Thanks. Good to go.
Good day, ladies and gentlemen, and welcome to the Nordson Corporation webcast for Q4 and fiscal year 2014. 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 anyone should require assistance, please press star then zero on your touchtone telephone. As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host, Mr. James Jaye, Director of Investor Relations. Sir, you may begin.
Thank you, Candice, and good morning and happy holidays to all those listening. This is James Jaye, Nordson's Director of Investor Relations. I'm here with Michael Hilton, our President and Chief Executive Officer, and Gregory Thaxton, our Senior Vice President and Chief Financial Officer. We'd like to welcome you to our conference call today, Friday, December 12th, 2014, on Nordson's Q4 results and Q1 outlook. Our conference call is being broadcast live on our webpage at www.nordson.com/investors and will be available there for 14 days. There will be a telephone replay of our conference call available until December 19th, which can be accessed by calling 404-573-406. You will need to reference ID number 38856478.
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. I'd now like to turn the call over to Michael Hilton for an overview of our fiscal year 2014 Q4 and full year results and a bit about our Q1 outlook. Mike, please go ahead.
Thank you, Jim, and good morning, everyone. Thank you for attending Nordson's 2014 Q4 conference call. Nordson's global team continued to meet our customer needs at the highest level and delivered record Q4 sales, operating profit and earnings per share. I'm particularly pleased with the 13% organic sales volume growth we delivered in the quarter compared to the same period a year ago. This growth was broad-based across all segments and geographies. Operating margin in the quarter was 23%, two percentage points higher than the prior year's Q4. Diluted earnings per share grew by 23% compared to the Q4 a year ago, a rate significantly outpacing the strong top-line growth. Free cash flow in the quarter was strong, and from a balance sheet perspective, we remain very liquid with significant capacity for appropriate capital deployment.
We continue to create value for our shareholders through our balanced approach to capital deployment. During the quarter, we closed on the acquisitions of Avalon Laboratories and Dima Group to expand our positions in medical and electronic end markets. We increased our annual dividend, and we continue to prudently invest in the repurchase of Nordson shares. Our board of directors recently authorized a new $300 million share repurchase program effective December 16th. We'll provide more details on our share repurchase activities later in the call. For the full fiscal year, Nordson set company records for sales, operating profit and earnings per share while executing on a variety of strategic initiatives that will help sustain our success. Full-year organic sales growth was 6% compared to last year, relatively strong performance against the weak macroeconomic environment.
Looking ahead, our current backlog and order rates are solid, leading us to expect a solid Q1 in line with normal seasonality of our business. I'll share additional comments about our current business trends and our near-term outlook momentarily. First, I'll turn the call over to Greg Thaxton, our Chief Financial Officer, who will provide more detailed commentary on our current results and our Q1 guidance. Greg?
Thank you, and good morning to everyone. Sales in the quarter were $469 million, an increase of 14% over the prior-year Q4. This sales improvement included a 13% increase in organic volume, a 3% increase related to the first-year effect of acquisitions, and a 2% decrease related to the unfavorable effects of currency translation. Looking at sales performance for the quarter by segment, Adhesive Dispensing segment sales volume increased 9% as compared to the prior-year Q4. Organic volume growth was 7%, and the first-year effect of the Kreyenborg acquisition added growth of 2%. We generated organic growth in every product line, led by strength in disposable hygiene, polymer processing, and general product assembly end markets, and in every geography, with the exception of the Americas.
Sales volume in the Advanced Technology segment increased 28% over the prior year Q4. Organic volume growth was very strong at 21%, and the first year effect of the Avalon and Dima acquisitions added 7% growth. The organic growth was robust in all of the segment's product lines. In electronics end markets, demand for our automated dispensing, test and inspection, and surface treatment equipment was driven by a diverse set of applications in mobile devices, advanced semiconductor packaging, and automotive electronics. Demand also remained very robust in our medical and industrial end markets, where we continued to see excellent growth in our semi-automated dispensing systems and single-use fluid management components. Geographically, this segment delivered double-digit organic growth in every region, with the exception of the United States. Sales volume in the industrial coatings segment increased 16% compared to the Q4 a year ago.
The growth was driven by demand for our cold material dispensing equipment in automotive and industrial applications, coating equipment for food and beverage can applications, and UV curing equipment for electronics applications. The US, Europe, and Asia Pacific regions drove the segment growth, which was partially offset by softer conditions in Japan and the Americas. Gross margin for the total company in the Q4 was 55%, equal to the level delivered in the prior year, despite a higher mix of system revenue, where systems comprised 60% of revenue in the current quarter. Operating profit in the Q4 was $106 million, an increase of 22% over the prior year, and operating margin was 23%, as Mike noted, an improvement of two percentage points over the prior year's Q4.
Looking at operating performance on a segment basis, Adhesive Dispensing delivered operating margin of 25% in the current quarter. On a normalized basis, to exclude non-recurring costs in both years, operating margin in the current quarter was 26% compared to 27% in the same period a year ago, the difference largely attributable to product mix and the negative effects of currency translation. For the full year, the Adhesive segment's operating margin in fiscal 2014 was 26%, equal to the level of a year ago and inclusive of a full year of the Kreyenborg acquisition. Within the Advanced Technology segment, operating margin was 26% in the Q4, an improvement of five percentage points as compared to the same period a year ago.
On a normalized basis, to exclude non-recurring costs, the current quarter's operating margin within this segment was 27%, up six percentage points over the prior year's Q4. The improvement reflects our ability to leverage increased sales volume and ongoing continuous improvement efforts. In the Industrial Coating segment, operating margin was 22% in the Q4, an improvement of five percentage points over the same period a year ago. This is outstanding performance for this segment, which generally has a higher mix of larger dollar, lower margin engineered systems than the other segments. The improvement over the prior year's Q4 reflects our ability to leverage increased sales volume and our continuous improvement initiatives.
Continuing down the income statement, net income for the quarter was $72 million, and GAAP diluted earnings per share were $1.13, an increase of 23% over last year's Q4. As in previous quarters, we've 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. On a normalized basis, that is to exclude one-time items in both years, Q4 earnings per share increased 24% over the prior year's Q4. The current quarter's EBITDA was $123 million, up 20% compared to the same period a year ago.
Cash flow from operations in the Q4 was $105 million, and free cash flow before dividends was $90 million, an increase of 46% over the prior year's Q4. Free cash before dividends was 124% of net income, reflecting very strong cash conversion in the quarter. We included a table with our press release reconciling net income to free cash flow before dividends. We continued our balanced approach to capital deployment during the quarter, investing $72 million for the repurchase of shares, distributing approximately $14 million in dividends, and closing on the acquisitions of Avalon Laboratories Holding Corp. and Dima Group B.V.
From a balance sheet perspective, we remain very liquid, with net debt to EBITDA at 1.8 times trailing twelve-month EBITDA as of the end of the Q4, and we have approximately $167 million available from cash and our current revolving credit facility. As we announced earlier this month, Nordson's Board of Directors approved a dividend for the Q1 of fiscal 2015 and authorized a new $300 million share repurchase program effective December sixteenth. As of today, we will have nearly exhausted the $200 million authorization from August of 2013, where approximately 2.7 million shares have been repurchased. We expect to maintain our disciplined approach to repurchases, offsetting the dilutive effect of benefit programs first and buying additional shares opportunistically.
We will use a pricing grid within a 10b5-1 repurchase program, whereby we will not repurchase shares over a certain price. Over the last four fiscal years, we have repurchased approximately $414 million, or 11%, of Nordson's outstanding shares at a discount of approximately 28% compared to our October 31st, 2014, Q4 closing price. I'll provide a few comments on our full year results. Sales for fiscal 2014 were a record $1.7 billion, an increase of 10% compared to fiscal year 2013. This increase included a 6% increase in organic volume, a 5% increase related to the first-year effect of acquisitions, and a negative 1% impact related to unfavorable effects of currency translation compared to the prior year.
Full year operating profit was $367 million. Net income was $247 million, and GAAP diluted earnings per share were $3.84, all of which are full year records for Nordson. On a normalized basis to exclude non-recurring items in both years, diluted earnings per share for the year were $3.88 compared to $3.38 a year ago, an increase of 15%. Full year EBITDA was $427 million, a 12% increase over the prior year, and free cash before dividends was $245 million, or 99% of net income, again, reflective of strong cash conversion. Dividends paid in fiscal 2014 were $48 million, and shares repurchased under the repurchase program were $164 million.
I'll now move on to comments regarding our outlook for the Q1 of fiscal 2015. As we typically do, we have 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 the Avalon and Dima acquisitions included in both years. For the 12 weeks ending December 7th , 2014, order rates are up 10% as compared to the same 12 weeks in the prior year. Within the Adhesive Dispensing segment, order rates are up 1% over the last 12 weeks as compared to the same period in the prior year.
Strength in rigid packaging, disposable hygiene, and general product assembly end markets was offset by mixed demand in other end markets. In the Advanced Technology segment, order rates over the latest 12 weeks are up 23% compared to the same period in the prior year. Demand remains strong for our automated dispensing equipment, supporting diverse applications in mobile devices, advanced semiconductor packaging, and automotive electronics. Demand was also strong for fluid management products related to medical and industrial end markets. Within the Industrial Coating segment, the latest 12-week order rates are up 18% as compared to the prior year. Orders were strongest for cold material dispensing systems supporting automotive and general industrial end markets. On a geographic basis, total company orders were strong in Asia Pacific, Europe and the US and softer in the Americas and Japan.
Backlog at October thirty-first, 2014, was approximately $223 million, an increase of 6% compared to October 31st of 2013, and inclusive of 4% organic growth and 2% growth due to the Avalon and Dima acquisitions. Backlog amounts are calculated at October thirty-first, 2014, exchange rates. Let me now turn to the outlook for the Q1 of fiscal 2015. We're forecasting sales growth to be in the range of 5%-9% as compared to the Q1 a year ago. This range is inclusive of organic growth of 6%-10%, 3% growth from the first-year effect of acquisitions, and a negative 4% impact related to the unfavorable effects of currency translation.
At the midpoint of our revenue forecast, we expect Q1 gross margin to be 55%, and operating margin is forecasted to be 16%. We're estimating Q1 interest expense of about $4 million and an effective tax rate of approximately 30%, resulting in Q1 forecasted GAAP diluted earnings in the range of $0.60-$0.70 per share, inclusive of a $0.01 per share charge related to the step-up in the value of acquired inventory. The midpoint of this range for diluted earnings per share represents an increase of 20% over the prior year's Q1. In addition to this Q1 outlook, the following fiscal 2015 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% based on current tax law. For capital spending in 2015, we're forecasting normal maintenance capital spending to be between $45 million and $50 million, slightly lower than 3% of 2014 sales. In addition, we estimate approximately $20 million in capital expenditures associated with our previously announced investment for a new facility in Colorado supporting our fluid management product lines. In summary, our global team delivered record Q4 and full year results, and our outlook for the Q1 of 2015 is strong given the current macroeconomic environment. With that, I'll 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 want to thank our global team again for their hard work. Their commitment to our customers and to continuous improvement propelled Nordson to an excellent Q4 and another record year. At the midpoint of our Q1 guidance, we are expecting organic sales volume growth of 8% over the prior year's Q1. We expect to leverage this growth to deliver improvement in operating margin and in earnings per share as compared to last year's Q1. From a broader perspective, Nordson's future remains very bright as we begin fiscal 2015. While the short-term trajectory of the global economy is hard to predict, our long-term strategy remains the same.
We are focused on delivering top-quartile shareholder returns over the long term by growing and extending our high-value business model focused on precision dispensing and adjacent technologies. That model includes leading technology, extensive applications know-how, and unparalleled global support and service. Our specific priorities for 2015 are extension of our recent efforts, clear and straightforward. First is to drive organic growth. Our goal remains to outpace global GDP. Next is a continuous focus on innovation. This includes products and processes. Third, we aim to further improve and integrate recent acquisitions. In addition, our acquisition pipeline remains robust, and we look to add additional pieces to the portfolio as well. Fourth, we want to further ingrain continuous improvement via the Nordson Business System. Finally, we continue to enhance our leadership and employee development initiatives.
Overall, the many applications we touch every day give us a great opportunity in the years ahead. Nordson's global team remains committed to creating the best customer experience and helping our customers succeed. We expect to be continuing to provide excellent returns for our shareholders over the long term. At this time, let's turn to your questions.
Ladies and gentlemen, if you would like to ask a question at this time, please press star followed by the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from the line of Joe Radigan of KeyBanc Capital Markets. Your line is now open.
Thank you. Good morning, guys.
Good morning, Joe.
Maybe let's start with advanced tech. How much of the organic growth in the quarter there and maybe some of the strength in your order growth is coming from new products? I know you've talked about, you know, the inline X-ray product. You thought that could be pretty significant over time. Are you seeing a significant uptick in that? Or can you maybe bucket around, you know, mobile, traditional back end and the other niches where you're seeing growth in advanced tech?
Yeah, maybe I'll start with that last point first, Joe. You know, mobile continues to be a strong part of the equation, but we did see some significant uptick in the quarter and certainly in the order rates in terms of advanced semiconductor packaging. Quite frankly, with the general improvement in the auto market, we're seeing more and more electronics go into there and a lot of our applications around things like conformal coating support that auto market. Then we've seen some increase in other niches as well. It's starting to be a bit more broad-based, at least in this recent quarter with the orders than maybe it has been over the last year and a half.
We will see if that's sustainable, but that's certainly an encouraging sign and kind of in line with what folks like Gartner are starting to predict for next year. As far as new products, we have a number of new products coming out this year. We have some traction with some new dispense products in the electronics side of things. I think we mentioned last time we got our first order in terms of the new wafer inspection tool. We expect another one to come through here shortly, and we have a nice prospect list that should fill out the rest of the year.
Of course, you know, we are adding capability to address the tiering side of things in that business with expanding our capability in Suzhou. Quite frankly, the Dima acquisition is a product line extension for us that'll give us a mid-tier product that's to support that activity. Then finally, in that area, you know, our medical business is doing really well. We're expanding our product lines. We're getting good traction with those expanded product lines. Our core EFD business has also been very solid, both in electronics and in the general markets. Pretty good story all around at this point, a little different than the beginning of the year.
Yeah. Okay. Then in industrial coatings, I mean, a very impressive margin performance there. Kudos to Doug and his team there. How much of that is mix versus, you know, productivity improvements, favorable raw materials? I know that, you know, that's a volume-based business, and then sort of going forward, orders are up 18% for the Q2 in a row. How do you know what's the typical order to revenue conversion time there? Do you expect that strong order growth to carry into revenue growth into the Q1 because, which is, you know, typically seasonally slower?
Yeah. A couple of things. As you know, the industrial coatings teams have been working hard over the last few years to drive continuous improvement and improve the overall cost performance of that business, not only on the sort of current day-to-day activity, but as we introduce products into the marketplace. They've done a really nice job there. Like all of our businesses, there's good volume leverage. We saw an extraordinarily large quarter, you know, probably $8 -$10 million higher than anything that we've seen before. You know, that's on the strength of, you know, things like strong auto, you know, some appliance-type activity in the U.S., a good container recapitalization business.
Going forward, you know, the orders continue to be just strong in those areas as well as a couple of others. You know, the typical lead times for those systems order-related businesses are longer than most of our businesses. They're in that sort of 8-12-week timeframe, but obviously they factor into our expectations in the Q1.
Okay. Then maybe lastly for Greg, your corporate expense was a little elevated in the quarter. I'm assuming there's some deal costs in there from the acquisitions that you did, but how should we think about the run rate going forward for corporate expense?
Yeah, I think the run rate, if we think about fiscal 2015, will be, you know, in that $40 million range, similar to what we saw in fiscal 2014.
Okay. Thank you, guys.
Thank you. Our next question comes from the line of John Franzreb of Sidoti. Your line is now open.
Good morning, guys.
Morning, John.
Just going back to Advanced Tech. Mike, it sounds like the growth here is more coming from maybe new market opportunities in automotive rather than a major shift in custom product development time in mobile. Is that the case, or am I not hearing this correctly?
No, I would say we've had this quarter, and the order rates look like a more balanced portfolio than maybe we saw in the last quarter or two, where mobile was the primary driver. Auto, you know, the auto business globally has been improving for a number of years. What you're seeing is an increased penetration of electronics-type products into auto, and that started more recently to translate into capacity. As it translates into capacity, we see some opportunities. You know, I mentioned conformal coating, that's just one application where we support that, you know, that activity. I think that's good. Then, you know, the mobile remains strong, and everybody is trying to come up with wearable products. We're seeing some opportunity there.
I think as we mentioned last time, we started to get some traction penetrating the Chinese mobile market. It's early yet, and it's not 100% clear what degree of automation they'll go to, but we got our first orders there, so that's encouraging as well.
Okay.
You know, not to lose track.
Right.
It's not all electronics. You know, our general industry, fluid management, you know, the components business has been strong, and the medical business has been particularly strong. It's right now, there's a nice balance. You know, it was a little bumpy earlier on, you know, as the mobile waves come through. In this latest quarter and the near term, it's a little bit more balanced.
Right. I mean, that's kind of how I figured it, that side of the business would be more steady state, but the variance would largely come from what we're seeing in mobile. Having mobile strong this time of year, I don't know, seems counterintuitive to me. That's.
Yeah, it's a little bit different than just the phone launches because, you know, there are a whole bunch of people trying to do more and more wearables, so we're seeing some orders from that, as well. The more traditional advanced semiconductor packaging, we started to see that tick up, as well. As I mentioned, Gartner is forecasting a pretty robust year for next year. You know, it's never 100%, correct. Then some of those local Chinese wins are helping a bit, so.
Okay, fair enough. In adhesive dispensing, it sounded like in your press release that the polymer processing business was again improving for the second consecutive quarter. You know, the margin profile may suggest that's not the case. Is Biax still a drag? Can you just walk us where we are in the recovery of that business?
Yeah, I would say, maybe I'll just touch on the overall margin piece for adhesives first, and then I'll answer the second part of that question.
Mm-hmm.
The overall margins for adhesive in the quarter were impacted by two things. One, currency. You know, without currency on a normalized basis, we'd be flat year-over-year. We also took a bit of a write-off as we wound down part of our historical web coating business in Europe. Those two things impacted the margin in the short term, you know, currency first and then that write-down. That's with a greater mix of systems versus parts in general.
Mm-hmm
a greater mix of sort of things like nonwovens, product assembly, and the polymer area that tend to be more systems-oriented than, say, packaging, which tends to be more components. I would say if you look at the polymer processing, right now, the injection molding end markets are solid. The film side of the business is still sluggish and still a drag. In general, I'd say the slowdown in Europe, the slowdown in China, the slowdown in the Americas are not helping that, from an order perspective because it's really impacting the capital expenditure side of things. On the demand side, it's not chewing up the capacity fast enough. That's still a little bit of drag on the film side. The injection side is pretty solid.
Okay. One last question, since you opened the door. Gregory, could you kind of walk us through the currency impact on the P&L? Just some of the puts and takes we should be cognizant of given the recent moves in the euro and the yen.
Yeah. What you see in the quarter, and clearly that's embedded in our guidance for the Q1...
...is the translation effect, primarily euro and the yen. In the current quarter, as Mike mentioned, we've got a heavier exposure within the adhesive dispensing segment. Ex the currency effect, we would have been neutral, as Mike mentioned, to prior year. In the current quarter, it was drag on EPS by about $0.04 per share. Now when we guide to a currency impact of 4% on the top line for the Q1, you know, we've provided some modeling that kind of coordinate between the percentage impact on sales and the percentage impact on prior year EPS.
We'd see that to be in the, you know, kind of mid- to high-single-digit cents per share impact in the Q1. That's kind of our rule of thumb that we use, and we include some of that on our investor presentation.
If you looked at sort of a 1% revenue hit, you might by rule of thumb 2.5% on the earnings side.
Right.
Perfect. Thank you very much, guys. Thanks. I'm going to take my questions.
Thank you. Our next question comes from the line of Kevin Moxey of BB&T Capital Markets. Your line is now open.
Thanks. Good morning.
Morning, Kevin.
Can we again, going back to Advanced Tech, considering the deals that we've just done here, the Avalon and the Dima and the growth rates that we've seen in all these various components, Mike, can you size for us where that mix stands now in terms of mobile and auto and fluid management, medical, some of the big buckets there? Where, what does the mix look like now?
Yeah. If you look at sort of the total segment, kind of half, roughly half of it would fall into what we call our systems business, and that's the electronic systems business. That's largely electronics, and about half of it would fall into more of the component or semi-automated side of things, which has a bit of electronics overall in it.
That's what we refer to as fluid management.
That's what we refer to as fluid management. Roughly sort of half and half. You know, within fluid management, side of things, we have an electronics piece, we've got a general industry piece, and we have a medical piece. The medical piece is growing, you know, probably next year will be, you know, somewhere in the range that's, I don't know, $70-$90 million kind of range on the medical piece alone. The general industry piece, you know, is a broad-based set of applications, everything from materials that are packed and filled that go into caulking applications to herbicide, pesticide dispensing to a variety of different manufacturing activities, but largely related to sort of plastic components.
On the mobile side, we're still on the electronics side, we're still more heavily weighted to the mobile. You know, going back several years, it might've been 1/3 mobile, 1/3 components, you know, sort of mixed markets and 1/3 sort of traditional semiconductor packaging. It's considerably more skewed to the mobile, so it's probably closer to 50% or so. What we're seeing more recently is that more traditional packaging piece starting to come back. Well, you know, we've seen a few starts and stops before. People are a little bit more optimistic right now that that's going to continue, and we're certainly seeing orders in those areas like advanced semi-packaging and some of the traditional packaging.
You know, we're also supplying components that go into a variety of different devices, a lot led by mobile, but some others. The auto piece is really, it's a big MEMS type market, you know, where you're taking electronic signals and converting to mechanical action. You can think about almost nothing is mechanical these days completely, you know, in terms of wire linkages and things like that. It's all electronic signals to the final endpoint. That's growing. You know, we see that particularly, you know, where auto is strong in the U.S., in Europe, and quite frankly, even in China now as the auto market grows there. Still weighted to the mobile side, but some of those other things are coming on. Hopefully, that'll sustain itself.
Okay, great. Shifting back over to adhesives margins, I guess if I understood you right, currency was the biggest drag there in the quarter. That'll be an issue we face as we go into 2015 as well. I'm just wondering, I know you don't guide the full year, but it seems like it'll be hard to grow adhesive margins even with some volume leverage from organic growth here if we still got that currency headwind, unless, I guess, the mix dynamic gets much better. Is that kind of a fair way to directionally think about that?
Yeah. I think it's going to be, you know, who knows where the currency is going to go? I mean, I don't know that anybody predicted the sort of dramatic, you know, change recently here in the yen and the euro. If nothing changed from where we are today, we probably have another quarter or two of impact on a year-on-year basis that will create a headwind and will challenge the margins, particularly in that business. It's not exclusively in that business, but if you look at the size of that business in Europe, and if you look at the size of the business in Japan, and quite frankly, we haven't talked about it, but it's a nice part of the business in Brazil. All of those are under pressure.
I, there's probably at least another quarter or two of impact if nothing changes. Now, you know, if the Europeans get aggressive with a quantitative easing approach and, you know, help do something to boost the sort of the economy there, that may change. Certainly, the Japanese are trying to figure out what to do, but it's not obvious that changes in the next quarter, and maybe it's another quarter or so beyond that, we'd see that impact. Yes, it would be a headwind. Got it. Just finally from me, just from a macro standpoint, with Europe soft, China slowing, Japan in recession, you had very strong order numbers in both Europe and Asia Pac, and I guess the Asia Pac is probably explainable by the strength in advanced tech.
Can you just speak to the Europe portion in the plus 10 order number there? Yeah. Part of that is a function of you know the market segments we're in and the particular products. Quite frankly, surprisingly, we're seeing a good order book, even though you know the economy looks like it's struggling. You know, each of the businesses are pretty strong. You know the coatings business, we're still seeing some strong activity on the container side of the business and on the auto side of the business. Those two things are solid. You know, on advanced tech in Europe, it's mostly related to those auto type applications and some other back-end packaging.
On adhesives, you know, we do export out of Europe to other countries for things like nonwovens and so forth because there's a large OEM base there. Some of it we're benefiting from that. Quite frankly, in the very short term, there are some projects that have come through that, you know, may be more timing than anything else. There's a little bit of a bump there from timing. Clearly, in a number of our businesses, we're taking share as well. There's a variety of things there that make that look a little different than what you would expect, given the softness as you described. Yeah. Okay, great. Thank you.
Thank you. Our next question comes from the line of Mark Douglas of Longbow Research. Your line is now open.
Hi, good morning, gentlemen.
Hey, Mark.
If you know, Greg, well, first of all, do you expect any significant investments going into 2015? I mean, like you did in 2013, you had some new products, you're investing heavily in, say, tech. Anything we should anticipate for 2015? Taking that into consideration, if we still saw kind of a mid-single-digit% organic growth here, what kind of incremental margin should we apply in a range to 2015?
Yeah. On your first question, incremental to 2014, I wouldn't see anything to call out, with the exception, as I mentioned, the CapEx side, where we've got the completion of the facility in Colorado. Let me just comment, and I'll let Greg answer the rest of this. On new products, we do have a lot of new products coming in, but I'd say they are more in the normal course of business rather than the step outs, like particularly the wafer project that we talked about last year. Yeah. On the incremental margin, Mark, you know, it's going to, you know, it now gets to what we talked about, a mid-single digit organic.
It's where by segment, what's the mix impact of that going to be? You know, what are going to be the growth drivers of that total top line growth? If you look at what we delivered in the Q4 here, on a normalized basis, it was about 36%.
Right.
Normalized incremental margin. Of course, we've got the currency impact that's having an impact on the margins embedded in there. It, you know, tough question to answer without knowing what's going to be the driver of the top line growth. Yeah. I mean, if you look at it sort of historically, let's say currency aside, you know, the coatings business, just by the nature of that business being, you know, all engineered systems with a lot of buyout, incremental margin in those businesses tend to be, you know, in the sort of, pick a number, 30% kind of range, plus or minus. You know, advanced tech a little bit better. Adhesives generally considerably better. But as we said, that's where the currency impact is going to affect us.
You know, overall, you know, in a sort of non-fluctuating currency market, somewhere in that 30%-50%, depending on the mix, is what we expect. Currency is going to weigh on that.
Looking at adhesives again, good, very good growth in 2014 with 6% organic growth. Can you talk about what some more significant end markets were that drove that? You know, you mentioned market share. You know, can you peg how much was share gains, or what do you think the different markets grew at? How much was it Freedom? Is that material yet, or is that still trying to gain traction?
If you look at it in the packaging, really in packaging, nonwovens and product assembly, they were all good. I'd say this year we saw probably more of a step up in the nonwovens and the product assembly area, which tend to be bigger ticket items, and packaging was solid. You know, the nonwovens are things like, you know, the consumer nondurables like, you know, diapers and incontinence products and feminine hygiene products. The product assembly is sort of construction-related activities as well.
We, you know, saw an uptick, you know, also in the polymer side, you know, with the, both in sort of the pelletizing stuff that came with Kreyenborg and then the general, sort of injection side of the business there. There is a share element to all of these businesses as we continue to introduce technology. I'd say that's not the biggest, the biggest driver of things. I'd say, Freedom and Liberty combination, we probably delivered where we thought we were going to be from a revenue and profitability standpoint, not quite, where we thought we were going to be on the unit side of things. I think we're encouraged by what we, you know, what we see there.
You know, one of the things that's a little bit of a gating item that we've talked about is the new adhesives that were going to increase the mileage and were difficult, more difficult to melt, are still not readily available. This has to do with some things in the ethylene supply chain. You know, all of the suppliers are saying, you know, next year we're going to see those. They said they were going to see those this year. I'm not trying to throw those guys under the bus. It's just, they don't control the full supply chain, and there's some other issues upstream of them that are impacting that. I'd say revenue and profit-wise, we were on track, and that contributed to things.
I think we also did well in the emerging markets with our tiering products. We've done really well, in particular in the adhesive side of our tiering products.
Okay. The mix with nonwovens products, product assembly growing a little faster than packaging, you know, that explains that that's when you're talking about the mix impacting the margins.
Yeah, those tend to be. Yeah. If you look at it, the most component sort of standalone types of things are in the packaging side. You have, as you go to nonwovens, and then really certainly to product assembly, you've got more of a partial system type sale there that tend to be good margins, but lower than the packaging margins.
Right. You said parts were about 40% of sales?
Yeah, they're about 1% or so higher, systems than parts year-on-year.
Right. Okay. Thank you.
Thank you. Our next question comes from the line of Christopher Glynn of Oppenheimer. Your line is now open.
Thank you. Good morning.
Hey. Good morning.
Just had a question about the acquisition pipeline and wondering how much of your kind of focus and pipeline is in that medical component space and what your expectations might be there.
Well, we like the space. The acquisitions that we made, you know, prior to this past year have had, you know, nice double-digit growth as we've, you know, continued to penetrate the market, expand the product lines. The little product line acquisition that we bought from Covidien exceeded our expectations this year. We really like the new business coming in with Avalon. That gets us more broadly into cardio and pulmonary type of services. As we've said in the past, it's a pretty fragmented market in terms of the folks that make a number of these particularly sort of plastic-oriented, highly engineered components that go to, you know, the big OEMs, and that's the place we like to be.
There are still opportunities out there that run the gamut of, you know, just a simple product line extension to something that's, you know, a little bit bigger and maybe even a little bit bigger than, you know, the acquisitions we made today from a revenue standpoint. We're working a list there. We like it. We like the opportunity to consolidate. You know, the new facility in Colorado is not only helping the medical business, but some of our other EFD businesses. With Avalon, we've got a manufacturing capability in Mexico that we'll likely expand and take advantage of that for more of our assembly type operations. We feel good about that and the opportunities that are out there.
You know, timing's never clear, and you don't necessarily win everything you look at if it ends up being an auction.
Okay. Thanks for that. Do you ever think much about hedging on the FX side?
Yeah. Chris, this is Greg. Hedging for us on the FX side, if we were trying to anticipate where our source of foreign revenues would be, you know, it's challenging to forecast that and then to, you know, to do anything to hedge it can create quite a bit of volatility in the P&L if you're wrong. We do hedge some of our intercompany volumes where it's more, there's more surety around those volumes. So we do some of that. To try to get in front of hedging the third-party revenues, I'd be concerned about the volatility that that could create in the P&L.
Okay. Lastly, you've had a nice string of quarters of good growth at ADS, and then.
The last two quarters, pretty flattish on the orders. We think that might level out on organic for a while here, or do you see that staying positive on the organic, for fiscal 2015?
Well, our overall sort of long-term view of that sort of business is, you know, 5%, 6%, 7% kind of growth. You know, last year, you know, 2013, there wasn't much growth. This year, we saw pretty nice growth. You know, I think part of this comes down to what do you think the macro assumption is? You know, our view is this year, global GDP is probably going to come in at a little over 2%, 2.2, something like that, 2.3. We're kind of anticipating next year looks similar, so we should get some leverage over and above the GDP. Again, that business on a revenue line will be impacted by the currency in the short term. We think we can grow that at a multiple of GDP.
We don't think next year is going to be super robust. I mean, the U.S. looks strong, but every place else doesn't look stronger than this year unless something turns around in Europe and Japan, which could happen with policies. You know, we're not any better than anybody else forecasting that. We should outpace GDP. I think, you know, with some of the things like nonwovens and product assembly, you're into more of an investment cycle than a day-to-day sort of operating upgrade and improvement cycle. You know, that can vary year to year depending on where people are. We saw a good year this year. You know, I think the U.S. we expect to see strength going forward. China, we think will pick up, although not at the rates that maybe it's been.
Worried mostly about Europe.
Great. Thanks for the color.
Thank you. Our next question comes from the line of Allison Poliniak-Cusic of Wells Fargo. Your line is now open.
Hi, guys. Good morning.
Hey, Allison.
Just back on the comments about Freedom. I know you cited adhesives being one of the reasons that volumes haven't necessarily picked up, but is there any concern on competitive reaction holding that volume down?
No, you know, we've placed hundreds of units out there, end markets, plus through OEMs. Our Liberty product was the next sort of tiered opportunity geared more at the OEMs. If you went to the packaging show in Chicago, you'd be impressed with just this last month. You'd be impressed by what you see on the OEM side of that. No, from a competitive standpoint, we have good competitors out there. We do think we have the best model. That's a combination of technology and service out there.
You know, as we've talked about in the past, part of this is a function of what's the sort of overall overriding benefit here and when's the last upgrade that our customer bases have gone through. We between sort of the last major product launch and this one, we didn't stop. You know, we were out selling feed systems and upgraded nozzles and dispense equipment. If somebody just bought that combination, they're, you know, not going to be ready to buy it right now. A big driver was sort of the higher mileage adhesives, and what that means is you use less adhesive for the same bonding properties, and they're just not available yet.
I'd say we did pretty well, as I said, on revenue, where we expected, and profit, probably where or better than we expected. Volume was a little short, but it's not a competitive issue.
Great. Then I guess just broadly speaking, you know, a lot of of positive momentum heading into 2015. Whether region or business, is there anything that you're, I guess, overly concerned about at this point for next year?
I don't know that I would say overly, but you know, if you think about where we're at right now, the U.S. looks strong. It looks like it's continuing to get strong. That's good, that's good for us. Europe's gone backwards at the moment. You know, it wasn't blockbuster this past year, and it's gone backwards. We're not seeing that in our order rates yet because of some of the markets that we're involved with and doing well. I think China will be okay, but it's at the new normal, so it's not that sort of double-digit kind of growth that you saw. Asia outside of China, doing pretty well. You know, Japan is going to struggle this year. Latin America is not going to come back.
I'd say globally, the mix will look different, but that's why we think it's going to be a sort of mild, modest growth. Quite frankly, in the short term, the biggest concern is the currency side of that, and particularly given the dramatic moves in the euro and the yen. You know, we'll be past that later in the year. It'd be great to see some monetary and fiscal policy out there that would help modify that before we get out to, say, the Q3 or so.
We'll certainly do what we can on, you know, pricing actions and others to try to mitigate some of the impact of currency. But we recognize that that's a headwind.
Great. Thanks, guys.
Yeah.
Thank you. Our next question comes from the line of Charley Brady of BMO Capital Markets. Your line is now open.
Thanks. Morning, guys.
Hey, Charley.
Just clarification on the parts mix. That 40%, is that company-wide or is that just adhesive dispensing?
Yeah, that was total company, Charley.
Have it for-
Adhesive dispensing, as we've said in the past, the segments are kind of they pretty much overlay that total company. You know, on any given quarter, adhesive might tend to be a bit more in the parts than total company, but all the segments are very close to that total company number. Yeah. My commentary earlier on was just year-over-year adhesives probably 1% more systems than parts. Yeah. It was.
That obviously had at least some impact on the margin as well then, I guess.
It does. Right.
I just want to go back and look at the Adhesive Dispensing orders in the quarter, just so I understand it a little better. I mean, 1% this quarter, 0% last quarter. How much of that is a currency headwind? I know, you know, you framed it in terms of kind of global GDP, but, you know, that would obviously be below global GDP. I'm wondering how much of an impact really the currencies hit you in this quarter or there's something else going on that's maybe a headwind to that orders.
Yeah, I would say it's not really a currency issue from an order perspective. I think what we're starting to see are things like, you know, if you look at certain economies and what's going on, you know, mainly outside the U.S. Yeah. A little bit. You know, the Americas, for example, are soft. Japan, we saw a pretty sizable impact here from an order perspective. Even a little bit in the U.S., which could be timing-related, you know, issues. Not overly concerned with what we're seeing there, but could be just timing year-on-year.
Okay. Thanks.
Thank you. Our next question comes from the line of Walter Liptak of Global Hunter Securities. Your line is now open.
Hi. Thanks. Good morning, everyone.
Hey, Walter. Good morning, Walter.
I wanted to ask, you've kind of touched on this already, but you know, and maybe just to frame it this way, with the organics last year at plus 6% in your 2014, as you look, you know, it looks like, you know, heading into this year, things are a little bit slower. What's the tone that you're getting from customers in terms of, like, budgeting for 2015? And if it is a little bit more cautious and we're going to expect organics, you know, and, you know, something lower than 6%, is there something that you do to mitigate? Is there a cost focus or is that some kind of restructuring? You mentioned Avalon and taking some manufacturing down to Mexico. I wonder if you can just address that cost side.
Yeah. Just to clarify, coming into the year, at least with the Q1, you know, the kind of midpoint of our guidance is about 8% organic. You know, still, at least the start is reasonably solid. You know, from a customer perspective, you know, in Europe, I would say across the businesses, you know, sort of the prospect list, bid activity dialogue is considerably more encouraging than the macro number that you're seeing from an economic perspective. I'd say if you go to a place like Japan, we've got project activity there, but it's not quite as robust if you look at it. That's a little bit different.
I'd say if you look at China, you have solid prospect list and good expectations, but, you know, they're at a new normal. We think that probably looks a little bit like this year or, you know, maybe even slightly less than this year from a macro standpoint. It's kind of a mix. You know, on a global GDP basis, we're still expecting a two plus number. I think if you went back a couple, three months, people might have expected a three plus number. That wasn't our expectation. We kind of look like next year is like this year. On a volume basis, we'd expect solid volume growth. On a revenue basis, we are going to see some impact, at least in the short term, unless something changes on the currency side.
From an overall cost perspective, you know, we have a pretty robust continuous improvement plan. We've got a number of things that we're working on across all the businesses, you know, from the day-to-day activity that we embrace in our Nordson Business System to some project activity. We're constantly focused on that. You know, in the earlier part of the year, you know, we can respond pretty quickly. In the earlier part of this year when things were a little bit soft, we also did some restructuring in certain businesses to lower our cost base, and that's played out in improved earnings and margin as the volume has come back. So we can respond pretty quickly. We look at things pretty closely.
The Avalon addition or benefit we got with the facility in Mexico, and we probably will expand that facility by both because of the demand and then the opportunity maybe to optimize our supply chain is a good thing that we're looking at across our other businesses as well in terms of improving footprint efficiency and supply chain efficiency. There are opportunities there. In the short term, you know.
I didn't know what I did.
Hello? Hello?
Okay. We're still here, if you can hear us.
Okay. I was wondering if we were lost here. In the short term.
Okay. Yeah.
We go into every year, you know, starting off cautious till we see the volume kind of play out. We are encouraged by the pretty solid order rates we see across the businesses right now. We are concerned in particular Europe and Japan, I'd say, even though in Europe we're not seeing that right now, Japan, maybe we are seeing that right now.
Okay, just to clarify. You know, the what you're hearing from your customers, what you're thinking about is something similar in terms of organics for 2015 versus 2014.
Yeah, I'd say the global mix is maybe a little different, maybe stronger in the US than it was last year. But I'd say even the European across most of our businesses, European customers are pretty optimistic. That said, you know, from a macro standpoint if you look at it, our business model is strong, our market focus is strong. You know, we're going to win the battle most of the time, but we float on the general economy. So, you know, we're not going to be impervious to what's going on in the general economy. So your guess is as good as mine as to how Europe, Japan plays out, whether anything comes, whether Europeans can get together and drive more growth there, whether the Japanese latest plan can improve things.
You know, I think China will manage their growth, and we'll see that and benefit from it. Outside of China and Japan and Asia, we see a pretty robust and positive set of expectations from the customer base there. It's a mixed bag, a little bit different than last year's sort of mixed bag. Kind of our expectation is similar growth. If we see more, we'll benefit from that. If we see less, we'll adjust from a cost perspective.
Okay. Sounds good. The U.S. part of it is the mix, the margin mix better in the U.S.? Is there more adhesives or, you know, if the U.S. strengthens here, you know, what do you think the margin mix will look like?
I think as it continues to strengthen, we might see more systems in general to the mix. Certainly if you look at the sort of order rate going into the Q1, we've got really strong orders in our coatings and technology business and softer in the adhesives to start. That mix doesn't necessarily help the margin, but we would expect adhesives to pick up as the year goes on.
Okay. Got it. All right. Thanks for that. With the, you know, the accelerated share repurchase, is there a preference that you're signaling for acquisition or, you know, repurchase over acquisitions? Or is it just that you've got the cash flow and you can do both?
Well, we like to have, you know, a balanced program out there, and I think we've talked a little bit in the past about our priorities. I mean, number one is supporting organic growth. You know, number two is to continue with the dividend approach. We're getting up into that 20% range, but we'd like probably to get a little bit higher in the mid-20s. We keep pushing that. Number three would be to find the right kind of acquisitions, but we have no control over availability and timing, although we're working it, right? Number four, would be to be opportunistic on the share repurchase. We always want to have a program in place so we can take advantage of it.
I mean, if you just look in this last quarter, we had some fairly wild movements where the stock dropped back into the upper sixties, and we were buying much more aggressively as part of our program when that happened. We always want to have the ability out there to take advantage of market movements. It would seem that at the moment, maybe volatility is picking up.
Okay. Got it. Okay. Thanks very much, guys.
Candice, we probably have time for one more question, and then we'll have to sign off.
Thank you. Our last question will come from the line of Liam Burke of Wunderlich Securities. Your line is now open.
Thank you. Morning, Mike. Good morning, Greg.
Good morning, Liam.
Mike, Nordson Business System is a big push of one of your strategic focuses. Could you give us a sense of the progress your continuous improvement initiatives, plans have made in the polymer acquisitions?
Yeah. If you look at, overall, the Nordson Business System, there's probably six to eight areas of focus that we have, and that's everything from new product development to supply, you know, to the overall supply chain that would include sourcing, manufacturing, distribution, and logistics to things like sales force effectiveness to pricing and segmentation, a variety of things like that. I would say we've made good progress on the polymer side on things like, you know, pricing. I would say we've made reasonable progress in terms of improving sort of the supply chain aspects of it, so think about that as sourcing and manufacturing.
The biggest benefits, as we've talked about there, will come from overall, optimization of the, supply chain and then leveraging, the organizations, together. Those are the ones we also said would take, a little bit longer. We are doing some things right now to facilitate that supply chain optimization. Over the next couple of years, that should play out. Then from an organizational, standpoint, you know, it comes down to how do we align, sort of behind the front lines, the engineering side of things, and then we continue to work through the direct versus distributor versus agent, approach there. Those things have, you know, the biggest impacts. Those are still to come. I'd say good progress today.
We need more volume to translate that into bigger benefit. A couple of the bigger things are going to take another couple of years, probably.
Okay, great. With the Colorado Springs facility at capacity, obviously, the necessity to build a new facility was there. Mike, are there any other economic benefits you're going to get from the new facility, medical facility in Colorado?
Well, we continue, you know. We continue for that facility to be sort of our state-of-the-art in terms of the highest level of automation. As we build out, not only to support the demand, you know, we're likely to include the capability to manufacture other products there and preclude some investments that we'd need to make in, say, other EFD type facilities and be able to do that there in a more automated way. We'll get some benefits from that. In the combination of now having this capability for some labor-intensive aspects of the business with the Mexico facility, we'll optimize where we do, you know, the sort of more highly automated activity versus where we do more manual activity. There's some combined benefits there.
We keep going to more and more sophisticated capability in these facilities, you know. An example is maybe a 16-cavity machine becomes a 32- or a 64-cavity machine where you're sort of doubling or quadrupling the output, you know, those kinds of things.
Great. Thank you, Mike.
Okay. This is Jim. I want to thank everyone for attending the call. I do have time today. I do have some calls today, but please get in the queue if you'd like to have follow-ups. I'm also around next week and glad to take questions throughout next week as well. Thank you, everyone, and very happy holidays to you.
Thank you.
Thank you, everyone.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Have a great day, everyone.