Nordson (NDSN) Down 6.1% Since Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Nordson Corporation NDSN. Shares have lost about 6.1% in that time frame.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Third-Quarter Fiscal 2017 Highlights

Nordson Corporation reported better-than-expected results in third-quarter fiscal 2017. Adjusted earnings came in at $1.78 per share, surpassing the Zacks Consensus Estimate of $1.66 by 7.2%. Also, the bottom line surpassed the year-ago tally of $1.47 by 21.1% on the back of healthy segmental sales and improved margin.

Net sales in the quarter were $589.4 million, increasing 20.3% year over year. The improvement came on the back of 11% increase in organic volume and 10% gain from acquired assets, partially offset by 0.4% negative impact of currency translation. Also, the top line came in above the Zacks Consensus Estimate of $575.6 million.

Backlog was $372 million, up 10% year over year. Orders for the 12-week period ended Aug 13, decreased 2% year over year.

On a regional basis, revenues sourced from the United States increased 35.5% year over year. Businesses in Japan, Asia Pacific and the Americas also improved, recording revenue increase of 19.5%, 17.7% and 36.3%, respectively. Top-line performance in Europe improved 4.1%.

Segmental Revenues: Nordson reports its top-line results under three segments, namely, Adhesive dispensing systems, Advanced technology systems and Industrial coating systems. A brief discussion on the segmental performance is provided below:

Adhesive dispensing systems generated revenues of $233.4 million, up 5.7% year over year. Advanced technology systems revenues totaled $290.4 million, up 41.4% year over year. Revenues generated from Industrial coating systems increased 3% to $65.7 million.

Margins: Nordson's margin profile improved in the quarter on the back of sales growth, partially offset by rise in expenses. Cost of sales grew 21.5% year over year, representing 44.6% of net sales compared with 44.2% in the year-ago quarter. Selling and administrative expenses, as a percentage of net sales, was 29.3% compared with 30.5% in the year-ago quarter.

Operating profits increased 24.1% year over year while the margin came in at 26% versus 25.2% in the year-ago quarter.

Balance Sheet & Cash Flow: Exiting the fiscal third quarter, Nordson's cash and marketable securities were $110.7 million, up from $88.4 million recorded in the previous-quarter end. The company's long-term debt was $1,569.7 million, slightly below $1,574.2 million exiting the previous quarter.

In the quarter, the company's net cash generated from operating activities increased 13.2% year over year to $76.8 million while capital spent on addition of property, plant and equipment increased 11.9% to $22.3 million.

During the quarter, the company paid dividends of approximately $15.6 million to its shareholders.

Outlook: For fourth-quarter fiscal 2017, Nordson anticipates sales to increase in the range of 4-8% year over year. Organic volume is predicted to decrease 3% to 7%. Acquisition gains will likely lead to 10% sales growth while foreign currency movements will add 1%. Operating margin will likely be 21%.

GAAP earnings are expected in the range of $1.18-$1.32 per share, including 7 cents of expenses related to acquisition intangible asset amortization.

For fiscal 2017, organic revenue growth is predicted to be 6%. Adjusted earnings per share will be $5.24, reflecting 12% year-over-year growth.

How Have Estimates Been moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been six revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 11.3% due to these changes.

Nordson Corporation Price and Consensus

Nordson Corporation Price and Consensus | Nordson Corporation Quote

VGM Scores

At this time, Nordson's stock has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated also a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. The stock has a Zacks Rank #4 (Sell). We are expecting a below average return from the stock in the next few months.

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