Nordson Corp (NDSN) 2016 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 2016. At this time all participants are on a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, today's conference is being recorded.

I would now like to introduce your host for today's conference call, Mr. Jim Jaye. You may begin, sir.

Good morning. This is Jim Jaye, Senior Director of Investor Relations. I am here with Mike Hilton, our President and CEO, and Greg Thaxton, Senior Vice President and CFO. We welcome you to our conference call today Tuesday, August 23, 2016, to report on Nordson's FY16 third-quarter results and our fourth-quarter outlook.

The 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 30 which can be accessed by calling 404-537-3406. You will need to reference ID number 58265387.

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 but now I will turn the call over to Mike for an overview of our FY16 third-quarter results and a bit about our fourth-quarter outlook.

Thank you, Jim, and good morning, everyone. We are very pleased with our performance in the third quarter. We delivered record performance for any quarter in our history in terms of revenue, operating profit, net income and diluted earnings per share. My thanks go out to our global team for their continued hard work and customer focus.

Greg will provide a bit more of the financial details shortly but first I would like to mention just a few of the highlights for the quarter. On the top line we grew the business by 6% in the quarter compared to the prior year, slightly above the high-end of our guidance and inclusive of 4% organic growth. This is a very solid performance in a challenging macroeconomic environment.

The diversity of our end markets continues to be a strength and our team is capturing growth opportunities in a variety of niches where customers are responding to our value proposition and our new product offerings. Growth was especially strong this quarter in electronics, medical and consumer nondurable end markets. We also generated growth across most of our geographies.

We leveraged the revenue growth and our continuous improvement efforts to increase total Company operating profit by 20% and operating margin by 3 percentage points both as compared to prior year's third quarter. Incremental operating margin was 77% in the quarter and diluted earnings per share grew by 28% compared to the same period last year.

As we look to our fourth quarter, we are forecasting mid to high single-digit organic growth compared to a year ago. Our backlog and order rates are very solid and customer project activity in all three segments is steady. We expect volume leverage and our ongoing operational initiatives to drive operating margin improvements as compared to last year's fourth quarter.

At the low end of our fourth-quarter guidance we are on track for a record full-year performance. I will speak more about our outlook and current business trends in a few moments but first let me turn the call over to Greg for more detailed commentary on the current results and our fourth-quarter guidance. Greg?

Thank you and good morning to everyone. As Mike noted, we increased sales by 6% in the quarter over the prior year's third quarter with sales of $490 million. This change in sales included a 4% increase in organic volume, a 2% increase related to the first year effective acquisitions and a less than 1% decrease related to the unfavorable effects of currency translation as compared to the prior year third quarter.

Looking at sales performance for the quarter by segment, organic sales volume in Adhesive Dispensing increased 4% compared to the prior year with additional volume growth of 1% related to the first year effect of the [Waffle] acquisition. Strength in consumer nondurable and general product assembly markets in the current quarter helped drive solid organic growth in this segment. Geographically, Europe and the US led the growth.

Organic sales volume in the Advanced Technology segment increased 6% compared to the prior year third quarter with additional volume growth of 5% related to the first year effect of the Liquidyn and MatriX acquisitions. The organic growth was driven by strong demand for automated and semi-automated distance equipment in electronic end markets and fluid management components for medical end markets. Geographically, Japan, Asia-Pacific and the United States led the growth.

Sales volume in the Industrial Coatings segment decreased 3% compared to the third quarter a year ago. Sales were impacted by very challenging comparisons to the prior year where volume growth was 23% at this time last year. Strength in powder and liquid coating product lines was offset by softness in other product lines. Growth in Europe and the United States was offset by other geographies.

Moving down the income statement, gross margin for the total Company in the third quarter was 56%, a 2 percentage point improvement from last year's third quarter driven largely by volume leverage and product mix. Operating profit was $124 million and operating margin was 25%, an improvement of 3 percentage points from the third quarter a year ago. This improvement was driven by both volume leverage and a range of continuous improvement initiatives. Excluding one-time charges of approximately $1.7 million for restructuring initiatives, total Company operating margin was 26% in the quarter.

On a segment basis, reported operating margin in the Adhesive Dispensing segment improved 1 percentage point from the prior year to 27% in the quarter or 28% on a normalized basis to exclude approximately $800,000 in charges related to restructuring initiatives.

Within the Advanced Technology segment, reported operating margin was 31% in the quarter an improvement of 7 percentage points from the third quarter a year ago. This is very strong performance where volume leverage, sales mix and continuous improvement initiatives combined to drive the improvement.

In the Industrial Coatings segment, third-quarter operating margin was 17% or 18% on a normalized basis to exclude approximately $900,000 in charges related to restructuring initiatives. This is continued strong performance for this segment especially given the lower level of volume in the current quarter compared to the same quarter a year ago.

For the total Company, net income for the quarter was $84 million and GAAP diluted earnings per share were $1.46 or 28% higher than last year's third quarter. Excluding one-time items, normalized diluted earnings per share were $1.47. We have included an earnings per share reconciliation schedule in our press release to reconcile between GAAP earnings and normalized earnings per share.

The third quarter's EBITDA was $139 million and cash flow from operations was $68 million. Free cash flow before dividends was $48 million. Free cash flow in the quarter was impacted by an increase in working capital mostly related to the timing of receivable collections. We expect free cash flow in the fourth quarter to trend back to our more typical cash conversion levels.

We have included a table with our press release reconciling net income to free cash flow before dividends and during the quarter we distributed approximately $14 million in dividends. From a balance sheet perspective, we remain liquid with net debt to EBITDA at 2.3 times trailing 12-month EBITDA as of the end of the third quarter.

I will now move on to comments regarding our outlook for the fourth quarter. We have 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 acquisitions included in both years.

For the 12 weeks sending August 14, 2016, order rates are up 16% as compared to the same 12 weeks in the prior year. Within the Adhesive Dispensing segment, the latest 12 week orders are up 2% as compared to the same period in the prior year. Comparisons are challenging here where this segment's order rates were up 12% at this time a year ago. Order rates in the current period were driven by strong demand in our general product assembly and rigid packaging product lines. Geographically, orders were strongest in Asia-Pacific.

In the Advanced Technology segment, order rates for the latest 12 weeks are up 29% as compared to the prior year. Mobile and related electronics end markets drove the orders with strong demand for our automated and semi-automated dispense systems, test and inspection equipment and surface treatment systems. Demand was also strong in most of our medical fluid management product lines. Geographically, order rates were driven by Japan and Asia-Pacific.

Within the Industrial Coatings segment, the latest 12-week order rates are up 36% as compared to the prior year. Orders increased by double digits in all product lines driven might demand in automotive and consumer durable end markets. Geographically, orders were up by double digits in all regions except Europe.

Backlog at July 31, 2016 was approximately $333 million, an increase of 22% compared to the prior year and inclusive of 20% organic growth and 2% growth due to acquisitions. Backlog amounts are calculated at July 31, 2016 exchange rates.

Let me now turn to the outlook for the fourth quarter of fiscal 2016. We are forecasting sales to increase in the range of 6% to 10% as compared to the fourth quarter a year ago. This range is inclusive of organic volume up 5% to 9% and 1% growth from the first year effect of acquisitions. The effective currency translation based on current exchange rates is expected to be minimal as compared to the prior year.

At the midpoint of our sales forecast, we expect fourth-quarter gross margin to be approximately 54%. Excluding any nonrecurring charges which we expect will be less than what we incurred in the prior year's fourth quarter, we are forecasting operating margin to be approximately 22% at the midpoint of our sales forecast and diluted earnings per share in the range of $1.15 to $1.27. The midpoint of this guidance would generate normalized earnings per share growth of 27% over the prior year fourth quarter. For modeling purposes, we are estimating fourth-quarter interest expense of about $5 million and an effective tax rate of approximately 30%.

With that, I will turn the call back to you, Mike.

Thank you, Greg. Before taking your questions, I would like to provide a few summary comments.

Clearly Nordson is outperforming the current macroeconomic environment. We are benefiting from the diversity of our end markets and capturing growth with innovative products, tiering new applications, emerging market penetration and recapitalization of our installed base. We are leveraging that growth to widen margins and increase profitability.

Independent of volume, we are also continuing to use tools in the Nordson Business System to drive improvement across the enterprise.

We are on track to deliver full-year records for revenue, operating profit and diluted earnings per share. At the midpoint of our guidance, full-year organic sales growth would be approximately 5% compared to the prior year. We expect full-year operating margin to improve compared to the prior year given volume leverage on this growth and the benefits of this year's margin enhancement initiatives.

At this point we would be happy to take your questions.

(Operator Instructions). Allison Poliniak, Wells Fargo.

Good morning. Could you give us maybe a little bit more color on the performance of Advanced Technology this quarter in terms of I know you mentioned medical as well as the technology but was it weighted one over the other this quarter more so or were they fairly balanced?

I would say this quarter both elements of the business were strong. Obviously in the segment, the non-medical piece is probably three quarters of the segment so that has had a significant effect. And what we have seen is a couple of things, a continuation of what we saw last quarter in terms of new products creating new opportunities for us but also a tick up on the mobile side of the business across both the semi-automated and the automated dispense and then the ensuing inspection related activities.

So I would say certainly a lot of weight in this quarter coming from the mobile side of things and the broadening of our applications base and opportunities related to new products while medical continue to be strong.

That is great. Just looking at the core sales growth range for Q4, it is pretty wide. Is it relative to maybe some projects that might just given timing might get pushed into the following quarter? Can you help clarify that a little bit, just the wide range there?

Yes, we take a look at the mix of projects that we have in and for some of our businesses there are deliveries that stretch a little bit longer based on when they come into orders. So you are exactly right in thinking that some of those could end up being in the fourth quarter or I mean the first quarter.

Perfect, thank you.

Matt McConnell, RBC Capital Markets.

Thank you. Good morning. Just wanted to touch on the guidance for the margin next quarter. You have pretty handily beaten your expectations a couple of quarters in a row and the 22% you are guiding to would be a pretty big sequential step down and probably bigger than you would typically see from 3Q to 4Q. So is there something in the mix or is that just conservatism? Again, I know you have been exceeding your expectations really just hoping to understand that step down.

I would say part of it is just looking at overall volume expectations but in actuality also the mix. So if you look at as an example, this is a strong quarter with order entry on the coatings business which has been a little softer against tough comps for most of the year. And so the mix of that business will have an effect coming into the fourth quarter for example.

So really when we look at it, it is really more a function of volume mix than anything else and that is our best estimate at this point in time.

This is Greg. I would just add to Mike's comments where we may see some segment mix, we may see some product line mix within the segments as well that although still good margin would be dilutive to what we deliver in the third quarter. So it is primarily mix.

Okay, great, thanks. And maybe switching gears, product assembly has been quite strong for a number of quarters now. Can you just give us a sense of the markets that are driving that? And I know that is an area within Adhesive Dispensing where a bit more wide-open with respect to your growth opportunities. So how do you prioritize those growth opportunities going forward? What has been the recent driver of that product assembly growth?

There are a number of different applications that fall into that. Certainly some of them fall in the category driven by sort of housing and construction. Some of them relate to industrial machinery that are related to really consumer nondurable demand and the step up in consumer and nondurable demand. I think some of it also is a function of a nice set of tiered offerings that we put in place to take advantage of some new opportunities particularly in emerging markets. I would say we have a variety of things there that are picking up.

I mean our focus is really around particular opportunities where we can create value and then ultimately obviously get paid for the value we create.

Okay, great. Thank you.

Matt Summerville, Alembic Global.

Good morning. A couple of questions. If you could just talk about or maybe calibrate, dial in if you will the three segments around that 5% to 9% organic growth expectation you have in Q4, maybe which you expect to be within that bandwidth above, below that? And just kind of I guess I'm trying to tie that back into some of the big order numbers you put up in two of the three businesses, please.

If you look at it and just look at the order entries across the business, Greg talked about the two in particular that have stepped up significantly in this quarter, the Advanced Tech piece and the coatings piece where the adhesive piece has been more steady. So I would say when you look at the quarter going out, you are going to see more of the contributions coming from Advanced Tech and the Coatings.

And I guess on an order entry basis, I would make a couple of comments. Particularly in the coatings business, I think a lot of those going to consumer durable type applications, some customers given the macro scenario were hesitant early in the year and they have released some funds now. And so we are seeing a relatively strong push towards year-end. I would say on the Advanced Tech side, our peak can shift from third quarter to fourth quarter from year to year and it is a little bit later this year as well so that is contributing to the order step up. And in both those cases, some of those orders could conceivably get pushed into the first quarter so that is kind of a reflection.

The Adhesive's business has been more steady and as Greg mentioned in the fourth quarter, we are up against tougher comps from a year ago, still ahead of those but up against tougher comps.

If you look at the average duration of how long an order is staying in backlog, is that number materially different now than it has been in prior years? And I guess is your visibility when you look at that backlog number up 20% organically, that is a pretty big number, do you feel like your visibility today is better than it has been in the past just given the general shorter cycle nature of your business?

I would say the average duration hasn't changed significantly. I mean we can have projects in the Coatings business that are significant that could stretch out a little bit. We could have projects in the product assembly area but we just talked about that could stretch out a little bit and then in our plastics business, we could have some projects that are a little bit longer but I would say not dramatically different. I would say what we have seen more recently is some bigger orders coming in in sort of packages with staged deliveries and some of those things can play out over time. And so that is part of what we are seeing as well.

Got it. Thank you.

Charley Brady, SunTrust.

Good morning, guys. I will ask my standard question on mix of parts and aftermarket consumables in a quarter. Any skewing one way or the other? I mean the margin was pretty good, I am wondering if that was helped at all by the mix of that aftermarket component?

Charley, this is Greg. Not materially different but I will say as compared to the prior year third quarter that mix actually hurt us a little bit where parts revenue was down from where it was 41% of the mix last year it was 39% in the current quarter. So not materially different but would be a slight drag on gross margins.

That is helpful. Thanks. In the release you talked about Europe was actually up Industrial and Adhesive Dispensing. Can you just talk about obviously with all of the Brexit discussion that has gone on there and some of the growth expectations, you are still seeing growth in Europe. Can you talk about how you saw that through the quarter and really more importantly, exiting the quarter given the timing of when your fiscal year is, what you are seeing on a year, any material change or hesitancy on customer order patterns?

I would say if you look across most of the businesses, I would say we saw Europe as modestly up probably most solid in our traditional Adhesives business. Now remember also in Europe we have got large OEMs that export elsewhere so that is one of the positive things that is affecting our business, might be a little different than what you might see in some other businesses. But I would say generally speaking pretty solid modestly above year on year. When you look at our coatings business in particular, we have had solid powder opportunities in Europe and we are starting to see that pick up more globally for the coatings business.

I would say the combination of the OEMs and key adhesive applications and some pickup in the coatings business is what has really been driving the revenue.

Now when you look at the orders going forward, Europe looks a little bit weaker and maybe more in line with what you've seen with some other companies there. I would say for us it is really more of a function of timing of some large projects year-over-year and not so much an underlying trend. So we haven't seen a Brexit effect at this point in time. It doesn't mean something couldn't come down the road but we haven't seen that at this point.

Thanks, Mike. Appreciate it.

Walter Liptak, Seaport Global.

Thanks. Good morning, guys. I wanted to just drill into the Advanced Tech a little bit and you called out mobile electronics and it sounds like mostly in Japan and Asia. What kind of applications -- are these for new products, new mobile devices that will be coming out later this year?

So a couple of things. We, from an application standpoint, I would say there is sort of two things that are driving and maybe three. So we came out with some new technology on the dispense spend side that will allow us to put more dot, smaller size which widened the application approach to get to the wafer side of things. We talked a little bit about that last quarter. That has continued. And we are seeing those new products get traction.

We are also seeing some new applications in the mobile side which one example is more waterproofing or water resistant type of applications that are driving some opportunities.

On our inspection side, the three dimensional chips and three-dimensional wafers are driving x-ray inspection and then we have done a nice job with tiering. We talked about an acquisition we made about a year and a half ago in Europe that would allow us to get a tiered product that we then incorporated our technology on and we are getting nice traction in that tiered product offering on the dispense side. Then we also had an acquisition where we are getting really good traction in Asia by incorporating our x-ray technology onto an automation platform.

So those are some examples of the kind of things that we are seeing that are helping diversify the base of applications and customers.

The diversification sounds great. Is this, your Advanced Tech orders because of that mobile part have been lumpy from time to time. Because of some of the early stages of some of the new applications, do you think there may be more consistency, is there a more visibility going out three or six months on projects?

I would say unfortunately no, there is not more visibility going out. This business will continue to be lumpy. Certainly I think the tiered offering getting to a different group of customers like for example the Chinese mobile players will be helpful because they are earlier on in the automation curve. But we will still see product cycles and as we look out at the mobile front, we typically see the design cycles from fall through early winter and then orders come through and based on the degree of change, we will see more come through I would say.

But we are going to diversify some of these other applications that should be more steady because they apply to a broader set of opportunities and the tiering should help because it is earlier on in the penetration curve for some of the folks that are just automating but there will still be lumpiness with this business.

Understood. That sounds great. On the margins that expanded in Advanced Tech, you called out mix, volume and continuous improvement and I was wondering about the medical margins, our medical there, you have gone through some restructuring and I think improvement with those businesses. Are those sustainable margins now on the medical side?

Yes, on the medical side, we have first of all grown the business nicely across all of the three major product lines that we have there and then we have put the new automated facility out in Colorado and that is ramping up and we also expanded our facility in Mexico for the cannula catheter business and some other things that we are doing there. So those are all nice structural improvements that are helping so the margins are improving in that area as well.

Okay, great. And then the last thing, you haven't mentioned the polymers business and the kind of general industrial trends have been a bumpy here, maybe improving a little bit. Are you seeing any improvement in polymers?

Yes, I would say it has been kind of a mixed bag. We have seen some improvements for example in our dies business which are related more to the film which has been the laggard for the last couple of years. We have seen some good performance in our melt delivery which is the German businesses. I would say our core components which are the screws and barrels have been a little soft as some of the injection molding applications have slowed a little bit and the palletizing has been generally solid but it is a bigger project related so it can bounce around quarter to quarter.

But we are seeing a pickup I would say in the orders entry and in general in the business, I would say the one softness we are seeing is around some slowing in the injection molding side with some improvement on the film side so a mixed bag still.

Okay, great. Thank you.

(Operator Instructions). Christopher Glynn, Oppenheimer.

Good morning. Just building on Walt's questions, wondering how some of the emerging niche penetration stories are scaling up in terms of maybe quantifying the incremental revenue opportunity? There's the test and inspection applications, Tier 2 mobile and even Freedom is still a penetration story. I think those are the chunkier ones if you could kind of maybe quantify how you are seeing the multi-year market sizes there?

I would say at this point in time if you look at sort of the range of mobile related activities both on the dispense and the inspection side, we are seeing revenues that fall in the tens of millions of dollars, maybe $10 million, $20 million, $30 million range, not hundreds of millions. So I would say on the newer technology we are still early on in the penetration curve but as we have talked about in the past, we see these things as kind of singles and doubles and not home runs.

On the Adhesives side, I would say a similar kind of thing in that we have seen good sales on the Freedom side, we have seen much better sales on the Liberty side which is more of a drop in replacement with the same sort of melt on demand characteristics and automated feed systems and that has been strong for us. And a significant portion of those combinations of those two have been a significant portion of our new orders probably approaching 50% of our new orders for those type of technologies.

And just a comment there, Chris, a way to think about that particularly with the Adhesives is often that is a reason for a customer to upgrade existing lines.

Right, okay. And then overall your trends have been so broad-based here. I think with Nordson there is always some competing concepts of your broad portfolio execution and then some of the streakiness that characterizes some of your businesses. So as we think about the broadening impact, how would you take the recent success in understanding the flow through into your kind of base run rates to ponder fiscal 2017 and 2018 in an absolute sense relative to what you are seeing now?

Let me take a stab at that. I mean if you go back to the macro here for a second, we still look at the underlying macro for this year global GDP growth to be in the low 2% so we are clearly outperforming the global GDP and that is really a function of our overall business model and the importance of technology and support and service to that. So if we come in at our expectation for the fourth quarter we will be about 5% organic growth for the year which is pretty stellar relative to I think most other people and above that sort of 2% GDP growth.

You are right that we do have lumpiness in some cycles in some of the business. I think the benefit of our portfolio is when one is a little softer like the coatings business has been this year albeit against some tough comps. The other parts of the business have been able to pick that up so net net, we are ahead.

It is not obvious to us at this point and it is early to prescribe that the global economy is going to look a lot different next year. I don't know beyond next year so we are planning for low growth and we are going to continue to drive our initiatives that try and go beyond whatever the market is going to give us. And so that is more new products, it is driving the tiering opportunities across a lot of our businesses, it is new applications that we are working on in effect to create our own demand. And so that is the focus of our business is to outperform the global economy largely through our own initiatives that create demand and that has sort of been our success to date and that is what we are looking for going forward.

Last one here, in your comments you talked about growth reflecting, leveraging your technology service and global footprint. I'm interested in the service component of that comment. Are you seeing opportunities for new strategies and opportunities on the service side broadly in your bigger picture business model?

I would say we are not seeing as much change in the service side other than to say that is a critical element of our business. When you look at our customers, the most important thing for most all of our customers is to continue to be up and running. We certainly have the most robust products out there which helps but they do go down from time to time and then it is important to have the robust supply chain to provide the parts but also the engineers and technicians that can go on site and help them get up and running as quickly as possible.

We do offer various forms of preventative maintenance and other types of programs. By the end of the day it is really about helping our customers maximize their up time and optimize their performance.

Sounds good, thanks.

Matthew Trusz, Gabelli.

Good morning, gentlemen. Thank you for taking my question. I guess first given how strong you guys have been doing on the profitability front throughout 2016 it looks like at your current fourth quarter guidance you will be achieving your 200 basis points margin expansion target about a year early. So as we look longer-term over the next three or five years, how much more opportunity do you think you have to drive profitability higher and what do you think the primary sources will be?

So maybe just a couple of comments. Obviously we do have strong incremental margins so with volume growth that we are seeing this year and some mix improvement particularly I would say in the Advanced Tech area more dispensed relative to some of the other applications, we are getting a benefit that is influencing that overall when you've calculated 200 basis points improvement.

Our view is based on our sort of constant volume goal to be at 200 basis points by the end of 2017, we are probably about two-thirds of the way there assuming we come in in the fourth quarter at expectations. So we are not 100% of the way there. There are certainly some more opportunity we need to deliver next year and we have actions and plans in place to do that but we are also getting the benefit of volume leverage.

So our commitment was to get to that 200 basis points without the benefit of volume. What we are seeing this year obviously is improvement on that path but also the benefit of volume and some mix as well. Longer-term we will continue to identify opportunities to improve and we've got a strong continuous improvement activity but we haven't put any other goals out there beyond 2017 from a non-volume related margin standpoint at this point.

All right, great. Thanks for the color. And then I guess we just sort of shift toward M&A, it has been a while since your last deal, net leverage continues to come down. How active is your pipeline? Sort of are there any particular areas of opportunity you are seeing and how good are you feeling over the next couple of quarters?

Yes, so you are correct, we have consciously worked this year to reduce our leverage to create some opportunity or capability to do some additional acquisitions. I think as we have talked in the past, the most fertile area is in the medical device space and we've got a pretty solid pipeline there. I would say in the cold material area there are number of interesting opportunities. Timing is not clear.

On the plastics side, we pretty much have what we need for the moment and we continue to look for opportunities on the test and inspection side in the Advanced Technology area but we have added some nice complements over the last year through acquisition and through marketing arrangements so we feel pretty good.

I would say there are number of things that we looked at this year that we were actively pursuing but we have walked away when pricing got to a point that didn't make sense for us.

Great, thank you.

Jason Rodgers, Great Lakes Review.

Good morning. Wondered if there was any benefit from lower raw material costs in the quarter and if you are seeing any material changes in those costs so far in the fourth quarter?

No, nothing that would be material in the grand scheme of things either in the quarter or looking forward.

What is the expectations for the tax rate for the fourth quarter and any early indications for next fiscal year? Thank you.

We have suggested a 30% rate for the fourth quarter.

Matt Summerville, Alembic Global.

Just a quick follow-up on the M&A side of things. You mentioned some multiples sort of getting out of control. Can you quantify that? Are you talking about high single- to low double-digit multiples that have now moved into the low to mid teens kind of range? And then I guess you were active I believe in fiscal Q1 buying back stock. I don't believe you did any in fiscal Q2 and I don't recall you mentioning anything in the prepared remarks for fiscal Q3. So what is the outlook there given your stock has been up very nicely this year. What is sort of the outlook there and the prioritization as you are looking at things? I guess at the end of the day, are you saving up for kind of a bigger deal at this point?

So just a couple of comments. If you go back probably a couple of years and compare where we are today from an M&A standpoint versus a couple of years, I would say in general properties are a turn higher maybe in multiples, maybe a turn and a half and it is really a function of very low interest rates and quite frankly strategious with a lot of cash on the sideline, so number one.

Number two in terms of our overall priorities from a capital deployment, they still remain the same which is number one, support organic growth. Number two continue our dividend increase approach which we just recently announced and we are in a good payout range there. Number three, offset dilution from our comp programs which is pretty modest. And number four, look for the appropriate M&A vehicles. And then five would be opportunistically look at additional share repurchase.

So in terms of the M&A activity, we do have an active pipeline. It is probably most active in the medical space as I mentioned and we are looking for opportunities there but we have said consciously this year given the acquisitions we made and the aggressive nature of our share buyback opportunistically last year that we wanted to work down our balance sheet and so we did modest share repurchase in the first fiscal quarter. We didn't do any in Q2, we didn't do any in Q3. The first quarter offsets the dilution piece and then some for our comp programs and so the priority is still to work down the balance sheet to give us capacity to make some additional acquisitions.

Got it, thanks.

Walter Liptak, Seaport Global.

Just wanted to follow up on the fourth-quarter bonus comp. Considering the strong third quarter and then what looks to be a good fourth quarter, have you been accruing at the same level throughout the year or is there going to be a step up in the fourth quarter?

No, we've been -- this is Greg -- accruing throughout the year based upon our performance.

Okay, great. Thank you.

Kevin, this is Jim. Maybe we have time for one more question or so if anybody else is on the line.

No, that was the last question in the queue.

Thank you all for dialing into our call and I am available for follow-ups throughout today and the rest of the week. And again thanks for your interest in Nordson.

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