Nordson Corp (NDSN) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Nordson Corporation webcast for fourth quarter and fiscal year 2013 conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Jim Jaye, Director of Investor Relations. You may begin.

Thank you, Nicole, and good morning. This is Jim Jaye, Nordson's Director of Investor Relations, and I'm here today 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, Thursday, December 12, 2013 on Nordson's fourth quarter and full-year results.

Our conference call is being broadcast live on our webpage at www.nordson.com/investors and will be available there for 14 days. There will be a telephone replay of our conference call available until December 19 by calling 404-537-3406, you will need to reference ID number 17282893.

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 Hilton for an overview of our 2013 fourth quarter and full-year results and a bit about our first-quarter 2014 outlook. Go ahead, Mike.

Thank you, Jim, and good morning, everyone. And thank you for attending Nordson's fourth-quarter 2013 conference call.

At a high level, our fourth quarter looked a lot like our third quarter. Our global team delivered solid results in a slow macroeconomic environment, any comparison to a particularly strong period of demand a year ago. Sales and diluted earnings per share for the quarter were in -- within our range of guidance.

I'm pleased to report that our fourth-quarter results helped us achieve record full-year revenue for the third consecutive year. Full-year operating results, earnings and cash flow were solid, even as we continued making strategic investments that will drive our future success.

We also returned approximately $71 million directly to our shareholders during the year through dividends and share repurchase. I congratulate our global team on a job well done this year as they remain focused on meeting our customer's needs at the highest level, executing on a variety of continuous improvement initiatives and integrating recent acquisitions.

Looking forward to the first quarter of 2014, our most recent 12-week order rates are positive in all segments and most geographies. In a few moments I'll share additional comments about the current business trends and our outlook, but I'll first 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 2014. Greg?

Thank you and good morning to everyone. As Mike described, we delivered solid fourth-quarter results given the macro environment and challenging prior-year comparisons, with sales in the quarter of $411 million, a decrease of 6% over the prior-year fourth quarter. Fourth-quarter sales included a 4% increase related to the first year effect of the Kreyenborg acquisition, a 9% decrease in organic volume and a negative 1% impact related to unfavorable effects of currency translation as compared to the same period a year ago.

Looking at sales performance for the quarter by segment, Adhesive Dispensing sales volume increased 3% as compared to the prior-year fourth quarter with all of the increase coming from the first year effect of the Kreyenborg acquisition, helping to offset a 5% organic volume decrease where organic volume growth and product lines serving rigid packaging and general product assembly markets was offset by softness in product lines serving disposable hygiene and plastics end markets during the quarter. On a geographic basis we did see organic growth in Japan within this segment.

Sales volume in the Advanced Technology segment decreased 14% in the quarter from the prior-year fourth quarter, a period in which this segment delivered organic growth of 26%. Strength in medical end markets and niche applications for surface treatment systems during this years' fourth quarter was offset by softness in electronics end markets. Organic volume growth in the US and Europe was offset by softness in other geographies.

Within the Industrial Coatings segment, sales volume in the quarter decreased 11% compared to the prior year fourth quarter, a period in which this segment delivered organic growth of 39%. Against this very strong period of a year ago, volume decreased in most product lines serving this consumer durable goods markets. Most geographies also were soft with the exception of Japan and the Americas.

Total Company gross margin in the fourth quarter was 55%, the same level as a year ago. Excluding a non-recurring charge of approximately $1 million related to the step up in the value of inventory acquired in the Kreyenborg transaction, gross margin was 56% and consistent with the level delivered in the third quarter of fiscal 2013.

As we move down the income statement, you will see the impact of negative leverage due to lower sales as compared to the prior years' fourth quarter. For the fourth quarter of 2013, operating profit was $87 million and operating margin was 21% or 22% without the impact of Kreyenborg and equal to our guidance.

Looking at operating performance on a segment basis, Adhesive Dispensing delivered operating margin of 27% in the quarter, or 28% excluding the Kreyenborg acquisition, a level equal to the fourth quarter a year ago and sequentially higher than any other quarter during fiscal 2013.

Within the Advanced Technology segment, operating margin for the quarter was 21%. Consistent with my previous comments on total Company margins, the decline in revenue from year to year is impacting this segments margins.

In the Industrial Coatings segment, operating margin improved over last years' fourth quarter level to 17%. This strong performance, given lower volume in the quarter compared to the prior year, reflects the ongoing effect of continuous improvement initiatives and a more favorable sales mix.

On a sequential basis we are encouraged by sales and operating margin improvements we are seeing in portions of the business. From the third to the fourth quarter of fiscal 2013, excluding the fourth-quarter Kreyenborg acquisition, Adhesive Dispensing sales grew 5% and a 58% incremental margin on the sales increase improved operating margin by 2 percentage points to 28%.

During the same period, Industrial Coatings sales grew 16% and operating margin improved by 3 percentage points to 17% with incremental margins of 36% on the increased volume. But we did not see the same pattern within Advanced Technology, this is not atypical, given the more seasonal nature of some of the segments semiconductor related end markets. We did continue to see solid customer bidding and quoting activity in the Advanced Technology segment during the period and order rates there have been positive over the last 12 weeks.

I'll also mention that we continue to execute on our acquisition strategy in this segment, Advanced Technology, during the fourth quarter. Specifically we acquired assets used to manufacture a plastic molded stopcock product line. This product line is an ideal fit with our existing line of highly engineered fittings, lures and connectors for fluid management applications in the medical industry and fills a gap in our product offering.

Continuing down the income statement, reported net income for the quarter was $60 million and GAAP diluted earnings per share are $0.92, which includes $0.01 from the Kreyenborg acquisition and a negative $0.04 per share impact from currency as compared to the prior years' fourth quarter. 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 items. The current quarters' earnings per share include a $0.01 charge for short-term purchase accounting related to the step up in value of inventory from the Kreyenborg acquisition.

The current quarters' EBITDA was $103 million. Cash flow from operations in the fourth quarter was $74 million. Fourth quarter free cash flow before dividends was $61 million, or 102% of net income, again representing strong cash conversion. We have included a table with our press release reconciling net income to free cash flow before dividends.

We continued our disciplined and balance approach to capital deployment during the quarter where we returned value directly to shareholders during the quarter through dividends and share repurchases totaling $16 million. From a balance sheet perspective, we remain very liquid with net debt at 1.6 times trailing 12-month EBITDA as of the end of the fourth quarter. And we have approximately $288 million available from cash in our current revolving credit facility.

I'll provide a few comments on our full-year results, where sales for fiscal 2013 were a record $1.5 billion, an increase of 9% compared to fiscal year 2012. Total sales volume increased by 10%, most all due to the first year effective acquisitions with less than 1% organic growth. This volume growth was offset by a negative 1% impact related to unfavorable effects of currency translation compared to the prior year.

Operating profit for the year was $324 million, net income was $222 million and GAAP diluted earnings per share were $3.42 where currency impacts as compared to the prior year reduced full-year earnings per share by $0.09.

Full year EBITDA was $380 million, a slight increase over the prior year. And free cash before dividends was $225 million, or 101% of net income, again reflective of strong cash conversion. Dividends paid in fiscal 2013 were $41 million and share repurchases were $30 million.

I'll add a couple 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 $29 million over the prior year mainly relates to fiscal 2013 acquired inventory. And looking at other assets, this increase year to year is associated mainly with intangible assets and goodwill from acquisitions.

Before moving on to our outlook for first quarter of 2014, let me provide some 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 the Kreyenborg acquisition included in both years. Looking at orders for the 12 weeks ending December 8, 2013, they are up 5% as compared to the same 12 weeks in the prior year.

Within the Adhesive Dispensing segments, orders over the last 12 weeks increased 3% compared to the same period in the prior year. Order rates increased in segment product lines serving rigid packaging and general product assembly end markets and were flat in disposable hygiene and polymer processing markets.

Orders were up in all regions except Europe. Keep in mind that orders in portions of our recently acquired polymer product lines can have longer lead types than our legacy product lines.

In the Advanced Technology segment, orders over the latest 12 weeks are up 10% compared to the same period in the prior year. Orders for product lines serving electronics and medical end markets were strong as were all regions except the Americas and Japan.

Within the Industrial Coatings segment, the latest 12 week orders are up 8% as compared to the prior year. We are seeing solid activity in consumer durable markets such as construction, appliances, lawn and garden and transportation, and we did see order growth in all regions except the Americas.

We are pleased with the recent strength in order rates compared to the prior year. While order rates for both parts and systems are up versus the prior year, system order rates are driving a larger portion of the order growth rate in all segments. This is encouraging as we begin 2014. However, as we discuss our first quarter outlook, keep in mind that systems generally have longer lead times which can impact the timing of shipments.

Backlog at the end of the fourth quarter was up 23% compared to the end of the fourth quarter a year ago. The increase was due to the first year effect of the Kreyenborg acquisition. Organic backlog decreased by $1 million from the prior year.

Let me now turn to the outlook for the first quarter of fiscal 2014. Note that this outlook includes the forecast for the Kreyenborg acquisition. We're forecasting sales to be in the range of $362 million to $375 million, an increase of 4% to 8% as compared to the first quarter a year ago. This range is inclusive of organic volume down 1% to up 3%, 6% growth from the first year effective acquisitions and a negative 1% currency translation effect based on the current exchange rate environment.

At the mid point of our revenue forecast, we expect gross margin to be 55% and operating margin is forecasted to be approximately 16%, inclusive of a $1.5 million short-term purchase accounting charge related to the step up in value of inventory acquired in the Kreyenborg acquisition.

We're estimating first-quarter interest expense of about $3.7 million and an effective tax rate of approximately 30%, resulting in first-quarter forecasted diluted earnings in the range of $0.55 per share to $0.63 per share. This estimate includes a $0.02 per share charge related to the previously mentioned inventory step up.

In addition to this first-quarter outlook, the following fiscal 2014 full-year data points may be helpful for modeling purposes. In addition to the $1.5 million short-term purchase accounting charge in quarter one, we expect additional charges totaling approximately $1 million in the second quarter related to purchase accounting for acquired inventory. For our effective tax rate, we are forecasting the full year rate to be about 30% assuming the continuation of the R&D tax credit. If this tax law were to not be extended for 2014, this would impact our effective tax rate by about 50 basis points.

For capital spending in 2014, we're forecasting normal maintenance capital spending to be in line with 2013, or between $45 million to $50 million, about 3% of 2013 sales. This is higher than what I would expect we would spend in future years as we invest in equipment and information system projects that would drive productivity and efficiency throughout the organization. This spending forecast does not include any spending or cash proceeds for that matter associated with our facility consolidation initiatives.

In summary, we delivered solid fourth-quarter performance. For the full year, we delivered record sales, continue to generate strong levels of free cash flow and continued our strategic investment initiatives to position the Company for long-term growth. Our current order rates are strong. And while the timing of shipments of these orders is impacting our first-quarter outlook, the increase in systems orders is an encouraging sign as we begin 2014.

Thank you, Greg. Before taking your questions, I'd like to provide some additional comments on our recent performance and first-quarter outlook.

We continue to deliver value to our customers with best-in-class technology surrounded by direct global service and support. Our teams focus resulted in another solid year for Nordson despite much slower macroeconomic growth than many forecasters initially anticipated. The fundamentals of our business remain intact, and as Greg mentioned, we returned $71 million to shareholders during the year through dividends and share repurchase.

I'd characterize 2013 as a year of investment. Throughout the year we continued to execute on a variety of strategic initiatives that will position us for further success.

In terms of technology, we introduced a steady stream of innovative new products during the year that are being well received in the marketplace. Among the highlights is the new Freedom System which is the next generation Adhesive Dispensing equipment for the rigid packaging industry.

Other new products gaining traction this year include a number of electronics products such as the Spectrum 2, high-speed dispensing system, Jade x-ray system, PICO xMOD dispensing valves. And in our powder systems area, a ColorMax 2 powder coating system is gaining traction as is a new line of bioprocessing fittings in our medical component space. All of these products are helping our customers to become more productive and efficient.

I'd also like to give an update on the specific investments we called out this year related to our Advanced Technology segment. As planned we are beginning to manufacture several product lines for electronics applications in our Suzhou, China factory and we have increased our sales, service and engineering capabilities in the region. These capabilities should enable us to penetrate more local and mid tier manufactures throughout the region.

We also described a proprietary new technology investment during the year. I'm pleased to report this investment has gone as planned, resulting in product prototypes at a handful of leading customers. These prototypes are performing well and we anticipate formal production and revenue to begin in the back half of fiscal 2014, at which time we should be able to provide more detail.

We also continue to execute on our acquisition strategy during the year. The Kreyenborg acquisition adds leading products to our polymer processing offering and we also added a product line to our medical offering as Greg mentioned. We're making solid progress on leveraging and fully integrating these and other recent acquisitions into Nordson.

Throughout the organization, continuous improvement remained fundamental to how we run the business. We continue to focus on customer segmentation, low cost country sourcing, heightened application of Lean Six Sigma tools, and benchmarking and implementation of best practices.

Finally, I'm also pleased with our efforts to invest in our team and our organizational capability. Specifically, we increased training programs for our emerging leaders worldwide during the year and we remained focused on other talent development programs. We also executed on our mission of giving back to the communities we operate in, providing $8.7 million to our charitable cause efforts during the year while our employees also volunteered thousands of hours through our time and talent program.

Looking ahead at the macro level, the consensus among most economists at this time is that GDP growth in 2014 should be considerably better than 2013, yet the magnitude and pace of improvement are uncertain.

Most regions are expected to grow. The current environment includes modest inflation, low interest rates, low energy prices and strong corporate balance sheets with high level of cash for investment. At the same time, China's ongoing transition to a consumption-based economy may continue to be a challenge. In the US, the Fed is expected to begin tapering its asset purchase programs in 2014 which could have a dampening effect. And in Europe, the recovery still is not broadly gained full momentum.

Specific to Nordson, our current order rates are positive in all segments and most geographies. The good news is that the order rates for both parts and systems are up, the systems orders driving the largest part of the total increase.

Overall, we continue to feel good about opportunities in the diverse spaces where we operate. In consumer and non-durable goods end markets demand for rigid and flexible packaging and disposable hygiene products continue to grow, especially in emerging markets.

In the electronics market, semiconductor capital spending forecasts for the year are positive lead by continued strong demand for smartphones and tablets. In the medical space, demographic trends play to our strength in dispensing devises and fluid management. And in consumer durable goods markets, we see customer investment related to building and construction, appliances, lawn and garden and transportation applications.

Our model of global direct sales and service, application expertise and differentiated technology positions us to seize these opportunities more readily than our competitors. We continue to complement these growth opportunities by executing on our enterprise-wide and business-specific continuous improvement initiatives. At this time, let's turn to your questions.

(Operator Instructions)

Charley Brady, BMO Capital Markets.

Could you give us the break down between the parts business and the other pieces for Adhesive Dispensing and the Company as a whole?

Yes on the mix, I think Greg's going to pull that number, and while he's doing that I would say for the year overall growth was up modestly. It was up probably on the order of 3% for parts and down probably like 4% for systems, so we had a step up I would guess this year in the parts of the systems mix. But Greg do you want to add the specifics there?

Yes, Charley in the quarter our total parts were about 41% of the total mix and this is all-in including acquisitions. That's trended down a bit from where for example, we start the first quarter where we have a higher portion of parts which was about 45%. We ended the fourth quarter at 41% and on a full-year basis, parts were about 42% of revenue.

Thanks, and on the system sales, as that starts flowing through, I'm trying to understand or get a better sense of the magnitude of what that might do to margins given that they tend to carry lower margins obviously. What's the magnitude that you might see on a margin headwind, if any, when those revenues start flowing through the revenue line?

Yes, I would say that in general, the margin impact would be relatively modest and really more a function of what's the total volume increases. And I think as you know we've got pretty significant volume leverage, so if the volume is up, we're going to see that improvement. There'll be a modest impact on margins, but not significant relative to other things that are going on.

Okay, one more, I'll hop back in the queue. To clarify on the Adhesive Dispensing business, did I hear you correctly that if you -- that the organic business ex the acquisition in the quarter went down 5%, if I back out the acquisition?

Yes, that's correct.

On a volume basis, okay, thanks very much.

Liam Burke, Janney Capital.

Mike could you give us some color on the acquired plastics business? Obviously, they have lower operating margins which you're addressing and can do, but could you flip over and talk about the end market demand there and what that looks like?

Yes, let me comment there. I think if you look at total plastics consumption for the year, it was actually up. I think earlier in the year it was up around 6%, it trended -- the growth for the year trended down probably a few points off of that. The issue that we've faced is investment versus demand in some strong investment in 2011 and 2012 particularly in an area that we've talked about before, in the biaxial film area which really has created an issue for us in the short term. As an example, we expected volumes to be up particularly with systems orders for classics this year and they're actually down and we have sort of the same impact negatively on incremental margins that we have in our core business. That said, in the long run we expect the growth rate of the plastics to be 1 to 2 points above our typical rigid packaging space.

And I would say most recently we were over what they call a K Show, which is a three year -- once every three year show in Europe around the whole plastics business. And I would say the environment was up beat and encouraging. And I'd say even in the biaxial film area, we're starting to see customers talk about new orders. In the interim, we've been looking at pushing the development of new products in areas beyond that biaxial film and taking advantage of a solid plastic injection market. So I'd say we've got a little bit of phasing from an investment standpoint, but ultimately long-term demand is going to be better than our core Adhesives business.

Great, and you touched on local manufacturing and ATS to address a lower to mid tier market in China, could you step back and give us where you are in the different businesses on the tiering strategy you have?

Yes, I would say we're probably in the seventh -- sixth or seventh year in our Adhesives business. It's been very successful for us in terms of capturing a part of the market that was growing as well as some of that end market and consolidating moving up to the more fully featured top of the line products, so that's been a very successful strategy for us.

I'd say in the Coatings business we're probably in the year two -- between year two and three in that business and we've gotten some good traction on our products that have been tailored particularly for markets in Asia and in that case more tailored towards China. I'd say in the electronics space we have not yet launched that tiered product and that's really the part of the reason that we're building out the capability that we have been building out in Suzhou is to enable us to do that. But is was also to allow us to be more responsive to the customers that we already have there. So I think 2014 is a year where we'll be launching those mid tier products and would expect to get some traction on those by the end of the year.

Great, thank you, Mike.

Christopher Glynn, Oppenheimer.

So backlog looked pretty good and suggests that the revenue guide is maybe conservative for the first quarter. I'm wondering if there's a mix shift to longer lead time business or other thoughts on how to translate backlog to 1Q revenues?

Yes, I'd make a couple comments. So there's a little bit of that in there in terms of particularly in the polymer side where there's some longer lead items. I would say also if you look at the order rates are solid and encouraging. Our organic backlog is actually down slightly from where it was last year, so that factors in. And I'd also say that we've had some larger systems pushed to the second quarter in terms of customer delivery dates. We always have some of that movement quarter to quarter but I'd say there have been some -- a few larger orders that got pushed out that might total $4 million or $5 million of impact. So that's the combination that's affecting our guidance for the first quarter.

Okay, and then in terms of 1Q EPS it's about flat year over year at the mid point. I'm wondering what could you offer for a high level thoughts on prospects for full year EPS growth or any comments on magnitude potential there?

Yes, I would say let's start with what do you think the macro is going to look like for the full year. I think coming into this year, most people were saying that the global GDP was going to be 3% plus and really as we've seen it play out, it's going to be 2% minus, and that's our fiscal year. And I think the particular surprise in all that was softness in emerging markets. Still growth but not near where they were historically.

If you look at the consensus now, we typically hone in on HIS global insights. They're projecting 2014 to be in the 2.9% range, pretty close to 3% with improvement in the US and Europe and some improvement in emerging markets. That would be a fairly robust scenario for us, and if that plays out, we should see the volume come back and I think the fact that we're starting to see systems orders come back in particular is encouraging. I think as you know we've got pretty significant leverage from a volume perspective, incremental margins tend to run from maybe a low of 30% to a high of 60% plus. I think Greg made some comments on the sequential basis. So if we see that volume come through, I think we would expect a nice uptick in performance.

Of course we stood here last year and said the same thing and we didn't see that materialize. I think people are a little bit more encouraged, I think, this year that the headwinds aren't there, but it's not -- it's still a little uncertain in the short term.

Okay, thanks and I'll close with a housekeeping item. What do you say for the first quarter tax rate?

Yes, about 30%.

Okay, great, thank you.

Mark Douglass, Longbow Research.

Looking at Tech, the orders improved massively sequentially. Would you say that the signs point to the broader electronics space earnings or is it more related to isolated near-term projects hitting?

Okay, Mark you were a little garbled there so I'm not quite -- you were asking something about the electronics orders and I didn't quite catch it, you were a little garbled. But could you repeat that?

Sure. The orders improved sequentially pretty massively. Is that a sign of a broader electronics space turning positive or is this still a little choppy environment, maybe these are isolated near-term projects hitting the books?

Yes, I would say it's still in the category of a little choppy. I think that if you look at what the industry pundits said going into last year is they expected actually the year to turn mid year and ultimately be modestly positive. We haven't really seen that play out in a broad way yet. There are forecasts for the next two years is significantly positive, so read that as high-single digits to double digits. That would be a nice upside for us. I'd say we're seeing some signs here and there of an incremental order in the more traditional spaces but we haven't really seen that turn in a big way yet.

Okay, looking at Adhesives organic growth, running pretty flat, a little bit positive the last few years, is that really just a digestion period after a really strong recovery in 2010 and 2011 and do you anticipate there's going to be hopefully a little better pick up here in 2014?

Yes, I think we do anticipate 2014 to be better. I would say we were really a little surprised this year that it didn't take off even in the slower environment a little bit more. And I think as we mentioned on a couple of calls earlier, what we saw is from a consumer non-durable standpoint, in particular in the food and beverage space, very modest consumption. And the first part of the year was actually down on an actual consumption basis. And the second part of the year was up but very modestly. And that I think is really factored in in general the level of consumption on the consumer non-durables piece. It didn't really tick up what the global GDP as it would typically do. And we really didn't see the growth investments coming through.

And I'd also say, given the uncertainty, some of the projects that we had in place that were enhancements, technology-driven enhancements for our customers to improve costs or productivity or throughput, didn't come through at the rate we would have expected. And I think that's really more about uncertainty in the global recovery. So I think as we see a little bit more clarity on the global recovery in particular, a bounce back in the emerging markets and US and European on better footing, we'd see both of those things coming through. But I think that's probably the one thing that surprised us a little bit was that food and beverage in particular, actual consumption being flattish to down for the year.

Okay that's helpful. Last question is you mentioned new products you're working on, it sounds like that they're -- you're not talking about what they are exactly, but can you say what segment we're talking about? And are they brand new or was there some cannibalization of legacy product?

Right, so the one we talked about specifically where we called out the significant investment of -- on the order of $1 million a quarter was really in the electronics space. We haven't said too much more about what it does, but it would be something that was new and it wouldn't cannibalize anything else. So it's incremental demand. The way we tried to characterize it is over the next few years, if it gains traction, it would be tens of millions of dollars of incremental revenue. But we also said it's something new and whether or not it gets adopted is not a slam dunk. I would say where we're at is that we passed the technical hurdles that were set forth by key customers that are interested this technology. And as we mentioned, we've got prototypes out there that they're sampling with good feedback. Now it's a question of market adoption by these critical customers relative to other alternatives they might have. But it's certainly encouraging at this point in time.

Okay, thank you for taking my questions.

Jason Ursaner, CJS Securities.

In the Tech segment, the weakness you saw during the quarter from the semiconductor back end, was this mainly from the OSATs in terms of excess capacity utilization? And when you're looking at it, is it mainly a demand issue, timing or is it part of the issue you previously talked about with the form factor of new devices not necessarily requiring new or upgraded equipment?

Yes, I would say if you look at it, there's an element of timing on a year-over-year basis. And I think we mentioned this in the last quarter where we saw fairly strong demand throughout the third quarter and into the fourth quarter in the mobile space based on timing of launches. And so I'd say we saw that impact this quarter as well because things as we said had flattened out, so there's a mobile element of that. I would say that while you've got normal growth on things like smartphone and tablets, when the supplemental growth that we see that comes from features and form factors hasn't been as robust most recently as we might have seen of a similar period last year. So I think that's been a factor. And then everybody anticipated that the traditional back end would step up in the second half of the year and we really haven't seen that yet. We were seeing some orders here and there but not a consistent trend, so its been a combination.

Okay and looking at guidance for Q1, given the length of time left in the quarter, the backlog you have and the commentary on lead times from system orders picking up, it looks like a relatively wide range for the organic volume trends. So at this point, I guess what would you say is the most significant factors that would drive you to the higher or lower end of that negative 1% to positive 3% range?

Yes I think in the short term it can be a couple of orders that get completed and out in the -- and quarter can quite frankly be in a couple of big orders can be enough to drive that. We're giving you our best estimate based on the backlog and the current order trends. But some of the bigger projects that we have if they slip or if they come forward can have an impact there and that's really what's determining at the margin the range that we're looking at.

And Jason, I would add in some of our more standard products even the standard systems, the pace of orders as we get through the holidays here and get into the first part of the New Year could have an impact as well.

Yes, we've got a number -- we've got many of our segments where they shut down over the Christmas holidays and things like that. So that can have an impact, so we're giving you our best judgment here.

Okay, and in terms of the orders that you did see, the pick up towards the latter part of the 12-week period, is that mostly end of year spending against capital budgets and how good a read through do you see that for next year given that capital budgets still need to be set at your customers and you sometimes see a pause earlier in the year until those levels get more set?

Yes, I would say the orders are pretty widespread and I would say it's not -- there's a little bit probably of that complete this year's capital budget, but I wouldn't say that's the overriding mix of the orders that we see in place. It's I'd say encouraging in a lot of different ways. And I'd say as Greg mentioned, the period that we sometimes have a hard time judging is end of year holiday period to what extent the folks slow things down and how quickly they pick up in the New Year. But I would say it's not primarily a capital budgeting situation. There's a little bit of that particularly in our Coatings business but that's not the driving force I don't think.

Yes, Jason this is Greg. I'd add we're going to have that element every year so as we read the order trends, the order trends by segment and by product line, there was really nothing unusual in this period to say that it was driven by a capital cycle or a customer's capital cycle.

Okay, great, appreciate those details, thanks.

Matt Summerville, KeyBanc.

Couple questions. First with Adhesive Dispensing, I think last quarter you said -- you mentioned orders were up 6%, this quarter volume is down 5%. I guess, and I know some of it's probably seasonality, but beyond that are you -- I guess why aren't you seeing more follow through in volume in Adhesives yet?

Yes, Matt, so I would say there is obviously like all of the businesses an element of seasonality and I think that what it comes back to are the two things I mentioned earlier. If you look at the consumer non-durable space in general and food and beverage in particular, this has not been a robust year globally. Its been relatively weak in the emerging markets and it hasn't been as robust as we might have anticipated in the developed markets. And so actually, when actual consumption is flat plus or minus, people aren't investing in the system side of the business and that's what we've seen is, in particular, the hits been around the system side of the business.

And then I'd say the second thing that we've got lots of opportunity to bring technology to bear to create a nice value proposition for customers and the things that we've talked about in the past around recapitalization. And we've seen customers hold them off given the uncertainty. If you think of the period they went through here in the US with all the discussion around the budget and the debt ceiling and that nonsense that was going on, that just had people holding off. And I think if you look to Europe, other than Germany, things are not back on track yet. And so I think it's really been that investment piece in systems that got pushed out. And particularly in bigger systems, let Greg talked about hygiene-related products, they tend to be more costly bigger systems and we've seen some softness there for example.

And Matt, maybe a little more specific at the detail level. You talk about the 6% order rate growth last quarter, we did deliver 3% volume growth this quarter. And as we mentioned not that we incorporated some of these acquired product lines that tend to have longer lead types, there is an aspect there as well in terms of the order rate growth versus what gets recognized in revenue in that particular quarter.

Yes, so we would expect I think in 2014 if we see the underlying consumption to go up to see some pick up in investment.

If we just stick with Adhesives again, where are you most optimistic about the business if we look at it in a couple of buckets, whether it be rigid, plastic, non-wovens, product assembly, where do you see a disproportionately better strength in 2014?

Well I would say if you looked at the year, packaging in general, rigid packaging was pretty soft for most of the year. Started picking up at the tail end, so I think we're hopeful that that's going to continue to the trend in 2014. I would say in general for the year the whole hygiene business has been relatively soft and I think that's another opportunity to see pick up. The product assembly has been more sporadic. A good quarter, bad quarter relatively speaking, but that's like more towards consumer durable and construction activity, and there's some signs of hope there. And I think in the long run, the plastics piece is going to be good. In the short run, the new products will get traction for us. And I think probably more towards the second half of next year we should see some of the film stuff stepping up, so I think that's probably a later year phenomenon on that film piece. But the new products are getting traction now, so we're encouraged by that.

So I think after this past year being pretty sluggish in general and quite frankly the prior year not being as robust as we would have expected, we think in general we're encouraged that that business should step up this year and we should see some new investment there. Now again, we anticipated this past year when we thought global GDP was going to be 3% plus, so if the GDP aspect of this struggles again this year, we'll be impacted. But if it gets back on a better track, which most people anticipate, we should see that play out.

And then another quick one here, within the Advanced Tech segment, I saw that a peer of yours is launching something that they referred to as the thermocompression flip-chip bonder. Is that something that would compete with your technology?

So there are technologies today which are pre-applied bonded underfills that compete, and depending on the sophistication of the application it could be used. Quite frankly I'd have to check on this specific application to see if that's one of the traditional pre-applied. I think we still see good growth opportunity and penetration in the approach that we have given the sophistication of the chips, the size and sophistication of the chips as well as the stacking aspects. So in general I don't think we see a big risk or concern there from the pre-molded type of underfill. Now this particular technology referred to I'd have to go back to our team and understand what that is because I'm not as familiar with that.

Got it, and then Greg, real quick, your pension expense was what for the year 2013 and what do you expect it to be in 2014?

Yes, we expect it to be about $5 million lower in 2014 than it was in 2013. Our global pension expense was about $25 million, so we see that moderating back to about $20 million.

Got it. Thanks a lot, guys.

Greg Halter, Great Lakes Review.

Wondered if you could elaborate on your plans on the capital deployment side relative to dividends, share repurchase and then your outlook on M&A.

Yes, so from a dividend perspective, I think our base plan is continuing to increase dividends and continuing the trend that we've had that I think topped 50 years now. I think we've talked in the past of a long-term goal to get into the payout ratio in the 20% plus range, we're getting pretty close to that. I think from a share repurchase standpoint, the number one goal is to offset dilution and that varies from year to year. But it's a $30 million-plus number, plus or minus, and so that would be second. So dividends and share repurchase.

I'd tell you from an acquisition standpoint, we have a pretty robust pipeline but we've got, quite frankly, a lot of work in the digestion and integration of the things that we've acquired and that's primarily number one focus is complete those integrations, deliver on the synergies that we see there. And quite frankly, in the long run we see more synergies than we anticipated. And then future acquisitions, I mean obviously they're always opportunistic, and if something came through that met one of the four platforms that we're interested in, we would certainly consider that. But I'd say this year is likely to see more tuck-in type of opportunities like this small stopcock line that we brought into our medical space at the tail end of this year.

And then I think on share repurchase, beyond offsetting dilution we've been pretty opportunistic in the past. We have a program, a $200 million program that's open that we utilize in a way hopefully that's opportunistic. So that's the priorities. I don't think that's really changed from where we're at and we may see less investment in acquisitions in the near term.

And I don't know if I heard or if you gave that, how many shares were repurchased in fiscal 2013?

I think we said about $30 million worth. I don't remember. I don't know what the -- do you know what the --?

Yes, pretty modest number of shares in 2013. If you went back over the course of the last say 2.5 years or so we probably bought back closer to, say, 8% of outstanding shares.

Okay, thank you.

John Franzreb, Sidoti.

Couple quick ones. The European orders were down 3% year over year after a couple good quarters of growth. What markets are responsible for the drop in volume there?

I think if you look at it, it's fallen in I think primarily into our Adhesives area, some of that's traditional Adhesives, some of that is I think in our plastics area, OEM-related plastics piece. So I think that's primarily where we saw it in the current quarter. That said, on the plastics space I would say the mood from the OEM group, which is in the plastic area, there's a lot of critical OEMs within Europe, largely in Germany and Austria. It was pretty upbeat in terms of opportunities going forward. Now some of those are longer lead time items as Greg talked about, but I'd say that was more encouraging at the K Show.

Mike did you say that large systems orders are recovering in the plastic business ex biaxial or is that not the case?

No I'd say in the -- particularly in the areas where we, the companies we brought were -- didn't have a good presence in some of the other film-related products that were outside of biax. We introduced new technology and we're getting good traction there so those are I'd say encouraging and we have some new technology across the board that we're introducing this year that I think will gain some traction there. And what I was saying is that the K Show and through discussions with OEMs, we're starting to see projects on the list for biax film. Now they are longer lead time and probably start to have an impact more towards the end of next year and into 2015, but that was certainly encouraging after probably two years of relative softness.

And then I would say the injection molding side has been pretty strong, not quite the same kinds of investment versus demand issue that we're seeing, so that helps our XALOY business and our Kreyenborg business. And then I would say one of the businesses that we acquired as part of Kreyenborg/BKG was the BKG business which is in the pelletizing business that supports the front end of the plastic pellet and adhesive pellet manufacturing and that's been fairly robust and continues to be pretty robust. Those are also bigger long lead projects, but that's certainly an encouraging sign.

Okay, in your prepared remarks, forgive me I don't recall who said it, but you mentioned the facility consolidation initiatives. It's been some time since I've seen any restructurings related to facility consolidations. Could you elaborate on that point and the timeline of those initiatives and talk about that a little bit?

Yes, so I'd say if you look at this past year, the whole move to Asia for Suzhou, there's an element in one of the product lines of facility consolidation so we're -- in effect have shut down now one facility in the US. I'd say if you look at everything that we are doing around our EFD and medical device business, there's some opportunity for a smart way to support growth that it also involves some consolidation and we're working through that now and that's something we'll do this year.

And then I would say one of the things that has come with all of the acquisitions, particularly in the plastic space, is a lot of capability and we need to figure out how to optimize that not only within the plastic space but also with our core Adhesive business. That's probably not a 2014 thing but that's something that we'd look at beyond that. So we've got a variety of things that we're looking at, one of which probably hits in 2014 and the others are probably beyond that. But there's an opportunity to optimize.

And we're still finishing up some transaction associated with some restructuring we've done over the last year or two. As Mike mentioned, within the Advanced Technology space, we've vacated two US smaller operations and consolidated into one facility. We still have a facility in Georgia within the Adhesive space that we'll be looking to sell in 2014. So we're still wrapping up some transactions associated with some activities that we've completed in the last year.

Yes, there's nothing in that last facility from an operation standpoint, it's just ready for sale.

Got it, got it. I know it's not as big of a discussion as it was in years past, but I couldn't help thinking of you when they abolished the one child rule in China and the whole potential in the diaper business, so could you just refresh me on how --?

It's still a big opportunity, John, if you look at the penetration there is still probably only around 30% in terms of amenable market. And over the next five years, we think that moves to 60%. So we do see that as a nice growth opportunity for that business. I would say there's been heavy investment over the last two to three years to support that transition. But I would expect over the next several years to see that continue to support that penetration. And the other thing that we're seeing there is a move more quickly to the more fully featured products that are popular in the West.

Great, great. Thanks a lot, guys.

Nicole, this is Jim. We've got time maybe for one more question then we'll have to end the conference.

Charley Brady, BMO Capital Markets.

Want to go back on the orders for second. On the 12 reorder rate I know that's pro forma for the acquisition, but could we just -- if you strip that out, can you give us a sense of what that existing base business is doing, particularly in Adhesives without the Kreyenborg acquisition? I'm trying to understand the order pattern on the base level of existing business before that deal got rolled in.

Yes, I would say it's pretty similar to the number you're seeing there.

Okay, thanks.

Okay, thank you, everybody, for participating. I'll be around later today if you want to send me an e-mail or call me, glad to take additional questions. And happy holidays to everyone if we don't talk to you. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, you may all disconnect. Have a great day everyone.