NORDSON CORP 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors affecting our financial condition and results of operations for the periods included in the accompanying condensed consolidated financial statements. Throughout this Quarterly Report on Form 10-Q, components may not sum to totals due to rounding. Overview Nordson is an innovative precision technology company that leverages a scalable growth framework expected to deliver top tier growth with leading margins and returns. We engineer, manufacture and market differentiated products and systems used for precision dispensing, applying and controlling of adhesives, coatings, polymers, sealants, biomaterials, and other fluids, to test and inspect for quality, and to treat and cure surfaces and various medical products such as: catheters, cannulas, medical balloons and medical tubing. These products are supported with extensive application expertise and direct global sales and service. We serve a wide variety of consumer non-durable, consumer durable and technology end markets including packaging, electronics, medical, appliances, energy, transportation, precision agriculture, building and construction, and general product assembly and finishing. Our strategy for long-term growth is based on solving customers’ needs globally. We were incorporated in the State of Ohio in 1954 and are headquartered in Westlake, Ohio. Our products are marketed through a network of direct operations in more than 35 countries. As of April 30, 2025, we had approximately 7,800 employees worldwide. We have principal manufacturing operations and sources of supply in the United States in Ohio, Georgia, California, Colorado, Connecticut, Illinois, Michigan, Minnesota, Pennsylvania, Rhode Island, Tennessee, Florida, Texas, Alabama, South Carolina and Wisconsin; as well as in the People’s Republic of China, Germany, Ireland, India, Israel, Italy, Mexico, the Netherlands and the United Kingdom. Critical Accounting Policies and Estimates A comprehensive discussion of the Company’s critical accounting policies and management estimates and significant accounting policies followed in the preparation of the financial statements is included in Item 7 of our Annual Report on Form 10-K for the year ended October 31, 2024 (the "2024 Form 10-K"). There have been no significant changes in critical accounting policies, management estimates or accounting policies followed since the year ended October 31, 2024. Page 22 Table of Contents Nordson Corporation Results of Operations Below is a detailed comparison of our results of operations for the three and six months ended April 30, 2025 and April 30, 2024. As used throughout this Quarterly Report on Form 10-Q, geographic regions include the Americas (United States, Canada, Mexico and Central and South America), Asia Pacific and Europe. Consolidated Financial Results Consolidated financial results for the three months ended April 30, 2025 and April 30, 2024 were as follows: Three Months Ended (In thousands except for per-share amounts) April 30, 2025 April 30, 2024 Change Sales $ 682,938 $ 650,642 5.0 % Cost of sales 309,034 284,765 8.5 % Gross margin 373,904 365,877 2.2 % Gross margin % 54.7 % 56.2 % (1.5) % Selling and administrative expenses 205,154 197,261 4.0 % Operating profit 168,750 168,616 0.1 % Interest expense (26,572) (20,109) 32.1 % Interest and investment income 553 1,554 (64.4) % Other - net (3,961) (785) 404.6 % Income before income taxes 138,770 149,276 (7.0) % Income tax expense 26,366 31,059 (15.1) % Net income $ 112,404 $ 118,217 (4.9) % Consolidated financial results for the six months ended April 30, 2025 and April 30, 2024 were as follows: Six Months Ended (In thousands except for per-share amounts) April 30, 2025 April 30, 2024 Change Sales $ 1,298,358 $ 1,283,835 1.1 % Cost of sales 588,558 569,531 3.3 % Gross margin 709,800 714,304 (0.6) % Gross margin % 54.7 % 55.6 % (0.9) % Selling and administrative expenses 400,103 386,253 3.6 % Operating profit 309,697 328,051 (5.6) % Interest expense (53,131) (41,551) 27.9 % Interest and investment income 1,494 2,598 (42.5) % Other - net (2,435) (1,123) 116.8 % Income before income taxes 255,625 287,975 (11.2) % Income tax expense 48,569 60,186 (19.3) % Net income $ 207,056 $ 227,789 (9.1) % Page 23 Table of Contents Nordson Corporation Net Sales Net sales for the IPS, MFS and ATS segments were as follows: Three Months Ended Variance - Increase (Decrease) Apr 30, 2025 % of Total Apr 30, 2024 % of Total Organic Acquisitions Currency Total IPS $ 318,847 46.7% $ 344,978 53.0% (6.9) % — % (0.7) % (7.6) % MFS 202,809 29.7% 168,966 26.0% (10.0) % 30.0 % — % 20.0 % ATS 161,282 23.6% 136,698 21.0% 18.1 % — % (0.1) % 18.0 % Total $ 682,938 $ 650,642 (2.4) % 7.8 % (0.4) % 5.0 % Six Months Ended Variance - Increase (Decrease) Apr 30, 2025 % of Total Apr 30, 2024 % of Total Organic Acquisitions Currency Total IPS $ 619,295 47.7% $ 682,720 53.2% (7.6) % — % (1.7) % (9.3) % MFS 396,418 30.5% 328,492 25.6% (10.6) % 31.7 % (0.4) % 20.7 % ATS 282,645 21.8% 272,623 21.2% 4.3 % — % (0.6) % 3.7 % Total $ 1,298,358 $ 1,283,835 (5.8) % 8.1 % (1.2) % 1.1 % Three Months Ended April 30, 2025 The IPS organic sales decrease of 6.9 percent was driven by weaker systems demand in polymer processing and industrial coatings product lines, partially offset by growth in nonwovens, precision agriculture and packaging product lines. The MFS organic sales decrease of 10.0 percent reflects targeted program rationalization in medical contract manufacturing and ongoing destocking in selected interventional product lines. The inorganic growth of MFS is due to the acquisition of Atrion. The ATS organic sales increase of 18.1 percent was driven by broad-based demand in semi-conductor and electronics end markets. Six Months Ended April 30, 2025 The IPS organic sales decrease of 7.6 percent was driven primarily by weaker systems demand in polymer processing and industrial coatings product lines, which was partially offset by growth in nonwovens product lines. The MFS organic sales decrease of 10.6 percent was driven by lower demand and tough year-over-year comparisons in medical interventional solutions product lines, where customer destocking trends continued to impact demand. The inorganic growth of MFS is due to the acquisition of Atrion. The ATS organic sales increase of 4.3 percent was driven by growth in optical sensors, partially offset by weakness in measurement and control and electronics processing product lines. Net Sales by region were as follows: Three Months Ended Variance - Increase (Decrease) Apr 30, 2025 % of Total Apr 30, 2024 % of Total Organic Acquisitions Currency Total Americas $ 292,463 42.8% $ 294,428 45.3% (12.2) % 12.4 % (0.9) % (0.7) % Europe 172,496 25.3% 182,070 28.0% (10.7) % 4.7 % 0.7 % (5.3) % Asia Pacific 217,979 31.9% 174,144 26.8% 22.6 % 3.2 % (0.6) % 25.2 % Total $ 682,938 $ 650,642 (2.4) % 7.8 % (0.4) % 5.0 % Six Months Ended Variance - Increase (Decrease) Apr 30, 2025 % of Total Apr 30, 2024 % of Total Organic Acquisitions Currency Total Americas $ 560,300 43.2% $ 568,440 44.3% (13.4) % 13.0 % (1.0) % (1.4) % Europe 340,259 26.2% 361,380 28.1% (10.0) % 5.2 % (1.0) % (5.8) % Asia Pacific 397,799 30.6% 354,015 27.6% 10.7 % 3.2 % (1.5) % 12.4 % Total $ 1,298,358 $ 1,283,835 (5.8) % 8.1 % (1.2) % 1.1 % Page 24 Table of Contents Nordson Corporation Operating Profit Operating profit for the IPS, MFS and ATS segments were as follows: Three Months Ended Apr 30, 2025 % of Sales Apr 30, 2024 % of Sales % of Sales Change Increase (Decrease) IPS $ 95,722 30.0% $ 115,922 33.6% (3.6)% $ (20,200) (17.4) % MFS 56,805 28.0% 48,993 29.0% (1.0)% 7,812 15.9 % ATS 31,558 19.6% 20,693 15.1% 4.5% 10,865 52.5 % Corporate (15,335) (16,992) 1,657 (9.8) % Total $ 168,750 24.7% $ 168,616 25.9% (1.2)% $ 134 0.1 % Six Months Ended Apr 30, 2025 % of Sales Apr 30, 2024 % of Sales % of Sales Change Increase (Decrease) IPS $ 191,434 30.9% $ 225,020 33.0% (2.1)% $ (33,586) (14.9) % MFS 97,741 24.7% 95,093 28.9% (4.2)% 192,834 202.8 % ATS 49,681 17.6% 38,997 14.3% 3.3% 10,684 27.4 % Corporate (29,159) (31,059) 1,900 (6.1) % Total $ 309,697 23.9% $ 328,051 25.6% (1.7)% $ (18,354) (5.6) % Three Months Ended April 30, 2025 Consolidated operating margin decreased by 120 basis points primarily driven by reduced sales leverage . IPS operating margin declined 360 basis points, reflecting the impact of lower sales volume . MFS operating profit increased $7,812 reflecting the contribution from the Atrion acquisition and solid operational execution from the organic business . ATS operating margin improved by 450 basis points driven by strong organic sales growth and the benefits of strategic cost and manufacturing optimization actions . Six Months Ended April 30, 2025 Consolidated operating margin decreased by 170 basis points primari ly driven by reduced sales leverage . I PS operating margin declined 210 basis points due to lower sales volumes . M FS operating margin declined 420 basis points, reflecting lower organic sales demand partially offset by the impact of the Atrion acquisition . ATS operating m argin improved by 330 basis points driven by strong organic sales growth as well as cost reduction actions and manufacturing footprint optimization actions . Interest and Other expenses Interest expense for the three months ended April 30, 2025 was $26,572, compared to $20,109 in the comparable period of 2024. The increase, compared to the prior year period, was primarily due to higher average debt levels, driven by acquisitions. Other expense for the three months ended April 30, 2025 was $3,961 compared to $785 in the comparable period of 2024. Included in other expense for the three months ended April 30, 2025 were pension and postretirement income of $1,019 and $3,199 of foreign currency losses. Included in other expense for the three months ended April 30, 2024 were pension and postretirement income of $1,029 and $1,125 in foreign currency losses. Interest expense for the six months ended April 30, 2025 was $53,131, compared to $41,551 in the comparable period of 2024. The increase, compared to the prior year period, was primarily due to higher average debt levels, driven by acquisitions. Other expense was $2,435 compared to $1,123 in the comparable period of 2024. Included in other expense for the six months ended April 30, 2025 were pension and postretirement income of $2,035 and $2,868 o f foreign currency losses. Included in other expense for the six months ended April 30, 2024 were pension and postretirement income of $2,056 and $1,947 in foreign currency losses. Income Tax Expense We record our interim provision for income taxes based on our estimated annual effective tax rate, as well as certain items discrete to the current period. Significant judgment is involved regarding the application of global income tax laws and regulations and when projecting the jurisdictional mix of income. We have considered several factors in determining the probability of realizing deferred income tax assets including forecasted operating earnings, available tax planning strategies and the time period over which the temporary differences will reverse. We review our tax positions on a regular basis and adjust the balances as new information becomes available. The effective tax rate for both the three and six months ended April 30, 2025 was Page 25 Table of Contents Nordson Corporation 19.0% compared to 20.8% and 20.9%, respectively, for the same periods in 2024. The effective tax rate for the three and six months ended April 30, 2025 is lower than the U.S. tax rate of 21% primarily due to the foreign-derived intangible income deduction. Net Income Net income was $112,404, or $1.97 per diluted share, for the three months ended April 30, 2025, compared to net income of $118,217, or $2.05 per diluted share, in the same period of 2024. This represented a 4.9 percent decrease in net income and a 3.9 percent decrease in diluted earnings per share. The decrease in net income and decrease of $0.08 per diluted share was primarily driven by higher interest expense due to prior year's acquisitions and an increase in foreign currency losses. Net income was $207,056, or $3.62 per diluted share, for the six months ended April 30, 2025, compared to net income of $227,789, or $3.95 per diluted share, in the same period of 2024. This represented a 9.1 percent decrease in net income and a 8.4 percent decrease in diluted earnings per share. The decrease in net income and decrease of $0.33 per diluted share was primarily driven by higher selling & administrative expenses due to the first-year effect of acquisitions and higher interest expense due to prior year's acquisitions. Foreign Currency Effects In the aggregate, average exchange rates for 2025 used to translate international sales and operating results into U.S. dollars were generally unfavorable compared with average exchange rates existing during 2024. It is not possible to precisely measure the impact on operating results arising from foreign currency exchange rate changes, because of changes in selling prices, sales volume, product mix and cost structure in each country in which we operate. However, if transactions for the three months ended April 30, 2025 were translated at exchange rates in effect during the same period of 2024, we estimated that sales would have been approximately $4,000 higher while costs of sales and selling and administrative expenses would have been approximately $2,000 higher. If transactions for the six months ended April 30, 2025 were translated at exchange rates in effect during the same period of 2024, we estimated that sales would have been approximately $16,000 higher while costs of sales and selling and administrative expenses would have been approximately $9,000 higher. Other Trends Changes in trade policies, tariffs, and other import/export regulations of the U.S. and other nations did not have a material impact on our financial results for the six months ended April 30, 2025. However, the Company does have sales and purchases that could be negatively impacted by recent tariff actions. The Company is actively working to minimize the impact of these changes and mitigate risk. Page 26 Table of Contents Nordson Corporation Financial Condition Liquidity and Capital Resources Cash and cash equivalents increased $14,205 during the six months ended April 30, 2025. Approximately 78 percent of our consolidated cash and cash equivalents were held at various foreign subsidiaries as of April 30, 2025. A comparison of cash flow changes for the six months ended April 30, 2025 to the six months ended April 30, 2024 is as follows: Six Months Ended April 30, 2025 April 30, 2024 Increase (Decrease) Net Income and non-cash items $ 288,685 $ 304,334 $ (15,649) Changes in operating assets and liabilities (10,393) (9,370) (1,023) Net cash provided by operating activities 278,292 294,964 (16,672) Additions to property, plant and equipment (37,439) (21,907) (15,532) Other - net 10,339 6,730 3,609 Net cash used in investing activities (27,100) (15,177) (11,923) Payments of long-term debt (5,800) (204,372) 198,572 Repayment of finance lease obligations (2,627) (2,881) 254 Dividends paid (88,937) (77,796) (11,141) Issuance of common shares 2,803 27,219 (24,416) Purchase of treasury shares (146,252) (7,927) (138,325) Net cash used in financing activities $ (240,813) $ (265,757) $ 24,944 Additions to property, plant and equipment were largely driven by productivity and growth projects, including a new manufacturing facility. We have a $1,150,000 unsecured multi-currency credit facility with a group of banks that provides for a term loan facility in the aggregate principal amount of $300,000, maturing in June 2026, and a multicurrency revolving credit facility in the aggregate principal amount of $850,000, maturing in June 2028. At April 30, 2025, we had $280,000 outstanding on the term loan facility and $243,000 outstanding on the revolving credit facility. Our operating performance, balance sheet position and financial ratios for six months ended April 30, 2025 remained strong. The Company is well-positioned to manage liquidity needs that arise from working capital requirements, capital expenditures and contributions related to pension and postretirement obligations, as well as principal and interest payments on our outstanding debt. Our primary sources of capital to meet these needs, as well as other opportunistic investments, are a combination of cash on hand, which was $130,157 as of April 30, 2025, cash provided by operations, which was $278,292 for the six months ended April 30, 2025, and available borrowings under our loan agreements and unused bank lines of credit, which totaled $806,477 as of April 30, 2025. Cash from operations, which, when combined with our available borrowing capacity and ready access to capital markets, is expected to be more than adequate to fund our liquidity needs over the twelve months and the foreseeable future thereafter. The Company believes it has the ability to generate and obtain adequate amounts of cash to meet its long-term needs for cash. However, the impact of changes in trade policies, tariffs, and other import/export regulations of the U.S. and other nations could negatively impact our cash flow from operations and liquidity in future periods. Page 27 Table of Contents Nordson Corporation Safe Harbor Statements Under the Private Securities Litigation Reform Act of 1995 This Quarterly Report on Form 10-Q, particularly “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements within the meaning of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, income, earnings, cash flows, changes in operations, operating improvements, businesses in which we operate and the United States and global economies. Statements in this Quarterly Report on Form 10-Q that are not historical are hereby identified as “forward-looking statements” and may be indicated by words or phrases such as “anticipates,” “supports,” “plans,” “projects,” “expects,” “believes,” “should,” “would,” “could,” “hope,” “forecast,” “management is of the opinion,” use of the future tense and similar words or phrases. These forward-looking statements reflect management’s current expectations and involve a number of risks and uncertainties. These risks and uncertainties include, but are not limited to, U.S. and international economic and political conditions; financial and market conditions; currency exchange rates and devaluations; possible acquisitions and the Company’s ability to complete and successfully integrate acquisitions, including the integration of Atrion; the Company’s ability to successfully divest or dispose of businesses that are deemed not to fit with its strategic plan; the effects of changes in U.S. trade policy and trade agreements, including changes in tariffs by the U.S. or other nations; the effects of changes in tax law; and the possible effects of events beyond our control, such as political unrest, including the conflicts in Europe and the Middle East, acts of terror, natural disasters and pandemics. In light of these risks and uncertainties, actual events and results may vary significantly from those included in or contemplated or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements speak only as of the date made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Factors that could cause our actual results to differ materially from the expected results are discussed in Part I, Item 1A, Risk Factors in our 2024 Form 10-K and Part II, Item 1A, Risk Factors in the Quarterly Report on Form 10-Q.