Nordson Corporation F4Q08 (Qtr End 10/31/08) Earnings Call Transcript

Dec.18.08 | About: Nordson Corporation (NDSN)

Nordson Corporation (NASDAQ:NDSN)

F4Q08 Earnings Call

December 18, 2008 8:30 am ET


James Jaye – Director IR

Edward Campbell – President & CEO

Greg Thaxton – VP & CFO


Charlie Brady - BMO Capital Markets

John Franzreb - Sidoti & Company

Matt Summerville - KeyBanc

Walt Liptak – Barrington Research


At this time I would like to welcome everyone to the Nordson Corporation fourth quarter fiscal year 2008 results conference call. (Operator Instructions) I would now like to turn the conference over to James Jaye,

James Jaye

Good morning. This is James Jaye, Director of Corporate Communications for Nordson, with Edward Campbell, Chairman, President, and Chief Executive Officer and Greg Thaxton, Vice President, and Chief Financial Officer.

We would like to welcome you to our conference call today, Thursday, December 18, 2008 on Nordson's fourth quarter and fiscal year 2008 results. Our conference call is being broadcast live on our web page at and will be available for 14 days. There will be a telephone replay of our conference call available until midnight Friday, January 9 by calling 1-800-642-1687. You will need to reference ID number 76441871.

Our attorneys have requested we open this call with a cautionary statement under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 would now like to turn the call over to Edward Campbell for an overview of our fourth quarter fiscal year 2008 results and Nordson's future outlook.

Edward Campbell

Thank you James, and good morning to all of you on the call and thank you for attending Nordson’s conference call discussing our fourth quarter and fiscal year 2008 results.

My comments this morning will provide highlights of what turned out to be another very strong quarter and year for Nordson in terms of revenue growth, operational performance, and earnings. In addition I’ll provide some perspective relative to our outlook for the first quarter of fiscal year 2009.

Regarding fourth quarter results, we ended the year with a very strong quarter generating record sales of $298 million, up 2.4% from the prior year. And I would add that the prior year’s fourth quarter was a very strong quarter with record sales at the time and total growth of 20% in the quarter, so we were up against very difficult comparisons in each of our segments.

Regarding the current year performance, fourth quarter sales volume increased 2.8% of which 0.6 percentage points of this increase represented the first year effective acquisitions and unfavorable currency effects reduced sales by 0.4%.

The sudden strengthening of the US dollar against most major currencies which began in August and accelerated with the September financial turmoil impacted our results as currency became a headwind in the quarter.

The fourth quarter’s revenue performance included strong results from our two largest segments as well as solid revenue for the industrial coating and automotive segment. Regarding the adhesive dispensing segment, prior year’s fourth quarter performance generated sales growth of 16%, a very impressive growth number for this segment and again establishing a very difficult comparison for the current year.

Over this we generated sales growth of 2.3% driven by strong results in our non-woven’s and paperboard converting product lines. The advanced technology segments turned in another solid quarter following six consecutive quarters of sales growth in excess of 18%, advanced technology grew 10% during the quarter.

Excluding currency and the first year effect of acquisitions organic growth within this segment was an impressive 11%.

Within the industrial coating and automotive segment, again up against a difficult prior year comparison. The 9% decline in sales from the prior year’s fourth quarter is primarily centered in the US, and is associated with the economic conditions impacting consumer durable spending.

On a sequential quarter basis, sales in the current quarter represented an increase of 24% over third quarter results primarily driven by volume growth in power system sales in all regions.

On a geographic basis all regions except the United States generated solid sales volume growth rates in the quarter. The US performance as noted previously is associated with the weakness in industrial coating and automotive performance.

The 10% volume growth in the Americas was driven by increased demand in all segments most notably in advanced technology, and industrial coating and automotive. Asia Pacific and Europe also experienced growth in all segments with most pronounced growth within the adhesive segment in Asia Pacific and the advanced technology segment in Europe.

Japan’s growth was also led by demand for advantaged technology systems. Operating profit as reported is 16% of sales and this includes $5 million of restructuring charges associated with our spending reduction program announced in September.

Excluding these restructuring charges operating margin was 18% in the quarter equaling our margin performance of the past two quarters. As I noted during our third quarter earnings conference call I am encouraged by the operating margin improvement that we have delivered during the last few quarters.

These operating margins are at the highest level that the corporation has delivered on a full year basis in nearly 20 years and the spending reduction initiative that we announced in September will allow us to continue to improve operating margins over what they would otherwise be by approximately two percentage points in 2010.

On a segment basis, the adhesive segment has once again delivered very strong margins in the quarter of 25% of sales. Advanced technology operating margin of 17% reflects the negative impact of currency and weakness in non-dispensing product lines.

With regard to industrial coating and automotive, the 10% operating margin is reflective of strong sales volume in the quarter and profit enhancement initiatives we have implemented over the last couple of years.

Net income for the quarter increased 4% over the prior year to a fourth quarter record of $31 million and fully diluted EPS increased 3% to a fourth quarter record of $0.90 versus $0.80 in the prior year’s fourth quarter.

Excluding the restructuring charge in this year’s fourth quarter EPS growth would have been 15% over the prior year fourth quarter. Let me provide some perspective on cash flow for the fourth quarter.

In addition to net income and non-cash charges of $10 million, other long-term assets added $4 million. Regarding uses of cash, working capital increased by $18 million, net capital expenditures were $8 million, and dividends were $6 million in the quarter.

This resulted in adjusted free cash flow of $13 mill in the quarter. The current quarter’s EBITDA was $57 million and our debt leverage measured as debt to total capital ended the quarter at 33%. Net of cash, this ratio would be 32%.

In summary this fourth quarter performance provided a strong finish to what was an impressive year for Nordson Corporation. Overall I am pleased with the sales volume achieved during the quarter by each of our segments in light of the difficult comparisons to the prior year as well as the global economic conditions we faced during the quarter particularly in September and October.

In addition I am pleased with the continuing strength in our operating performance where operating margins excluding restructuring cost were 18%. On a full year basis we achieved new milestones for sales, operating profit, and earnings per share.

Sales reached a record of $1.1 billion, an increase of 13% over the prior year. Operating profit increased 25% over the prior year to a record $190 million inclusive of restructuring charges. Fully diluted EPS for the year also a record, increased 29% over the prior year to $3.43 per share inclusive of restructuring charges of $0.10 per share.

The full year’s EBITDA was $227 million, up 24% over the prior year. In summary, fiscal 2008 was another outstanding year for Nordson and positions us well for what I expect to be a very challenging fiscal 2009 for all capital goods suppliers.

I would now like to turn to some brief comments about our outlook for the first quarter of 2009, but before I do, I’d like to add some perspective on the outlook that we’ll share.

I believe the US and global economies are dealing with a set of challenges more difficult then in any time during my business career of over 30 years. And yet as difficult as these times are and in every scenario that we believe is reasonable, Nordson remains profitable with positive cash flow during 2009.

Let me start with orders, we have provided in the press release information on recent demand as measured by orders both on a segment and a geographic basis. Adding a few comments to these order trends, I’ll start with reminding you that our order rates at this time one year ago, were very strong and led to what became a record first quarter sales for Nordson.

But our outlook is less about the prior year and more about the uncertain economic environment we are now facing. We are operating in unprecedented times where global conditions have continued to deteriorate and major economies have slipped into recessions.

Even China, a significant driver of growth over the last several years, is experiencing a deceleration of growth not seen in many years. Against this economic backdrop companies on a global basis are also operating in an environment where liquidity is either non-existent or at a minimum, very expensive.

And although liquidity is not a concern of Nordson’s we nevertheless sell capital goods and like other capital goods suppliers, we are seeing a pause in spending by our customers at a rate indicative of a singular focus on cash preservation.

For the last 12 weeks ending December 7, measured in constant currency, our orders were down 21% from the same 12-week period in the prior year. Within adhesives orders are down 14% from the prior year primarily due to a reduction in those product lines associated with larger dollar systems such as product assembly and coating.

Coating orders in the prior year’s 12-week period contained two large dollar orders, one in excess of $3 million so the lumpiness of these orders creates somewhat of a distortion in order rates. In this product line which is the smallest within the adhesive segment does contain the most volatility in order rates due to these big dollar systems.

Excluding the coatings product line orders from this 12 weeks analysis, adhesive orders would be down 11% from the prior year due to softness primarily in the US and Japan. Regarding advanced technology 12-week order rates, which are down 29% from the prior year there is a mix of activity within the product lines that comprise this segment.

For the most part, we are seeing softness again within the larger dollar systems businesses and this is related to the global economic weakness rather then market share. This weakness is most pronounced in Europe and Asia Pacific where many of our customers are putting orders on hold as they assess the severity of this downturn.

Within the industrial coating and automotive segment the latest 12-week orders are down 27% driven mostly by softness in the power and automotive product lines, again, those associated with larger dollar systems serving consumer durable end markets where, like the other segments order rates, we are seeing deferrals and postponements in our customers’ buying behavior.

With this perspective on order rates, we currently have an outlook for a sales volume decline from the prior year’s first quarter between 15% to 19%. With the appreciation of the US dollar against other global currencies as compared to where exchange rates were last year, currency effects are expected to be a headwind of approximately 5% resulting in overall sales for the quarter of down 20% to 24% as compared to the prior year’s first quarter.

Given the mix of products we should see gross margins around 55%. Spending in the quarter excluding restructuring cost will be down approximately 14%. We are estimating a tax rate of 35% for the quarter and [indeed] for the full year up slightly from the prior year’s first quarter rate of 34.3%.

Excluding restructuring cost associated with our previously announced spending reduction effort this outlook results in earnings per share for the first quarter of $0.27 to $0.38. This range includes and anticipated gain of $0.09 per share on the sale of real estate assets.

Restructuring charges in the first quarter are not included in this range but are estimated to be approximately $8 million or $0.15 per share.

Let me say a few things about the effects of currency on our first quarter outlook, the dollar has been very volatile over the last several months. We started the first quarter of fiscal 2009 with the Euro at $1.27. The dollar is now 13% weaker, just over $1.46. Likewise with the Yen we started the quarter at 98 Yen to the dollar and the dollar is now 10% weaker at 88 Yen to the dollar.

And I’ll mention that the numbers in our outlook are based upon the final six weeks of the quarter averaging about $1.41 at the Euro.

In light of what we believe will be a very challenging year ahead, we have taken significant steps to mitigate the effects on our businesses. These include, investments made towards our spending reduction program announced in September will generate annual savings of $30 million and we are well on our way to implementing on those savings.

We have put in place very tight controls on headcount additions and capital expenditures. I anticipate operating capital expenditures to be well below run rates of the last couple of years. We have initiated a worldwide freeze on wage increases. We will lower experience lower operating costs in fiscal year 2009 associated with planned facility consolidation efforts.

And finally to comment on Nordson’s liquidity position, even in a down year in revenue our businesses throw off a lot of cash. This cash flow coupled with the available free board under our $400 million revolving credit agreement ensures that we can continue to utilize our financial strength as a competitive advantage.

These efforts as well as the fundamental strength of Nordson’s businesses and the quality of our organization will provide the ability to navigate these challenging times.

I’d like to step back and talk a bit about the outlook for the full year, today the US and global economies are at a very low point. Business and consumer confidence is extremely low, forward visibility is limited.

And business decisions are being driven by two forces; uncertainty and liquidity concerns. Nordson’s orders from customers over the past 12 weeks, there is a full impact of these forces. However there are also powerful forces in play that push the other way. Energy prices, interest rates, central bank loan guarantees, the stimulus packages, and many other actions governments have been putting and are continuing to put in place are all individually and collectively unprecedented.

The [stimulative] effect of these actions are enormous and at some point we will see the results. I can’t say when that will be and our visibility is no better then others but I do expect however, that economic conditions during the second half of the year to be better then the first.

My personal view is that we’re going to look back at this time and be amazed at asset pricing and spreads and I believe the distortions in markets are extreme, unprecedented, but temporary.

Let’s now stop and turn to your questions.

Question-and-Answer Session


(Operator Instructions) Your first question comes from the line of Charlie Brady - BMO Capital Markets

Charlie Brady - BMO Capital Markets

Can you just speak in terms of your supplier base and given the liquidity issue, are you reaching out to your suppliers to make sure that they in fact are in a financial situation where they can keep supplying you and how are you addressing that.

Edward Campbell

We are, we have been proactive in that regard. Obviously the financial well being of anybody in the supply chain and customer chain are things that we’re paying very close attention to and the same kinds of analysis that we would do with regard to customers are things that our purchasing department is taking a close look at and that includes suppliers in places like China.

Let me just say that nothing has risen to my level of attention and the investigations have been done. Our folks are on it.

Charlie Brady - BMO Capital Markets

In regards to the orders in the prior 12 weeks, looking at your individual businesses and I know you don’t want to get into that kind of granularity, but are there any particular standouts either generally much worse then the overall trend or maybe not quite as bad doing better then the overall trend.

Edward Campbell

I think what you see as you go across the businesses, those businesses that are associated with large portions of spare parts or selling consumable components that are used once and disposed, our packaging business, other businesses that are related to consumer non-durables like non-woven’s, those are all if you will, large businesses that are doing well but then within businesses, we see bright spots that would include things like life sciences continuing on without impact.

In a number of our businesses we have a number of projects surrounding solar that despite energy prices where they are today, those seem to be going forward without any deceleration. Also in technology markets we’re seeing some areas like LEDs and low cost computers and a variety of spots where either there is something about the economics in our customers’ world or alternatively where we’ve been able to gain share.

Examples would be in some of the corrugated or folding carton markets that we’ve been able to gain share. New technology to automate the high-speed application of labels on packages. We continue to be able to win with some of our technology driven activities but I guess another area that’s been interesting is within technology, smart phones for example. The shift away from a traditional cell phone to those that can do all the things that we’re now dependent upon like emails and other web browsing.

The investment in the technology to make those phones or the investments to move to the next generation of architectures for things like memory continue to make progress and they’re offsetting broader declines where we see, is it sort of a general description, we see a lot of organizations that are taking advantage of the Christmas shutdowns that are traditional.

In certain industries and geographies you see more of those being extended. You see customers saying that they’re going to wait until after the holidays before they make any judgments on various investment projects. In Asia where Chinese New Year is a very big period of time, you sort of get that, let’s wait until after the Chinese New Year before we make a decision whether we’re going to proceed with various projects.

So the counterforce to a lot of the good things we’re doing is that general wait and see attitude.

Charlie Brady - BMO Capital Markets

Just regarding the cash flow and sort of preference, now we’ve got a share repurchase, a new one in place, preference I’m assuming is to share repurchase relative to acquisitions right now.

Edward Campbell

The share repurchases that we have historically done have had as a base load if you will, the offset to the dilution that might otherwise occur from employee benefit plans. And then we have been opportunistic over time, and this dates back over multiple years, to buying on [dps]. Either to do what I just described, offset those benefit programs, but we exhausted the other program in the early days of 2009 and so what we have is just simply a replacement in capability.

There’s no change in strategy to be inferred by the establishment of a new program.


Your next question comes from the line of John Franzreb - Sidoti & Company

John Franzreb - Sidoti & Company

I might have missed this number but you said you’re pulling back the capital budget, did you say what the CapEx plans were for the year ahead?

Greg Thaxton

We had in fiscal 2008 about $15 million of operating capital and I would anticipate in 2009 we’re going to be below that number. I’d estimate around $12 million.

John Franzreb - Sidoti & Company

And that’s your base maintenance level spending there?

Greg Thaxton


Edward Campbell

I might add that would also be in that some capital associated with new products particularly in our plastic components businesses where there is a certain amount of investment required to introduce new molded products.

John Franzreb - Sidoti & Company

I was just wondering given the difficult operating environment you’re kind of painting there, are there any covenants that we need to worry about in your debt structure that may be stressed anytime in the near-term.

Edward Campbell

We have very traditional bank covenants and I might mention that we have a very attractive revolving credit agreement that doesn’t expire until the middle of 2012 and it has, the principal component is the ratio of debt to EBITDA, 3.5:1 and we’re just over one I think right now.

Greg Thaxton


John Franzreb - Sidoti & Company

Adhesive dispensing, I guess I’m a little surprised about the magnitude of the order drop-off given that that business is supposed to be more stable of the three, could you just talk a bit about what your customers are telling you about their spending plans for the balance of calendar 2009, not so much with what we’re seeing in the near-term, but what kind spending ramp you expect to see or don’t expect to see next year.

Edward Campbell

My observation, and we’ve reached out to our frontline sales people to get a very comprehensive looking of what they’re hearing from customers and if I could generalize, I would say across all of Nordson’s businesses, there are no 12-month plans that are operative right now.

I think as you can imagine, I imagine everybody on this call would share the same sets of questions about what kind of global economy are we going to be looking into six, eight months from now and I think you can have a wide array of opinions.

So there’s not a lot of visibility. I would say that what we do see within adhesive segment to come back to your specific question, is that obviously the purchasing of spare parts is continuing. There is on new capital programs, they are really tied to the specifics of customer plants in the consumer non-durable areas like packaging and non-woven and some of the paper products and so on.

We’re beginning to hear things about new discipline on tangible paybacks in terms of the returns they get for new equipment and some of the new products we’ve introduced have been very helpful in that but frankly as the new methodologies get approved its added steps in the selling and evaluation and improvement sequences.

I would say as a general notion approvals are occurring at higher levels in organizations with less delegated authority down to frontlines that you might see in more normal times. I also frankly have some questions of ourselves in that we did do a very good job of driving sales in the fourth quarter of 2008 and while we don’t have and won’t ever have crisp answers as to whether there’s a degree of the softness that we see in orders in the 2009 outlook, whether some of those actually got sold due to great performance by our frontline people at the end of 2008.

But as a general notion the softness that we’re seeing is in systems businesses, its in areas that are away from the consumer, non-durables and they tend to be directionally projects where customers are changing the manufacturing process as we sell them new methodologies to manufacture their products and that whole change is one that’s being confronted with greater caution by customers.


Your next question comes from the line of Matt Summerville - KeyBanc

Matt Summerville - KeyBanc

With respect to the order declines in advance tech, would you say that that is in fact centered on more the capital intensive larger dollar purchases versus consumables and if so can you give us a sense just how well the consumables piece of that business is holding up and then if you can provide similar color to the adhesive business with regards to what you’re seeing on the replacement parts side.

Edward Campbell

First of all the assumption that’s behind your question on advance tech is exactly correct. The plastic consumables businesses that sell both to material suppliers that in turn sell on to their customers or our direct sales to end users that use our plastic dispensing components are holding up very well and have positive comparisons in the most recent periods, or not down, depending upon the sub unit.

And we’re very encouraged by that of course and these are high gross margin, operating margin business units. With regard to those areas that are soft within advance tech, they are the larger systems and they tend to be sold in, those that have been sold into areas that are, if you will, more traditional aspects of technology markets.

You know, the non-smart cell phone activities, those customers, the contract manufactures in Asia are taking very extended shutdowns over the New Year holidays and up to Chinese New Year. Those shutdowns and the lack in some of the traditional cell phones as an example are causing the need to make capacity or capability investments slower then we’ve seen in prior periods.

And I mentioned earlier some of the bright spots that we’re seeing that offset some of those areas. With regard to the spare part components in the adhesive businesses, which is a big part of that segment, those are holding up well. They vary somewhat by customer to customer. In some cases as customers are anticipating in durable good end markets like kitchen cabinets, if I could use that for an example, some of those areas might be suffering from extended shutdowns, manufacturers of doors and windows and some of those markets are very soft.

And they would be down big percentages offsetting some of the stability that we would see in the non-durable areas.

Matt Summerville - KeyBanc

With regards to what you’ve contemplated in terms of cost reduction measures, you kind of laid out the framework I believe back in August when you reported Q3 for what you intended to do, given the degradation you’ve seen in just general across the businesses as measured by orders in the most recent 12 weeks, is there more you think you need to do there and then can you remind us how much of the anticipated savings you anticipate capturing in fiscal 2009 versus fiscal 2010.

Edward Campbell

First of all, with regard to whether we need to do more, that’s a dynamic issue and there are levels of activity that would cause us to reexamine where Nordson is but we are not at that point today. We have announced a series of actions and the implementation of those actions are well on their way.

Of the, and what we announced was a gross reduction in cost of $30 million and a net reduction of $25 million that would be fully realized in the full fiscal 2010. But I would tell you that of the gross $30 we are basically $20 million through that by the end of this calendar year.

So that starting in January our continuing month-to-month operating results will be reflective of two-thirds of the total work that we need to do. There are some other systematic things that we will do to take cost out, some of those are related to the real estate changes that are implied by the things that we’ve just talked about.

I’ll also mention that the original $30 million that we talked about did not contemplate a wage freeze that we have put in place here in recent days. As a matter of fact internal announcement only went out today. And so that will on an annual rate add another $6 million or so. The duration for which this wage freeze extends, I think we will wait and see but that is a step that we’ve taken here most recently beyond those that we previously announced.

Matt Summerville - KeyBanc

Going back over the last 12 weeks in terms of orders can you give us a little bit of color in terms of what you’re enter versus exit rate was. I guess what I’m trying to get a better feel for is more of the current tempo you’re seeing in regards to order activity.

Edward Campbell

I’ll tell you when the liquidity markets shut down on whatever that day was, September 17, we were having positive order comparisons to last year, and it happened quite suddenly when large commercial paper borrowers were unable to roll their paper and treasury rates went negative and it was a sudden stop and we saw a dramatic change.

It turns out that our 12-week order rate that we’re sharing with you is after that date so the 12-week orders that we have shared with you encompass a period that is inclusive of when all of that started. I would tell you that the first few weeks of the 12-week period thus being September were not as severe as the average overall.

My own sense is that we’re probably in all of our markets seeing a December that is worse if you will then September. I think that, and incorporated into our forecast is a weak January. My personal view is that these stimulus actions and its not one but collectively, there is enormous monetary and fiscal stimulus out there that is tremendous in its force and while there is very little monetary movement right now, there will be a point when it starts to go and I think when it goes it will go very quickly.

I am no expert in terms of when I think this is going to happen but I do expect that these actions will have at some point a very significant effect and it could occur very quickly in the new year.

Matt Summerville - KeyBanc

This relates to pension expense, what do you anticipate your pension expense being in fiscal 2009 versus 2008 as it pertains to the P&L and then any major change in cash pension expense as well, or cash outflow regarding pension.

Greg Thaxton

In terms of the question on expense, we won’t see a significant deviation or fluctuation if you will from what we incurred in the current year. That’s driven by on the one hand, yes, there’s a change in the value of the assets but there’s also a change in the discount rate assumption. So generally speaking its not a significant change from what we saw in fiscal 2008.

And we also won’t see a funding requirement in 2009 of any significance either.


Your next question comes from the line of Walt Liptak – Barrington Research

Walt Liptak – Barrington Research

If we could go back to the cost take-out and understand that you don’t have a second round of actions that you’re doing yet, my understanding is that your manufacturing operations are already pretty leaned out and I guess the question is if you needed to take more costs out if this slowdown continues well into 2009 are there costs that you can take out.

Edward Campbell

We do have flexibility and I think we have shown our ability after the 2001 weakness that we saw in our businesses and the actions that we’ve taken now. There’s always cost that we can take out. We are reluctant to take cost out because frankly we think that the organizations are filled with, if you will, effective operations and talented people and we would frankly look at a variety of other methodologies to reduce cost beyond simply reducing headcount.

But we think that we have methodologies that can be in place. I would mention that we have really clamped down on both capital spending and any hiring. I personally approve all expenditures that are being made and hiring that’s being done and just the normal attrition produces savings as well.

Walt Liptak – Barrington Research

I wonder if you could help with this one, given the cost savings that you’ll get from the actions that are done plus the revenue declines I wonder if you can calibrate the under absorption that you might be looking at over the next couple of quarters, I guess as a negative leverage number.

Edward Campbell

Well clearly its there and I would also tell you that we’re not going to, we’re going to let the demand from our customers drive the velocity of production to our facilities so to the extent that we are producing less this year then we did last year, there will be negative absorption.

You see the gross margin for the quarter that we forecasted 55% from the say 57% numbers that we’ve had in recent quarters. That’s driven by that absorption. But some of the costs that we have taken out offset some of that of course and so we’re looking very keenly at any kind of discretionary spending that can offset that absorption.

But we’re well aware of it and some of the actions that we’ve taken address those issues and we think we always have capability to do things. We’re just going to do it judiciously.

Walt Liptak – Barrington Research

The gross margin that you mentioned, so none of that decline is related to pricing.

Edward Campbell

That is correct. I’m sure here or there, somewhere there might be a pricing action taken but on the other hand we’re very conscious of pricing relative to what’s happening in exchange rates, any other thing that would influence the whole profit equation and we have raised prices in this fiscal year at the beginning of the year in a variety of places and our forecast is reflective of both the benefits of those price increases as well as the absorption issue that you raised.

Walt Liptak – Barrington Research

Do you also do a January price increase, or when do you typically raise prices or has that already passed?

Edward Campbell

We traditionally raise prices, if there is a traditional, at the beginning of the fiscal year so that would be November 1 but in recent quarters as we’ve had fairly dramatic movements in both directions, in currencies, we’ve had movements in raw material cost, there have been opportunities to introduce new products and that creates a new opportunity to address the value equation. We have been more dynamic in adjusting pricing in our businesses around the world in the last year and probably have been for quite a long time before that.

Walt Liptak – Barrington Research

And these are price increases, not surcharges or raw material cost pass-throughs.

Edward Campbell

I think we have a few of those, but the predominant thing we do is we just adjust the price.


Your next question is a follow-up from the line of Charlie Brady - BMO Capital Markets

Charlie Brady - BMO Capital Markets

Just in terms of the spare parts business I know overall for the firm its generally been a little less then 40% but can you just remind us what the sort of after market type of business is for the three segments and then relating to R&D spending, you’ve talked about really tightening down the spending I’m wondering what your mind set is on what you’re doing with R&D spend.

Greg Thaxton

On the spare parts, as you saw for the corporation its slightly below 40%. In the adhesive segment its closer to a 50% kind of number. Advance technology would probably be then just slightly ahead of that corporate average and industrial coating then would be below that number to then get you to the average.

Edward Campbell

And with regard to the R&D spending we have, the focus of our spending on building our businesses is both the traditional development of new products and it would probably in Nordson’s case more tied to the word development then the word research, but its also investments in business development where we are looking to introduce new solutions for customers and it brings a whole variety of things to introduce new technologies, go into new end markets and the like, and those costs are many times they’re not reported in footnotes as R&D but they are every bit investments that we make to drive the future of the business.

And our pay plans for our executive team are tied to developing these new markets and to increase the share of our business that is tied to these new applications, new end markets, driven by technology or just driven by a good application development with customers.

That’s vital to what we do. There may be some proportion adjustments that we’ve made based upon the performance of some of the initiatives and whether they are now part of the mainstream or not but we clearly have not done anything to gut the future of this organization with the actions that we’ve taken.


Your final question is a follow-up from the line of Matt Summerville - KeyBanc

Matt Summerville - KeyBanc

How are you feeling about your own inventory levels relative to demand and then what do you traditionally do around the holidays as far as any normal shutdowns and if there are such a thing, what are you contemplating in light of this environment if in fact your inventories are out of balance with demand.

Edward Campbell

We’ve been alert to inventory builds, I actually don’t have data here with me. But its something we’re very much aware of. Our production philosophies are tied to reorder point philosophies that would say, you sell 10 you make 10 rather then you do anything that’s tied to forecasting and so on.

And as in various products or sub assemblies and the like, if we see diminished demand for certain things we may even shrink some of those reorder points to be smaller in a proportional way. These things generally work very well on the upside as well as the downside but we’ve alerted our leadership teams to really drill down and pay close attention to this because we have no interest—

Matt Summerville - KeyBanc

And then as far as you have been somewhat acquisitive over the last 24 months, have you performed any necessary impairment tests and if so is there anything that’s come out of that one way or the other.

Edward Campbell

We do that impairment test as a part of the year-end audit. That work is done shortly before year-end and there is no impairment in the results that we announced yesterday. With regard to shutdowns, our standard practice is we shut down for a week between Christmas and New Year’s and we will do that again this year with no extension beyond that.


There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

Edward Campbell

Let me summarize if I could, I’d like to leave you with what I think are the take-aways from today’s call. First Nordson had a tremendous 2008 and fourth quarter and it was good by any measure and significantly exceeded expectations including our own.

Second we’re now in a recession that is severe, one that is impacting every geographic market and nearly every end market to at least some degree.

Third Nordson customers are being impacted and in turn, our order rates from them.

Fourth, we believe that year-end holidays and January are going to be an especially weak period of time due to customer extended shutdowns and customer conservatism until after the New Year or the Chinese New Year with a wait and see attitude.

And while visibility is difficult I believe that the extraordinary government actions are likely to have an impact before too long in 2009.

Fifth I’d like to remind you of Nordson’s bright spots; spare parts, used once and dispensed components, non-durable end markets like packaging and non-woven’s, new technologies and cost savings systems like labeling, LEDs, life science, solar, smart phones, low cost computer components, and advanced memory packaging architectures.

And sixth Nordson has started early to deal with these challenges. We have excellent cash flow, excellent liquidity, and cost reductions largely implemented on our way to hitting our $30 million goal.

And I thank all of you for your continuing interest in Nordson and I look forward to talking to you all as we proceed through the quarter. And lastly I wish all of you and your families a very Happy Holiday season. Thank you.

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