Nordson - Earnings Call - Q1 2021

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by, and welcome to the Nordson Corporation's First Quarter Fiscal Year twenty twenty one Conference Call. I would now like to hand the conference over to Lara Mahoney. Thank you. Please go ahead.

Speaker 1

Thank you. Good morning. This is Lara Mahoney, Vice President of Investor Relations and Corporate Communications. I'm here with Sundaram Nagarajan, our President and CEO and Joseph Kelly, Executive Vice President and CFO. We welcome you to our conference call today, Tuesday, 02/23/2021 to report Nordson's fiscal twenty twenty one first quarter results.

You can find both our press release as well as our webcast slide presentation that we will refer to during today's call on our website at www.nordson.com/investors. This conference call is being broadcast live on our investor website and will be available there for fourteen days. There will be a telephone replay of the conference call available until Tuesday, March 2. During this conference call, references to non GAAP financial metrics will be made. A complete reconciliation of these metrics to the most comparable GAAP metric was provided in the press release issued yesterday.

Before we begin, please refer to Slide two of our presentation where we note that certain statements regarding our future performance that are made during this call may be forward looking based upon North'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. Moving to today's agenda on Slide three, Naga will discuss first quarter highlights. He will then turn the call over to Joe to review sales and earnings performance for the total company and the two business segments. Joe also will talk about the balance sheet and cash flow.

Naga will conclude with high level commentary about our enterprise performance as well as our fiscal twenty twenty one full year guidance. We will then be happy to take your questions. With that, I'll turn to Slide four and hand the call over to Naga.

Speaker 2

Good morning, everyone. Thank you for joining Nordson's fiscal twenty twenty one first quarter conference call. Nordson was well positioned as we entered fiscal twenty twenty one. Our COVID nineteen safety measures and protocols have ensured we continue to operate safely in this environment. This has allowed us to be agile and responsive to the needs of our customers who serve a very diverse set of end markets, including consumer nondurable, medical, electronics, and general industrial.

During 2020, we remained invested in what makes Nordson strong, the direct sales model and our innovative precision technology portfolio. Additionally, we were successful in advancing several aspects for long term growth strategy. Using the NBS NEXT Growth Framework, our employees have been investing their resources in our best opportunities for profitable growth. While this remains a dynamic macroeconomic environment, our team has delivered a very solid first quarter on both the top and bottom lines. It is noteworthy that our first quarter sales and profits are above both fiscal twenty twenty and fiscal twenty nineteen comparisons.

In particular, our industrial precision solutions team delivered strong year over year growth benefiting from improvements in consumer non durable and industrial end markets. They also achieved profit margin expansion as volume leverage, improved sales mix and manufacturing efficiency gains all combined within the quarter. In the advanced technology solutions segment, our test and inspection product lines continue to grow. Advancements in technology are causing electronics customers to shift from sampling to 100% inspection, and we are benefiting from this trend. And our medical fluid components product line delivered double digit organic growth, largely driven by biopharmaceutical application such as tamper proof packaging for vaccine delivery.

At the first quarter progress, we were encouraged by the order entry momentum that we are starting to see in the product line serving the broader medical and electronics end markets. We're particularly pleased to see the profit margin expansion APS delivered on modest growth as the strategic actions taken throughout 2020 to right size the cost structure of several businesses within this segment delivered the desired results. I'll speak more about the business in a few moments. But first, I'll turn the call over to Joe to provide a more detailed perspective on our financial results for the quarter.

Speaker 3

Thank you, Naga, and good morning to everyone. On Slide five, you see first quarter twenty twenty one sales were $527,000,000 an increase of 6% over prior year's first quarter sales of $495,000,000 The increase was primarily related to organic volume and favorable currency with additional benefits from the Flortech and VIVAMOS acquisitions. The organic growth was driven by strength in consumer, nondurable and industrial end markets, plus particular strength in the Asia region. Gross profit totaled $290,000,000 or 55% of sales in the quarter compared to $263,000,000 or 53 percent of sales in the prior year. This

Speaker 4

190

Speaker 3

basis point increase in gross margin was driven by the combination of volume leverage, improved sales mix and benefits from structural cost reduction measures taken in fiscal twenty twenty. It is noteworthy that 55% is the highest quarterly gross margin since the 2018. Operating profit in the quarter was $109,000,000 or 21% of sales, a 39% increase from the prior year adjusted operating profit of $78,000,000 It is here in the operating profit growth rate that you see additional benefits from the fiscal twenty twenty cost reduction efforts as SG and A decreased 4% from the prior year first quarter level of $188,000,000 EBITDA for the quarter was $135,000,000 or 26% of sales, which is 26% higher than the prior year EBITDA

Speaker 4

of $107,000,000

Speaker 3

Looking at non operating expense, net interest expense decreased $3,000,000 or 28% from the prior year levels associated with reduced debt levels and a lower effective borrowing rate. Other expenses increased $2,000,000 largely driven by currency translation losses associated with the weakening of the U. S. Dollar. Tax expense in the quarter totaled $20,000,000 or an effective tax rate of 21% in the quarter.

Net income in the quarter increased year over year 49% to $78,000,000 or $1.32 per share. This significant growth is reflective of a 6% increase in sales as well as benefits from cost control measures and efficiencies driven by the NBS Next Growth Framework. Additionally, the 2020 included a pre pandemic cost structure and therefore profitability was lower. Now let's turn to Slide six and seven to review the first quarter twenty twenty one segment performance. Industrial Precision Solutions sales of $288,000,000 increased 9% compared to the prior year first quarter.

The organic volume increase of 6% was driven by strong demand in flexible packaging and nonwovens product lines as well as industrial end markets. Strengthening euro and RMB also contributed to 3% in currency benefits during the quarter. Operating profit in the segment was $83,000,000 or 29% of sales compared to $57,000,000 of adjusted operating profit in the prior year period. This 47% profit growth was driven by sales volume leverage, favorable sales mix, improved manufacturing efficiency and lower year over year SG and A, including reduced travel expense. Advanced Technology Solutions sales of $238,000,000 increased approximately 3% compared to the prior year first quarter.

This change included an increase of approximately 2% related to acquisitions as well as currency gains of 2%. These benefits were offset by a decrease in organic sales volume of 1%. The lower organic sales volume was a mixture of increased demand for test and inspection, medical fluid component and fluid dispense product lines, offset by continued softness in the medical interventional solutions and certain electronic dispense applications. It is particularly encouraging to see the return to growth in our fluid dispense product lines serving industrial and automotive end markets. First quarter twenty twenty one operating profit for the segment was $47,000,000 or 20% of sales.

This increase of four fifty basis points over prior year adjusted operating margin of $35,000,000 or 15% of sales was driven by favorable sales mix and the realization of benefits from cost control measures taken in fiscal twenty twenty. Finally, turning to the balance sheet and cash flow on Page eight. We again ended the quarter with a very strong balance sheet and significant available borrowing capacity. Cash totaled $226,000,000 and net debt was $794,000,000 ending the quarter with a 1.3x leverage ratio based on trailing twelve months EBITDA. Free cash flow in the quarter was strong at $135,000,000 a 32% increase above the prior year free cash flow for a conversion rate on net income of 175%.

Higher net income and working capital liquidation contributed favorably to the free cash flow in the quarter. I'll now turn the call back to Naga.

Speaker 2

Thank you, Joe. Let's turn to Slide nine. First, I want to thank the team for delivering a very strong first quarter. Over the past two months, Joe and I have been actively engaged in business reviews and virtual facility tours around the world. I'm very excited about the energy within our divisions and the steady deployment of the NBS Next Growth Framework, whether that is in how teams are organizing data to fuel decision making or the prioritization of best products in the manufacturing processes.

They're also seeing the strategic analysis of product lines to identify the best growth opportunities and filling the sales funnel with these targeted accounts. One tangible result from the strategic discipline element of NBS Next was seen on 02/01/2021 as we successfully closed the divestiture of our Screws and Barrels product line. Our decision to divest this product line was based on critical insights gained from the NBS Next data driven segmentation approach. While this business is a respected leader in the plastics industry, it did not fit Nordson's profitable growth objectives. By divesting this business, we will focus our resources on growing more profitable product lines that would deliver on our long term objectives.

We believe our remaining PPS division has the right degree of differentiation and related technical competitive advantages to deliver over time, notes and like growth and returns. I would like to take a moment to recognize recent changes to our board of directors. At the November, we welcome doctor John DeFord, the executive vice president and chief technology officer of Becton Dickinson and Company, and Jennifer Parmatier, vice president and president of the Motion Systems Group of Parker Hannifin to our board of directors. John's technical and regulatory experience in the medical device end market will enrich the strategic perspective of our board as we continue to grow in this attractive market. Jenny brings strong operational, industrial, and m and a experience to the board, which will be important as we continue to deploy our MBS next growth framework.

John and Jenny's appointments follow the retirements of Joe Keith Lee, Randy Carson, and Lee Banks. I would like to thank Joe, Randy, and Lee for their many insights and contributions throughout their time on the board. Our board now stands at nine directors, 56% of whom are diverse. The average tenure is now seven years. I would also like to remind you of our upcoming virtual investor day, the morning of March 30.

We will share more about the ongoing deployment of MBS Next as well as our long term strategic priorities and financial goals. We will also use this time to give investors a better understanding of our strong competitive advantage, differentiated product portfolio and diversified end markets and growth drivers. Please visit our website to register. Now for the outlook on Slide 10. As we exit the fiscal first quarter, backlog was approximately four ninety five million, an increase of 7% compared to the same period a year ago.

Trailing twelve week order entry is above prior year levels across the majority of our product lines and geographic regions. These very positive indicators suggest continued year over year sales growth despite the divestiture of the screw and barrel product line. For full year fiscal twenty twenty one, we expect sales growth to be approximately 4% to 6% over fiscal year twenty twenty. Excluding the 3% headwind from the revenue of the divested screws and barrels product line in the prior year, our forecasted full year sales growth would be approximately seven to 9%. Our forecasted sales growth combined with strategic actions taken around efficiency and cost is forecasted to deliver earnings in the range of $6.30 to $6.70 per diluted share.

The midpoint of this guidance reflects 19% earnings growth compared to prior year. While it remains a dynamic environment and business conditions are changing frequently as the world responds to the challenges of COVID nineteen virus and its variants, we are confident in the diversity of our end markets and the strength of our backlog. Nordson is well positioned to deliver on the needs of our customers. As always, I wanna thank our customers, employees, and shareholders for your continued support. With that, we will pause and take your questions.

Speaker 0

At this time, we'd like to take any questions you may have. To ask a question, please press star one on your telephone keypad. Your first question is from Sarah Borjewski with Jefferies. Your line is open.

Speaker 5

Hi. Thanks for taking my questions. So sales guidance, I guess, implies around 5% growth for the remainder of the year, which is slightly below one quarter despite having some easier comparables. So could you just talk about if there's anything that you're seeing in market that makes

Speaker 1

you more cautious on improving growth rates?

Speaker 2

Joe, you want to take that?

Speaker 3

Yes. So when you think about our sales guidance, sorry, for the remainder of the year, you have to consider that we have the divestiture of the Screw and Barrel business. So excluding the divestiture of the Screw and Barrel business, it suggests a 7% to 9% growth rate when you look at our guidance. Now I will remind you that is comparable to our Q1 growth rate, excluding the Screw and Barrel business, which was over 7%. And entering the Q2, our backlog is approximately $500,000,000 which is approximately 7% above when we entered Q2 last year.

Now a little bit further color, we mentioned Q1 was strong, particularly in Asia. When you look at the timing of Chinese New Year, it's important to understand that that Chinese New Year, fell in into Q1 in in the prior year, whereas this year, it falls into Q2. That'll So be a little bit of a headwind in Q2. When you look at our guidance, the range from an incremental margin standpoint, it would suggest that the remainder of fiscal 'twenty one would be in the incremental margins from the mid-40s to about 55%. That is lower incremental margin than the 97% that we delivered in Q1.

But when you think about it going forward in '21, there's a couple issues that make the comparisons more challenging. One is, you know, we started taking cost out in 2020, you know, throughout the year. And so that from a cost structure standpoint, the q one was a much easier comparison than than q two and and q three as we took those actions, throughout the year last year. The other issue I would tell you is incentive comp, which naturally behaves variable. And last year, particularly in Q2, the incentive comp, our SG and A included a reversal, of the long term incentive comp that had been accrued.

So that'll be a particular headwind, in Q1 or I'm sorry, in Q2 to the incremental margins. And then the other thing is as as volumes continue to recover, travel expense, should come back as we continue to be invested in our our direct sales model. And so that'll near closer to historical levels. So these headwinds, would tell you, going forward, is what has the incremental margins dropping, from the 97 you just saw in Q1 down to about the the mid forties to 55, is what their guidance would suggest. And so these headwinds are being offset clearly, by the divestiture of the Screw and Barrel business, which will improve margins and the continued benefits as we deploy MBS next, throughout the organization.

Speaker 5

Thanks. That's a lot of great color. And then more of a high level question. There's been a lot of semiconductor capacity announcements out there. Can you just talk about how you could benefit from this expansion activity?

And if you've seen any of this flow through your order rates yet? Thank you.

Speaker 2

Yeah. And, Sherry, that's a great question. As we have talked about semiconductor devices and the opportunities for Nordson, this is an area of particular strength for the company. Clearly, we see advantages for us in the test and inspection as well as our dispense business. What you find is there are two things going on here.

With semiconductor device demand increases, you're going to get capacity additions. Now those capacity additions will take the form of both dispense product lines as well as test and inspection product lines. But in the shorter term, you're going to find more test and inspection because our customers, you know, it takes a little bit of time to bring on new capacity. But what they are really spending a lot of time is using testing inspection to improve yields that'll, you know, help them meet some of the accelerating demand. So very excited about this.

This is a great opportunity for the company well positioned to win here. So do you have any additional questions, Emily? We'll be happy to answer them.

Speaker 5

I guess one more then. You know, you talked about renewed growth in the auto end market.

Speaker 1

Could you just talk about what

Speaker 5

you're seeing in space and then how Nordsee can benefit from the increasing CapEx and facilities for EVs? And thank you.

Speaker 2

Yeah. Yeah. On the EV side, you know, clearly, where, you know, this is an emerging market for us and an emerging opportunity where we find the greatest opportunities are in the battery manufacturing. So you could think about batteries. They put together many different ways.

One of the ways is, you know, you're combining multiple cells. So we have a lot of opportunity in manufacturing of the battery. That is one way. The second is that you could think about a custom inspection. A custom inspection business definitely benefits from power electronic components like IGBTs, which, you know, are increasing demand, becoming more complex.

And hence, you know, we have an opportunity here, both to benefit in battery as well as in electronic components.

Speaker 5

That's great color. Thanks for taking my questions today.

Speaker 3

Thank you.

Speaker 0

Your your next question is from Matt Summersville with D. A. Davidson. Your line is open.

Speaker 6

A couple of questions. Maybe just back to Test and Inspection. Naga, if you were to use a baseball analogy in terms of how much in line testing is being performed and how much runway is in front of that business, what inning would you say we're in with what you're seeing in T and I right now?

Speaker 2

T and I, 100% inspection is early innings. So you you see that a lot in auto electronics. You're beginning to see some of that in semiconductor, but clearly early innings.

Speaker 6

And then just, maybe one on corporate expense. In the fiscal first quarter, I think it was some $8,000,000 above the prior year that seemed unusually high. Can you talk about what drove that variance and what sort of quarterly run rate we should be utilizing going forward? You.

Speaker 3

Hey, Joe, you want Yes. Take The increase, when you look year over year, as I mentioned in some of my comments, is from incentive comp. And so while that was a tailwind last year, it's a headwind this year. And so from a year over year standpoint, that's what you see, in the driving some of the corporate expense increase. When you think about it from a full year run rate, you know, historically that that fluctuates between 50,000,000 on an annualized basis and call it $65,000,000 depending on performance.

Speaker 7

Got it. Thank you.

Speaker 0

Your next question is from Allison Poliniak with Wells Fargo. Your line is open.

Speaker 8

Hi, guys. Good morning.

Speaker 0

Just going back

Speaker 8

to the semi challenges that are happening right now. I know you talked specifically to that market, but are you hearing or any sort of project delays related to maybe your other electronics end market, auto comes to mind just given some of the plant closures that have been happening lately. Any color there?

Speaker 2

Yes. Sure, Allison. No. We we've not really heard a lot in terms of, if you remember, we are more involved in setting up the line and in, in platform launches. We're not really in the direct production line, which is sort of where you're seeing some of the delays.

So, no, we we do not anticipate any delays. Have not noticed. But what we are seeing is pickup in expectations from, specifically auto electronic customers who are looking to ramp up capacity by increasing yield. And so you see that in, just an inspection growth.

Speaker 8

Got it. That's helpful. And then just looking at leverage, very healthy range for you. As we're sort of hopefully getting out

Speaker 1

of this COVID, the COVID

Speaker 8

challenges, any thoughts or changes to how what you would view as an optimal leverage range for North and going forward here?

Speaker 3

Joe? Yes. So we ended the quarter at approximately 1.3 times leverage. We continue to be very comfortable at leverage ratios higher than that. And when you think about two to three times leverage, we would be comfortable.

We have the capacity to go up based on our current debt structure to 3.75 times. But as we look at it and look at the opportunities, we do continue to prioritize M and A and would be looking to take that leverage ratio up closer to the two to 2.5 range to support that.

Speaker 8

Great. Thank you. I'll pass it along.

Speaker 0

Your next question is from Chris Dankert with Longbow Research. Your line is open.

Speaker 7

Hey. Good morning, guys. Good morning, Chris. I guess, Joe, definitely appreciate the comments around incrementals and how guidance moves forward from here. But I guess to dig in a little bit on an IPS specifically, 1Q typically the low watermark for IPS margin.

29% is quite impressive, I guess. Is that level of margin execution repeatable? Do we build from here to the rest of the year? Flat good performance? Just any if you could put that 29% margin number in context, that'd be really helpful.

Speaker 3

Yes. Part of what we see going on here is this acceleration of demand in Q1, I think, makes some of our normal seasonality a little bit in question. Perhaps this acceleration overrides the normal seasonality you would see throughout the year. But specifically related to that 29%, they had a very, very favorable mix, particularly parts volumes were up, and there was nice leverage going on. It was in that business where we did take some cost out.

If you recall, the cost action there in Q4, which was delivering benefits here in Q1 to the cost structure. But when you think about that segment going forward, the divestiture of the Screw and Barrel business will provide further margin improvement to that. So when you think about it going forward, the margins there should expand off of this, what you referenced as very high watermark here in Q1.

Speaker 7

Got it. Got it. Not to press my luck too much here, but I guess, are you willing to break out what the impact of mix was on the quarter?

Speaker 3

Yes. We're not willing to I mean, you referenced the 29% was a very high watermark. We haven't seen that, since back in in thousand and nineteen. And so we're we're pleased with the profitability levels back there, at at this lower range. A lot of it coming from the improvement, in in in the mix within the business.

So if you think about MBS next, and as we focus on our most profitable opportunities, really, that has allowed us not just to take cost out, but also to drive an improvement in the sales mix. So that's what you see in that 29%.

Speaker 2

Got it. I've got it. Chris, one more that I would add is that if you think about the volume, the volume leverage in this business is really good. And so we had a pretty strong volume growth that helped us deliver some pretty nice incrementals. You know, so you're you've got an accelerated recovery that is helping us.

And as you go into the out quarters, that volume is going to come down a bit. But, you know, we're comfortable, with with the current margin rates, but I think it's important to remember the volume play here as well.

Speaker 7

Yes, yes, yes. Thank you for that color. Really appreciate it. And I guess one last one for me. What is the FX benefit assumed in guidance?

I mean historically FX swings can be fairly significant on earnings. Just any comment on FX and kind of what you're baking in here would be great.

Speaker 3

Yes. FX in the quarter proved to be more favorable than we had originally anticipated. And so for our forecast, we are assuming the current exchange rates maintained throughout the remainder of the year. And so that benefit should continue. It starts to moderate a little bit on a year over year basis in Q4.

Speaker 7

But that should still be, and not to pin you down, but about a 2% to 3% benefit for the full year at current rates, correct?

Speaker 3

You are correct.

Speaker 7

Your

Speaker 0

next question is from Christopher Flynn with Oppenheimer.

Speaker 9

I was curious, a couple of questions on IPS. Wondering if any markets or production processes that you serve are currently showing any nice shifts to adhesive centric assembly from, you know, stitch or fasteners?

Speaker 2

Chris, you know, a couple of things. You know, first and foremost, the adhesive core adhesive business is pretty strong. One of the areas that are beginning to see some really nice pickup is, in electric vehicles and in battery manufacturing. It's an area that we continue to benefit from. Ongoing automation across a wide variety of application is also beneficial, to this business.

So think about, you know, adhesive dispensing allowing our customers to automate their manufacturing processes. So we see a lot of benefit there. Not any particular, you know, one end market or the other, but I would say a broad set of end markets. Clearly, you know, consumer electronics, interestingly enough as you have some wearables and other new consumer opportunities. So if think about our adhesive business, really is depend you know, it has grown mainly through new applications, a big lever, and that that is pretty strong.

And and we continue to benefit from automation. So the two things I would tell you on a big driver would be battery and number two, automation.

Speaker 9

Okay. Thank you for that. And, wondering, relative to the two segments within your organic outlook, do see ATS kind of pulling up to where IPS started the year and kind of coupling the type of organic growth you expect for the balance of the year?

Speaker 2

Yeah. You know, what what we have really let me give you some, end market trend, and then Joe can add some color for how we're thinking about the actual growth rates. Yes. You know, what what we expect is in the back half, you know, there are two things here. One is, if you know our medical business, you know, as COVID eases, and as elective surgeries come back, we certainly expect our medical business to get back to the high single digit rates in this back half of the year.

So that's that's one big driver for us. Second is, you know, you begin to see some very strong electronic orders in our business today that will show up in the second half as a a as a growth driver for us. In in terms so those two would certainly help help our, ATS business. You know, one thing

Speaker 7

we have not

Speaker 2

thing we have not talked about is that, you know, our medical fluid component business, which is primarily driven by BioPharm applications, has a solid growth in the quarter. We expect that to continue that continued strength in the out quarters. It's a big you know, it's a small business today, but we are very excited about this opportunity. This is really because of all of the single use components.

Speaker 9

Sounds great. Thanks. Just the last one, if I can sneak it in. The the FX impact on the top line, does does that still sort of drop through as a two to three times multiplier to the earnings impact?

Speaker 3

Yes. So the FX, to the bottom line, you know, our cost structure, you know, aligns, I would say, with our sales structure quite well in terms of, you know, the FX, euro denominated and GDP denominated cost as well as revenue. So that does flow through. There is a little bit of a margin expansion within our IPS business when you see the dollar weaken against the euro and the GDP.

Speaker 9

Your

Speaker 0

next question is from Andrew Buscola with Berenberg. I

Speaker 2

just want to touch on ATS.

Speaker 7

So I thought we would see that turn to growth you know, just given a difficult you know, just given, like, we're lapping some easier comps. And, you know, your overall guidance really for organic growth isn't quite that, high if you exclude FX. It doesn't really include it doesn't really seem to be assuming much of a a, you know, snapback in ATS in the back half. So I'm just trying to figure out, is it is it you're just being conservative? Or, you know, the ACS segment hasn't quite grown, you know, what what do you say can grow two to three times GDP in three years now.

So, you know, I guess, what what can where can you give some investors some confidence this is you know, this growth is coming? Or is this conservatism?

Speaker 3

Yes. So I guess when you think about the growth rate of 4% to 6% and going forward, it's important that excluding the divestiture, again, it's 7% to 9%. And so if you think about FX, that would suggest, you know, three or sorry, 4% to 6%, organic in that range. So just so we're clearly, I guess, on the same page the components. So that's what we're suggesting.

Speaker 2

And, Greg, go ahead. Yeah. Go ahead, Andrew. Sorry. No.

No. No. You go you go ahead. Yeah. Andrew, you know, one of the things that I would add to you is that on the APS side, you know, as COVID eases, our medical business, you know, today is primarily flat because, COVID declined COVID related surgery declined, you know, putting a damper on our, you know, component business, but offset by a very strong growth in BioPharm.

Okay? But as COVID eases in the back half, we we do expect this business to get back to, you know, high single digits in the back half. So the so the ATS, what they're baked in is we are expecting medical to come back. We certainly on the electronic side, it is important for you to remember that, you know, broadly, Northam plays, in high precision applications. You know, what what we are really good at is testing inspection is growing nicely for us.

So that is baked in, to our outlook as we have forecast to do it today. That's inspection continues to grow. And if you think about electronic dispense business, we are seeing some pretty nice order entry that is starting to grow in the second half. Maybe level set here on the electronics dispense side of our business. If you think about our electronics dispense business, what we're really good at is high precision, reliable dispense at very high speeds.

That's what we're good at. And this has great application across a broad category of electronic end markets, not specifically one particular product category like a smartphone or other things like that. What we are finding is that the demand is pretty high for this level of precision, driven by all of this digital acceleration that you're seeing driven by automotive electronics. And so what we really like here is that we have a new team in place that is looking that is using MBS nights and looking at opportunities. Clearly, we are seeing is that mobile phone manufacturing has mature.

It has matured and hence, you know, these applications don't require the level of precision that is needed. And so we've got a new team looking at relooking at this opportunity, but more focused around semiconductor package, more focused on the digital acceleration across a broad spectrum of end markets. And, you know, we're confident that this business gets back to, mid single digits, growth, and and you'll start to see some of that in the the second half of the year.

Speaker 3

When you think about our growth rate organic of, let's call it, percent to 6%, don't forget that in 2020, our sales only dropped about 3% to 4%. So, you know, the drop off from '19 wasn't as significant as as others. So therefore, the the bounce back opportunity, is is not as significant as others.

Speaker 7

Yeah. And I and I think, you know, you said you sound like China had a good you know, as expected, it was pretty strong. The q two is gonna be able to dampen over there. But, you know, I guess, exiting the year in the second half, presumably, all three regions, China, Europe, and US, you know, you it it sounds like those all have to be you're assuming those are are all growing in tandem exiting 2021. Yeah.

Just, I guess, you know, based on easy comps and and the pandemic lifting. Yeah. Is there any other, like, regional, I guess, regional color you can provide, Yeah. That would No.

Speaker 2

Andrew, I I think you kinda if anything, what I would tell you is that Asia is strong today. Europe is flat organically. We do expect that to change. US is starting to strengthen, but right now, was slightly low in the first quarter. But I I I wouldn't add anything more than what you've already captured there.

Okay.

Speaker 7

Alright. Thanks, guys.

Speaker 0

Your final question is from Walter Liptak with Seaport. Your line is open.

Speaker 2

Hi. Good morning, guys. Good morning. Good morning. I wanted to

Speaker 4

ask about the MBS Next. And can you maybe elaborate a little bit about the cost savings that you got that benefited this quarter versus the benefits from MDS next? Is it possible to differentiate one from the other?

Speaker 3

No. I mean, it's it's really not. Because when you say, you know, the cost savings that we, referenced, I think at several points, you know, when you step back and think about our cost actions, it was all driven by the strategic discipline within our NBS Next Growth Framework. And so as we focus on the best growth opportunities, we stayed invested in those opportunities so that we could capitalize on that. And then where there weren't the best growth opportunities, you know, that is where we we we took action to right size, I would say, our cost footprint, or in the example of the screw and barrel, divestiture, improve our profitability there.

So at the heart of it, Walt, I would tell you the margin expansion, when we reference sales mix improvement within IPS, when we reference benefiting from the cost structure reduction actions, All of that is rooted in the NBS Next strategic discipline growth framework. When we look at the incremental margins of 97%, we we say that's a lot of MBS next delivering the benefit.

Speaker 4

Okay. Okay. And let me let me try it this way. Is as you look at your s g and a overall for the remainder of the year, you know, is there like a dollar level or a percentage of sales that you can help us with so we can we can think about, you know, the the benefits and, you know, some of these costs coming back into, into Nordson.

Speaker 3

Yeah. So I guess let me just give a little color commentary specifically on cost. You know, last year, we we had several actions that referenced incremental annualized cost savings. Some of them were $10,000,000 one was $5,000,000 Some of those started at different points throughout 2020. And so those are hitting at the full, I would say, benefit run rate here in in in Q one.

So so that you see that that should be maintained going forward. I will tell you also on the plus side, we were benefiting on a year over year basis of about $6,000,000 for lower, T and E expense as Q1 last year did not have, you know, the pandemic cost structure of no travel. And so as that starts to come back, going forward, you know, there 's a potential, you know, another 6,000,000, I don't think it'll all come back right away. But, as you think about it from this run rate, it's about 6,000,000 on the T and E that we benefited in Q1. So and and the other thing I references that, you know, Q one typically is our our heavy, SG and A quarter.

If you look last year and and and the prior year, for different, employee benefit reasons. And so that that that trend, you know, should continue as we go forward throughout 2021.

Speaker 9

Okay. Okay. Thanks for that color.

Speaker 4

And then maybe just the last one for me about, you mentioned in the prepared remarks the vaccine packaging. I wonder if you could just talk a little bit more about that. Is there a revenue size? Were these orders that came in last year that shipped? Is there more orders that will benefit or come through in sales in second quarter or second half?

Sure.

Speaker 2

This is a this is a really strong growth driver for us and the one that we have been working on for a number of years. Walt is starting to show up in the marketplace right now. This is single use plastic components which are used in the manufacture of biopharma, in this particular case, vaccines as well. And, you you know, we saw some pretty strong growth in the quarter. We expect the growth to continuing, in the out quarters and and and maybe even further out.

And, you know, the biggest reason we are able to have a sort of a flat medical revenue when compared to our customers being down 15% is mainly because of this bioform growth driver. And so it is more of our single use plastic components that are used in critical, bioform manufacturing steps. Okay. Got

Speaker 4

it. Alright. Thank you.

Speaker 0

We have no further questions. I turn the call back to presenters for closing remarks.

Speaker 2

Thank you for your time and attention on today's call. We look forward to talking to you further during our virtual Investor Day on March 30. Have a great day. Thank you.

Speaker 0

This concludes today's conference. You may now disconnect.