Categories Earnings Call Transcripts, Industrials

Nordson Corp. (NDSN) Q2 2021 Earnings Call Transcript

NDSN Earnings Call - Final Transcript

Nordson Corp. (NASDAQ: NDSN) Q2 2021 earnings call dated May. 25, 2021

Corporate Participants:

Lara Mahoney — Vice President, Investor Relations & Corporate Communications

Sundaram Nagarajan — President and Chief Executive Officer

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Analysts:

Allison Poliniak-Cusic — Wells Fargo Securities — Analyst

Saree Boroditsky — Jefferies — Analyst

Connor Lynagh — Morgan Stanley & Co. LLC — Analyst

Jeffrey D. Hammond — KeyBanc Capital Markets — Analyst

Michael Halloran — Baird Equity Research — Analyst

Chris Dankert — Longbow Research — Analyst

Matt J. Summerville — D.A. Davidson & Co. — Analyst

Christopher Glynn — Oppenheimer & Company — Analyst

Andrew E. Buscaglia — Berenberg Capital Markets — Analyst

Walter S. Liptak — Seaport Global — Analyst

Presentation:

Operator

Good day, and thank you for standing by. Welcome to the Nordson Corporation’s Second Quarter Fiscal 2021. [Operator Instructions]

I would now like to hand the conference over Lara Mahoney.

Lara Mahoney — Vice President, Investor Relations & Corporate Communications

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, May 25, 2021 to report Nordson’s fiscal 2021 second 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 14-day. There will be a telephone replay of the conference call available until Tuesday, June 1.

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 2 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 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.

Moving to today’s agenda on Slide 3. Naga will discuss second 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 updated fiscal 2021 full year guidance. We will then be happy to take your questions.

With that, I’ll turn to Slide 4 and hand the call over to Naga.

Sundaram Nagarajan — President and Chief Executive Officer

Good morning, everyone. Thank you for joining Nordson’s fiscal 2021 second quarter conference call. Throughout fiscal 2020, we remain invested in what makes Nordson strong; our direct sales model and innovative position technology portfolio. We also advanced our new NBS Next growth framework, which ensures we focus our resources on the best opportunities for profitable growth. This strategy has positioned us well last year. And as the recovery continues to accelerate in 2021, it has put us in an excellent position to respond to our customers and deliver record sales, gross margin, operating profit and EBITDA during the fiscal 2021 second quarter.

As per quarter progressed, end market demand accelerated faster and to a greater degree than we originally anticipated, particularly in medical, electronics and industrial end markets. Nordson’s dispense applications in the Industrial Precision Solutions segment, benefited from the pickup in industrial end markets as well as a sustained demand for food and beverage packaging. In the Advanced Technology Solutions segment, a data-centric economy where increasing demand for semiconductors and complex electronic devices drove the need for our test and inspection and fluid dispense products.

We have also started to see recovery in our medical intervention solution product lines as the out-patient surgeries are beginning to increase following the COVID-19-related slowdown. Our medical businesses continues to benefit from accelerated growth of single-use plastic fluid components for biopharmaceutical applications. I want to congratulate and thank the Nordson global team for achieving this record second quarter. I’m also proud of our teams’ dedication to meet this accelerating demand while maintaining COVID-19 safety protocols and effectively managing supply chain and capacity constraints.

I’ll speak more about the business in few moments, but first, I’ll turn the call over to Joe to provide more detailed perspective on our financial results for the quarter.

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Thank you, Naga, and good morning to everyone. On Slide number 5, you see second quarter 2021 sales were $590 million, an increase of 11% over prior year’s second quarter sales of $529 million. This double-digit growth is more than a bounce back. In fact, as Naga noted, this is a quarterly record for the company, breaking the previous record established in Q3 of 2017.

The sales increase was primarily related to 10% organic volume growth off of a relatively strong Q2 2020 performance, favorable foreign currency and a net negative impact from acquisitions and divestitures. The benefits from the Fluortek and vivaMOS acquisitions were more than offset by the negative headwind from the divestiture of the screws and barrels product line.

When excluding the divested product line in the prior year for comparability purposes, sales growth would have been 15% in the current year second quarter. Robust growth in electronics and consumer non-durable end markets as well as strengthening medical and industrial end markets were the primary drivers of this performance. From a geographic perspective, growth was strong in all regions, except Japan, which has been more heavily impacted by shutdowns related to the pandemic.

Gross profit totaled $338 million or 57% of sales in the quarter compared to $290 million or 55% of sales in the prior year. This 260 basis point increase in gross margin was driven by the combination of improved sales mix, volume leverage and benefits from structural cost reduction measures taken in fiscal 2020. The divested screws and barrels product line at the beginning of the fiscal second quarter was a significant contributor to the improved sales mix. It is noteworthy that a gross margin of 57% is a new quarterly company record.

Also records in the quarter were operating profit of $166 million or 28% of sales, a 33% increase from the prior year adjusted operating profit of $125 million, and EBITDA of $192 million or 33% of sales, which is 26% higher than the prior year EBITDA of $152 million. The incremental EBITDA margins were 65% in the quarter. Investors are starting to see the power of the NBS Next growth framework as it drives double-digit organic sales volume growth, improved sales mix, enhances manufacturing efficiency resulting in strong profitable growth.

Looking at non-operating expenses, net interest expense decreased $1 million or 17% from the prior year levels associated with reduced debt levels and a lower effective borrowing rate. Other net expense increased $3 million, largely driven by currency translation gains in the prior year that did not repeat in the current year. Tax expense totaled $32 million or an effective tax rate of 20% in the quarter. Net income in the quarter increased year-over-year 35% to $124 million or $2.12 per share, yet another quarterly company record. This significant growth is reflective of volume leverage driven by the 11% increase in sales as well as benefits from cost control measures and improved efficiencies.

Now let’s turn to Slide 6 and 7 to review the second quarter 2021 segment performance. Industrial Precision Solutions sales of $299 million increased 6% compared to the prior year second quarter. The organic volume increase of 8% was driven by strong demand and flexible packaging and industrial coating product line. A strengthening euro and RMB also contributed to a 5% in currency benefit during the quarter. The divested screws and barrels product line was a negative 7% impact on the year-over-year sales growth. It’s important to note that the segment sales are north of 2020 and 2019 levels when prior year balances are adjusted for the divested screws and barrels product line.

Operating profit in the segment was $104 million or 35% of sales compared to $77 million of adjusted operating profit in the prior year period. This 36% profit growth was driven by sales volume leverage associated with the 8% organic growth, favorable sales mix, improved manufacturing efficiency and lower year-over-year SG&A, including reduced travel expense that we continue to experience through the second quarter.

Moving now to Advanced Technology Solutions. Sales of $291 million increased approximately 18% compared to the prior year second quarter. This change included an organic increase of approximately 13% as well as increases of approximately 3% related to currency and 2% related to acquisitions. The increase in organic sales volume was driven by strong demand for test and inspection product lines serving electronics end market and fluid management product lines serving medical and industrial end markets. Also, as we forecasted on the first quarter call, we started to see the electronic dispense applications contributed to growth late in the quarter.

Second quarter 2021 operating profit for the segment was $77 million or 26% of sales. This increase of 30% over prior year operating margin of $59 million or 20% of sales was driven by sales volume leverage, favorable sales mix and the realization of benefits from cost control measures taken in fiscal 2020. It is encouraging to see the benefits of NBS Next driving the top-line organic growth and delivering strong incremental profit margins in both of our operating segments.

Finally, turning to the balance sheet and cash flow on Page 8. We again ended the quarter with a very strong balance sheet and sufficient available borrowing capacity. Cash totaled $133 million and net debt was $734 million, ending the quarter with a 1.2 times leverage ratio based on trailing 12-month EBITDA. Free cash flow in the quarter was strong at $94 million, and net income was 75% in the quarter, which was below normal levels, due primarily to a $50 million discretionary pension contribution. Improvements in working capital efficiency contributed favorably in the quarter. The year-to-date free cash flow is north of a 100%.

I will now turn the call back to Naga.

Sundaram Nagarajan — President and Chief Executive Officer

Thank you, Joe. Let’s turn to Slide 9. Again, thank you to the Nordson team for delivering this outstanding performance in the quarter. We hosted an Investor Day on March 30 to detail our long-term plans for making a strong Nordson even stronger. If you did not have a chance to participate in our Investor Day, the replay of the event is available on our website.

Now I’d like to summarize a few highlights. First and foremost, we described the strong growth drivers enabling Nordson’s future profitable growth performance, including diverse end markets, new applications and emerging market. While our growth drivers are unique to each of our divisions, the diversity of our end markets and the high level of recurring revenue, made us resilient through fiscal 2020 and are strengthening in fiscal 2021 results.

At our Investor Day, we also reiterated our commitment to innovation, one of Nordson’s key competitive advantages. Our customer intimate model gives us insight to the needs of our customers, and we develop our product roadmap as an enabler of their new technologies. In the presentation, we highlighted two of our newest products; the ProBlue Flex Melter for packaging customers and the New Vantage integrated dispense and automation system, which is the first fully integrated wafer handling system designed for the semiconductor industry. In both cases, these new products are advancing automation, reducing cost and accelerating productivity. Both products contributed to record sales in the quarter.

To make a strong Nordson even stronger, we also spoke to the new competencies that we are building, notably the NBS Next growth framework. This data-driven framework is driving our decision making. We are already starting to see the benefits of our deployment of NBS Next. Last year, we announced structural cost reductions that were based on our strategic disciplined analysis. It also drove our decision to divest the screws and barrels product line at the beginning of the second quarter.

Simultaneously, we approved new investments in our top opportunities such as funding new equipment for our Loveland, Colorado facility to grow our biopharmaceutical components and building a new facility in Mexico to support the needs of our Nordson medical interventional solution products. These decisions are strengthening both our top and bottom line. Since been vaccinated, I have started to travel to our businesses. It is exciting to see the engagement of our teams deploying NBS Next to make data-driven decisions on how to delight our best customers or invest in the most innovative technology projects or prioritize top products in manufacturing operations.

Turning to Slide 10. NBS Next is a critical pillar of our new Ascend Strategy, which is designed to deliver top-tier revenue growth with leading margins and returns. In addition to NBS Next, the other inter-connected pillars of the Ascend Strategy are; owner mindset, Nordson’s entrepreneurial division-led organization and winning teams, Nordson’s Talent Strategy. It is also exciting to experience the progress we are making in each of these pillars. We now have all of our division leaders in place, and they are focused on building a deep and diverse bench of talent who will support our long-term growth.

The successful execution of the Ascend Strategy will help us achieve our long-term growth milestones of $3 billion in revenue and 30% EBITDA. This target will be achieved through a combination of organic growth within each segment as well as the acceleration of acquisitions. Clearly, the record second quarter and updated fiscal 2021 outlook demonstrate that we are off to a strong start towards achieving our long-term goals.

Now let’s turn to our updated fiscal 2021 outlook on Slide 11. As we enter the fiscal third quarter, backlog is strong and trailing 12-week order entry is up double-digits above prior year levels across the majority of our product lines and geographic regions. For full year fiscal 2021, we expect sales growth to be approximately 8% to 10% over fiscal year 2020. 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 11% to 13%. Our forecasted sales growth combined with strategic actions taken around efficiency and cost is forecasted to deliver earnings in the range $7.20 to $7.50 per diluted share. The midpoint of this guidance reflects 34% earnings growth compared to prior year and a 25% increase over 2019 earnings.

Our current financial results signify more than the benefits of the recovery. Nordson wins because of the foundation of our precision technology focus, customer-centric model and diversified end markets. We are well positioned to benefit from the recovery, and our products remain a critical solution to our customers through the cycle ahead. Additionally, our management team is fully engaged in advancing the implementation of the Ascend Strategy which will establish a growth framework, entrepreneurial organization and a deep diverse team to drive sustainable profitable growth. As always, I want to thank our customers, employees and shareholders for your continued support.

With that, we will pause and take your questions.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from the line of Allison Poliniak with Wells Fargo.

Allison Poliniak-Cusic — Wells Fargo Securities — Analyst

Good morning. Naga, we’re hearing a lot about supply chain issues sort of impacting maybe some growth opportunities, particularly as we enter the back half. Any thoughts there in terms of what you’re seeing at this point?

Sundaram Nagarajan — President and Chief Executive Officer

Yeah. Thank you, Allison. From our standpoint, we’ve had some issues, but very limited around resin. From where we stand today, it is nearly non-material to our expectations in the back half of the year.

Allison Poliniak-Cusic — Wells Fargo Securities — Analyst

Perfect. And then I just want to go back to your comments on medical. Obviously, you’re seeing an improvement there, and you mentioned the single point-of-use on the consumable side. Is your sense is that an inventory issue that people are replenishing inventories or is this sort of true demand kind of behind that what you’re seeing today?

Sundaram Nagarajan — President and Chief Executive Officer

Yeah. In our single-use components, these are for biopharma applications, so think of vaccine, think of new biopharmaceuticals that are coming on the market. We truly see it is representative of the demand because this is a demand we have seen all through last year as well as this year. So we have very limited supply chain kind of restocking in this business. We sell mostly directly to our customers there.

Allison Poliniak-Cusic — Wells Fargo Securities — Analyst

Great. I’m just going to sneak one more in. Any mix issues to be mindful of in the back half of the year for you?

Sundaram Nagarajan — President and Chief Executive Officer

Joe, you want to take that one?

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Yeah. I think — Allison, good question. I do think that the mix was quite favorable when we looked at our Q2 performance. But when we looked at the forecast for the remainder of the year, again, it’s pretty much a broad-based demand environment that we see as it relates to geographies and as you see the volume organic growth in both segments. So I would tell you there is no mix issues to be aware of heading into the back half that we see at this time.

Allison Poliniak-Cusic — Wells Fargo Securities — Analyst

Perfect. Thank you.

Operator

The next question comes from the line of Saree Boroditsky with Jefferies.

Saree Boroditsky — Jefferies — Analyst

Good morning, and congratulations on the great quarter. You had really great margin performance in IPS, could you just talk through if this is the right level to think about going forward given the divestiture? And how should we think about the benefit of lower travel that you mentioned?

Sundaram Nagarajan — President and Chief Executive Officer

Joe, will you take that?

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Yeah, I’ll take that one, Naga. When you look at our IPS margins in the quarter and our Nordson record level margins in the quarter, we did benefit clearly from the volume leverage. And then the improved sales mix, when you think about that, the divestiture of the screw and barrel business had a significant impact. I would tell you at the Nordson level, that probably expands the margin to 150 to 200 basis points. And at the IPS level, you’re talking about 300 to 400 basis points can be attributed to the improved sales mix tied to the divestiture of the screws and barrels product line. And so even excluding that, there is nice margin performance.

When we think about going forward, I do think there is a component, as I mentioned in the script, where expense will start to ramp up a little bit in the second half. Particularly if you think about our direct sales model with the travel and expense, T&E expense coming up, we’ll begin to ramp a little bit more in the second half than we saw in the first half.

Saree Boroditsky — Jefferies — Analyst

Great. And then with leverage now at 1.2 times, really below your target range, maybe you could talk a little bit about what you’re seeing in the M&A market or how you’re thinking about share buybacks?

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Yeah. So on the M&A market, I would tell you, we remained very active in looking at deals. I will tell you there is a feeling in the market that the number of deals coming across has continues to, I would say, increase as we work through post-pandemic. And so we remained very active. Strategic discipline that we reviewed in our Investor Day is our primary filter. And then after we confirm strategic discipline, we put the financial criteria on and we remain financially disciplined.

So we are looking, as you know, for acquisition targets, primarily in the test and inspection in the medical space and we will continue to be active. So the volume, I would tell you, is picking up in terms of what it is we’re looking at. As it relates to share buyback, we target to offset dilution. I will point out, Saree, that we did contribute additional $50 million to our defined benefit pension plans and our U.S. funded status is north of 98% and we did pay down $150 million debt in the quarter.

Saree Boroditsky — Jefferies — Analyst

Thanks for taking the question.

Operator

The next question comes from the line of Connor Lynagh with Morgan Stanley.

Connor Lynagh — Morgan Stanley & Co. LLC — Analyst

Yeah, thanks. I was wondering if we could return to the supply chain conversation a little bit. So it sounds like availability is really not an issue for you. Are you seeing component cost inflation that you need to address with price or is that also relatively muted?

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Yes. When you think about inflation as it relates to Nordson, first of all, you have to think about our overall Nordson cost structure. And I would tell you, the material cost is a relatively small component of our overall cost structure. So manufacturing conversion cost, fixed manufacturing cost and SG&A represents a larger component than the material cost itself. We do have procedures and processes in place to address material cost increases with price where and when appropriate. But I would tell you, Connor, that the challenge is more on the labor cost potential inflation there or availability.

So when you think about the NBS Next initiatives and investments that we’ve made in in-lining and streamlining the manufacturing process, this is really helping us mitigate some of those pressures on both inflation and availability of the labor cost on the manufacturing side. And where availability isn’t a problem, we’re able to expand our capacity to serve this 10% volume growth. So that’s the pressure, I would tell you, we’re seeing is more on the labor side than on the material cost inflation side.

Connor Lynagh — Morgan Stanley & Co. LLC — Analyst

Okay. Got it. And then maybe just sticking with the cost maybe, you called out the discretionary expenditure headwind as we move toward — further towards reopening. Could you maybe just give us an order of magnitude to think about? Is that at a Nordson level a 50 basis point, 100 basis point? How should we think about how significant that could be?

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Yeah. I would tell you, if you just look at the first half year-over-year, it’s about probably a $5 million benefit in terms of travel and entertainment expense, particularly on our commercial sales force, direct sales model. So a portion of that’s going to start to come back.

Connor Lynagh — Morgan Stanley & Co. LLC — Analyst

Okay, understood. And maybe just to tie this together with some of the questions that others have been asking. I mean, it seems like based on the EPS guidance that there is a certain degree of margin degradation, maybe some reversal of mix. Is that the right way to think about the back half outlook? Is that there could be some pressure on margin, but the top-line growth is strong?

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Yeah. So the top-line growth is strong. I think, as you’re familiar, the mix in any given quarter could be favorable or unfavorable, and I do think in Q2 we did see a favorable mix. And so as it goes forward, that may moderate a little bit. And then I would tell you on the cost structure side, the expense — some of that expense should start to come back.

Sundaram Nagarajan — President and Chief Executive Officer

Joe, let me add something to this. Connor, the best way to think about us is that our long-term incrementals on growth is 40% to 45%. We believe based [Technical Issue] guidance, we would still be north of that 40% to 45% incremental in the back half. So yes, there are some costs coming back, but still pretty solid performances what we are forecasting.

Connor Lynagh — Morgan Stanley & Co. LLC — Analyst

Got it. I appreciate the color. I’ll turn it back.

Operator

The next question comes from the line of Jeff Hammond with KeyBanc Capital Markets.

Jeffrey D. Hammond — KeyBanc Capital Markets — Analyst

Just on backlog, can you give us the backlog number and what that is up organically? I don’t know if I missed that in the presentation.

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Yeah. Jeff, these are abnormal times coming out of the pandemic. And when we’re looking at our customers’ behavior, our backlog, our order entry, we’re seeing differences now in the timing of delivery. And so I don’t think our backlog is indicative of the next quarter sales. What I can tell you is our backlog and our order entry are up double-digits. And therefore, we have confidence in the guidance that we provided. But to give a backlog number right now would not be appropriate I think.

Jeffrey D. Hammond — KeyBanc Capital Markets — Analyst

So the idea is that you’re getting significant orders, but they’re longer turnaround than normal?

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Yeah. We do see in particular businesses on the system side customers placing orders in advance. And so, therefore, with delivery times that go out actually into 2022, which is a little bit abnormal for our historical customer order patterns. So therefore, it’s distorting that data point.

Jeffrey D. Hammond — KeyBanc Capital Markets — Analyst

Okay. And then just — maybe just to go back to IPS margins, just is there a way to give what the underlying core incremental margins were in the quarter? And I’m just trying to understand like outside of screw and barrel, like how much mix drove it versus some of this temp cost and kind of how you think about that in the second half because those were pretty eye-popping?

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Yeah. So when you think about the IPS business, in the quarter itself, I would tell you, the screw a barrel divestiture expanded margins roughly 300 to 400 basis points. So if we were 35% OP, you can drop that down, which is still a very strong, north of 30% operating profit number for that business. And so the way to think about that is the power of the leverage on the 8% organic growth within that segment.

And so, as Naga mentioned, very strong incremental margins in that business. Some favorable mix on the consumer non-durable as it relates to packaging, some favorable mix also within our industrial coatings segment, and it’s also in this business, the industrial coatings, where we took some actions last year to structurally reduce our cost late in Q4. And so you see some of that benefit coming through as well.

Jeffrey D. Hammond — KeyBanc Capital Markets — Analyst

Okay. And then just last one. You mentioned in Advanced Tech, the electronics precision dispense kind of picking up late in the quarter, maybe that’s still lagging from a growth standpoint. But just talk about what you’re seeing there from a forward kind of order quoting visibility? Thanks.

Sundaram Nagarajan — President and Chief Executive Officer

Joe, let me take that one and then you could give some color. Jeff, what we’re beginning to see here is on the PCB side we are starting to pick up some pretty strong order patterns around surface treatment, our plasma surface systems — surface treatment systems. Late in the quarter, we also began to see our fluid dispense product lines in electronics beginning to contribute across a diverse set of the electronic supply chain. Semiconductors certainly helping, PCB helping and complex electronic components also helping. So I would say, we feel pretty good about what we see in that business and expect it to contribute nicely in the quarters to come.

Jeffrey D. Hammond — KeyBanc Capital Markets — Analyst

Okay. Thanks a lot.

Operator

The next question comes from the line of Mike Halloran with Baird.

Michael Halloran — Baird Equity Research — Analyst

Hey, good morning, everyone.

Sundaram Nagarajan — President and Chief Executive Officer

Good morning.

Michael Halloran — Baird Equity Research — Analyst

So on the medical side, maybe just some thoughts on elective versus non-elective, underlying trends that you’re seeing today? And then how you think that inflection curve happens from here? Obviously, such a nice improvement this quarter. Is this kind of the right sustainable pace? And when do you think you’re back to what a more normalized level would look like?

Sundaram Nagarajan — President and Chief Executive Officer

Well, when we would come to normalized levels, that is going to be difficult to predict, but let’s talk a little bit about what we’re seeing in the business right now. First and foremost, if you think about our biopharma side of the business where we have the fluid components, continues to be strong, has been strong, continues to be strong and mainly led by not only vaccine, but just the number of drugs that are getting manufactured and introduced from a biopharma perspective is just accelerating. We expect that part of the business continue to contribute in a nice way.

On the elective-selective surgery, what you’re beginning to see is the COVID slowdown is certainly benefiting and you’re beginning to see elective surgeries or selective surgeries, in our case, starting to pick up. We saw some nice growth in the business in the quarter. We expect that the next two quarters look pretty good. And it’s really difficult for us to say would we get back to high-single-digits, which is normally what we expect out of this business in end of this year, early next year, it’s difficult to say. But that’s kind of how we’re thinking about is that our expectation for the second half for this business is still pretty good.

Michael Halloran — Baird Equity Research — Analyst

And then maybe just a similar conversation in the industrial-facing end markets, underlying trajectory trend, any nuance that you’re seeing within those pieces?

Sundaram Nagarajan — President and Chief Executive Officer

Yeah. The Industrial business is, as you can see, there is a certain amount of pent-up capex spending demand that we are certainly enjoying in the quarter. Based on backlogs and order entries we see, we expect a pretty double-digit kind of growth is what implies in our guidance for the full year. What is difficult for us to again pinpoint is that when this gets to a normalized level, that is something difficult to predict right now. But based on what we can see, we feel really good about the second half having a pretty broad-based performance across number of — across all of our core end markets and across all of our geographies.

Michael Halloran — Baird Equity Research — Analyst

Thanks, Naga. Appreciate it.

Sundaram Nagarajan — President and Chief Executive Officer

Thank you.

Operator

The next question comes from the line of Chris Dankert with Longbow Research.

Chris Dankert — Longbow Research — Analyst

Hey, good morning. Thanks for taking the question. I guess, thinking about the strong semiconductor demand we saw in the quarter, can you comment about kind of the mix there? Is this being more driven by strong product adoption of the T&I business or is this more customer expansion or combination of the two? Just any comments there would be great.

Sundaram Nagarajan — President and Chief Executive Officer

Yeah. Thank you, Chris. We certainly benefit from our T&I business, which is having a really strong number of quarters and continues to benefit from this semi-investment and semi-growth. And also, the complexity of the semiconductors, complexity of electronic components as well, definitely benefiting the T&I business. But late in the quarter, we begin to see, as I indicated in the script, we’re beginning to see contribution from our fluid dispense business as well. Our surface treatment product lines have been really well. We’re beginning to have some very good progress in our coating as well as dispense product lines as well.

And so in terms of where we participate broadly, I will tell you in the semiconductor space. We participate first in the surface cleaning side of it. Second in the underfill in terms of packaging. In the past, a lot of this packaging happened post-wafer sliced and then packaging happened. But now, we are beginning to see packaging starting to move upfront and we are starting to participate there as well. So a pretty broad-based growth, Chris. I wouldn’t pinpoint that to just semiconductor or just one particular product.

Chris Dankert — Longbow Research — Analyst

Got it. Got it. Thanks for the color. And then — and not to put too fine a point on it, but is it safe to assume T&I was up double-digits in the quarter though?

Sundaram Nagarajan — President and Chief Executive Officer

Yeah. Yes.

Chris Dankert — Longbow Research — Analyst

Okay, okay. And again, you called it out a little bit ago, very, very robust PCB demand and growth there. Is this part of the beginning of some of the 5G cycle in your opinion or is this just — it’s really much more broad-based than that?

Sundaram Nagarajan — President and Chief Executive Officer

Yeah. We have spent quite a bit of time in the past year or two on a shift in the strategy in electronics for us is to get to a place where we have broad set of applications across the electronic supply chain. And so what I would tell you is the growth that we are seeing, the forecasting that we’re thinking about, is a broad-based demand rather than a specific particular product.

Chris Dankert — Longbow Research — Analyst

Understood. Thanks so much, Naga.

Sundaram Nagarajan — President and Chief Executive Officer

Sure. Thank you, Chris.

Operator

The next question comes from the line of Matt Summerville with D.A. Davidson.

Matt J. Summerville — D.A. Davidson & Co. — Analyst

Thanks. Just a follow-up on the whole — the test and inspection piece of the business. What sort of anticipated duration do you see, Naga, in this cycle? What inning are we in? And do you expect that double-digit growth that you experienced in the second quarter to continue into the foreseeable future? What’s the right way to kind of be thinking about that?

Sundaram Nagarajan — President and Chief Executive Officer

Yeah. I would say a typical semi-cycle is three to five years depending on what happens. And we would say we are probably in year one or little bit past year one. And so the best way to think about it is, early in the cycle, certainly, the growth is much more magnified than it is in the back half of the cycle. So that’s — it’s very difficult to sort of pinpoint how many more quarters or year we have on this double-digit kind of growth. But over the cycle, the best way to think about our end market opportunity is 4% to 5%, which is kind of what we indicated in our Investor Day. We clearly are in the first leg of the growth is maybe the best way to think about it, Matt. Hopefully that helps you?

Matt J. Summerville — D.A. Davidson & Co. — Analyst

Thanks. And then just one last one on pricing. With the strength in demand that you’re seeing pretty much across the board in your business, double-digit growth in orders and backlog. Are you able to be more of a price-taker? Are you positioned to be so as we think about this going forward given the demand environment you’re experiencing?

Sundaram Nagarajan — President and Chief Executive Officer

Let me maybe make one comment, and then, Joe, you could add a little bit more detail to it that would be very helpful. Think about the gross margin of the company. Pretty — it’s pretty strong, right? 55% plus, and that is indicative of the value we create for our customers. In some of our product lines we have a regular price increase once a year to sort of take into account inflation and things like that, but we really need to be thoughtful. We create value and we get paid for it. And should inflation become an issue, we will certainly have the opportunity to cover it. But in general, we feel good about where we are.

Joe, you want to add any more color to it?

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Yeah. Again, I would just say that we feel very good about our gross margins, a record 57% gross margin. We have processes in place to monitor raw material cost increase inflation and processes to maintain that margin. But I would tell you the best opportunity is to support this volume growth and to meet the customers’ needs as opposed to take this opportunity to raise price because we’re already running at very nice incremental margins, as Naga mentioned, as we look at the back half and this double-digit organic growth. As we think about it, we are managing the incremental margins to be attractive, and that’s the best opportunity to support the organic growth and our customers.

Sundaram Nagarajan — President and Chief Executive Officer

And maybe one more to think about this, just to reiterate Nordson’s position. Typically, Nordson is the lowest cost, but a very critical component. Really small part of our customers’ total cost deck, right? So our components are smaller part of the company — customers’ total cost deck. And so should we need to raise prices, we are able to provide that.

Matt J. Summerville — D.A. Davidson & Co. — Analyst

Got it. Thank you, guys.

Sundaram Nagarajan — President and Chief Executive Officer

Thank you.

Operator

[Operator Instructions] The next question comes from the line of Christopher Glynn with Oppenheimer.

Christopher Glynn — Oppenheimer & Company — Analyst

Thanks. Good morning, all. Covered a lot of ground so far, I did want to follow-up on industrial demand patterns. You’ve seen any demand transitions within industrial recovery at this stage? And what I mean by that is, typically, early on, you just see a lot of production-oriented OEM activity and then more maybe mid-cycle-type capital improvements driven by different types of capacity coming online. Just wondering any light you could shed on how that’s evolving?

Sundaram Nagarajan — President and Chief Executive Officer

Yeah. From what we can see, Chris, today is mostly what we’re seeing is a demand pickup based on pent-up capex spending. And we’ve not seen significant capacity yet as yet.

Christopher Glynn — Oppenheimer & Company — Analyst

Okay, thanks.

Sundaram Nagarajan — President and Chief Executive Officer

Sure.

Operator

The next question comes from the line of Andrew Buscaglia with Berenberg.

Andrew E. Buscaglia — Berenberg Capital Markets — Analyst

Hey, guys. I know you got a lot of questions on these, the supply chain and navigating that. I think, I was hoping you could explain one thing in that, the headlines every day are these component shortages. I’m just wondering what the nature of your business and that you’re able to kind of sidestep that? And correct me if I’m wrong, your business test and inspect various components and with coatings on other component. I just don’t — I don’t quite understand, I guess, we would not have expected a quarter in which that have performed so well. So just any there.

Sundaram Nagarajan — President and Chief Executive Officer

Yeah. Let me maybe give you some overall point of view and Joe can add a little bit more color to it at the end with some data. Think about Nordson from who we are, right? What we are is, we are an assembler of differentiated components to create value for our customers in specific end markets for critical applications. So what that really is, is that we are a assembler of value-added components. And what that really means is that, materials as a part of our total cost structure is fairly small. So that’s one thing to keep in mind.

The second is that, we do manufacture our products in country, in region in most of the cases. So we really don’t run into a lot of supply chain issues that way. So if you put those two things in perspective, I’m not saying we don’t have any problems at all, we’ve had one or two issues here and there, but they’re really not material is kind of what we’re saying.

Andrew E. Buscaglia — Berenberg Capital Markets — Analyst

They’re just so niche, we can’t look at it — you can’t look at the broad — the broader headlines. You’re kind of too narrowly focused that really doesn’t impact your teams?

Sundaram Nagarajan — President and Chief Executive Officer

Yeah. And we’re not a big processor of materials either, right? Yes, we have some consumable business, but we’re not a big resin converter to contract manufacturing of injection-molded parts, that’s not who we are, right?

Andrew E. Buscaglia — Berenberg Capital Markets — Analyst

Yeah. Okay. And then maybe, Naga, you put out that long-term target of 30% EBITDA margin. But it looks like you’re — I mean, this year you’re going to brush close to that. I mean, I think you’d be into the 29, 529 based on the implied guidance. So I guess is the way to look at that long-term guidance more or like three or should we be looking at year-over-year EBITDA growth from like a dollar perspective or I guess — or are you just being really conservative with being able to achieve 30% long-term because they’re practically there after this year?

Sundaram Nagarajan — President and Chief Executive Officer

Joe can walk you through some of our thinking. But really, it is a long-term target. And what you’re seeing now is only the impact of our organic growth this year. So — and our long-term guidance includes organic growth and a dilution from acquisitions. So that is two things. We don’t believe this is a conservative estimate. This is through the cycle. Over the five years, this is what we expect we will be.

Joe, would you add a little bit more color to that please?

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Yeah. I mean, I would just add, Andrew, that when you think about it, the organic growth has to drive margin expansion north of the 30% EBITDA line such that when that $500 million of acquired revenue comes in at a 20% EBITDA, the net dilution is down to the targeted 30%. So our 30% is still an appropriate goal. It just — it includes the dilution of $500 million worth of acquisitions over the next five years at a 20% EBITDA.

Sundaram Nagarajan — President and Chief Executive Officer

Another way to think about is that for every dollar of growth in our expectations within the businesses and how — where we are headed is that we’re going to have 40% to 45% incremental. That’s really what we’re focused around. And so on a yearly basis, that’s how we are thinking about it. And if you project that out over time with acquisitions, that’s sort of how we come to this 30% EBITDA target.

Andrew E. Buscaglia — Berenberg Capital Markets — Analyst

Okay. Thank you, guys.

Operator

The final question comes from the line of Walt Liptak with Seaport Global Research.

Walter S. Liptak — Seaport Global — Analyst

Hey, good morning, guys. Good quarter.

Sundaram Nagarajan — President and Chief Executive Officer

Good morning. Thank you.

Walter S. Liptak — Seaport Global — Analyst

I want to follow-up on a couple of things. When you were talking about the backlog earlier, you were saying that there were some systems that were booking out 2022. I wonder if you can give us some idea of which segments those might be in and why they were running so low — so long? Is it just timing of when these things are supposed to get it sold or is there something else going on?

Sundaram Nagarajan — President and Chief Executive Officer

Yeah. Walt, I would just tell you, our understanding is that it’s into the macroeconomic environment where people are hearing what’s been discussed on this phone call as it relates to supply chain challenges. And so some of our customers are, I think, responding back and placing orders in advance of when they would typically place orders. So they’re not building orders or building inventory, they’re just placing their orders with us earlier than they used to. And so that’s what we view is going on and why we’re choosing not to disclose the backlog number at this time.

Walter S. Liptak — Seaport Global — Analyst

Okay, I understand. Can you give us some color though about which segment or is it kind of across the board where customers are just concerned about future delays, so they’re sort of pre-placing these orders?

Sundaram Nagarajan — President and Chief Executive Officer

Yeah. I would tell you, we see it a little bit in both of our segments. And so it’s not one segment specific. And it’s generally tied to those products that typically have a longer lead time naturally that they’re calling in and ordering in advance of those, and that’s why I made the comment about the systems. As it relates to the parts business, you know, many of those it’s booked and shipped within the week. And so there we don’t have that built up backlog.

Walter S. Liptak — Seaport Global — Analyst

Okay, great. And as you’re pulling out the gross margin that’s absolutely great, and I understand that early in the cycle there are some things that are abnormal. But as we’re looking at the back half of the year, is this 57% a reasonable run rate given what you’re seeing from volume levels and mix?

Sundaram Nagarajan — President and Chief Executive Officer

Yeah. I think that 57%, I would tell you, is a new high watermark. But I do think that a lot of what drove it is sustainable. And when you think about the impact on the divestiture and improved mix, the divestiture of screw and barrel business, you think about the benefits of the cost structure actions that we took last year and at these increased demand levels, this is the type of leverage you would expect with strong incremental margins. And so, you know, on any given quarter that can fluctuate up or down 100 to 200 basis point based on mix. But I think this is reflective of the profitability of this business at these sales levels.

Walter S. Liptak — Seaport Global — Analyst

Okay, great. And then maybe a last one from me is just, I think it was in Naga’s comments, you made a comment early on that the majority of the products are growing double-digits and some of those elective surgery, medical are not growing double-digits. So I wonder if you could talk about what else is not growing double-digits? And if you think you can get a together recovery in those in the back half of the year?

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Yeah. I guess, let me take a stab at it and then Naga can add some more color. But when you look at a geographic split, Walt, I would tell you the one that was not growing double-digits in the quarter organically was Japan. There, our business experienced — in that region that experienced significant shutdowns due to the pandemic. And so we did deliver double-digit organic growth in Japan. But I think the comment then, going back to your question on the electronics and the medical, I think if you look at our performance over the last several quarters, the medical was driven by the biopharma in the single fluid component, single-use application.

And what we started to see late in the quarter was the growth of the interventional solutions, which is encouraging because that’s the one that’s more closely tied to elective procedures or selective procedures. And so it was encouraging to see that come back. On the electronic space, T&I had been the strong performer, and it was encouraging to see the electronics dispense portion of that business come back and contribute to growth in the later part of Q2. And so that was the comment there.

Sundaram Nagarajan — President and Chief Executive Officer

Walt, one other thing I would add is that if you compare the growth rate year-over-year, remember, last year, Nordson’s growth performance or declines were not as deep as — we were down about 4%. So double-digit growth we are seeing is on path of what was not a too bad of a decline last year given sort of the broader environment.

Walter S. Liptak — Seaport Global — Analyst

Okay. Got it. All right. Thank you very much, guys.

Operator

I will now turn the call back over to Naga for closing remarks.

Sundaram Nagarajan — President and Chief Executive Officer

All right. Thank you. I want to reiterate that we are well positioned to benefit from the accelerating recovery, and our precision technologies remain a critical solution to our customer through this cycle ahead. Additionally, our management team is fully engaged in advancing the implementation of the Ascend Strategy, which will establish a growth framework, entrepreneurial organization and a deep and a diverse team to drive sustainable profitable growth. Thank you for you time and attention on today’s call. Have a great day.

Operator

[Operator Closing Remarks]

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