Nordson (NDSN)

Manufacturing company Nordson (NASDAQ:NDSN) reported Q1 CY2025 results topping the market’s revenue expectations, with sales up 5% year on year to $682.9 million. Guidance for next quarter’s revenue was optimistic at $730 million at the midpoint, 2.3% above analysts’ estimates. Its non-GAAP profit of $2.42 per share was 2.6% above analysts’ consensus estimates.

Company Overview

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

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.

Competitors offering similar products include Graco (NYSE:GGG), Illinois Tool Works (NYSE:ITW), and Sono-Tek (OTCMKTS: SOTK).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Nordson’s 4.5% annualized revenue growth over the last five years was tepid. This fell short of our benchmark for the industrials sector and is a rough starting point 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 performance shows its demand has slowed as its annualized revenue growth of 1.9% over the last two years was 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 that don’t accurately reflect its fundamentals. Over the last two years, Nordson’s organic revenue averaged 3.7% 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 5% but beat Wall Street’s estimates by 1.1%. Company management is currently guiding for a 10.3% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 5.6% over the next 12 months. While this projection implies its newer products and services will catalyze better top-line performance, it is still below average for the sector.

Nordson has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 54.9% gross margin over the last five years. That means Nordson only paid its suppliers $45.13 for every $100 in revenue.

This quarter, Nordson’s gross profit margin was 54.7%, down 1.5 percentage points year on year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

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 24.7%. 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 5 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Nordson generated an operating profit margin of 24.7%, down 1.2 percentage points year on year. Since Nordson’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Nordson’s EPS grew at a decent 9.4% compounded annual growth rate over the last five years, higher than its 4.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Nordson’s earnings to better understand the drivers of its performance. As we mentioned earlier, Nordson’s operating margin declined this quarter but expanded by 5 percentage points over the last five years. Its share count also shrank by 2.1%, 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, EPS didn’t budge over the last two years, a regression from its five-year trend. We hope it can revert to earnings growth in the coming years.

In Q1, Nordson reported EPS at $2.42, up from $2.34 in the same quarter last year. This print beat analysts’ estimates by 2.6%. Over the next 12 months, Wall Street expects Nordson’s full-year EPS of $9.67 to grow 7.5%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Nordson has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 20.3% over the last five years.

Taking a step back, we can see that Nordson’s margin dropped by 5.1 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Nordson’s free cash flow clocked in at $103.1 million in Q1, equivalent to a 15.1% margin. The company’s cash profitability regressed as it was 1.5 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Nordson hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 15.5%, impressive for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Nordson’s ROIC averaged 3.5 percentage point decreases over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Nordson reported $130.2 million of cash and $2.21 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $854.5 million of EBITDA over the last 12 months, we view Nordson’s 2.4× net-debt-to-EBITDA ratio as safe. We also see its $96.7 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Nordson’s revenue and EPS guidance for next quarter beat analysts’ expectations. We were also glad this quarter's EPS and EBITDA exceeded Wall Street’s estimates. We note that revenue also beat, but we take it lightly as organic revenue was in line. Regardless, this print had some key positives. The stock traded up 2.2% to $200 immediately after reporting.

Updated: June 12, 2025 at 11:07 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Nordson.

We see the value of companies helping their customers, but in the case of Nordson, we’re out. First off, its revenue growth was uninspiring over the last five years. And while its admirable gross margins indicate the mission-critical nature of its offerings, the downside is its cash profitability fell over the last five years. On top of that, its organic revenue declined.

Nordson’s P/E ratio based on the next 12 months is 21x. At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $248.76 on the company (compared to the current share price of $217).