Nordson Corp (NDSN) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Nordson Corporation webcast for third-quarter fiscal year 2011 earnings.

At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn your conference over to the host for today, Mr. Jim Jaye, Director of Investor Relations. Sir, please go ahead.

Thank you, Ben, and good morning to everyone listening. This is Jim Jaye, Director of Communications and Investor Relations. I am here with Mike Hilton, President and Chief Executive Officer, and Greg Thaxton, Vice President, Chief Financial Officer. We would like to welcome you to our conference call today, Friday, August 19, 2011, on Nordson's third-quarter fiscal year 2011 results.

Our conference call is being broadcast live on our webpage 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 August 26 by calling 1-855-859-2056. You will need to reference ID number 89752139.

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 prepared remarks we will have a question-and-answer session.

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

Thank you, Jim. Good morning, everyone, and thank you for listening to Nordson's third-quarter 2011 conference call. This quarter we delivered the strongest third quarter in our history with all segments generating solid growth and increased operating margins. Our update this morning will describe several of the highlights from our performance, and we will also provide some perspective relative to our outlook for the fourth quarter of fiscal year 2011.

Let me begin by offering some comments on the third quarter. First, I want to congratulate and thank our global team for continuing to perform at an extremely high level. They delivered solid improvement over the strong levels of a year ago in sales, operating margin, operating profit, net income, and earnings per share.

We continue to generate these results by delivering real value to our customers in the form of innovative technology, applications expertise, and direct worldwide service. At the same time we are maintaining our disciplined approach to spending and we are continuing to expand our operational efficiencies through a variety of continuous improvement initiatives.

Looking at a few of our numbers more specifically, sales grew by 12% in the third quarter compared to the same quarter a year ago, as customers continued to respond to our value proposition. I am especially pleased that we generated this solid growth despite a backdrop of sluggish global recovery impacted by the disaster in Japan, increased macro economic and political uncertainty, and comparison against a very strong period of growth a year ago.

In addition to the solid top line, profitability reached the highest third-quarter levels in our history. Excluding one-time items in both years, operating profits grew by 21% and operating margin reached 26% and EPS grew by 25%.

We also continued to execute on our acquisition strategy during the quarter. As previously announced, the Verbruggen acquisition adds to our Adhesive Dispensing segment by providing us with an entry into growing flexible packaging markets worldwide. And the Value Plastics acquisition, which we expect to close within the quarter, the fourth quarter, is a high-performing growth business currently focused in an attractive niche market space in the medical area but with opportunities to expand in the industrial space as well.

In terms of our outlook, our 12-week order rates as compared to the prior year are solid and remain positive in all segments and geographies, though they are also reflective of the current macroeconomic environment. Overall, our guidance points to a record full year for Nordson in both sales and profitability. I will offer additional comments relative to our outlook later in the webcast.

Before that let me turn the call over to Greg Thaxton, our Chief Financial Officer, who will provide a more detailed commentary on our third-quarter financial results as well as some comments on our guidance for the fourth quarter of 2011. Greg?

Thank you, Mike, and good morning to everyone. As Mike noted, this is the strongest third quarter in Nordson's history. Let me start by talking about our sales performance where in total sales were up 12% over the prior year's third quarter. This growth is comprised of 5% improvement in volume with positive currency translation making up the balance of the increase.

Growth occurred in all three operating segments and in every region, with the exception of Japan. In the Adhesive Dispensing segment sales improved by 13% over the prior year's third quarter. Sales were strongest in emerging regions and in consumer nondurable end-markets such as packaging and nonwovens.

The Advanced Technology segment also improved over the prior year delivering an 8% sales increase with particular strength in our dispensing and surface treatment product lines. The Industrial Coating systems segment continued to capture returning demand in consumer durable markets, resulting in sales increase of 17% over last year's third quarter. Double-digit growth occurred in the majority of this segment's geographies and product lines.

As the quarter evolved we did experience a decline in order rates as concerns regarding the global economic backdrop re-emerged and our customers' buying patterns turned more cautious. Given the relatively short lead time nature of our business, this did have an impact on our quarterly revenue. Also, all segments were impacted by the events in Japan where recovery from the disaster remained slow for the majority of the quarter. Within this particular region we have seen a return in demand over the last several weeks in all segments.

Moving down the income statement, gross margin in the quarter was 60.2%, in line with our guidance and up 80 basis points from the prior year's third quarter. As we look at operating performance in the quarter, reported operating profit increased by 16% over the prior year's third quarter to $79 million and operating margin improved to 25%, exceeding the strong level of a year ago. We have included a schedule in our press release to reconcile between GAAP earnings per share and normalized earnings per share to exclude certain one-time items, and excluding these one-time items in both years operating profit improved by 21%, operating margin reached 26%, and we have an operating profit leverage ratio of almost 1.8 times our sales growth.

Operating margin improved in all segments compared to last year's third quarter with Adhesive Dispensing and Advanced Technology continuing to perform at very high levels. And I am particularly pleased with the continued progress within Industrial Coatings where operating margin expanded to nearly 18% in the quarter, an improvement of more than 5 percentage points over the prior year's third quarter. For Nordson overall this is the ninth consecutive quarter we have improved our quarterly operating margin over the previous year.

Continuing down the income statement, net income and diluted earnings per share both exceeded the levels of a year ago. Net income for the quarter was $57 million for a return on sales of 18% and third quarter's diluted earnings per share are $0.82.

Earnings in the quarter included a gain of $0.04 per share related to a one-time tax benefit and a charge of $0.03 per share related to the withdrawal from an international multi-employer benefit plan. Excluding one-time items in both years, third-quarter diluted earnings per share improved 25% on a year-over-year basis.

The current quarter's EBITDA was $85 million and third-quarter free cash flow before dividends was a strong $65 million or 114% of the quarter's net income, representing a very strong cash conversion in the quarter. Our continued confidence in our ability to generate strong cash flow led to our recent dividend announcement where we increased our quarterly dividend by 19%. With this increase Nordson has increased its annual dividend for 48 consecutive years, ranking us 15th among an elite group of publicly-traded companies with the longest running record of consecutive dividend increases.

Looking at our performance through nine months, sales were up 20% over the prior year and excluding one-time items in both years, operating profit and earnings per share are up 48% and 55%, respectively. Also over this nine-month period as compared to the prior year, EBITDA has increased by 41% and free cash flow before dividends has increased over 180%.

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

Before moving to our fourth-quarter outlook, I will provide some comments on recent order trends. We have provided our most recent order data, both on a segment and geographic basis, with our press release. These orders are for the 12-week period ending August 14 as compared to the same 12 weeks of the prior year on a currency neutral basis.

Total company orders are up 6% compared to the same 12-week period in the prior year. On a total company level acquisitions added approximately 1% to this growth. This overall growth rate is solid, broad-based growth, but also reflective of the slowing order trends that I referred to given the current macroeconomic environment.

These order rates are also in comparison to a strong period of recovery a year ago.

On a geographic basis, orders are up in every geography over the same period last year with order rates growing fastest in Asia-Pacific, Japan, and the Americas. Order rates in the US and Europe reflect recent macroeconomic softening.

Looking at orders on a segment basis, Adhesive Dispensing orders were up 4% from the prior year with growth driven by nondurable end-markets. Advanced Technology orders over the latest 12 weeks are up 9% from the prior year, led by activity within our automated and semi-automated dispensing platforms. Within the Industrial Coating segment the latest 12-week orders were up 8% as compared to the prior year as investment in durable end-markets served by these products continues to recover.

Moving on to our outlook for sales in the fourth quarter, we are expecting sales to be in the range of $315 million to $327 million. As compared to the prior year's fourth quarter, this sales outlook represents an increase in sales volume of between 5% to 9%, inclusive of 2% related to acquisitions with an additional 4% currency translation benefit based on the current exchange rate environment. This represents a total sales increase of 9% to 13% as compared to the fourth quarter a year ago.

We expect gross margin of around 59% in the quarter, reflecting a higher mix of systems versus parts as compared to the third quarter. Total selling and administrative costs are expected to be up about 1% from the third quarter, including anticipated charges of approximately $2 million associated with restructuring costs, and we are forecasting a 30% effective tax rate for the quarter.

Earnings per share for the fourth quarter are estimated to be $0.77 per share to $0.84 per share, inclusive of the $0.02 per share restructuring charge. Excluding one-time items in both years, the midpoint of this fourth-quarter guidance represents an increase of 10% over the prior year fourth-quarter earnings per share. On a full-year basis, even the low end of our sales and diluted EPS guidance will result in Nordson full-year record for sales, operating profit, net income, and diluted earnings per share.

In summary, Nordson delivered record third-quarter and nine-month year-to-date performance by generating solid growth, even against strong comparisons and an uncertain macroeconomic environment by maintaining our strong focus on operating efficiency and continuous improvement initiatives. Our guidance points to a solid fourth-quarter that will result in record full-year performance.

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 solid, although they have moderated more recently given the level of macroeconomic uncertainty that persists in today's environment. As we look at our latest annualized 12-week run rate, which is approximately $1.2 billion, this is down modestly from the $1.3 billion level we reported in our last conference call but consistent with the seasonal trends that we see in the nature of our Advanced Technology business and Europe's holiday season.

We continue to believe that our presence in emerging markets, technology leadership positions, and expanding application and new market opportunities will enable us to deliver long-term growth.

Specific drivers in each segment bode well for our long-term success. In Adhesives we continue to be market leaders in consumer nondurable markets, such as packaging and nonwovens that present solid and long-term growth opportunities in the rapidly expanding middle-class populations of emerging regions. General product assembly applications provide numerous application opportunities for us to grow as well.

In Advanced Technology we are well-positioned to capitalize on the continued demand for smartphones, tablets, and other electronic devices and accessories. We will continue to supplement our core electronics positions with new markets and applications in areas like medical devices.

Growth opportunities also exist in our Industrial Coating segment as we continue to expand our tiered product offering to more effectively meet the different needs of manufacturers in varying regions and we capture the demand in these emerging markets. From an operating perspective, we expect to deliver very strong performance on a full-year basis that exceeded the record performance of 2010, yet there are opportunities for further improvement and we will remain focused on our continuous improvement initiatives to leverage and deliver this opportunity.

We will continue to surpass the competition with a compelling set of advantages that include innovative technology, application expertise, direct sales and service, a global footprint, our operational excellence model, and financial resources for continued investment, and, of course, a team that executes better than anyone else. We will continue to focus on what we can control mindful that we are not immune to the global macroeconomic factors.

With regard to the acquisition of Value Plastics, we are still waiting for regulatory approval and we expect to close the transaction in our fiscal fourth quarter. While the terms of the contract prohibit me from discussing financial information about the company, I will say that we are excited about the prospects that the company brings to Nordson and the opportunity to add such a high-performing operation to the Nordson portfolio. Once the transaction closes we do plan to schedule a teleconference to discuss more specifics about Value Plastics and the value Nordson will bring to the acquisition.

In closing, I would like to thank our team again for delivering very solid results in the third quarter and for the first nine months of this year. I am confident that they will continue to perform at a high level in the fourth quarter and beyond.

At this time we will take your questions. Thank you.

(Operator Instructions) Jason Ursaner, CJS Securities.

Good morning. Mike, you have been anticipating a compression in year-on-year volume growth for some time, this moderation towards long-term sustainable trends, so just two questions related to that. One is as you look at order flow and talk with customers, what gives you confidence that it is actually a moderation and not signs of a broader slowdown?

Then secondly, given that you are lapping the heart of the cyclical recovery, particularly in the US, how should we think about sustainable growth by segment and have the rates you have outlined in the past changed at all?

Okay, Jason, maybe I will actually tackle that second question first because we have just spent some time going through our strategic plan update. From an overall organic growth perspective, as we look at each of the businesses that we operate in and the niches that we see as good opportunities for organic expansion, what we talked about last year in our investor conference, sort of the mid to high single-digit organic growth, we feel confident of that in the long run and perhaps see some upside from an organic standpoint based on some of the additional adjacent niches that we see as opportunities. So we feel good about the long-term prospects across all of our segments.

With respect to the short term, we have been talking about throughout the year, particularly in our Technology business and in our Adhesives business, getting closer to more of that long-term growth trajectory while still seeing some recovery opportunities in our Coatings business. I would say we are approaching that sort of longer-term sustainable growth.

As Greg and I both mentioned though, we have seen in the tail end of this quarter some slowing in two key geographies, the US and Europe, and while we tend to outperform those geographies given the niches that we have and the specific customer market opportunities we have we did see at the tail end of the quarter some slowing there.

As it relates to our order rates, what we see -- a couple of comments. One, the backlog is pretty strong. Some of that is from a few orders that got pushed into this quarter from last quarter, but they are going to be delivered in the early part of the quarter. Some of that is really slowdown that we have seen in the US and Europe. I would say our bid activity remains strong and we've continued to see orders come in as our customers are a little bit more cautious in the short term just given the uncertainty that is out there.

Okay. And then you mentioned Value Plastics expecting to close in this quarter. Do you have a rough date for when we could expect this, or maybe a percentage of the full quarter we could assume the acquisition is contributing in the fourth quarter?

We are waiting right now to hear -- to get through the review with the Justice Department regarding the HSR filing, so we would hope that in the next week or so we will hear something on that and then close fairly quickly after that. So our hope is in the next couple of weeks that that would close.

And if I take the midpoint of the Q4 earnings forecast, you're guiding to adjusted EPS for the full year of around $3.20. So I know you can't discuss financials of the Value Plastics deal, but based on yesterday's close your own stock would be trading less than 13 times this year's earnings and I would argue you are a pretty high-quality company. So without discussing the financials, how do you see this business generating superior returns relative to your own stock, even if it's a very high quality business?

Well, I think a couple things. You have got it right; it is a very high quality business. It has many of the attributes of our EFD business. It's in an area where we think there will be good growth, both in the underlying demographics but also with the potential to expand into some of the adjacencies as well as to expand in the industrial space. So we see some important opportunities to grow even faster than the Value Plastics team has been able to grow to date. And we see the quality of the business being very, very high.

Okay, thanks a lot for taking my questions.

All right, Jason. Thank you.

Charlie Brady, BMO Capital Markets.

Good morning, guys. With respect to Adhesive Dispensing in the quarter, can you give us a sense of what the parts mix was for that and maybe the parts mix overall for the Company in the quarter?

So generally speaking, the parts mix has been declining from the beginning of the year as sort of system orders pick up. But overall, I think in the quarter we might have been 42%, 43%, Greg?

Yes, we declined by about 100 basis points from the second quarter, so we are at about 42% in the third quarter.

For the Company as a whole?

That is total company.

Yes, and I would say all businesses have seen that same trend. Maybe a little bit more so in the adhesive side.

Okay. Does the -- in your fourth-quarter guidance the 2% from acquisitions does that include Value Plastics?

No, it does not.

Okay. On the share repurchase, can you give us -- remind us how much is left on the 2 million share authorization?

Yes, if we looked at what we have purchased to date, there is a little over 1 million shares remaining under that authorization.

Okay. One more and I will get back in the queue here. You mentioned on the order growth 1% came out of acquisitions. Was it a greater impact than that on the Adhesive Dispensing orders for the 12 weeks?

No, that would be more impacting Advanced Technology.

Sorry, sorry. So was it greater than 1% for that segment?

The impact on that segment, yes, it was about 2 percentage points.

Okay, thanks.

Mark Douglass, Longbow Research.

Morning, gentlemen. Can you discuss, in Advanced Tech what are you hearing from your Tier 1, 2 semi-cap equipment customers? Do they believe that the cycle has turned down and dropping, or do they mostly see it as a pause in spending for a couple of quarters and then kind of gets back on the horse a little later?

Yes, I think to answer that question, just to make a couple of comments, there are a bunch of different areas within the electronic space that we support in our Advanced Technology business. So the strongest have continued to be the folks involved with the smartphone, tablet kind of activities where orders remained strong and continued to look strong for the foreseeable future.

I would say in the general packaging area, and that plays over a bit into the test and inspection area as well, things have softened a bit and I think expectations are for things to be slower growth back to more normal growth, but maybe with a quarter or so pause. And we have seen that kind of flow through our orders. So we have seen four of the larger automated system orders that are supporting kind of the mobile activity and some slowdown in some of the sort of smaller, semiautomatic types of orders relative to what we would have expected.

Then in our test and inspection area we have seen things are a little softer than we would have expected, although last year we had a very strong LED opportunity in that space that we really aren't seeing this year in the kind of third and fourth quarter of last year. So I would say in the general packaging area what our customers are saying is more of probably a pause and anticipating, if you look at their forecasts, next year would be a more normal or perhaps even a slower growth year.

But again, the things that tend to drive big parts of our business -- the mobile devices, the smartphone piece, the tablets -- that continues to remain robust.

Is it fair to say in the smartphone and tablets that your ultimate customer base you are more heavy levered to those who are obviously taking share versus those who are losing significant amounts of share?

We are doing well with the leaders in that business and their supply chain.

Okay, thanks. And then a last question, the Europe orders were slowing more significantly than others; I am sure some of that if somewhat comps but is most of that weakness in the Adhesives? Are you seeing a pullback there maybe more in food and bev or nonwovens or both?

I would say in general we have seen a slowdown across the broad elements of the Adhesives business. I would say we still -- encouragingly we still see bid activity, say, in the product assembly piece of that business being robust. But, yes, we have seen a slowdown across both elements of that business, I think reflective of the general economy and what is going on there right now.

But encouragingly in the systems orders part of that, which tend to be product assembly and some coating applications and so forth, bid activity is up and orders are coming in. So it's reflective of the general slowdown but with some bright spots.

Thanks for taking my questions.

Matt Summerville, KeyBanc.

Good morning. A couple questions. First, I want to talk about orders a little bit more here. You mentioned the exit rate on the most recent 12-week period coming in below that 6%.

I guess could we get a little more granularity on how that looked by segment? Are you seeing negative order trends in any of your segments now or any of your geographies relative to the prior-year period? And if you look at how orders came in throughout the quarter is there a time period that you can point to and say this was the inflection point?

So just a couple of comments. The orders are -- just to be clear, the orders are the latest 12 weeks so that would be up through this week. Well, actually at the end of last week would be the orders, just to clarify that.

I would say in the last three or four weeks we have, probably been the last three or four weeks we have seen some softening and more of that has really been in the US and Europe as we said. I would say we see some different things across geographies. In general, the segments that have all slowed down a bit from an order perspective.

Now if you look at what we typically see in an annual pattern on our orders, we tend to see, particularly in the technology space, that those would start to soften on a seasonal basis as you go through the latter part of the third quarter and into the fourth quarter as people have bought most of what they want to buy for the holiday production season. And so we are seeing the, I would say, same seasonal patterns that we would see in a couple of areas in the US, and Europe we are seeing a little bit of softening. Remember, this is up against a very, very strong level of orders last year in the fourth quarter as well.

I would say the one area that has been negative that we started to see a little bit of turnaround from an order perspective was Japan. Though we have seen orders start to come back in Japan, what I would say is that is not making up for what the impact was of the tsunami but it's getting back to more normal, typical kind of order rates we would expect in Japan. And we would actually expect kind of the makeup of the rebuild after -- the construction activity probably into next year.

The other thing I guess, Mike, with regards to just the geographic color on orders, a good chunk of that Adhesive business that is in Europe is believed to be exported to some of the emerging markets. So I guess is there any read-through here to some of the emerging markets you serve, like China? Are you seeing on a sequential basis the pace slow down meaningfully there in any of your businesses?

What I would say is certainly in the emerging market aspects of that, and really in the re-export on the OEM side, it still looks quite strong for the emerging markets. So, no, we are not seeing a slowdown there.

What we are hearing from our customers, say, in Europe is, while they have got funded projects and they are placing orders, they are being more cautious. They are being more cautious with buying parts. They are being more cautious with committing to the next system. And that has really reflected itself I think in the last month that of the order information that we have provided to you.

As far as emerging markets go, no, we see that as very strong still and no signs of (inaudible).

As you think about kind of the overall scenarios that can play out from a macro perspective looking out over the next several quarters, if Nordson were to see a more substantial downturn I think you mentioned in the press release you feel like you are well equipped to deal with it. And certainly last time around you guys did a good job in taking costs out and, more importantly, as we see with the kind of operating leverage you have been generating, you have kept it out.

I guess if we have sort of a double-dip scenario do you feel like there is enough -- I guess what is in the playbook in that regard, Mike, given all that was accomplished through this last downturn? Do you kind of see where I am coming from?

Yes, I think I understand your point. First of all, just to kind of restate that, we have been able to move our margin performance up 600 or 700 basis points. So I think that is part of what you are referring to and we have done that through structural improvements. And that has created the good performance that we see this year and the volume leverage that we have gotten.

And so I think that absolutely is something that we are going to continue to support. I think also, if you think about the nature of the downturn -- pretty dramatic, financially led, liquidity impacted. And if we were to have a slowdown I think those things wouldn't be similar so I think we would see perhaps more of a normal slowdown, which I don't think we will have the same level of impact.

That said, I think as you recall one of the things that I did coming in here was create a role that reports to me to drive continuous improvement across our business. There are a number of initiatives that we are working on as we speak, some of which have led to some short-term impacts. Restructuring costs have come into the fourth quarter that were related to optimizing our supply chain.

We have work on segmentation and pricing. We have work on our new product development. There are a number of other areas from that continuous improvement activity that will translate and be part of being put out there as an ongoing structural margin improvement going forward.

So we are working on those and those will help offset, I think, the impact of the downturn. That said, we have seen in moving from the second quarter to the third quarter that we have done a nice job of creating leverage from a line perspective. And so when volume goes down we do have some impact and you saw some of that translate into gross margin and the operating margin in the quarter.

We have been very judicious this year in terms of adding costs back and being very careful only to do that in areas that made sense, like selling or service and activity, at our production levels where we needed to and in our technology investment. And we will continue to have that discipline.

Last question, just so I make sure I understand kind of the moving parts from the second quarter of fiscal 2011 to the third quarter of fiscal 2011. Nordson's revenue declined by about $6 million. If you ex out the noise from the one-time items, your operating profit declined $11 million to $12 million. That is obviously pretty substantial negative leverage I guess.

Can you give us a sense how much of that is mix, how much of that is volume? Is this parts versus systems dynamic really having a more profound impact now than maybe it was a quarter or two ago?

You are right, there are a number of moving parts there. So certainly a portion of that was related to the volume leverage, but we did have significant mix across segments in terms of growth in our Coatings business, which is a lower margin business but as you see a very good business now from the levels of improvement.

But we certainly had mix across the segment. We had mix between parts and systems occurring there, and we had the volume leverage. So you have sort of equal parts of each of those as a rough guideline in terms of what you saw there.

So I think as you go to the fourth quarter we are going to continue to see, as Greg mentioned, the systems parts piece have an impact. Then within the segments themselves we have multiple product lines and some of those are at different profitability levels, generally a function of what scope is of the offering that we provide. And they will have some impact there as well, which is why we have guided to the level we have.

I guess the one comment I would like to make is across this, the quality of the business in each of the individual segments has not deteriorated at all and what you are really seeing is mix effect and volume up.

Thanks a lot, Mike.

Walter Liptak, Barrington Research.

Thanks. Good morning. Wanted to ask about the corporate expenses this quarter, the $12 million; is that inclusive of the Japan pension fund, the $3 million?

This is Greg. Yes, that is where we have booked the $3 million. That is also where we book expenses associated with corporate development activities. As you probably know, from an accounting perspective you now expense those as incurred, so that is where we record those charges. And some of our continuous improvement efforts, as Mike talked about, are booked there as well.

Okay. The continuous improvement that will hit in the fourth quarter, that is where you would have the charge for that, right?

No, we have had some efforts ongoing that Mike talked about -- for example, customer segmentation -- and so those costs have already been incurred. What I am highlighting is if you looked at quarter three, backed out the Japan pension, it has dreaded a little bit higher than the previous two quarters and it's associated with some corporate development expenses and some of these continuous improvements.

Just to be clear, on the continuous improvement we have had some help in certain areas from the outside, Walt, to look at segmentation and pricing in particular, for example.

Okay. Can we quantify the corporate development expense in the quarter?

I guess what I would say, Walt, is if you looked at the previous -- quarters one and quarter two you might have been in the $7 million, $7.5 million range. I think kind of normalizing our spend there we might look at a similar range in quarter four, somewhere in that $7.5 million range.

Okay, excluding any --?

Excluding debt.

Any restructuring related charge or more corporate development?

Right.

Okay. I think the challenge that we are going to have is you can't look at anything on Yahoo Finance or in the paper without recession, and I think what everyone is trying to get at is in your organic order rate could you go negative next year?

Should we expect -- and I know you don't give annual guidance yet or you don't give annual guidance. But in that organic growth that you have over the long term are you including revenue going negative or organic growth going negative for a period and then recoveries? How should we look at the next 12 months?

Yes, I think when we looked at our overall sort of guidance of that high single-digit organic growth we were thinking about a global economy that was growing at 4% or 4%-plus on average. I think if you look at -- globally, I think prior to the last, I would say, three or four months I think most economists were probably looking at 4.5% for next year. And I think most have reduced the global growth by maybe not quite a point, maybe 0.75 point.

More dramatic impact from a global -- from an economic standpoint in terms of the reductions that you are seeing by the economists in the US and Europe, probably a full point kind of reduction from that sort of 3.5%, 3% to 3.5% to down to 2%, 2.5%.

I think most people still expect growth next year in the developed markets making that more modest. And most people have not significantly reduced the emerging market growth despite the efforts out there to try and make sure that inflation is under control and so forth.

So if your economic scenario is a slower global growth market by a percentage point, we probably wouldn't expect to see things go negative. But we are not economists and we don't know how this is going to play out. So I think of the general economy most people think it will grow but grow slower.

I would say what we were encouraged by as we went through our strategy work is there are a number of kind of unique niches that we participate in or continue to or could participate in that tend to have some different dynamics. So if you look at the sort of tablet, smartphone that looks interesting; there is MEMS device applications that look interesting in that business, the medical space which we are trying to get into; elements of the packaging space that I think are all of interest.

And I think the second thing that helps us is because we are a technology leader and continue to invest in technology, and we have a broad infrastructure out there in terms of the customers that we serve, we do have the opportunity and we are very focused on introducing new technology to help our customers very cost-effectively recapitalize to improve their own performance, say, in the US and Europe. And so we are actively working on that.

One of the things that we have been investing in this year is continuing to upgrade our technology platform. So we think we will do better than the general economy, but your view of the economy is as good as ours at this point. There is so much noise out there it's hard to understand where to place your bet from a realistic perspective.

Okay, good. All right, thanks for that color. Then just one last one, and I know we can wait for a couple of weeks until the Value Plastics deal closes, but can you maybe talk generally about how you view or maybe review for us how you look at acquisitions? Are they typically accretive immediately or within the first year? Are you willing to have a year of dilution from a deal before the accretion starts?

So I think just a general comment on acquisitions. Our first screen is really from a strategic standpoint, does it fit areas that we think are good areas to invest in and are consistent with the kind of business model that we operate in, fit with the core skill sets that we have. That is kind of the first screen.

Then the things that get through that and we look at individual deals we are looking to earn several points above our cost of capital on those deals. What I have said before is if it was dilutive in the first year that is probably okay, if it's dilutive in the second area it's probably not a good deal, and so you think about us putting some discipline around doing that.

And we typically are looking for high-quality properties that we can add to and grow as opposed to things that we can go fix up. So we are looking for leaders in areas and niches that we think are interesting, and Value Plastics fits into that category.

Okay, great. All right, thank you.

(Operator Instructions) Liam Burke, Janney Capital.

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

Mike, you touched on your continuous improvement initiatives and you sort of highlighted some of the activities that have been going on. Could you give us, more or less, a sense of timing of how those processes work through and when we would see that reflected in the operations, the financial operations?

Yes, Liam, there are sort of two levels of effort there. There is a level of effort that has really kind of taken us beyond lean at the operations level that you will see little bits of improvement on an ongoing basis, and then there is some more substantial projects that might have sort of a multiyear effect.

So in certain areas where we are optimizing our supply chain it takes some time to consolidate facilities where we are doing that. Or in the case of our technology business, where we are actually expanding our capability in China to better serve and match our supply and demand standpoint, it takes some time to build out. So those could play out over the next several years.

So what we talked about at our investor day multiyear plan it was with those sort of bigger projects in mind. Driving at least a couple of points of improvement in margin was our overall goal and I think we are on track with that. But it's going to play out over the next couple of years; it's not going to play out over the next month.

But we will see -- it will come in increments because some of the things are coming in in phases and stages as opposed to big bangs.

Great, thank you. Greg, you have allocations of cash for acquisitions, you raised the dividend 19%. Where are buybacks in the general mix or priority of capital allocation?

Liam, as you note, we have got (technical difficulty) categories as we look at prioritizing the use of cash, and I think buybacks historically have been an element of that. We look first to offset the dilution effect and then attempt to be opportunistic where we think we can be. We have been more aggressive, as you know, in this year and so it is an important part of our strategy.

Let me just add a couple of other comments, Liam. If you back -- historically for a long period of time about a third of our cash went into sort of organic support for growth of the business, a third went into dividends and buybacks, and a third went into sort of M&A. A lot of that went into supporting the organic growth that was building out our global infrastructure which is largely in place. Not 100%. As I just mentioned, we are doing some things in technology.

So going forward the need for cash to support that kind of organic growth will be more modest and the other two categories will get a higher emphasis in our view of where we want to invest the cash that we generate. And I think, you know, kind of lost in what is going on in the current macroeconomic environment is the strength of our cash generation and our base business, and the continued strong quarter we had this quarter on cash generation and what we expect in the future.

Great, thank you.

Scott Blumenthal, Emerald Advisors.

Good morning, everybody. Mike, can you maybe characterize or put some numbers around how much you felt the situation in Japan with the tsunami affected sales and earnings?

Certainly if you look at our sales in Japan this quarter I think they were (inaudible) they were down --

They were down in volume about 11%.

Yes, in volume they were down about 11%, so not insignificant. As I said earlier, the encouraging news is we are starting to see orders come back to a more normalized level.

But we saw a little bit of an impact in Q2, not very much; we saw a more dramatic impact here in Q3. And we do expect, actually, this will be a net positive but likely a net positive into next year.

Okay. So with regard then to Q4, which you have already guided for, you do expect your business in Asia to be sequentially better than Q3 and possibly at the level of Q2?

That is a broad comment there. What I would say is in general we would expect Asia to remain strong.

We do have kind of a more seasonal pattern, I would say, typically in our technology business where our first quarter is the softest and our second and third quarters tend to be the strongest. And the fourth quarter tends to be a little bit softer just because people have got in place what they need for the holiday season. So we would expect that typical pattern.

Overall, the fourth quarter tends to be historically for the Company kind of our overall best quarter from a revenue perspective. But when you look at it 2, 3, and 4 historically are not very different.

Scott, this is Greg. I would add with regards to those two regions specifically, Japan and Asia-Pacific, the latest 12-week orders in those two geographies were up 10% and 11%, respectively.

And that is off a pretty strong comparison year on year.

Okay, thank you. That is really helpful. Greg, can you maybe characterize the size of the technology business in Asia and Japan as compared to your Adhesive Dispensing business? We understand companywide that Advanced Technology is, what, two-thirds of the size of Adhesive Dispensing, maybe 60%. Does that hold true in Asia and Japan?

Yes, Scott, we, for various reasons, don't tend to go down at the geography level. But I would say in terms of Advanced Technology in particular much of the activity, much of the manufacturing activity, occurs in Asia-Pacific. So from a weighting perspective it's a higher percentage of the overall segment revenue in Asia-Pacific than the other segments, so it's disproportionately Asia-Pacific.

Okay, thank you for that. Mike, could you let me know if it would be correct to characterize holiday production patterns that might trend towards a higher parts mix in the current quarter, parts and service, as opposed to systems?

I am not quite sure I heard the first part of the question. Did you say holiday?

Yes, I guess right now many companies are producing for the holidays and that would lead us to believe that there would be a higher parts and service mix in Q4 than systems. Would that be a correct characterization?

No, that is not typically what we see. So certainly in our -- two comments. In certain parts of our business, like our Coatings business, we would typically see strong systems sales in the fourth quarter. In our Technology business we would see that typically softening a little bit. In our Adhesives business we would typically see solid systems business in the fourth quarter.

What we have said coming out of the recovery is that we had a higher mix of parts to systems as you might expect, because the first thing that happened is operating rates went up, that generates parts business for us, and then people started making capital investments.

So at the beginning of year we were running about 45%. That is high relative to a normal typical activity which would be closer to the 40%, 41%. And so what we are saying is by the end of the year we see ourselves transitioning back to more of that typical mix of systems and parts and getting down to that low 40%. So, no, we typically wouldn't see a holiday mix shift there that you mentioned.

Okay, terrific. Thanks for taking my questions.

I think in the interest of time we are probably going to have to move on to Mike's wrap-up comments right now. So, Mike, I will leave it to you (technical difficulty) a few closing comments here.

Okay, thanks, Jim. First of all, there was a number of questions here about the overall business and what is going on in the economy and so forth. I want to reiterate that the business quality that we are seeing and the orders that we are bringing in and executing on are no different than what we have seen throughout the year. So remain very strong.

Most of what you see in terms of our guidance around margins and so forth is really a function of shift in mix between the various elements that we have talked about.

So when I think about where we are at and I look at Nordson I think the first thing I would like you to take away if we are a company that continues to deliver. Absolutely in this quarter we saw some softening in the US and Europe in the underlying markets, but we still put up some very good numbers. When you look at this quarter and particularly the nine months year to date, what you see is that we are bringing innovation and value to our customers. They are valuing that, they are paying for that, and we are delivering in terms of bringing orders in and getting profit to the bottom line.

Second, as we look at our outlook for the fourth quarter we see a very solid fourth quarter. If we come in at the guidance that we are talking about, we are going to be at record levels from an overall revenue standpoint. Very, very high levels of performance, not only for the quarter but for the year, in an environment that is a little bit softer.

So that points to the focus we have on key niches, the focus we have on key customers, and the robustness of our model. And so we feel encouraged about the outlook for the fourth quarter and the environment that we are operating in.

Lastly, we don't do this without having the best team out there -- the best team in front of our customers, the best team developing our new products, the best team out there manufacturing what we have to deliver and distributing to our customers. So we feel very good about a team that brings innovation and value to our customers and is not complacent, is not looking to stand still but always looking to continue to improve in everything that we do.

So I want to thank them for their performance to date and for what I expect will be a continued good performance into the fourth quarter, and thank you for participating in our call today.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect. Have a great rest of the day.