I'm actually looking forward to all of them today.
Good day, ladies and gentlemen. Welcome to the Nordson Corporation webcast for the Q3 fiscal year 2016. At this time, all participants are in a listen only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. If you require operator assistance during the program, please press star then zero on your touchtone telephone. As a reminder, today's conference is being recorded. I would now like to introduce for this conference call Mr. Jim Jaye. You may begin, sir.
Good morning. This is Jim Jaye, Senior Director of Investor Relations. 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 23, 2016, to report on Nordson's FY16 Q3 results and our 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 August 30, which can be accessed by calling 404-573-406. You will need to reference ID number 58265387. 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'll have a question and answer session, but now I'll turn the call over to Mike for an overview of our FY 16 Q3 results and a bit about our Q4 outlook.
Thank you, Jim, and good morning, everyone. We're very pleased with our performance in the Q3 . We delivered record performance for any quarter in our history in terms of revenue, operating profit, net income, and diluted earnings per share. My thanks go out to our global team for their continued hard work and customer focus. Greg will provide a bit more of the financial details shortly, but first, I'd like to mention just a few of the highlights for the quarter. On the top line, we grew the business by 6% in the quarter compared to the prior year, slightly above the high end of our guidance and inclusive of 4% organic growth. This is very solid performance in a challenging macroeconomic environment.
The diversity of our end markets continues to be a strength, and our team is capturing growth opportunities in a variety of niches where customers are responding to our value proposition and our new product offerings. Growth was especially strong this quarter in electronics, medical, and consumer non-durable end markets. We also generated growth across most of our geographies. We leveraged the revenue growth and our continuous improvement efforts to increase total company operating profit by 20% and operating margin by 3 percentage points, both as compared to prior year's Q3 Incremental operating margin was 77% in the quarter, and diluted earnings per share grew by 28% compared to the same period last year. As we look to our Q4 , we are forecasting mid- to high-single-digit organic growth compared to a year ago.
Our backlog and order rates are very solid and customer project activity in all three segments is steady. We expect volume leverage and our ongoing operational initiatives to drive operating margin improvements as compared to last year's Q4 . At the low end of our Q4 guidance, we're on track for a record full year performance. I'll speak more about our outlook and current business trends in a few moments, but first, let me turn the call over to Greg for more detailed commentary on the current results and our Q4 guidance. Greg?
Thank you and good morning to everyone. As Mike noted, we increased sales by 6% in the quarter over the prior year's Q3 with sales of $490 million. This change in sales included a 4% increase in organic volume, a 2% increase related to the first year effect of acquisitions, and a less than 1% decrease related to the unfavorable effects of currency translation as compared to the prior year Q3 . Looking at sales performance for the quarter by segment, organic sales volume in Adhesive Dispensing increased 4% compared to the prior year, with additional volume growth of 1% related to the first year effect of the WAF acquisition. Strength in consumer non-durable and general product assembly markets in the current quarter helped drive solid organic growth in this segment. Geographically, Europe and the U.S. led the growth.
Organic sales volume in the Advanced Technology segment increased 6% compared to the prior year Q3 with additional volume growth of 5% related to the first year effect of the Liquidyn and MatriX acquisitions. The organic growth was driven by strong demand for automated and semi-automated dispense equipment in electronic end markets and fluid management components for medical end markets. Geographically, Japan, Asia Pacific, and the United States led the growth. Sales volume in the Industrial Coating segment decreased 3% compared to the Q3 a year ago. Sales were impacted by very challenging comparisons to the prior year, where volume growth was 23% at this time last year. Strength in powder and liquid coating product lines was offset by softness in other product lines.
Growth in Europe and the United States was offset by other geographies. Moving down the income statement, gross margin for the total company in the Q3 was 56%, a 2 percentage points improvement from last year's Q3 , driven largely by volume leverage and product mix. Operating profit was $124 million, and operating margin was 25%, an improvement of 3 percentage points from the Q3 a year ago. This improvement was driven by both volume leverage and a range of continuous improvement initiatives. Excluding one-time charges of approximately $1.7 million for restructuring initiatives, total company operating margin was 26% in the quarter.
On a segment basis, reported operating margin in the Adhesive Dispensing segment improved 1 percentage point from the prior year to 27% in the quarter, or 28% on a normalized basis to exclude approximately $800,000 in charges related to restructuring initiatives. Within the Advanced Technology segment, reported operating margin was 31% in the quarter, an improvement of 7 percentage points from the Q3 a year ago. This is very strong performance where volume leverage, sales mix, and continuous improvement initiatives combined to drive the improvement. In the Industrial Coating segment, Q3 operating margin was 17%, or 18% on a normalized basis to exclude approximately $900,000 in charges related to restructuring initiatives.
This is continued strong performance for this segment, especially given the lower level of volume in the current quarter compared to the same quarter a year ago. For the total company, net income for the quarter was $84 million, and GAAP diluted earnings per share were $1.46, or 28% higher than last year's third quarter. Excluding one-time items, normalized diluted earnings per share were $1.47. We've included an earnings per share reconciliation schedule in our press release to reconcile between GAAP earnings and normalized earnings per share. The Q3 EBITDA was $139 million, and cash flow from operations was $68 million. Free cash flow before dividends was $48 million. Free cash flow in the quarter was impacted by an increase in working capital, mostly related to the timing of receivable collections.
We expect free cash flow in the Q4 to trend back to our more typical cash conversion levels. We've included a table with our press release reconciling net income to free cash flow before dividends. During the quarter, we distributed approximately $14 million in dividends. From a balance sheet perspective, we remain liquid with net debt to EBITDA at 2.3 times trailing 12-month EBITDA as of the end of the Q3 . I'll now move on to comments regarding our outlook for the Q4 . We've 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 August 14, 2016, order rates are up 16% as compared to the same 12 weeks in the prior year. Within the Adhesive Dispensing segment, the latest 12-week orders are up 2% as compared to the same period in the prior year. Comparisons are challenging here, where this segment's order rates were up 12% at this time a year ago. Order rates in the current period were driven by strong demand in our general product assembly and rigid packaging product lines. Geographically, orders were strongest in Asia-Pacific. In the Advanced Technology segment, order rates for the latest 12 weeks are up 29% as compared to the prior year. Mobile and related electronics end markets drove the orders with strong demand for our automated and semi-automated dispense systems, test and inspection equipment, and surface treatment systems.
Demand was also strong in most of our medical fluid management product lines. Geographically, order rates were driven by Japan and Asia-Pacific. Within the Industrial Coating segment, the latest 12-week order rates are up 36% as compared to the prior year. Orders increased by double digits in all product lines, driven by demand in automotive and consumer durable end markets. Geographically, orders were up by double digits in all regions except Europe. Backlog at July 31, 2016 was approximately $333 million, an increase of 22% compared to the prior year, and inclusive of 20% organic growth and 2% growth due to acquisitions. Backlog amounts are calculated at July 31, 2016 exchange rates. Let me now turn to the outlook for the Q4 of fiscal 2016.
We're forecasting sales to increase in the range of 6%-10% as compared to the Q4 a year ago. This range is inclusive of organic volume up 5%-9% and 1% growth from the first year effect of acquisitions. The effect of currency translation based on current exchange rates is expected to be minimal as compared to the prior year. At the midpoint of our sales forecast, we expect Q4 gross margin to be approximately 54%.
Excluding any non-recurring charges, which we expect will be less than what we incurred in the prior year's Q4 , we are forecasting operating margin to be approximately 22% at the midpoint of our sales forecast and diluted earnings per share in the range of $1.15-$1.27. The midpoint of this guidance would generate normalized earnings per share growth of 27% over the prior year Q4 . For modeling purposes, we're estimating Q4 interest expense of about $5 million and an effective tax rate of approximately 30%. With that, I'll turn the call back to you, Mike.
Thank you, Greg. Before taking your questions, I'd like to provide a few summary comments. Clearly, Nordson is outperforming the current macroeconomic environment. We are benefiting from the diversity of our end markets and capturing growth with innovative products, tiering new applications, emerging market penetration and recapitalization of our installed base. We're leveraging that growth to widen margins and increase profitability. Independent of volume, we're also continuing to use tools in the Nordson Business System to drive improvement across the enterprise. We're on track to deliver full year records for revenue, operating profit and diluted earnings per share. At the midpoint of our guidance, full year organic sales growth would be approximately 5% compared to the prior year. We expect full year operating margin to improve compared to the prior year, given volume leverage on this growth and the benefits of this year's margin enhancement initiatives.
At this point, we'd be happy to take your questions.
Ladies and gentlemen, if you have a question or a comment at this time, please press the star, then the one key on your touchtone telephone. If your question has been answered or you wish to move yourself from the queue, please press the pound key. Our first question comes from Allison Poliniak with Wells Fargo.
Hi, guys. Good morning.
Good morning, Allison.
Good morning.
Could you give us maybe a little bit more color on the performance of Advanced Technology this quarter in terms of, I know you mentioned medical as well as the technology, but was it weighted one over the other this quarter more so, or were they, were they fairly balanced?
Well, I'd say this quarter, both elements of the business were strong. Obviously, in the segment, the non-medical piece is, probably Q4 of the segment, so that's had a significant effect. What we've seen is a couple things, a continuation of what we saw last quarter in terms of, , new products creating new opportunities for us. Also it picked up on the mobile side of the business across both the semi-automated and the automated dispensing and then the ensuing inspection-related activities. I'd say certainly a lot of weight in this quarter coming from the mobile side of things and the broadening of our applications base and opportunities related to new products, while medical continued to be strong.
That's great. Then just looking at, the core sales growth range for Q4, it's pretty wide. Is it relative to maybe some projects that might , just given timing, might get pushed into the following quarter? Can you just help, clarify that a little bit, just the wide range there?
Yeah. We take a look at the mix of projects that we have in and for some of our businesses. There are deliveries that stretch a little bit longer based on when they come into orders. You know, you're exactly right in thinking that some of those could end up being in the Q4 , or I mean in the Q4 .
Perfect. Thank you.
Our next question comes from Matt McConnell with RBC Capital Markets.
Thank you. Good morning.
Good morning.
Good morning.
Just wanted to touch on the guidance for the margin next quarter. You've pretty handily beaten your expectations a couple quarters in a row, and the 22% you're guiding to would be a pretty big sequential step down and probably bigger than you would typically see from Q3 to Q4. Is there something in the mix or is that just conservatism? Again, I know you've been exceeding your expectations really. Just hoping to understand that step down.
Yeah, I would say, part of it is just looking at overall volume expectations, but in actuality also the mix. If you look at, as an example, this is a strong quarter with order entry on the coatings business, which has been a little softer against tough comps for most of the year. The mix of that business will have an effect coming into the Q4 for example. Really when we look at it's really more function of volume mix than anything else, and that's our best estimate at this point in time.
Yeah, this is Greg. I'd just add to Mike's comments where we may see some segment mix. We may see some product line mix within the segments as well that, although still good margin, would be dilutive to what we delivered in the Q3 . It's primarily mix.
Okay, great. Thanks. Maybe switching gears to just the product assembly has been quite strong for a number of quarters now. Can you just give us a sense of the markets that are driving that? I know that's an area within adhesive dispensing where it's a bit more wide open with respect to your growth opportunities. You know, how do you prioritize those growth opportunities going forward? Maybe what's been the recent driver of that product assembly growth?
Yeah, there are a number of different applications that, that fall into that. Certainly, some of them fall in the category driven by sort of housing and construction. Some of them relate to industrial machinery that are related to really consumer non-durable demand and the step up in consumer non-durable demand. I think some of it also is a function of a nice set of tiered offerings that we put in place to take advantage of some new opportunities, particularly in emerging markets. I'd say we have a variety of things there that are picking up. I mean, our focus is really around particular opportunities where we can create value and then ultimately obviously get paid for the value we create.
Okay, great. Thank you.
Our next question comes from Matt Summerville with Alembic Global.
Hey, morning. A couple questions.
Morning.
If you could just talk about or maybe calibrate, dial in, if you will, the three segments around that 5%-9% organic growth expectation you have in Q4, maybe which you expect to be within that bandwidth above, below that. Just kind of, I guess I'm trying to tie that back into some of the big order numbers you put up in two of the three businesses, please.
Yeah. If you look at it and just look at the order entries across the business, Greg talked about the two in particular that have stepped up significantly in this quarter, the advanced tech piece and the coatings piece, or the adhesive piece has been more steady. I would say when you look at the quarter going out, you're gonna see more of the contributions coming from advanced tech and the coatings. I guess on an order entry basis, I'd make a couple comments. Particularly in the coatings business, I think, and a lot of those going to consumer durable type applications.
Some customers, given the macro scenario, were hesitant early in the year, and they've released some funds now, and so we're seeing a relatively strong push towards year-end. I'd say on the advanced tech side our peak can shift from Q3 to Q4 from year- to- year, and it's a little bit later this year as well. That's contributing to the order step-up. In both those cases, some of those orders could conceivably get pushed into the Q1 . That's kind of a reflection. The adhesives business is more steady. As Greg mentioned, in the Q4 , we're up against tougher comps from a year ago. Still ahead of those, but up against tougher comps.
If you look at the average duration of how long an order is staying in backlog, is that number materially different now than it has been in prior years? I guess, is your visibility when you look at that backlog log number, I mean, up 20% organically, that's a pretty big number. Do you feel like your visibility today is better than it has been in the past, just given the general shorter cycle nature of your business?
Yeah, I would say the average duration hasn't changed significantly. I mean, we can have, projects in the coatings business that are significant that, could stretch out a little bit. We could have projects in the product assembly area that we just talked about that could stretch out a little bit. In our plastics business, we could have some projects that are a little bit longer. I would say not dramatically different. I would say what we have seen more recently is some bigger orders coming in in sort of packages with staged deliveries, and some of those things, can play out over time. That's part of what we're seeing as well.
Got it. Thank you.
Our next question comes from Charlie Brady with SunTrust.
Good morning, guys.
Morning.
I'll ask my standard question on mix of parts and aftermarket consumables in a quarter. Any kind of skewing one way or the other? I mean, the margins were pretty good. I'm wondering if that was helped at all by the mix of that aftermarket component.
Yeah, Charlie, this is Greg. Not materially different. I will say as compared to the prior year Q3 , that mix actually hurt us a little bit, where parts revenue was down from where it was 41% of the mix last year, it was 39% in the current quarter. Not materially different but would be a slight drag on gross margins.
Okay, that's helpful. Thanks. You know, you in the release, you talked about Europe was actually up in industrial and in adhesive dispensing. Can you just talk about , obviously with all the Brexit discussion that's gone out there and some of the growth expectations, you're still seeing growth in Europe. Can you talk about sort of how you saw that through the quarter? I guess really maybe more importantly, exiting the quarter, kind of giving the timing of when your fiscal year is, what you're seeing out of Europe, any material change or hesitancy on customer order patterns.
Yeah. I'd say if you look at across, most of the businesses, I'd say we saw Europe as modestly up, probably, most solid in our traditional kind of adhesives business. Now remember, also in Europe, we've got large OEMs that export elsewhere. So that's one of the positive things that is affecting our business. Might be a little different than what you might see in some other businesses. But I'd say generally speaking, pretty solid, modestly above year-on-year. When you look at, you know, our coatings business in particular, we've had solid powder opportunities in Europe, and we're starting to see that pick up more globally for the coatings business.
I would say the combination of the OEMs and key adhesive applications and some pickup in the coatings business is what's really been driving, you know, the revenue. Now when you look at the orders going forward, Europe looks a little bit weaker and maybe more in line with what you've seen with some other companies there. I'd say for us it's really more of a function of timing of some large projects year-over-year and not so much an underlying trend. We haven't seen a Brexit effect at this point in time. Doesn't mean something couldn't come down the road, but we haven't seen that at this point.
Thanks, Mike. Appreciate it.
Yeah.
Our next question comes from Walter Liptak with Seaport Global Securities.
Hi. Thanks. Good morning, guys.
Good morning, Walt.
I wanted to just drill into the advanced tech a little bit, and you called out mobile electronics, and it sounds like mostly in Japan and in Asia. You know, what kind of applications are these for new products, new mobile devices that'll be coming out later this year?
Yeah. A couple of things. From an application standpoint, I'd say there's sort of two things that are driving or maybe three. We came out with some new technology on the dispense side that will allow us to put more dots, smaller size, which widened the application approach to get to the wafer side of things. We talked a little about that last quarter. That's continued. We're seeing those new products get traction. We're also seeing some new applications in the mobile side, which, one example is more waterproofing or water-resistant type of applications that are driving some opportunities. On our inspection side, the three-dimensional chips and three-dimensional wafers are driving X-ray inspection. We've done a nice job with tiering.
We talked about an acquisition we made about a year and a half ago in Europe that would allow us to get a tiered product that we then incorporated our technology on, and we're getting nice traction in that tiered product offering on the dispense side. We also had an acquisition where we're getting really good traction in Asia by incorporating our X-ray technology onto an automation platform. Those are some examples of the kind of things that we're seeing that are helping diversify the base of applications and customers.
Well, yeah, the diversification sounds great. Is this, your advanced tech orders, because of that mobile part, have been lumpy from time to time because of some of the early stages of some of the new applications. Do you think there may be more consistency as you go? I s there any more visibility going out 3 or 6 months on projects?
I would say that, unfortunately, no, there's not more visibility going out, and this business will continue to be lumpy. Certainly, I think the tiered offering, getting to a different group of customers like, for example, the Chinese mobile players, will be helpful because they're earlier on in the automation curve. We'll still see, product cycles. As we look out on the mobile front, we typically see the design cycles from fall through early winter, and then orders come through, and based on, the degree of change, we'll see more come through.
I'd say what we're doing to diversify some of these other applications that could be, should be more steady because they apply to a broader set of opportunities, and the tiering should help because it's earlier on in the penetration curve for some of the folks that are just automating, but there'll still be lumpiness to this business.
Okay. All right. Understood. That sounds great. O n the margins that expanded in advanced tech, you called out mix volume and continuous improvement. I was wondering about the medical margins. Are medical there? You 've gone through some restructuring and I think improvement with those businesses. Are those sustainable margins now on the medical side?
Yeah. On the medical side, we've, grown, first of all, the business nicely across all of the three major product lines that we have there and then we have, put the new automated facility out in Colorado, and that's ramping up. We also expanded our facility in Mexico for the cannula catheter business and some other things that we're doing there. Those are all nice structural improvements that are helping, so the margins are improving in that area as well.
Okay, great. The last thing, you haven't mentioned, the polymers business and, the kind of general industrial trends have been, kind of bumpy here, but maybe improving a little bit. Are you seeing any improvement in polymers?
Yeah, I would say it's been kind of a mixed bag. We've seen some improvements, for example, in our dies business, which are related more to the film, which has been the laggard for the last couple of years. We've seen some good performance in our melt delivery, which is the German businesses. I'd say our core components, which are the screws and barrels, have been a little soft as some of the injection molding applications have slowed a little bit, and the pelletizing has been generally solid, but it's bigger project related, so it can bounce around quarter- to- quarter. We're seeing a pickup, I'd say, in the order entry in general in the business.
I'd say the one softness we're seeing is around some slowing in the injection molding side with some improvement on the film side. A mixed bag still.
Okay, great. All right. Thank you.
Again, ladies and gentlemen, if you have a question or a comment at this time, please press star, then the one key on your touchtone telephone. Our next question comes from Christopher Glynn with .
Good morning.
Good morning.
Just building on Walter's questions, wondering how some of the emergent niche penetration stories are scaling up in terms of maybe quantifying the incremental revenue opportunity. There's the test and inspection applications, Tier Two mobile, and even Freedom's still a penetration story. I think those are the chunkier ones. If you could kind of, maybe quantify how you're seeing the multiyear market sizes there.
Yeah, I'd say at this point in time, if you look at sort of the range of mobile-related activities, both on the dispense and the inspection side, we're seeing revenues that fall in the tens of millions of dollars, maybe, $10-$30 million range, not hundreds of millions. I'd say on the newer technology, we're still early on in the penetration curve. As we've talked about in the past, we see these things as kind of singles and doubles and not home runs. On the adhesives side, I would say , similar kind of a thing in that we've seen good sales on the Freedom side.
We've seen much better sales on the Liberty side, which is more of a drop-in replacement, with the same sort of melt on-demand characteristics and automated feed systems, and that's been strong, for us. You know, a significant portion of those combinations of those two have been a significant portion of our new orders, probably approaching 50% of our new orders, for those type of technologies.
Just to comment there, Chris, a way to think about that, particularly with the adhesive, is often that's a reason for a customer to upgrade existing lines.
Overall, your trends have been so broad-based here. I think with Nordson, there's always some competing concepts of your broad portfolio execution and then some of the streakiness that characterizes some of your businesses. As we think about the broadening impact, how would you take the recent success in understanding the flow through into your kind of base run rates to ponder fiscal 2017 and 2018 in an absolute sense relative to what you're seeing now?
Okay, let me take a stab at that. I mean, if you go back to the macro here for a second, we still look at the underlying macro for this year, global GDP growth to be in the low 2%. We're clearly outperforming the global GDP, and that's really a function of, our overall business model and the importance of technology and support and service to that. You know, if we come in at our expectation for the Q4 , we'll be about 5% organic growth through the year, which is pretty stellar relative to, I think, most other people and above that sort of 2% GDP growth. You're right that we do have lumpiness in some cycles in some of the business.
I think the benefit of our portfolio is when one's a little softer, like the coatings business has been this year, albeit against some tough comps, the other parts of the business have been able to to pick that up. Net we're ahead. It's not obvious to us at this point, and it's early to prescribe that the global economy is gonna look a lot different next year. I don't know beyond next year. We're planning for low growth, and we're gonna continue to drive our initiatives that try and go beyond whatever the market's gonna give us. That's more new products. It's driving the tiering opportunities across a lot of our businesses. It's new applications that we're working on, in effect, to create our own demand.
That's the focus of our business, is to outperform the global economy largely through our own initiatives that create demand. That's sort of been our success to date, and that's what we're looking for going forward.
Okay, thanks. Last one here. In your comments, you talked about growth reflecting leveraging your technology service and global footprint. I'm interested in the service component of that comment. Are you seeing opportunities for new strategies and opportunities on the service side broadly, in your bigger picture business model?
I would say we're not seeing as much change in the service side other than to say that's a critical element of our business. When you look at our customers, the most important thing for most all of our customers is to continue to be up and running. We certainly have the most robust products out there, which helps, but they do go down from time to time. It's important to have the robust supply chain to provide the parts, but also the engineers and technicians that can go on site and help them get up and running as quickly as possible.
You know, we do offer various forms of preventive maintenance and other types of programs, but at the end of the day, it's really about helping our customers maximize their up time and optimize their performance.
Sounds good. Thanks.
Our next question comes from Matthew Trusz, Gabelli.
Good morning, gentlemen. Thank you for taking my question. I guess first-
Good morning.
Given how strong you guys have been doing on the profitability front throughout 2016, it looks like at your current Q4 guidance, you'll be achieving your 200 basis points margin expansion target about a year early. As we look longer term over the next three or five years, how much more opportunity do you think you have to drive profitability higher, and what do you think the primary sources will be?
Yeah. Maybe just a couple of comments. Obviously, we do have strong incremental margins. With volume growth that we're seeing this year and some mix improvement, particularly, I'd say, in the advanced tech area, more dispense relative to some of the other applications, we're getting a benefit that's influencing that overall, what you've calculated, 200 basis points improvement. Our view is based on our sort of constant volume goal to be at 200 basis points by the end of 2017. We're probably about two-thirds of the way there, assuming we come in in the Q4 at expectations. We're not 100% of the way there.
There's certainly some more opportunity that we need to deliver next year, and we have actions and plans in place to do that, but we're also getting the benefit of volume leverage. Our commitment was to get to that 200 basis points, without the benefit of volume. What we're seeing this year obviously is improvement on that path, but also the benefit of volume and some mix as well. You know, longer term, we'll continue to identify opportunities to improve, and we've got a strong continuous improvement activity, but we haven't put any other sort of goals out there beyond 2017 from non-volume related margin standpoint at this point.
All right. Great. Thanks for the color. I guess we just sort of shift towards M&A. It's been a while since your last deal. Net leverage continues to come down. How active is your pipeline? Sort of, are there any particular areas of opportunity you're seeing, and how good are you feeling over the next couple quarters?
Yeah, you're correct. We have consciously worked this year to reduce our leverage to create some opportunity or capability to do some additional acquisitions. I think as we've talked in the past, the most fertile areas in the medical device space, and we've got a pretty solid pipeline there. I'd say in the cold material area, there are a number of interesting opportunities. Timing is not clear. On the plastic side, we pretty much have what we need for the moment, and we continue to look for opportunities on the test and inspection side in the advanced technology area. We've added some nice complements over the last year through acquisition and through marketing arrangements. We feel pretty good.
I would say, there are a number of things that we looked at this year that we were actively pursuing, but we've, walked away when pricing got to a point that didn't make sense for us. You there?
Yeah. Great. Thank you.
Okay.
Our next question comes from Jason Ursaner with Great Lakes Review.
Good morning.
Good morning.
Morning.
Wondered if there was any benefit from lower raw material costs in the quarter, and if you're seeing any material change in those costs so far in the Q4 ?
No, nothing that would be material in the grand scheme of things, either in the quarter or looking forward.
What's the expectations for the tax rate for the Q4 , and any kind of early indications for next fiscal year? Thank you.
Yeah. We've suggested a 30% rate for the Q4 .
Our next question comes from Matt Summerville with Alembic Global.
Thanks. Just a quick kind of follow-up on the M&A side of things. You mentioned, excuse me, some multiples sort of getting out of control. Can you quantify that? I mean, are you talking about high single to low double-digit multiples that have now moved into the low to mid-teens kind of range? I guess you were active, I believe in fiscal Q1, buying back stock. I don't believe you did any in fiscal Q2, and I don't recall you mentioning anything in the prepared remarks for fiscal Q3. What's sort of the outlook there given, I mean, your stock's been up very nicely this year. What's sort of the outlook there and the prioritization as you're looking at things? I guess, at the end of the day, are you saving up for kind of a bigger deal at this point?
Matt, just a couple of comments. If you go back, probably a couple years and compare kind of where we are today from a M&A standpoint versus a couple years, I'd say in general, properties are a turn higher, maybe in multiples, maybe a turn and a half, and it's really a function of very low interest rates and quite frankly, strategics with a lot of cash on the sideline. You know, number one. Number two, in terms of our overall priorities from a capital deployment, they still remain the same, which is number one, support organic growth. You know, number two, continue our dividend increase approach, which we just recently announced, and we're in a good payout range there.
You know, number three, offset dilution from our comp programs, which is pretty modest. Number four, look for the appropriate M&A vehicles. Then five would be opportunistically look at additional share repurchase. In terms of the M&A activity, we do have an active pipeline. It's probably most active in the medical space, as I mentioned, and we're looking for opportunities there. We said consciously this year, given the acquisitions we made and the aggressive nature of our share buyback opportunistically last year, that we wanted to work down our balance sheet. We did modest share repurchase in the first fiscal quarter. We didn't do any in Q2. We didn't do any in Q3.T he Q1 offsets the dilution piece and then some for our comp programs.
The priority is still to work down the balance sheet to give us capacity to make some additional acquisitions.
Got it. Thanks.
Our next question comes from Walter Liptak from Seaport Global.
Hey, guys. I just wanted to follow up on the Q4 bonus comp. You know, considering the strong Q3 and then, what looks to be a good Q4 , have you been accruing at the same level throughout the year, or is there gonna be a step up in the fourth?
No. Well, this is Greg, accruing throughout the year based upon our performance.
Okay. Okay, great. Thank you.
Kevin, this is Jim. Maybe we have time for one more question or so. Anybody else on the line?
No, that was the last question in the queue.
Okay. Well, thank you all for dialing into our call, and I'm available for follow-ups throughout today and the rest of the week. Again, thanks for your interest in Nordson.
Ladies and gentlemen.
Thank you.
Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.