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December 17, 2020 09:48 AM

Nordson says Xaloy sale took 'strategic discipline'

Catherine Kavanaugh
Staff Writer
Plastics News Staff
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    Nordson

    Nagarajan

    The Xaloy brand of screws and barrels garnered a lot of respect after 91 years in the market with products that pioneered the use of bimetallic materials to improve the performance of a wide range of plastic processing equipment.

    But the Xaloy line didn't meet a new internal portfolio review platform set up by Westlake, Ohio-based Nordson Corp., which is selling the business unit to the Chicago-based private equity firm Altair Investments Inc.

    "Our decision to divest the screws and barrels product line was based on critical insight gained from this data-driven segmentation approach. Realigning our portfolio is another step forward to position Nordson for long-term profitable growth," Nordson CEO Sundaram Nagarajan said in a Dec. 15 fourth-quarter conference call.

    Nordson posted sales of $559 million for the quarter, a 5 percent decrease compared to the prior year's $585 million, but it was the best quarter of this fiscal year, which ended Oct. 31.

    For the year, Nordson sales were $2.1 billion, a decrease of 3 percent compared to the same period a year ago, "which is commendable in this environment," Nagarajan said.

    Nordson's new review process, called NBS Next, aims to improve the bottom line by guiding business decisions with "strategic discipline" in the company's Industrial Precision Solutions and Advanced Technology Solutions segments.

    "This data-driven, customer- and product-segmentation approach, which we refer to as 'strategic discipline,' identifies where we create the greatest value for our customers. It is the new capability that our team is learning," Nagarajan said.

    Xaloy was in the IPS segment, which makes equipment to dispense plastics, adhesives, coatings, sealants and biomaterials. Sales of $308 million were down about 8 percent compared to the prior year.

    However, company officials note the strategic portfolio transaction required a one-time, noncash asset impairment charge of $87 million. Excluding this and other nonrecurring charges associated with cost structuring and amortization of the step-up in acquired inventory, adjusted operating profit was $130 million, or 23 percent of sales.

    Without Xaloy in the mix going forward, IPS leaders will focus more time, energy and resources on their differentiated and profitable product lines.

    "This action exemplifies the power of NBS Next," Nagarajan said. "Identify our business goal. Simplify the areas that distract you from focusing and growing with your full strength."

    In the ATS segment, which saw sales increase about 1 percent to $250 million, the focus is on test and inspection product lines, where sales are growing, and medical products, where demand has been stable.

    Those two end markets have been offsetting weaker demand in fluid dispense product lines for industrial end markets.

    The test inspection business is doing "extremely well" with double-digit growth in large part from the electronics market. Sales are being driven by demand for advanced components in semiconductors and camera modules. Some of the semiconductor demand can be attributed to the mobile side of 5G infrastructure.

    However, there's a new trend of digital acceleration driving the supply chain: a contact-free economy, according to Nagarajan.

    The CEO told investment bankers to recall a decade ago.

    "Nordson benefited by this incredible mobile revolution where you went from about 30 million phones to about 1.5 billion phones. It was an incredible time of change in mobile technology," Nagarajan said, calling the mobile revolution was a once-in-a-lifetime kind of event.

    Going forward, mobile sales growth will be "much more normal," he added, and newer technologies will advance.

    "This virtual, contact-free economy is continuing to grow, which is leading to digital acceleration of infrastructure in capabilities. Certainly all of this adds to supply improvement and order trends across the supply chain," Nagarajan said.

    In the medical business, order rates remain stable in a dynamic environment. Some parts of the business were hampered by the cancellation of elective surgery, while others, like fluid components and single-use products, are doing really well in the biopharma end markets.

    "In the long term, all of the drivers, the aging population, single-use component, outsourcing of medical device components — all of those are intact," Nagarajan said. "As things normalize, we will return to mid- to high single-digit kind of growth for this business, and that's our expectation."

    Nordson officials said they ended the last fiscal year with a backlog of about $416 million, an increase of 5 percent compared with the prior year. The trailing 12-week order entry is 5 percent above prior-year levels.

    Based on the current order entry trends and backlog, Nordson expects the fiscal 2021 first-quarter sales growth to be 2-3 percent, with adjusted earnings growth in the range of 15-20 percent compared with the fiscal 2020 first quarter.

    Company officials declined to give full-year guidance at this point, however, saying they may do so by their investor day.

    "It remains a dynamic environment, and our business conditions are changing frequently as the world responds to the challenges of a resurging COVID-19 virus. Given these factors, we're not providing annual guidance at this time," Nagarajan said.

    Nordson also is planning a "virtual day" on March 30 to share more details about its long-term plans and product portfolio.

    "This fiscal year we did not just weather a challenging macroenvironment; we advanced a long-term strategy and achieved solid financial results," Nagarajan said.

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