Nordson(US:NDSN)2022-02-23 19:03Financial Data and Key Metrics Changes - First quarter 2022 sales were $609 million, a 16% increase from $527 million in the prior year, driven by 16% organic volume growth and 4% from the NDC acquisition [7][12] - Gross profit for Q1 2022 was $340 million, or 56% of sales, compared to $290 million or 55% of sales in the prior year, reflecting a 100 basis point increase in gross margin [8][11] - Operating profit was $156 million, or 26% of sales, a 44% increase from the prior year [10] - Net income totaled $120 million, or $2.05 per share, with adjusted earnings per share of $2.07, a 57% increase from the prior year [11][12] Business Line Data and Key Metrics Changes - Industrial Precision Solutions (IPS) sales were $324 million, a 12% increase year-over-year, with organic volume growth of 12% and an 8% contribution from the NDC acquisition [12][14] - Advanced Technology Solutions (ATS) sales increased 20% to $285 million, with organic sales volume growth of 21% [15][16] - IPS operating profit was $104 million, or 32% of sales, a 24% increase from the prior year [14] - ATS operating profit was $76 million, or 27% of sales, a 62% increase from the prior year [16] Market Data and Key Metrics Changes - All regions delivered organic growth in Q1 2022, with particularly strong demand in Asia and Europe [7][14] - The backlog grew to over $900 million, driven by strong order entry in electronics, industrial, and medical end markets [22] Company Strategy and Development Direction - The company is focused on deploying the NBS Next growth framework to enhance customer engagement and operational efficiency [19][25] - The leadership team is advancing the implementation of the Ascend strategy to drive sustainable, profitable growth [25] - The company remains active in M&A with a healthy pipeline, focusing on scaling its medical business and expanding test and inspection capabilities [45][95] Management's Comments on Operating Environment and Future Outlook - Management noted that supply chain constraints and labor shortages are expected to persist into the second half of the year, but improvements are anticipated [23][30] - For Q2 2022, the company expects sales growth in the range of 6% to 10% compared to Q2 2021, with adjusted earnings per diluted share between $2.20 and $2.30 [24][25] - Full-year revenue growth is projected to be in the range of 7% to 10%, with adjusted earnings per diluted share growth of 14% to 18% over fiscal 2021 [25] Other Important Information - Free cash flow for the quarter was $106 million, with a conversion rate on net income of 88% [17] - The company ended the quarter with cash totaling $171 million and net debt of $637 million, resulting in a leverage ratio of 0.8 times based on trailing 12 months EBITDA [18] Q&A Session Summary Question: Price cost spread and its future cadence - Management indicated that the negative price cost mismatch of 100 basis points in Q1 is expected to improve, potentially halving in Q2 and becoming neutral in the back half of the year [28] Question: Supply chain and labor visibility - Management noted that supply chain issues are not uniform across all businesses, with some improvement expected as the year progresses, particularly in labor availability [30] Question: Backlog normalization - Management expects supply chain normalization to occur in the second half of the year, with the current backlog being inflated due to large system orders extending into 2023 [41][42] Question: Capital allocation and M&A strategy - The company remains disciplined in its M&A approach, focusing on strategic acquisitions that align with its growth objectives, while also returning capital through dividends and share buybacks [45][94] Question: Performance of NDC Technologies acquisition - The integration of NDC Technologies into IPS is progressing well, with strong alignment in end markets and growth opportunities identified post-acquisition [52] Question: Trends in elective surgeries and biopharma - Elective surgeries are recovering, and the biopharma business is strong, driven by vaccine production and gene therapies [55] Question: Geographic performance and growth - Significant strength was noted in Europe and Asia, while the U.S. and Japan showed more modest growth, with Japan still recovering from COVID impacts [58] Question: ATS margins and sustainability - ATS margins were strong due to volume leverage and cost control measures, with favorable mix benefits particularly from the medical business [73]