As a reminder, today's conference is being recorded. I would now like to turn the call over to Mr. James Jaye, Senior Director of Investor Relations. Sir, you may begin.
Thank you and good morning. I'm here with Mike Hilton, our President and CEO, and Greg Thaxton, Senior Vice President and CFO. We welcome you to our conference call today, Tuesday, August 22nd, 2017, to report on Nordson's FY 2017 Q3 results and our FY 2017 Q4 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 September 5th, 2017, which can be accessed by dialing 404-537-3406.
You will need to enter the ID number 62150013. 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 on the quarter, we'll be happy to take your questions. With that, I'll turn the call over to Mike.
Thank you, Jim. Good morning, everyone. I'm pleased to report that Nordson delivered record results for revenue, operating profit, diluted EPS, and EBITDA in the Q3 of fiscal 2017. These results speak of the strong underlying performance across our base business and our focus on continuous improvement. I'll provide some highlights on our financial performance and let Greg provide more detail. We delivered 11% organic sales growth in the quarter compared to the prior year, with contributions from all segments in nearly all geographies. Acquisitions added another 10% growth to the top line, and we continue to be pleased with how all of our new businesses are performing. Operating profit in the quarter improved 24% over the prior, and operating margin improved 1% point compared to the same period a year ago.
Adjusted and diluted EPS increased 21% compared to the same period a year ago. These results include $6 million or $0.7 per diluted share of intangible asset amortization expense associated with the four acquisitions we've completed fiscal year to date. Given these increased non-cash expenses in the quarter and our expectation for continued acquisition activity going forward, we believe additional focus on EBITDA measures better reflects our core operating results and offers greater transparency for investors. Looking at the current quarter, EBITDA margin, and EBITDA per share all improved compared to the same period a year ago. Free cash flow before dividends in the quarter also improved compared to the prior year. After the quarter closed, our board approved an increase to our dividend, marking the 54th consecutive year we have increased our annual dividend.
We are one of only 14 public companies to have increased their dividend for at least that number of years. Looking ahead, our Q4 guidance reflects our backlog, current 12-week order rates, and challenging comparisons to the same period a year ago where we generated 13% organic growth. At the low end of our Q4 guidance, we are on pace to deliver record full year performance across most metrics, including revenue, earnings, and EBITDA. I feel very good about our 2017 performance, both organic and acquisitive. We are well-positioned for the future. I'll speak more about our outlook in a few minutes, but first, I'll turn the call over to Greg to provide more detailed commentary.
Thank you, Mike, and good morning to everyone. Q3 sales were $589 million, an increase of 20% from the prior year's Q3. This change in sales included an 11% increase in organic volume, a 10% increase related to the first year effect of acquisitions, and a less than 1% decrease related to the unfavorable effects of currency translation compared to the prior year's Q3. Organic growth exceeded the high end of our guidance, driven by strength across all segments and nearly all geographies. Organic sales volume in the Adhesive Dispensing segment increased 6% as compared to the prior year Q3, where organic growth was also strong at 4%. This is the ninth consecutive quarter of organic growth in this segment.
Our Packaging, Nonwovens, and polymer product lines drove the growth in the current quarter, and all regions were positive, with the exception of Europe. Sales volume in the Advanced Technology segment increased 42% from the prior year Q3, inclusive of 18% organic volume growth and 24% growth related to the first year effect of acquisitions. Customer demand for Automated Dispensing, Test & Inspection, and Surface Treatment systems was robust across electronics end markets, with additional strength coming from demand in our medical end markets. All regions delivered strong organic growth compared to the prior year, most by double digits. The segment's acquisitive growth includes the first year effect of the LinkTech, ACE, InterSelect, Plas-Pak , and Vention acquisitions. Organic sales volume in the Industrial Coatings segment increased 3% compared to the Q3 a year ago.
Cold Material, Liquid Painting, and UV curing product lines drove the growth, with the Americas and Asia Pacific being the strongest geographies. Gross margin for the total company in the quarter was 55% or 56% and equal to the prior year when excluding $1.7 million of one-time purchase accounting charges with a step up from acquired inventory in the current fiscal quarter. These charges are now behind us. Operating profit for the total company in the quarter improved 24% to $153 million, and reported operating margin improved 1% point to 26%, both compared to the prior year's Q3. Adjusted operating margin was 28% in the quarter, excluding the one-time charges called out in the EPS reconciliation in our financial exhibits and also excluding the $6 million of intangible asset amortization expense related to current year acquisitions.
Within the Adhesive Dispensing segment, reported operating margin was 28% in the quarter, an improvement of 1% point compared to the prior year's period, and inclusive of approximately $700,000 in restructuring charges related to facility consolidation. Operating margin for the segment was 29% without this charge. Within the Advanced Technology segment, reported operating margin was 30% in the Q3, or 33% when excluded purchase accounting charges of approximately $1.7 million with a step up in value of acquired inventory and the $6 million of intangible asset amortization expense related to the current year acquisitions. Within the Industrial Coating segment, reported operating margin was 20% in the quarter, an improvement of 3% points compared to the same period a year ago related to improved product mix.
This is continued strong operating margin performance by all three segments and reflects our ongoing continuous improvement efforts. For the company, net income for the quarter was $101 million, and GAAP diluted earnings per share were $1.74. Adjusted diluted EPS in the current quarter was $1.78, a 21% increase over the prior year adjusted diluted EPS. We have included an earnings per share reconciliation schedule in our press release to reconcile between GAAP earnings and adjusted earnings per share. Q3 EBITDA increased 29% to $179 million. EBITDA margin improved 2% points to 30%, and EBITDA per diluted share increased 27% to $3.08, all compared to the prior year's Q3.
Adjusted EBITDA in the quarter was $182 million, or $3.12 per diluted share, a 29% increase over the prior year. Cash flow from operations increased 13% compared to the prior year's Q3 to $77 million, and free cash flow before dividends increased 14% compared to the prior year to $55 million. All of these measures highlight the strong cash generation of the overall business. We have included tables with our press release reconciling net income to EBITDA, adjusted EBITDA, and free cash flow before dividends. From a balance sheet perspective, net debt to trailing 12 months EBITDA, inclusive of acquired EBITDA, was 2.7x at the end of the Q3, down from 3x at the end of the Q2.
This level is well below our most restrictive debt covenants, leaving us with additional debt capacity. At the end of the quarter, we had approximately $368 million of combined cash and availability on a revolver. As we've demonstrated, our strong cash generation enables us to deliver quickly, which remains our intent in the near term. I'm gonna move on to comments regarding our outlook for the Q4 of FY 2017. As we typically do, we provide 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 August 13th, 2017, order rates are down 2% compared to the same 12 weeks in the prior year. This is a challenging comparison to the same period to the prior year ago, where order rates were up 16%. Within the Adhesive Dispensing segment, latest 12-week orders are down 1% compared to the same period a year ago. Strength in Packaging and Nonwovens product lines was offset by softness in general Product Assembly and polymer product lines. Strength in Europe and Asia Pacific was offset by other regions. In the Advanced Technology segment, order rates for the latest 12 weeks are down 3% as compared to the prior year, where order rates were up 29%.
Some electronics project activity occurred earlier in the year as compared to last year, benefiting our Q3 sales, and our ability to respond to these shifts remains a competitive advantage. Within our current order rates, strength in our Test & Inspection product lines, serving electronics end markets, was offset by softness in other product lines, mostly electronics related, due to project timing and challenging prior year comparisons. Within the Industrial Coating segment, the latest 12-week order rates are down 4% as compared to the prior year, where order rates were up 36%. Strength in Powder Coating, Liquid Painting, and Container Coating product lines was offset by softness in Cold Material product lines.
Europe was the strongest regionally. Backlog at July 31st, 2017 was approximately $372 million, an increase of 10% compared to the prior year, and inclusive of 13% acquisitive growth, offset by a 3% decline in organic business. Backlog amounts are calculated at July 31st, 2017 exchange rates. Let me now turn to the outlook for the Q4 of fiscal 2017. We're forecasting sales to increase in the range of 4%-8% as compared to the Q4 a year ago. This growth includes organic volume of down 3% to down 7%, 10% growth from the first year effect of acquisitions, and a positive currency effect of 1% based on the current exchange rate environment.
At the midpoint of this outlook, we expect Q4 gross margin to be approximately 54% and operating margin to be approximately 21%. This margin performance includes $6 million of intangible asset amortization expense related to current year acquisitions. We're estimating Q4 interest expense of about $10 million, depreciation and amortization expense of about $25 million, and an effective tax rate of approximately 29%, resulting in Q4 forecasted GAAP diluted earnings per share in the range of $1.18-$1.32 per diluted share. We expect EBITDA to be in the range of $133 million-$144 million, or $2.27-$2.46 per diluted share. Finally, we are forecasting Q4 capital spending to be similar to the year-to-date run rate.
Thank you, Greg. I wanna thank our team for delivering another outstanding quarter. Revenue, operating profit, diluted EPS, and EBITDA were records for any Nordson quarter. In terms of our Q4, our guidance reflects the very challenging comparisons of the same period a year ago, where we generated 13% organic growth. We're on pace to deliver record full year performance on most metrics. At the midpoint of this guidance, full year organic sales growth is 6%. This is excellent performance, and it's on top of a robust 7% organic sales growth we delivered in fiscal 2016. Full year adjusted diluted earnings per share at midpoint is $5.24, an increase of 12% compared to fiscal 2016.
Again, I'll point out that fiscal 2017 adjusted diluted EPS per share includes intangible asset amortization expense related to this year's four acquisitions of approximately $15 million or $0.18 per diluted share. As I mentioned in my opening remarks, we believe additional focus on EBITDA measures which exclude these non-cash expenses better reflect our core operating results and offers greater transparency for investors. At the midpoint of our Q4 guidance, fiscal year 2017 EBITDA increases 16% to $535 million. EBITDA margin increases one percentage point to 26%, and EBITDA per diluted share increases 15% to $9.19, all compared to the prior fiscal year. This is very strong performance. Our continued ability to generate high levels of cash provides us with the ability to fund multiple initiatives.
In the near term, de-leveraging is likely to remain our priority for capital deployment. We also have capacity to execute on acquisition targets in our pipeline if and when they become available. Overall, we are well-positioned across the diverse end markets we serve. Our global team remains focused on creating shareholder value by offering customers innovative technology solutions and outstanding support. Again, 2017 will be a strong year on top of a very strong 2016. With that, we'd be happy to take your questions.
Ladies and gentlemen, if you have a question at this time, please press the star and then the number one key on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. Thank you. Our first question comes from the line of Matt Summerville with Alembic Global Advisors. Your line is open.
Thanks. Good morning. Just in terms of the
Good morning, Matt.
Thanks, Mike. In terms of the organic guidance for fiscal Q4, down 3% to down 7%, orders down 2%, are we to read from that that as the 12-week period progressed, you saw further weakening on a year-over-year basis in order to get to that guidance? I clearly recognize you're up against very tough comparisons, but just a little more granularity on the sequencing of orders as you progress through this latest 12-week period, please.
Yeah, I wouldn't necessarily say that that's what we're seeing. Matt, what I would say is if you look at our typical annual pattern of orders, as I think as you know well, you know, they decline in the Q4 to a low point sort of in January, and they peak somewhere in the Q3 or Q4. I'd say what we're seeing is a strong peak that's come through in the Q3 and seasonally trailing off, whereas last year we had the strongest peak in the early part of the Q4.
That's what you're seeing here, is a little bit of a cross there just based on the timing of the peak in the year. I wouldn't say that we're seeing, you know, orders, necessarily slow down in the last 12 weeks. It's really more about the year-on-year comparison.
Just a follow-up. Clearly, I recognize it's early, it's only August. You know, you guys are gonna be up against
A pretty tough organic comparisons, at least through the first three fiscal quarters of 2018. As you look at the key organic drivers across the businesses, the underlying momentum you see today, what's your level of conviction that you're able to grow organically, you know, looking out over a little bit of a longer period of time? Again, bearing in mind you still have some tough comps to digest beyond what you're digesting today. Thank you.
What I would say is a couple things. I think we said at the beginning of this year, we saw, you know, global economy growing at 2%-2.5%, and that we would grow at a multiple of that on an organic basis. Certainly we're in a position to do that for this year. I think as you look forward, we expect over the long run, that's the kind of growth rate that we're gonna see. Could we have, you know, some quarters where we're off a little bit and other quarters we're stronger, just like the Q3 and Q4 you're seeing here? Yes. The fundamentals are strong in our business. We're well positioned across all of our end markets.
From a competitive standpoint, we see nice growth driven by new product innovation. We're continuing to adjust our portfolio to provide higher growth parts to the business, like the medical additions that we're doing that also support high margins and help with cyclicality in our business. We still have a strong part of our business that's related to consumer nondurable products. As I look at it, we feel good about our growth prospects for the business. The mix that we currently have in the business is improving with the acquisitions that we've made this year.
Thank you, Mike.
Thank you. Our next question comes from the line of Jeffrey Hammond with KeyBanc. Your line is open.
Hey, good morning, guys.
Good morning.
Okay. I understand kind of the order declines in Advanced Tech and Industrial Coating, just given the comps, but was a little surprised by the order decline in adhesives. Maybe you could just speak more to that. Was there any kinda, you know, noise or lumpiness that would've impacted that? Maybe just talk about, you know, forward visibility in adhesive.
Yeah. If I look at the AT business, the adhesives business, we do have a couple elements of the business that are more project-oriented, like our Product Assembly business and some of our polymer-related businesses. And so I think there you've got some quarter-on-quarter comparisons just when those projects come through. If you look at sort of our core Packaging, Nonwovens kind of businesses, the ones that are focused on the consumer nondurable space, they're doing well year-on-year, and the momentum is continuing there. I think what we've seen is just a little bit of lumpiness year-on-year on some of those more project-oriented product lines within the business.
Okay. In Advanced Tech, I think you cited on the order front, certainly the comps, but then some project timing within electronics. Can you maybe just speak to, you know, a little more clarification on what you're seeing on that project timing?
What we saw, it's reflected somewhat in the Q3, is customers ask us to pull forward deliveries to meet their needs. That's probably impacted our overall performance by a couple of percentage points in the quarter. What's good for the Q3 will probably pull it out of the Q4. One of the competitive advantages that we have, in addition to being the strongest technology player out there, is our ability to flex to meet the customers' demands. What we really did is work hard to sync up with the delivery schedules that they were looking for. I'd say on the underlying part of the business, a lot of positives to think about there.
You know, we're doing well in the mobile segment and continuing to diversify into the Chinese mobile players. We're doing well in new applications like the semiconductor side. Our whole new platform in the Test & Inspection area with new products is doing very well. I'd say underlying business is very solid, and our positions are strong. We do have the seasonality in the business and can vary quarter- to- quarter, year-on-year, and that's more of what you know, we're seeing right now. We feel good about how we're positioned in that business. Of course, the other part of the Advanced Technology business, which is equal in size now and will be larger next year, is non-electronics, which is delivering some very solid and consistent performance with strong growth and good margins.
Mike, is there a way to quantify, you know, maybe on an EPS or revenue basis how much of a pull forward you saw? 'Cause it looks like you kind of came in $0.10 ahead of consensus, you know, and maybe similarly light on four key things.
Yeah. I would say probably on the revenue side, it might be a couple of percentage points, so that'll translate down to more on the earnings. I'm not sure it's all of that $0.10, but it's probably pretty close to that. In our view, you know, we knew we had a strong H2 year of comp. I think if you look at it collectively, third and Q4, we feel pretty good about where we're at.
Yeah. This is Greg. I'd just echo Mike's comment there. You know, a little bit of context around that. Where we exceeded even the top end of the guidance for our quarterly revenue growth, much of that is related to the volume that we're talking about.
Okay. Thanks, guys.
Thank you. Our next question comes from the line of Allison Poliniak with Wells Fargo. Your line is open.
Hi, guys. Good morning.
Good morning.
Morning.
Could you just touch on, you know, progress with Vention? You know, is it, you know, how is it proceeding, you know, as expectations, you know, above, below? Any color there?
Yeah. We're very pleased with the Vention business. I'd say it's right on plan for our top line and bottom line expectations. The pipeline of new projects looks very healthy in that business. We like the business model that's come with that in terms of the ability to provide upfront design through final solutions there. We feel you know very good about that. The integration is going just as planned, and we feel really great about the team that's come with that business and the capability that they bring.
Allison, just to remind everybody, an attractive part of this, now about 20% of total Nordson portfolio on a go-forward basis is strong operating margin and accretive on the EBITDA margin to our base business. We expect to continue to see the growth that we've experienced traditionally in those medical end markets and now that's a kind of $300 million size portion of the business will be a good platform in the portfolio.
That's great. Also, as we look across the businesses in Q4, outside of seasonality, are there any mix issues to be mindful of in terms of EBITDA margin?
No, I don't think any significant mix. I mean, obviously, when volume goes down, we have an impact on margin in the short term, you know, year-over-year. I'd say no significant mix effects in that.
No. Just again, to elaborate there, as you think about our Q4, that's a bit of what we have in our outlook is, well, first off, that there is about a percentage point related to the incremental non-cash charges related to the acquisitions. In a period where we're forecasting negative organic, that's gonna have a margin impact, as Mike noted.
Great. Thank you.
Thank you. Our next question comes from the line of Charley Brady with SunTrust Robinson Humphrey. Your line is open.
Hey, thanks. Good morning, guys.
Good morning.
Morning.
Just on the, I guess, like on the medical business, you obviously just sized it up for us. How much, can you, can you break out how much that business grew, the medical piece, the life science piece in the quarter?
Overall, we expect that business to grow double digits, and it did that in the quarter. I think our long-term view of medical is, you know, the market itself is probably only 5%. With some of the other trends, you know, like the outsourcing to drive to plastic, some of the minimally invasive procedures that Vention is getting us into now, we expect double-digit growth in the long run, and that came in with double-digit kind of growth.
Great. You know, just on your comment on use of capital, focusing on deleveraging, I mean, you're not super over levered right now. You're under 3x. I'm just wondering, is there a level you wanna take that to, or is it more a function of the M&A, how the M&A pipeline looks and kind of timing of that pipeline, and it just isn't, you know, an actionable item to close, so focused on the deleveraging instead?
Well, our primary, you know, if you look at our priorities of capital deployment, they haven't really changed that, if you go back. Number one, support organic growth. We're gonna continue to do that. Number two, the dividends piece that we've mentioned here. Number three is offsetting any kind of comp dilution, which is marginal. But number four is we'd like to do M&A transactions. You know, number one, you can't always predict the timing, although we've got some interesting things that we think are in the pipeline. And related to that is you wanna have the capacity if some more sizable opportunities come forward. In the short term, our focus is really around creating that capacity for more sizable opportunities.
Okay. So too, yeah, just to clarify then, the M&A focus or the M&A desire hasn't shifted at all. It's still, you know, kind of what it was before and just kind of positioned itself.
Yes. Yes. It's just that, you know, obviously, we can't control the timing, but we, what we can control is being prepared appropriately. As you've seen in the past, if things are a little slow on the M&A front and there's an opportunistic moment with the variability in the market to buy back shares, we've done that too. Right now, our primary focus is on deleveraging to create capacity for us to do more acquisitions that make sense in our strategic areas of focus.
Can you talk about from a margin standpoint, you know, the impact the acquisitions you had, purchase accounting aside, the opportunity you have once you fold in these businesses into really leverage some of that up and push the margins higher, on kind of a go-forward basis over the next 24 months or so?
Yeah. I think, you know, we've certainly commented on the medical acquisition, but the other acquisitions, you know, the ones that added to EBITDA are similar kind of margins to the company and EBITDA margin accretive. We also feel as we continue to grow and scale those businesses, we'll be able to improve margins through continuous improvement activities for those businesses. We feel good about the opportunity, like we do about all of our businesses to grow and expand what already is a good starting point.
Great. Thanks much.
Thank you. Our next question comes from the line of Christopher Glynn with Oppenheimer. Your line is open.
Thank you. Good morning.
Good morning.
Hey, just wondering if we could do a little deeper dive, state of union on some of the new market penetration dynamics and the, you know, the China Tier 2 trajectory, maybe an inning gauge or something like that, and some of the other initiatives that have been developing.
Okay, well, let me, you know, just make a couple. We'll start there with the mobile side. I mean, obviously, we're well positioned with the sort of global leaders there, and this is, you know, turning out to be a pretty strong year in that regard. With the mobile players, we've seen them, you know, significantly increase their adoption of automation, from something that was almost non-existent probably two years ago to a nice first step next year to significantly stepping up this year. Still not to the kinds of levels of automation of sort of the global leaders, but making really good progress. So there's more to go. On an inning basis, they're probably less than halfway there compared to the sort of global leaders.
It's not clear whether they'll go all the way or not, but clearly they're seeing the benefits of automation in terms of quality and throughput and overall cost benefits associated with that. In addition, in the electronics area, we've talked about doing more on the front end and, you know, dispensing on wafer and test inspection on wafer, and we're seeing some progress there. We've also seen some progress in terms of revitalization of our total test inspection product line that really has seen a nice uptick as the semiconductor industry in general, front end and back end, is having pretty solid years. Those new products are really getting traction.
If you look at the non-electronics part of our Advanced Technology business in the medical space, it's all about the broadening capabilities, new products getting plugged into the front end, and we've got both good prospects and good traction there. In the non-electronics, non-medical piece, we've introduced some new products in terms of refreshing our total valve portfolio and some of our mixing technology, which is also getting good traction. If you look at our sort of core adhesives business, you know, I mentioned earlier we're doing well in the packaging nonwovens areas as an example, but we continue to make good progress on tiering.
We've introduced yet another new tiering set of applications in our core adhesive dispensing that's really opened up yet a whole new set of customers to us, which will feed ultimately up to a higher level. In our coatings business, we're doing a lot of work in the sort of cold materials side, which is opening up, you know, aerospace, for example, to us as an opportunity as the industry looks to find ways to basically get more planes out the door, and they look for automation there as an opportunity, and we're making good progress there. I feel good about the new products, new market opportunities that we have in the business, and it should continue to grow over the next few years.
Thanks. Just following up on the mobile, wondering if you could comment on the relative contribution of the adoption in China versus the global leaders in the quarter you reported, and if you see a dynamic where following all the fairly dramatic innovation on the global leaders this year, if that portends a particular ramp in the secondary players.
Well, we've seen, you know, solid step-up here. I mean, if you look at the global statistics, certainly, you know, the shares of, you know, the top three Chinese players have probably grown, you know, a lot of that in China, some of it starting to be outside China. This is a pretty robust year. As I said, there's more opportunity for automation. I think the overall supply chain in the electronics area, given the growth in the sort of established players and the new players is pretty stretched. I mean, we're in a good position to supply all the opportunity, but in other areas it may be a little stretched in the short term. I think there's opportunity as we go forward for that to loosen up a little bit and some opportunities for further growth.
Great. Thanks for the color.
Welcome.
Thank you. Our next question comes from the line of Walter Liptak with Seaport Global. Your line is now open.
All right. Thanks. Good morning.
Good morning.
I wanted to just ask a follow-on on the adhesive segment, maybe to ask it this way. You know, the comp didn't look that tough because the 12 quarters last year were up 2%, and now you're down 1%. In your answer, you called out that there was. Now I wasn't sure I understood the polymers or product assembly. What's going on? Are you saying that orders were pulled forward or that there were just orders in the pipeline that you're still waiting to book?
Well, in any one quarter, we, you know, we can have, they tend to, first of all, be bigger individual orders. In any 12-week period of time, you can have some things that look like a little bit of an anomaly because you had a big project last year, and you don't have that in this 12-week order, this year. That's what Walt was trying to talk about there. I think underlying fundamentals are pretty solid. I mean, if you think about our sort of adhesives business. This will be the fourth year in a row where we're seeing nice growth in a very soft macro economy for well-established businesses. I feel good about what the team has delivered there.
Just quarter-t o- quarter, you can in a 12-week comparison, you could have a big project, you know, last year that's not in this 12-week order, and two weeks from now, it's reversed. Okay? I don't feel like any significant concern around the underlying performance of those markets. It's really just the quarter to the 12-week comparisons.
Walter, just to add a couple comments. This is Greg. As we talked about pull forward, that was specifically related to Advanced Technology, so not really in adhesives. As we mentioned earlier, if you take some of the product lines that we would consider kind of more run rate product lines that are more heavily tied to non-consumer, non-durables, the Packaging, for example, the Nonwovens, those were pretty robust, those order rates. It's as well as some of the product lines within polymer. It's these more system project-related product lines that Mike mentioned. You're gonna get from time to time some comparisons that are just related to the timing of those projects, not necessarily indicative of a competitive position or general underlying conditions.
Okay. Right. The systems are related to product assembly. Is that correct?
Yeah. Probably one or two product lines in the polymer area. Again, I think what Greg's trying to say is, in that case, we have bigger projects, and they can swing the 12-week order rate if one year you have a big project and then the next year you don't, and two weeks later, it could reverse.
You know, if you look at some prior quarters of going into the quarter, what the order pattern was, you know, it wouldn't be uncommon to see a order growth rate heading into the quarter. I think last quarter was up 1%, and we delivered 6% organic growth. You know, it's that run rate business where those orders can continue to flow through the quarter, and then as that project activity comes, it's a timing related issue.
The way that you're describing it sounds like there's still more Product Assembly systems, Polymer Processing Systems in the pipeline which will result in, you know, decent growth, you know, kind of going forward. Is that fair?
Yeah. Yeah. There's no concern on the long-term basis. You know, quarter- to- quarter, you can have some anomalies as a result of timing of projects. That's all we're saying.
Okay. All right. Great. I think last quarter you guys talked about the 200 basis point program winding up. You know, you had this successful period of margin improvement from some consolidation and other things. You know, as you think about new projects, you know, the next two years of projects, can you get another 200 basis points, for example, of margin improvement?
Yeah. We haven't said we'd stop there. We're continuing to drive our continuous improvement efforts. You know, we'll see some further benefits when we get through the final consolidation on our polymer business next year. We have some other longer term things that we're looking at that I'd say probably not ready for prime time in addition to our normal drives. I think 200 basis points with no volume growth is in the near term probably a stretch. We're continuing to drive the programs that we do have, and we've got very robust programs. I feel good about where we're at. I feel good about what we have in the pipeline. Not ready to commit to 200 basis points with no volume like we did the last time, at this point yet.
Okay. Thank you.
Thank you. Our next question comes from the line of Liam Burke with [FBR Capital] . Your line is open.
Thank you. Good morning, Mike. Good morning, Greg.
Good morning.
Morning.
Mike, on the adhesives front, you mentioned polymer being a contributor to growth. In terms of operating margin, how has the polymer business progressed, or are they at the levels you're satisfied with the level of profitability out of that part of the business?
The margins are improving. No, we're not satisfied yet. We're still in the middle of this last phase of restructuring. In the short term, you're seeing the hit in terms of the restructuring cost and not yet the benefit of having consolidated and upgraded the equipment. I think, you know, next year we'll be in a more normalized role. Then beyond that, you know, we'll finish the final relocation in the early part of next year, maybe the first calendar quarter or so, and then after that, we should see the full benefit. We're not there yet.
Okay. On the medical front, you're seeing, you know, healthy growth. It's been a priority on the acquisition front. How are you sized for capacity?
I would say we continue to expand. You know, for example, we, you know, built a new facility in Colorado for our components business. We've expanded once, doubled the size in Mexico. Now we're expanding again in Mexico. With the Vention acquisition, we've added five or six new facilities that you have some capacity in them. But given the growth rates that we have down the road, we'll expect to need to expand further, and that's, you know, in our plan.
Great. Thank you, Mike.
Okay.
Thank you. Our next question comes from the line of David Stratton with Great Lakes Review. Your line is open.
Morning. Thank you for taking the call.
Morning.
Just to follow up, only a few questions left really for me, and mainly regarding Vention. Was that accretive in the quarter? If so, by how much?
Well, we said it was probably accretive in the quarter after the Q2, and we expect it for the year to be in that sort of $0.05-$0.10. I think we're on track with that. We feel that that's the acquisition is right where we expect it at the bank.
Gotcha. Geographically speaking, seems like every region is doing pretty well, with the exception of maybe Europe and adhesives. If you'd talk about that a little bit, I'd appreciate it.
Yeah. I would say Europe is actually doing reasonably well for us. There's a couple areas where, given the large OEM base, you can see some swings quarter-over-quarter. I think if you look at, you know, this quarter was probably off a little bit in terms of actual performance, but that's really a function of some of the things we were talking about earlier with the larger project activity. I think in our order rates, it looks encouraging. I'd say underlying this year, Europe is playing out reasonably well, but you again can have some anomalies project to project. In this quarter, it was probably a little bit off, but the order rates look encouraging for the next quarter. Year-over-year, I think it'll be a solid year for Europe.
All right. Thank you.
Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question at this time, please press the star and then the number one key. Again, that is star one for questions. Our next question comes from the line of Matthew Trusz with Gabelli & Company. Your line is open.
Good morning. Thank you for taking the questions.
Yeah, good morning.
Just to follow up on the Europe order rates question. We turn to the United States, down 6% might be surprising even considering comp last year. Can you provide some additional color on what you're seeing geographically there and whether that's project noise or something fundamental going on?
Yeah, I would say it's mainly project related activity. I'd say one area that we haven't talked about yet that was particularly strong last year, that's a little softer here is the whole auto space. Not generally, 'cause the production levels are high, and there's a lot of work for us in the body shop piece and the electronic side. We had some larger platform orders last year. The platform orders mean model change, significant model changes, and that's not repeated itself, and that's one of the things affecting the U.S.
Yeah, this is Greg. I'd just add additional color there. You know, we're up against a pretty challenging comp to last year, where we were up 9%, total in the U.S., and that Cold Material or auto focus that Mike mentioned is part of that answer. Then again, you kinda go back to in the current quarter as we talked at the total portfolio level, the kind of the timing of some of those systems orders and as that would affect adhesives as well. Where the U.S. was impacted, it was primarily in the Industrial Coating segment and adhesives, and that has to do with those, you know, the timing of these system orders.
Great. Thank you for the color. Secondly.
Yeah.
Just following up on the M&A discussion. Can you talk about the interplay between the availability you're seeing in medical and other attractive assets versus what the valuations are like in the marketplace? Where are you identifying interesting opportunities outside of medical?
Yeah. If you look at the medical space, the one good thing is it's still fairly fragmented. There is an opportunity to have differentiated positions through technology and support and service. The businesses generally tend to have good profitability and high growth rates. You know, need to pay a premium price to get them. That hasn't changed in the last year or so. We still see quite a few opportunities there, and that's, I'd say, is probably our primary focus in the short term. You know, beyond that, we have sort of three other areas that we've identified as interests to us in the Cold Material space or think about that as atmospheric dispensing of adhesives and coatings and sealants.
There are a lot of smaller players there that we have interest in. None of them have come to market yet other than the acquisition we made a couple years ago of Sealant Equipment & Engineering. I'd say we still have some inspection areas of interest in electronics and in closely adjacent markets. I'd say we're pretty good on the polymer area. We're also in the process of, you know, longer term identifying what are the next couple of areas that we have interest in and we've got work ongoing, but we're not ready for prime time on that yet.
Thank you very much.
You're welcome.
Thank you. We have a follow-up question from the line of Walter Liptak with Seaport Global. Your line is open.
Hi. Yeah, thanks for taking my follow-up. Kind of along the lines of the geographic, you know, the comps are toughest in Japan and Asia-Pac. I wonder, you know, you can address already the visibility and the kind of fundamental robustness that you're in markets. I wonder if you could talk specifically about Asia and Japan and, you know, kind of what you're seeing from those economies and new order pipelines.
Yeah, I would say, you know, Asia in general has been pretty solid. You know, China, at their kinda new normal of 6%-7% has been solid for us. Asia outside of China and Japan has been solid. You know, underlying Japan has been reasonable. What you're seeing in the Q4 is just timing, largely driven by the electronics market. When you think about, most of the final assembly and packaging folks are in China and Taiwan, lesser extent, Korea. Then a lot of the component suppliers that would go into the mobile and other electronics business are in Japan. When you think about camera modules and speakers and things like that.
I think what you're really seeing is a lot of that activity being earlier in the year, particularly late second and Q3. Last year, it trended more into the Q4, at least probably halfway through the Q4. That's really what you're seeing here. Underlying economies, you know, Japan has been solid, China has been solid. Outside those two in Asia, you know, good year. Again, kind of the new normal for China, you need to take into account that solid year in general.
Okay. Thank you.
Thank you. I'm showing no further questions at this time.
Well, I just wanna thank everyone for participating this morning. I think I wanna leave you with just one message, you know, that we have a very strong year that we're expecting to deliver here. We're very well positioned with the changes that we've made to the portfolio through the acquisitions to both add to our growth, support our high level of performance from a margin perspective, and reduce cyclicality in the overall business. I feel good about how we're positioned to going forward. I just wanna thank our team for delivering another stellar quarter. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.