Nordson Corp (NDSN) 2008 Q2 法說會逐字稿

Good morning. I will be your conference operator today. At this time I would like to welcome everyone to the Nordson Corporation second quarter 2008 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (OPERATOR INSTRUCTIONS)

Ms. Price, you may begin your conference.

Thank you. Good morning, everyone. This is Barb Price, Manager Shareholder Relations; along with Ed Campbell, Chairman, President and Chief Executive Officer; and Greg Thaxton, Vice President, Chief Financial Officer. We would like to welcome you to our conference call today, Thursday, May 22, 2008, on Nordson's second quarter fiscal 2008 results.

Our conference call is being broadcast live on our web page at www.Nordson.com, and will be available for 14 days. There will be a telephone replay of our conference call available until midnight Monday, June 9, by calling 1-800-642-1687, and you will need to reference ID number 47247543. 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 Ed Campbell for an overview of our second quarter fiscal 2008 results and Nordson's future outlook. Ed?

Thank you, Barb, and good morning to you all. Thank you for attending Nordson's conference call discussing our second quarter 2008 results. My comments this morning will provide highlights of what turned out to be another very strong quarter for Nordson, both in terms of revenue growth and operational performance. In addition, I'll provide some guidance relative to our outlook for the third quarter and some general comments regarding full year performance.

Our second quarter performance generated record sales at $294 million, up 22% from the prior year driven by a volume increase of 15% and favorable currency impacts of 7%. Of the volume increase, the first year effect of acquisitions added approximately 6% with 9% coming from organic growth, a very solid number for our mix of businesses. All segments contributed double-digit revenue growth in the quarter led by Advanced Technology segment gains of 26%, its fourth consecutive quarter of growth in excess of 20%. Organic growth within this segment was approximately 8%, the second consecutive quarter of solid performance on an organic basis, indicating improvements in some of our end markets and revenue growth from new products and applications.

Sales in the adhesive segment grew by 23% in the second quarter, aided significantly by exchange rate movements. But even excluding these effects, volume grew by an impressive 12.5%, with much of the growth generated from our larger dollar per system product lines, such as nonwoven, product assembly, and coating. We did experience a sales volume growth in all of our product lines within this segment. Within the Industrial Coating and Automotive segment, the 10% growth is primarily centered in Europe, Asia Pacific and the U.S. I will remind you that this segment is driven by larger dollar engineered systems and is the segment most sensitive to general economic softness and any associated pause in capital spending.

On a geographical basis second quarter revenue up double-digit growth rates in all geographic markets, except for the Americas, which grew by 6%. This marks the second consecutive quarter with double-digit growth rates in these geographies. Asia Pacific continues to grow at a very rapid pace, where the quarter's growth of 31% exceeds the last five-year average annual growth rate of 27%. The overall gross margin rate of 56.4% in the quarter was in line with our guidance and reflects the sales mix impact associated with larger dollar, lower margin system sales noted in my earlier comments, as well as the gross margin rates of acquired businesses.

Operating profits increased 58% to a second quarter record of $54 million, or 18% of sales, a strong performance for any quarter. On a segment basis, I'm very pleased with the expanded operating margins in both the adhesives and Advanced Technology segments. We returned the operating margin in Advanced Technology to above 20%. Of the 10-point improvement in operating margin, about 4 percentage points reflects reduced purchase accounting effects with the remainder associated with the favorable mix of sales across product lines, as well as improved operating performance in multiple product lines within the segment.

With regard to Industrial Coating and Automotives performance, operating margin is down 1 percentage point as compared to the prior year second quarter due to a higher mix of OEM system sales and higher spending associated with an unusual pattern of trade shows and other activities that fell into this quarter and which we don't expect to see in the third and fourth quarters. For the first half, the segment's operating profit is up 33% on a 9% increase in revenue and management has continuing and active plans to address this segment's profitability. Net income for the quarter increased 58% over the prior year to a second quarter record of $33 million and fully diluted earnings per share increased 59% to a second quarter record of $0.97 versus $0.61 in the prior year second quarter. Lower purchase accounting charges in the second quarter contributed 6% per share -- $0.06 per share, as compared to the prior year's second quarter. Cash-related measure reflected very good performance in the quarter.

Contributions to cash flow were net income of $33 million, noncash charges of $12 million, and working capital of $6 million, resulting in cash from operations of $51 million. Net capital expenditures and dividends were each $6 million in the quarter, resulting in free cash flow of $39 million. Even after dividends, we generated free cash of 118% of net income. This year's free cash was more than three times the amount generated during the same period last year. The current quarter's EBITDA was $63 million, a 43% increase over last year's $44 million. Our debt leverage measured as debt to total capital ended the quarter at 34%, net of cash this ratio would have been 32%. The change in the debt and leverage ratio, which was 40% and 37% net of cash at the end of quarter 1 of fiscal 2008 demonstrates how quickly we tend to delever. In summary, the second quarter's strong performance follows a very solid first quarter, with both quarters generating record sales and earnings.

Let me now turn to some brief comments about our outlook for the third quarter of 2008, as well as the full year. Recent demand as measured by orders, both on a segment and geographic basis has been provided in a press release. In summary, orders for the last 12 weeks ending May 11, measured in constant currency and including acquisitions in both years were equal to the same 12-week period in the prior year. To add some perspective to the segment quarter rates, the Advanced Technology segments 10% growth in orders was fueled by growth in Europe and Asia-Pacific, where orders are up 32% and 27% respectively. This is the third straight quarter of double-digit order growth through the segment, demonstrating growth in both core business, as well as acquisitions.

The adhesives 12-week orders, which are equal to the same period of the prior year are impacted most by a deceleration of orders within the larger dollar, nonwovens and coating systems product lines. Regarding the Industrial Coating and Automotive segment's decline in order rates, I would point out that orders this time last year were up 8%, so we again have somewhat of a difficult comparison in a segment characterized by larger dollar systems which add lumpiness. But as I stated earlier, this is a segment where demand tends to correlate to industrial capital spending. Even with these reduced current order rates, I remain confident that we will see respectable performance within the segment, as management continues to execute on its profitability plans.

With this perspective and order rates, we currently have an outlook for a sales volume increase of 8 to 12% for the second quarter, which includes 2% growth associated with the first year effect of acquisitions. Favorable currency effects should contribute an additional 5% to year to year sales growth, resulting in overall sales growth of 13% to 17% in the quarter. The sales outlook would be a record for any third quarter. Given the mix of products, we should see gross margins around 56% of sales. This outlook results in earnings per share for the third quarter in the $0.91 to $1.01 range versus the prior year's $0.72. Earnings in this range would represent record earnings per share for any third quarter with the $0.96 per share midpoint of this range being 33% higher than the prior year third quarter earnings per share. The strong performance delivered through the first half of the year coupled with this outlook for the third quarter puts us well on our way to a very strong full-year result.

While we have not had the practice of providing guidance for more than the next quarter, I would like to share some perspective on the fourth quarter. Based on current order trends and backlog, our preliminary estimate for revenue growth in the fourth quarter of fiscal 2008 will be between 6% and 10%, inclusive of 3% favorable currency benefits and earnings per share at the midpoint of this revenue range being approximately $1.03 per share. In summary, we're pleased with the results of our second quarter and the outlook for the balance of the year, where we expect to generate record sales and earnings per share.

And before I now just open it up for questions, I guess I would just like to, if you will, go off the notes and make a couple summary comments and how I react to the quarter and where I see that we are right now. A couple things really stand out in my mind. A quarter ago, we were talking about the Advanced Technology segment having operating margins that were down in the 13 or so range and we said that what we needed to do over time was to work to return those operating margins back to 20%. And I'm really pleased that we've been able to do that so quickly. I think just an outstanding performance for that segment in the second quarter.

The second highlight that stands out in my mind is, is the cash generation of this business. We have grown EBITDA in the-- in this year's second quarter over last year by 43%, and the free cash flow after dividends, after capital expenditures and working capital and the like is just very strong. I mentioned 118% in net income after those outlays, and comparing it to a year ago, we're triple the free cash generation. I think that's just really great. And then if I look at the profitability of the business, to put some of the numbers that we've talked about in perspective, our SG&A as a percentage of sales for Nordson was 38% in this second quarter. If you compare that to where we have been, you have to go all the way back 28 years to 1980 to find a year when we had SG&A that was at this kind of a level of sales.

The team here has done a very good job of controlling costs while growing revenue, and that correspondingly has produced operating profit of 18.4% in the quarter and, again, you would have to go back in this case to 1989 to see a full year that would be running at those kind of rates. And as I look at the guidance that we've shared for the third quarter and the preliminary estimates for the fourth quarter, and if you work through that arithmetic and assuming we hit those targets, the same kind of relationships in terms of SG&A to sales and profitability, operating margin to sales and so on, will be repeated and I think we'll be able to look back to full year comparisons this year to those years that I mentioned that we're really just generating some super performance. So I have to stop here and give my compliments to our team. I think they have really executed. And with that, we're happy to open this up for questions and comments.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of John Franzreb with Sidoti and Company.

Good morning, Ed. Just stellar results today.

Thank you, John.

Compared to your initial guidance, what was the biggest variance in the quarter? What business exceeded expectations, compared to what you were thinking, say, three months ago?

Well, if I compare where we finished the quarter compared to the high end of guidance, we were just on a volume basis 0.7% of a percentage in growth rate above that high end of the guidance. I think in terms of execution, we saw adhesives probably coming in a bit stronger than we had expected. They were above our own midpoint of our estimates. No doubt, Advanced Technology produced for us at levels that were consistent with our best expectations. And then on top of that, from an earnings point of view, we clearly had currency, was a nice tail wind and that added very good boost to earnings per share that took us up a bit. We also, as I mentioned, with cash flow and the benefit of lower interest rates compared to what we might have expected, the cash flow was strong and correspondingly, we benefited in terms of interest rates and the like. Then lastly, we did a good job in spending. So on -- we really had good performance coming from a number of different directions.

And do you think the Advanced Technology margins, is it sustainable at this 20% cost threshold? Do you think it's going to be lumpy kind of a margin quarter to quarter this early on?

Well, I think the margins that we produced are consistent with the kind of volumes that we shipped. And we -- from a source of that widened margin, clearly we had, we had a good mix in terms of one set of product lines to the other. We had strength in Asymtek. We had strength in EFD, and those were obviously favorable. We had good and improving performance from the acquisitions and so we had a lot of things operating in that regard. I think the biggest determinant of whether we'll sustain those margins, or see changes either better or worse, is going to be, for the most part, volume driven.

Okay. One last question, you kind of referenced in your order discussion that the larger jobs are what's holding back what's going on in adhesive and industrial as far as the order book. Can you kind of talk about what you're seeing there? Is there some sort of a global equipment spending trend going on that we should be cognizant of? Just talk about the larger jobs and why there is maybe a little bit of weakness going on there?

Well, the areas that have driven the good order growth that we've seen in the first part of the year, even I think in the tail end of 2007 were focused in those businesses are orders tend to be quite large and that's being the nonwoven adhesive systems that are used for the assembly of baby diapers and feminine hygiene products. And likewise the orders for large coating systems, which are very large, laminating systems, using hot meld adhesives that tend to have very high ticket prices, long lead times and the like and these often times will come in, particularly the nonwoven systems they will tend to come in a pattern that might be associated with a large producer looking to recapitalize their production capability or in connection with the introduction of new products that they may be rolling out in various geographies across the world. That tends to be the source of the variability we occasionally see. This is a business where we have very good market positions and we saw in the orders in recent months and shipments as well good activity in North America and so as you look at the geographical relationship within our orders, you'll see that some weakness that's crept into the U.S. and a portion of that is the same determinant that has caused our adhesive orders to be lower in the most recent reporting period than we had previously. There's nothing though, I think to answer your question more directly, there's nothing that I see associated with a shift in global patterns or anything like that. I think it's more about the buying patterns of the particular customers than it is a macroeconomic driver.

Okay. Thank you, Ed.

Your next question comes from the line of Charlie Brady with BMO Capital Markets.

Thanks, good morning. Ed, congratulations. Obviously phenomenal results and you should feel pretty proud of that, as I imagine you are.

Thanks Charlie.

I had a question, on the margins on the adhesive dispensing, they are obviously really good margins, but you're also talking about having a mix of the lower margin, larger project business embedded in there, and so I guess my question is, this level of margin, it sounds as though -- if we're not going to have these lower margin products -- how long do we have these lower margin products in here because it sounds as though the margins might have a tendency to move even above where they are at now once that mix shifts a little bit to less of the larger project business?

I think that's a fair question. We've got a couple different countervailing forces in there. As you note on the second page of the schedule that's attached to the press release, we had very favorable currency in this segment as well, as a large portion of the systems we sell are sold in international markets and that has a favorable benefit not just to revenue, but also to gross margin, and net operating margins. And then the force going the other way, of course, is the mix within the products that we're selling within that segment in the sense moving against us. And so we were able, the volume, the extra volume, as well as the currency effect more than offset the unfavorable mix. If we can have the same volume, the same currency with a different mix of products, you are absolutely right. There's significant additional operating and gross margin opportunities, but I think what we're talking about is less of a shift in the mix of these products at the same revenue, so -- same revenue growth rate, but rather a portion of what drove our growth were these lumpy sales and I think the deceleration that you see in the order rate and correspondingly the volume growth rate that's embedded in our outlooks that we shared for third and fourth quarter are associated with some of these large systems orders are not associated with the period that we forecasted as much as they were in the prior periods.

Thanks. That's helpful. Can you expand upon your comment with regard to the Industrial Coatings business to the things you're doing to improve the margins there?

Yes, the -- it is more about the operating margins than it is necessarily about the gross margins, but it's a portion of that. These are businesses that are located in, in our Ohio campus and it's an area where we have been active in looking at the, how we can better utilize the investment embedded in that campus and we have activity under way to reduce some of the costs in there associated with how we operate. We also have been looking at the totality of the product line and focusing upon those portions of the product line that have best advantage to expand their emphasis and correspondingly for the portions of the various components that go into that, that maybe there's areas that we could deemphasize. And that then gives us ability to correspondingly adjust all of the support systems within the product lines in a consistent way, that at the end of that -- those shifts would make us be more efficient.

We also have been about introducing some new products that in their introduction were a portion of the spike in spending that we had in this past quarter and there's a lot of excitement about these products. We've introduced these at shows around the world in recent periods, and we expect that the profit performance of this growth with the shifts to the new products, the reaction that we're getting and those things I talked about in terms of operating expense all add up to a better level of profitability than we would otherwise have at any level of revenue.

One final question and I'll get back in the queue. On the SG&A expense, you commented about the sort of how far back you have to go to see a level that low, but you also commented you had found some head winds on additional costs on trade shows in coatings that aren't going to be repeated. I guess my question goes to sustainability of SG&A at the Q2 level, at least as a percentage of sales.

Yes. Well, I think that the comment that I would repeat is that presuming when we hit these forecasts that we have laid out, we're within that range and I would think that these relationships would be consistently sustained.

Thanks, again. Great quarter.

Great. Thanks, Charlie.

Your next question comes from the line of Matt Summerville with KeyBanc.

Couple questions. First, Greg, can you quantify what the FX benefit was to EPS in the second quarter and then remind us what it was in Q1, and then if we go back to Ed's outlook for the third and fourth quarter, what kind of EPS contribution you have embedded in that from currency.

Yes, Matt, this is Greg. What I can say about quarter 2 is FX benefit to the high end of our EPS guidance was about $0.05. Now, we did have, as Ed mentioned, some benefits with declining interest rates on our debt that added about $0.02 to the top line and then lower SG&A as well was another benefit, as Ed called out. In quarter one, currency added about $0.06 to our earnings.

So it actually added less in the second quarter?

What I'm reconciling to -- I'm sorry, my second quarter comments is to our top end of guidance.

Okay.

In the total, Matt, the foreign exchange this year as compared to last year was $0.12 a share in earnings per share impact in quarter two. That number was $0.06 in quarter one.

Yes.

Okay. And then in the back half of the year, do you have something similar as to the $0.18 in total in the first half, or are you using a number less than that?

We're using a number less than that. If you look at the currency, the currency gain on the revenue growth in the third quarter is at about 5% and in the fourth quarter is about 3%.

Okay, all right. I just wanted to verify that. I think I probably know the explanation, but I would like to just dig in a little bit, Ed on the sequential decline in the overall backlog.

Yes, the, the backlog end of quarter one as I recall, exchange rates at that time, something around 131 million and we're now at these exchange rates 121 million. In a sense it's -- you look at the volume that we shipped, we ship 9% volume and we had orders, depending upon the order dates don't exactly line up with the reporting period, but we talked about in constant currency 8% order growth during the first quarter's conference call and 0% order growth in the most recent period looking backwards. So it's -- in my mind, not surprising that the backlog came down a bit, particularly some of those large engineered systems jobs, the coating jobs, for example, that were in adhesives that were a portion of our shipments in quarter two. These are jobs that are literally in the backlog for periods approaching a year and so some of the growth that we had in orders in the first half of 2007 are products that were being shipped in the most recent quarter.

Okay. That's kind of what I thought. Turning to Advanced Technology, how do you feel about the sustainability of the organic growth you've experienced through the first half of the year? And then I guess what has, what has to happen for that to accelerate? And then I just want to see if there's consistency around what you're hearing from your key customers and then around Advanced Technology that would reconfirm your prior statement that you think '09 is going to be more robust than '08.

Well, first of all, there's a variety of different factors that we look at in looking at our expectations for Advanced Technology. First of all, if I start with the macro, and I will immediately give a caveat that in our experience and present observations, we oftentimes perform at different levels than some of those macro trends you get when you look at Gartner Group and some of those. But nevertheless, we do operate in some aspects of some of these broader markets and it's always interesting to look at what they have to say.

The most recent Gartner Group forecast would indicate that the market for semiconductor capital equipment is very weak right now, primarily focused in DRAM, capital equipment. There was a real, I think in a lot of people's minds, an excess of capital spending to build the capacity, to build the volume of memory that's being shipped and now there is a, not only of capacity, but also of inventory. Good for Nordson. We hardly operate in those areas today. I think over time going forward, we're going to see major changes in the architecture of how memory is assembled that will significantly benefit Nordson and the technologies that we bring to those markets, but as of today we are not being impacted except in some minor ways. We are much more focused to capital equipment necessary to assemble the processors and the boards that are used in products like cell phones, other handheld devices, and personal computers. And for example in cell phones, there's the macro numbers you see on cell phones that people probably tend to be most familiar with, but the reality is cell phones are getting significantly more capable. These cell phones are now coming with bluetooth capability, camera assemblies are getting into a higher percentage of phones. There are tuners being put in, TV tuners and the like in cell phones in certain markets of the world. There are GPS systems that are being embedded in cell phones. Every one of these are subassemblies that are requiring the entirety of what's going into a cell phone to be significantly more concentrated in assembled with architectures that we use.

I recently saw a report that took a leading brand name cell phone apart, where they compared what one of these cell phones looked like in a most recent assembly versus what they might have looked like a number of years ago. A number of years ago you might have seen one flip chip on these cell phones. The cell phone that we saw in this analysis had 25. And you're talking about huge multiples of concentration of architectures that come our way. And we're just seeing an awful lot of demand for capability to put these, increase these systems into phones.

Now, as to 2009 versus 2008, I'll remind the group that we did introduce at the very beginning of fiscal year 2008 into Asymtek an entirely now line of products, with an eye towards gradually obsoleting prior generation platforms and what we're enjoying right now is very robust demand for the new systems by very important customers and frankly very robust demand for the old systems, people who want to make sure that they have lots of those systems before we obsolete those. And we're blessed with very good demand on both sides, if you will. And being driven by those same forces that I mentioned.

Our visibility beyond some key customers that share with us their own forecasts so that they can ensure that we're ready for them when they are ready for us is not great. We look at, if you will, conversational things that we have with important end markets. We're aware of projects that are being worked. We're aware of a lot of things that are evolving and things like advanced packaging from memory that today is all traditionally wire bonded type assemblies and we just feel a lot of reasons for optimism. But we also recognize that these things can, like a lot of Nordson's business, be lumpy from time to time. Our visibility out one quarter's good. Beyond that one quarter and important key customers, it becomes less robust in terms of its precision. And we probably react in our forecast as a result of that.

Okay. With -- just sticking with the Advanced Tech business, can you talk about outside of the absence of inventory step-up costs what kind of operating margin improvement we've seen out of the businesses you've bought recently?

We have seen a mix. We have one of the four companies, and I'm not going to get into specifics just for competitive reasons, but we've had one of those four businesses that has had significant growth in volume, in corresponding benefits and the arrangement of their P&L. At the other extreme, we had a business that's primarily U.S. centric and it has suffered from weakness that's been specifically associated with some advanced technology weakness for businesses that are headquartered in the U.S., customers headquartered in the U.S. Our Asian businesses have been strong in Advanced Tech. And generally we're seeing expanding performance in the P&Ls as a result of that.

Okay, and just one final -- actually two final questions. First, what's the tax rate we should be using for the full year? Has that changed? And then Ed, can you quantify what you thought the excess spend was in industrial coating in the quarter?

Sure. As Greg is grabbing the tax rate, the extra spending rate is in the order of $1 million.

Okay.

And the tax rate, Matt, is consistent with what we're seeing here in the second quarter, about 35.5%.

Okay, great. Thanks a lot, guys.

Thank you.

(OPERATOR INSTRUCTIONS) And your next question comes from the line of Bob Schenosky with Jefferies.

Good morning.

Good morning, Bob.

Good quarter. First, just one housekeeping note, CapEx estimate for the year?

Full year estimate for capital expenditures from operations would be about $21 million.

Okay, great.

And as we've articulated in the past, we'll have some spending throughout the quarter associated with real estate.

Okay.

Through the second half of the year.

Through the second half of the year.

Right, okay. And then just -- I want to clarify on the FX comments you made on the quarter, Ed. You said there was $0.12 in currency benefit in earnings. Is that all translation, or you also mentioned interest rates, so could you break that out?

I'm sorry. This is Greg. That $0.12 is all currency benefit. It's not inclusive of the benefit from the interest rates.

Okay, thanks. You've been quite clear on the AT demand into next year and also the second half of this year. But what about the other two segments and related CapEx spending, given macro concerns, commodity prices? Are you getting any indications at all from your customers in terms of them wanting to pull back some CapEx decisions?

No, it's something that I've asked regularly of our guys as we get together to try to understand. I think we have seen some conservatism of people in the industrial coating customer markets. Those are the markets that, typically things that are painted with powder are made with metal and you're talking about durable goods that have a variety of end of market locations that are consistent with where we see weaknesses within the U.S. And embedded in our forecast for the third quarter is a decline in revenue associated with industrial coating activity, but we have some, some sense that the, that business can have an improved fourth quarter, unlike the dip that we see in the third quarter. With regard to adhesives, we have less types of visibility and less observations around those kinds of patterns to back away. We've had generally across all of the product lines good performance in the product lines within adhesives. These are businesses that have lots of orders and to lead times other than those large systems that I've talked about earlier tend to be very short. Products that are relatively standard and that we ship within a couple few days from the time we get the orders, so we tent to be more momentum focused in our own internal forecasting. The end markets that we're selling to tend to be much less associated with durable good products that our customers are making with our systems, and so we don't expect, nor have we specifically observed the kind of things that we've seen elsewhere in the economy and within ICA in particular.

Okay, thanks, Ed. And are you able to delineate any further for us the strength that you've seen in Europe by geography? I mean certainly it's a big dichotomy there with strength in Germany, but some other countries showing pretty extreme weakness now because of several issues?

Yes, I think our pattern would not be unlike the things you read about from various sources. Southern Europe is, for the whole '90s, Southern Europe is what really drove demand and Northern Europe struggled. And here of late, it's been the inverse of that. Germany and the adjacent countries have been doing well, and some of the Mediterranean countries have struggled a bit more. The UK's economy has been mixed as well.

Okay, and then finally, given the strength in cash flow and the balance sheet that you have, can you talk about acquisition strategy for the back half of this year and into '09?

I'll talk about a strategy, Bob. Obviously we've got a very strong cash position. If you look back over the last five years, we've obviously concentrated our spending in 2007, but if you look out over time, we're spending -- the needs of our business for reinvested cash are not huge, and so we have an ongoing expectations of ourselves that we're going to find acquisition opportunities of high performing companies that because of their unique market positions or technologies are going to deliver revenue and earnings growth and levels of profitability that are at or better than what we would average as a corporation overall. That strategy defined companies of that nature that bring us into new end markets or geographic markets, or that we can bring them into those new markets are something we search for, always looking for a way to ensure that we're adding value and we're not just simply investing in areas where we cannot add that synergistic boost of performance. In terms of what we will find, I can't project. We have an active ongoing look. I think that the level of sellers out there looking to, at their initiative to sell businesses is not as high as it was a couple years ago. I think there's a bit of wait and see attitude in many business owners. But on the other hand, we're very active in trying to find ways in which we can identify companies that we can establish relationships and do things to build a plan, particularly an entrepreneur founder's plan at the time that they look to retire from their business with a partner that they are going to work with in terms of selling that business.

Okay, great. Thanks.

Your next question comes from the line of Gregory Macosko with Lord Abbett.

Hi, Ed, stellar quarter.

Thank you, Greg.

Could you just remind me, a little bit on the third quarter with regard to Advanced Tech, I mean the margins clearly were tremendous. Where did they stand in the third quarter and just relative to a, on a comparison basis?

I don't have, Greg, a specific operating margin to share with you for the third quarter, but--.

No, last year, excuse me.

Oh, last year's third quarter?

Yes. Excuse me, excuse me.

That's okay. We'll grab that for you in just a moment.

Then with regard to the order growth as well, there was a bit of a tougher comparison in some of the sectors. I mean just, again, remind me how -- what those comparisons on order rates looked like in those three sectors for third quarter of '07.

The orders, looking at the order pattern, we had a year ago, and I don't have those sheets in front of me, so I -- because I'm drawing on memory here, but the adhesives and the industrial coating and automotive business segments a year ago had very strong orders around this time of the year and in fact, if you -- if we could look at a graphical pattern of these orders across the fiscal year 2007, you would see some humps that existed there in the mid part of the year and we're kind of driving into those humps as a point of comparison right now. And then the order rates in these segments were softer in the final four months or so of the fiscal year and at the rates that we're running at now, if we just maintain those rates, we'll go from flat comparisons to positive comparisons. There's always a bit of seasonality and that's not to say that we might not have, on a sequential basis some softness as we get into the summer months as we have in some years, but there is clearly a hump that we're having to compete with as we compare this year's dollar order rates compared to one year ago.

Yes, good. And the margins for the comparison on the Advanced Tech?

Yes, Greg, the Advanced Tech margins in the third quarter of '07 were 14.1%.

And the fourth, do you have that?

And the--.

He will momentarily.

I will in just a minute.

We have last year, I will caution that last year's operating margins in Advanced Technology had within them these purchase accounting effects. For example, in quarter two, it was about $0.08 a share. I think in quarter three it might have been something like $0.05 a share and maybe $0.01 or so in quarter four.

Right.

And so that is going down now, what we're seeing here? That's less now in the current quarter, is that right?

Yes, we picked up $0.03 a share. No, $0.06 a share. Pardon me, $3 million. $0.06 a share in the second quarter.

In the second quarter. And $0.05 in the third quarter.

Okay.

And the prior year fourth quarter was 15.5%.

Okay. So they have been progressing steadily, nicely.

Yes.

Okay. Thanks very much, Ed.

Thank you, Greg.

At this time, there are no questions in queue.

Okay, operator. Well, thank you. Last quarter when we had this conference call, we got that notice from the operator and I thanked everybody and hung up and I later heard from some people that you didn't give us a chance to push the button, so I guess as they sometimes say, this is the last call. But as I give folks an opportunity to consider whether they have more, I again just want to reiterate that we feel real good about the momentum that this business has. We have a good solid look at the third quarter. It's less clear for the fourth quarter, but we wanted to share with you an outlook for the fourth quarter so that you could get a sense of the momentum and the pace of business that we see. I think if you look at the currency that we've shared, 3% on revenue, we don't know what it's going to be. That may be slightly conservative, but we will leave it to you to do your own currency forecast. But we thank you all for your attention. Operator, are there any more questions?

No, sir, not at this time.

All right. Well, then we'll call it a day. Thank you all very much. Look forward to having the same conversation with you in three months. Bye-bye.

This concludes today's Nordson Corporation second quarter fiscal year 2008 results. You may now disconnect.