Good day, ladies and gentlemen, and welcome to the Nordson Corporation Webcast for the Third Quarter Fiscal Year 2015. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference is being recorded. I would 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'm here with Mike Hilton, our President and CEO; and Greg Thaxton, our Senior Vice President and Chief Financial Officer. We'd like to welcome you to our conference call today, Friday, August 21, 2015, our Nordson's FY 2015 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, we will have a question-and-answer session. And I will now turn the call over to Mike Hilton for an overview of our FY 2015 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 challenging macroeconomic environment. Unfavorable currency translation continues 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 three 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're taking now and over the coming year to protect and enhance our margins in 2016, where we expect the 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'll speak more about our outlook and current business trends in a few moments. But first, I'll turn the call over to Greg Thaxton, our Chief Financial Officer, who'll provide more detailed commentary on our results and our fourth quarter guidance. Greg?

Thank you, and good morning to everyone. Sales in 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 effect of acquisitions, and a 7% decrease related to the unfavorable effects of currency translation. As Mike noted, the U.S. dollar further strengthened during the quarter, generating a stronger headwind of 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 lines serving disposable hygiene, general product assembly, rigid packaging and plastic extrusion end markets. We generated organic volume growth in all regions except the U.S. Sales volume in the Advanced Technology segment increased 8% from the prior year third quarter, where organic volume increased 2% and the first year effect of acquisitions added 6%. And I'll 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 U.S., Americas and Europe. Organic sales volume in the Industrial Coatings segment increased 23% compared to the third quarter a year ago. This marks the…

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 thank 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 a 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 selected 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 head count 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 for 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.

Our first question comes from Kevin Maczka with BB&T.

Thanks, good morning.

Good morning Kevin.

Good morning.

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

No, Kevin, I wouldn't – here's 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. U.S 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's going to drive more global GDP growth well above 3%. So we're looking at it more like this year. So if you think about, rough rule of thumb of kind of 2x the GDP that we see, that's kind of our expectation. That's not the most robust growth environment, and so, we think, it's only prudent to go into 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'd 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've 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're operating in this year.

Yeah. I'd say just add to that, the initiative – from an initiative standpoint, we're doing pretty well this year. We're just floating on a little bit weaker economy than we expected.

Yeah. 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'm just, I guess, where I'm going is, I'm just wondering, where do you see the opportunity for things to accelerate? If we do have a similar GDP environment and who knows, it – maybe it's worse, maybe it's better. But if it's similar like you're forecasting, what would make us to do better than 4%? Is it new product development and 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?

Yeah, Kevin. I would say a lot of it is linked to the new products development side. We have a lot of new products that we've introduced this year, and I'd say generally getting traction, some of them 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've got new applications that in effect, are creating demand, and so we're 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're making progress now in tiered products, for example in the Advanced Tech space that we haven'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're not discouraged, I think we're encouraged by what we're seeing in our initiatives. What is most unclear is, what are we floating on top of? And I'd say that's particularly unclear when you think about Asia, Japan, and China in particular.

Okay. Got it. I'll get back in queue. Thank you.

Our next question comes from Joe Radigan with KeyBanc.

Hey, good morning, guys.

Hey, Joe.

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. It would seem to indicate Advanced Tech and Industrial Coatings are both facing pretty tough double-digit organic growth comp. 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?

Yeah, one thing that's a little bit different on the Adhesives side here is with the polymer product lines in there, some of those that are a little bit longer deliveries. So, some of the orders that we're 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 a sort of a more normalized set of history with that business in, we're going to see some disconnection between orders and what you see in revenues. So, I think some of that – but that's 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 a more typical pattern, which would be to a drop off from their peaks going forward, and that's what we anticipate to see, is typical traditional background going forward there. And so, that's kind of factored in against, as you said, the tough comps in – particularly in the Coatings business and also, in parts of the Advanced Technology business.

Yeah, Joe, this is Greg. And I think, just to add to what Mike said is, you hit a lot of it 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 view of given the current pace of orders and the 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're going to have FX headwind again in the fourth quarter which will impact that margin, or does some of the restructuring benefits that you're going to get from the actions you've taken kind of offset that?

Yeah. I'd say the restructuring benefits are mainly going to be things that we see next year. We're 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 are pretty soft, we had a big concentration of orders in the third quarter, such that the other volumes were really strong and that had an impact in terms of volume leverage in that quarter, and then it moved back to a more traditional approach and I think we – 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, Mike. Thanks, Greg.

Our next question comes from Christopher Glynn with Oppenheimer.

Thanks. Good morning.

Good morning, Chris.

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's hard getting back to some of the pre-plastics days as well. Are you finally seeing a 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, 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're seeing rebuilds, we're seeing capability enhancement on the extrusion side, and we're seeing continued solid business in the injection side, but no, we haven't seen the – in particular, we haven't seen the high-end buy X (30:14) 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's a little tough to comprehend. I know you've addressed it qualitatively, but if we could just kind of revisit that topic, I think it would help.

Sure. Yeah. 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, or third quarter and typically, fourth quarter as well, but the third quarter in particular, to see kind of a high-20%s margin in that segment. So 32% last year, is probably three points or four points above what was typical. And that's really a function of the concentration of when the volume came in the last year. At the end, look at the sort of 24% this year, you've got one percentage point, that's the restructuring impact. And then there are three percentage points that are – or so, three percentage points to four percentage points that are linked to mix. When we 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 the – 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's having an impact. We're not seeing any pricing pressure, we're not losing any share, and you know that it's just a pretty significant swing in the mix that's had an impact there.

And what's the foreground for orders and projects on the automated side, even from a touchy feely perspective of answering?

Yeah, I would say, we're seeing improvement in the dispense side of things relative to where we were last year, but year-over-year, it's likely not 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'd say from a mobile perspective, we've seen a couple of things, we've seen mix change in our customers. So growth in the sort of Chinese-based customers, who today are buying some equipment but not to the same extent that others would, has a sort of a key impact there as well. So those are a couple of things that kind of impacted the dispense business. And this is the year where we've 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'll see more of an uptick. But we are seeing in the most recent orders, a nice positive impact on the dispense side of things. But in general, for the year, it's probably not going to be where we would have hoped coming into the year.

Thanks. It's very interesting.

Our next question comes from John Franzreb with Sidoti & Company.

Yeah, I just like to – maybe stick a little bit...

Good morning.

Good morning. 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 you should be cognizant of?

Yeah, I would – so, a lot of the consumer nondurables fit within our Adhesives business. And if you look at the sort of the at the Adhesives 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'd 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's I think really a function of what you're seeing in the Chinese economy growth, but not robust growth. But everywhere else, it's been pretty solid. You can have some variations quarter to quarter based on large projects, but it's been a strong nonwovens year, it's been a strong product assembly year and a solid packaging year with the exception of overseeing in Asia, Japan softening and China being softer. And we're starting to see a pickup now in the plastic side of the business.

Mike, now that the Asian as well as 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're 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've been pretty weak in China, if you just look at sort of some of the other headlines. And part of that's linked to struggles with the transition to the consumption-based economy that they're having, which is really contributing to challenges meeting their GDP target. And that's one area where we see it playing out.

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

Yeah. I think it's – we have this kind of phenomena 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 than third quarter – I am sorry, I'm a quarter off here, we had a very strong collection in the following quarter. I expect the same trends 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're not pre-building a lot of inventory for volumes that are extending beyond next quarter shipment. So I expect to see the same trends will moderate back to typical DSI, DSO and our cash conversion will be strong in the fourth quarter.

Okay. Thank you very much, guys.

Our next question comes from Allison Poliniak with Wells Fargo.

Hi, guys, good morning.

Good morning, Allison.

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

I'd say, as a general statement, we're not seeing significant delays or push-outs. But I would say, in a couple of the areas where there a bigger ticket investments, so in, 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'd say, in general, no, but in areas where it might be the higher capital decisions for customers we're seeing. We're hearing a little bit about push-outs, longer lead times, things like that. So, not so much in some of the shorter term decisions that would fall into other parts of the business. I'd 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 the 2016, there's really no sort of the catalyst for the change in the environment. Any changes or thoughts of changes to the capital deployment plan that you have in place today?

So just to comment on the first part, I'd say, we're being prudent, so we would like to be surprised to the upside if things improve, but we're not seeing anything from an underlying macro standpoint that would dramatically change sort of the global economic environment there. I'd 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're into the range that we would like to be in the sort of low 20%s. We would offset any kind of compensation-related share creep. We would look for acquisitions. We talked about two is really product line tuck-ins. We're seeing more of that kind of thing right now, and that's kind of tuck-ins or smaller acquisitions that 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 and we'd always like to keep that available. So, that's 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. 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've looked at in the past.

Great. Thanks so much.

One moment for our next question. Our next question comes from Liam Burke with Wunderlich.

Thank you. Good morning, Mike. Good morning, Greg.

Good morning, Liam.

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

That's the most advanced of our businesses from a tiering approach, and it's going very well. If you look across the major parts of our business, particularly the nonwovens and the packaging, we've got multiple tiers, anywhere from three to six sort of product offerings at various stages, that's gone very well. This year has been a solid year for the high end, but it's also been a good year for the mid tier. And we've spent some money this year building out our engineering and support capability further in China to advance the mid-tier products, and that's meeting with good success there. And some of those products will support tiering outside of the Asia market as well. So I'd say, that's progressing well. We've made our first set of offerings now with the DIMA acquisition and moving that to Suzhou in the electronics side. We also have some tiered offerings in our coatings business as well. So I think if I can, good progress there, but we're most advanced in the Adhesive side.

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

It's 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've got capacity there that not only supports the medical business, but supports some of our other EFD business. At the same time, we've 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 and other parts of the medical business. So that's all going as planned, very well.

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

Great. Thanks, Mike. Thanks, Greg.

Our next question comes from Walter Liptak with Global Hunter.

Hi. Thanks. Good morning, everyone.

Hey, Walter.

Hi. Want 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 that 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've 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's what you've seen here in this quarter. And we expect that there may be some of that going for the exact timing and the impact, that will be a little bit clear as we go forward. But there's also lot of work that we're doing around segmentation of our business and streamlining in various other areas that will be helpful as well as we look at improving both effectiveness and efficiency. So there's opportunities across all of the businesses. Certain ones have more opportunity than others. I think as you've noticed, as we've made some acquisitions, there's been some opportunity there to integrate those more fully and we'll see some of that coming going forward.

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

I'm 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's an important improvement for those set of product lines.

Okay. Okay. It sounds good. Thank you.

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

Okay.

Jim, 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, it 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 as we expect that we'll continue to execute and execute on these improvement opportunities going through the fourth quarter and then into 2016. So we appreciate all of your support and your attention here. Thank you.

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

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