Nordson Corporation Is Packaged For Success

Perfectly Positioned Nordson Corporation Hits New High 

Nordson Corporation NASDAQ: NDSN is perfectly positioned for today's operating environment. Between robust systemic demand for products across the supply chain and the ever-increasing use of e-commerce, demand for packaging products is hitting record levels. Based on the outlook for economic growth and the company's growing backlog, it looks to us as if the business will remain at this level if not improve later in the year. Add to that a fortress balance sheet and a very safe dividend and we think it easy to understand why we're interested in this investment.

“In the fiscal third quarter, we continued to benefit from the robust end-market demand and accelerated recovery that we experienced in our second quarter. We were particularly pleased to see a strong growth return in our medical, electronics and industrial end markets. Our teams are doing an outstanding job of managing through the external supply chain and labor headwinds in order to deliver on the needs of our customers. The comprehensive execution of the Ascend strategy with NBS Next growth framework at its core continues to help us deliver top tier growth with leading margins and returns,” said Sundaram Nagarajan, president and chief executive officer.

A Record-Setting Quarter For Nordson Corporation 

Nordson Corporation had a record-setting quarter in many ways. Not only did the company’s revenue set a new record but so too did operating profit and earnings per share. The company reported $646.86 million in consolidated revenue for a gain of 20.2% over last year. The gain was driven by strength in all end markets and beat the consensus by 700 basis points. In the two-year stack, revenue is up more than 15.5% and expected to remain strong into the end of the year at least.

On an organic basis, a 20% increase in organic sales was compounded by favorable FX tailwinds and offset by divestitures over the past year.  On a segment basis, both the Industrial Processing Solutions and Technology Solutions segments grew by 20%.

Moving down the report, the company's operating margin widened to 29% of sales due to cost leverage and structural reforms within the business. The operating profit grew 57% to $188.28 million on the combination of revenue and margin improvement to drive a 70% increase in bottom-line GAAP earnings. On the bottom line, the $2.42 reported by the company beat the consensus by $0.37 and it is likely we'll see these numbers exceeded in the coming quarters.

The company says its backlog increased by 70% over last year so we are not surprised to see the guidance raised as well. The company increased full-year fiscal 2021 guidance for revenue to a range of 11% to 12% versus the 10.25% expected by the consensus with earnings in the range of $7.75 to $7.95. In our view, this guidance is very very light and leaves the door open for a substantial beat next reporting period. The company only has to bring in $2.09 in the fiscal fourth quarter to match the high end of this range and we expect to see revenue and earnings growth, not contraction.

Aggressive Dividend Increases Are In Store For Nordson Investors

Nordson is a high-quality dividend payer with a long history of dividend increases. The 24-year history of annual increases is backed up by a low payout ratio and a fortress balance sheet so we see no reason why investors shouldn't expect another 24 years of increases. More importantly, based on the record cash flow, the fortress balance sheet, and the most recent dividend increase we think future increases could be substantial. The last increase was 30% and the company is still only paying 25% of a consensus estimate that is far below reality. We will not be surprised to see another high double-digit increase at the end of the fiscal year.

The Technical Outlook: Nordson Hits A Peak

Shares of Nordson moved higher in premarket action and opened with a gain near 1%. This puts the stock at a new all-time high but it may be a little while before the next new high is set. Profit takers caped gains at the $240 level and set the stock up to either consolidate or pull back to support. In our view, either movement will result in a buying opportunity for patient investors.