Nordson Executive Insights: Adhesives Acquisitions, More Detail
On Tuesday, Nordson Corporation (NASDAQ:NDSN) reported its second quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared.
Adhesives & Acquisitions
Liam Burke – Janney: Mike, on the Adhesive Dispensing operating margins were strong, down year-over-year, was there a higher percentage of system sales in Adhesives even though you saw weakness in the durable end markets?
Michael F. Hilton – President and CEO: Really the difference is largely two things. If you recall last second quarter we talked about a very, very good mix within the overall company and within certainly the Adhesives segments and we felt that was probably worth a point or point and a half just in the strong mix between the different product lines. And then the volume is actually down a bit here, and while we like it when volume goes up, we do have significant incremental volume leverage. And when it goes the other way, we see that.
Liam Burke – Janney: On the acquisition front you’ve had quite a few being integrated into the business. How has that progress been with bringing on these acquisitions into the firm?
Michael F. Hilton – President and CEO: Progress has been good. We laid out pretty solid integration plans upfront, where it specifically goes around each of the acquisitions and I’d say, we’re generally on track with those acquisitions and we feel as good as we did at the time we made the acquisitions about the fit and opportunity for the three that we made over the last year.
Liam Burke – Janney: I guess lastly on EDI, you mentioned that the operating margins are at or slightly below the firm operating margins, are there any benefits you can get or financial benefits on the operating side that you can get by integrating EDI into Nordson?
Michael F. Hilton – President and CEO: So we look at – the comment was, EBITDA margins were a little bit lower than our overall company average and as Peter mentioned, we see both sort of opportunities from topside revenue synergies, as well as we think there will some opportunities from cost synergies. We are pretty well established and as Peter mentioned, on our oil cost sourcing initiative we have reinvigorated over the last year and half or so our continuous improvement activities. We are starting with a very well run company that’s improved nicely over the last four years, but we do think there are some things that we can apply that relate to some of the things that we are working on from (indiscernible) improvement that would further help to grow and expand the profitability of the EDI business.
Jason Ursaner – CJS Securities: Just first on the orders in the tax segment, surprisingly strong. You mentioned, broad based strength and I think you noted the mobile devices. Can you just provide a little more detail, if I try to break it down between organic growth in life science for the acquired businesses, recovery off the bottom, in the semi-cycle and then secular growth in certain applications like flip chip assembly. You could just try and I guess, talk a little bit more about, how each of the…?
Michael F. Hilton – President and CEO: Yeah. I’ll give you a little more color commentary. I’m not sure I hit all the points that you had there, Jason. I’d say our medical business is on track for the kind of growth that we expected in that business targeting double-digit type of growth. I think, what we said last time in the electronics related piece, which is about 75% of that segment is, in our last call, we talked about how the mobile device piece particularly smartphones tablets was very strong. But the more traditional sort of desktop, server type of market was pretty soft and that played through our different business in different ways. What I would say, what we’re seeing in this most recent, order data is the mobile piece continuing to be very, very strong and so that plays through in a lot of our systems businesses and for the first time, I’d say we’re starting to see orders from the more traditional customers on things that support desktop, server type of applications starting to come through in the last few weeks, so that’s an encouraging sign. Now, I think we also talked in the past about how our order pattern could peak in the second or third quarter, depending on the timing of launches of various product lines. So, I’d say as it relates to the mobile devices, we’ve had a very, very strong quarter here that’s time with key customer launch cycles. That may slow down a bit going forward, but we’re encouraged by the fact that we’re starting to see orders on the more traditional backend packaging piece. So depending on how they play out, order rates may ameliorate a little bit going forward.
Jason Ursaner – CJS Securities: And then you acquired Verbruggen in mid 2011 sort of dipped the toe into the flat die market with flexible packaging. What have learned since then that I guess think makes you think that this is really the right market for Nordson to be in?
Michael F. Hilton – President and CEO: I’ll make a couple comments and then if Peter wants to add anything he can go ahead. What we said is we had four areas that we were interested in expanding our portfolio in and one of those was flexible packaging, in part because we see that growing at perhaps slightly higher rate than our rigid packaging, in part because we have a lot of customers who participate both in the rigid and flexible packaging, and in part because we thought the business model was similar to our current portfolio of business. And I think the Verbruggen was a nice regional acquisition for us and it gave us a better view as to confirming that that business model does in fact make sense and that we were looking for opportunities to expand that globally and to link into continuing to drive businesses where we have technology leadership positions.
Peter G. Lambert – SVP, Adhesive Dispensing Systems: And I guess I’ll just add to that, as we looked at the development of the Verbruggen dies, part of our hot melt coating business today is (wide) dies of hot melt. And as we look into the technology, the development and engineering of these, they are very similar and we’ve become appreciative of how some similar they are and that there can be a two-way technology transfer from what we know in hot melts and what the extrusion die companies know around essentially warm plastic that we think there is additional leverage there on the technology side.
Gregory A. Thaxton – SVP and CFO: Jason, this is Greg. I’d add a point to it, it’s kind of within Mike’s comments on the business model. It’s consistent with where we operate and some of our adhesive businesses and that we were providing a pretty key technology component that’s relatively low cost in relation to the overall cost tax. So we like the thought that it’s kind of that component supplier of high value.
Jason Ursaner – CJS Securities: When it did change hands in 2010, had you guys bid on it or been part of the process at that time?
Gregory A. Thaxton – SVP and CFO: Yeah, we took a look at it at that time, yes.
Jason Ursaner – CJS Securities: Can you disclose how below the (cover) that you had been at that time?
Gregory A. Thaxton – SVP and CFO: I don’t want to comment. We didn’t win and we were disappointed we didn’t win.
Jason Ursaner – CJS Securities: Just last question, the business, I’ll jump back in the queue, appreciate the color.