Nordson Corp 2026 Q3 Earnings Call

Good morning. This is Matt Matejka, senior director of investor relations. I am here with Sundaram Nagarajan, our president and chief executive officer, and Dan Hopgood, executive vice president and chief financial officer. We welcome you to our conference call today, Thursday, August 20th, to report Nordson's fiscal 2026 third quarter results. You can 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.nordson.com/investors. This conference call is being broadcast live on our investor website and will be available there for 30 days. 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 2 of our presentation where we note that certain statements regarding our future performance that are made during this call may be forward-looking, based upon Nordson's current expectations. 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 3, Naga will discuss third quarter highlights. He will then turn the call over to Dan to review sales and earnings performance for the total company and the three business segments. Dan will also discuss the balance sheet and cash flow. Naga will then share a high-level commentary about our enterprise performance and provide an update on the fiscal 2026 full year guidance. We will then be happy to take your questions.

With that, I will turn to slide 4 and turn the call over to Naga.

Good morning, everyone. Thank you for joining Nordson's fiscal 2026 third quarter conference call. Before we begin, I would like to welcome Matt Matejka to our call in his new role of senior director, investor relations. As we announced in a previous press release, Matt has assumed investor relations responsibilities from Lara Mahoney, who has taken on a new role within Nordson. Matt joined Nordson in 2023 and brings over 10 years of experience in financial leadership roles, most recently serving as finance director for our Industrial Coating Solutions division. Moving on to the financial results, I am pleased to share that the momentum driving our strong first half continued throughout the third quarter. For the first nine months of fiscal 2026, Nordson has grown revenue by 9% and adjusted earnings per share by 18% year-over-year, with strong backlog giving us confidence in the rest of the year.

As our growth end markets continue to inflect, we are winning due to our unique competitive advantages and the successful execution of our ASCEND strategy. We are well-positioned to continue compounding profitable growth. During the third quarter, all three segments, again, contributed to our organic growth performance, surpassing the high end of our sales and earnings guidance. We achieved record sales of $818 million. This is a 10% increase over the prior year, which is inclusive of 12% overall organic growth. Order entry momentum continued to accelerate, driving backlog up 35% compared to the prior year. Backlog growth was broad-based with all segments contributing, but particular strength coming from our Advanced Technology Solutions and Medical and Fluid Solutions segments. Solid execution and volume leverage drove record profit performance for the quarter, delivering EBITDA of $262 million, which was an all-time record and 32% of sales.

Adjusted earnings per share of $3.25 was also an all-time record for the business. This was an increase of 19% compared to prior year. I would also like to highlight our free cash flow of $237 million. Our free cash flow conversion of well over 100% of net income continues to be a strength, enabling a healthy mix of shareholder returns and reinvestment in growth. Our balance sheet continues to be in a strong position, giving us plenty of flexibility for future acquisitions that meet our strategic and financial criteria. I will talk more about enterprise performance in a few moments, but first, I will turn the call over to Dan to provide detailed perspective on our financial results for the quarter.

Thank you, Naga, and good morning, everyone. On slide number 5, you will see we achieved record level sales of $818 million in the third quarter, up 10% from prior year third quarter sales of $742 million. The third quarter 2026 sales included an organic increase of 12%, driven by growth in all three of our segments. Currency translation was effectively neutral for the period. Strong organic sales performance was slightly offset by the net impact of the medical contract manufacturing divestiture completed in the fourth quarter of last year, and the small contribution from the CapstanAG acquisition that was completed during the second quarter of this year. Adjusted operating profit increased 13% year-over-year to a record $226 million or 28% of sales, driven by increased leverage on the strong organic sales growth across the segments.

EBITDA was up 10% year-over-year to $262 million, also a new company record. EBITDA margin as a percent of sales was 32%, in line with the prior year. Incremental EBITDA contribution in the quarter was just shy of 32%. We are quite pleased with these operating results, which reflect our focus on maximizing growth potential while protecting our best-in-class margins and effectively managing near-term inflationary pressures tied to the broader market and geopolitical factors. In addition, we continue to reinvest and innovate to maintain our strong value proposition for many years to come. Looking at non-operating income and expenses, net interest expense during the quarter was $20 million, a decrease of over $5 million versus the prior year, which is really driven by two key factors. One, our strong cash generation through the first nine months has allowed us to significantly delever our balance sheet.

In addition, our average borrowing cost has improved year-over-year due to lower market rates on our variable debt, including the benefits from the recently announced commercial paper program that was launched during the quarter. Other expenses on a GAAP basis increased $14 million year-over-year, with the primary driver being a $15 million non-cash mark-to-market charge for minority investments. These non-cash valuation adjustments are subject to market volatility, and on a year-to-date basis, the impact is actually negligible. Excluding this non-cash charge, other expenses net decreased by a nominal $1 million year-over-year. Our tax expense on a U.S. GAAP basis was $33 million for an effective tax rate of 17.8%, inclusive of the impact of the non-cash loss I just mentioned and acquisition-related amortization and costs.

On an adjusted basis, our effective tax rate was 18.3%, in line with the prior quarter run rate. For the full year, we expect our tax rate to be near 18%, which is also reflective of our ongoing rate expectations. GAAP net income in the quarter totaled $153 million, or $2.73 per share. Excluding acquisition-related amortization and costs and the non-cash loss, adjusted earnings per share totaled a record $3.25 per share, $0.10 above the high end of our guidance range, and a 19% increase from prior year adjusted earnings per share of $2.73. To wrap up our consolidated summary, the improvement in year-over-year earnings and record Q3 results reflect strong sales growth across our portfolio, which I will cover a bit more in a moment. It also reflects strong delivery execution driven through our ASCEND strategy and NBS Next framework.

Our differentiated products, market position in commercial and operational execution, have allowed us to grow our adjusted earnings per share 18% year-over-year through the first nine months of the year with strong momentum heading into the fourth quarter. Now let's turn to slides six through eight to review the third quarter 2026 segment performance. Industrial Precision Solutions sales were $367 million, an increase of 5% compared to the prior year third quarter. Organic sales increased 3% compared to the prior year, with a favorable currency impact of 1% and an acquisition contribution of roughly 1%. Organic growth was driven by packaging and industrial coatings application demand and continued recovery in our plastics processing demand. Broadly speaking, aftermarket demand remains stable across our IPS portfolio, while systems demand for broader industrial and agricultural markets remains stable but with limited growth.

EBITDA was $130 million in the quarter, or 35% of sales, which is in line with the third quarter of last year as we continue to invest in innovation while mitigating selected near-term inflationary pressures. Turning to slide seven, you will see Medical and Fluid Solutions sales of $231 million, a quarterly record. Total sales increased 5% compared to the third quarter of last year, while organic sales increased closer to 11% in the quarter, driven by contributions from both our engineered fluid solutions and medical product lines. Divested sales from the medical contract manufacturing business had a negative impact of approximately 6% compared to the prior year. Medical component demand has normalized, and we are now seeing stable, ongoing growth in many of our product lines, while we are also seeing broad-based demand for fluid solution systems applications in medical and electronics markets.

EBITDA for Medical and Fluid Solutions was a record $88 million, or 38% of sales, which is an increase of 6% from prior year EBITDA of $83 million. The segment delivered strong year-over-year incrementals during the quarter, and EBITDA margins improved about 100 basis points sequentially on the higher sales. Turning to slide eight, you will see Advanced Technology Solutions sales were an all-time quarterly record of $220 million, a 28% increase compared to the prior year's third quarter. Organically, sales increased 31%, with growth coming across both the electronics dispense and Test & Inspection product lines, reflecting the continued strength in semiconductor and broadening electronics end market demand. Third quarter EBITDA was also an all-time quarterly record of $66 million, driving a record EBITDA margin of 30% of sales. EBITDA increased 58% compared to the prior year third quarter EBITDA of $42 million, or 24% of sales.