Nordson Stock Exhibits Strong Prospects Despite Persisting Headwinds

Nordson Corporation NDSN is gaining from its diversified business structure, which helps mitigate the adverse impact of weakness in one end market with strength across the others. Strength in the optical sensors and measurement & control businesses is aiding Nordson. Also, strong customer demand for the nonwovens, packaging and consumer non-durable product lines is a boon to the company. Driven by strength across its businesses, NDSN anticipates sales to be in the range of $650-$690 million in the second quarter of fiscal 2025 (ending April 2025), implying an increase of 2.9% at the midpoint on a year-over-year basis.

NDSN solidified its product portfolio and leveraged business opportunities through asset additions. In the first quarter of fiscal 2025 (ended January 2025), acquired assets boosted the company’s total revenues by 8%. Nordson acquired Atrion Corporation in August 2024. The inclusion of Atrion’s three major businesses — Halkey Roberts, Atrion Medical and Quest Medical — will enable NDSN to expand its medical offerings in the infusion and cardiovascular therapies market. Management expects the buyout to offer significant operational synergies when combined with its medical business expertise. 

In August 2023, the company acquired ARAG Group and its subsidiaries. The acquisition expanded Nordson’s core capabilities in precision dispensing technology, helping it foray into the rapidly growing precision agriculture end market. ARAG is part of Nordson’s Industrial Precision Solutions segment.

Nordson’s commitment to rewarding shareholders through dividends and share buybacks is encouraging. In the first three months of fiscal 2025, the company paid out dividends of $44.6 million, up 14.8% year over year. In the same period, it bought back treasury shares worth $60.1 million. In August 2024, the company hiked its dividend by 15% to 78 cents per share. This marks its 61st consecutive year of dividend increase.

Downsides of NDSN

The company is experiencing weakness across its segments. Lower demand for polymer processing and industrial coatings product lines is ailing the Industrial Precision Solutions segment. Also, decreased demand for medical interventional product lines due to continued destocking is negatively impacting the Medical and Fluid Solutions segment. Softness in electronics processing and x-ray product lines is affecting the Advanced Technology Solutions segment’s performance.

Nordson has been dealing with the adverse impacts of rising operating costs and expenses. In the first quarter of fiscal 2025, the company’s selling and administrative expenses rose 3.2% year over year due to rising acquisition costs. The impact of these expenditures is evident in the rise of selling and administrative expenses, as a percentage of total revenues, which climbed 190 basis points to reach 31.7%. This had an adverse impact on the company’s operating margin in the fiscal first quarter, which declined 230 basis points year over year to 22.9%. Escalating expenses, if not controlled, might pose a threat to Nordson’s bottom line.

In the year-to-date period, this Zacks Rank #3 (Hold) company’s shares have lost 3.9% compared with the industry’s 6.2% decline.

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This article originally published on Zacks Investment Research (zacks.com).

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