Q1 2024 Earnings Summary
- Industrial Precision Solutions (IPS) segment continues strong performance, with steady order entry and robust growth, supported by the ARAG acquisition contributing approximately 5% to organic growth this year.
- Medical and Fluid Solutions (MFS) segment has returned to growth, driven by double-digit increases in the Medical Interventional business and a pickup in order entry in patient care and surgical applications; expecting high single-digit growth.
- Advanced Technology Solutions (ATS) segment is expected to recover in Q4, with signs of increased order entry in niche businesses, a robust project pipeline, and easier comparisons in the second half, giving confidence in future growth.
- Advanced Technology Solutions (ATS) segment sales decreased by 18% in Q1 2024 compared to the prior year, driven by weakness across the segment, primarily in electronics dispense products serving semiconductor end markets. ,
- The company lowered the midpoint of its full-year guidance, now assuming recovery of the semiconductor electronics end markets begins in the fourth quarter of fiscal 2024, indicating prolonged headwinds in this critical market segment. ,
- Biopharma growth remains uncertain, with the company not expecting any significant pickup in the short term and acknowledging that destocking has led to a lower demand level without a clear timeline for recovery. , ,
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ATS Segment Recovery
Q: What gives you confidence that ATS electronics and semiconductor will recover this year?
A: While order entry hasn't picked up as hoped, we expect ATS recovery in the second half due to easier comparisons, existing backlog with expected shipments, early increases in UV lamp orders for semiconductor customers, and a pickup in electronic adhesive packaging demand. Our opportunity pipeline remains robust. -
Semiconductor Cycle Timing
Q: Is the test and inspection investment cycle rolling over?
A: Test and inspection faces tough comparisons after robust growth, but its cyclicality is more muted compared to our dispense business. We acknowledge the cycle, but continue to see solid performance without significant decline. -
Chinese New Year Impact
Q: How big is the Chinese New Year impact this quarter?
A: The Chinese New Year is causing a $10–$15 million impact in Q2, contributing to about half of the projected negative 4% organic growth. -
ARAG Acquisition Trends
Q: How is ARAG performing and impacting results?
A: ARAG integration is going well, contributing 5% to organic growth. With 45% of revenue from recurring aftermarket parts, we see consistent demand even amid European market softness. ARAG is expected to be accretive to EBITDA and slightly accretive to EPS excluding amortization. -
Biopharma Destocking
Q: What's the outlook for biopharma demand recovery?
A: Destocking appears to be at the bottom of the cycle. While significant order intake hasn't resumed, customer ordering patterns have shifted from blanket to regular orders. We see strong growth in patient care and surgical applications, and long-term biopharma trends remain favorable, though timing of demand inflection is uncertain. -
Margin Outlook and Ascend Strategy
Q: How much more margin expansion can Ascend deliver?
A: Ascend and NBS Next are growth frameworks focusing on organic growth and customer focus rather than cost-cutting. We're in early stages, with several divisions achieving leadership performance. We expect 40% incrementals on organic growth, leading to margin expansion over time. -
Backlog Levels and Book-to-Bill
Q: When do you expect book-to-bill to turn positive, and what's the backlog outlook?
A: Our backlog stands at $750 million, above the normalized $600–$650 million. Order patterns have normalized without previous customer anxiety. We consumed about $50 million of backlog in Q1 and remain on a normalized pace. -
MFS Structural Challenges
Q: Are there structural challenges limiting MFS growth?
A: There are no structural or competitive issues. MFS has returned to growth, with Medical Interventional growing double digits. After last year's biopharma decline, we're seeing modest order pickup in patient care and surgical applications. We expect MFS to return to high single-digit growth over time. -
IPS Demand and Order Patterns
Q: Any red flags in IPS demand as order patterns normalize?
A: IPS order entry is steady and similar to pre-COVID patterns. With strong backlog in system businesses and ARAG contributing 5% to organic growth, we are confident in IPS performance. -
Chinese New Year Segment Impact
Q: Which segments are most impacted by Chinese New Year?
A: The impact is concentrated in the IPS segment and, to a lesser degree, in ATS.
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