Nordson Responds

On Monday night, you may remember, we addressed the curious question of Nordson, a stock that fell 17 points in one day after reporting a quarter and issuing guidance that disappointed the Street.

We said the company's management was trying to do damage control like politicians, and recommended avoiding the stock until it had gone lower. Today we got an e-mail from Nordson's director of corporate communications with a list of corrections – some legitimate, some over purely subjective matters of opinion. In the interest of being as fair as possible, I'm reprinting the entire e-mail below. There's a lot to talk about, so I'm going to write two posts. First, in this one, I'll go through Nordson's corrections and objections point by point. In the next post, I want to put Nordson's e-mail in the context of the story we did, to show how it really doesn't address the reason why we think the stock is a sell.

But first, here's what Nordson had to say (and kudos to them for being so polite, really):

Dear Mr. Cramer and staff of Mad Money:

I am writing to you regarding the piece on Nordson Corporation (Nasdaq: NDSN) that ran on your program last evening. There are a few corrections to the piece that I would like to provide, along with some additional items to consider in your analysis of Nordson.

- The program described Nordson as "an adhesives company." Nordson does not manufacture or sell adhesives. We do manufacture the products and systems that dispense and apply adhesives and other materials. Nordson products help its customers use adhesives more efficiently, often enabling the customers to reduce their spend on these materials.

- The program cited a figure that "7% of Nordson's sales are automotive related" and that Nordson is "heavily tied to SUVs." The correct number here is that 4% of our global sales are associated with automotive. Within this number, Nordson serves a wide range of applications in the automotive industry and is not especially tied to SUVs. The program also indicated that Nordson has 22% of its sales tied to the housing industry. In fact, Nordson only has 27% of its total sales in the United States, the vast majority of which is unrelated to either housing or the automotive industry. The largest end markets for Nordson sales are associated with food packaging, disposable baby diapers and other consumer nondurable products, followed by technology related products such as cell phones, semiconductors. Nordson's combined exposures to housing and automotive end markets in the United States is well below 10% of total sales.

- The program reported that Nordson had "an abomination of a quarter and horrific guidance." Nordson's quarter was a record in terms of sales, operating profit and earnings per share, all of which increased by double digits. The company's earnings per share of $0.93 was within the $0.91 to $1.01 third quarter range of guidance.

- The program reported that Nordson is "heavily dependent on the weak dollar." It is true that Nordson is an exporter, and weakness in the dollar enhances its earnings as measured in dollars. However, the dollar does not impact the quantity of units the company sells overseas. Nordson prices to its local markets and has strong gross margins to accomodate currency movements. Nordson has grown earnings per share by 25% per year since 2001. Even when currency effects are stripped out, Nordson has still grown earnings per share by 18% over the same period.

- The program reported that "Nordson took (4Q) guidance up big when it reported the quarter before and then guided down and shattered its credibility." Prior to reporting 2Q results, Nordson had issued no previous guidance for the 4Q. The 4Q guidance Nordson provided in its 2Q results was its first 4Q guidance, so there was no previous guidance to "take up big." Typically, Nordson does not provide guidance beyond a single quarter. The reason Nordson did give a "preliminary" look in May for the 4Q of this year is that the company was concerned that the momentum that it had announced in the second quarter and had embedded in its 3Q guidance was not going to be extending into the 4Q. Nordson believed it would be helpful to analysts and investors to have some perspective on the outlook the company was seeing. Since that preliminary outlook, a deepening impact of the slowdown in the U.S. economy and a more modest benefit from foreign exchand have caused the company to lower the 4th quarter outlook.

- Nordson's Advanced Tech segment remains a strong source of growth for the company. Nordson expects double digit sales growth for its Advanced Tech segment in the 4Q, and if industry forecasts are correct, 2009 and 2010 should be substantially stronger.

- Nordson improved its operating margin from 16 percent in the 3Q a year ago to 18 percent in the quarter just completed. Over the past ten years, the company has improved margins from 12 percent to the current year's first nine months figure of 17 percent. The company believes additional efforts over the next 18 months can bring this number to 20 percent.

As always, Nordson seeks to maintain its credibility through transparency and open communication with shareholders and the larger investment community. Thank you for your consideration.


James R. Jaye
Director, Corporate Communications

That's seven points. In response to the first, we described Nordson as, "an industrial company that makes products used to dispense sealants, adhesives and coatings for food, diapers, consumer durables, housing and the auto business," and also called it an adhesives company. I think the first description would meet with Nordson's approval. Since it's essentially dependent on adhesives companies and levered to the adhesives market, I don't see what's so off about referring to them as an adhesives company, but they can have it their way.

The second point: We got Nordson's auto exposure wrong. We mistook industrial for automotive on the chart, that's our bad. And we didn't say its auto business was pure SUVs, just that they're in the mix and that's not a good thing.

But the rest of this point is totally misleading. We said Nordson was 22% housing, not 22% U.S. housing. Their e-mail talks about only U.S. housing, but that's clearly not what we were talking about on the show. There are housing markets in Europe, like Spain and the U.K., that aren't doing well, should we just ignore them? That's what Nordson's corporate communications director wants us to do. Maybe Nordson thinks people in the rest of the world only live in igloos or perhaps yurts? Talk about spin.

As for their third point, they say we reported that Nordson had "an abomination of a quarter and horrific guidance" and then go on to talk about how their quarter broke all kinds of records. They're entitled to their opinion, but based on the numbers the analysts on Wall Street were expecting, Nordson did report an abomination of a quarter with horrific guidance. Why else do you think their stock fell 17 points in one day? Because the consensus in the market was that the quarter was fabulous? Come on.

Point four: We said Nordson was heavily dependent on a weak dollar. Despite how they present the argument, I think Nordson's representative makes this case for us when he writes, "Nordson has grown earnings per share by 25% per year since 2001. Even when currency effects are stripped out, Nordson has still grown earnings per share by 18% over the same period." That means that 28% of their growth came from currency effects – the weak dollar. That sounds heavily dependent to me.

Point five: Here he's claiming that we said Nordson took its fourth-quarter guidance up big – notice he inserts (4Q) in there, when in fact it should have been pretty clear to everyone we were talking about their third-quarter guidance. We said they took the guidance up big and then they missed the quarter, since their fourth quarter hasn't happened yet and their third quarter has, I think his interpretation is difficult to sustain when taken in context. But we didn't explicitly say third-quarter guidance, so there's plenty of room for honest misinterpretation. Allow me to clarify: we meant guidance for the third quarter. Nordson's third-quarter earnings guidance was for $0.91 to $1.01 of earnings per share. They deliver $0.93 cents. In our opinion, that's a miss because it's below the mid-point of the guidance. Judging by the stock's performance, the Street shares that opinion.

The last two points are just further information they want us to consider. Consider away. Although I have to point out that Nordson's advanced tech segment, which is touted in point six as a strong source of growth, nevertheless fell short of the expectations set by the analysts covering the stock for the third quarter.

Nordson and its corporate communications director are welcome to think whatever they want about their company's performance, but their opinion doesn't move the stock and that's what we care about on Mad Money. Get ready for my next post where I'll explain why we think this debate is completely irrelevant to the performance of Nordson's stock going forward, and totally misses the point of the story we did on Monday.

Cliff Mason is the Senior Writer of CNBC's Mad Money w/Jim Cramer, and has been that program's primary writer, in cooperation with and under the supervision of Jim Cramer, since he began at CNBC as an intern during the summer of 2005. Mason was the author of a column at during 2007, which he describes as "hilarious, if short-lived." He graduated from Harvard College in 2007. It was at Harvard that Mason learned to multi-task, mastering the art of seeming to pay attention to professors while writing scripts for Mad Money. Mason has co-written two books with Jim Cramer: Jim Cramer's Mad Money: Watch TV, Get Richand Stay Mad For Life: Get Rich, Stay Rich (Make Your Kids Even Richer). He is 100% responsible for any parts of either book that you did not like.

Mason has also had a fruitful relationship with Jim Cramer as his nephew for the last 23 years and will hopefully continue to hold that position for many more as long as he doesn't do anything to get himself kicked out of the family.

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