company's critical accounting policies and
management estimates and significant accounting policies followed in the
preparation of the financial statements is included in Item 7 of our Annual
Report on Form 10-K for the year ended October 31, 2020 (the 2020 Form 10-K).
There have been no significant changes in critical accounting policies,
management estimates or accounting policies followed since the year
ended October 31, 2020.
Results of Operations
Three months ended July 31, 2021
Worldwide sales for the three months ended July 31, 2021 were $646,858, an
increase of 20.2% from sales of $538,181 for the comparable period of 2020. The
increase consisted of a 20.2% increase in organic sales volume and a favorable
effect from currency translation of 3.8%, which was offset by a net 3.8%
decrease due to acquisitions and divestitures. The organic sales increase was
driven by continued demand across all end markets, including a seasonal increase
of quarterly shipments into the electronics end market.
Sales outside the United States accounted for 68.8% of our sales in the three
months ended July 31, 2021 compared to 65.9% in the comparable period of 2020.
On a geographic basis, sales in the United States were $201,531, an increase of
9.8% compared to 2020 consisting of a 15.7% increase in organic sales volume and
a net 5.9% decrease from acquisitions and divestitures. In the Americas region,
sales were $47,717, an increase of 24.7% from 2020, consisting of an organic
sales volume increase of 22.0%, favorable currency effects of 5.0%, and a net
decrease of 2.3% due to acquisitions and divestitures. In Europe, sales were
$162,298, an increase of 22.9% from 2020, consisting of an organic sales volume
increase of 17.5% and favorable currency effects of 7.5%, partially offset by a
net 2.1% decrease due to acquisitions and divestitures. In Japan, which
continues to manage
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pandemic-related impacts, sales were $24,946, a decrease of 20.1% from 2020,
consisting of an organic sales volume decrease of 13.3%, a 4.8% decrease due to
acquisitions and divestitures, and unfavorable currency effects of 2.0%. In the
Asia Pacific region, sales were $210,366, an increase of 37.4% from 2020,
consisting of an organic sales volume increase of 34.0% and favorable currency
effects of 5.7%, partially offset by a net 2.3% decrease due to acquisitions and
divestitures.
Cost of sales for the three months ended July 31, 2021 were $281,587, up from
$257,373 in the comparable period of 2020. Gross profit, expressed as a
percentage of sales, increased to 56.5% from 52.2% in the comparable period of
2020. The 4.3 percentage point increase in gross margin was primarily driven by
favorable sales volume leverage, product mix, and the divestiture of the screws
and barrel product line, which combined contributed 3.1 percentage points, plus
the benefits of cost structure simplification actions.
Selling and administrative expenses for the three months ended July 31, 2021
were $176,995, up from $168,753 in the comparable period of 2020. The 4.9%
increase was primarily driven by unfavorable currency translation effects of 2.7
percentage points plus increased variable incentive compensation, partially
offset by reductions resulting from the divestiture and structural cost
reduction actions taken in 2020.
Operating profit increased from $112,055 in the three months ended July 31, 2020
to $188,276 in the comparable period of 2021. Operating profit as a percentage
of sales increased to 29.1% for the three months ended July 31, 2021 compared to
20.8% in the comparable period of 2020. The improved profitability was primarily
driven by the 20.2% increase in organic sales volume and the product line
divestiture, which combined contributed 6.0 percentage points, plus lower costs
related to cost structure simplification actions which contributed an additional
1.2 percentage points.
Interest expense for the three months ended July 31, 2021 was $6,139, compared
to $7,314 in the comparable period of 2020. The decrease was due to lower
average debt levels compared to the prior year period. Other expense was $2,232
compared to $9,668 in the comparable period of 2020. Included in 2021 other
expense were pension costs of $1,554 and $512 in foreign currency losses.
Included in 2020 were pension costs of $5,326 and $3,554 of foreign currency
losses.
Net income for the three months ended July 31, 2021 was $142,182, or $2.42 per
diluted share, compared to $86,981, or $1.49 per diluted share, in the same
period of 2020. This represents a 63.5% increase in net income, and a 62.4%
increase in diluted earnings per share.
Industrial Precision Solutions
Sales of the Industrial Precision Solutions segment were $345,449 in the three
months ended July 31, 2021, an increase of 19.5% from sales in the comparable
period of 2020 of $288,965. The increase was the result of an organic sales
volume increase of 22.4% and favorable currency effects that increased sales by
5.1%, partially offset by a divestiture impact of 8.0%. The organic sales volume
increase was driven by continued demand in consumer non-durable and industrial
end markets, particularly in China.
Operating profit as a percentage of sales increased to 35.8% for the three
months ended July 31, 2021 compared to 25.9% in the comparable period of 2020.
The 9.9 percentage point improvement in operating margin was primarily due to
favorable absorption and the organic sales volume increase of 22.4% which
contributed 5.6 percentage points, plus favorable sales mix primarily due to the
divestiture which combined to contribute an additional 4.3 percentage points.
Advanced Technology Solutions
Sales of the Advanced Technology Solutions segment were $301,409 in the three
months ended July 31, 2021, an increase of 20.9% from sales in the comparable
period of 2020 of $249,216. The increase was the result of organic sales volume
increase of 17.8%, favorable currency effects of 2.3% and a 0.8% increase from
acquisitions. Sales demand was strong in all product lines including those
serving electronics and medical end markets, with the Americas and China leading
the growth from a regional perspective.
Operating profit as a percentage of sales increased to 26.8% for the three
months ended July 31, 2021 compared to 20.0% in the comparable period of 2020.
The 6.8 percentage point improvement in operating margin was primarily due to
favorable selling and administrative expense leverage related to the 17.8%
organic sales volume increase, and favorable product mix, which contributed 4.1
percentage points, plus lower costs related to cost structure simplification
actions and acquisitions which contributed an additional 1.9 percentage points.
Nine months ended July 31, 2021
Worldwide sales for the nine months ended July 31, 2021 were $1,762,962, an
increase of 12.8% from sales of $1,562,575 for the comparable period of 2020.
The increase consisted of a 11.6% increase in organic sales volume and a
favorable effect from currency translation of 3.4%, partially offset by a net
2.2% decrease due to acquisitions and divestitures. Strength in consumer
non-durable and industrial end markets were the primary drivers of the growth.
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Sales outside the United States accounted for 66.5% of our sales in the nine
months ended July 31, 2021 compared to 64.1% in the comparable period of 2020.
On a geographic basis, sales in the United States were $589,771, an increase of
5.1% compared to 2020, consisting of an 8.5% increase in organic sales volume,
partially offset by a net 3.4% decrease from acquisitions and divestitures. In
the Americas region, sales were $128,769, an increase of 21.5% from 2020,
consisting of an organic sales volume increase of 16.8%, a net increase of 3.2%
due to acquisitions and divestitures, and favorable currency effects of 1.5%. In
Europe, sales were $453,900, an increase of 15.0% from the comparable period of
2020, consisting of organic sales volume increase of 9.2% and favorable currency
effects of 7.7%, partially offset by a net 1.9% decrease from acquisitions and
divestitures. In Japan, sales were $79,913, a decrease of 11.6% from the
comparable period of 2020, consisting of an organic sales volume decrease of
9.0% and a net 3.6% decrease due to acquisitions and divestitures, partially
offset by favorable currency effects of 1.0%. In the Asia Pacific region, sales
were $510,609, an increase of 24.3% from 2020, consisting of an organic sales
volume increase of 21.1% and favorable currency effects of 4.9%, partially
offset by a net 1.7% decrease from acquisitions and divestitures.
Cost of sales for the nine months ended July 31, 2021 were $770,032, up from
$728,975 in the comparable period of 2020. Gross profit, expressed as a
percentage of sales, increased to 56.3% from 53.3% in the comparable period of
2020. The 3.0 percentage point increase in gross margin was driven by a
favorable product mix impact, principally driven by a divestiture, of 2.1
percentage points and favorable sales volume leverage.
Selling and administrative expenses for the nine months ended July 31, 2021 were
$529,238, up from $521,423 in the comparable period of 2020. The 1.5% increase
was primarily driven by unfavorable currency translation effects of 2.7
percentage points plus increased variable incentive compensation, partially
offset by reductions resulting from a divestiture and structural cost reduction
actions taken in 2020.
Operating profit increased from $312,177 in the nine months ended July 31, 2020
to $463,692 in the comparable period of 2021. Operating profit as a percentage
of sales increased to 26.3% for the nine months ended July 31, 2021 compared to
20.0% in the comparable period of 2020. The 6.3% increase in operating margin
was driven by the 11.6% organic sales volume increase and the favorable sales
mix from a divestiture, plus relatively flat selling and administrative
spending.
Interest expense for the nine months ended July 31, 2021 was $20,210, compared
to $25,348 in the comparable period of 2020. The decrease was due to lower
average debt levels and lower variable interest rates compared to the prior year
period. Other expense was $10,736 compared to $12,943 in the comparable period
of 2020. Included in 2021 other expense were pension costs of $6,529 and $4,049
in foreign currency losses. Included in 2020 were pension costs of $10,941 and
$562 of foreign currency loss.
Net income for the nine months ended July 31, 2021 was $343,908, or $5.86 per
diluted share, compared to $231,064, or $3.96 per diluted share, in the same
period of 2020. This represents a 48.8% increase in net income, and a 48.0%
increase in diluted earnings per share.
Industrial Precision Solutions
Sales of the Industrial Precision Solutions segment were $932,640 in the nine
months ended July 31, 2021, an increase of 11.7% from sales in the comparable
period of 2020 of $835,038. The increase was the result of an increase of 13.0%
in organic sales volume and favorable currency effects that increased sales by
4.5%, partially offset by a decrease of 5.8% due to a divestiture. Growth
occurred in all regions except for Japan.
Operating profit as a percentage of sales increased to 33.4% for the nine months
ended July 31, 2021 compared to 24.9% in the comparable period of 2020. Of the
8.5 percentage point improvement in operating margin, favorable absorption due
to higher sales volume and the favorable sales mix primarily due to a
divestiture combined for a 4.1 percentage point expansion in gross profit, plus
selling and administrative expense reductions contributed an additional 4.4
percentage points.
Advanced Technology Solutions
Sales of the Advanced Technology Solutions segment were $830,322 in the nine
months ended July 31, 2021, an increase of 14.1% from sales in the comparable
period of 2020 of $727,537. The increase was the result of an organic sales
volume increase of 10.0%, favorable currency effects that increased sales by
2.3%, and a 1.8% increase from acquisitions. Sales growth occurred in all
product lines, in particular test and inspection and fluid dispense product
lines.
Operating profit as a percentage of sales increased to 24.6% for the nine months
ended July 31, 2021 compared to 19.4% in the comparable period of 2020. The 5.2
percentage point improvement in operating margin was principally driven by
greater selling and administrative expense leverage which contributed 3.5
percentage points and was associated with the sales volume growth and cost
structure simplification actions taken in 2020.
Income taxes
We record our interim provision for income taxes based on our estimated annual
effective tax rate, as well as certain items discrete to the current
period. Significant judgment is involved regarding the application of global
income tax laws and
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regulations and when projecting the jurisdictional mix of income. We have
considered several factors in determining the probability of realizing deferred
income tax assets which include forecasted operating earnings, available tax
planning strategies and the time period over which the temporary differences
will reverse. We review our tax positions on a regular basis and adjust the
balances as new information becomes available. The effective tax rate for the
three and nine months ended July 31, 2021 was 21.2% and 20.8%, respectively,
compared to 8.9% and 16.0%, respectively, for the comparable periods a year ago.
Due to our share-based payment transactions, our income tax provision included a
discrete tax benefit of $570 and $3,165 for the three and nine months ended
July 31, 2021, respectively, compared to $11,373 and $14,048 in the comparable
periods of 2020, respectively.
During the three months ended July 31, 2020, we recorded a favorable adjustment
to unrecognized tax benefits of $443. In addition, during the three months ended
July 31, 2020, there was an increase of $5,664 in unrecognized tax benefits and,
if recognized, the gross unrecognized tax benefits would be offset against
assets currently recorded in the Consolidated Balance Sheet.
Foreign Currency Effects
In the aggregate, average exchange rates for 2021 used to translate
international sales and operating results into U.S. dollars were generally
favorable compared with average exchange rates existing during 2020,
particularly due to a strengthening euro and Chinese yuan. It is not possible to
precisely measure the impact on operating results arising from foreign currency
exchange rate changes, because of changes in selling prices, sales volume,
product mix and cost structure in each country in which we operate. However, if
transactions for the three months ended July 31, 2021 were translated at
exchange rates in effect during the same period of 2020, sales would have been
approximately $19,500 lower while costs of sales and selling and administrative
expenses would have been approximately $8,200 lower. If transactions for the
nine months ended July 31, 2021 were translated at exchange rates in effect
during the same period of 2020, sales would have been approximately $52,000
lower while costs of sales and selling and administrative expenses would have
been approximately $24,400 lower.
Financial Condition
Liquidity and Capital Resources
During the nine months ended July 31, 2021, cash and cash equivalents decreased
$34,058. Cash provided by operations during this period was $375,456 compared to
$309,958 for the nine months ended July 31, 2020. This increase was primarily
due to higher net income. Changes in operating assets and liabilities increased
cash by $12,565 and $2,455 in the nine months ended July 31, 2021 and July 31,
2020, respectively. Cash of $82,604 and $24,657 was used to fund pension and
post retirement obligations in the nine months ended July 31, 2021 and July 31,
2020, respectively.
Cash used in investing activities was $22,997 for the nine months ended July 31,
2021, compared to $163,192 used in the comparable period of 2020, which included
capital expenditures of $28,073 and $36,096 for the same periods, respectively.
During the nine months ended July 31, 2020, cash of $125,260 was used for the
Fluortek acquisition.
Cash used in financing activities was $388,126 for the nine months ended
July 31, 2021, compared to $75,404 used in the comparable period of 2020. Net
repayments of long-term debt were $292,290 in the nine months ended July 31,
2021, compared to net proceeds of $1,740 for the comparable period of 2020. In
the nine months ended July 31, 2021, cash of $68,021 was used for dividend
payments and cash of $46,840 was used for the purchase of treasury shares,
compared to $65,737 and $51,897, respectively, in the comparable period of 2020.
Issuance of common shares related to employee benefit plans generated $24,136
during the nine months ended July 31, 2021 compared to $46,304 in the comparable
period of 2020.
The following is a summary of significant changes in balance sheet captions from
October 31, 2020 to July 31, 2021. The decrease of $83,072 in pension
obligations was primarily due to pension contributions during the second and
third quarters of 2021. Long-term debt decreased $278,221 primarily due to the
full repayment of our term loan due 2024.
We believe the combination of present capital resources, cash from operations
and unused financing sources are more than adequate to meet cash requirements
for 2021. There are no significant restrictions limiting the transfer of funds
from international subsidiaries to the parent company. We were in compliance
with all debt covenants at July 31, 2021. Refer to our Long-term debt footnote
for additional details regarding our debt outstanding.
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Outlook
Backlog entering the fourth quarter of fiscal year 2021 is approximately $700
million, or 70% above the prior year. Customer order patterns have clearly
changed in terms of both volume and extended shipment request dates during this
dynamic environment. Based on the continued strength in backlog, the Company is
increasing its full-year revenue and earnings guidance.
The Company expects full year sales growth in fiscal 2021 to be approximately
11% to 12% over fiscal year 2020, inclusive of a 3% headwind from the second
quarter 2021 divestiture of the screws and barrels product line. Additionally,
the Company is now forecasting full year 2021 earnings per diluted share in the
range of $7.75 to $7.95. The increased guidance midpoint represents a strong
second half of 2021 with year-over-year sales growth of 14% and earnings growth
of 47%. The Company is expecting to enter fiscal 2022 with a backlog
approximately 70% greater than the the prior year.
Safe Harbor Statements Under The Private Securities Litigation Reform Act of
1995
This Form 10-Q, particularly the "Management's Discussion and Analysis",
contains forward-looking statements within the meaning of the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, as amended, and the
Private Securities Litigation Reform Act of 1995. Such statements relate to,
among other things, income, earnings, cash flows, changes in operations,
operating improvements, businesses in which we operate and the U.S. and global
economies. Statements in this Form 10-Q that are not historical are hereby
identified as "forward-looking statements" and may be indicated by words or
phrases such as "anticipates", "supports", "plans", "projects", "expects",
"believes", "should", "would", "could", "hope", "forecast", "management is of
the opinion", use of the future tense and similar words or phrases. These
statements reflect management's current expectations and involve a number of
risks and uncertainties. These risks and uncertainties include, but are not
limited to, U.S. and international economic conditions; financial and market
conditions; currency exchange rates and devaluations; possible acquisitions
including the Company's ability to complete and successfully integrate
acquisitions, including the acquisition of NDC; the Company's ability to
successfully divest or dispose of businesses that are deemed not to fit with its
strategic plan; the effects of changes in U.S. trade policy and trade
agreements; the effects of changes in tax law; and the possible effects of
events beyond our control, such as political unrest, acts of terror, natural
disasters and pandemics, including the current coronavirus (COVID-19) pandemic.
In light of these risks and uncertainties, actual events and results may vary
significantly from those included in or contemplated or implied by such
statements. Readers are cautioned not to place undue reliance on such
forward-looking statements. These forward-looking statements speak only as of
the date made. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, except as required by law.
Factors that could cause actual results to differ materially from the expected
results are discussed in Part I, Item 1A, Risk Factors in our 2020 Form 10-K.

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