Nordson's Q4 2025 Earnings Call: Contradictions in Sales Forecasts, Order Momentum, Semiconductor Demand, and Medical Recovery Timelines

Date of Call: December 11, 2025

Financials Results

• Revenue: $752M Q4 sales, up 1% YOY vs $744M; FY2025 sales $2.8B, up 4% YOY
• EPS: $3.03 adjusted EPS in Q4, up 9% YOY; GAAP Q4 EPS $2.69; FY2025 adjusted diluted EPS $10.24, up 5% YOY (FY GAAP diluted EPS $8.51)
• Gross Margin: 55% average gross margin for fiscal 2025, maintained versus prior year
• Operating Margin: Q4 EBITDA margin 34% of sales, up 160 basis points YOY; FY2025 EBITDA margin 32% of sales

Guidance:

• Full-year fiscal 2026 sales expected to be +1% to +6% versus FY2025 (midpoint 3.5%), assumes ~1% FX benefit and excludes divested medical contract manufacturing business.
• Full-year fiscal 2026 adjusted EPS growth forecasted at +6% to +12% (midpoint +9%).
• FY26 modeling assumptions: effective tax rate 18.5%–19.5%; capital expenditures ~$55M–$65M; interest expense ~$85M–$95M.
• Q1 FY26 guidance: sales $630M–$670M; adjusted EPS $2.25–$2.45.
• Backlog approximately $600M, up ~5% year-over-year.

Business Commentary:

• Strong Financial Performance:
• Nordson Corporation reported record sales of $2.8 billion for fiscal 2025, up 4% from last year.
• Despite macroeconomic disruptions, the company delivered record adjusted earnings per share of $10.24, exceeding the midpoint of its full-year guidance.

• This performance was supported by operational excellence, strategic M&A actions, and a 100 basis point margin improvement from the divestiture of a medical contract manufacturing business.

• Segment Performance and Margins:

• Sales for Medical and Fluid Solutions segment increased 10% with 7% organic growth, driven by broad-based demand across product lines and stabilization post-destocking.
• The segment achieved an EBITDA margin of 40%, up 380 basis points from the previous year, attributed to the divestiture and operational improvements.

• Backlog and End Market Observations:
• Nordson ended the fiscal year with a backlog up 5%, excluding the divested business, indicating stable order entry and demand.

• The company anticipates solid growth in 2026, supported by investments in packaging and product assembly, precision agriculture, and stable aftermarket parts demand.

• Free Cash Flow Generation:

• Nordson achieved a record free cash flow of $661 million in fiscal 2025, with a cash conversion rate of 136% on net income.
• This strong cash flow allowed for share repurchase, dividend payments, and debt reduction, positioning the company for continued returns to shareholders and strategic acquisitions.

Sentiment Analysis:

Overall Tone: Positive

• "I am pleased to share our solid fourth quarter results," record Q4 EBITDA $256M and record FY free cash flow $661M; "we are entering 2026 optimistic to deliver solid growth" and guidance targets progressing toward long-term goals (midpoint sales +3.5%, EPS midpoint +9%).

Q&A:

• Question from Michael Halloran (Baird): Are you seeing semiconductor strength broaden across applications or remain concentrated?
  Response: Demand remains concentrated in semiconductors (AI/cloud) but automotive is stabilizing and general electronics are steady; ~50% of ATS revenue is semiconductor.

• Question from Michael Halloran (Baird): Should investors treat this quarter's strong Medical margins as sustainable?
  Response: Upper-30s margin level for Medical is a sustainable baseline; 40%+ this quarter was notable and not the run-rate; divestiture adds roughly ~100 bps benefit to segment margins.

• Question from Mitchell Moore (KeyBanc): What is the outlook for polymer processing within IPS and backlog/order trends there?
  Response: Polymer processing has troughed (we're at the bottom) with order entry and backlog improving, and it should no longer be a drag heading into FY26.

• Question from Mitchell Moore (KeyBanc): How much of the Q1 ATS growth is favorable comps versus underlying demand or shipment timing?
  Response: Q1 benefit reflects some easy comps but is primarily driven by stronger backlog and ongoing demand, especially in semiconductor applications.

• Question from Matt Summerville (D.A. Davidson): Why has X-ray lagged other ATS growth and will it contribute going forward?
  Response: X-ray has mixed exposure to semiconductors and automotive and is in good shape with new products; it should contribute to ATS growth though technology transitions limit some near-term upside (material impact more likely in 2027).

• Question from Matt Summerville (D.A. Davidson): At ~2.1x leverage and current stock levels, will you pursue M&A or buybacks?
  Response: Capital allocation will remain balanced—continue working an active M&A pipeline while returning cash to shareholders via buybacks/dividends; management sees room for both.

• Question from Andrew Buscaglia (BNP): Why does guidance include a low-end that implies little growth if headwinds have troughed?
  Response: Guidance is a range to plan for scenarios; management is confident in a strong Q1 but is prudently including downside contingency despite not seeing current indicators of deterioration.

• Question from Christopher Glynn (Oppenheimer): Does ATS lumpiness negate multi‑year growth and can polymer processing drive upside versus guide?
  Response: Lumpiness smooths over a 12-month view—management expects mid-single-digit ATS growth over such a period; polymer processing has bottomed and could provide upside versus guide if recovery accelerates.

• Question from Bradley Hewitt (Wolfe Research): How did backlog trend sequentially and what seasonality should we expect for 2026?
  Response: Backlog is up ~5% year-over-year but down sequentially seasonally (normal for Q1); management expects typical seasonal improvement through the year and a normal seasonality pattern for 2026.

• Question from Walter Liptak (Seaport Research): What worked best with NBS Next and where is the biggest opportunity now?
  Response: Strategic discipline and segmentation delivered strong operational gains; the biggest remaining opportunity is commercial excellence and driving profitable organic growth to expand margins.

• Question from Robert Jamieson (Vertical Research Partners): What bridges the FY26 EPS midpoint to your 10%–12% long‑term target, and are working capital gains sustainable?
  Response: Bridges are stronger organic growth and potential M&A (not currently assumed); working capital improvements are intentional, sustainable, and management sees additional opportunity to sustain high cash conversion.

Contradiction Point 1

Sales and Revenue Guidance

It involves changes in financial forecasts, specifically regarding sales and revenue guidance, which are critical indicators for investors.

What is the margin trajectory for each segment next year? - Michael Halloran (Baird)

20251211-2025 Q4: For fiscal 2026, we expect net sales to increase in the low to mid-single-digit range. - Daniel Hopgood(CFO)

Can you provide insight into order momentum across the businesses, particularly ATS and Medical, given destocking and potential order backlog timing? - Jeffrey D. Hammond (KeyBanc Capital Markets)

2025Q3: For fiscal 2026, we expect net sales to decline in the low to mid-single-digit range. - Daniel R. Hopgood(CFO)

Contradiction Point 2

Order Momentum and Backlog

It involves changes in the company's performance and growth indicators, which are critical for investors and analysts.

How sensitive is the IPS segment to the industrial economy? - Andrew Buscaglia (BNP)

20251211-2025 Q4: For IPS, margins are expected to align with historical performance. MFS margins should maintain in the upper 30s, demonstrating sustainability despite strong performance this quarter. - Daniel Hopgood(CFO)

Can you clarify order momentum across ATS and Medical, factoring in destocking and backlog timing? - Jeffrey D. Hammond (KeyBanc Capital Markets)

2025Q3: We expect to deliver another year of solid earnings growth. - Sundaram Nagarajan(President, CEO & Director)

Contradiction Point 3

Semiconductor Market Demand and X-Ray Inspection

It involves differing perspectives on the demand for semiconductor equipment and the impact of x-ray inspection on the company's performance, which are critical factors affecting investor expectations.

Are you seeing any expansion into semiconductor applications in the ATS segment? - Michael Halloran (Baird)

20251211-2025 Q4: The strength continues in the semiconductor space, with segments like AI and cloud computing driving growth. - Sundaram Nagarajan(CEO)

Can you explain the performance of your electronics business this quarter? - Matt Summerville (D.A. Davidson)

2025Q1: The miss in the ATS business was largely due to the timing of orders, especially in x-ray and electronic processing product lines. - Sundaram Nagarajan(CEO)

Contradiction Point 4

Medical Segment Recovery Timeline

It involves differing expectations on when the company's medical segment will start to see year-on-year growth, which is crucial for investors' financial projections.

How did the backlog trend sequentially, and are there segment-specific comments? - Bradley Hewitt (Wolfe Research)

20251211-2025 Q4: Medical segment revenue increased 19% organically to $385 million, marking our third consecutive quarter of double-digit organic growth. - Sundaram Nagarajan(CEO)

When can we expect year-on-year growth in your interventional medical business? - Andrew Buscaglia (BNP Paribas)

2025Q1: The inflection of the destocking began in earnest in the second quarter of last year. We expect tough year-over-year comps through the first half but expect inflection points starting in the third and fourth quarters. - Daniel Hopgood(CFO)