As a reminder, this conference is being recorded. I will now turn the call over to your host, Jim Jaye. Please go ahead.
Thank you, Stephanie, and happy holidays to everybody listening. This is Jim Jaye, Nordson's Director of Investor Relations. I'm here with Mike Hilton, our President and CEO, and Greg Thaxton, our Senior Vice President and CFO. We would like to welcome you to our conference call today, Friday, December 11, 2015, on Nordson's FY 2015 fourth quarter results and our FY 2016 first quarter outlook. Our conference call is being broadcast live on our webpage at nordson.com/investors and will be available there for 14 days. There will be a telephone replay of our conference call available until December 18, 2015, which can be accessed by calling 404-537-3406. You will need to reference ID number 86534278.
During this conference call, forward-looking statements may be made regarding our 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 our remarks, we will have a question-and-answer session. Now I will turn the call over to Mike Hilton for an overview of our FY 2015 fourth quarter results and a bit about our first quarter outlook. Mike, please go ahead.
Thank you, Jim, and good morning, everyone. Thank you for joining Nordson's fourth quarter conference call. Nordson delivered fourth quarter sales that were within our range of guidance. On a year-over-year basis, sales were impacted by negative currency translation and a challenging comparison to the 13% organic growth we delivered in the fourth quarter a year ago. During the quarter, we did see very strong organic growth in our Adhesive Dispensing Systems segment, as well as solid organic growth in the Industrial Coating Systems segment. Within Advanced Technology Systems segment, organic growth within Fluid Management product lines was offset by the cyclical effects in select electronics end markets impacting the Electronics Solutions product lines within the segment. On a full- year basis, we delivered organic volume growth of more than 3%. This is solid performance given the very weak economic environment that we've been operating in throughout the year.
Operating margin and earnings per share of the quarter were impacted by unfavorable currency comparisons to the prior year and one-time charges related to short-term purchase accounting for acquired inventory and re structuring charges for previously announced margin improvement initiatives. Excluding one-time charges and negative currency impact, operating margin in the quarter was about 21%, a solid level given flat organic volume and the quarter's product mix. During the quarter, we continued to execute in all phases of our capital deployment strategy. This included closing on the WAFO and Matrix Technologies acquisitions and distributing $210 million to shareholders through share repurchases and dividends. Our first quarter of 2016 forecast reflects our current backlog, current 12-week order rates, and typical seasonality within the business.
As we begin 2016, we will continue to target organic growth that exceeds global GDP, driven by the strength of our end markets and the initiatives we have in place to drive top line. Our current assumption, however, is that global GDP will continue to be challenging and likely not much different than 2015. We remain committed to driving our margin enhancement initiative discussed in our last earnings call, and we are focused on delivering the 200 basis point improvement in normalized operating margin by 2017. I will speak more about our outlook and current business trends in a few moments, but first, I'll turn the call over to Greg Thaxton, our Chief Financial Officer, who'll provide more detailed commentary on our current results and our first quarter guidance. Greg?
Thank you, and good morning to everyone. I'll first provide some comments on our fourth quarter and full- year results before moving on to our outlook for the first quarter of fiscal 2016. Sales in the fourth quarter were $446 million, a 5% decrease from the prior year's fourth quarter. This change in sales included organic volume that was flat, a 2% increase related to the first- year effect of acquisitions, and a 7% decrease related to the unfavorable effects of currency translation. Looking at sales performance for the quarter by segment, Adhesive Dispensing segment sales volume increased 8% as compared to the prior year fourth quarter, inclusive of 7% organic growth and 1% growth from the first- year effect of the WAFO acquisition.
The volume growth was offset by a 10% decrease related to negative currency translation. The 7% organic growth is an outstanding level in the current macroeconomic environment and reflects the resilience of the consumer non-durable end markets served by this segment. Organic growth was strong in non-woven, rigid packaging, injection molding, and pelletizing product lines, and in most geographies. Sales volume in the Advanced Technology Systems segment decreased 7% from the prior-year fourth quarter, inclusive of an 11% decrease in organic volume, offset by a [4%] Matrix acquisitions. Sales were also negatively impacted by approximately 3% related to unfavorable currency translation.
I'll remind you that current results in this segment are challenged in comparison to the prior year fourth quarter, where we delivered organic growth of 21%. In the current quarter, organic growth in fluid management product lines was solid, led by strong demand from medical end markets. This growth was offset by softness in automated dispensing and test and inspection product lines serving select electronics end markets. As we have seen over time, these electronic end markets provide excellent organic growth opportunities for Nordson, though they do tend to be more cyclical in nature. Geographically, positive organic growth in the U.S. and Europe in this segment was offset by slower demand in other regions. Organic sales volume in the industrial coatings segment increased 2% compared to the fourth quarter a year ago, offset by a 6% decrease related to unfavorable currency translation.
This is solid organic growth given the macroeconomic backdrop and comes in comparison to a very robust fourth quarter a year ago, where we generated organic growth of 16%. The current quarter's growth was driven by demand for our powder, liquid, and cold material dispensing product lines in durable goods end markets. Solid demand in the Americas, Asia Pacific, and Europe in this segment was offset by softness in other regions. Gross margin for the total company in the fourth quarter was 53%, inclusive of a negative currency impact of approximately 1 percentage point as compared to the prior year.
As part of our margin enhancement initiative discussed during our third quarter earnings call, we incurred one-time costs during the fourth quarter of approximately $9.1 million, mostly related to severance costs as we further integrate the polymer product lines and look to enhance margin performance across all segments. We also incurred approximately $1.3 million of short-term purchase accounting charges in the quarter related to acquired inventory. Operatings was $76 million and operating margin was 17%. Normalized operating margin to exclude these one-time charges was 19%. Excluding both the one-time charges and the estimated negative currency translation effect as compared to the prior year, operating margin was 21%.
Looking at operating performance on a segment basis, Adhesive Dispensing delivered operating margin of 21% in the fourth quarter, inclusive of approximately $8 million related to restructuring charges and $100,000 related to short-term purchase accounting charges for acquired inventory. Normalized operating margin within this segment to exclude these one-time charges was 24%. Adhesive segment operating margin was 27% in the quarter, excluding these one-time items and the estimated effect of currency translation as compared to the prior year. Within the Advanced Technology segment, reported operating margin was 17% in the fourth quarter, or 18% on a normalized basis, excluding $1.2 million of short-term purchase accounting adjustments for acquired inventory and $700,000 of one-time restructuring charges related to margin enhancement initiatives.
Segment operating margin was also impacted by negative volume leverage and product mix within the electronic systems product lines. The estimated effects of currency as compared to the prior year were negligible within this segment, given the percentage of sales that are US- dollar- denominated. The Industrial Coatings segment delivered operating margin of 19% in the fourth quarter or 20% on a normalized basis, excluding approximately $400,000 of one-time charges for restructuring related to our margin enhancement initiative. Industrial Coatings segment operating margin was 22% in the quarter, excluding these one-time items and the estimated effects of negative currency translation as compared to the prior year. This is continued outstanding performance for this segment and reflects our ongoing efforts to drive profitability.
Net income for the quarter was $50 million, and GAAP diluted earnings per share were $0.84, or $0.95 excluding one-time items. We have included an earnings per share reconciliation schedule in our press release to reconcile between GAAP earnings and normalized earnings per share to exclude certain one-time items. Unfavorable currency translation compared to the prior year impacted fourth quarter earnings per share by approximately $0.15. The fourth quarter's EBITDA was $93 million, and cash flow from operations was also $93 million. Free cash flow before dividends was $80 million, reflecting strong cash conversion of 161% of net income, as we have trended back to our typical working capital metrics. We have included a table with our press release reconciling net income to free cash flow before dividends.
During the quarter, we continued our approach of returning capital to shareholders by distributing approximately $14 million in dividends and investing $196 million for the repurchase of 2.9 million shares. As of the end of our fourth quarter, we had approximately $151 million available under our current repurchase authorization. During the quarter, we also continued to execute on our acquisition strategy with two previously announced purchases. WAFO is a small addition to our polymer processing product line within the Adhesive Dispensing segment, and Matrix Technologies is an ideal extension of our test and inspection product line in the Advanced Technology segment.
Both of these acquisitions are performing as expected, and we welcome the WAFO and Matrix teams to the Nordson family. From a balance sheet perspective, we remain liquid with net debt to EBITDA at 2.8x trailing 12-month EBITDA as of the end of the fourth quarter. Net debt levels reflect acquisitions and opportunistic investments for repurchasing shares. I'll now provide a few comments on our full year results. Sales for fiscal 2015 were $1.69 billion. As Mike previously mentioned, organic growth for the year was more than 3% compared to the prior year. This is solid growth given a low growth macroeconomic environment throughout 2015 and against a very challenging comparison where organic growth in 2014 was in excess of 6%.
Unfavorable currency translation as compared to the prior year impacted 2015 sales by $115 million, or -7%. Full year gross margin as reported was 54%. Excluding the effects of negative currency translation, gross margin for the year was approximately 55%. Full- year operating profit in fiscal 2015 was $318 million, and reported operating margin was 19%. Excluding one-time items and the approximate effects of unfavorable currency translation compared to the prior year, total company operating margin was 21% for the year. Net income for the full year was $211 million, and GAAP diluted earnings per share were $3.45, inclusive of a $0.12 per share charge related to one-time items.
Unfavorable currency translation impacted full- year earnings per share by approximately $0.54 or 14%. Full- year EBITDA was $384 million, and free cash before dividends was $200 million, or 95% of net income, again reflective of strong cash conversion. Excluding the investment in our new fluid management facility in Colorado, adjusted cash conversion was 104%. Dividends paid in fiscal year 2015 were $55 million, and shares repurchased under the repurchase program totaled approximately 5.4 million or 8.6% of shares outstanding at the end of fiscal 2014, totaling $382 million. I'll now move on to comments regarding our outlook for the first quarter of fiscal 2016.
As we typically do, we provided our most recent order data, both on a segment and geographic basis, with our press release. These orders are for the latest 12 weeks as compared to the same 12 weeks of the prior year on a currency-neutral basis and with acquisitions included in both years. For the 12 weeks ending December 6, 2015, order rates are down 5% as compared to the same 12 weeks in the prior year. We are facing challenging comparisons where total company order rates were up 10% at this time last year. Within the Adhesive Dispensing segment, the latest 12-week orders were up 7% as compared to the same period in the prior year. Orders were up in most product lines and were led by non-wovens, melt delivery, extrusion dies, general product assembly and rigid packaging.
Orders increased in all geographies except Japan. In the Advanced Technology segment, order rates for the latest 12 weeks are down 16% against the prior year. Strength in medical fluid management components was offset by cyclical softness in select electronics end markets. Strength in Europe and Japan was offset by other regions. Within the Industrial Coating segment, the latest 12-week order rates are down 14%. Growth in liquid and container product lines was offset by softness in other product lines. Strength in Asia Pacific, Japan and the Americas was offset by softness in the U.S. and Europe. Backlog at October 31, 2015 was approximately $229 million, an increase of 8% compared to the prior year, and inclusive of 5% organic growth and 3% growth due to acquisitions.
Backlog amounts are calculated at October 31, 2015 exchange rates. Let me now turn to the outlook for the first quarter of fiscal 2016. We're forecasting sales to be in the range of down 1% to down 5% as compared to the first quarter a year ago. This range is inclusive of organic volume down 3% to up 1%, 3% growth from the first- year effect of acquisitions, and currency headwind of 5% based on current exchange rates. At the midpoint of our sales forecast, we expect first quarter gross margin to be about 54% and operating margin to be approximately 13%. This outlook includes short-term purchase accounting charges of $1.6 million and estimated restructuring charges of $1.3 million.
Excluding these onetime charges, normalized operating margin is estimated to be 14%. Unfavorable currency rates as compared to the prior year are estimated to impact gross margin and operating margin by about 1 percentage point. We're estimating first quarter interest expense of about $5 million and an effective tax rate of approximately 30.5%, resulting in first quarter forecasted GAAP diluted earnings per share in the range of $0.47-$0.57 per share, inclusive of a $0.03 per share charge related to non-recurring items. In addition, following fiscal 2016 full- year data points may be helpful for modeling purposes. For our effective tax rate, we're forecasting the full- year rate to be about 30.5% based on current tax law.
For capital spending in 2016, we're forecasting normal maintenance capital spending to be approximately $50 million. In addition, we do expect to incur additional one-time costs associated with our margin enhancement initiative, primarily associated with integration activities within the Adhesive segment. Although difficult to estimate at this time, we do not expect the one-time costs in fiscal 2016 to exceed those incurred in fiscal 2015. In summary, we delivered fourth quarter revenue within our range of guidance, resulting in full- year organic growth of more than 3%. Organic growth was solid in the majority of the business, with the exception of softness in more cyclical electronics end markets, supported by portions of the Advanced Technology segment.
We continue to execute on our balanced capital deployment strategy during the quarter and also continue taking actions which will lead to normalized margin improvement over the next two years. With that, I will turn the call back over to you, Mike.
Thank you, Greg. Before taking your questions, I'd like to provide some additional comments on our recent performance and outlook. First, I wanna thank our global team for their hard work in 2015. Our employees delivered a solid year in a challenging environment. Negative currency translation was a significant headwind through 2015 and masked what otherwise would have been a record year on several measures. I'm pleased with the more than 3% organic growth we delivered for the year, which reflects the technology, application expertise, and support we bring to our customers in the diverse end markets we serve. I'm also pleased with the progress we are making on the initiatives that we expect will improve normalized operating margins over the next two years. As we previously reported, we began these actions in our third quarter in our Fluid Management product lines within Advanced Technology segment.
In the fourth quarter, the Adhesive Dispensing segment began consolidation of four facilities supporting our extrusion die product line into a single center of excellence, and we continued rationalization of product lines based on profitability. Additional actions related to workforce optimization and efficiency initiatives are also underway in all three segments. We expect these actions to improve normalized operating margins with some of the benefits to be realized during 2016. We're providing additional detail on these activities in the coming quarters as they unfold. Our first quarter 2016 forecast reflects our backlog, current 12-week order rates, typical seasonality, and challenging comparisons to the same period a year ago. As we begin 2016, the global economy remains weak.
However, we continue to target organic growth in 2016 that exceeds global GDP, given our ongoing initiatives around new products, new applications, penetration of emerging markets, and recapitalization of our installed base. The diverse set of end markets we serve are all expected to grow over the long term, and we are well-positioned to meet customer needs with direct sales and service everywhere in the world. Although we cannot accurately predict movement in exchange rates, if exchange rates remain where they are today, the impact of currency effects on both sales and earnings would be minor in future quarters. The fundamentals of our business are intact. Our global team is committed to providing a best-in-class experience to our customers and delivering solid long-term returns to our shareholders.
We also remain focused on driving continuous improvement throughout the organization through the tools and practices in our Nordson Business System. At this time, let me turn over the call to you for questions.
Thank you. Ladies and gentlemen, to ask a question, please press star then one on your touch-tone telephone. If your question has been answered and you wish to remove yourself from the queue, you may press the pound key. Our first question comes from Patrick Wu with SunTrust Robinson. Your line is open.
Hi, guys. I'm actually standing in for Charlie. Thanks for taking my question. In regards to the Advanced Tech portion of the business, what is driving the decline in margins? Is it a simple function of low volume, or is it mix? I guess also in terms of the acquisitions recently, aside from accounting items, are these acquisitions additive to segment margins, or are they subtractive, if you will?
Yeah. You're breaking up just a hair there, but let me try and answer the first question. If you look at margins for the year in the Advanced Tech area year-over-year comparison, they're off about 5 percentage points. About 1 point of that relates to currency. A couple of points relate to really just lower organic volume relative to last year and an increase in the spending. About a couple of points relate to mix, where we had actually a significant decline in our automated dispense area that was offset by our surface treatment products, both of which have good margins, but the surface treatment product margins have more bought-in items, less high value-added mix as part of it, and so they have a considerably different margin.
If you think about a currency, the margin mix, and then some lower organic growth in the segment relative to typical spending increases that we would see. Nothing fundamental there in terms of pricing or anything else. As it relates to the acquisitions, the acquisitions that we added were kind of tuck-in acquisitions. One on the dispense, one on the polymer side, and then in the Advanced Tech, it was really a automated X-ray product that has similar kind of margins to the margins we see in the Test and Inspection business. It really comes down to currency and mix largely and then some lower volume. Nothing fundamental.
Okay, great. Obviously, the lead times for the segment are generally pretty short. When you guys are talking to customers in Advanced Tech, I guess more specifically, what are you guys hearing in terms of CapEx looking out into 2016 and beyond? Is it has it been sort of down, you know, materially, or has it just really been down marginally, and how does that compare to your expectations going into next year?
Yeah. Yeah. Let me make a couple of comments. First, if you look at sort of the Fluid Management part of our business, we continue to see strength in the medical business going forward. We see, you know, solid gains and strength in what I call general industry applications in our EFD-type products. I'd say year-on-year, we saw some softness, particularly in the wearables space come the end of the year. We think that's more timing than anything else. In the automated systems business, this past year for the wireless business was not one of in terms of a significant degree of change in terms of the product offerings. And there are some changes in end customer market share, particularly in China.
You know, the one bright spot was really in the auto electronics segment. When we talk to customers right now, and this is the time of year where we're doing a lot of project development work with key customers, there are a lot of different new product and application activities that we're working on, and we're hopeful that they're gonna translate into you know, significant growth this year. You know, obviously, that'll play out in the second and third quarters as these you know, sort of prospects and development projects turn into orders. We're hopeful in that regard that we will see an uptick, particularly on the dispense side this year. We're getting some traction now as well with the Chinese manufacturers that are all sort of on the low-end tiered product scale of the Automated Dispensing Systems.
Great. One more quick one before I hop back in the queue. What was the mix from parts and consumables and adhesive dispensing for the quarter?
Can you repeat your question?
Yeah. Your connection's not so good, so I didn't hear that at all.
What was the mix from parts and consumables and adhesive dispensing for the quarter?
Consumables.
Total company was about 42%, which is kind of trends out to be a pretty consistent percentage for all of the quarters and full year. It's very near that range. If you look at the various segments, they all trend very near that total company. I'd say in the quarter, we probably had slightly higher than normal within Advanced Tech, given this volume shortfall in system dispensing. Adhesives as well as the other segments tend to fall very near that total company of 42%.
Perfect. Thank you.
Our next question comes from Allison Poliniak with Wells Fargo. Your line is open.
Hi, guys. Good morning. Just touching on that first question a little differently. You know, I'm trying to be an optimist here. Do you get a sense that people are just sort of, you know, 2015 was a bad year, let's kind of punt these capital decisions into 2016, where maybe you're getting a sense just from talking to your customers that we could see a little acceleration here as people kind of delayed those decisions into 2016? Any thoughts?
Allison, are you talking about across the portfolio or specific to the electronics part of the discussion?
No, I mean, if you wanna touch on electronics, but I guess just across the portfolio. You know, I understand that 2015 and this quarter was, you know, a sense across the industrials was fairly difficult just given some of these capital decisions getting delayed. Just trying to get a sense if maybe they're getting delayed, but you're still talking and, you know, maybe we see a little bit of.
Right. Yeah, maybe just talk a little bit across the businesses on kind of prospects and what we're hearing from customers. If you look at sort of the adhesives segment in our sort of traditional adhesives segment, you know, largely driven by the consumer non-durable space, you know, activity has been strong even through Q4. As we look at it from an order perspective now, it's very solid. In the polymer product lines, we're seeing improvements from an order perspective, starting to see some orders come in on the die business, a lot of that fluid coating, some specialty film dies, but solid melt stream components and, you know, our pelletizing was strong in the quarter, but that tends to be big project related. I'd say encouraging activity there.
When we look at the industrial coatings business, it's been on a strong uptick the last three years. We've got some tough comps in this particular quarter, but that feels a lot to us like just timing of larger products, particularly on the auto side. If you look at what remains strong, the auto platform kind of work remains strong, and we have some significant project activity there that we expect to come in in the future. The general sort of powder coating environment has been pretty solid, so a lot of prospects. Even when you look across places like Europe, you know, we're seeing solid prospect activity there. Then if you go to sort of the Advanced Tech space, as I said, medical activity looks strong.
The general fluid management activity, we're talking to customers, look good from a prospect standpoint. We actually are encouraged that this could be a more significant year from a change perspective in the sort of wireless area, including the wearable piece. We've gotten some good traction with the local Chinese in terms of new products with our tiered product offering that came from the DIMA acquisition that we make in China now. I'd say we were encouraged on the prospect side of this. You know, I think the areas that appear to be still soft geographically, you know, Japan is an area that's soft, and we're clearly seeing some investment being pushed off there.
You know, China is more of a mixed bag, but you know, the areas that are strong, like auto, continue to be strong. On the, you know, on the electronic side, obviously that's where a large bit of the uptick would come this year. I'd say the prospect discussions are good. We need to translate these new developments into orders, and that'll play out over the next couple quarters.
Oh, great. That's helpful. Just turning to leverage, 2.8x. You know, can you just maybe talk about your comfort with that level in this environment, sort of what range you'd be comfortable in here from a leverage perspective?
Yeah, Allison, this is Greg. You know, we support that with the strong cash generation that this business generates. You know, we're certainly not uncomfortable in this range where we are. Under our current credit facilities, we have about $200 million available. We certainly have, you know, much more than that from a capacity under our covenants perspective. We're comfortable in this range and think we still have, you know, some dry powder for other strategic initiatives. You know, it's not a level that we're not comfortable with in this environment.
Yeah, I'd just make two comments. You know, assuming we see sort of GDP in that sort of 2%, low 2% range, we'd expect to outgrow that, number one. Number two, we are on track with the initiatives we have in place to improve our margins, which we're seeing some you know charges this year, but will position us well to generate even more cash going forward.
Okay. Just one last thing, just touching on that outgrowth relative to GDP. Are you including acquisitions in that thought, or is that just purely organic basis then?
No, just organic, we should be able to do that. You know, we're not looking at numbers in, you know, we're looking at 3% or 4% if you look at 2% GDP, not 7% or 8%, but we should be able to grow that. Quite frankly, it's largely the focus around our initiatives. We have a number of specific growth initiatives that are focused on new products, new applications, you know, larger penetration in emerging markets, particularly globalizing some of the acquisitions that we've acquired over the last couple of years. We see good plans in place that we can execute on to help mitigate a little softer economic environment.
Great. Thanks so much.
Okay.
Our next question comes from Matt McConnell with RBC Capital Markets. Your line is open.
Thank you. Good morning, guys.
Morning.
Morning.
Just to follow up on the prior question, 'cause, you know, that 2.8 leverage is a bit higher than you've carried historically. The decision to go there, was that you saw something opportunistic and you wanted to bump up the buybacks? Or, is it, you know, any kind of change in philosophy on the leverage that you're comfortable with? Maybe you could also talk about M&A capacity and what the M&A pipeline looks like right now.
Yeah, this is Greg. I'll handle the first part of that question. You know, clearly with some of the data we provided, we did believe it was an opportunity from a share repurchase perspective, and that's what drove that activity. I wouldn't say at a high level, it's a change in our perspective going forward. It was— we felt an opportunistic time.
Yeah. Just to comment with regard to M&A, we did say this year that our M&A activity would likely be focused on sort of drop-ins and plug-ins. If you look at the three things that we did, the Liquidyn acquisition was a product line plug-in for our EFD business.
You know, the WAFO addition was a sort of a make-buy decision, giving us European capability that we've since gone in and been able to significantly expand the furnace capability there, which will help us in our plastics area. Matrix Technologies was a way to upgrade our capability from an automated platform and integrate it with our advanced X-ray technology. All good plug-ins. I'd say we see more of the same in terms of that kind of smaller drop-in kind of activity. The one area where there are some larger potential opportunities are in the on the medical device space that's been growing strong double digits for us over the last three years with the acquisitions that we did make.
Okay, great. If you saw something, one of those somewhat larger deals on the medical device side, you feel you have the capacity to go after acquisitions in that space right now with the current balance sheet?
Yeah, we think we could do it for the right property.
Okay, great. Thank you.
Our next question comes from John Franzreb with Sidoti. Your line is open.
Good morning. Just a little bit about the margin enhancement program. Could you touch on what you think the normalized operating margin for the firm is, and what the 200 basis points would add to it? Would you expect the operating margin to end at the end of the program? First, and second, in first quarter guidance, how much margin enhancement do you think you realize from the program?
Yeah. Let me— just a couple of comments. I'd say we are right on track with our plans in terms of the actions we're taking for the margin enhancements. In the third quarter, you know, our margin enhancements were largely the result of exiting an EFD facility in Europe and consolidating our Minnesota manufacturing into Colorado and Mexico. Those were part of the advanced tech segment.
A lot of the activity here in this quarter was around improving effectiveness and efficiency across segments, as well as I mentioned, you know, we're gonna consolidate three U.S. facilities in our die business to one. We're gonna exit one in Belgium, and we have some follow-on acquisition activities to consolidate two facilities in Germany and some other thoughts that we're working on. That'll play out throughout the year. We're right on track in terms of the actions we're taking according to plan to get us to deliver that 200 basis points in 2017. On a normalized basis, we'll see a portion of that, you know, this year. It'll be masked by, you know, the costs associated with getting there that'll show up as sort of one-time on recurring costs.
We're right on track there. As far as the overall, you know, operating margin, you know, we would see some normalized improvement. You know, it may not be 1% this year, but on our way towards 1% and right on track for the 2%, next year, kind of in a volume- neutral basis. You know, if our volume goes up, we should see some leverage on top of that.
I'd add, this is Greg, just to, on the comment about, do we think we can continue to expand those beyond once we get to that 200. I'd say yes. We, you know, we have our continuous improvement wrapped into our Nordson Business System that allows us to continue to look to enhance performance. Again, even outside of that volume leverage, I wouldn't say that we stop after these initiatives. You know, we think we can continue to widen those margins.
Okay, great. What is the baseline corporate operating margin you're using? Because there's been a lot of, you know, noise in acquisitions and currency. What is the baseline number? It's been very high in the past couple of years. I just wanna get a sense of what the starting point is.
This year's sort of normalized number as we look at it for the company is around 21%. That's with you know, what's been going on sort of underlying in the Advanced Technology segment.
You know, it was a 15% number if we excluded the one time, you know, we're saying from this 15% number on a go-forward basis over the next year and then in 2017, we expect to widen from there.
On a volume- neutral basis. Additional volume on top of that should provide some additional leverage.
Okay. Got it. Thank you.
Our next question comes from Kevin Maczka with BB&T Capital Markets. Your line is open.
Thanks. Good morning.
Hey, Kevin. Good morning.
Just to be clear on the margin, but in Q1, you're expecting to be down about 300 basis points year-over-year, but you still think with the cost actions you have in place, kinda normalized when you exclude the one-time cost associated with achieving those and currency neutral, you still think there'll be 100 or so basis points of margin lift? That's a reasonable expectation for full year 2016?
I think if we split it into sort of two pieces, if you look at the structural program and say we're right on track with what we're looking to do and exclude one-time, we'll see improvement, whether it's a full 100% points there, not clear, but directionally it'll be moving towards that. Then what we're saying from a volume standpoint, if the year plays out as we expect and the GDP is a couple of percent or so, and we outgrow that, we should see some additional volume leverage on that.
I guess, Kevin, the point there too is yes, we're off here on the first quarter, but you know, we don't get too concerned about one particular quarter. This happens to be a quarter that, for us, as you know, is a softer quarter. It's a softer quarter for many of our customers in their capital cycle. We've got the holidays, et cetera. As you suggest, we're starting off in a bit of a hole here in the first quarter. As we look at the project lists, as we look at activity within the businesses, you know, we're still targeting that on a full- year basis, we'll hit our sales growth targets.
Got it. On tech, if I could shift over to that one. You mentioned a couple of times about the cyclical downturn in some of the electronics markets you saw this quarter. We know those cycles don't always coincide with macro cycles. If you're looking for maybe a better year this year on the wireless side with changeovers, with the wearables that you mentioned, any sense, any view you have on how that cycle bottoms? Will we still be talking about a cyclical downturn the next couple quarters, I guess, is the question there.
Yeah. If you look at a typical electronics seasonal pattern, first quarter is always soft, but that's the quarter where, as I mentioned, we're typically working with customers on development projects that they then would enact in the second, third quarter, and the typical commitment and ramp up is generally in that second and third quarter. If you look at the last year, we had a particularly strong fourth quarter and a particularly strong first quarter, and a lot of that had to do with everybody pushing for wearable kinds of opportunities to go out and test the new market segment there. We should expect to see this play out in the second and third quarter.
If you look at our sort of typical seasonal data for this business, you know, it declines pretty sharply from the kind of end of the third quarter into, say, the beginning of January, and the peak periods tend to be in the second and third quarter, peaking somewhere in the third quarter, typically. That's what we would expect based on the conversations we have now. Now, these new developments, which are new product and applications related, need to translate into orders, but we'd expect to see some, you know, the pickup in the second quarter and a peak in the third quarter would be typical.
Okay. Just finally from me, you know, we're likely looking at another kind of sluggish year overall in terms of the macro picture. You always have this goal to outpace global GDP and some of the ways you get there, new products, emerging markets, installed base. Can you point to something there that would be maybe needle moving, if you will, that you know, could give some comfort that you know, this could be a year where in fact we do exceed global GDP, even in a soft market?
Yeah. I would say a couple of things. In the you know if you look at the last two years, we've on an organic basis exceeded the global GDP. You know, 2014 was a little more robust at about 6%. This year is a little over 3% with the tougher electronics market. I would say you know in sort of our core adhesives area, both on the packaging side and the non-woven side in particular you know we'd see recap as a driver this year. We've had good traction last year, and that's continuing into this year. In other words, looking at upgrades and improvements and recapitalization of sort of our installed base there, and we see a lot of customer activity on that front.
We're working on some new applications in the product assembly area that relate to some furniture applications and flooring applications that are starting to take off with improvement in the construction industry. I'd say in the polymer area, we're seeing good growth in the fluid coating part of the dies business and some uptick in some specialty dies, getting some traction on our melt stream and some good projects on the polymer pelletizing side of things, particularly in Asia, and that's related to our spherical underwater pelletizing capability. When you look at industrial coatings, we think, you know, this year is gonna be another solid year in the auto platform, and we've been pretty successful there.
We've got some, you know, continued upgrades to technology on the powder side that, and some improvements sort of in the general metal contracting area that we see some traction on. If we look at the medical space, there's just a whole slew of new products that we've introduced. We're getting good traction on new products from the Avalon acquisition. Last year, the Value Plastics components, we've broadened the product line in a number of ways, and we're getting good traction on that. There's also, we're starting to see some globalization of those businesses. In our cold materials space, we've got some new applications going into aerospace. These are not home runs. These are all sort of singles. With new applications going into the aerospace area, they're starting to get some traction.
I'd say our tiering approach is helping us to get some traction with the Chinese wireless companies. We're in with all of them and starting to get some reasonable orders in that area. You know, again, that's one where we're not quite sure what the pace of conversion will be from manual to automated, but the tiering approach is really helping meet their needs there. I would say this year's been a good year in terms of introducing new products. Next year is the area where we want to commercialize and take advantage of that, and we think we're in pretty good position. A lot of our expectation is these initiatives over and above sort of the float of GDP is what is gonna drive our growth for next year.
Okay, great. Thank you.
Our next question comes from Walter Liptak with Seaport Global. Your line is open.
Hi. Thanks. Good morning, guys.
Morning.
Morning.
I wanted to, you know, just dig into this, the first quarter margin guidance, the 14% adjusted again, and just get an understanding of where you think the advanced tech margin might be. Like, what's the assumption in advanced tech? It looks like. I'm wondering if it could be single digit. As I look back in the model, looks like in 2014, you started out like that, too, where you had a really weak first quarter margin, and then it improved throughout the rest of the year. I wonder if that's the kind of year you're thinking about again in 2016.
Well, certainly, if you look at where we're at from an order perspective, the whole adhesive area has been the one that's been most solid right now. We've been a little softer on the coatings, but that's off of a strong comparison and a little bit softer on the advanced tech. Those, you know, those margins in the first quarter typically go down anyway, and they would on a year-on-year basis be off just given the volume leverage. It's that mix that we're looking at.
Okay. Is your assumption though to be single digit in Advanced Tech?
Yeah. Walt, this is Greg. We typically, in our guidance, you know, don't go to the segment and we certainly don't, you know, take it down. We just don't work it down to the product line level. What I'd suggest is similar to what Mike was saying, we kinda look at where the order rates are. Certainly, volume is gonna have an impact on what those reported margins will be.
We don't see it necessarily as an atypical kind of a quarter for us, just relative to last year, a softer quarter in those areas.
Okay. If in the second and third quarter, some of these new products, the wearables, et cetera, come through, those would impact the automated assembly, which tends to be higher margin. Is that correct?
Yeah, most of the wireless activity falls into the automated assembly space. There are some things that we sell for manual and tabletop— and modest tabletop automation too that go into some customers. If you recall, we have sort of a range of customers. The ones that are just stepping out of doing things manually might go to simple tabletop automation, which would fall into kind of our EFD segment. Most of it typically falls into the automated segment, particularly now that we have the sort of first-level tiered automated product to offer, that we'd expect to see growth across that range.
Both of those dispensing are good for us. Those tend to be our higher margin products. You know, if we see that kind of demand that plays out within the business, that's good from a margin perspective.
Okay. Okay, thank you for that. Just as a last one and, you know, the variance from your guidance, you know, what changed during the quarter that you weren't expecting, you know, if you had higher guidance, for EPS heading in? Was it the mix in Advanced Tech?
Yeah, that's Walter, that's primary. That is the gap in guidance when you look at where the revenue shook out is it's the mix issue and the impact on margins within Advanced Tech, and specifically in the Electronics Systems portion of the product line.
Okay, got it. Okay, thank you.
Our next question comes from Joe Radigan with KeyBanc. Your line is open.
Thanks. Good morning, guys.
Hey, Joe.
Couple questions on the polymer businesses. On the injection molding side, you know, some of the equipment OEMs, I think, have cautioned that industry growth could slow there next year following a couple pretty robust years. How are you thinking about the growth in that business? Would you expect to be in line with industry trends there, or is there another, you know, share gain catalyst or something else there?
Yeah. I think our expectation is continued growth in that segment. A lot of it'll be, I think, driven by the fact that we're improving our capability in that area in Asia and, to some extent, in Europe. The fact that, you know, this, the WAFO acquisition we made will help us from a capability standpoint in Europe for those component products. It largely impacts mostly our screw and barrel business. We do have some new applications that we're working on, particularly for twin barrels and some coating applications.
We're seeing good growth getting beyond the injection molding piece, both in our melt stream applications with new products and in our fluid coating business in the die side. We're starting to see for the first time some uptick in general orders in the die business. I think you know certainly the things that have been driving the injection molding have been things like auto, medical, and to a lesser extent, some of the consumer product conversions going on.
Maybe just to follow up on your comment on the die business, Mike. Are you seeing industry capacity there finally kinda normalize to where there could be some expansion, or is this more specialized type one-off items on the higher end Biax stuff?
Yeah. I would say it's more specialized items at the moment, although we're starting to see some requests and activities on the Biax side. We like to see a little bit more traction on that to conclude that we finally turned the corner there. On some specialty applications, we're seeing some uptick. I'd say no, not yet. We'd like to get a little bit more traction there, but maybe some early indications that things are improving.
Okay. Maybe lastly, more broadly in adhesives, is there a risk at all that low oil prices impacts the customer decision to upgrade? Meaning, you know, maybe they, with the rationalization that lower feedstock costs make the value proposition of more efficient equipment less compelling. Is that a concern at all?
We're not really seeing that so much. I mean, if you think about the drivers for upgrading, certainly that's one of the drivers. Speed is another driver, so getting effective capacity out that reduces unit cost. Then we're seeing feature function changes. You know, for example, in the non-woven space, our customers are moving towards more clothing-like diapers and adult incontinence products, which drive change there and require some recapitalization. I'd say, you know, from an efficiency and therefore a cost of the adhesives products, it might be a modestly lower driver, but for some of the other things we're still seeing interest in recapitalization.
Okay, that's helpful. Thank you very much.
Our next question comes from Matt Summerville with Alembic Global Advisors. Your line is open.
Hey, good morning. Just two quick things.
Hey, Matt.
Greg, do you have an idea of the magnitude of FX headwind you'd be facing for the full year if rates stay where they're at today? Even if you're able to do it on a more granular basis by quarter, I know you indicated Q1 is gonna be a $0.08 headwind, but how do you think the year progresses from an FX standpoint?
Yeah, Matt, if you look at where the euro, yen, and the pound, kind of the three bigger currencies for us, once we get through the first quarter here, we've pretty much lapped the currency effect where for each of those quarters, two, three, and four, where rates are today are pretty much right in line with where they were prior year in those quarters. We'll have this currency impact this quarter. If rates stay where they are, it'll be minimal in the future quarters.
Got it. Maybe just one for Mike. Can you talk about the magnitude of order weakness you saw in the U.S.? I guess what the drivers were there. Did it surprise you? I think the number was down 12%. I don't have it in front of me. Just what's driving the softness you're seeing in the U.S., and should that be a broader concern?
If you look at the U.S., a big driver in the short term has been in our industrial coatings business, and that's really linked to a year-over-year timing of kind of bigger projects, particularly auto platform projects. You know, as we look at it and the prospects out there are still a lot of prospects for new auto platforms that we're working on now, and we think it's more of a timing issue. Similarly, from a powder coating business perspective, there are some larger projects in the first quarter last year that, you know, we see perhaps playing out later in the year, this year. I think that's the most significant piece that we see there. When we talk to the customers, look at their prospect lists, and bidding activity, I'd say at the moment, we're encouraged by what we see there in those areas.
Matt, just to add to that, particularly with those two product lines, you know, they tend to be larger dollar. Timing can really have an impact at, you know, whatever your cutoff point is for your comparisons. The timing of those orders can have a big swing, create a big swing.
Understood. Thank you, guys.
Stephanie, we probably have time for about one more call.
Okay. Our final question comes from Chris Glynn with Oppenheimer. Your line is open.
Thanks. Good morning.
Hey, Chris.
Morning. I did get bumped off accidentally at the beginning of Q&A, so sorry if I repeat some covered ground. Just looking at the ATS margin progression through the year as opposed to year-over-year, I think the mix in FX that they were kinda tough throughout. If we look at a lower adjusted margin in the first quarter, you know, compared to the first quarter and the second quarter, you know, margins down despite seasonally higher volumes, and again, assuming mix and FX were a little challenging throughout, what's that tail off here at fiscal year-end?
Within the advanced tech segment, the tail off is largely mix.
To be clear, our dispense business was down pretty significantly year-over-year, and our surface treatment business was up, and that's the mix effect we're talking about.
Yeah. We were commenting earlier that where we have application demand, that drives the need for Automated Dispensing. We generate higher margins there than we do in other portions of that product line. Now, the positive side is we offset that dispensing revenue with some new application revenue within that advanced tech space. It just comes at lower gross margins than our dispense platform does.
The mix issue is actually much more acute in the fourth quarter than it was in some of the prior quarters of fiscal 2015 that also had some mix challenges.
Right. It's really a function of when the products were delivered.
Okay. You know, these things created sort of a step function down. Does that set the table for a step function up rather than a normal incremental margin analysis if mix normalizes? Or should we think more of this as a reset in the ATS margins?
No, I wouldn't say it's a reset. I think if you go look at the year-on-year comparison we talked about earlier, you know, currency was about a 1% impact. The mix was a couple of percent or so impact. Then volume relative to sort of spend was very modest in total. You know, we lost some sort of incremental volume leverage there. You know, in all of our businesses, we've talked about the actions that we're taking to improve effectiveness and efficiency, including that segment. We think if we get back to a more normal mix and without further currency impacts, we should bump back up in that business. No, there's not a permanent change. There's not a pricing change.
There's not a competitive change. There is, you know, pretty substantial mix. As Greg was saying, if you look at the composition of what we sell in, say, dispense versus surface treatment, we buy much less in that product line, and so we're selling essentially only all the high value-added product, and that's why we've got a difference.
Right. That makes sense. A little bit of a similar framework for ADS. The margin on adjusted basis, 24% in the quarter, step back from prior couple quarters, you know, despite seasonally higher volumes and better organic growth. Is this another instance where we just say mix is this one quarter and something else in another quarter?
Yeah, Chris, just to add, as you mentioned, normalized would have been 24%, and currency also was a big impact here, that if you excluded currency, we would have been 27%. It would have actually been slightly accretive to where we were last year or prior year.
It's the biggest segment with the currency impact.
Right. It wasn't any worse than the prior couple quarters, was it?
Slightly larger in the fourth quarter, given the volume.
Okay. Okay, that's all I have. Thanks a lot.
All right. Thank you.
That does conclude the Q&A session. I will now turn the call back over to Jim Jaye for closing remarks.
Thank you, everybody, for attending the call. I am around today. I do have some calls scheduled. I'm also around next week for follow-ups, anybody listening. Thank you again. Appreciate your interest and attention in Nordson. Thank you.
Thank you.
Thank you, ladies and gentlemen. That does conclude today's conference. You may all disconnect, and everyone, have a great day.