Manufacturing company Nordson (NASDAQ:NDSN) reported Q3 CY2024 results exceeding the market’s revenue expectations , with sales up 3.5% year on year to $744.5 million. On the other hand, next quarter’s revenue guidance of $635 million was less impressive, coming in 6.9% below analysts’ estimates. Its non-GAAP profit of $2.78 per share was 7.3% above analysts’ consensus estimates.

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Commenting on the Company’s fiscal 2024 fourth quarter results, Nordson President and Chief Executive Officer Sundaram Nagarajan said, “I appreciate our team’s focus and commitment to our customers, which delivered results above our fourth quarter guidance expectations. Our Advanced Technology Solutions segment delivered year-over-year fourth quarter sales growth, as electronics demand continued to steadily improve at fiscal year-end. During the down electronics cycle, our ATS team holistically implemented the NBS Next growth framework, making them responsive to the needs of our customers while also delivering a strong incremental operating performance. Our industrial product lines performed well against record comparisons from prior year. I’m also pleased with the early integration of our Atrion Medical acquisition, which contributed positively to the quarter.”

Company Overview

Founded in 1954, Nordson Corporation (NASDAQ:NDSN) manufactures dispensing equipment and industrial adhesives, sealants and coatings.

Professional Tools and Equipment

Automation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand. Some professional tools and equipment companies also provide software to accompany measurement or automated machinery, adding a stream of recurring revenues to their businesses. On the other hand, professional tools and equipment companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Sales Growth

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Nordson’s sales grew at a sluggish 4.2% compounded annual growth rate over the last five years. This was below our standard for the industrials sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Nordson’s recent history shows its demand slowed as its annualized revenue growth of 1.9% over the last two years is below its five-year trend.

We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don’t accurately reflect its fundamentals. Over the last two years, Nordson’s organic revenue averaged 1.9% year-on-year declines. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, Nordson reported modest year-on-year revenue growth of 3.5% but beat Wall Street’s estimates by 1%. Company management is currently guiding for flat sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 9% over the next 12 months, an improvement versus the last two years. This projection is above average for the sector and suggests its newer products and services will fuel better top-line performance.

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Operating Margin

Nordson has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 24.3%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Nordson’s operating margin rose by 8.6 percentage points over the last five years, showing its efficiency has meaningfully improved.

In Q3, Nordson generated an operating profit margin of 24%, down 1.7 percentage points year on year. Since Nordson’s operating margin decreased more than its gross margin, we can assume it was recently less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Nordson’s EPS grew at a decent 8.6% compounded annual growth rate over the last five years, higher than its 4.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into Nordson’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Nordson’s operating margin declined this quarter but expanded by 8.6 percentage points over the last five years. Its share count also shrank by 1.1%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Nordson, its two-year annual EPS declines of 2.9% mark a reversal from its five-year trend. We hope Nordson can return to earnings growth in the future.

In Q3, Nordson reported EPS at $2.78, up from $2.71 in the same quarter last year. This print beat analysts’ estimates by 7.3%. Over the next 12 months, Wall Street expects Nordson’s full-year EPS of $9.55 to grow 8.4%.

Key Takeaways from Nordson’s Q3 Results

We enjoyed seeing Nordson exceed analysts’ revenue, EBITDA, and EPS expectations this quarter. On the other hand, its full-year revenue and earnings guidance fell short of Wall Street’s estimates, sending shares lower. Overall, this quarter could have been better. The stock traded down 6.3% to $234 immediately following the results.

Nordson’s latest earnings report disappointed. One quarter doesn’t define a company’s quality, so let’s explore whether the stock is a buy at the current price. The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.