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. OverviewNordson 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 inWestlake, 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 andAdvanced 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 endedOctober 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 endedOctober 31, 2020 . Results of Operations Three months endedJuly 31, 2021 Worldwide sales for the three months endedJuly 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 outsidethe United States accounted for 68.8% of our sales in the three months endedJuly 31, 2021 compared to 65.9% in the comparable period of 2020. On a geographic basis, sales inthe 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 theAmericas 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. InEurope , 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. InJapan , which continues to manage Page 23 -------------------------------------------------------------------------------- Table of ContentsNordson Corporation 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 theAsia 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 endedJuly 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 endedJuly 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 endedJuly 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 endedJuly 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 endedJuly 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 endedJuly 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 endedJuly 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 inChina . Operating profit as a percentage of sales increased to 35.8% for the three months endedJuly 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 theAdvanced Technology Solutions segment were$301,409 in the three months endedJuly 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 theAmericas andChina leading the growth from a regional perspective. Operating profit as a percentage of sales increased to 26.8% for the three months endedJuly 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 endedJuly 31, 2021 Worldwide sales for the nine months endedJuly 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. Page 24 -------------------------------------------------------------------------------- Table of ContentsNordson Corporation Sales outsidethe United States accounted for 66.5% of our sales in the nine months endedJuly 31, 2021 compared to 64.1% in the comparable period of 2020. On a geographic basis, sales inthe 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 theAmericas 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%. InEurope , 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. InJapan , 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 theAsia 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 endedJuly 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 endedJuly 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 endedJuly 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 endedJuly 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 endedJuly 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 endedJuly 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 endedJuly 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 forJapan . Operating profit as a percentage of sales increased to 33.4% for the nine months endedJuly 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 theAdvanced Technology Solutions segment were$830,322 in the nine months endedJuly 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 endedJuly 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 Page 25 -------------------------------------------------------------------------------- Table of ContentsNordson Corporation 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 endedJuly 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 endedJuly 31, 2021 , respectively, compared to$11,373 and$14,048 in the comparable periods of 2020, respectively. During the three months endedJuly 31, 2020 , we recorded a favorable adjustment to unrecognized tax benefits of$443 . In addition, during the three months endedJuly 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 intoU.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 endedJuly 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 endedJuly 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 endedJuly 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 endedJuly 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 endedJuly 31, 2021 andJuly 31, 2020 , respectively. Cash of$82,604 and$24,657 was used to fund pension and post retirement obligations in the nine months endedJuly 31, 2021 andJuly 31, 2020 , respectively. Cash used in investing activities was$22,997 for the nine months endedJuly 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 endedJuly 31, 2020 , cash of$125,260 was used for the Fluortek acquisition. Cash used in financing activities was$388,126 for the nine months endedJuly 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 endedJuly 31, 2021 , compared to net proceeds of$1,740 for the comparable period of 2020. In the nine months endedJuly 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 endedJuly 31, 2021 compared to$46,304 in the comparable period of 2020. The following is a summary of significant changes in balance sheet captions fromOctober 31, 2020 toJuly 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 atJuly 31, 2021 . Refer to our Long-term debt footnote for additional details regarding our debt outstanding. Page 26 -------------------------------------------------------------------------------- Table of ContentsNordson Corporation 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 theU.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 inU.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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