Good morning, and welcome to Nordson Corporation conference call today, Thursday, December 14, 2017 to report fiscal year 2017 fourth quarter results and fiscal year 2018 first quarter outlook. Today's conference call is being broadcast live on Nordson's webpage at nordson.com/investors and will be available there for 14 days. There will be a telephone replay for the conference call available until December 28, 2017, which can be accessed by dialing 404-573-406. Forward-looking statements may be made regarding future performance based on Nordson's current expectations. These statements may involve a number of risks, uncertainties, and other factors, as discussed in the company's filings with the Securities and Exchange Commission that could cause actual results to differ. After remarks on the quarter, there will be a question-and-answer session.
With that being said, I would like to introduce Michael Hilton, President and Chief Executive Officer of Nordson Corporation. Please go ahead, sir.
Thank you. Good morning, everyone. Thank you for joining Nordson's 2017 fourth quarter conference call. I'm joined by Gregory Thaxton, our Senior Vice President and Chief Financial Officer. I'd like to begin by recognizing the outstanding effort of our global team for delivering full year record sales, operating profit, earnings per share, and EBITDA. Our commitment to meeting our customers' needs and delivering the best technology solutions continues to be our priority, helping us surpass $2 billion in annual revenue this year. I'll provide some highlights on our record-setting financial performance, and Greg will offer more detailed commentary. Looking at the fourth quarter, organic growth of 2% was driven by strong demand in the electronics end markets, along with solid growth in medical and those end markets serving the Adhesive Dispensing Systems.
Against very challenging comparisons of a year ago, where total company organic growth increased 13%, this quarter performance exceeded our guidance. Our recent acquisitions added 10% growth for the quarter. The sales volume, coupled with our continuous improvement initiatives, resulted in EBITDA growth of 17% and EBITDA margin improvement of about 1 percentage point in the fourth quarter as compared to the same period a year ago. Also during the quarter, we increased our annual dividend by 11%, marking our 54th consecutive year. I'll speak more about our outlook in a few moments, but first, I'll turn the call over to Greg to provide more detailed perspective on the fourth quarter and our first quarter guidance. Greg?
Thank you, Mike, and good morning to everyone. I'll first provide some comments on our fourth quarter and full fiscal year results before moving on to our outlook for the first quarter of fiscal 2018. Fourth quarter sales were $574 million, an increase of 13% over the prior year's fourth quarter. This change in sales included a 2% increase in organic volume, a 10% increase related to the first-year effect of acquisitions, and a 1% increase related to the favorable effects of currency translation compared to the prior year's fourth quarter. Organic growth exceeded the high end of our guidance range, driven primarily by strong demand in electronics end markets.
Looking at sales performance for the quarter by segment, sales in the Adhesive Dispensing segment increased 6% as compared to the prior year fourth quarter, inclusive of 4% organic volume growth and 2% related to favorable effects of currency translation. This marks the 10th consecutive quarter of organic growth in this segment, where all product lines and nearly all regions drove the increase in the current quarter. Within the Advanced Technology segment, sales volume increased 29% from the prior year fourth quarter, inclusive of 4% organic volume growth and 25% growth related to the first year effect of acquisitions. The effects of currency translation were immaterial. This is outstanding performance that exceeded our expectations. Electronics and medical end markets drove the current quarter's growth.
We continue to benefit from the ongoing change in technology in the marketplace and our ability to broaden our application solutions. Regionally, growth was strongest in Japan, with the Americas and U.S. also adding to this growth. This segment's acquisitive growth includes one month of the fiscal 2016 LinkTech acquisition and the fiscal 2017 acquisitions of ACE, InterSelect, Plas-Pak, and Vention. Organic sales volume in the Industrial Coating Systems segment decreased 8%, where this segment was also up against a very challenging comparison to the fourth quarter a year ago, where organic volume growth was 12%. Customer demand in most product lines was offset by strong prior year performance in our cold materials product line. Europe and Japan were strongest geographically in the current quarter.
Moving down the income statement, gross margin for the total company was 54% in the quarter, and operating profit improved 13% to $125 million as compared to the prior year's fourth quarter, with reported operating margin of 22% in the quarter. This performance includes approximately $6 million of intangible asset amortization expense related to acquisitions made in the current year, which dilutes operating margin by a full basis point. Looking at operating performance on a segment basis, Adhesive Dispensing delivered operating margin of 28% in the fourth quarter. This was an impressive improvement of four percentage points, driven by changes in product mix and fewer restructuring charges as compared to the prior year. The current quarter includes approximately $1 million in restructuring charges related to facility consolidation efforts.
Within the Advanced Technology segment, reported operating margin was 24% in the fourth quarter, or 26% when excluding $6 million of intangible asset amortization expense related to current year acquisitions. The Industrial Coating segment delivered operating margin of 18% in the fourth quarter, down from the prior year's exceptional performance due to volume leverage and mix, but still strong performance for this segment. On a total company basis, net income for the quarter was $80 million and GAAP diluted earnings per share were $1.37, a 5% increase. Current year acquisitions reduced earnings per share by $0.07.
As Mike noted, we delivered strong fourth quarter EBITDA of $150 million, a 17% increase over the prior year fourth quarter, and EBITDA margin improved one percentage point to 26% as compared to the prior year's fourth quarter. Cash flow from operations was $133 million, and free cash flow before dividends was $111 million, or 139% of net income, highlighting our continued focus on liquidity. Our press release includes financial exhibits reconciling net income to free cash flow before dividends and adjusted free cash flow before dividends, as well as EBITDA and adjusted EBITDA. I'll now share a few comments on our full year results.
Sales for fiscal 2017 were $2.1 billion, inclusive of very strong organic growth of 8% as compared to the prior year, which also was a strong year for Nordson. The first year effect of acquisitions added 7% sales growth, and we continue to be pleased with the performance of these acquisitions. Full year operating profit was $458 million, which is an increase of 18% over the prior year and inclusive of approximately $15 million of intangible asset amortization expense related to current year acquisitions. Reported operating margin was 22% or 24% on an adjusted basis to exclude both the effect of one-time charges highlighted in the EPS reconciliation financial exhibit and the $15 million intangible asset amortization expense, representing a 200 basis point improvement over the prior year's adjusted operating margin.
Net income for the full year was $296 million, and GAAP diluted earnings per share were $5.08. Adjusted diluted earnings per share increased 15% over the prior year to $5.37. Both EPS amounts include the $0.18 per share of charges for intangible asset amortization expense for fiscal 2017 acquisitions. A reconciliation between GAAP earnings and adjusted earnings per share is included within the financial exhibits to our press release. EBITDA for the full year increased 19% to $547 million, and adjusted EBITDA increased 22% to $565 million, both compared to the prior year. EBITDA margin and adjusted EBITDA margin were 26% and 27%.
Twelve-month EBITDA, inclusive of acquired EBITDA, was just under 2.5x at the end of the fourth quarter. We generated $282 million of free cash flow before dividends and distributed $64 million in dividends, for a payout ratio of 22%. I'll now move on to comments regarding our outlook for the first quarter of fiscal 2018. We entered the quarter with strong momentum, where as of October 31, 2017, backlog was approximately $402 million, an increase of 45% compared to the prior year, inclusive of 28% organic growth and 17% growth due to acquisition. Backlog amounts are calculated at October 31, 2017 exchange rates.
We're forecasting sales to increase in the range of 30%-34% as compared to the first quarter a year ago. This growth includes organic volume growth of 15%-19%. At the midpoint of this outlook, we expect first quarter gross margin to be about 55% and operating margin to be approximately 22% or 23% excluding $6 million of intangible asset amortization expense associated with business for the prior year's first quarter. We're estimating first quarter interest expense of about $11 million, depreciation and amortization expense of about $25 million, and an effective tax rate of 29% based on current tax law, resulting in first quarter forecasted GAAP diluted earnings per share in the range of $1.29-$1.39 per diluted share.
The EPS range is inclusive of the $6 million or 7 cents per diluted share of intangible asset amortization expense related to the fiscal 2017 acquisitions. These charges did not occur during the first quarter of fiscal 2017. We expect EBITDA to be in the range of $141 million-$150 million. In addition to that based on current tax law, and we're forecasting capital spending to be approximately $60 million. With that, I'll turn the call back over to you, Mike.
Thank you, Greg. This is outstanding performance for both the fourth quarter and the full fiscal year. I want again to thank our global team for helping us deliver these record results for fiscal 2017. Our first quarter guidance is very strong, largely driven by the Advanced Technology Systems segment, where strong demand in electronics and medical end markets is driving performance. Our diversification efforts to drive growth through new applications, technology, and tiering are paying off. Our recent acquisitions are off to a good start. With the short cycle nature of our end markets, we have limited visibility to sales beyond the first quarter. However, we do anticipate future organic sales growth to moderate to more typical levels beyond our first quarter, particularly giving the challenging comparisons from a strong fiscal 2017.
Our strategic priorities for the year remain consistent with prior years and will continue to be focused on driving our growth initiatives across each segment. From an M&A perspective, we'll continue to target high-quality companies in our targeted spaces, and we continue to use tools within the Nordson Business System to drive operating improvement across the enterprise. With that, we'll pause now and take your questions.
Thank you, ladies and gentlemen. At this time, if you do have a question, please press the star then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, that's star then the number one to ask a question. Our first question comes from the line of Matt Summerville of Alembic Global Advisors. Your line is open.
Thank you. I guess the best word to maybe describe it as a surge you anticipate in your business in Q1, whether that's a handful of projects, a few customer concentrations that's driving that, or if this is indeed something more broad-based. Also, you know, historically, you've given quarterly order data. Is there a reason you're not providing that? If so, are you able to provide it in response to the question?
Yeah. Let me comment on the first piece. What we've seen really in the tail end of our fourth quarter and into first quarter is continuing strong demand in the electronics segment, you know, some underlying growth in sort of newer technologies. For example of that would be moving from rigid to flex circuits to provide some more flexibility to customers with smaller design footprints. What I'd say is that we saw a couple of large projects come through, some of that supporting mobile directly, some of that more broadly based. Obviously, we've had a pretty strong year of new mobile introductions this year, and that's continued a little bit into the fourth quarter and into the first quarter.
At a high level, that's what we're seeing on the electronic side. As far as the guidance around orders, let me kind of give you our thought process here. We've been thinking about the order guidance for quite a while. Originally, we provided that because we thought it was providing additional insight with regard to, you know, underlying run rates across the business. More recently, over the last couple of years, we've seen, you know, sort of the order rates be out of whack a little bit with backlog and/or our sales guidance. The reasons behind that are twofold. The mix of our business has changed with the growth in the Advanced Technology Systems, both in electronics and now in the medical business.
It is particularly on the electronic side, our delivery windows have been shrinking, and the timing of orders year-to-year has varied pretty considerably. In addition, we have some customers who place orders for large projects but look at deliveries over multiple quarters. We found ourselves in situations where we're explaining why our sales guidance looks out of whack with our order growth rate. We thought a more consistent way to look at things was to give you sort of the backlog at the end of the quarter and then our guidance going forward that takes all of those kinds of things into effect. We also were getting feedback from many of our shareholders that they were getting confused by our order rate data, and it wasn't necessarily helping provide additional insight.
That's why we've decided to make that change.
Got it. Just one follow-up with respect to advanced tech. As I look at the incremental margins in the fourth quarter, if I sort of back out, I think the $6 million of intangibles amortization, I come up with a number in the high 20s%, which isn't a bad number per se, but I guess I would think with you know positive volume gain, maybe that number would be a little bit higher. Going forward, I assume you're gonna continue to include the intangibles amortization as you've laid it out in your guidance, what's sort of the right way to think about the incrementals in advanced tech going forward?
Matt, this is Greg. What I'll add there is we did see good volume growth, as you suggest, in the fourth quarter, but that was largely acquisitive growth. We had low single-digit growth on an organic basis. What we had suggested in prior quarters was the operating margin, excluding the intangible asset amortization for those acquisitions, was very near the op margins of that segment. Had we seen you know, stronger organic growth, or when we see stronger organic growth, that's where we see very strong incremental margins helping lift margins. In this case, that wasn't necessarily true.
Got it. Thanks, guys.
Thank you. Our next question comes from the line of Michael Halloran of Baird. Your line is open.
Could you give a little context on the backlog as we exit the year in two respects? One, I'm guessing, Mike, that it mirrors the comments that you just gave to Matt's question, but a little thought on the backlog as you look through the segments, and also how to think about conversion of backlog into revenue.
From an overall backlog standpoint, obviously, the strongest change year-on-year is in the advanced tech segment. For a couple reasons, one, most of the acquisitions fall into that, or all of them.
Yeah
Fall into that segment, number one. Number two, on an organic basis, medical is strong, electronics is particularly strong. As you look at the other businesses, our adhesives business was up, our coatings business was a little bit down, and that's really more of a year-on-year comparison, where the prior year we had some strong both in Q4 and in Q1 auto platform work that didn't repeat. I'd say in general, the biggest driver is the advanced tech segment, but the adhesives piece is up as well. As we look to the first quarter, we expect all of the segments to be up. Again, the key driver is gonna be the advanced tech piece.
The backlog conversion question?
I'd say, for this quarter coming forward, most of what we see in the backlog will get converted in the first quarter. We do have some longer projects both in the adhesives area, particularly the polymers and in some of the industrial coatings, and even in some of the technology side, where you have some orders that potentially push out. I'd say a good portion of that, as you know, converts within the quarter.
Yeah. That, that's what I would guess. Second question, obviously, the seasonality on the advanced tech side has shifted around here. You know, your answer to the previous question applied some nice project activities, some electronics pieces that have moved into the quarter, some of the higher complexity items helping out. I know your visibility is limited on that side, but could you help provide how you're thinking about seasonality through fiscal 2018? Are you expecting some seasonality to materialize in the fiscal second quarter that maybe would've materialized in the fiscal first quarter before ramping hard in the back half of the year? Something smoother than that now that you've got a larger piece of that portfolio being medical? Maybe just some thoughts on the cadence.
Yeah, just a couple of comments there. I'd say the first quarter obviously is stronger than we would've expected at the year-end, but that's really linked to some of those large orders that we got. When you look at the second and third quarters going out, you know, we had strong double-digit organic growth. They're gonna be a little tougher comps year-over-year. I think, you know, that'll be the sort of the challenge that we're up against.
I would say across the businesses, as we start at the technology side of things, we are looking at, you know, on a pro forma basis, you know, medical being a sizable part of the portfolio now, and of that advanced tech piece, it's likely to be in that 30% range. So that's gonna be something that's a little bit more stable. Then I'd say if you look at the piece that's not electronic related beyond medical, is probably as much as another 20%. So that's also likely to be a bit more stable throughout the year and less seasonal. The electronics piece is the one that can vary.
What I would say is this is the time of the year where we look at and work with our key customers on project activity, and that project activity continues to be robust. I think the challenge will be that it's been a strong sort of launch year by some of the mobile guys. But we're seeing a lot of interest in some of the newer technology, whether that's on the wafer side or whether that's on some of the things like the flexible packaging side of things, which is, you know, gaining share in the marketplace and has generally higher growth. It'll be figuring out that mix, particularly in that segment against some stronger comps in the second and third quarter, I think is the challenge.
That's sort of the, kind of the best insight we can provide at this point.
Well, thanks for that. I appreciate the quarter. Congrats on a very nice quarter.
Thank you.
Thank you. Our next question comes from the line of Matt Summerville of Gabelli & Company. Your line is open.
Good morning. Thanks for taking the question.
Yeah. Good morning, Matt.
Just following up on that, could you go through more detail and discuss the technology dynamics driving growth in electronics away from mobile and more on the chip and semi side?
Yeah. I'll make a couple of comments. On the semi side, you know, we've historically done a lot on the packaging end, but now we're seeing some customers that are looking at advanced technologies where they're actually stacking on the wafer as opposed to after the wafer is diced. Ultimately, that'll proceed towards what's called through-silicon via. Just think of that going vertical on the chip architecture and doing that on the wafer. That's a new application that has resulted in some nice growth for us over the last sort of 18 months. There are still potential additional customers that would adopt that particular approach, and that's very sophisticated technology that we've developed in concert with these customer applications.
I'd say on the dispense side, but also on the inspection side, a lot of our new products on the electronic side have enabled the growth in a number of areas. On the packaging side, on the flexible packaging, you have rigid packaging and flexible packaging. In smaller packages to basically cram more in and allow for growth in the batteries, customers are starting to go to more flexible packages, and that's something that our technology is enabling. I'd say if you look at on a broader basis, you know, right now today, probably about 15% of advanced technology business goes into auto electronics, and we see that as a longer-term growth opportunity as you move towards more and more sensors and equipment that would support eventually autonomous driving.
We're doing a lot of development there. When you look at the non-electronics part in the advanced technology space, look at the medical piece, virtually all of the medical growth is coming from supporting new products and new applications for customers. That's kind of the hallmark of our total company. In all of our businesses, you know, our focus is around how do we create our own demand. Whether that's in our adhesives area or our coatings area or our advanced technology area, that's really the focus, and that's something we've been driving hard in a relatively lower growth environment than we've seen over the last several years.
Great. Thank you for the detail. Just to ask a follow-up on that, what's your sense of the penetration of these newer technologies into the supply chain and how-
You know, to what extent it all will be adopted. I think if you look at sort of broader, you know, like the flex circuit technology, that's something that's growing at sort of high single digit rates right now as it, you know, basically as some of the rigid circuit board gets converted over. On the wafer side, you know, as customers go to either three dimensions or different approaches in process or technology, the inspection piece is becoming more critical, particularly on the X-ray side of things. We've got a whole new set of products there that are doing really well.
Then our most recent acquisitions of the smaller solder-based companies are off to a good start as well, and that's linked to interconnects and ultimately three dimensions. We feel pretty good about that. Talked a lot about electronics, but that's the philosophy in terms of driving new product and new application growth. As Greg said earlier, tiering is what we try to do across all of our businesses.
Matt, this is Greg. I'll just add a high-level comment. You know, a lot of the trends that Mike talked about translate into more sophisticated solutions for our customers as they're dispensing smaller quantities in tighter, more difficult to reach spaces. The more sophisticated the application is, the more likely they're coming to Nordson for that solution provider.
Thank you very much.
Thank you. Our next question comes from the line of David Stratton of Great Lakes. Your line is open.
Good morning. Thanks for taking the question.
Yeah, good morning.
Just one for me today. Given the growth, especially in ATS, can you talk a little bit about capacity, where you stand? Have they been adding to capacity, so you don't really need to expand? Or is there potential that this growth could create some bottlenecks and impact your ability to meet demand in the near future?
There's a lot in that question. Let me suggest that I'd say particularly on the electronic side, we've become very adept at flexing up and down. We have our facilities across the world where we have capacity to flex up and down, and you know, relatively low cost and capability. I think we're very good there. I'd say with the medical business, as an example, we have been through the acquisitions, adding not only capacity, but capability in the U.S. and outside the U.S. We have been expanding. You know, we built a new facility in Colorado. We've expanded our facility in Mexico.
With our latest acquisitions, we've got some additional capability, and we're centered on all the key areas where customers are doing their development work. I'd say across all of our businesses, we've used a combination of our continuous improvement activities and increasing levels of upgrading of equipment and automation to not only make us more efficient, but to give us capacity we need. Other than sort of normal maintenance capacity, we're in pretty good shape. With regard to our polymers business, we're, you know, finishing up this year the transition in that business through consolidation. I think we're in pretty good shape from a capacity standpoint.
All right. Thank you.
Thank you. Our next question comes from the line of Jeff Hammond of KeyBanc. Your line is open.
Jeff?
Hey, sorry about that.
That's okay. Good morning.
Morning. Just on the acquisitions, just early on.
Well, I would say a couple of things. We've done a number of acquisitions, and maybe I'll break them down. I'll start with some of the smaller ones. Our smaller ones were two acquisitions in the electronics side that got us into a new area in the selective soldering space. Our plan there, that's off to a good start, is just what we did with the MatriX inspection company, which is to globalize a local business. We've seen some good success, I'd say, in utilizing our global sales force to create new opportunities and start to close on some of those. I'd say with our Plas-Pak acquisition, we've added complements to our EFD product line and got us into a new area in animal health.
I think we're seeing benefits from that. In particular in the design and development phase, which really allows us to get in early, not only with critical, larger established customers involved in their new product development, but also with some of the entrepreneurial, you know, sort of new venture development companies there. What we've been able to see is opportunities to pull through our broader product portfolio of products. I think longer term, there'll be opportunities across some of these businesses to further optimize our supply chain and footprint. I'd say in the short term, we're off to a good start. We've added capability.
In the case of the medical side, we've added significant capability on the design front that is from a very established organization and people capability.
Okay, great. You mentioned you know active project inquiries et cetera in advanced tech kind of looking out past 1Q. Can you speak to the same on what you're hearing from your customers on the adhesive side? If we kind of look a little further out just in terms of you know quoting and customer feedback et cetera.
Yeah. I'd say on the adhesive side, it's pretty typical of what we see. You know, this time of year, things slow down in most of the businesses for the holidays. I'd say in terms of opportunities going forward, we think there's an opportunity for growth in all of our businesses. Some of them are more digital, like our product assembly businesses and our sort of pelletizing businesses. We're seeing, I'd say, typical activity and opportunity there. For us in businesses like our traditional adhesives business, we continue to benefit from both tiering.
This year we've got involved in an even lower tier of Nonwovens set of customers, all new to us based on complete design and build-out of Shanghai, and there's some growth opportunities there. Then we've really used new product development to help recapitalize them in that business. I'd say you know we've introduced some new technology to Asia, for example, on the pelletizing side, where we've gone to with our underwater pelletizer that we've just started out with the new technologies it's bringing. I'd say at this point in time, you know, our visibility in some of these businesses is short-term, but I think the activity is typical of what we'd expect to see at this point in time.
Okay. Thanks a lot, Mike.
Yeah.
Thank you. Our next question comes from the line of Christopher Glynn of Oppenheimer. Your line is open.
Hey, good morning. Congrats on the organic and inorganic performance.
Thanks, Chris.
Just wondering about capital allocation in the medium term. You know, you've come off some pretty robust activity there. Is the focus on continued execution on the pipeline relative to debt paydown, or where does all that stand?
Yeah. I'd say our capital allocation is first and foremost, you know, supporting organic growth. I think Greg gave you some numbers on that. Then second, you know, around the dividends piece. You know, both of those together are relatively modest. I think beyond that, we still have a short-term focus on debt reduction to free up capacity for opportunities, and we still see opportunities out there in the targeted areas that we've mentioned. I think there's still probably the most opportunities in the medical side just because of the market is more fragmented. I'd say in the very short term, it continues to be around reducing debt to give us some freeboard should opportunities come through this year.
I'd say the priorities are pretty similar to where they've been kind of after first quarter of last year.
Okay. A modeling question on the corporate number. It spiked up a little bit in the quarter, but what's the best way to plug in for run rates there?
Yeah. Chris, this is Greg. We had some, call it unusual items in the course, some one-time in the quarter, and most of that increase over the prior year was associated with an initiative that we have in North America to move a portion of the business to a more shared service type of model. I'd expect as we move into FY 18, we'll kind of normalize back to spend amounts that you've seen in the most recent quarters.
Okay.
Yes, a little higher in the fourth quarter, and it should trend down over time.
Okay. My last one is on ADS. Just wanna revisit if you can quantify the structural benefits from consolidation for fiscal 2018 over 2017?
Yeah. I would say it's gonna be relatively modest because we'll have completed both of the major projects we have underway. The one in North America, where we're consolidating three facilities into one, and the one in Europe, we're going from two to one. They'll get completed in the year. For the first part of the year, we're still running multiple facilities as we transition equipment and build out the new facilities. We're further ahead in the U.S., and the project in Europe started a little bit later. I'd say there'll be some modest impacts in this year and some larger impacts in 2019.
Yeah. Chris, we'll probably firm that number up and give you some better guidance on that margin improvement within that segment as we're heading into 2019.
Okay. Thanks, guys.
Thank you.
Thank you. Our next question comes from the line of Walter Liptak of Seaport Global. Your line is open.
Hi. Thanks. Good morning.
Good morning.
Congratulations to you. You know, just to, you know, you talked about backlog, and I think Jeff asked about adhesives. I wonder if we could do the same thing on the coatings. You know, it sounds like on kind of the first quarter and what you're seeing from projects over the next year.
Yeah. As I mentioned, I think earlier, we do expect, you know, through all the businesses to be up in the first quarter. We have seen, I'd say, some tough comps this fourth quarter and in the first quarter on the coatings business, primarily on the auto side. If you look at our powder and liquid container, those businesses have grown nicely. We had some big auto platform work last fourth quarter that went through and some of that continued into the first quarter as the customers were going through model changes. You know, we don't anticipate, you know, significant model change kind of activity going through this year.
We do see a couple of areas that I think for the future present good opportunities for growth in that business where we've had some revenue and expect it to pick up over time. One that we talked about before in the sort of aerospace area as customers both the end customers and the tier one suppliers look to do more automation. I'd say we've had, you know, a lot of development work and some modest sales to date. We expect that to pick up over time. Another area that we're seeing more opportunity in is with electric vehicles. There's more work around the batteries themselves, and we're seeing opportunities across the business, but most importantly in the coatings area to support some of the things going on in the battery development.
We see opportunities there, over time. I'd say the thing that's been a little bit of a drag this year, this year being 2017, has really been the auto piece and the platform piece.
Right. Okay
Longer term, we expect to see growth in that area.
Okay. Yeah, thanks for that color. If I could just ask, I don't mean to beat a dead horse on the Advanced Tech, but you know, I wonder if there's a way of delineating the you know, kind of traditional mobile phone makers versus China, where it sounds like you've been maybe growing more rapidly. With the new technologies, you talked about large projects, but I think this is the first time we're hearing that. You know, I wonder if you could comment just on, are these test orders and if the technologies work, there's more behind it as there's more features that go in with flexibles or is this sort of a you know a short-term thing? You know, is there any visibility there?
Yeah. There's a lot of components there, Walt. Let me just maybe I'll start at just the highest level, and if you look at sort of the mix of our business in Advanced Tech today. If you look at sort of pro forma for 2018, you know, about 30% of our business is gonna be medical. There's probably another close to 20% that would be, you know, industrial and other types of applications. And then about half falls into that electronics space. Of that total Advanced Tech, about 15% is directly mobile, and then you've got auto electronics that's a similar size. Semiconductor is a little smaller, and other consumer electronics that are a little smaller. That could be gaming consoles, LEDs, a variety of other things.
There's a breadth and a diversification, I'd say, to the applications there, across the whole segment that is different than it was if you just go back a couple of years, primarily because of one, the medical piece, and two, some of these other applications. I'd say now in some of the newer applications that we've mentioned, the direction for most semiconductor makers is to go 3D. You know, to go to three-dimensional chips. The question is whether you do that before or after you dice the wafer. The newest technology is going towards doing it on the wafer, but everybody's not following that path. We have some indications that others will be going in that direction, but it's more sophisticated equipment.
With regard to some of the other technologies that support the mobile side, I think if you look at the most recent phones, the biggest thing you see is battery. Everything's about battery capacity and space, which means it squeezes everything else out. Some of the things that customers are working on is how do I cram in the capability in that reduced space? One of the ways to do that is to use more flexible circuits. We're certainly seeing outsized growth in the flexible circuits, and that's an area where we've been successful in offering our technology both on dispense and on the inspection side. Those are a couple of examples of things that we're working on. There's a lot of other things that customers are working on.
Now, you also asked about sort of the Chinese mobile folks versus the more traditional. I mean, 2017 has been a good launch year for the more traditional global players. You haven't heard as much from the Chinese players. Over time, they've been growing and taking share, particularly in China. The opportunity for them is, you know, they continue to grow in China. Do they grow beyond China? We expect to see further growth there. As we've mentioned in the past, they have now got on the automation train, and they're moving that way. Still not as far along as the global folks, but we expect that trend to continue. We have lots of projects with all of these folks.
You know, which ones are gonna go at what time is always difficult to judge. I'd say in the other areas that are outside of the electronics space, we've got a lot of development work, particularly in the medical side, that's robust. Then in the other businesses as well, this is typically the time of year where we're working on particularly the newer technology-related projects.
Okay. All right. I appreciate that color. Thanks, guys.
Thanks, Walt.
Standing in for Charlie. Thanks for taking my question.
Hey, Patrick.
Good morning. Looking at the adhesive dispensing margins, I mean, adjusted margins were 28%, you know, obviously very good. Just wanted to know what the mix of parts and consumables was for the segment. Sort of looking out, what expectations do you guys have in terms of adhesive margins expanding in 2018 and beyond?
Yeah. I'd say, Greg's looking up the part number here. I mean, typically, that's a segment where the parts are a little higher than our average, so they might be closer to the middle 40s than the lower 40s. We'll give you a heads up on that. It's in that range. I'd say, longer term from a margin perspective for that segment, we'd like to get to the 30% level. You know, some of that will come from our normal continuous improvement using our business systems. Some of that will come from the restructuring that we're going through in the polymer side of the business. Our longer term goal would be to get to that 30% level.
Okay, great. As I wait for, I guess, Greg on the consumables part.
Yeah, we may have to follow up and get-
Okay
Back to you on that. It's not jumping off the page, for us right now.
Actually, ADS and ATS was about 46%. That's trending pretty clear. The total company was about 48% in the fourth quarter. Now, that's up a bit from prior year, driven by a couple of things. One, general mix in the quarter, as well as we've got the impact of the acquisitions in there that are more of a consumable, so they fall into that category. That's lifting as well by a couple percentage points, what the total mix otherwise would have been, prior.
I wanted to go to coatings for a second. Looking at the margins for the fourth quarter of 2017, that seems to be lower than the previous three fourth quarters, I guess, going back to 2014. Is there anything that we should be looking at here, or is it one of those items where you talked about volume being down and so the bigger you guys had an impact on autos.
Yeah. So the, you know, obviously, there's some impact from the volume being down, a little bit, and then there's a little bit of mix effects there. There's nothing structurally changed there, and that's, you know, something that we've been on a good path of improvement, year on year for quite a while. I think, you know, we have continued opportunity to move up a little bit in that area. Nothing structurally going on there. Okay, that's all I have. Thank you.
Thank you. Our next question is from the line of Allison Poliniak of Wells Fargo. Your line is open.
Hi, guys. Good morning.
Morning. Morning.
Just wanna go back to Jeff's question in terms of, you know, customer or client thoughts into 2018. I mean, as we stand today, you know, versus maybe a year ago, I mean, are customers talking more optimistically about spend in 2018 or really no change at this point?
I would say we haven't seen a significant change in terms of the dialogue at this point. You know, obviously we have this potential for, you know, tax change here coming up. If that happens, I could see particularly some of our smaller mid-size customers that might be an opportunity for further reinvestment. But I'd say the, you know, the mood is encouraging. I think if you look at the year, just from a macro standpoint, you know, the U.S. is probably gonna end the year a little better than we thought. Clearly, Europe and Japan are stronger this year than most expected, and so you've seen some good performance there. But I'd say in terms of sort of project lists and volumes, not a dramatic change.
In terms of customer attitude, not a dramatic change for us.
Got it. Thanks. I might have missed this, but can you talk about the growth rate that you're seeing in medical? Are we still in that high single digit range at this point?
Yeah. We've had a good year, a double-digit year for us this year, and I think that sort of high single-digit to double-digit is expectation for us in the long run there. There's a lot of trends to support them, and particularly with the drive towards minimally invasive procedures, we see that as a strong opportunity going forward.
Great. Thank you.
Thank you.
Thank you. We do have a follow-up question from the line of Walter Liptak of Seaport Global
Shared services, where are you? If that's true, you know, where are you in the project, and is there gonna be some savings from it?
Yeah. From a more efficient way. You know, you could go back several years prior to acquisitions and suggest that in parts of the world we had been executing under this model. With acquisitions over the last several years, this is an effort to really you know, kind of, bring more of the businesses under this type of model. We're starting first in North America. We're largely into that effort. We'll complete that, I'd say most of that in the first half, we're set to integrate some of the businesses that aren't in some of the established locations where we had shared services.
I do expect that this will continue. I wouldn't suggest that I see this as being a significant expense to be modeled in once we get through the 2018 effort here. Yeah. I'd say, Walt, the biggest benefit that we see is really there was a question earlier about, you know, capacity to support growth. You know, for us, the biggest benefit here is to have a platform that's gonna allow us to scale more cost effectively, and as Greg said, to integrate some of the acquisitions more efficiently. There's been a fair bit of work that we needed to do upfront around process and systems, and we're in the phase now of starting to stand up the North American organization.
Again, I think the benefits we'll see are sort of longer term and our ability to scale more effectively and efficiently. Okay. Where is the shared service? Is it gonna be in one location? Yeah. For the US, it's gonna be in Ohio. You know, in Europe and Asia today, we have, I'd say, partial shared services in different places as Greg was mentioning. But for the US, it's gonna be in Ohio.
Okay, great. All right. Thank you. In an existing facility. Yeah, at an existing facility that we're refitting.
Okay. Okay, thank you.
Thank you.
Thank you. At this time, I'm showing no further questions. I'd like to turn the conference back.
Our global team for doing an outstanding job this year of meeting our customers' needs in a very effective way and allowing us to deliver outstanding results. With that, I just say happy holidays to everyone. Take care.
Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.