Nordson Corp (NDSN) 2010 Q4 法說會逐字稿

Good morning, my name is Shannon and I will be your conference operator today. At this time, I would like to welcome everyone to the Nordson fourth quarter and fiscal year 2010 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) Thank you. At this time, I would like to turn the call over to Mr. Jim Jaye, Director of Communications and Investor Relations. Mr. Jaye, you may begin.

Thank you, Shannon. This is Jim Jaye. I'm here with Mike Hilton, our President and Chief Executive Officer and Greg Thaxton, Vice President and Chief Financial Officer. We would like to welcome you to our conference call today, Thursday, December 16, 2010, on Nordson's fourth quarter and full fiscal year 2010 results. Our conference call is being broadcast live on our web page 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 December 23, by calling 1-800-642-1687. You will need to reference ID Number 28755988.

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 Mike for an overview of our fourth quarter and fiscal year 2010 results and a bit about Nordson's future outlook. Mike?

Thank you, Jim. Good morning, everyone. And thank you for attending Nordson's fourth quarter 2010 conference call. Our comments this morning will describe our strong performance in the fourth quarter along with our results for the full year which were a record on many fronts. We will also provide some perspective relative to our outlook for the first quarter of fiscal year 2011. Let me begin by offering some highlights on the fourth quarter. Overall, we continue to win in the marketplace by focusing on the customer and differentiating ourselves from the competition through technology, unmatched application expertise, a highly effective direct sales and service model and our global capability. Sales grew by 22% in the quarter over the previous year with improvement in all three segments and every geography. At the same time, we remain disciplined in managing spending and maintaining our lower cost structure. This combination of sales growth and operational excellence led to the highest levels of quarterly operating profit and diluted earnings per share in Nordson's history and concluded an outstanding year for Nordson. Our ability to capture returning demand worldwide drove sales to more than $1 billion, an improvement of 27% over 2009. And our clear focus on our new cost structure resulted in the highest level of operating margin in over 25 years. Operating profit, net income and diluted earnings per share all exceeded our previous full year records.

In terms of our outlook, order trends as compared to the prior year remain positive in all segments and geographies and will support a strong start to the year. We recognize, however that the global economic environment is still somewhat uncertain and demand in certain of our end markets is difficult to forecast. I will offer additional comments relative to our outlook. But before that, let me turn the call over to Greg Thaxton, our Chief Financial Officer, who will provide more detailed commentary on our fourth quarter and full year 2010 financial results as well as some comments on our guidance for the first quarter of 2011. Greg?

Thank you, Mike, good morning to everyone. As Mike noted, our financial results for the fourth quarter were very strong. In fact records on several measures. Sales in the quarter were up 22% over of the prior year with volume growth of 23% offset by unfavorable currency effects. Sales growth was strong in all three of Nordson's operating segments. The Adhesive Dispensing segment delivered volume improvement of 9% over the prior year's fourth quarter. With growth in all product lines and most pronounced in product assembly end markets. In terms of geographic strength, Asia-Pacific, the US and Europe delivered the strongest performance. Volume in the Advanced Technology segment was up 43% in the fourth quarter over the prior year. As has been the case for several quarters, demand was broad based across all product lines including manual and automated dispensing, surface treatment and test and inspection. We recognized double digit sales volume growth in nearly every geography. Volume also continued to improve in the Industrial Coating System segment driven by the ongoing return of system orders. Sales volume grew 38% over the prior year's fourth quarter, the third consecutive quarter of sequential growth. As in our other two segments, this growth was broad based geographically and included all product lines although most pronounced in powder systems.

Moving down the income statement, gross margin in the quarter was 58.7% in line with our guidance and 100 basis points over the prior year due to a lower cost structure and better absorption which more than offset a less favorable mix. As we look at operating performance in the quarter, the 25% operating margin is the highest quarterly level in more than 25 years and is driven by the Organization's ability to maintain the structural improvements of 2008 and 2009 while capturing returning demand. This combination led to operating profit of $73 million, an all time quarterly record. On a segment basis, the Adhesive Dispensing segment delivered outstanding operating margin in the quarter, up 33% consistent with the last couple of quarters and up from 29% in the prior year's fourth quarter. Advanced Technologies operating margin increased to 25% in the quarter as compared to 16% a year ago. Within Industrial Coatings operating margin improved significantly on both the sequential and as compared to the prior year, increasing to 17% as our restructured organization served growing demand for systems worldwide. This is an improvement of more than 11 percentage points over the prior year's fourth quarter and a 5 percentage point improvement sequentially. The references to both Advanced Technology and Industrial Coating operating margins exclude the impact of impairment charges booked in the fourth quarter of 2009. For all segments the improvement in operating margin is clearly the result of returning demand and our ability to meet this demand with an improved, more efficient cost structure.

Continuing down the income statement, net income for the quarter is $54 million or 18% of sales. And fourth quarter diluted earnings per share were $1.56, the strongest fourth quarter performance in Company history. The effective tax rate in the quarter was 26.7%, and included various one time items totaling approximately $2.5 million or $0.07 per share. As in previous quarters, we have included an earnings per share reconciliation schedule in our earnings press release to help reconcile between GAAP earnings and normalized earnings per share to exclude certain one time items. For the current quarter, earnings per share, excluding the one time tax items and a charge related to restructuring activities, as adjusted were $1.50 per share. This is a record for any quarter and compares to $0.90 per share for the prior year's fourth quarter excluding one time items. The current quarter's EBITDA was $81 million and fourth quarter free cash flow before dividends was a strong $67 million. As an additional comment regarding cash flow in the quarter, we continued our share repurchase program where we bought $11.2 million of shares at an average price of $68.37 per share. And an additional $7 million was returned directly to shareholders during the quarter in the form of dividends.

Our balance sheet remains very solid with debt to trailing 12 month EBITDA of well under one and sufficient capacity for strategic investments. On a full year basis, sales were $1 billion in fiscal 2010, an increase of 27% over the previous year. Volume increased by 25% and the favorable effects of currency translation added 2%. Operating profit for the year was $235 million. Net income was $168 million. And diluted earnings per share were $4.91 all of which were full year records. This level of earnings exceeds the previous record earned in 2008 by 43%. 2010 earnings per share, excluding one time gains and charges, were $4.62 as compared to $2.42 per share in fiscal year 2009. Free cash flow for the year before dividends was $126 million, net of a $50 million voluntary pension contribution.

As a final point in 2010, I would like to mention two specific lean metrics that are illustrative of our strong performance. Based on average head count during the year, sales per employee were $282,000 and operating profit per employee was $63,000, up 33% and 114% respectively as compared to the prior year when excluding impairment charges. These measures are the highest levels in Nordson history and further testament of our global team's ability to execute.

Before moving on to our first quarter outlook, I'll provide comments on recent order trends. As we typically do, we 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. Looking at orders for the 12 weeks ending December 5, 2010, they are up 22% compared to the same 12 week period in the prior year. Order growth was strong across all segments and geographies with current 12 week orders continuing at an annualized run rate of $1.1 billion.

Within the Adhesive Dispensing segment, orders were up 15% from the prior year with improvement in every region and particular strength in the Americas and Asia-Pacific. Similar to the trend we reported last quarter, these orders reflect a continued pattern of broad demand for product line supporting both consumer durable and non-durable end markets. Advanced Technology orders over the latest 12 weeks are up 26% from the prior year with strong growth in most all geographies. Within the Industrial Coating segment, the latest 12 week orders are up 40% as compared to the prior year with improvement in all product lines and particular strength in Europe, the US and Japan. Across the business, demand for new systems outpaced very solid continuing demand for spare parts. This is a continuation of the overall trend we saw in quarter three and an indication of customer needs for new product and application solutions and additional capacity requirements.

Turning now to the outlook for the first quarter, we're forecasting sales to be in the range of $260 million to $268 million. This range includes the impact of the Micromedics acquisition that closed on November 1. I'll remind you that prior year results include the results of our UV graphic arts and lamps product lines which were sold during the third quarter of 2010. These two roughly offset one another from a revenue perspective. As compared to the prior year's first quarter, this sales outlook represents an increase in volume of 20% to 24% offset by a negative 2% currency translation effect based on the current exchange rate environment. We expect gross margin to be about 59% in the quarter, in line with the last two quarters. And we expect operating margin to be approximately 21% for the quarter. We are forecasting a 32% effective tax rate for the quarter resulting in estimated earnings per share for the first quarter of $1.03 to $1.13 per share.

In summary, our excellent fourth quarter performance concludes a very strong year for Nordson in which operating margin reached 23% and operating profit and diluted earnings per share reached all time records. Our team continued to execute throughout the year and capture growing demand while maintaining a lower cost structure and executing at a very high level. Current order rates remain strong and we expect to deliver very strong first quarter 2011 performance as well.

Thanks, Greg. Before moving on to your questions, I would like to provide some additional comments on our recent order trends and outlook. As Greg described, our recent order trends remain strong at a run rate of approximately $1.1 billion which is about the same level we reported in our last conference call. This is encouraging given than our first quarter is typically our slowest in terms of order volume due to the impact of the holidays on plant operations and the start of a new capital approval cycle with the beginning of the calendar year for many of our customers. Comparisons to the prior year will continue to get more challenging throughout the year as we compare it to the strong recovery that built through 2010. From a macro economic perspective there is much uncertainty in the backdrop for 2011. The inventory rebuild of a year ago will not recur. Fiscal stimulus will not be as impactful and certain emerging markets including China are attempting to control growth. In the US, the housing market remains slow and unemployment remains high and Europe continues to deal with sovereign debt issues. At the same time inflation remains modest and some manufacturing indices suggest growing demand for goods and services. In addition, US tax policy is expected to provide some level of economic support.

So what does all this mean for Nordson? As we've noted, orders in our Advanced Technology area, while still strong, have moderated over the last six months or so to a more sustainable long term growth rate. In general, growth is still expected in semiconductor capital equipment space for 2011, though it is anticipated to be at a much slower pace than we have seen this past year during the recovery. PC market growth will be impacted by mobile devices such as media tablets and next generation smartphone, a trend that favors Nordson. We expect to supplement core growth with continued expansion into new areas such as LED production and life sciences where our recent Micromedics acquisition is a leader. Manufacturers of durable goods continue to order from our Industrial Coatings business at a substantial rate. We remain encouraged by the ongoing order activity of these customers though we recognize that any significant impacts to consumer confidence could affect buying decisions. As we reported last quarter, consumer non-durable markets such as packaging and non-wovens remain steady as a result so does our Adhesives segment. As we begin 2011, our team remains committed to building on excellence. Customer service, innovative products, applications expertise and emerging market penetration will continue to drive our growth. Maintaining our lower cost structure and focusing on continuous improvement will continue to drive performance. As indicated by recent order trends, our year is off to a good start.

Moving forward we will continue to manage spending prudently though we remain committed to funding investments that will draw underlying business in the long term. At the same time we remain cognizant of macro economic factors that could impact demand and we will react accordingly. In closing, again, let me thank the Nordson team for the record results of 2010. Few are better at executing and I have every confidence we will continue to perform at a high level in 2011. Now, if we could, we would like to take a moment and take your calls.

(Operator Instructions) Your first question comes from the line of Charlie Brady from BMO Capital Markets. Your line is now open.

Okay, thanks. Good morning, guys.

Good morning, Charlie.

I just wanted on summit, on the tax rate in the quarter, if we could clarify that for a minute. I know you called out $0.07, it looks as though the statutory rate was up 300 basis points below kind of what you guys thought it was going to be. Is that just a function of geographic regions or is there tax lien? What's going on within the regular rate ex the $0.07 stuff.

Yes, Charlie. This is Greg. Let me clarify. As you say there is two things going on in the effective tax rate for the fourth quarter. One, are these one time or discreet items if you will, that we booked in the quarter and that's the $0.07 per share that you called out. And the other benefit that we have in the quarter is a true up of our full year effective tax rate that's coming in lower than what we had been forecasting. We have been estimating an effective tax rate of about 33% and the actual rate has come in closer to 32%. The quarter is getting the benefit of that true up in the full year rate as well as the one time items.

Okay, thanks. If we can just switch the orders for a minute on the Advanced Tech business, was there any -- in that 12 week number that you guys put out ending December 5 -- any impact from Micromedics in that order? Any meaningful impact from Micromedics?

No. Charlie, what I tried to highlight in my comments about the quarter is we've got two things. We got the impact of Micromedics coming in, but we also have in the prior year numbers the impact of the UV product lines that were sold during the third quarter. So those two roughly offset one another.

That would imply for the orders as well? Obviously, you are comparing against -- the year ago numbers had the divestitures in them, correct? When you're doing the order comparison?

A year ago had the UV product lines in them. That's right.

Okay. On the Advanced Tech orders, are you guys seeing -- how much of the LED business is now being picked up in the orders? Have you really started seeing the pick up in that or is that still -- shall we expect later in the year, into 2012 when you get more of a ramp on LED? I'm just trying to understand that end market.

Let me comment a little bit there, Charlie. I think we -- throughout sort of the middle part of last year we saw a significant run up in the LED orders particularly with the conversion of the back lights in TVs. I think more recently we seen a little bit of a pause in that, not so much because the demand underlying isn't there, but because there is a little bit of a shift between customers who may be outsourced that production to third parties to now bringing that in-house. So there is some sort of new investment on the customer side that is being digested. We expect probably a little bit of a pause earlier in the year on the LED piece and then a pick up later in the year as demand continues to grow. But the strongest demand was really probably in our second and third quarters. As we also said though in the Technology space we typically see a slow down in our fourth quarter that's more seasonal anyway and we've seen that play out.

Thanks. Just one more and I will hop back in the queue. Chinese New Year is a little bit earlier this year. Has that impacted the orders on Advanced Tech? Are you seeing kind of maybe a front loading or early loading of some of the orders because of the Chinese New Year or is that not having an impact?

There is nothing we can see at this point that would say people are pre-ordering prior to Chinese New Year being a week earlier this year.

Great, thanks a lot.

Okay.

Your next question comes from the line of Jason Ursaner from CJS Securities. Your line is now open.

Good morning, congratulations on the very strong quarter.

Thank you.

In terms of long term revenue growth, if I look by geography some of your mature markets in the US, Western Europe, Japan are still growing very strong. Do you believe the still reflects a cyclical recovery or has your total addressable market really changed with some of the decisions to keep investing throughout the downturn?

Jason, let me comment. At a macro level I think the western markets are still in the recovery mode. I don't think we are fully back to anywhere near the 2007 or 2008 levels. I think for some of our segments we are closer. Say, at our Adhesives segment and for the Technology piece it's more driven by emerging markets in Asia. But in our base line business it's still in the recovery mode. That said, we continue to look to introduce new products and technologies to extend our growth rates in these western markets by recapitalizing sort of existing lines of operations through innovative technology that provides real benefit to our customers. We continue to think that in the established markets we can grow at a pace greater than the GDP in those regions.

Okay. And then the business is obviously producing record operating margin for the quarter. If I go back and look at the last comparable period in terms of revenue, so maybe Q2, Q3, Q4 of 2008, the Company is now on a consolidated basis about 700 to 900 basis points higher and the favorable delta is obviously being driven between a split on gross margin and lower SG&A as percent of sales. First on gross margin, $58.7 million in the quarter. You guided relatively flat $59 million. How much more do you think we have on the shift back toward systems revenue versus consumables? How much is structural improvement from pricing power or higher recurring revenue?

Just a couple of comments. If you look at the full year in 2008 I think we're around a 17% operating margin. And this year we came in -- I don't think 700 to 900 basis points above that but closer to 500 basis points or so, above that. That's a little better than we thought based on the structural changes that we made. It does demonstrate that we are keeping those structural changes. I think we did a better job not just in the SG&A line than we thought but also in sort of our operating costs through some structural changes we've made but also through our leverage from a volume perspective in terms of our overhead structure at the cost of goods sold line and through some of our productivity efforts.

I think our guidance really on the quarter coming forward is a function of a few things changing. Some near term impacts from buying Micromedics and some purchasing counting. Some continued shift in mix to more systems than parts. I think that we ended the year in the last quarter we were down probably in the lower 40s and we will see that trend continue to be in the lower 40s going forward. So a little bit of negative mix effect on the systems and parts but offset by improved volume leverage and productivity. There are a number of things going on that have modest effects, but we feel pretty good about the level of gross profit we are generating. Obviously we have some additional efforts underway to continue to try and leverage our performance for the bottom line so we have stretched goals for our team but we feel that kind of gross profit level is pretty good. If you look over a long history we have averaged in the mid-50s so we have taken it up to another level a lot closer to 60.

Jason, this is Greg. I would just add a few other comments to what Mike just noted there. If you go back again the story for us has been really the improvement in performance that we have been able to generate since let's say the 2008 time period. And that improvement is really -- it's around both reducing the overhead cost structure. So we are seeing some benefit at the gross margin level from reducing the overhead structure and being able to generate the kind of volume that we have been as we are capturing this recovery. Gross margins have benefited. There has been, certainly some element of it as well that is impacted by a slightly higher spare parts mix than historical levels. A big driver though, is the benefit on the SG&A line where having taken $45 million to $50 million. So that's 400 basis points or so improvement in operating margin, off the spending line and being able to capture this recovery and really keep a tight control on that spending that -- come back into the P&L. It's really both of those are helping deliver that operating margin improvement largely driven by the cost reduction efforts that we initiated in 2008 and 2009.

And the thing with the current SG&A levels, again, if I go back to maybe the 2006 through 2008 period when we saw sustained revenue growth of over 10% a year, this was complimented by almost 9% SG&A growth per year. Some of the restructuring initiatives fundamentally change the incremental SG&A you might need the support growth?

And again this is Greg. I think through that time period you've got a couple of things going on. One of which is acquisitions. So that is added some incremental spending to the P&L. But I think fundamentally I would say we have reset the cost structure. We have adopted lien over several years now and with some particular focus in different portions of the business have significantly reset the cost structure to accommodate the environment that we are in now. So we continue to invest certainly from a strategic perspective but what we haven't seen nor do I expect we would see is any big step change in our spending level.

Okay, great. Thanks for taking my questions. I will jump back in the queue. Congrats.

Thank you.

Your next question comes from the line of Matt Summerville from KeyBanc. Your line is now open.

Hi good morning. This is actually this is Joe Radigan in for Matt. Greg, last year you gave a more near term view. You provided order data for the first six weeks of the fiscal year which was helpful. Can you do that for fiscal 2011 as well?

Joe, I don't have that data available. I guess what I would say is, I don't think there was anything unusual in the order patterns for the 12 week data that we gave. I think we specifically called that information out in the prior year as we were in those early stages of the recovery. So kind of the six weeks versus the 12 week gave a particular view in terms of the pace of the orders. I don't think we have that same impact in the current 12 week period.

Yes, I think we were trying to highlight at that time a turning point.

Yes, okay. So we can assume that there is no discernible trend either positive or negative more recently. That's good. Then revenue in Advanced Tech was down sequentially which historically at least in the last few years has not been a typical pattern. Did you see any customer deferrals in the quarter that maybe pushed into the first quarter?

Yes, just a couple of comments. If you look at last year, it was a little bit unusual in that we kind of saw Q3 in particular to be quite a bit stronger than we would normally see relative to say Q4. So we think there is really some timing of some orders in Q3 that supported kind of the run up in the new launch of all of the mobile devices. So Apple, the iPhone 4 and the competitive pieces there. So we saw perhaps orders a little earlier. We have seen sort of our typical seasonal pattern in the fourth quarter. I think that sort of run up of orders in the third quarter combined with the seasonal pattern is what makes this year look a little bit unusual but not really out of line. As far as any kind of deferrals, we've seen one or two orders pushed back. A little bit but nothing of substance and nothing that we see as having a big impact on the first quarter. So not a wholesale shift or anything like that.

Okay. And then, Mike what's your preliminary view on customer capital budgets for 2011? I'm sure you've had some customer conversations or is it still too early in the year where they are still setting those budgets? That's more of a January-type, February-type --

For a lot of the businesses it's more of a January-type. If I may just make kind of a commentary in terms of what we are -- what we've seen sort of throughout the year and I think there's some of it, probably extends. I think in the Technology space obviously the key customers were out spending early and continued to spend. And if you look at sort of the industry analysts out there, I think most of them project an up year for next year, but more along kind of a historical norm. Some even project a little slowing into the first half with a pick up in the second half. Again I think directionally they are usually correct, magnitudes may be off. But we could see a little short term pause there. Customers are still ordering though, as we have demonstrated in the 12 week order rate.

I think on the Adhesives it continues to be kind of steady as she goes. We see the big guys in the developed space looking to continue to drive speed and improvement and efficiency and are doing some recapitalization with technology and in the emerging markets things are growing very quickly. In the Coatings business what we are seeing is that the large customers in the second half of the year really have started to step up and spend. We are still seeing that middle tier and lower tier not spending yet. Some of that is just still uncertainty on the economy, is what we're hearing from them. For the smaller guys it's still credit availability. So hopefully things like tax policy getting clearer and maybe getting past some of the sovereign debt issues in Europe ultimately brings some of that middle tier and lower tier in the developed world back to investing, but we're not seeing that yet.

I think the balance we expect to see going forward is not too different than what we have seen in the last six months. Particularly in the Coatings segment plans become clearer after the January time frame and also for some of the folks in the Adhesive side.

Okay, that's helpful. Then last one, Greg, can you give us your view on pension expense for fiscal 2011?

I'm sorry, Joe, on pension expense?

Yes.

Yes. In 2011, I would estimate that, that will be about $6 million lower than what we had booked in 2010.

Okay, great. Thank you very much, guys.

Okay, thanks Joe.

Your next question comes from the line of Liam Burke from Janney Capital Markets. Your line is now open.

Thank you. Good morning, Mike. Good morning, Greg.

Hi, Liam.

Mike, can you talk a little bit about the competitive front -- if anything has changed significantly over the last year either on the systems side or on the renewables?

I would say at a high level, no, we have not seen any significant changes. I mean, each market is a little bit different in terms of competitive landscape in our position. But we haven't seen any significant changes in approach or strategy. Our fundamental approach is pretty simple. Continue to innovate around technology and to lever the applications expertise and the direct sales force we have and support the ongoing business both from a systems and a parts basis with a service organization that makes it tough for others to match. So I would say, no, things haven't changed there. I think from our perspective, we have got some new product coming out in the Adhesives side that we think will continue to help maintain us as a leader. We've introduced, for example in the LED space, a product that enables us to deliver twice the line speed as competitors do and we think that's the way that we're going to continue to see some growth in that business. So from our standpoint we haven't seen significant new competitors emerge and we haven't seen a change in tactics, per se.

Greg, on the cash flow front, you paid down a significant amount of debt in 2010. You made one acquisition. Going in 2011, what are your priorities for the cash flow?

Well, Liam, we do have a lot of capacity as you've highlighted. Priorities would be as we've articulated in the past, we're in an acquisitive mode. Now we were going to be prudent in terms of how we approach acquisitions. But that would be a priority. We got the dividend streak of 47 years of raising dividends, so we anticipate that will continue with that streak. And then we do use cash to be in the share repurchase strategy to -- first, the mind set is to offset the delusion impact from employee benefit programs. But we'd also choose to be opportunistic where we thought we could be. So that finds its way somewhere on that prioritization list but acquisitions would be the primary focus.

Great. Thank you.

Your next question comes from the line of Walt Liptak from Barrington Research. Your line is now open.

Hi, thanks. Good quarter, guys. I wanted to ask about the Advanced Tech segment and just see if I can get a little bit more clarity on the three product classes that you talked about, semiconductor, capital equipment, PC market and LED It sounds like the PC market -- I wonder if you can break those out and talk about the growth rate? You are on a tough comp this quarter or at least the beginning of a tough comp and the order growth was still pretty good. Is this the last quarter? Was there something with the PC markets that will make this a last good order period? Or do you have other growth initiatives, new products or whatever or growth in some of those markets that would keep it going throughout 2011?

Yes. Let me make a couple comments, Walt. I think if you look out at the data that comes out from the so-called industry experts, this particular area probably has the most diversity of thought process around the data. We tend to look at Gartner data as something that generally directionally correct. They might have the timing off a little bit. Their view if you look at sort of overall the latest thing that's just come out in the last couple of days, 2011 they look at packaging and assembly equipment growth probably in the sort of 7% range and they look at automated test equipment probably in the 8% range. So it's kind of a backdrop to the product lines that we have that support the electronics industry, that's what they are forecasting. In some cases they may see that off to a slower start in the beginning of the year and a stronger finish to the year from a timing perspective, particularly in the automated test equipment part of that. But they are still showing an up year. And if you look at most the other half a dozen analysts out there most of them have it up, maybe some a little more, some a little less. So as a high level backdrop, that's what sort of the industry analysts are forecasting.

Now as we look at the mix, some of the comments that you've talked about. If you look at the sort of PC space in general, I think overall people feel that might be a relatively flat year for the PC space. But the sort of netbook iPad, iPad equivalent, more mobile, lightweight device looks like it's going to have a strong year, double digit plus kind of growth. And then if you look at sort of in the communication side people are still expecting a strong year from communications growth in general but even more growth probably closer to the mid-teens than the smartphone space.

Those two things are encouraging in support of what we provide our equipment into. I think on the LED space, I think most people expect a little bit of a pause in the near term because we have sort of, I think a shift in who is making the LED for the LCD players. Some of that -- a lot more of that is coming in-house to the Samsung's and LG's of the world. It might have been outsourced and there might be a little over capacity in the short term but the longer term growth is still encouraging so you could see a little bit of a pause out of the gate there in the short term. Then there is always sort of new applications that are coming as well. We got some new applications going in to back side coating on some storage devices that are displacing tape applications in the past. From our perspective, we see this year as perhaps a more normal growth year and we're going to continue to drive applications through our technology. I think as I said, the overall computing segment might be a little softer in the LED outfit on the front end.

On the other hand, things like auto, so depending what your outlook on the automotive industry, it's recovering from the bottom. And the content from electronics perspective continues to increase so that's also something that we're seeing that's encouraging. On balance, what we see is sort of generally solid more typical kind of market growth and then still things like underfill conversion occurring as well. So we see pretty solid growth opportunities here but not the kind of recovery here that we saw last year. So as you look throughout the year, the second half of the year we had some really strong orders. As I mentioned earlier, some of that was timing around cell phone launches and so forth. So we will see tougher comps in the second half of the year but we still feel like this is a growth year but more typical and less recovery.

Okay, good. Thanks for the color. Is it still too early for any LED lighting related revenue?

Yes, I think so. We are in the, what I call the sampling phase, so people are buying equipment to do the early phase production. But, yes it's still too early. I think you're going to see -- personally if it's not -- I'm not an industry expert here, but I think you are probably another three years away or so to see that first wave that goes in to the Wal-Marts of the world doing this and then you're probably quite a bit further until you get into the residential piece. There was a recent article in the local paper here where people are talking about $50 lightbulbs. That's certainly hard for any consumer any time soon. But industrial folks where the energy efficiency benefit is available much earlier is what we'll see coming first.

Okay. If I could just switch gears to Industrial and Adhesives. The revenue's still for 2010 is still down from the 2008 levels pretty significantly. Is there anything that's changed in your capacity, your manufacturing footprint that wouldn't allow you to get back there. How much more capacity do you have?

No. I would say just a comment in general, we did do some consolidation on the Industrial Coatings business in terms of facilities as part of our restructuring but we don't see that limiting growth. In terms of the physical asset and capability that we have, we can support growth really by adding labor to support that. We're not going to be investment or capacity constrained there. And certainly not on the Adhesives piece either. Now one thing in the Industrial Coatings business I mentioned, we did in this past year invest in China to be able to produce products in China to support particularly the powder growth that we see in China and the Industrial Coatings space. So now we're fully capable of designing and building and supplying powder systems for China in China.

Okay. Thanks very much.

(Operator Instructions) Your next question comes from the line of Jason Ursaner from CJS Securities. Your line is now open.

Hi, I just wanted to ask a few follow-up questions. By segment for the Adhesive segment, you would call that consumer durables end markets in the Coatings segment, but is this also driving some of the, I guess the lesser core markets of the Adhesive segment or is it really broad based strength that you are seeing.

So, just a comment, it is broad base strength, but I would say what we saw come back first was the consumer non-durable space and that really started at tail end of 2008 and really has been a factor all the way through -- I'm sorry, tail end of 2009 and has been factor all the way through 2010. I'd say in the second half of the year particularly in the last quarter we have seen investments in the area we typically call product assembly which is more related to that consumer durable space. So we are seeing investment there pick up and systems business pick up there. So that's something we've really seen in the second half of the year. We expect that to continue.

Then in Tech, obviously you fielded a bunch of questions about the order rate moderation. But should we tab our expectations for the sustainable long term growth? Should this be in the context of the overall cyclicality of Tech spending and that low to mid-teens is really relative to whatever the long term growth in the industry is?

So I'm not 100% sure I understand exactly what your question is. I think in terms of our long term growth, what we said is we expect it to be a double digit kind of growth rate business for us. We do have cycles in the business. Obviously we're coming out of a giant cycle here, but we do expect the long term growth rate to be double digits on the top line and if we can supplement that through acquisitions like we have done with Micromedics and some investment we made in some venture capital areas for technology. We think that's a good long term growth rate. In the near term we feel encouraged about what's going on in first quarter, but as you know, this area probably has the most uncertainty of any of the end markets that we support in what the rest of the year might look like. I think the long term trend, they're still good for this business.

Do you have any update on the potential to add memory chips as a candidate for underfill?

We still see that as an opportunity down the road. We haven't seen really much in the way of progress there. The first memory activities that we're seeing is more back side Coating for the plug-in little UCB kinds of devices that's a tape replacement, which is an interesting opportunity for us. It's going to be a nice little opportunity.

Then just in the Coating segment, in terms of the moderation, orders actually looked like it accelerated and you -- if we aren't expecting or if we haven't seen some of the car and appliance sales come back, at least from the end consumer demand, how much of this has really been driven by replacement of the inventory chain?

So first off I would say we are starting to see some of the appliance activity come back certainly because of growth in the emerging markets but we're also seeing some of that in the West as well. And on the auto as well which is a relatively small part of our business we are seeing that come off the bottom but the bigger driver is more emerging markets and more in the power side of the business but we are seeing things come off the bottom. In the West you are seeing some things like new facilities that are consolidation of existing ones and find new equipment to help support that consolidation or productivity kinds of investments where our technology can help them either get flexibility in manufacturing or efficiency. But we're seeing those -- some of those kinds of things. I would say what we aren't seeing is that smaller customer, who maybe has trouble getting credit in the current environment doing something from an expansion standpoint.

Then just by geography, if I look at the Americas excluding the US, looks like volume for the quarter was actually down a little bit but orders kind of are still 17% up on the comparable 12 week period. Was there anything in the quarter in that geography that we should --

Jason, this is Greg. There was and you'll get that in some of the smaller geographies from time to time. That's largely related to a non-woven sale that we had in the quarter, a larger dollar sale.

In terms of the orders being back up or in 2009 Q4?

Yes. The quarter to quarter comparison where we had a down quarter is related to large non-woven activity that we had in the prior year quarter.

So you can view that more as of timing --

It's a timing. And in terms of the order pace, it's -- as you say, it's been pretty robust.

Okay. And then just last question. The D&A, looks like decreased -- I guess, relatively a significant amount of small dollar, but is there any intangible that ran off or anything in that number that drove it so low?

That's probably associated with as you say, it's a small dollar. It's probably disposition of the UV product lines, would be my guess.

Okay, thanks a lot for taking my follow-ups.

Thank you Jason.

Shannon we probably have time for maybe one more question.

Your final question comes from the line ever Charlie Brady from BMO Capital Markets. Your line is now open.

Thanks. Mike, as we look to the Industrial Coatings Systems business, I understand this is going to be a sensitive issue to answer, it's such a small piece of the business now. The margins are well below the other two business segments and even in the best of times are probably not going to get to that level. And you guys have done a good job restructuring it over the past few years and it looks as though revenues are on a higher run rate and margins have come up. From a strategic standpoint in your mind, does that business still fit strategically? Is it something that you long term would like to keep or structurally do you think margins -- am I incorrect can margins get higher than what my expectation would be on that?

Let me just comment first on the margin piece. One of the things that you need to understand about that business relative to some of the others is that -- in some of the other businesses, say most of what we do in the Adhesives business, we are selling a component or several components that get integrated by someone else into a system. In the Technology space we are in the middle, sometimes we're closer to the system integrator and sometimes we're in the component space.

In the Coating space we are generally the integrator. What that means, is we buy in a lot of other things that end up in the end system and pass them along. So the nature of the business is that you aren't going to generate the same level of overall operating margins on an ongoing basis. What we look at is how is that business performing relative to its overall cost of capital. When we set out our margin target of 15% for that business, it's around ensuring that we can sustain a return over the cost of capital in the business. So number one, we've got a plan in place that's going to get us to that point. You are starting to see the kind of leverage that we are getting with the growth in the second half of the year on the fix plan. So I feel pretty good about the fix plan.

The second element is are we going to be able to sustain some growth in that business. And our focus there as we said in our investor day is around the emerging markets and I think that's the key. So I think from an emerging market perspective we've got a big focus there. I think the fact that we now can design and build the product offerings within China for example is going to help us in that area. At a higher level though, I think as we look every year we take a hard look at all of our businesses to make sure they fit within the portfolio and our view on this business is it's on track to improve its performance to an area that can contribute both to bottom line and top line. But we relook at all of our businesses every year to make sure that they fit with our strategy going forward.

We are trying to leverage some of the Technology capability across the businesses where that makes sense in having our design and build capability in the same facility we do our Adhesives activity in Asia gives us more opportunity there and we have our facilities integrated here in the US as well. Right now we think it has a good place in the portfolio. It's on a good plan to fix and get us to sustainable margins that make sense for the type of business that it is and earn a return above its cost of capital so contribute it to the value creation for the enterprise. And we think there's some growth opportunities there particularly in the emerging markets. But all of our business we take a hard look at each year.

Thanks very much.

Okay, let me just first of all thank you all for joining our conference call today. Let me just wrap up with a couple of comments. First, from a closing thought perspective, I want to personally applaud our global team which delivered record financial performance this year by serving our customers better than the competition and sustaining the strategic actions that we have taken during the economic downturn and leveraging our core strengths to capture returning demand in all of the businesses. At the same time we expanded our reach into new markets and applications and continued to optimize our organization for long term success. What I've seen in 2010 and I think you have seen is a team that demonstrates, that's extremely capable and can execute. I'm confident that we will continue to meet customer requirements worldwide in 2011 and deliver a strong level performance at any demand level that we see. So again, thank you to the Nordson team for meeting our customer's needs in a way our competitors can't do in 2010. And look forward to a strong 2011. Thank you.

This concludes today's conference call. You may now disconnect.