Nordson Corp (NDSN) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Nordson Corporation webcast for the third quarter fiscal year 2015. (Operator Instructions). As a reminder today's conference is being recorded. I would now like to introduce your host for today's conference call, Mr. Jim Jaye, Director of Investor Relations. You may begin, sir.

Thank you, and good morning, Kevin. This is Jim Jaye, Nordson's Director of Investor Relations. I am here with Mike Hilton, our President and CEO, and Greg Thaxton, our Senior Vice President and Chief Financial Officer. We would like to welcome you to our conference call today Friday, August 21, 2015 on Nordson's FY15 third-quarter results and fourth-quarter outlook.

Our conference call is being broadcast live on our webpage at Nordson.com/investors and will be available there for 14 days. There will be a telephone replay of our conference call available until August 28, 2015 which can be accessed by calling 404-537-3406. You will need to reference ID number 98581161.

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 have a question-and-answer session. And I will now turn the call over to Mike Hilton for an overview of our FY15 third-quarter results and a bit about our fourth-quarter outlook. Mike, go ahead.

Thank you, Jim, and good morning, everyone. Thank you for attending Nordson's third-quarter conference call. Nordson delivered organic growth of 6% during the quarter, a strong number in what continues to be a challenging macroeconomic environment.

Unfavorable currency translation continued to be a significant headwind on results compared to the same period a year ago as the dollar continued to strengthen during the quarter resulting in a 7% negative impact on sales. Sales and earnings per share were negatively impacted by $33 million and $0.16 per share respectively compared to the third quarter of last year.

From an operating perspective we've leveraged sequential revenue growth to generate operating margin of 22% in the third quarter, an increase of 3 percentage points compared to the second quarter. We maintained our disciplined and balanced approach to capital deployment during the quarter distributing $13 million in dividends and investing $49 million in share repurchases.

We also acquired Liquidyn, a German manufacturer of micro-dispense valves, that will broaden our fluid management product offering and is a nice complement to our EFD product portfolio.

We continued our ongoing focus on optimizing the business, taking restructuring actions within certain Advanced Technology segment product lines to enhance operational efficiency and provide customer service in a more cost effective manner. This is among several actions we are taking now and over the coming year to protect and enhance our margins in 2016 where we expect to macroeconomic environment will continue to be soft.

In terms of our fourth-quarter outlook, the current macroeconomic environment and comparisons to the prior year are challenging, resulting in modest organic growth at the midpoint of our forecast. This outlook would result in full-year organic growth of approximately 4%, a solid level given the state of the global economy which we've seen soften as the year has progressed.

I will speak more about our outlook and current business trends in a few moments. But first I will turn the call over to Greg Thaxton, our Chief Financial Officer, who will provide more detailed commentary on our current results and our fourth-quarter guidance. Greg.

Thank you and good morning to everyone. Sales and the quarter were $463 million, an increase of 1% from the prior year third quarter. This change in sales included a 6% increase in organic volume, a 2% increase related to the first year effective acquisitions, and a 7% decrease related to the unfavorable effects of currency translation.

As Mike noted, the US dollar further strengthened during the quarter generating a stronger headwind to sales than we guided to back in May.

Looking at sales performance for the quarter by segment, Adhesive Dispensing segment organic sales volume increased 4% as compared to the prior year third quarter. Organic growth was solid in product line serving disposable hygiene, general product assembly, rigid packaging and plastic extrusion end markets. We generated organic volume growth in all regions except the US.

Sales volume in the Advanced Technology segment increased 8% from the prior year third quarter where organic volume increased 2% and the first year effective acquisitions added 6%. And I will remind you that the Advanced Technology segment had a very strong quarter last year where third-quarter sales grew 15% over fiscal 2013 third quarter. So our comps are very challenging.

In electronic systems end markets organic growth was strong in surface treatment and test and inspection product lines, partially related to the penetration of new applications and customer adoption of new products. Demand for automated dispense systems was lower in comparison to the very strong period a year ago.

Within Fluid Management product lines medical end market demand continued to drive strong growth in single use components. Geographically total segment organic volume was strong in the US, Americas and Europe.

Organic sales volume in the Industrial Coatings segment increased 23% compared to the third quarter a year ago. This marks the fourth consecutive quarter of strong growth within this segment as our team captures the global opportunities presented within the end markets served.

Organic growth increased by double-digits in all product lines and was driven by projects in consumer durable, automotive, industrial, container and electronics end markets. And growth was positive in all regions.

Gross margin for the total Company in the third quarter was 54%. As compared to the prior year currency negatively impacted gross margin by 110 basis points and Advanced Technology product mix also reduced gross margin. Operating profit in the quarter was $103 million and operating margin was 22% or 24% excluding the effects of currency as compared to the prior year.

Looking at operating performance on a segment basis, Adhesive Dispensing delivered operating margin of 26% in the third quarter, or 28% excluding the effects of currency as compared to the prior year.

Within the Advanced Technology segment operating margin was 24% in the third quarter or 25% excluding one-time items. The effects of currency as compared to the prior year were negligible as a high percentage of sales are US dollar denominated.

As noted previously, the prior year's third quarter was an exceptional quarter for the segment, both in terms of sales volume growth and the customer and product mix of volumes sold where we delivered margin of 32% in the quarter, a high watermark over the last couple of years for this segment.

Comparing to a more normalized operating margin for this segment in the third and fourth quarter of high 20%, operating margin in the quarter was negatively impacted by product line and customer mix with a higher mix of non-automated dispense sales.

The Industrial Coatings segment delivered operating margin of 19% in the third quarter, or 21% excluding the effects of currency as compared to the prior year. This outstanding performance is an increase of 6 percentage points over the prior year and reflective of the strong operating leverage generated by this business on higher volume and our ongoing efforts to drive profitability.

Continuing down the income statement, our effective tax rate for the quarter was 29.5% or 30.1% excluding a discrete return to provision adjustment. Net income for the quarter was $69 million and GAAP diluted earnings per share were $1.14 or $1.16 excluding the $0.01 per share benefit related to the discrete tax item and a $0.03 per share charge related to restructuring and efficiency initiatives mentioned previously.

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.

The current quarter's EBITDA was $120 million, cash flow from operations in the third quarter was $50 million and free cash flow before dividends was $37 million. Free cash flow in the quarter was impacted by an increase in working capital mostly related to the timing of receivable collection and some inventory build.

We expect free cash flow in the fourth quarter to benefit from a reduction in working capital as we trend back to our typical DSI and DSO metrics. We have included a table with our press release reconciling net income to free cash flow before dividends.

We continued our balanced approach to capital deployment during the quarter distributing approximately $13 million in dividends, investing $49 million for the repurchase of shares and continuing to execute on our acquisition strategy. As of the end of our third quarter we have approximately $147 million available against the $300 million share repurchase authorization.

From a balance sheet perspective, we remain very liquid with net debt to EBITDA at 2.1 times trailing 12-month EBITDA as of the end of the third quarter.

In terms of additional color on acquisition activity, we have recently completed two small acquisitions that add to our capabilities. On June 15 we completed the acquisition of Liquidyn, a German manufacturer of micro Dispensing Systems including micro-dispensing pneumatic valves, controllers and process equipment.

Highly complementary to our existing portfolio, Liquidyn's products expand our jetting capabilities and are used to dispense adhesive, greases, silicones, oil, flux, lacquer, solder paste and other chemicals in the electronics, automobile, medical, packaging, furniture and aerospace industries.

The Company has 13 full-time employees and will be integrated into the Nordson EFD product line within the Advanced Technology Systems segment. While the transaction is not material, and we are not disclosing specific financial information, the purchase price was approximately $15 million.

After the close of the third quarter we completed the acquisition of [Waffo] Productions GmbH, a German manufacturer of screws and barrels for plastic injection molding and extrusion applications. This purchase is in line with our global strategy and establishes a local European screw and barrel source to enable and support growth in that region.

Waffo serves a diverse customer base, adds field engineering resources and deepens and accelerates market penetration. The company has approximately 65 employees and will be integrated into the polymer product line within the Adhesive Dispensing segment. Again, this transaction is not material and we are not disclosing specific financial information. The purchase price for Waffo was approximately $8 million.

We're excited about the opportunity these two organizations bring to Nordson and we welcome these new employees to the Nordson family.

I will now move on to comments regarding our outlook for the fourth quarter of fiscal 2015. 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 Liquidyn acquisition included in both years.

For the 12 weeks ending August 16, 2015, order rates are up 5% as compared to the same 12 weeks in the prior year. Within the Adhesive Dispensing segment, the latest 12-week orders were up 12% as compared to the same period in the prior year where we generated order growth in all product lines and all geographies except Japan.

In the Advanced Technology segment order rates for the latest 12 weeks are up 1% against the prior year. Strength in automated dispensing systems for electronics markets and fluid management components for medical end market was offset by other product lines. Strength in Asia-Pacific, Europe and the Americas was offset by other regions.

Within the Industrial Coatings segment the latest 12-week order rates are down 9%. We are facing challenging comparisons within this segment where order rates were up 18% at this time last year. Growth in automotive and liquid painting product lines was offset by other product lines. Strength in Europe and the Americas was offset by other regions.

Backlog at July 31, 2015 was approximately $270 million, an increase of 10% compared to July 31 of 2014 inclusive of 6% organic growth and 4% growth due to acquisitions. Current backlog decreased 5% compared to the end of the second quarter of fiscal 2015. These backlog amounts are calculated at July 31, 2015 exchange rates.

Let me now turn to the outlook for the fourth quarter of fiscal 2015. We are forecasting sales to be in the range of down 3% to down 7%, as compared to the fourth quarter a year ago. This range is inclusive of organic volume growth of down 1% to up 3%, 1% growth from the first year effective acquisitions, and a negative 7% impact related to the unfavorable effects of currency translation based on current exchange rates.

At the midpoint of our sales forecast we expect fourth-quarter gross margin to be 55% and operating margin is approximately -- is estimated to be approximately 22% with both negatively impacted by 1 percentage point due to unfavorable currency rates as compared to the prior year.

We're estimating fourth-quarter interest expense of about $4.4 million and an effective tax rate of approximately 30% resulting in fourth-quarter forecasted GAAP diluted earnings per share in the range of $1.00 to $1.12 per share, inclusive of a $0.01 per share charge associated with purchase accounting for acquired inventory.

We do expect strong cash conversion during the fourth quarter given the expected return to more typical working capital metrics previously noted, such then on a full year cash conversion ratio we expect to be close to 100%.

In summary, we delivered strong organic growth in the third quarter against a challenging macroeconomic backdrop while also continuing our balanced approach to capital deployment. Our fourth-quarter outlook reflects continued softness in the macroeconomic environment and challenging comparisons to the prior year. With that I will turn the call back over to you, Mike.

Thank you, Greg. Before taking your questions I'd like to provide some additional comments on our recent performance and outlook. First I want to think our global team for their hard work. Our employees have delivered solid performance over the first nine months of the year in a challenging environment. They are the secret of our success.

In terms of our fourth-quarter guidance, organic growth is positive at the midpoint of our forecast even in a soft macroeconomic environment and challenging comparisons as Greg noted. At this midpoint Nordson would deliver full-year organic growth of approximately 4%, a solid number and well above global GDP.

Looking further ahead, many economists at this time are not forecasting significant macroeconomic improvement heading into the coming year and our own visibility over the longer term is limited. Given this uncertain outlook we are taking actions in areas we can control to improve normalized operating margin in 2016 and beyond independent of sales volume leverage.

The actions taken in the third quarter to optimize the performance of our Advanced Technology segment are among the first of these steps. These actions were taken in conjunction with the opening of our new facility in Colorado and the acquisition of Liquidyn, which provided us with opportunities to further optimize customer service and operational footprint across selective fluid management product lines.

Using tools within the Nordson business system we are implementing a more concentrated effort around multiple continuous improvement initiatives, accelerating footprint consolidation activities, challenging the productivity of our organization while limiting additions to headcount and reducing other spending categories. We will have more detail around these activities in the coming quarters as they occur.

Overall our target is an improvement of at least 200 basis points to the normalized operating margin by 2017, with some of this coming in 2016, again independent of sales volume leverage.

While we do expect to grow the top-line of the business beyond GDP levels, which does then generate solid volume leverage, our focus will be on improving operating performance levels of each of the segments against the assumption of a low growth environment. Overall our global team is committed to providing a best in class experience to our customers and delivering solid long-term returns to our shareholders.

We remain confident in our business model and our ability to capitalize on many of the opportunities available to us in the diverse end markets we serve. At this time let me turn it over to your questions.

(Operator Instructions). Kevin Maczka, BB&T.

So, the first question I guess kind of big picture demand, I know visibility is always limited here, but as we are approaching fiscal 2016 -- I guess my interpretation here is that we are going to do about 4% organic growth this year. But it sounds like maybe you are bracing for a bigger slowdown given your comments about visibility and uncertainty and soft macro and taking new cost actions. Is that the right way to be thinking about 2016?

No, Kevin. I wouldn't -- here is how I would characterize it. If you think about where we were at the beginning of our year looking at the global macroeconomy, most economists were forecasting well above 3% GDP growth. And quite frankly, based on where we sit today, the only geographic region that has hit that is Europe.

The US is below where things were expected, Japan, China, most of Asia and emerging markets are below, so that we see this year's GDP coming in in that 2% to 2.5%, likely middle 2.2%, 2.3%. Our view is next year that's probably going to be the same.

There are some economists now that still show 3% for next year. We don't see a catalyst at the moment that is going to drive more -- global GDP growth will above 3%. So we are looking at it more like this year.

So if you think about rough some of kind of 2X the GDP that we see, that's kind of where our expectation. That is not the most robust growth environment and so we think it is only prudent to go into the end of the year being watchful of our expense line, driving our productivity initiatives and maybe accelerating some of the programs we had in the plan already.

And, Kevin, this is Greg. What I would add to those comments is we certainly have other initiatives, including new product development initiatives -- new market opportunity initiatives that help us have aspirations of driving above that two times GDP and historically we have been able to capture some of that. But it's the sense that the operating environment next year may not be much better than what we are operating in this year.

Yes, I would say just to add to that, from an initiative standpoint we are doing pretty well this year, we are just floating on a little bit weaker economy than we expected.

Yes, and I think 6% in the quarter and 4% for the year is certainly better than most industrials this year, so that looks good on a relative basis and in a soft GDP world. But I am just -- I guess where I am going is I am just wondering where do you see the opportunity for things to accelerate if we do have a similar GDP environment?

And who knows, maybe it's worse, maybe it is better, but if it is similar like you are forecasting, what would make us do better than 4%? Is it new product development in some of the new initiatives you have, Greg, or is there something specific to your segments or your geographies that gives you some comfort that things can be better?

Yes, Kevin, I would say a lot of it is linked to the new products -- the development side. We have a lot of new products that we have introduced this year and I would say generally getting traction. Some of them will -- are taking a little bit longer than we might have expected but getting good feedback on those. So I think that is sort of a key opportunity.

In some cases we have got new applications that in effect are creating demand. And so, we are seeing some of that this year and we expect to see some of that next year. So, if you look at it in each business we have initiatives that we think we can control including in some cases we've talked about in the past where we are making progress now in tiered products, for example, in the Advanced Tech space that we hadn't had before.

So we see some of those kinds of things driving the sort of premium growth even when the economy is a little bit softer than maybe folks had expected. So, we are not discouraged, I think we are encouraged by what we're seeing in our initiatives. What is most unclear is what are we floating on top of. And I would say that is particularly unclear when you think about Asia -- Japan and China in particular.

Okay, got it. I will get back in queue. Thank you.

Joe Radigan, KeyBanc.

First on the fourth-quarter guidance, can you give some directional color by segment and context of the organic growth guidance you provided? Adhesive Dispensing has been trending kind of below where the order growth has been -- would seem to indicate, Advanced Tech and Industrial Coatings are both facing pretty tough double-digit organic growth comps.

So, is it reasonable to expect adhesives to come in at or above the high end of that range and then the other segments kind of below or near the bottom of that range? Or how are you thinking about it in terms of -- relative to the total Company?

Yes, one thing that is a little bit different on the adhesive side here is with the polymer product lines in there, some of those are a little bit longer delivery. So some of the orders that we are seeing now probably don't get shipped in the fourth quarter would carry over into the first quarter.

So I think generally speaking, if you look at it until we kind of lap all of that and get sort of a more normalized set of history with that business, we are going to see some disconnection between orders and what you see in revenue. So I think that has certainly gone on a little bit in the adhesives side of things.

If you look at the rest of the business, we are entering the period of time where you typically would expect orders to follow more typical pattern, which would be to drop off from their peaks going forward and that is what we anticipate to see as a typical traditional background going forward there. And so, that is kind of factored in against, as you said, the tough comps particularly in the coatings business and also in parts of the Advanced Technology business.

Joe, this is Greg. I think just to add to what Mike said; you hit a lot of it in the prelude to your question. If you look at prior year revenue in each of the segments and kind of correlate that with current period growth rates, it helps give you a few of -- given the current pace of orders and that comps that were up again, you can kind of correlate where you might expect to see that growth rate coming in the fourth quarter.

Okay, great. And then in Advanced Tech, do you expect the operating margin to moderate sequentially kind of on lower volume in the fourth quarter, in line with what you typically see seasonally?

I know you are going to have FX headwind again in the fourth quarter which will impact that margin. Or does some of the restructuring benefits that you are going to get from the actions you have taken kind of offset that?

Yes, I would say the restructuring benefits are mainly going to be things that we see next year. We are really not going to see much, I don't think, in the fourth quarter.

With regard to the operating margin in the Advanced Tech segment, I think Greg tried to point out that we had a really unusual third quarter last year and that kind of distorted things. If you recall last year in that segment the first two quarters were pretty soft.

We had a big concentration of orders in the third quarter such that the volumes were really strong and that had an impact in terms of the volume leverage in that quarter, and then it move back to a more traditional approach. And I think what we see this year is the same kind of improvement in the third quarter but not to the same level or the same peak.

Okay, great, thanks.

Christopher Glynn, Oppenheimer.

So at ADS the orders number is really truly striking in this global economic environment. And the adjusted for FX operating margin looks like it is harkening back to some of the pre-plastics days as well. Are you finally seeing the pivot in that extrusion end market?

I would say the orders in general in the plastics product lines are up nicely. I would say what we're seeing right now is more capability build in that extrusion segment, so sort of newer technology for capability, not for capacity. So I would say not yet in terms of that turn on the capacity side.

But we are seeing upgrades, we are seeing rebuilds, we are seeing capability enhancement on the extrusion side. And we are seeing continued solid business in the injection side. But no, we haven't seen -- in particular we haven't seen the high end [buy X] turn yet.

Okay. And then I know it's been covered, but on the ATS margin pressure year over year despite a little bit of organic growth, just the magnitude is a little tough to comprehend. I know you have addressed it qualitatively, but if we could just kind of revisit that (multiple speakers) it would help.

Yes, let me take a stab at that and then Greg can comment if he wants to add additional color. So we would expect in a normal quarter -- third quarter and typically fourth quarter as well, but third-quarter in particular, to see kind of a high 20s margin in that segment. So 32 last year is probably 3 or 4 points above what was typical and it is really a function of the concentration of when the volume came in last year.

In the end look at this with 24% this year you have got 1 percentage point that is the restructuring impact. And then there are 3 percentage points that are so -- 3 to 4 that are linked to mix.

And when I say mix, basically our surface treating products and our test inspection products were up, a lot of that based on some new applications and new products, but our dispense volume was down significantly.

And if you look at just the margins by the nature of the scope of what we supply and the markets those products are going into, you've got that sort of margin swing there that is having an impact. We are not seeing any pricing pressure, we are not losing share, none of that, it's just a pretty significant swing in the mix that has had an impact there.

And what is the foreground for orders and projects on the automated side? Even from a touchy-feely perspective of answering.

Yes, I would say we are seeing improvement in the dispense side of things relative to where we were last year. But year-over-year it is likely not to be as strong as last year. And if I look at where we were say a quarter ago, we expected -- there were some signals that were showing more traditional applications picking up and that didn't play out throughout the rest of the quarter.

And I would say from a mobile perspective we have seen a couple things. We have seen mix change in our customers, so growth in the sort of Chinese based customers who to date are buying some equipment but not to the same extent that others would, as a sort of a key impact there as well.

So those are a couple of things that kind of impacted the dispensed business. And this is a year where we have seen more modest change in the sort of features and functions of phones in general. And so typically when there is a more dramatic change we will see more of an uptick.

But we are seeing in the most recent quarters a nice positive impact on the dispense side of things. But it in general for the year is probably not going to be where we would have hoped coming into the year.

Thanks. Very interesting.

John Franzreb, Sidoti & Company.

Yes, I would just like to maybe stick a little bit -- just stick a little bit on maybe the consumer nondurable side of the business. Can you talk a little bit about regional differences you may be seeing in order patterns that maybe we should be cognizant of?

Yes, so, a lot of the consumer nondurables fit within our Adhesives business. And if you look at sort of the Adhesive business in general, the nonwovens part of the business has been pretty strong, the product assembly part of the business has been pretty strong.

I would say packaging has been solid with the exception of parts of Asia and particularly China has been relatively soft year over year in the packaging area. So that is I think really a function of what you are seeing in the Chinese economy growth but not robust growth. But everywhere else it has been pretty solid.

You can have some variations quarter to quarter based on large projects, but it is been a strong nonwovens year, it has been a strong product assembly year and a solid packaging year with the exception of what we are seeing in Asia -- Japan softening and China being softer. And we are starting to see a pickup now in the plastic side of the business.

Mike, now that Asian/China demand, has that weakened in recent months or has it been weak through the balance of the year?

I would say China in particular started off weak, picked up and then kind of flattened out. So I would say we are seeing a flattening in China where we probably had expectations that China was going to pick up a little bit more.

If you look at things like beer and beverage consumption and some other consumer products, they have been pretty weak in China if you just look at sort of some of the other headlines. And part of that is linked to struggles with the transition to the consumption based economy that they are having which is really contributing to challenges meeting their GDP target. And that is one area where we see it playing out.

Okay. And, Greg, could you just elaborate a little bit more on the inventory build you referenced earlier and the receivable collections?

Yes, I think it is -- we had this kind of phenomenon at the end of our second quarter which generally our revenues are pretty consistent throughout the quarter and at the end of the second quarter we just had a lot of volume that went out late in the quarter that impacted our DSO metrics and we had a very strong then third quarter. I am sorry, I'm a quarter off here. We had a very strong collection in the following quarter.

I expect that same trend to continue where during the third quarter we saw a heavy mix of revenue shipping later in the quarter. And I think we've got a bit of the same on the inventory, our DSI went up a couple days, but we are not pre-building a lot of inventory for volumes that are extending beyond next quarter shipments.

So, I expect to see the same trends. We will moderate back to typical DSI/DSO and our cash conversion will be strong in the fourth quarter.

Okay, thank you very much, guys.

Allison Poliniak, Wells Fargo.

Just touching on -- I know there is -- China sounds like it has certainly not met expectations from your perspective. But any concerns about with this -- the headlines we are seeing on a daily basis customers pushing out some of these projects that you are talking about working on and so forth at this point?

I would say as a general statement we are not seeing significant delays or push outs, but I would say in a couple areas where there are bigger ticket investments, so say for example parts of our Industrial Coating area as an example we are seeing some stretch in time between sort of bidding and decisions.

So I would say in general no, but in areas where it might be higher capital decisions for customers we are seeing -- we are hearing a little bit about the push outs, longer lead times, things like that. So not so much in some of the shorter-term decisions that fall into other parts of the business.

I would also say that it probably has an impact in some of the more traditional electronics applications as well just as a consumer of those products, that's not as robust as maybe we would have expected earlier in the year.

Sure. And then just -- it sounds like as we head into 2016 there is really no sort of catalyst for change in the environment. Any changes or thoughts of changes to the capital deployment plan that you have in place today?

So, just a comment on the first part, I would say we are being prudent, so we would like to be surprised to the upside if things improve. But we are not seeing anything from an underlying macro standpoint that would dramatically change sort of the global economic environment there. I would say on the initiatives, we feel pretty good about our initiatives.

From a capital deployment standpoint I think our priorities would remain the same. We would look to increase our dividend. You noticed this year we moderated in terms of the amount we increased it, in part because we are now into the range that we would like to be in the sort of low 20s.

We would offset any kind of compensation-related share creep. We would look for acquisitions. We talked about two as really product line tuck-ins, we're seeing more of that kind of thing right now as kind of either tuck-ins or smaller acquisitions than we might have seen in the past.

And then we do have an open share repurchase authorization and we utilize that in a staged fashion. We have always liked to keep that available. So that is sort of our priority, no real change in that.

As we said in the beginning of the year, we thought this year would be a modest year from an acquisition standpoint. There are -- we have a nice pipeline. They tend to be in the short-term likely to be smaller kinds of opportunities than some of the things we have looked at in the past.

Great, thanks so much.

Liam Burke, Wunderlich.

Mike, you talked about the tiering strategy in ATS going pretty well. With the emerging markets development sort of being choppy here, how has the tiering strategy been progressing on the Adhesive side.

That is the most advanced of our businesses from a tiering approach and it is going very well. If you look at across the major parts of our business, particularly the nonwovens and the packaging, we have got multiple tiers, anywhere from three to six sort of product offerings at various stages, that has gone very well.

This year has been a solid year for the high end, but it has also been a good year for the mid-tier end. We spent some money this year building out our engineering and support capability further in China to advance the mid-tier products and that is meeting with good success there. And some of those products will support tiering outside of the Asia market as well.

So, I would say that is progressing well. We have made our first set of offerings now with the Dima acquisition and moving that to Suzhou on the electronics side. We also have some tiered offerings in our coatings business as well. So I think we are making good progress there, but we are most advanced in the adhesives side.

Great. And you mentioned the transition to the new plant for ATS in Colorado. Is that complete and how has that gone?

It has gone well. I think we still have a few pieces of equipment to move in, but the transition has gone very well. The facility is complete. We have got capacity there that not only supports the medical business but it supports some of our other EFD business.

At the same time we have also expanded the capability that came with Avalon in Mexico to support growth of that business. And some of the things that we do from an assembly standpoint in other parts of the medical business. So that is all going as planned very well.

So, Liam, just to add to that, that is where we comment on approving our productivity or efficiency, it is these facilities that allow us to improve our overall operating performance.

Great. Thanks, Mike. Thanks, Greg.

(Operator Instructions). Walter Liptak, Global Hunter.

Wanted to ask kind of a follow-on to the last one. And the charge you took this quarter looks like about $1.8 million. And is it sort of restructuring size as you do these actions that we should be expecting? And then kind of along those lines, which segments, which businesses do you see these productivity opportunities?

So, in general we see productivity opportunities across all of our businesses. I think we have talked in the past that there are a number of different things that we can do. One element of that is optimizing our supply and demand and that may impact some of the facilities and that is what you have seen here in this quarter.

And we would expect that there may be some more of that going forward; the exact timing and the impact will be a little bit clearer as we go forward. There is also a lot of work that we are doing around segmentation of our business and streamlining and various other areas that will be helpful as well as well as we look at improving both the effectiveness and efficiency.

So there is opportunities across all the businesses, certain ones have more opportunities than others. I think, as you have noticed, as we have made some acquisitions there has been some opportunity there to integrate those more fully and you will see some of that coming going forward.

Okay. And with the relocation [and the] Colorado benefits, you mentioned that you didn't think you would see a benefit in the fourth quarter. In 2016 what do you think the positive benefits are to margins?

I am not sure I want to comment specifically on that one, but we would expect -- as we said, our overall goal is by 2017 to improve 200 basis points and some of that will come in 2016 with that action and probably some others. So don't necessarily want to say specifically on that one, but it is an important improvement for those set of product lines.

Okay, sounds good. Thank you.

And I am not showing any further questions at this time. I would like to turn the call back over to our host.

I just want to make one sort of final comment. As we look at sort of the performance so far this year we do think it is very solid given the sort of weaker environment. As we look at the activity and opportunity going forward that still looks solid, not as robust as we would have hoped coming into the year, but still looks solid.

And our team is doing a good job of execution. And we expect that we will continue to execute -- and execute on these improvement opportunities going through the fourth quarter and into 2016. So we appreciate all of your support and your attention here. Thank you.

Thank you, Mike and Greg. This is Jim. I will be around today, happy to take your calls. And have a good weekend. Thanks again for attending the call.

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