Nordson Corp (NDSN) 2011 Q1 法說會逐字稿

Good morning. My name is Tracy and I will be your conference operator today. At this time, I would like to welcome everyone to the Nordson Corporation first-quarter 2011 earnings 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.

I would now like to turn the call over to Jim Jaye. Please go ahead.

Thank you, Tracy. This is Jim Jaye, Director of Communications and Investor Relations. I am with Mike Hilton, Nordson President and Chief Executive Officer, and Greg Thaxton, our Vice President and Chief Financial Officer. We would like to welcome you to our conference call today, Wednesday, February 23, 2011 on Nordson's first-quarter fiscal year 2011 results.

Our conference call is being broadcast live on our webpage, www.Nordson.com/investors, and will be available for 14 days. There will be a telephone replay of our conference call available until midnight, Wednesday, March 2, by calling 1-800-642-1687. You will need to reference ID number 37603791.

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 and a few concluding remarks.

I would now like to turn the call over to Mike Hilton for an overview of our first-quarter fiscal year 2011 results and Nordson's future outlook. Mike?

Thank you, Jim. Good morning, everyone, and thank you for attending Nordson's first-quarter 2011 conference call. Our comments this morning will describe what was truly an excellent performance in the first quarter. We will also provide some perspective relative to our outlook for the second quarter of fiscal year 2011.

Let me begin by offering some highlights on the first quarter. Specifically I want to congratulate and thank our global team for delivering the strongest first-quarter performance in Nordson's history. The team continues to execute at a very high level and leverage the strengths of our business model worldwide.

Overall, customers are responding enthusiastically to our value proposition of differentiated technology and application expertise supported [locally] by locally available direct sales and service. Nordson's winning package of values coupled with the strong order rates enabled us to grow sales by 23% in the first quarter compared to the same quarter a year ago. Once again, this growth was broad based with double-digit percentage year-over-year sales increases in all three segments and in every geography.

Every product line within the three segments also grew over the first quarter a year ago. Our continued success in growing the business was accompanied by ongoing cost controls and process optimization efforts. The result was a record first-quarter performance and an outstanding start to fiscal year 2011.

In addition to the strong topline growth, operating margin reached 24%, an improvement of 800 basis points over last year's first quarter. Operating profit, net income, and diluted earnings per share were all first-quarter records for Nordson.

In terms of our outlook, order trends as compared to the prior year remained positive in all segments and all geographies. However, we remain mindful that these strong rates are characteristic of the recovery phase of an economic cycle and at some point will moderate towards more normal and sustainable levels. I will offer additional comments relative to our outlook in the latter part of this webcast.

But before that, let me turn over the call to Greg Thaxton, our Chief Financial Officer, who will provide more detailed commentary on our first quarter of 2011 financial results as well as some comments on our guidance for the second quarter of 2011. Greg?

Thank you, Mike, and good morning to everyone. As Mike noted, our financial results for the first quarter were records on several measures. I will start first by talking about our sales performance and as a reminder, we have a full quarter of the Micromedics acquisition in our numbers and we no longer have the results associated with our UV graphic arts product lines that were sold in the third quarter of fiscal 2010. Both of these are in the advanced technologies segment and roughly offset one another.

So in total, our sales were up 23% over the prior year with volume growth of 24%, off slightly by unfavorable currency effects as compared to the prior year. This overall growth included strong double-digit volume increases in all three operating segments. The adhesive dispensing segment delivered volume improvement of 19% over the prior year's first quarter where sales volume growth grew by double digits in all of the segments product lines and was robust in all geographies. This growth demonstrates strength in both consumer nondurable end markets as well as durable end markets globally.

In advanced technology, volume improved 31% in the first quarter over the prior year where demand remains strong across all segment product lines as manual and automated dispensing, surface treatment, and test and inspection all expanded at double-digit rates over the same period a year ago.

As in more recent quarters, much of this demand across all product lines is driven by consumer electronics and particularly in mobile devices and components.

Volume in the industrial coating systems segment continued to improve as well with the return of consumer durable demand where performance was driven by the return of system orders. Sales volumes grew 30% over the prior year's first quarter and volume improved in all product lines and every geography.

As noted in our earnings release, industrial coating results now include our industrial UV Curing product line previously reported as part of the advanced technologies segment. This external reporting change more closely reflects Nordson's management of this product line and its related growth opportunities. Excluding the industrial UV Curing product line in both years, industrial coating segment volume improved 27% in the quarter over the same period a year ago.

Moving down the income statement, gross margin in the quarter was 61.3%, up sequentially from the fourth quarter due to mix both in terms of segment mix and parts versus systems, where parts represented 45% of sales in the current quarter.

As we look at operating performance in the quarter, our operating margin of 24% is 8 percentage points higher than the level in the first quarter of the prior year and illustrates our ability to serve higher levels of demand more efficiently with operating profit growing at a 3.5 times multiple of sales growth.

At $66 million, operating profit grew 81% over the prior year. All segments delivered significantly improved operating margins as compared to the prior year as a result of capturing returning demand with a more efficient cost structure.

The industrial coatings operating margin without the reclassification of the industrial UV product lines was 7.4%, representative of great progress against profitability goals considering the seasonality of our first quarter.

Coming down the income statement, net income for the quarter was $46 million or 17% of sales. First-quarter diluted earnings per share are $1.33, the highest level of first-quarter earnings per share in Nordson history and 71% higher than the $0.78 per share in last year's first quarter. Earnings in the quarter are inclusive of a $0.04 per share one-time tax benefit associated with the extension of the R&D tax credit and a $0.01 per share charge for short-term inventory purchase accounting related to the Company's acquisition of Micromedics.

As in previous quarters, we've included an earnings per share reconciliation schedule in our 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 benefit and purchase accounting charge as adjusted were $1.30 per share as compared to $0.70 per share in the prior year's first quarter excluding one-time items, representing growth of 86%.

The current quarter's EBITDA was $74 million and the first quarter free cash flow before dividends was a strong $50 million for a cash conversion ratio of 109% of net income. As an additional comment regarding cash flow in the quarter, we continued our share repurchase program where we bought $7.7 million of shares at an average price of $92.15 per share and an additional $7.1 million was returned directly to shareholders during the quarter in the form of dividends.

Our balance sheet remains solid with debt to trailing 12-month EBITDA of well under 1 and sufficient capacity for strategic investments.

Before moving on to our second-quarter outlook, I will 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 February 13, 2011, they are up 22% compared to the same 12-week period in the prior year.

Let me provide some additional perspective on order rates by segment. Within the adhesive dispensing segment, orders were up 12% from the prior year with particular strength in the Americas, Europe, and Japan. These orders reflect continued broad demand for product lines supporting both consumer durable and nondurable end markets, a trend we have seen for the last several quarters.

Advanced technology orders over the latest 12 weeks are up 29% from the prior year, with growth in all product lines and geographies and again being largely driven by mobile devices.

Within the industrial coating segment, the latest 12-week orders were up 38% as compared to the prior year, with strong double-digit improvement in all product lines and all geographies. This is reflective of continued recovery in consumer durable end markets and the corresponding demand for larger dollars systems. These order rates reflect the reclass of the UV industrial product line to the industrial coating segment in both the current and prior year.

Turning now to the outlook for the second quarter, we are forecasting sales to be in the range of $308 million to $318 million. I will add that the addition of Micromedics to the portfolio roughly offsets the loss of revenue associated with the disposition of the UV graphic arts product lines.

As compared to the prior year's second quarter, this overall sales outlook represents an increase in volume of 20% to 24% with an additional 2% currency translation benefit based on the current exchange rate environment. This represents a total sales increase of 22% to 26% as compared to the second quarter a year ago.

We expect gross margin of between 60% to 61% in the quarter and total selling and administrative costs to be roughly equal in nominal dollars to the first quarter. We are forecasting a 30% effective tax rate for the quarter, resulting in estimated earnings per share for the second quarter of $1.70 to $1.82 per share.

In summary, Nordson has begun fiscal year 2011 on a very strong note by delivering record first-quarter sales, operating profit, net income, and diluted earnings per share. We continue to generate these excellent results by providing real value to customers in both established and emerging markets and by maintaining our lower cost structure. Our current order rates remain solid and we expect to deliver strong results in the second quarter of 2011.

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 and have us at an annualized run rate of approximately $1.2 billion, which is up from the $1.1 billion reported in our last conference call.

From a macro perspective, the global economy is now in its second year of recovery and the risk of a double-digit -- dip seems -- risk of a double dip seems low. Companies in a variety of industries continue to report strong results.

Growing consumer confidence, improving credit flow, clearer tax policy, and greater ability to manage sovereign debt issues have combined to encourage customers in a variety of end markets to invest. The strong year-over-year sales growth Nordson has delivered over the past several quarters and have forecasted for the second quarter of 2011 is reflective of this environment.

And though Nordson's current order rates remain healthy, we are also reconfirming our expectations that the rapid growth associated with the recovery phase of the cycle will eventually moderate towards more normal and sustainable levels of growth as the year progresses. Overall, however, we remain confident that our customer relationships, geographic footprint, and innovative technology continue to position us as the preferred supplier in all of our end markets.

Within adhesive dispensing, we maintain leading market shares in consumer nondurable markets such as packaging and nonwovens that present solid and long-term growth opportunities in the rapidly expanding middle-class population of emerging regions. The return in demand for general product assembly applications provides numerous other opportunities for us to grow as well.

In advanced technology end markets, customer demand for innovation and end consumer demand for next-generation devices both play to Nordson's strength. While semiconductor equipment markets are not expected to grow as rapidly this year as they grew last year, they are expected to grow and certain niches such as smartphones and tablets as well as other mobile devices and components or peripherals will provide excellent opportunities for Nordson. We will continue to supplement our core electronics positions with new applications in areas like life sciences.

The global recovery is also driving ongoing demand in consumer durable end markets. Our industrial coatings segment is well-positioned here with a leaner organization and evolving product portfolio that best meets the varying tiers of customer needs around the world.

In all segments, our initiative to move our existing continuous improvement efforts to higher levels have gained momentum. We are working to fill the acquisition pipeline with appropriate growth opportunities. Going forward, we will maintain our aggressive management of costs while also continuing to fund those organic and external opportunities that fit our strategic interests.

In closing, I would like to thank our team again for delivering outstanding results in the first quarter. I am confident they will continue to perform at high levels in the second quarter and beyond.

At this time, I would like to turn the call over to you for questions on anything that we have discussed so far.

(Operator Instructions) Jason Ursaner, CJS Securities.

Good morning, everyone. Congratulations on a very strong quarter. My first question is on revenue and historic seasonal pattern of revenue versus the current rapid growth that you talked about with the recovery phase of the cycle. Do you still expect to see a normal seasonal pattern to revenue? Is there any unusual circumstance embedded into the fiscal Q2 expectations?

Just a general comment for everyone who might not be quite as familiar as you are, Jason. Typically our first quarter is the softest quarter given all of the holiday season that we straddle with our sort of November-December-January period. And we typically see a significant step up in the second quarter, second or third quarter or often of a similar size and the fourth quarter is generally a little bit better, but it varies by segment.

We are not necessarily seeing anything right now that would suggest that we would see a different pattern there. But as you know, the visibility that we have based on the orders, which is why we give you the order trend information, is really only about a quarter out. So we feel comfortable providing some guidance a quarter out and not really going much beyond that.

That said, we don't see anything that would suggest this would be an atypical seasonal pattern for the year.

And just staying with that, can you talk a little about delivery times in some of your businesses, kind of what's driving this visibility? Is it one quarter in terms of the orders going out?

It really is, because if you look at the mix of our businesses, this quarter we had 45% of our business being in the sort of [parts] and consumables. You can think of that as orders come in Monday and they're going out somewhere between Tuesday and Friday, so fairly quick order rates. So there's not a lot of backlog there either in our shop or in our customers' shop.

And then if you look at the various businesses, you might have deliveries that range anywhere from one or two weeks up to six to eight weeks if you get into some of our systems in the coating area and some of our systems in the technology area.

So again, one of the reasons we give you the sort of 12 quarter most recent look is to give you a sense of order trends and backlog which would contribute to next quarter's performance.

Jason, this is Greg. Just to add, backlog at any point in time for us is about one-half of a quarter's worth of revenue, so it's just further to the point that we just don't have a lot of visibility beyond this next quarter.

Sure, so looking at the guidance, if I take the midpoint of revenue and EPS and including I guess the tax rate change but if I don't make any material changes to share count or interest and other expense, it implies an operating margin of roughly 28% and leverage on incremental volume almost 50% to 60% range.

So I was just wondering if you could help me try to understand roughly a 350 basis point sequential operating margin improvement and whether its gross margin expansion or really just adding essentially no cost to SG&A?

I will just make a couple of comments and then let Greg weigh in here. I think what you are seeing here is that, as you characterize, fairly significant leverage on the top line so as the top line expands, the team has done a great job of figuring out how to support that growth while managing our costs. We do plan some increases to support the growth from an investment standpoint, but largely in our production and in our sales and customer-facing activities to support the growth and continued technology investment going forward.

But we are getting significant leverage out of the volume as well as in certainly the first quarter, we've had a fairly attractive mix when you think of parts versus systems as well as the segment mix that we have. And as the year progresses, that might -- that segment mix might change a bit particularly as our coatings business typically sees stronger systems orders second, third, and into the fourth quarter.

Jason, I would just add if you start with our gross margins, which as you know are in that 60% range, there is an element of that smaller percentage that's fixed. But nevertheless if you add incremental revenue to that P&L at the kind of gross margins that we deliver, recognizing that there is generally not a high cost to serve for that incremental dollar of revenue, that's a strong driver to incremental operating margin in the quarter.

Okay. Greg, in the past, you have included gross margin guidance for the next quarter. I didn't hear if you gave this or didn't.

Yes, we did. I said it would be between 60% and 61%.

Okay, and then just last question and I will jump back in the queue. With your cash and liquidity position, can you talk at all about what you are seeing in terms of the quantity, quality, and size of potential acquisition targets out there? I think you mentioned life sciences in your prepared remarks. Are there any other adjacent verticals that look particularly attractive?

Yes, I would say what we saw through the last year was an increase in the flow of opportunities. We are using I'd say quite a bit of discipline around the strategic fit assessment for those opportunities. So there are a number that came by that we've looked at and judged not to be a good strategic fit. But we do see certainly deal flow increasing, number one.

Number two, we have added to and built up our own sort of business development M&A capability here over the last year. So we've got some more resources on the ground to help us.

Certainly one area of focus for us is in the life science area. We like what we see with the acquisition of Micromedics, and it fits nicely into the kinds of things that we think we are good at from a business model perspective. So in the area of medical devices, it's a very broad area, but there are some interesting niches, and so that's an area of focus that we do have.

We are also engaged, as you know, in the electronics space in test and inspection and there's some other areas in the test and inspection space that we are interested in. And there are a few other areas that we prioritize in terms of key areas of focus that we are looking at and use that sort of strategic lens to prioritize our resources and look to opportunities that come forward.

We are being disciplined on this to make sure we've got the right strategic fit first.

Thanks for all the details and congratulations again on a great quarter.

Kevin Maczka, BB&T Capital Markets.

Hi. Good morning. I guess, Greg, you mentioned the consumables mix, 45% -- that's in line with where it was in fiscal '10. I'm just wondering if you can give some more color as we go forward and system sales begin to rebound, how should that play out as we look out to the balance of the year? Should that trend down towards 40 or even below or is this kind of where you think it would play out even in the back half?

You know, Kevin, I would say it is a bit higher here in the first quarter, which is typical in prior years. And I would see it trending down as the year progresses with the volume growth we are expecting to see -- disproportionate share of that will be engineered systems. But I'm not sure that I'd take it below 40%. If you look back historically, it tends to be in that low 40%, say 42%. So I'd see it trending down but wouldn't necessarily take it below 40%.

It is that the big driver? I know your Q2 gross margin guidance is not much sequentially, but is that --? If margins, gross margins were to trend lower as the year goes on, is that the key driver of that?

As we trended down margins a bit from Q1 to next quarter, Q2, that is a part of the trend down and the gross margin line is a higher mix of systems.

Kevin, from quarter to quarter, you can have some variation depending on the mix across segments and even the mix across product lines within segments can have a modest effect there.

Okay, just switching gears over to CapEx, it looks like that increased quite a bit on a year-over-year basis with the strong revenue recovery. Are we getting capacity constrained in any of the businesses at this point? And can you give a little more color on your expectations for the year in terms of CapEx and where you are allocating those dollars?

Kevin, I will comment first on the increase in CapEx and then maybe Mike wants to add some more perspective on capacity comments. The increase in CapEx in quarter one was primarily associated with the completion of our new headquarter facility. There also was some spend associated with an SAP implementation project we have going on, so call it one time if you will CapEx items. Mike, if you want to comment on the capacity comment.

Yes, just as a little bit of a refresher, our manufacturing activity is largely an assembly activity which generally speaking means that we can ramp up capacity by adding resources as the first approach, whether that's going to an additional shift or adding resources to the shifts that we have. So generally speaking, what I would say is that we don't need to make significant investment to ramp up capacity. If we do need to make some investment, we typically could add a machine here or there to support a bottleneck if there is a bottleneck.

I think as we look at some of the volumes, it's prudent for us to look ahead and plan and made sure we understand bottlenecks not only in our own operation which I would say but generally speaking we don't see that. But looking both at our suppliers and quite frankly what can our customers handle in particular perhaps the OEM chain? In some regards, that may be a more limiting step as we go forward. We don't see that right now, but that could be in a more limiting step as we go forward.

So in terms of CapEx expectations for the year, then, is it fair to think about something comparable to fiscal '10 plus a few million dollars for this one-time item?

Kevin, this is Greg. I'd suggest that CapEx will be in that $20 million range for the full year.

And then just finally from me, Greg, was there any area of your business where you saw any kind of pause either in terms of the order rates or demand in general? I know we've talked about LED potentially seeing one in recent months and quarters. Did that happen or are you seeing a pause in any other tech business in particular?

Let me just make a couple of comments there, Kevin. So you've highlighted one where we have seen a pause, which is in the LED space. Our view of that in the short term is a couple of things, that you've had some dynamics on the customer side where some of the big end customers have taken the actual manufacturing in-house at the same time when the sort of outsourced third-party manufacturers were still investing. So I think you've got a couple of quarter absorption issue probably here in capacity that was put in place. So that's an area where we are in fact seeing a pause.

I'd say on the semiconductor side, as I mentioned, we are seeing growth, but not the kind of robust growth that we saw last year. And where we are seeing significant growth is really on the mobile side, as we've talked about in the past, smartphones, tablets now perhaps actually taking away from some of the PC sales that previously were reasonably robust.

And then peripherals associated with the mobile devices, whether that's headsets or earphones or even the cases that go around some of these create opportunities for us in some of our businesses. So those areas are particularly strong.

We are seeing some increased activity in certain spaces around solar again after a pause last year. So I think one of the benefits that you see with Nordson is besides the broad geographic coverage we have, we're involved in a lot of market niches and if some are down, others tend to offset that, and that's what we are seeing I think now.

Okay, that's all I had. Thank you.

Charles Brady, BMO Capital Markets.

Good morning. This is actually Tom Brinkmann standing in for Charlie Brady. Just a couple of things. First of all, I'm curious about the CapEx outlook for basically for tech companies. Has the under investments over the depression, the sort of recession sort of created some additional demand there, some pent up demand still?

I wouldn't say that we are seeing a significant underinvestment play out into a significant step up in investment here. This is an area that's has typically been driven by technology and advances in technology. And I think what you are seeing right now is the hot markets are the mobile areas where we are seeing constant increase both in demand because you've got sort of a broadening middle class that can afford things like cell phones and you are also seeing a progression to smartphones and the introduction of things like the iPad.

But underneath all of that, you've got technology conversion that increases efficiency, and that is what we are seeing in the last year or so is continued growth on things that we are involved with like underfill technology. So that to me is more of a market driver and not a huge capacity swing.

I think you tend to see more capacity issues on the memory side of the business, which we really don't play in significantly.

Okay, that's helpful. And can you talk about the outlook for nonwoven fibers and basically [carries] the strength you may be seeing in adhesive dispensing?

In general in adhesives, if you look at last year, last year was a very solid year for us. Our two main businesses within the adhesive area are packaging and nonwovens, and they were strong. The business that started to come on at the tail end of the year was our product assembly that goes into a variety of different spaces. And that's the area, the other two businesses, the packaging and nonwovens, continue to be solid across the board generally stepping up and growing faster in emerging markets. That middle class continues to evolve and to desire convenience-related products, which is really what those two businesses for us or product lines for us sell into. So we are seeing sort of strong continued strong demand in that -- in both of those areas really around the globe.

I'd say what we've seen step up in the last part of last year and continuing to be strong here is the general product assembly, which goes into a whole variety of applications from woodworking to auto applications to filters. As I mentioned earlier, we also saw in certain areas, solar volumes picking up particularly in spots within Asia. So that's the area I would say we are seeing more of the step up in continued growth.

Now overall, adhesives had a good year last year but didn't get back to our 2008 levels, so we still have a bit of recovery in that segment that I think we are seeing continued early on in this year.

Okay, that's good to hear. Also just curious about a couple of household -- housecleaning items here. Just the corporate expense, curious if you can talk about what you think for dollar terms or as a percentage of sales? And also the tax rate, if you think the 30% tax rate is something that we could look for maybe in the medium term or is that just one quarter?

Tom, this is Greg. In terms of the corporate expense, I think that the level that we experienced in the first quarter is a reasonable number to assume in the out quarters and I think the rate that we guided to for the effective tax rate of 30% again is probably a good rate to use for the balance of the year.

All right. Last question and I also will get back into. What do you think the operating margin would have been in advanced technology if you had excluded the purchased accounting for the Micromedics acquisition?

Well, that purchase accounting adjustment, which relates to -- it's a one-time item that relates to the acquired inventory, that was about $600,000 in the quarter.

Great. Okay, thanks.

John Franzreb, Sidoti & Company.

Good morning, guys. Mike, you just referenced furniture assembly and earlier you talked a little bit about the engineering systems business is picking up. Is it fair to assume that some of your later cycle customers are coming to market and that's the driver of the results in the near term?

That's certainly what we are starting to see both in that product assembly area of adhesives is also in our coatings business is the more durable goods coming into play. I think there are a couple of factors that are affecting that. Certainly the top-level economic news, while it [makes] the time, is generally more encouraging than it was certainly a year ago and even in the last six months, it's gotten more encouraging. So I think that's taking some of that sort of middle tier customers that we had who had access to money but weren't investing, getting them back in the game to invest.

We are also seeing some other phenomena where you might put it in the category of perhaps pent-up demand. Again, that's the same sort of comment of folks a little reluctant now, not reluctant today. But also going to what I call recapitalization, so taking advantage of our proposition of new technology that provides them more productivity or efficiency to upgrade their line where maybe they wouldn't have done that last year. We are seeing that.

We're also seeing some positive fallout from the consolidation that's occurred in the downturn, so where one company might have stopped producing, the company that picked up that business is now investing particularly in newer technology and we are seeing some benefit there. Those are all I'd say encouraging signs.

I think most people predict that the recovery in the durable space is going to be multiyear and measured, but we are starting to see signs that are encouraging there.

If I -- back to your capacity comments, it doesn't sound like you have added any overhead that you have what you need right now to address the demand that's in place. Is that a fair assessment?

I would say a minimal amount of overhead. Our focus over the last year, year and a half has been around the front line engagement with the customers, so that's our engineering activities around applications and our field engineering and service folks, our sales folks.

And then on the production side, in a number of areas we've gone to second shifts where we might have been running a first shift or we have added some additional workforce back. That's been the key areas of focus, but in certain areas where we've -- we look to make specific investments to support activity, we've added it.

So for example as we transitioned our capability around our coatings business to be able to meet some of the powder technology demand in China, we've built up some capabilities to design and build that in China to meet those specific customer needs.

So we have been very targeted along the areas that support growth and fit with our strategy. But yes, we have been careful to moderate additions in the overhead support area.

Okay, now given your margin profile, I'm wondering if you could just kind of discuss the competitive landscape out there. You would think that it would be more aggressive, but that doesn't seem to be the case. Can you kind of tell us why that's the case?

I'd say we feel like it's pretty aggressive all the time. I think we go to market with some pretty compelling value proposition around being the leading technology provider, having an excellent application understanding, being the one that brings innovation to our customers and solves their problem. And then in most cases, we are the only one that offers the compelling service capability we have on a global basis.

So at the end of the day, I think it's a competitive landscape out there, but we have some advantages and we continue to innovate with technology, our business model and service that allows us to improve. And underneath that, we are getting more process-focused and more efficient in everything that we do and I think we see on that play through.

We are winning in the marketplace because customers value what it is we bring to the table. And that's the number one focus of the whole organization is to be the value leader.

Okay. Greg, for you, the $7.7 million in share repurchases, was that a net number?

When you say net number, John --

Net of options. Are you actually reducing the share count or not?

No. That was the amount that we repurchased under the share authorization program.

Okay, thank you.

Walt Liptak, Barrington.

Thanks. Good morning, guys, and congratulations on a really strong performance. Just I guess the first question is in advanced tech and I wanted to understand if there is a sort of a mixed message that's going on here, because you continue to talk about and warn us about more normalized growth. But then putting up over -- with a tough year-over-year comp strong growth. And I went back and looked at the growth rates for orders, just the average from 2002 to 2010 and it was 11%, so that's probably normal growth.

But you are also talking about product innovation, the strong consumer electronics cycle that we are in. What do you think the growth rate should be for advanced tech over the next year to two years? Is there something special about the cycle that we are in that would get the growth rate higher than the average over the last eight years?

Our view, and I think we mentioned this at our investor day, Walt, is our view is we think this is a business that organically grows probably close to double digits and with some acquisitions well into double digits over the long run. I think in the short term we've started to see the recovery in the second half of 2009. It was pretty strong through 2010, very strong in the third quarter and reasonably strong in the fourth quarter in 2010, and I think we've continued to see reasonable strength here in the first quarter.

Our view is in that particular business we are getting back to more normal kind of growth. So you can still have a quarter or so where it might be more of a recovery effect. But we do think there are underlying trends that are helpful in that business and should allow us to grow at this kind of rates in the long run.

In the short run, you might have growth that could be a little bit higher depending on sort of how this wave of mobile computing plays out right now. It's pretty strong and we are taking advantage of that.

In the long-term, we have some of the other drivers as we mentioned LED is paused for the moment, (inaudible) coming back a bit. LED lighting in the long run will be a nice growth driver and we continue to look to diversify in that space into other areas like medical devices.

So we think it's a good double-digit growth business for us in the long run. In the short run, you could still have some movement up and down depending on whether you've got a recovery effect or a specific area taking off.

Third quarter of last year we had the iPhone 4 launched and a couple of other competitive launches and that certainly pushed our revenue, and you can have that kind of variability throughout the year. Certainly at the tail end of the year, you see you have customers that tend to seasonally slow down the holiday season.

So you can have movement quarter-to-quarter, but we think long-term high single digits and double-digit organic growth and with the acquisitions in the mid teens.

Okay, got it. Thanks very much for that. I wanted to ask just about the tax rate for the full year. Greg, where you think you will end up for the full year?

Yes, well, we had a one-time item here in the first quarter that had to do with the extension of the R&D tax credit, so that drove down our effective tax rate below what I would say would be kind of a normalized rate. What I am guiding to for quarters two through four is a rate at about 30%.

Okay, and I just want to make sure because the numbers are so strong for the outlook for the second quarter, I just want make sure I understand. Typically your first-quarter EPS is the lowest quarter followed by the second, and then you get a stronger back half of the year, higher earnings per share in third quarter and fourth quarter. Is that still the seasonal trend?

As I said a little bit earlier, Walt, a typical pattern is right. First quarter softer largely because of the holiday timeframe. Second and third quarter from time to time vary, where one is stronger than the other, but certainly a step up from the first quarter. Fourth quarter tends to be a little bit better, but for some businesses, it's a little bit worse.

So you kind of see I think three quarters that don't vary a great deal and one quarter that tends to be softer and then from time to time that can vary a little bit year to year.

I think what we have suggested, though, as you look out and look at our performance last year, we had more of a ramp-up in the second half of the year. So as we go forward this year, we're going to have tougher comparisons when we look at the second half of the year.

Walt, I think what I would add is second half versus first half is typically stronger. When you get into the dynamics of the particular quarters now especially as advanced technology has gotten to be a bigger portion of the total portfolio, some of those end markets within that segment actually the fourth quarter tends to be their weakest quarter as they have really ramped up their volumes in second and third for holiday build.

So some different dynamics in some of the different segments that might have an impact on the sequential growth, but pretty safe to say second half is greater typically than the first half.

Okay, good. That helps to factor in for the fourth quarter. And then let me just ask a last one about with the earnings coming in the way they are, you are accruing for bonus pay for the full year. I wonder are you already accruing for bonus pay for the full year? Is there going to be a true up in the fourth quarter?

You are correct with the way you've characterized it in that as we move through the year, we update all of our accruals, so with our expectation where they are and where the performance is coming in now, we are accruing for those bonus accruals during each quarter.

Okay, got it, thanks very much.

(Operator Instructions) Matt Summerville, KeyBanc.

Good morning, a couple questions. First, Mike, can you talk about what you guys are seeing across your businesses in terms of pricing thus far in fiscal '11 versus '10?

Yes, generally speaking, I think prices are pretty solid, maybe up slightly in certain businesses. I'd say when you look at the mix we are seeing a benefit as I mentioned earlier in terms of mix within sort of product lines with a sense of on a year-over-year basis. So we've got some that are a little bit stronger than others on the margin end, but overall on pricing I'd say they were up a little bit.

Then Mike, you've spent a lot of your commentary on advanced tech has centered around mobile devices, smartphones. If you look at kind of those product categories, how much of your advanced tech business today do you believe is being driven by those types of applications or that market overall?

I'd have to probably get back to you with the specifics on that. It's a significant part. Obviously we support PCs and desktops and those kinds of things as well, more PCs and desktop and more mobile devices I think more recently given the tablet or netbook kind of categories. But I don't have a specific number on that.

But certainly in terms of what is that of driving growth it's both that category and the technology that supports that category, so if you think about it, we've talked a lot about the underfill technologies, that's largely a kind of a mobile device related activity. You don't need that -- the same kind of mechanical integrity that -- in a desktop. So that is kind of tied in there in terms of the technology drivers supporting that activity.

And then we have a strong consumables business in our EFD segment as well. In addition, just a couple of comments. We talk a lot about the expense kind of application in electronics. We've added on the test and inspection kind of activity and we are benefiting there again around the mobile device because more of that manufacturing is outsourced and the packaging assembly standpoint that it was and therefore is driving test inspection requirements.

Mike, given that you have largely a direct sales model across all your businesses and you've sort of talked about I think for a quarter, maybe two now an expectation that growth in your business is going to moderate. As you look at the roadmaps that some of your bigger customers lay out to you as far as what they are doing from a new product standpoint, is the incoming customer feedback you are in fact getting today saying that yes, growth here is definitely going to slow? Or are you more just saying based on kind of past cycles that would be indicative that this is not sustainable?

Yes, I would say it's probably more of the latter, just looking at the experience over a long time with this industry and looking at the last number of cycles at some point do you see things turn [down]? This is such a big drop and then a big response that it's not typical of what you might've seen and then there's quite a bit of innovation that might be a little bit different since the advent of all of the smart technology. So that's a big wave that is having an impact here.

But in the long run, when we look at the fundamentals, we do expect it to moderate. I think what has changed probably in the last three months or so is the general economic outlook which has back dropped everything here has improved considerably. If you look at most forecasters, most economists out there have increased our US forecast and bumped a little bit for European forecast maintained or increased their emerging market forecasts.

So you've got kind of a backdrop of an improving economy that maybe is not translating into employment numbers yet here in the US but it is more encouraging. I think that's affected not the big guys who continue to invest regardless, more that middle tier that has (inaudible)

Thanks a lot, Mike.

Liam Burke, Janney Capital Markets.

Good morning, Mike. Good morning, Greg. Mike, with -- as early as last year, you saw a fair amount of activity in emerging markets for the obvious reasons you talked about by the business segments. And then you have seen the more developed markets sort of follow through here, as you saw. Is there any particular geography that has surprised you either on the upside or the downside so far?

No, I wouldn't -- I guess the one area that probably is picking up nicely and some people might be a little skeptical about is elements within Europe. But in general, we are seeing kind of what we expected in terms of emerging markets leading the recovery and then developed markets, as you say, coming along. First the durable space improving or the technology space, then the durable space and then now the more encouraging signs are the nondurables -- sorry, nondurable space coming first and then the durable space coming back with some bigger ticket kind of items.

So that's really I think the second half of last year and really this quarter a more encouraging sign that it is more broad based. So that's not just an emerging market phenomenon now.

Okay, Greg, on the working capital side, you had a pretty steep step up in revenues, but your working capital numbers, especially receivables inventory, were down. Is there anything different? Is it a timing issue?

No, I think it's -- the working capital is pretty typical for the seasonality moving from fourth to first quarter, where our revenues tend to be the highest in the fourth quarter. So we are collecting on those receivables here. But nevertheless, we continue to put our internal focus on better working capital management. I think our DSOs have come down as compared to where they were last quarter.

Inventory, there was a slight build in inventory. A portion of that comes with the Micromedics acquisition. It is a relatively small number. But also as is typical with the first quarter as we kind of push out volumes in the fourth quarter, we tend to have some inventory build in the first quarter.

So it's been in line with expectations, but as I say, kind of the underlying theme is we want to continue to get better at managing net working capital.

Tracy, I think we have time for one more question, maybe.

Walt Liptak, Barrington.

Thanks, just a quick follow-up. On the coatings business with the order book starting to fill out a little bit and given the guidance for the second quarter, are you expecting the profitability to move up more towards the corporate average?

Our goals for the coating business is to get that business to a sustainable 15% margin. We talked about that while in the context of getting back to sort of the levels of revenue that we saw in in 2008, so in that sort of $175 million, $180 million range. I think you saw in the last couple quarters of last year as we got the volume come through that in fact the structural changes we made in that business were translating into profitability in that middle teens kind of range.

And so that is our goal and so we do fully expect as the revenue continues to build that we will see the margin improvements in that business in line with our plans. And I think we are in very good shape in terms of being on track with our plans in that business.

Okay, good. Okay. Thanks very much.

Tracy, just a couple of wrap-up comments here. First, I just want to make a comment again about our team. I think if you go out and look at our business, we are very well positioned in the marketplace. We are clearly winning. It's that business model we have. It's the combination of innovative products, applications, know how, and our direct local support capabilities that continues to resonate with our customers.

When you look at the second quarter, we have provided an outlook that shows strong results based on the order rates that we have here. We have talked a little bit about those moderating going forward.

But a couple of comments I'd just like to leave you with. One, I think we are positioned as well as any of the folks that we compete with in our industry both from a market perspective and a geographic perspective. And I think clearly as our team has demonstrated here over the last year and particularly the last three or four quarters, there's nobody out there that's better than executing when focused.

So I'd just like to personally again thank our team for continuing to be focused on the right things, delivering the kind of value that our customers pay for, and doing that better than anybody else. So thank you very much.

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