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Nordson Corporation (NASDAQ:NDSN)

F1Q2012 Earnings Call

February 24, 2012; 08:30 am ET

Executives

Mike Hilton - President & Chief Executive Officer

Greg Thaxton - Senior Vice President & Chief Financial Officer

Jim Jaye - Director of Communications & Investor Relations

Analysts

Mac Muirhead - Longbow Research

Matt Summerville - KeyBanc

Liam Burke - Janney Capital Markets

Kevin Maczka - BB&T Capital Markets

Charles Brady - BMO Capital Markets

Jason Ursaner - CJS Securities

Walter Liptak - Barrington Research

Operator

Good day ladies and gentlemen and welcome to your Nordson Corporation webcast for the first quarter fiscal year 2012. 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. (Operator Instructions).

I would now like to introduce your host for today’s conference, Mr. Jim Jaye. You may begin sir.

Jim Jaye

Thank you Kevin. This is Jim Jaye and I’m here with Mike Hilton, our President and Chief Executive Officer; and Greg Thaxton, our Senior Vice President and Chief Financial Officer. We’d like to welcome you to our conference call today, Friday, February 24, 2012, Nordson’s first quarter 2012 results.

Our conference call is being broadcast live on our webpage at www.nordson.com/investors and will be available for 14 days. There will be a telephone replay of our conference call available until midnight Thursday, March 1, by calling 404-537-3406. You will need to reference ID number 507-26-541.

Our attorneys have requested we open this call with the cautionary statements 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’ll have a question-and-answer session.

I would now like to turn the call over to Mike for an overview of our 2012 first quarter results and a bit about Nordson’s future outlook. Please go ahead Mike.

Mike Hilton

Thank you Jim and good morning everyone and thank you for attending Nordson’s first quarter 2012 conference call. Overall we delivered solid performance in the quarter, performance in line with our exceptions. Our global team remains focused and continues to execute aggressively. I want to thank all of them for their ongoing efforts.

In addition to our comments on the first quarter, we will also provide some perspective relative to our outlook for the second quarter of fiscal 2012.

Starting with the first quarter, as anticipated conditions in some our end markets and geographies were challenging during the quarter. Nordson does not appear to be an outlier in this regard, as many industrial companies have reported similar near term challenges in recent weeks. The good news is that Nordson still delivered solid results in the quarter and the fundamental strengths of our business model are intact. Those strengths include innovative technology, application expertise, highly effective direct sales and service model and our global capability.

Sales volume grew by 2% in the quarter over the previous year and we delivered operating margins of 22%, excluding non-recurring items. The operating margin is well above our pre-recession level and is inclusive of continues improvement and other strategic investments that will drive growth and performance for Nordson over the long term.

As a reminder, our first quarter is typically our weakest from a sales perspective, which does impact our operating margin. Earnings per share in the quarter, excluding non-recurring items was in line with our guidance.

In terms of our outlook, order trends over the last 12-weeks are down about 3% from the very strong period of recovery in the same 12-week period a year ago. Clearly some end markets and geographies continue to be impacted by near term economic uncertainty.

Orders are showing resiliency on a sequential basis, which is reflected in the 16% sequential increase, represented by the mid point of our second quarter sales guidance.

Overall the fundamentals of our business are solid and as we suggested in our December earnings conference call, we anticipate better year-over-year growth in the second half of our fiscal year. Most forecasters still predict GDP growth for the year and the second half is typically a stronger capital cycle for many of our customers.

Let me turn the call over to Greg Thaxton, our Chief Financial Officer, who will provide a more detailed commentary on our first quarter financial results, as well as some comments on our guidance for the second quarter of 2012. Greg.

Greg Thaxton

Thank you Mike and good morning to everyone. As Mike noted, our financial results for the first quarter were solid. Sales in the quarter increased 2% over the prior year. The sales improvement included a 4% increase related to the first year effect of acquisitions, offset by a 2% decrease in organic volume. The effects of currency translation were neutral as compared to the prior year.

Looking at segment performance, adhesive dispensing delivered sales volume improvement of 2% over the prior year’s first quarter. Organic volume decreased less than 1% over the prior year as the overall improvement was driven by acquisitions. Relatively strong growth otherwise in the segment was offset by the timing of customers buying patters associated with our non-woven’s product line, which tends to be larger dollar systems where the timing of a couple of orders can impact quarterly growth.

Sales volume in the advance technology segment was up 4% over the previous year’s quarter. The first year effect of acquisitions drove the increased volume, as organic volume decreased 3%, where softness and non-dispense product likes offset growth in our dispensing product lines.

Within the industrial coding segment the volume decreased by 2% compared to the prior year, primarily driven by softness in European durable goods end markets. We delivered growth in most all other regions within this segment.

Moving down the income statement, gross margin in the quarter was 61.4%, in line with the prior year. From an operating perspective we continue to perform at a solid level, while also making investments in the business that would drive future growth and performance. These investments included headcount and supported growth, as well as incremental product and market development investment and investment in our continuous improvement initiatives.

In addition to this spending, our first quarter is at the time of the year for recognizing compensation and benefit increases. And as Mike noted, our first quarter is generally the softest from a revenue perspective, so any additional volume in future quarters should provide considerable leverage and operating margin.

With that said, reported operating margin for the quarter was 20% or 22% excluding one-time items in the quarter. On a segment basis, adhesive dispensing continued to perform at a very high level and delivered operating margin of 34%, even as we continued to invest in multiple initiatives, including our nearly completed consolidation of U.S. facilities.

Excluding the one-time charge in the quarter impacting the adhesive segment, the operating margin was 35%. The Advanced Technology segment’s operating margin in the quarter was 16% or 19% excluding one-time charges and Industrial Coating’s margin for the quarter was 3%. Operating margins in both the Advanced Technology segment and the Industrial Coating segment were impacted by lower organic sales volume and increased strategic investment in the areas I noted previously.

Continuing down the income statement, reported net income for the quarter is $38 million or 14% of sales and inclusive of $3.7 million pre tax of one-time charges. And first quarter diluted earnings per share were $0.58 in the quarter. 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.

Earnings per share, excluding one-time items were $0.62 per share in the quarter. The current quarter’s EBITDA was $65 million and first quarter free cash flow before dividends was a strong $36 million.

As an additional comment regarding cash flow in the quarter, we continue to demonstrate our ability to fund multiple strategic initiatives. We remained active in our share repurchase program as we bought $46 million of shares during the quarter, at an average price of $43.52 per share. An additional $8 million was returned directly to shareholders during the quarter in the form of dividends.

Our balance sheet remains very strong with net debt to trailing 12-month EBITDA of less than one and we have sufficient capacity for future strategic investments.

Before moving on to our second quarter outlook, I’ll provide comments on recent order trends. 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, with fiscal 2011 acquisitions included in both periods.

Looking at orders for the 12-weeks ending February 19, 2012, they are down 3% compared to the same 12-weeks in the prior year. On an annualized run rate basis, current 12-week orders are $1.2 billion.

Within the Adhesive Dispensing segment, orders are down 1% to the prior year. Solid growth in our packaging product line serving non-durable end markets, is being offset by softness in general product assembly systems sold into durable goods end markets.

Advanced Technology orders over the latest 12-weeks are down 3% from the prior year, where order growth in the automated and manual dispense product lines has been offset by soft demand in surface treatment and some test-and-inspection product lines.

Within the Industrial Coating segment, the latest 12-week orders are down 10% as compared to the prior year. On a global basis, softness in durable goods end markets served by this segment is impacting segment results.

Overall, a relatively soft macro economic environment, coupled with a backdrop of tighter credit in certain geographies, has impacted order rates in certain end markets across each of the segments as compared to a period of recovery a year ago.

Turning now to the outlook for the current year’s second quarter, we’re forecasting sales to be in the range of $313 million to $326 million. The sales outlook indicates a range of down 2% to up 2% as compared to the second quarter a year ago. This range is inclusive of organic volume of down 4% to flat, 3% growth from the first year effect of acquisitions and a negative 1% currency translation impact, based on the current exchange rate environment. At the mid point of this range, sequential growth is 16% over our first quarter.

We expect gross margin to be about 61.5% in the quarter and operating margin to be approximately 26% for the quarter at the midpoint of our sales range. We are forecasting an effective tax rate for the quarter of approximately 30.5%, resulting in diluted earnings per share that are expected to be in the range of $0.83 to $0.91 per share.

In summary, our first quarter performance was solid and played out much as we expected. Our team continued to execute worldwide and we have continued to make strategic investments to drive ongoing growth and enhanced performance. Our current order rates reflect customer caution in some end markets and geographies.

Our outlook for the second quarter is another quarter of solid performance, with strong sequential growth providing leverage that will drive operating margin to the 26% level at the mid point of our guidance.

Mike Hilton

Thanks Greg. Before moving on to your questions, I would like to provide some additional comments on our recent order trends and outlook. While recent orders were not as strong as we’d hoped to see, there are some positive takeaways.

First, our recent order trends put us at a full year run rate of approximately $1.2 billion. This is about the same pace we reported in our December earnings call and still a very solid level considering that it coincides with the softest part of the year. Let me remind you that the most recent 12-weeks orders include the impact of holidays on plan operation and the end of the capital cycle for many of our customers.

Second, I’ll highlight the macroeconomic conditions we are seeing are in line with the recent views expressed by many other industrial companies. In the period following Nordson December earnings report, several companies have since reported results and in general those results and views reflect near term choppiness, a fairly conservative outlook for the first half of 2012 and some acceleration beginning in the second half of the year. This is consistent with the outlook that we discussed during our December earnings call and we are still seeing today.

From a substantial standpoint as Greg said, we are gaining momentum. As we expect second quarter sales at the midpoint of our guidance to increase by about 16% over this year’s first quarter. As we have demonstrated in the recent quarters, there is considerable leverage in our income statement, where the sequential increase in sales should result in a sequential increase of nearly 40% in operating profit, excluding one-time charges in both quarters.

In terms of the macroeconomic view, uncertainty persists in some geographies and end markets, resulting in order rates that are below the longer term rates we would expect in a more robust GDP environment.

The U.S. economy has not yet returned to full strength and clarity surrounding European economic backdrop is yet to emerge. In developing markets growth remains strong, though it’s pace is moderated. While these factors have caused some customers to remain cautious in the near term, the global economy is still expected to grow in 2012.

We will continue to make strategic investments in our business to propel future growth and performance and we are well positioned to continue winning in the end markets we serve. We have significant recurring revenue derived from parts and consumables, excellent positions in consumer non-durable spaces, rapid growth opportunities associated with mobile and other electronic devices and multiple avenues for expansion.

Our future is truly bright and we will continue to build our market leading positions by providing our customers with the best products, support and service available anywhere. Above all, we have an outstanding global team and I am confident they will continue to deliver at a very high level.

At this time we will be happy to answer your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Mark Douglass with Longbow Research.

Mac Muirhead - Longbow Research

Good morning gentlemen. It’s Mac Muirhead. I’m on for Mark this morning.

Mike Hilton

Good morning Mac.

Mac Muirhead - Longbow Research

Thanks for taking my call. Lets see; this is kind of quick question. What is the mix of parts versus equipment this quarter?

Mike Hilton

Yes, it’s up a little bit from where we were a year ago. So it’s I think on a reported basis probably around 49%. If you look at sort of excluding the recent Value Plastics acquisition with consumables being the fundamental large part of that acquisition, it’s about 48%. So it’s up a bit as what we typically expect in the first quarter, given that capital investment tends to slow down and systems orders tend to slow down around the holiday period.

Mac Muirhead - Longbow Research

Okay. All right, great. Now, I was wondering if you could take us through Advanced Tech a little bit, the markets what your seeing, the weakness. If you’re kind of in an order trend, kind of a bottom in those markets and what you’re expecting for the rest of the year.

Mike Hilton

Yes, so let me make a couple of comments there. It’s not too different from what we said really in our last call, kind of the tail of – two parts of the business. Anything that’s kind of focused on mobile devices, Smartphones, tablets, still remains pretty strong and anything that’s related to more fundamental sort of desktops, laptops, servers has been pretty soft and that plays out across our businesses in different ways, depending on the emphasis, but at a higher level that’s what we’re seeing and the softness has been mainly in the sort of normal typical PC environment.

And our EFP area generally strong in most parts of our business. The part that goes into fluid formulators for the construction environment has been a little bit soft and our medical base has been pretty strong and kind of on track. So, it feels kind of mix across, but I’d say it’s largely the traditional backend packaging for the PC, laptop, desktop market that’s been pretty soft.

From an industry perspective, I think most analysts expect that that’s kind of a first half of the year phenomena, and that things start to pickup in the second half of the year, that’s sort of the industry analysts view and it will be consistent with what we are seeing from an order standpoint, at least in terms of the softness right now in that part of the...

Mac Muirhead - Longbow Research

Okay, great. Thanks a lot. I’ll jump back in the queue.

Mike Hilton

Okay.

Operator

Our next question comes from Matt Summerville of KeyBanc.

Matt Summerville – KeyBanc

I think it was maybe in Greg’s comments. He mentioned that (inaudible). Well first, was it a shipment or an order that got pushed to the right. Will that then fall into your fiscal second quarter and I guess, can you give us some sort of order of magnitude and will this influence the mix in the second quarter at all?

Mike Hilton

Hey Matt, this is Mike. I think what Greg was trying to say is, if you look at our business in adhesives, the non-woven piece in particular tends to be larger systems and timing year-over-year relative to last year. We had some larger systems hit in that first quarter, we didn’t see as many in this first quarter and so we would expect over time that’s going to pickup. So it wasn’t one particular order that was pushed. It’s just that – and the timing of those tend to be one larger orders and bigger systems and they come in groups and year-over-year we had a difference there; they can have an impact on the revenue.

Matt Summerville - KeyBanc

Okay. So there’s a year-over-year difference. Is that indicative of customer demand or more just lumpiness in timing?

Mike Hilton

That’s more lumpiness in timing. Certain geographies were really strong in this quarter in that same area and then others were a little softer and it’s really just timing, it’s not a fundamental concern that we have around that part of the market. This is all consumer non-durables and pretty steady.

Greg Thaxton

And Matt, this is Greg. A point that’s being made there is kind of the more run rate packaging business was holding up fairly well in the quarter. It was more this larger dollar that tends to follow a line expansion or larger dollar investment that was impacting the quarter.

Matt Summerville - KeyBanc

Mike, on the last conference call you sort of – to your comment towards the end here, recent order trends maybe not as strongest you had hope. I think you had sort of laid out a view that may be things trended somewhat soft heading into Chinese New Year. You get beyond Chinese New Year and you see a nice re-acceleration.

Was there any discernible change between – kind of if we use that as imaginary line? Was there any discernible change leading up to that versus kind of the incoming order rates since then?

Mike Hilton

Yes. We definitely saw customers in the couple of weeks, even before Chinese New Year tell us that they were just going to hold off and we have seen orders pick up and come back post the Chinese New Year.

Now, as we go into this next quarter, we had a big ramp up from an order perspective and a revenue perspective last year, so we’re up against tougher comps, but we definitely saw the Chinese New Year effect and we started to see orders come back and certainly bid activity come back.

Matt Summerville - KeyBanc

Does it feel like that business is back to a more normalized level or still depressed off whatever normalized means?

Mike Hilton

I think it varies across the aspects of the business. I’d say if you talk about the sort of most of our adhesives type businesses that go to consumer non-durables it’s pretty normal. If you look at things like product assembly that tends to go into construction and durable goods, it’s still not where we’d like to see it and the same thing for our coatings business, where we saw significant impact from the slowdown around the capital side.

Now the capital cycle for the coatings business tends to start kind of towards the end of January and going forward as people get their capital budgets approved and our bid activity is solid.

Advanced Tech is a little bit different cycle in and of itself and well – and that’s from a geographic standpoint where we saw the biggest impact from an order perspective in Asia, because a lot of those traditional backend packages are there and a lot of that serves the more general PC, laptop, desktop kind of market and that’s been soft.

Matt Summerville - KeyBanc

If you look at your order rates, you’re obviously coming off some very, very tough comparison. Those comparisons I would say begin to ease in Adhesives a bit and Advanced Tech, not so much yet in Industrial Coatings, but the comps there are starting to get easier, perhaps more normalized. What’s your level of confidence that you start to see year-over-year order growth beginning when we get this next data point from you.

Greg Thaxton

Yes, I think if you saw last year just from a revenue standpoint as I said, strong quarter in the second half and that was underpinned by strong orders coming into the quarter and a strong backlog. So I think we are still looking at a tough comp in this next quarter and our view is assuming that the comp is still right and the economy grows at a reasonable level, say 2.5% globally this year, then we should see at the back half of our year, a better economic environment.

I’d say, compared to where we were three months ago, U.S. probably looks a little more encouraging, Europe probably looks a little less encouraging, but overall I think most people are looking at that kind of 2.5%, 3% rate. So if that happens we should see improvement in the underlying market conditions in the back half and if the tech forecasters from an industry perspective are right, we would also start to see some more of that basic PC buy comeback in the second half as well. So I think we are optimistic.

Matt Summerville - KeyBanc

So it sounds like though, at least for the second quarter it’s going to be tough to get positive order growth until you get in the back half. Am I understanding that message correctly?

Mike Hilton

Yes, just because I think we are up against a very, very strong comp last year. I mean the movement from first quarter to second quarter last year was well beyond the typical movement that we normally see.

Matt Summerville - KeyBanc

Fair enough. Thanks a lot Mike.

Mike Hilton

Yes.

Operator

Our next question comes from Liam Burke with Janney Capital Markets.

Liam Burke - Janney Capital Markets

Good morning Greg.

Greg Thaxton

Good morning Liam

Liam Burke - Janney Capital Markets

Greg, just quickly, your CapEx year-over-year stepped up. Is that just a seasonal timing issue or is there something significant in the change?

Greg Thaxton

Yes Liam. We talked about in the last quarter that we thought our CapEx on a full year basis would be about $25 million and that we were going to have, for lack of a better word, some lumpiness with some in’s and out’s of buildings, where we’ve talked about consolidating from four to two facilities in Atlanta, for example. So this quarter reflects about $4 million associated with new building in Atlanta.

What you’re going to see eventually is the sale of some existing facilities. So our building and our facility footprint rationalization will cause some of this lumpiness, but our normalized CapEx is pretty much on track with that full year $25 million.

Liam Burke - Janney Capital Markets

Okay great. And on the ATS side, you did talk about the biomedical being on track, you did talk about the puts and takes on the electronics. Could you talk a little bit about some of the pockets like flip-chip and LED? How those smaller businesses are doing?

Mike Hilton

Yes, so the general technology move towards flip-chip continues to progress and obviously that supports most of the mobile devices, so with the up-tick in Smartphones and tablets, that’s moving ahead nicely in that part of the business and so our systems orders for example are solid in the ASYMTEK business as a result of that.

But as I said, there’s a sort of more generic and you saw this from folks like Dell and HP. They are seeing the impact of a softer sort of market environment and some conversion to that tablet piece and that’s fallen through into more of our test and inspection area than sort of the systems area.

Liam Burke - Janney Capital Markets

Great. Thank you.

Operator

Our next question comes from Kevin Maczka with BB&T Capital Markets.

Kevin Maczka - BB&T Capital Markets

Hi, good morning.

Mike Hilton

Hi Kevin.

Greg Thaxton

Good morning Kevin.

Kevin Maczka - BB&T Capital Markets

In Adhesives, such a strong start to the year. I know you talked about having maybe some favorable mix, but also absorbing some of this growth spending there. I guess can you just clarify, did that growth spending trial off from here and is there any reason to think this isn’t the low watermark for the year?

Mike Hilton

So, we have planned spending throughout the year. We are being cautious as we said in the last call. Most of which we are actually seeing right now is spending that was incurred in terms of resources we added in the second half of last year, with the exception of some initiatives around product development for example. So, as the economy improves, we may do some more things, so you could see some things come in, but we are going to be cautious and air on the side of conservatism.

So what I would say is the mix is very favorable in this period of time, between our various businesses, within Adhesives and in terms of the part systems mix as you typically see in the first quarter. So that part system space will change over time and we will be hopeful that we’ll start to see more of the product assembly, orders come back later in the year, s that will have an effect as well.

But from a spending standpoint, we do get the impact of the merit increases and some benefit costs increases in this quarter and that is part of what you are seeing right here.

Greg Thaxton

Yes. And Kevin, this is Greg. I’d just say it on the spending side. So absorbing the full year effect if you will of the new hires last year and our typical merit increase, guess this is a spending base. I think this is a pretty consistent level that you’ll see going forward. Clearly if the revenue line is growing at a faster pace, you’re going to see some appreciation and spend that kind of moves with revenue, but this is a pretty good base to assume going forward.

Kevin Maczka - BB&T Capital Markets

Got it and can you say a little bit more, I guess on the flip side about the Industrial Coating margin. We had similar revenue here as we did a year ago, but much lower margin. I may have missed it, but was there a big mix issue here, which was a negative whereas Adhesives was a positive?

Mike Hilton

Yes, let me just comment on that Kevin. I would say there is a modest mix issue, but more of the volume being off a significant leverage here. So there’s probably about a point that’s associated year-over-year, with just sort of volume being lower.

Our merit increases and benefits relate to pensions from other post retirement kind of issues, had a couple of point impacts. So I guess sort of three points there that are sort of year-over-year. And then there is two percentage points that were largely, again high as last year, at the second half of last year for strategic initiatives, primarily in two areas emerging markets.

So think about that as places like China, Brazil, particularly to support our tiering strategies there and some product development activities around new technology, so that’s sort of another couple of percent, so that sort of explains I think the key differences there. But volume more than mix was an impact in the first quarter and in the other two as I described.

Kevin Maczka - BB&T Capital Markets

Got it. Mike, I know you don’t guide margins explicitly, but I mean given everything you just said, should we be thinking that the full year margin in that business can approach what you just did in 2011 or given that we start the year at 500 points, in the whole that is kind of not realistic.

Mike Hilton

It really comes down to what are we going to see from the volume perspective. As you know, we’ve taken a lot of cost out and we’ve got a little bit back here with the specific structured initiatives that we think in the long term will drive considerable growth in the business. But if we see the volume come back we should see volume leverage translate into significant margin improvement and our hope is that we’ll start to see some of the systems orders pick up in that business as we get into the next few months and beyond.

Typically budgets get approved in January and orders start to get led beyond that and I wouldn’t say that bid activity is very solid in that business. So we’re helpful that we are going to see that come back and maybe assuming that the global economic environment delivers a 2.5% or so, we should see positive volume that would then translate into margin improvement and leverage. So we are hopeful that we’ll get back to the kind of margins to our own goals for this business.

Kevin Maczka - BB&T Capital Markets

Okay. Thank you.

Operator

Our next question comes from Charlie Brady with BMO Capital Markets.

Charles Brady - BMO Capital Markets

Hey, good morning guys.

Mike Hilton

Good morning Charlie.

Charles Brady - BMO Capital Markets

Well, with respect to Adhesive Dispensing, can we just get the mix of parts just for that segment? I know you gave it out from the company as a whole.

Mike Hilton

It’s not too different. I’d say the mix effect has probably been less the part systems piece in that business and more for example packaging and less product assembly. I think as we described in the past, product assembly tends to be more engineered from a systems standpoint and so there’s more sort of SG&A support to get that right and that is why the orders haven’t come through at this point and packaging has been pretty solid. So it’s been more of a mix there. Overall parts and systems is probably slightly higher.

Greg Thaxton

Yes Charlie, consistent with what we’ve said in previous quarters, Adhesives tends to be slightly higher, but again the range between that segment and the others is very narrow. So total company was in that 49% and Adhesives was about 50% I’d say.

Charles Brady - BMO Capital Markets

Okay thanks. That’s helpful. And then if we look at the orders, the 12-weeks you gave, I wonder if we can get a sense of what the order run rate looked at the end of the quarter given that the Chinese New Year came right towards the end of the quarter and you said you’ve seen an acceleration. I am just trying to I guess really gauge the velocity of acceleration coming out of Chinese New Year?

Mike Hilton

Yes, I would say while its up it’s not a dramatic change. What I was trying to describe is you have three months there, November, December and January and you can think about the first part of January slowing prior to the New Year and then coming out of that, stepping up, because your really only talking about a week coming out of the New Year. So not a lot of data, but I would say we are encouraged by what we are seeing from bid activity and orders.

Charles Brady - BMO Capital Markets

Great. Thank you.

Operator

Our next question comes from Jason Ursaner with CJS Securities.

Jason Ursaner - CJS Securities

Good morning.

Mike Hilton

Hi Jason.

Jason Ursaner - CJS Securities

Greg, on the 61.5 gross margin for next quarter, what’s the assumption you are building in there for mix and traditionally how does the second quarter compared to the back half of the year from a systems parts point of view?

Greg Thaxton

Yes, typically as we move through the year, you might expect to see some dilution in the gross margin as the volume that comes into the business tends to be more of a systems based than spare parts. So you tend to see some dilution as you move from first quarter in towards the back half of the year.

Of course, it’s also dependent upon what the segment growth rates are and then the product line growths within the segments, so we don’t have generally a wide variation as it is in our business, but you do tend to see some dilution as you move from quarter one through end of quarter four.

There’s a slight impact in our first quarter and that we had about $2.2 million of one-time purchase accounting charges that did hit cost of goods sold, that goes away next quarter, but generally you don’t have a very broad swing throughout the year, there is some dilution effect.

Mike Hilton

And what your seeing and what we will expect is sort of the volume leverage that’s coming on, as the second quarter sets up to offset the dilution and kind of hold the number in a tight range.

Jason Ursaner - CJS Securities

Okay. And can you talk a little bit about the key currencies that impact the revenue translation and then from a cost perspective, how close are you to matching costs, so that you don’t see a leverage effect on margin?

Greg Thaxton

Yes Jason, it’s Greg. The key currency is first the euro and then the yen. From a cost perspective, we have gotten more balanced than we were say five years ago in trying to match those costs, but we do have still our primary exposure against the euro.

Jason Ursaner - CJS Securities

Okay. And on the share repurchase, I know you re-upped it a couple of times. What do you have left on the authorization at this point?

Mike Hilton

Yes, as of today we have about $15 million left under our existing authorization.

Jason Ursaner - CJS Securities

Okay, and then just a last question; you guys had a board member who I guess was a member of the family who retired in February. What do you see as the Nord family involvement going forward at this point?

Mike Hilton

So we have a proxy out right now, where we have two proposed new directors for the Board, neither of which is a family member. So at this point, we don’t anticipate a Nord family member being on the Board in the near term going forward. Obviously, they still own across the family a significant number of shares and we treat them like any other significant large investor in terms of what we communicate, nothing different than we communicate publicly to others, but in terms of participation on the Board, at least for the near term, there’s not a family member on the Board.

Jason Ursaner - CJS Securities

Okay. Thanks a lot. I appreciate the commentary.

Operator

Our next question comes from Walter Liptak with Barrington Research.

Walter Liptak - Barrington Research

Hi. Thanks and good morning.

Mike Hilton

Good morning Walt.

Greg Thaxton

Hey Walt.

Walter Liptak - Barrington Research

I want to ask a follow-on too about the second quarter guidance. Are you expecting another charge in the second quarter?

Greg Thaxton

No Walt, we have – it’s about $300,000 of remaining charges for the Atlanta restructuring, but it’s not significant.

Walter Liptak - Barrington Research

Okay, got it. And just a follow-up on the discussion about the laptop and desktop market for the electronic segment, what percentage of sales is that? My understanding is that was fairly small, but maybe it’s larger than I thought.

Mike Hilton

Yes, if you look at it, sort of mobile and general is probably a third of the electronics part of the businesses which is within Advanced Technology and sort of the more typical laptop, desktop, server piece is also about a third and then the last third is a combination of some of the niche markets like NANDs, LEDs, solar and an array of other smaller markets, so it’s not insignificant Walt.

Walter Liptak - Barrington Research

Okay, and that’s you mentioned x-ray inspections, surface prop, those are primarily the kind of products that are used in desktop, laptop?

Mike Hilton

Yes, they play across all, including the mobile piece, but if you look at the mix of that business, it might be a little bit more towards the things like the treatment of PC boards and some of the bond testing and so forth, that might be more typical of what you see in a desktop or a laptop.

Walter Liptak - Barrington Research

Well, I understand, so there’d be some ASYMTEK that would be in there.

Mike Hilton

Yes.

Walter Liptak - Barrington Research

At least for laptop, desktop, okay. Okay and just switching gears to Value Plastics, did you say that 4% of total company sales was related to the acquisition or was it 4% of the Advanced Tech segment?

Greg Thaxton

We’ve got two acquisitions Walt that are impacting as we look at the first year effect. We’ve got both the Verbruggen acquisition that falls within the Adhesive segment and then Value Plastics that falls within the Advanced Technology segment.

Walter Liptak - Barrington Research

Okay. Can you break out the revenue between both of those?

Greg Thaxton

Well, what we talked about when we acquired those businesses that revenue in Value Plastics was kind of $26 million, $27 million and Verbruggen was in the $10 million range on an annual basis.

Walter Liptak - Barrington Research

Okay. Well, I guess my question is on Value Plastics, what kind of growth are you seeing out of it? I know it’s early, you haven’t owned it that long, but how is it performing?

Mike Hilton

So, we are on track with our plan for the year Walt. I think the areas that are encouraging I’d say are kind of some new products that we are introducing, so we are encouraged by that. We have some good plans in place to expand geographically and to expand in the industrial space, but it will take some time for those to play out and probably a more modest impact this year, but we are generally encouraged about what we see in that business, relative to what we thought.

Walter Liptak - Barrington Research

Okay. And then switching again just to cost out, my understating was that outside of the planned consolidation that there was more corporate initiatives and I wonder if you can provide us with any metrics of SG&A or what those initiatives are and how those are tracking?

Mike Hilton

Yes. So in the category of sort of overall supply chain optimization we talked a lot about Adhesives and our Atlanta activity, but we are doing some things more modestly in Europe. We mentioned before that we are expanding in China in our Tech space and we’ll have some benefits that play out next year, associated with better matching supply and demand. We are moving some things around that will help.

We’ve got initiatives around what I call pricing and margin enhancement that are based on segmentation work, some of that is simplifying the portfolio, some of that is selectively moving prices. We are doing some work on our new product development activity there, geared mainly to free up more resources to do more development.

This year we are taking a look at our overall logistics approach and spending and what we do there. There is some structuring from a Advanced Tech standpoint in Asia that we are looking at that could have some benefit, so our point was we’ve got some bigger projects that we are looking at that will play out over the next couple of years and at the same time sort of reenergizing our day-to-day improvement by adding tools like Sigma to our strong and lien foundation and so we’re getting some traction on some smaller activities there that will build over time. So we’ve got a good pipeline of larger activities that’ll play out over the next couple of three years.

What you’re hearing from us is there are some spending on the front end, either because there’s some restructuring that we need to do or because we’re getting some help and working through our approaches to manage these things and we’ll see benefits coming forward.

We mentioned the Adhesive benefits should start to flow through in the second half of the year; the technology supply chain piece is probably more of a 2013. Again, we’ll see some modest benefit from pricing and margin enhancement this year and more to come in the out years and some of those other initiatives will layer in beyond that. So, we feel pretty good about having a robust portfolio of options there.

Walter Liptak - Barrington Research

Okay, and I can follow-up with you on that one, but can you give us an idea of corporate expense for the rest of the year?

Mike Hilton

Yes. Well, I think corporate expense in the quarter was about $8 million. That’s probably a good number to assume going forward, of course depending upon how robustly the top line grows. You’ll see some associated increase in that, but as a base number, that’s a good number to go with.

Walter Liptak - Barrington Research

Okay, and if you don’t mind, just one last one. Someone mentioned LED and I wonder if you can just give us an update on where we would mask commercialization? Is the revenue growing? What kind of revenue are you generating at this point?

Mike Hilton

Yes, I would say that’s still pretty modest. We are still in the kind of the sample equipment out there, supporting the technology development. 2012 looked like more continued on that path and we look to see a ramp start in 2013; that’s kind of the high-level industry projection and that’s what we are seeing at the moment.

We are seeing nice activity and we talked about last time in the NANDs sort of niche market, everything from industrial to medical, automation, to the auto industry starting to improve and increase its use of those items, as well as obviously the Smartphones, tablets etcetera, helping drive that, so that right now is pretty flat.

Walter Liptak - Barrington Research

Okay great. Thanks.

Operator

Our next question comes from Matt Summerville with KeyBanc.

Matt Summerville - KeyBanc

Just a quick follow-up on share repo. Greg you mentioned you had $15 million left as of today, so could you also give us your share count as of today, and then will you guys seek to go back to the Board and reload that in a similar fashion to what you did actually not too long ago.

Greg Thaxton

Yes Matt, I don’t have the share count number as of today. We can get back to you on that, but in terms of going back to the Board, I think just fundamentally it’s good to have an authorization in place on an ongoing basis. We want to continue to look to offset the dilution effect of benefits and have the opportunity to be opportunistic when the time may present itself.

So I think its just good practice to have an authorization in play. So should we consume the capacity of this particular authorization, I would expect that we would be approaching the Board for another authorization.

Mike Hilton

If you look at some of our priorities and use of cash, we clearly want to support our economic growth and some of the improvement initiatives that we have underway and we obviously will want to continue to support our dividend approach and our strategy of increasing that over time and would like to add the acquisitions that make sense to the portfolio.

We’ve said in the past that we had also balanced the timing and the opportunities there with perhaps a more opportunistic as Greg said, and aggressive approach to share repurchase. So I think that’s something we’ll always, as Greg said, want to have in terms of options available.

Greg Thaxton

And Matt, just to comment on the outstanding shares. At the end of the quarter, what I can say is we had 65,065,000 outstanding and then common share and common share equivalence was 65,627,000.

Matt Summerville - KeyBanc

And then Mike, maybe since you brought up the topic of M&A, kind of where are you with M&A kind of going forward? What does your pipeline look like? Are you looking to deal similar to Value Plastics? Are you looking for deals – I guess when I say that, I’ll say more generally, in the medical life sciences, biomaterial type area and if transactions in your pipeline are similar in size, similar in multiple, can you just kind of update us on that?

Mike Hilton

Yes, what I would say is, as we said before, four areas that we are interested in. We certainly have mentioned that doing more in the flexible packaging space is something that we are interested in and Verbruggen was the first step there to kind of get our feet wet and we are looking at other opportunities in that space and they are kind of more typical industrial kind of multiples.

We’ve also said that between Adhesives and coatings there is an area we call cold materials, but it’s a more viscous fluid deposition that might be more product line additions to things that we already do today, again, more of an industrial play that we are interested in. We have mentioned more in the testing and inspection space, electronics and closely adjacent and probably that’s more of a electronics or technology kind of multiple space.

On the medical side we are looking at dispense, so more like Micromedics and we are looking at components like Value Plastics and to a lesser extent I’d say high value contract manufacturing. But I think in the near term we are probably looking at more things that would be kind of complementary and roll up in a fragmented area in there and those tend to be higher multiple in the medical space.

So we are looking across that portfolio. I’d say we have a pretty robust portfolio, but you can’t count on the timing when anything is necessarily going to come through and so that’s I think where share repurchase comes in as a nice balance.

Matt Summerville - KeyBanc

Great.

Greg Thaxton

And I’d just add to that comment. From an organic growth opportunity, one area of focus kind of across the segments is the opportunity to have a larger play in what we would call the mid-tier spaces of our end market. So where you generalized, we are very good and have a very strong presence in what you call the top tier of the products, particularly in emerging markets.

We think there is a growth opportunity in a tier just below that, that might require new product development efforts and some investments on our part, but we think there is a good growth opportunity in those spaces and there could be some technology that gets acquired there or some capability that’s acquired there that complements organic development.

Matt Summerville - KeyBanc

Thanks Mike. Thanks Greg.

Mike Hilton

Operator, we probably have time for about one more question.

Operator

Okay. Our next question comes from Charlie Brady with BMO Capital Markets.

Charles Brady - BMO Capital Markets

Just sneaking a follow-up here into the wire. Just can you remind us on the Advanced Tech side of the business, you guys aren’t heavily weighted towards one major manufacturer, like Apple or Samsung or Nokia then any others, is that correct?

Mike Hilton

There is nobody that has more than sort of 5% of our business, but there are certain customers that we feel pretty good about being part of their supply chain and they are sizable customers, so there is nobody more than sort of 5% from a revenue standpoint of the business.

Charles Brady - BMO Capital Markets

Got you and then just on the supply chain in general, are you seeing any raw material shortages or bottlenecks in the supply chain right now?

Mike Hilton

As it relates to our equipment, no. I think you’ve heard from some of the PC manufacturers that they’ve had some hard drive issues related to the Thailand floods that have affected them. I think Intel called that out; I think HP called that out; I think Dell called that out, so there is probably some impact on the ultimate demand there. We are not seeing anything as it relates to materials that will support our equipment.

Charles Brady - BMO Capital Markets

Thank you.

Mike Hilton

Okay.

Operator

And now I’ll turn the call back over to Jim Jaye for closing comments.

Jim Jaye

Thank you Kevin and thank you all for attending our call today. I’ll be available throughout the day if you want to send an email or call me with any other questions and as always, I appreciate your interest in Nordson. Thanks for attending.

Mike Hilton

Thank you.

Greg Thaxton

Thank you.

Operator

Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day.

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