Nordson Corp (NDSN) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Nordson Corporation webcast of fourth-quarter and fiscal year 2012 conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time.

(Operator Instructions)

As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to your host, Mr. Jim Jaye, Director of Communications and Investor Relations. Please go ahead.

Thank you, and happy holidays to everybody listening today. I'm here with Mike Hilton, our President and Chief Executive Officer, and Greg Thaxton, our Senior Vice President and Chief Financial Officer. We'd like to welcome you to our conference call today, Friday, December 14, 2012 on Nordson's fourth-quarter and full-year results. Our conference call is being broadcast live on our web page at www.Nordson.com/investors, and will be available for 14 days. There will be a telephone replay of our conference call available until midnight, December 21, by calling 1-404-537-3406. You will need to reference ID number 75236774.

During this conference call, forward-looking statements may be made regarding our future performance, based on Nordson's current expectations. These statements may involve a number of risks, uncertainties, and other factors, as discussed in the Company's filings with the Securities and Exchange Commission, that could cause actual results to differ. After our remarks, we will have a question-and-answer session. I'd now like to turn the call over to Mike for an overview of our 2012 fourth-quarter results, and a bit about Nordson's future outlook. Please go ahead, Mike.

Thank you, Jim, and good morning, everyone, and thank you for attending Nordson's fourth-quarter 2012 conference call. In addition to our comments on the fourth quarter and full year, we will also provide some perspective on our outlook for the first quarter of fiscal 2013. Let me begin by thanking all the members of our worldwide team. Their ability to get the job done, and their continued passion for our customers, resulted in the strongest quarter in our history, and a record full-year for the third year in a row.

In terms of the fourth quarter, sales, operating profit, net income and diluted earnings per share all exceeded the high levels we delivered in the fourth quarter a year ago. Solid demand across all segments and most geographies drove strong organic sales volume growth in the quarter. The first year effect of our recent acquisitions also added to the top line to bring total sales growth in the quarter to 33%, compared to the same period a year ago. Our offering of best-in-class technology, applications expertise, and global support continues to resonate with customers worldwide. Looking forward to 2013, from a macroeconomic perspective, we face a backdrop much like 2012, with Europe in a recession, uncertainty surrounding the outcome of the fiscal cliff, and strength in emerging markets, albeit at growth rates below recent historical levels. Some economists are forecasting global GDP in 2013 to be essentially flat to that forecasted in 2012. Whatever the outcome may be, Nordson is well-positioned to respond to the market opportunities.

In a few moments, I'll share more comments about the current business trends and our outlook. At this time, I'll turn the call over to Greg Thaxton, our Chief Financial Officer, who will provide more detailed commentary on our fourth-quarter and full-year financial results, as well as some comments on our guidance for the first quarter of 2013. Greg?

Thank you, Mike, and good morning to everyone. As Mike described, we closed fiscal 2012 with very strong fourth-quarter financial results. Sales in the quarter were $439 million, an increase of 33% over the prior year's fourth quarter. This growth included a 19% increase in organic volume and a 16% increase related to the first year effect of acquisitions. This total sales volume growth of 35% over the prior-year's fourth quarter was offset by a negative 2% impact from the effects of currency translation, as compared to the prior year.

Looking at segment performance, Adhesive Dispensing sales volume increased 36% as compared to the prior year's fourth quarter. Organic volume increased by 6%, while the first-year effect of acquisitions accounted for the remainder of the growth. The organic volume growth was balanced with solid improvement in product lines serving both consumer non-durable and durable end markets, and we generated organic growth in most all regions. Organic sales volume in the Advanced Technology segment was up 26% over the prior year's fourth quarter, and the first-year effect of acquisitions added 2% to sales volume growth.

The trend we have seen in this segment in recent quarters continued with strong demand for dispensing and test and inspection equipment, serving electronics end markets, especially for mobile device applications. We also delivered solid growth in our medical components platform, and we continued to penetrate a variety of other niche markets. Within the Industrial Coatings segment, sales volume increased 47% compared to the prior year, inclusive of 8% volume growth from the first-year effect of the Sealant Equipment acquisition, and 39% organic growth. All product lines in all regions within the segment delivered significant organic growth during the quarter, as larger tier customers moved forward with production efficiency and plant expansion programs.

Moving down the income statement, gross margin in the quarter was 55% including charges of approximately $3 million associated with nonrecurring short-term purchase accounting charges for acquired inventory. As compared to the prior year's fourth quarter, gross margin was impacted in the quarter by segment and product mix including acquisitions. Operating margin for the quarter was 24% of sales, slightly above our guidance due to volume leverage, and equal to the strong level we delivered in the same period a year ago. As a point of clarification, $1.6 million of the nonrecurring short-term purchase accounting charges, related to the step-up in the value of acquired inventory, is reported in the Adhesive Dispensing segment results, and $1.4 million is reported in the Industrial Coatings segment results. All short-term purchase accounting charges are behind us, as it's the end of the fourth quarter of 2012.

Looking at operating performance on a segment basis, Adhesive Dispensing delivered operating margin of 28%, or 29% excluding short-term purchase accounting charges related to the step-up in value of acquired inventory associated with Xaloy and EDI. Within Advanced Technology's strong top line growth, solid execution and operating efficiencies resulted in operating margin of 27% in the quarter, an improvement of 4 percentage points over the same period a year ago, and reflecting strong incremental margin year over year. The Industrial Coatings segment delivered operating margin of 16% in the quarter, or 18% excluding short-term purchase accounting charges, related to the step-up in value of acquired inventory for the Sealant Equipment acquisition, reflecting very strong performance in the quarter.

Continuing down the income statement, reported net income for the quarter was $68 million, and GAAP diluted earnings per share were $1.04, an increase of 28% over the fourth quarter a year ago. As in previous quarters, we've included an earnings per share reconciliation schedule in our press release to reconcile between GAAP earnings and normalized earnings per share to exclude certain one-time items. Diluted earnings per share in the quarter include a $0.01 per share gain related to the sale of a building, a $0.03 per share nonrecurring charge for short-term purchase accounting, related to the step-up in value of acquired inventory, and a $0.01 per share charge for a discrete tax item. After adjusting for these items, normalized earnings per share in the quarter was $1.07, an increase of 24% over the prior year's fourth quarter normalized earnings per share. The current quarter's EBITDA was $118 million, and fourth-quarter free cash flow before dividends was $92 million or 136% of net income, reflecting very strong cash conversion. From a balance sheet perspective, we remain very liquid, with net debt to trailing 12-month EBITDA of approximately 1.6 times at the end of the fourth quarter. And remaining capacity under our existing revolving credit facility of approximately $238 million, along with our strong cash generation, provides adequate liquidity for strategic opportunities.

At this time, I'll provide just a few comments on our full-year performance. Sales for fiscal year 2012 were $1.4 billion, an increase of 14% compared to fiscal year 2011. The growth consisted of an 8% increase in organic volume, an 8% increase related to the first-year effect of acquisitions, and a negative 2% impact related to unfavorable effects of currency translation. Operating profit for the year was $335 million, net income was $225 million, and GAAP diluted earnings per share were $3.45, all full-year records for Nordson. Excluding one-time items in both years, full-year diluted earnings per share improved by 10% over the prior year. Operating margin for the year was 24%, or 25%, excluding certain one-time items, and full-year EBITDA was $376 million, an 8% increase over fiscal 2011. Free cash before dividends was $250 million, or 111% of net income, again, reflective of strong cash conversion.

I'll add a couple of comments relative to the balance sheet that might be useful as you look at changes from the prior year. With regards to inventory, the increase of $28 million over the prior year all relates to fiscal 2012 acquired inventory, where inventory related to our legacy businesses declined by $2 million. And looking at other assets, this increase year-to-year is associated with intangible assets and goodwill from acquisitions. Before moving on to the outlook for our first quarter of fiscal 2013, I'll provide comments on recent order trends. As we typically do, we provided our most recent order data, both on a segment and geographic basis with our press release. These orders are for the latest 12 weeks as compared to the same 12 weeks of the prior year, on a currency neutral basis, and with all fiscal year 2012 acquisitions included in both years.

Looking at orders for the 12 weeks ending December 9, 2012, they were up 5% as compared to the same 12 weeks in the prior year. Within the Adhesive Dispensing segment, orders over the last 12 weeks increased 1% from the prior year, led by growth in certain product lines serving consumer nondurable end markets. Advanced Technology orders over the latest 12 weeks are up 2% from the prior year. Order growth across most segment product lines was offset by slower demand for automated dispensing systems. Within the Industrial Coatings segment, the latest 12 week orders are up 26% over the prior year. Orders were up significantly in all of the segments' product lines, driven by capital programs of larger, well-capitalized customers. Orders improved most in the US, the Americas, and Asia-Pacific, within the Industrial Coatings segment.

Let me now turn to the outlook for the first quarter of fiscal year 2013. We're forecasting sales to be in the range of $343 million to $354 million, an increase of 24% to 28%, as compared to the first quarter a year ago. This range is inclusive of organic volume growth of 7% to 11%, 18% growth from the first-year effect of acquisitions, and a negative 1% currency translation impact, based on current exchange rate. We expect gross margin of approximately 58% in the quarter, operating margin is forecasted to be approximately 19% for the quarter, at the midpoint of our sales range. We're estimating an effective tax rate for the first quarter of approximately 29.5%, resulting in forecasted diluted earnings per share in the range of $0.63 per share to $0.70 per share, including a $0.01 per share benefit from a discrete tax item.

Adding a few comments relative to this first-quarter forecast. The gross margin outlook reflects the trends in segment and product type mix we are currently seeing in our orders. Specifically, strength in durable goods end markets is expected to drive Industrial Coatings segment revenue, and systems revenue for the total Company will be a larger portion of the mix in the quarter than a year ago. Regarding selling and administrative expenses, we will be funding certain projects and initiatives during the quarter and the full year, beyond our traditional R&D spending levels. These investments will drive incremental organic revenue growth over the long term, but are not forecasted to generate incremental revenue during fiscal 2013.

During the first quarter, this incremental spending is expected to be approximately $2 million, and there will likely be a similar amount of spend in the remaining quarters of fiscal year 2013. I would also highlight the impact of seasonality in our business, where the first quarters are weakest in terms of sales, and this is true for the recent acquisitions. We expect that if we generate sequential sales growth in the remaining quarters of fiscal year 2013, we should generate increasing incremental margin, such that if total Company organic growth for the year is in line with fiscal 2012 organic growth, we could see full-year operating margin in line with our reported fiscal 2012 performance, inclusive of dilutive effect of acquisitions and the incremental step-up in R&D spending I just talked about.

In addition to this first-quarter outlook, the following fiscal 2013 full year data points may be helpful for modeling purposes. We estimate maintenance CapEx for fiscal 2013 to be approximately $45 million to $50 million, or approximately 3.5% of 2012 revenue, reflecting an increase in spending associated with acquisitions, as well as incremental investments in manufacturing productivity and our IT infrastructure. I would expect full year maintenance CapEx to moderate to around 2.5% of revenue in future periods. In terms of our effective tax rate, we are forecasting the full-year rate to be about 30.6%, or 30.9% in quarters 2 through 4. This estimate is based on current tax law. In summary, we delivered excellent fourth quarter performance as our global team continued to deliver at a very high level, and current order rates are driving our outlook for a solid first quarter.

Thank you, Greg. Before taking your questions, I'd like to provide some additional comments on our outlook for the quarter. We begin 2013 with a solid outlook for our first quarter based on the continuing strength we are seeing in our current order rates. And as Greg noted, there's a seasonality in Nordson's business with first-quarter volume typically being the lowest, due to the overlap with holidays and customer plant shutdowns, as well as many customers' new capital spending budget approvals occurring late in January.

Relative to the operating performance in the first quarter, we are expecting segment mix and product type mix to have an effect on our performance compared to the first quarter a year ago, along with the funding of certain investments in the first quarter that we believe will help drive organic growth and competitiveness over the long term. Among these investments are new product development and launch costs, Asia localization initiatives associated with our Advanced Technology segment, and some other incremental customer-facing investments. In terms of our end markets, we continue to see long-term steady growth in consumer nondurables, such as rigid and flexible packaging in non-wovens. Growth in mobile devices is expected to remain strong, and any renewed corporate spending on traditional PCs, servers and infrastructure could provide us additional potential upside. Medical applications continue to expand for us as well.

For most all of our businesses, our presence in emerging markets should continue to deliver excellent growth opportunities. Regarding our recent acquisitions, we are on track with our integration plans, and making good progress towards incorporating Nordson's continuous improvement initiatives into these businesses. With regards to the current market trends within plastic processing, although we're seeing recent softness in flexible packaging OEM demand, we do expect to be on plan for the year as capacity has reached the level where further investment is required. We remain very excited about the growth opportunity in plastic processing, as well as the cold material end markets served by Sealant Equipment, and are optimistic that these businesses will be strong contributors to Nordson's overall performance.

While we are expecting 2013 to be another good year for Nordson, many of the past year's uncertainties persist in the global macroeconomic environment. However, specific to Nordson, we are well-positioned regardless of the economic background, and we plan to achieve our goals by relying on our core strengths, our team's ability to execute, our commitment to continuous improvement and the many growth markets where we see opportunity. We will continue to drive value for our customers through our applications expertise, differentiated technology and directing sales and services forward. I'd like to thank again our global team for a great year in 2012, and I'm confident they will continue to get the job done in 2013. At this time, let's turn to your questions.

(Operator Instructions)

Our first question comes from Christopher Glynn of Oppenheimer. Please go ahead.

A lot of talk about the segment mix shifting here, obviously coatings doing great. But at the midpoint of the first-quarter guidance, how would you see the other two segments fitting into that framework?

I'd say overall if you think about where we are this year, it's not too different from where we were last year with slightly better order rates going into the first quarter, so the other two segments last year I think were down modestly and now we're up modestly, and Industrial Coatings is considerably stronger than it was a year ago. So overall, our order rates and our backlog are stronger than we saw a year ago, modestly so.

And Chris, I would add to that. We do expect to see a shift overall for the total Company in the weighting of systems versus parts, where we've got about a 3 percentage point decline first quarter of last year to the first quarter of this year, associated with parts revenue. So that's having an impact on the gross margins as well.

Okay. And then at ATS just broadly looking out, as you think about the year and you have the launch costs and some customer-facing investments, is there any reason to think for the full year fiscal 2013, ATS top line couldn't be consistent with your long-term outlook for that segment?

Yes, I think if you step back and look at our view, maybe I'll comment first on our view of global outlook and then I'll address your specific question, Chris. This year, we think globally GDP is going to come in at something like 2.3% and our sort of organic revenue on a volume basis has come in about 8%. Our view next year is it's probably going to be maybe slightly lower than that, maybe 2.1% or 2.2%, and so we would expect that the initiatives that we have that drive things and the market positions, that if that in fact happens, that we should see another good year.

I think with the AT segment, we are still hearing from our customers, and I think in the market that the sort of mobile demand is going to be strong, particularly smartphones and tablets, even off a strong year. So people are projecting further improvements and increases there. And we're starting to see that translate into more inspection opportunities for us, not just dispense opportunities. I'd say part of the market that's been absent is really the more traditional PC server market that in a lot of ways is linked to corporate spending, and I think that's still a wild card, but most pundits suggest that this will be an up year for that segment, as opposed to a down year. So I think overall, I'd say we're cautiously optimistic that this will be a good year, and then within the technology segment, recall about 25% of our business has gone to medical, dental and others and that's been a consistent solid performer for us.

Thanks. Just one final clarification. You mentioned the customer's expecting still strong demand for mobile. Are they also talking about similar rates of new platform replacements, turnover?

Yes, I would say we're looking at -- the way we see it, from an industry perspective is high teens to 20% kind of year-on-year growth and typically there's at least one, sometimes two cycles per year and the applications get more demanding. So for particularly the higher-end customers, we see turnover investment equipment. Now, we're coming off a very, very strong year in 2012, so the comparisons are going to be tougher. But we're hearing encouraging signs at the moment.

Thanks. Appreciate the help.

Our next question comes from Mark Douglass of Longbow Research. Please go ahead.

Back to tech. Can you update us on the mix? In the past you mentioned roughly 75%, or three-quarters of it is electronics and then that's split a third, a third, a third, between mobile, computer, and then niche. Certainly the overall electronics mix, I assume it's likely a lot larger going to 2013 and probably mobile as well. Any updates or comments on how that mix is within the segment?

So electronics is larger but not a lot different from that sort of three-quarter, one-quarter and mobile is higher. Again, probably a few points higher than the sort of a third, a third, a third kind of split there. But it's not dramatically different. So it's probably a few points higher, but not significantly larger than that at the moment.

Okay. Then in looking out into 2013, certainly three and four provide very large comps through mostly I assume through a certain large mobile device company. Is it still even possible, even with a recovery in PCs and maybe a little bit more investment spending for some other mobile device companies, could you still even see year-over-year growth? Help us how we should look at that.

Yes, I think if you come back to it, first of all, our visibility really is only a quarter out, but what I would say is our long-term view is in that whole sort of tech space segment, I think we've talked about this in the past, we think we can grow sort of 5 percentage points above what we see in the underlying market, and that's not too different than what we see in our base, our overall base business too, in terms of GDP to organic growth. Our view is, yes, we're going to have tough comps in the second half of the year but on an overall basis, if we see GDP in that sort of 2.2% rate, it's pretty modest, we still expect to see a nice growth here in our technology business. I'd say current order quote activity is solid in that business. Now, obviously if we see a deterioration in the macroeconomic environment, as we've talked about in the past, we're not going to be immune, and recall also that we've got a nice segment in the medical space that we see good growth opportunities there as well. So our base plan would be consistent with the growth that we've seen over the last year, provided the macroeconomic environment plays out that way.

Okay. And then my last question on -- think about the larger acquisitions and you said this year, this past year. Any updates as to what you might expect as far as margin impact this next year with improving efficiencies? Any restructuring potential in 2013 in those businesses?

Yes. So I think we expect to kind of be on track with what we talked about when we made the acquisitions in terms of their contribution this year. What I would say is that we are seeing, in general, greater potential from a synergy standpoint, both on the revenue side and on the cost side. Some things take longer to achieve, particularly revenue synergies, but we're seeing encouraging, particularly in the plastics side, customer pool, and so I'd say probably not much different than what we thought for this coming year but potentially more upside down the road.

Okay. Thank you.

Our next question comes from Matt Summerville of KeyBanc. Your line is open. Please go ahead.

Can you talk about, as you progressed through the last 12-week period where you're providing the order data, what the sequential cadence looked like and to the extent you're seeing any push outs and deferrals? Can you frame that up for us as well, across the businesses?

Just a high-level comment, Matt. I'd say the sort of 6 week order versus 12 week order we've not really seen any difference, so it's been solid. We have seen a typical seasonal pattern that we see in our businesses, particularly in the tech side where it kind of peaks in the summer and tracks down from an order standpoint, but nothing in sort of the last six weeks. As commented earlier, the quote activity is pretty strong. I think the coatings is unusually strong, but I think that's some large customers really finishing out their plans for the current year with key improvements either on consolidation or productivity, or some new features. So I think that's all fairly consistent, and not a significant change as we've gone through.

What I would say is we're hearing the common theme that others are hearing that sort of middle tier customer being more cautious, particularly around, I'd say, bigger ticket investments. That kind of plays across all of our businesses, things like product assembly and adhesives, and some of our larger ticket die systems, and while current orders in coatings are strong at the what we call top of the pyramid, we hear some caution in the middle. So I think in the short term, given the uncertainty, particularly around the fiscal cliff, we're hearing that sort of middle tier customer talk about some concerns, but we still see solid bid activity and not a deterioration across the quarter so far.

Yes, and Matt, it's Greg, I'd just add specifically to the point about order cancellations, there is the point that Mike just talked about kind of on the pace of that mid-tier, but in terms of cancellation of orders, we haven't really seen anything beyond what we would typically see in the business.

If we think about the -- if you want to add something, please do after I ask this. I want to talk about the coating business for a second, because I would imagine that if we go back and look over the last several quarters, your peers are not posting the kind of growth that you're posting in this segment. So could you talk about how you're thinking about your market share position in that space, migrating down towards the -- having more entry level product line has brought to the table, and then I guess from your standpoint, what's the duration of this cycle in that coatings business?

Yes, let me maybe comment on a high level on what things seem to be doing well. So solid in the appliance side. The small-end sort of ag equipment side, pretty solid. The sort of smaller niche oil and gas piece, solid, and auto's been solid. A lot of the other stuff really has not come back, and then what you I would say also, is we're seeing larger customers who are making investments to either consolidate facilities to on-shore facilities or to improve productivity and we talked about that earlier in the year and that's really played out in a lot of these investments. I'd say our tiering strategy in Asia in particular, and other emerging markets is progressing, but that's not having a huge effect right now in terms of what we're seeing from an order perspective. So it's those market niches where we're well-positioned and it's kind of the enhancement productivity drive for the larger customers that are really driving things right now. So I think the upside is if we get through the next few months without any disasters coming out of Washington, then I think we'll potentially see some upside in the year in that sort of what we call middle of the pyramid customers.

Greg, just one more follow-up and then I'll get back in queue. Can you talk about what your base -- in terms of expense inflation, what you're looking at in terms of your base business for fiscal 2013 and then can you just mention what the funded status of your pension was at the end of the year, what the pension expense looks like in 2013 and any cash contributions?

Yes, Matt, in terms of our expense growth, consistent with prior years, I'd anticipate that we'll continue to invest in the emerging market. Most of that is putting people in front of customers, so we talked about this particular step-out in spending. I'd anticipate the base spending to be probably consistent with what we saw in the prior year. And in terms of our funding, obviously discount rates have hurt us like they have most others with defined benefit plans. I think our contribution is going to be pretty modest, call it for our domestic plan maybe in the $20 million range. Pension expense will be pretty consistent with what it was last year, and I'm thinking that for the domestic plan that was about $15 million, probably somewhere in that neighborhood.

And then the funded status, Greg?

Yes, the funded status, if you look at kind of GAAP funded status, it's about 70%.

Thank you.

Our next question comes from Charley Brady of BMO Capital Markets. Please go ahead.

I wanted to focus on the margins a little bit. I just want to understand kind of the margin outlook going forward. Even if you factor in that $2 million a quarter extra spending beyond normal, that looks to be, I don't know, roughly about a 50 basis point hit maybe depending on how you allocate it. But the implied margin going forward looks a bit steeper than that. Obviously, some of that's maybe a parts mix. I guess I'm trying to understand, how much of the impact from a mix shift from parts downward from where we were last year? How much is a headwind from some of the acquisitions that have been made this year? And then the rest coming in from additional spending?

Yes. So Charley, let me take a crack at that. I think you're in the ballpark there with the comments as it relates to the specific targeted additional spending that we talked about. We do have two mix effects in the core business and then with the acquisitions. Greg mentioned that our parts systems mix is down about 3 points from a parts perspective in the first quarter year-over-year. And if you look at the mix between segments, based on current order rates we're going to see a considerably higher mix from coatings versus the other two segments. So we have sort of that segment effect. And then as we said, the acquisitions that we talked about this year were lower margin than our sort of average margin by a number of basis points, and so those are sort of the three effects. I haven't calculated how they play out, whether they're equal or one's higher than the other, but those are the three effects. They're not insignificant, when you look at the first two in particular and then you add in the acquisition mix.

All right. Just looking at your organic growth assumption, Q1 looks pretty good, 7% to 11%, I guess. But your comment about maintaining margins if you get organic growth in 2013 that you got in 2012, which in 2012 I guess was about 8%, but the Q1 orders are 5%, which is a pretty steep deceleration from Q3 and even down from Q2 on what is essentially easier comps. You've given your visibility. I guess I'm trying to understand your confidence level in getting up to an 8% core growth rate in 2013.

Yes, and Charley, as you know, we have pretty good visibility to a quarter out and then beyond that we don't. To me, this feels quite a bit like where we were last year, where we saw some softening in the first quarter and suggested maybe even the first half and then some rebound in the second half and our confidence there really related to a view of what the overall macroeconomic environment might be for the year. So part of this comes down to do you believe that next year is essentially going to be similar or maybe just slightly worse than this year on an overall macro basis, and from our perspective, it is. We're confident that our market positions, our ability to execute some of these specific initiatives that we have that make us a little bit different will drive that differential growth from a GDP basis to a 7%, 8% kind of revenue growth.

It all hinges on whether or not the macroeconomy plays out that way, and nobody's crystal ball is great, but that's our current operating forecast. So we're pretty confident in our ability to deliver above whatever the macro environment is in a significant way. I think what we're less confident in, and nobody's all that confident at the moment, is what's that macro environment going to be. That's really the basis of what we're talking about here. You can think about that as kind of our base plan from a macro standpoint, and we think we can deliver above that, based on our historical ability, our market positions, the niches we're invested in, the initiatives we have ongoing.

Thanks. That's helpful. One more, I'll get back in the queue here. Corporate expense line in Q4, a little less than we were looking for. Was anything that maybe skewed that down a little bit, or just kind of normal noise in there?

Yes, Charley, there's nothing that really stood out to say it's an unusual item in the fourth quarter.

Okay. Great. Thanks.

Our next question comes from Jason Ursaner of CJS Securities. Please go ahead.

Just first a couple of quick follow-ups on the coatings segment. You mentioned the general strength in durable goods and systems. Is there any more specific secular trend within powder coating or another product line that you could point to really driving that? And then how sustainable do you think that is, given that it does lag the economy and more recent data has seen capital goods and durable consumer good categories fall off in industrial production?

What I would say, at least the strength for us has been in those sort of market niches that I talked about. So appliance has been solid, small [agro] has been solid, the niche energy play has been solid and auto has been solid. Those are the four sub-segments that have been solid. What hasn't been very good at all has been anything in the leisure markets and then sort of office furniture, leisure products, those kinds of things have been nowhere. And then the second comment that we made was really around particularly top tier customers, taking the opportunity to improve efficiency, add features, do some consolidation, and then some growth in the emerging markets, mainly in those same segments that we talked about.

So I think going forward, you really need to see a step-up in sort of housing and construction for those leisure products to come back and we don't see a dramatic improvement in that in the short term. We do see the potential for expansion with our tiering strategy in the emerging markets, and we do expect to see the top customers continue to invest at a reasonable level. And then I think the other area that we added to our current portfolio with the Sealant Equipment acquisition is through the cold materials side of things, we see as differentially higher growth for us going forward. I think the risk is the middle tier customers just holding off, and maybe some slowdown in the top tier, but right now, from sort of order and bid activity it still looks pretty solid. Again, we're not immune to the macro, so if sort of what we're hearing in the short term from a macro standpoint would continue throughout the year, we'd see some impact. But right now, that's where we're seeing the strength in the business.

Okay. And would you attribute a decent or any part of the growth to market share gains from instability in the market that was brought on by industry consolidation at all?

I'd say not in the context of looking at our direct competitors. I would say what we are seeing is consolidation in the customer side and some on-shoring kind of opportunities, and we've been well positioned to take advantage of those.

Okay. And from a profit perspective, excluding sealant and exclusive of the purchase accounting, it still looks like the incremental profitability on the growth in coatings was a bit less than prior quarters. Was there any specific factor you saw that limited the incremental leverage there in the quarter?

Jason, this is Greg. I think incremental margin in that particular segment, although relatively strong, I think is impacted by some of the product mix within that segment. So for example, we had some good, strong revenue growth within powder engineered systems that are going to impact that incremental margin.

Okay. And then just going back to tech, obviously you got a bunch of questions on it but within semi manufacturing there's a lot of increasing discussion about sort of an emerging mid-end value level that's focused on this advanced wafer level packaging 3D architecture. I was just wondering if you could maybe talk a little bit because you mentioned if inspection and the mobile chip strength, if you could just talk a little about how you tied you see that segment to that specific long-term trend, as opposed to just overall semi CapEx, which you do continue to outperform pretty solidly.

I would say we kind of view the go vertical as an added opportunity for us. So when you look at the three dimensional packaging, so right now it's stacking chips and ultimately, and the question is when is ultimately, the technology might go through the three dimensional integrated circuits. Right now we're already seeing leading-edge customers stacking the chips and that provides not only a second level under-fill opportunity for us and some interconnect opportunities but it also drives particularly x-ray inspection even harder because optical doesn't work as you start going vertical to the extent that you need. So we see that as a plus from an emerging trend standpoint. When does the process of record become the sort of 3D integrated circuit is anybody's guess. Generally speaking, those kinds of transitions which are significant take a long time but we're starting to see it play out with stacked packages and we think we're plugged into the right people to understand what the opportunities are there. But I'd say it's not a next-year phenomenon, that's something that will evolve over the next five years or so.

Okay. And then generally, what are you seeing in terms of product pricing? I guess this is more on the adhesive side. Have you taken any broader based increases in pricing to the portfolio where you're more of a component within a larger system?

Yes, I would say generally speaking for the year, we're up. We're up in that sort of low single digit, 1% or 2% range. I'd say we are being more surgical, where the value allows us to adjust pricing, and our focus really is on continuing to drive value. So we're moving it where it makes sense, and I think we already have the best product and it's priced according to its value. We are, in all of our segments, looking at the next generation technology and we've most recently highlighted next-generation packaging technology in the adhesive area that will be available for sale in the first quarter, pretty dramatically different approach to things that we think customers will be interested in, and will create incremental demand in the near term and overall, long horizon, will ultimately replace some of the existing infrastructure. But we're -- our focus is, yes, strategically on pricing but more around the new product development to create more value. We're doing that in technology. We're doing that in all of our businesses.

Okay. And then just last question from me. Can you discuss the performance of some of the recent acquisitions in any more detail? I know you gave the first year effect. Can you talk about some of the actual organic growth you're seeing on those as a component of your overall volume growth.

Yes, so I'd say compared to our core business, we feel the long-term growth rates in the plastic side of things are going to be 1 or 2 percentage points greater than what we see in our adhesives today, and we see cold materials probably 3% greater than what we see sort of in our core coatings business. Our outlook there hasn't changed. I'd say in the short term, I'd say we're probably a little ahead of expectations in one area, kind of on in the other and a little behind in the third. I'd say it comes down to the comment we made earlier, bigger-ticket items, customers are pausing a little bit here to see how things play out, particularly in the US. I think for the year we feel pretty good about where we're at across all of those platforms. In the long-term, we think it enhances our overall portfolio growth, and as I said earlier, we actually think we're going to be able to generate, longer term, more revenue and more productivity improvements than we expected.

Okay. Great. I appreciate all the commentary. Thanks.

Our next question comes from John Franzreb of Sidoti & Company. Please go ahead.

Thanks, gentlemen. All my questions been answered.

Thanks, John.

Our next question comes from Liam Burke from Janney Capital Markets. Please go ahead.

Mike, on Greg's comments he talked about ATS growth and medical doing well and then he talked about niche applications or additional niche applications. Were there any within that category that are significant enough to move the needle or are they still at the more emerging stage?

I would say in the tech, in the electronics side, we've talked about sort of a number of different things. I'd say at this point in time we're talking about singles but the strongest performer in the short term in that niche category would be the MEMS business, and that's everything from being supported by the mobile piece, being supported by more electronics in autos and industrial medical automation, so that's probably been the strongest of the niches. The weakest of the niches has been solar, which has gone nowhere in the last year, and that's basically, I think the overall cost effectiveness at the moment and over-capacity in the short term. I'd say the LED piece is poised to see some significant growth in the next few years, but again, in that what I'd call singles category. I'd say on the medical side, we're broadening the portfolio in the areas that we talked about, and we're seeing good growth with, in particular, our key OEM partners in that area. But again, we look at it as not a home run application that's going to drive things. I think we are making an investment, as Greg talked about, in a technology area that could down the road be more like a double or maybe a triple, but it's not without risk and so that's part of the investment that we're talking about here in the short term.

Great. And the cash flow was strong this year, even with the stepped up CapEx, expect it to be pretty strong next year. Understanding there's always acquisition opportunities. Priority still going to be acquisitions for available cash?

Yes. If you look at where we're at, obviously we've made three in the end of last year so we're working hard on integration and deriving all the benefits from those. We are generating as you say a lot of cash. We do have a good pipeline and as you said, we never know when they're going to come through. I'd say if a good strategic opportunity comes through, we're going to pursue that. If it doesn't, we're going to continue to pay down debt and maybe look at some other things. We'd like to continue what we do from a dividend perspective as we talked about and continue to increase that. So yes, I think if the right opportunities are there, and we feel good that we have a good pipeline, but it's not obvious when those things are going to occur. But I'd say if there was a good opportunity, we wouldn't pass it up given where we are because we do feel confident in the cash flow that we generate.

Great. Thank you, Mike.

Our next question comes from Kevin Maczka of BB&T Capital Markets. Please go ahead.

I had a technical difficulty and may have missed this, Mike, but can you just revisit in terms of your margin outlook for the year, getting something comparable to what we just did in 2012, we're going to start Q1 in a bit of a hole. How do we get back to that level? I know, sequentially throughout the year, that ought to build as volumes build, but how do we get back flat or even better when we do have some real headwinds here, in terms of mix and lower margin acquisitions? Are you expecting the systems mix which is a big headwind in Q1 to really reverse as we get beyond it?

Yes. So there's a number of comments here. You're correct, we do expect, as volume comes back to deliver leverage on that volume, number one. Number two, we'd say the systems parts mix will be more helpful as we go forward. Number three, we do have productivity and continuous improvement efforts that will come into play to offset some of the strategic step-up in spending that we have coming forward, so we think that will continue. And then as we integrate the acquisitions, we do have some benefits that we expect to come from those.

I think Greg's comment was yes we have some step-up in spending for specific initiatives and we have a margin dilution effect from the acquisitions, but between volume leverage, productivity and integration benefits, we think we're going to see that kind of improvement, as we saw this year. Recall, we also l have added expense in the first quarter just in our normal merit increases and so forth, that with volume leverage going forward, we see that come back. So we've got a lot of moving parts here, but we feel good about the initiatives. Obviously, it's all against a market backdrop that's a reasonable market backdrop, and not full-blown global recession or something like that. We operate accordingly, as we've done in the past, and react consistently.

Right. And in terms of the different spare parts mix, is there an element of year-end destocking in a way on the part of your customers that's driving that, where you think that hurts in Q1 but then gets better beyond?

Yes, I'd say first of all, there's a relative strength in the systems piece. So we expect parts to grow next year like they grew this year. It's just the balance we think is going to change, and I think that's more of the driver than anything else.

Got it. Okay. Thank you.

Our next question is a follow-up from Christopher Glynn of Oppenheimer. Please go ahead.

Just one more on the top line kind of bridge from the first quarter for the year. We get your macro expectation clearly and then just to get around the really tough comps in the back half, should -- if we take tech, should we look at the mobile dynamic really as just further increasing the steepness of the seasonality each year as this market goes forward?

I'm not quite sure, Chris, what you mean there. I think typically if you look at, as we've described in the past, our kind of revenue goal curve is sort of relatively light in the first quarter and then for the next three quarters it's pretty strong, and considerably different but our order pattern starts to decline in the fourth quarter, continues to decline through I'd say probably two-thirds of our first quarter and then starts to step back, where our orders tend to peak in second and third quarter. We anticipate that same kind of pattern here, and you're right, the second half of the year was strong last year. If you look the year before, our quarters two and three were really strong, and this year, three and four were really strong, so it can vary quarter-to-quarter depending on how orders come through. But generally speaking it's two, three, and four where you see the robustness, and it can shift year-on-year. So yes, we expect to see in that kind of an environment improvement, improvement might be less in the second half of the year, given those tough comps, but we do expect to see improvement if the global economy plays out and we don't go into some kind of a global recession or something like that.

I know the timing can move a little bit, but I think the question I guess I could have said it more simply, are you seeing the seasonality generally become more pronounced each year, driven by the mobile markets leading the growth?

From an overall Company perspective, I'd say no, and from a tech perspective, I'd say it's similar in terms of the seasonality. There's generally a big push in Qs 2 and 3 to get stuff out there for model changes and holiday season, and we've kind of seen that. What's been fairly absent this past year has been that push in the server, more typical PC market, desktop-type market, and I think the forecasters are a little bit more optimistic that, particularly in the second half of 2013, you might see that come back. We don't know. It may or may not happen. But they're optimistic, I think, of sort of mid-single digits kind of growth for the year. As opposed to going into last year, where they were looking at mid-double digit declines. So we'll see how that plays out. But no, I wouldn't say we're seeing a dramatic difference in seasonal patterns, no. It tends to be the most pronounced in the technology business.

Chris, this is Greg. Following up on that last comment Mike made, of course going against that cyclicality is our progress we're making on expanding the less automated, and the medical components portion of that product line, particularly with opportunities in emerging markets that have a more steady pattern to the growth rates.

Thank you very much.

With that, this is Jim coming back on, we're going to have to end our call there. So thank you everybody for joining us. Happy holidays to everybody, and I will be around throughout the day if you have any follow-ups, if you want to e-mail or call me. So thank you again, everybody.

Thank you.

Thank you.

Ladies and gentlemen, this does conclude today's conference. You may all disconnect and have a wonderful day.