諾信 (NDSN) 2026 財年第三季法說會：營收創新高並上修財測

重點摘要

• 諾信 (Nordson Corporation) (NASDAQ: NDSN) 公布 2026 財年第三季銷售額達 8.18 億美元創下歷史新高，年增 10%，三大業務部門的有機成長率均達到 12%。
• 調整後每股盈餘 (EPS) 成長 19% 至創紀錄的 3.25 美元。調整後營業利潤達 2.26 億美元，EBITDA 達到創紀錄的 2.62 億美元，利潤率為 32%。
• 在手訂單年增 35%，主要由先進技術解決方案 (Advanced Technology Solutions) 以及醫療與流體解決方案 (Medical and Fluid Solutions) 所帶動。管理層表示交貨期並未拉長，通常約有 80% 的在手訂單會在六個月內轉換為營收。
• 受半導體及更廣泛的電子產品需求支撐，點膠與測試檢測產品線表現優異，先進技術解決方案部門實現 31% 的有機成長。
• 諾信上調 2026 財年全年展望，預計銷售額為 30.35 億至 30.75 億美元，調整後稀釋每股盈餘為 11.80 至 12.00 美元。
• 自由現金流總計 2.37 億美元，扣除非現金投資損失後的淨利轉化率達 144%。淨槓桿率降至 1.7 倍。

關鍵財務數據

2026 財年前九個月，營收年增 9%，調整後每股盈餘年增 18%。

業務與營運表現

先進技術解決方案

銷售額達到創紀錄的 2.20 億美元，年增 28%，有機成長 31%。受半導體及更廣泛的電子產品需求支撐，電子點膠與測試檢測產品實現全面成長。

該部門 EBITDA 成長 58% 至創紀錄的 6,600 萬美元。EBITDA 利潤率從 24% 擴大至 30%，反映出銷量成長與營運槓桿效益。

管理層表示，專案管道活動、訂單與在手訂單顯示當前週期仍有成長空間。然而，隨著業務從創紀錄的高基期持續發展，預計 2027 財年的成長率將放緩至符合該部門長期中個位數的成長區間。

醫療與流體解決方案

銷售額成長 5% 至創單季紀錄的 2.31 億美元。有機成長率約為 11%，但部分被剝離醫療委託代工業務所帶來的 6% 負面影響所抵銷。

工程流體解決方案、醫療零組件、介入性產品與特種醫療產品的需求均有所改善。EBITDA 年增 6% 至創紀錄的 8,800 萬美元，利潤率為 38%。

管理層表示，醫療零組件需求已趨於正常化，不過各產品類別的成長速度尚未完全統一。

工業精密解決方案

銷售額成長 5% 至 3.67 億美元，其中包括 3% 的有機成長、1% 的匯率效益以及約 1% 的收購貢獻。包裝、工業塗料以及復甦中的塑膠加工需求對此業績形成支撐。

售後市場需求維持穩定，而更廣泛的工業與農業市場的系統需求則成長有限。EBITDA 為 1.30 億美元，利潤率維持在 35%，因為諾信在成長投資與通膨壓力之間取得平衡。

管理層展望指引

鑑於訂單持續強勁，且第三季末的在手訂單較去年同期成長 35%，諾信上調了 2026 財年的營運展望。

管理層假設外匯匯率保持在當前水準，這意味著第四季的匯率效應將呈中性。

公司長期目標仍維持 35% 至 40% 的邊際增量利潤率，但季度與年度結果可能隨銷量、產品組合及市場狀況而有所波動。

風險與關注焦點

• 諾信正在應對與運費、特定大宗商品、關稅及更廣泛的地緣政治局勢相關的通膨壓力。
• 管理層表示，關稅尚未產生重大整體影響，且預計潛在的關稅追回對合併財務結果不會有顯著影響。
• 先進技術解決方案 (ATS) 正處於較高的成長速率，這使得比較基期提高；管理層預計 2027 財年成長率將逐漸接近其長期中個位數區間。
• GAAP 其他費用包含少數股權投資 1,500 萬美元的非現金按市值計價損失。管理層指出，這些估值容易受到市場波動影響，但今年迄今的影響微乎其微。
• 工業精密解決方案 (IPS) 在廣泛工業與農業市場中的系統需求保持穩定，但成長空間有限。

分析師問答亮點

在手訂單能見度：管理層表示，儘管在手訂單年增 35%，但仍符合正常的下單模式。大部分在手訂單會在約六個月內出貨，預計期間約有 80% 會轉換為營收。諾信已開始接收 2027 財年的部分訂單，且交貨期並未拉長。

半導體週期：點膠產品通常處於週期的早期階段，而 X 射線與光學檢測設備的需求也展現出強勁趨勢。管理層表示，目前的訂單主要反映了亞洲需求，而北美半導體製造基礎設施投資尚未顯著反映在諾信的訂單中。

醫療業務復甦：EFD、醫療零組件、介入性產品與特種產品均實現廣泛成長。管理層預期醫療零組件產品組合將繼續向其正常的中個位數以上成長趨勢靠攏。

資本配置與併購 (M&A)：諾信在年前九個月發放 1.37 億美元股利並實施 1.59 億美元股票回購後，季末淨槓桿率維持在 1.7 倍。管理層形容收購儲備案源健康，醫療與測試檢測資產均為其關注重點，並重申將保持戰略與財務紀律。

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完整財報電話會議逐字稿

管理層陳述

Operator

Hello, everyone. Thank you for joining us, and welcome to the Nordson Corporation Third Quarter Fiscal Year 2026 Conference Call. [Operator Instructions]

I will now hand the conference over to Matt Matejka of Nordson. Matt, please go ahead.

Unknown Executive

Thank you. Good morning. This is Matt Matejka, Senior Director of Investor Relations. I'm here with Sundaram Nagarajan, our President and Chief Executive Officer; and Dan Hopgood, Executive Vice President and Chief Financial Officer. We welcome you to our conference call today, Thursday, August 20, to report Nordson's fiscal 2026 third 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 30 days.

During this conference call, we will make references to non-GAAP financial metrics. We've provided a reconciliation of these metrics to the most comparable GAAP metric 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 materially differ.

Moving to today's agenda on Slide 3, Naga will discuss third quarter highlights. He will then turn the call over to Dan to review sales and earnings performance for the total company and the 3 business segments. Dan will also discuss the balance sheet and cash flow. Naga will then share a high-level commentary about our enterprise performance, and provide an update on the fiscal 2026 full year guidance. We will then be happy to take your questions.

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

Sundaram Nagarajan

Good morning, everyone. Thank you for joining Nordson's Fiscal 2026 Third Quarter Conference Call.

Before we begin, I would like to welcome Matt Matejka to our call in his new role of Senior Director, Investor Relations. As we announced in a previous press release, Matt has assumed Investor Relations responsibilities from Lara Mahoney, who has taken on a new role within Nordson. Matt joined Nordson in 2023 and brings over 10 years of experience in financial leadership roles, most recently serving as Finance Director for our Industrial Coating Solutions division.

Moving on to the financial results. I am pleased to share that the momentum driving our strong first half continued throughout the third quarter. For the first 9 months of fiscal 2026, Nordson has grown revenue by 9% and adjusted earnings per share by 18% year-over-year with strong backlog, giving us confidence in the rest of the year.

As our growth end markets continue to inflect, we are winning due to our unique competitive advantages and the successful execution of our Ascend strategy. We are well positioned to continue compounding profitable growth.

During the third quarter, all 3 segments again contributed to our organic growth performance, surpassing the high end of our sales and earnings guidance. We achieved record sales of $818 million. This is a 10% increase over the prior year, which is inclusive of 12% overall organic growth.

Order entry momentum continued to accelerate, driving backlog up 35% compared to the prior year. Backlog growth was broad-based with all segments contributing, but particular strength coming from our Advanced Technology and Medical segments.

Solid execution and volume leverage drove record profit performance for the quarter, delivering EBITDA of $262 million, which was an all-time record and 32% of sales. Adjusted earnings per share of $3.25 was also an all-time record for the business. This was an increase of 19% compared to prior year. I would also like to highlight our free cash flow of $237 million. Our free cash flow conversion of well over 100% of net income continues to be a strength, enabling a healthy mix of shareholder returns and reinvestment in growth.

Our balance sheet continues to be in a strong position, giving us plenty of flexibility for future acquisitions that meet our strategic and financial criteria.

I'll talk more about enterprise performance in a few moments, but first, I'll turn the call over to Dan to provide detailed perspective on our financial results for the quarter.

Daniel Hopgood

Thank you, Naga, and good morning, everyone. On Slide #5, you'll see we achieved record level sales of $818 million in the third quarter, up 10% from prior year third quarter sales of $742 million. The third quarter 2026 sales included an organic increase of 12%, driven by growth in all 3 of our segments. Currency translation was effectively neutral for the period. Strong organic sales performance was slightly offset by the net impact of the medical contract manufacturing divestiture completed in the fourth quarter of last year and the small contribution from the Capstan acquisition that was completed during the second quarter of this year.

Adjusted operating profit increased 13% year-over-year to a record $226 million or 28% of sales driven by increased leverage on the strong organic sales growth across the segments. EBITDA was up 10% year-over-year to $262 million, also a new company record. EBITDA margin as a percent of sales was 32%, in line with the prior year.

Incremental EBITDA contribution in the quarter was just shy of 32%. We are quite pleased with these operating results, which reflect our focus on maximizing growth potential while protecting our best-in-class margins and effectively managing near-term inflationary pressures tied to the broader market and geopolitical factors. In addition, we continue to reinvest and innovate to maintain our strong value proposition for many years to come.

Looking at nonoperating income and expenses. Net interest expense during the quarter was $20 million, a decrease of over $5 million versus the prior year, which is really driven by 2 key factors. One, our strong cash generation through the first 9 months has allowed us to significantly delever our balance sheet.

In addition, our average borrowing cost has improved year-over-year due to lower market rates on our variable debt, including the benefits from the recently announced commercial paper program that was launched during the quarter.

Other expenses on a GAAP basis increased $14 million year-over-year with the primary driver being a $15 million noncash mark-to-market charge for minority investments. These noncash valuation adjustments are subject to market volatility. And on a year-to-date basis, the impact is actually negligible. Excluding this noncash charge, other expenses net decreased by a nominal $1 million year-over-year.

Our tax expense on a U.S. GAAP basis was $33 million for an effective tax rate of 17.8%, inclusive of the impact of the noncash loss I just mentioned and acquisition-related amortization and costs. On an adjusted basis, our effective tax rate was 18.3%, in line with the prior quarter run rate. For the full year, we expect our tax rate to be near 18%, which is also reflective of our ongoing rate expectations.

GAAP net income in the quarter totaled $153 million or $2.73 per share, excluding acquisition-related amortization costs and the noncash loss, adjusted earnings per share totaled a record $3.25 per share, $0.10 above the high end of our guidance range and a 19% increase from prior year adjusted earnings per share of $2.73.

To wrap up our consolidated summary. The improvement in year-over-year earnings and record Q3 results reflect strong sales growth across our portfolio, which I'll cover a bit more in a moment. It also reflects strong delivery execution driven through our Ascend strategy and NBS Next framework. Our differentiated products, market position and commercial and operational execution have allowed us to grow our adjusted earnings per share 18% year-over-year through the first 9 months of the year, with strong momentum heading into the fourth quarter.

Now let's turn to Slide 6 through 8 to review the third quarter 2026 segment performance. Industrial Precision Solutions sales were $367 million, an increase of 5% compared to the prior year third quarter. Organic sales increased 3% compared to the prior year with a favorable currency impact of 1% and an acquisition contribution of roughly 1%. Organic growth was driven by packaging and industrial coatings application demand and continued recovery in our plastics processing demand.

Broadly speaking, aftermarket demand remains stable across our IPS portfolio, while systems demand for broader industrial and agricultural markets remain stable, but with limited growth. EBITDA was $130 million in the quarter or 35% of sales, which is in line with the third quarter of last year as we continue to invest in innovation while mitigating selected near-term inflationary pressures.

Turning to Slide 7. You'll see Medical and Fluid Solutions sales of $231 million, a quarterly record. Total sales increased 5% compared to the third quarter of last year, while organic sales increased closer to 11% in the quarter, driven by contributions from both our engineered fluid solutions and medical product lines. Divested sales from the medical contract manufacturing business had a negative impact of approximately 6% compared to the prior year.

Medical component demand has normalized, and we're now seeing stable ongoing growth in many of our product lines, while we're also seeing broad-based demand for Fluid Solutions systems applications in medical and electronics markets.

EBITDA for Medical and Fluid Solutions was a record $88 million or 38% of sales, which is an increase of 6% from prior year EBITDA of $83 million. The segment delivered strong year-over-year incrementals during the quarter, and EBITDA margins improved about 100 basis points sequentially on the higher sales.

Turning to Slide 8. You'll see Advanced Technology Solutions sales were an all-time quarterly record of $220 million, a 28% increase compared to the prior year's third quarter. Organically, sales increased 31% with growth coming across both the electronics dispense and test and inspection product lines, reflecting the continued strength in semiconductor and broadening electronics end market demand.

Third quarter EBITDA was also an all-time quarterly record of $66 million, driving a record EBITDA margin of 30% of sales. EBITDA increased 58% compared to the prior year third quarter EBITDA of $42 million or 24% of sales. The improvement in EBITDA margin reflects the record sales volumes and strong operational leverage, driven by improvements we've made in our operations over the last several years.

Finally, turning to the balance sheet and cash flow on Slide 9. At the end of the third quarter, we had cash on hand of $113 million and net debt was approximately $1.6 billion. We've continued to delever with our leverage ratio decreasing further to 1.7x, which is made possible by our strong earnings and cash flow generation. This provides us with significant firepower to strategically deploy capital, including returning cash to shareholders, reinvesting for growth and acquiring strategic assets.

Our free cash flow generation during the quarter was $237 million, resulting in a 144% conversion rate on net income, excluding the noncash loss that I mentioned a moment ago. This is up from 113% through the first half of this year, and the third quarter represents the fifth consecutive quarter of delivering well over 100% conversion.

As noted on Slide 10, our capital allocation continues to be balanced and is driving value, fueled by our strong cash flow generation. Year-to-date, in addition to our acquisition of CapstanAG announced last quarter, we've invested $40 million in capital projects to support current and future organic growth opportunities. Through 9 months, we've also returned capital to shareholders with $137 million in dividends paid and $159 million of shares repurchased. We've been able to do all of this while reducing our net debt and reducing our leverage ratio, positioning us well to pursue strategic growth opportunities.

So to summarize and close, we delivered another quarter of fantastic record results. Each of our segments delivered record third quarter sales and strong organic growth. And in the case of MFS and ATS, all-time record quarterly sales. EBITDA margins remained strong and cash conversion is a continuing strength, reflecting solid earnings quality and disciplined working capital management. This provides us all the flexibility needed to strategically deploy capital to sustainably grow and return value to shareholders.

Our teams once again delivered on their commitments for the quarter and continued to grow our backlog, which puts us in a great position heading into the fourth quarter. As Naga will address next, our portfolio position and NBS Next framework support continued growth into the future, positioning us well to continue delivering for our stakeholders.

With that, let's turn to Slide 11, and I'll turn the call back to Naga.

Sundaram Nagarajan

Thanks, Dan. It's been very strong fiscal 9 months for Nordson. As our end markets continue to inflect, the execution of our Ascend strategy positions us well to deliver for our customers.

As we look at Slide 11, I want to take a moment to remind our investors about Nordson's competitive advantages, which have positioned us to reliably compound profitable growth. From the very beginning, Nordson built a business model based on 3 key strategic themes: differentiated products, close to customer relationships, and diversified niche end markets.

Our founders started this company through the purchase of patented technology, understanding the importance of differentiation. Our legacy was then built through close customer relationships where we solve problems together in advanced technology road maps.

Over the past 70 years, Nordson's innovation has led to market leadership in precision technologies, speed and efficiency in diverse niche end markets. We have built upon these core strengths with the addition of the NBS Next growth framework, which is how we run the company. Our decentralized divisions use this framework to focus on the best market growth opportunities, top products and customers to deliver above-market organic growth. We have also been very intentional in building a growth biased portfolio of precision technologies with reduced cyclicality over time.

Some of you may recognize Slide 12 from our 2024 Investor Day. Approximately 60% of this portfolio generates recurring revenue including aftermarket parts, consumables and services. Importantly, more than 50% of our portfolio is now in growth end markets, including semiconductor, electronics and medical with the remaining exposures in more stable GDP plus end markets. Our portfolio positioning gives me confidence in our growth aspirations for the remainder of the year and beyond.

Turning now to our outlook on Slide 13. We entered the fourth quarter with backlog up 35% year-over-year. Based on the momentum in our end markets, as evidenced by our backlog and order entry, we are increasing our full year guidance. Sales are now expected to be in the range of $3.035 billion to $3.075 billion, and adjusted earnings to be in the range of $11.8 to $12 per diluted share, putting us on the high end of our previously communicated average growth algorithm.

Our updated guidance reflects sustained order strength and our ability to deliver results through NBS Next. We also assume FX rates hold at current levels, which implies a neutral impact on the fourth quarter.

As always, I want to thank our customers and shareholders for your continued support. In particular, I want to thank Nordson employees who are passionate about meeting the needs of our customers. Our focus on innovation and operational excellence continue to position us well to serve our customers.

With that, we will pause and take your questions.

Operator

[Operator Instructions] Your first question is from Mike Halloran from Baird.

分析師問答

Michael Halloran

So a couple of questions here. Could you just put the backlog in context for us? Obviously, quite strong backlog growth. Have you seen any elongation in lead times? What kind of visibility does it give you in the next year? And anything from a historical perspective that you think is worth bearing in mind here as we think about the magnitude of that gain?

Daniel Hopgood

Sure, Mike. This is Dan. I appreciate the question. A couple of things. Number one, I'll highlight again, as we mentioned, the backlog growth that we're seeing is broad-based. All 3 of our segments are showing higher backlog year-over-year. But I would say, in general, no real departure from what I would call normal order patterns. Again, just to recap some things that we've said in the past and are still true today, our backlog, generally speaking, turns over in about 6 months. The majority of our backlog ships within about 6 months.

So clearly, as of the end of the third quarter, we're taking orders into 2027 at this point, but no elongation in lead times. Our lead times have actually been reduced over the years. So if anything, I would say we're able to deliver faster than we have in the past. But no real change in order patterns, I would say, normal recurring order patterns. At this point, our backlog is normal turnover of roughly 6 months, 80% or so of our backlog is going to turn over with a few long lead time items with some of our larger systems, which is very typical.

Sundaram Nagarajan

Maybe I'll add a little bit color there, Mike, around lead time. In general, with our Ascend strategy and NBS Next over this period of time, if you think about our lead times, they've generally reduced. And routinely, we have the opportunity to gain share because we are able to have shorter lead time than the rest of the team in the marketplace.

Our on-time delivery has significantly improved across the company and in just about every division. We have gone over this period of time, and routinely, we will ship 80% to 95% in most of our businesses. So a good strength for us to be able to deliver when the customer wants it. I think that is probably critical because some of these lead times are also dictated by the customers' need in relationship with the other things that they're putting together in the line.

Michael Halloran

And then second question, just maybe give us some more context on what you're seeing in the ATS segment, specifically within the T&I and dispensing, maybe just break out the 2 dynamics you're seeing there. And any new ones you think is relevant versus what you're seeing in the market today?

Sundaram Nagarajan

Yes. Broad-based growth in the quarter with both our dispense business and T&I business. Clearly, the dispense business is typically ahead of the curve in terms of growth cycle, and that's what we saw. In the quarter, certainly, our T&I businesses continue to grow nicely. A good inflection point both for our X-ray and optical businesses. If you remember, these technologies are critical in ensuring semiconductor packaging.

We are also seeing growth reflected in our EFD business, which is part of our MFS segment. So feel good about order entry, pipeline activity, customer conversations for both dispense and test and inspection. A lot of this demand allows us to not only be quite confident about what we're going to deliver in Q4, but well into next year, right?

Operator

Your next question is from Jeff Hammond with KeyBanc Capital Markets Inc.

Jeffrey Hammond

So maybe just to stay on whether it's backlog of orders or the guide. I mean, it seems like that the start beat in the quarter is ATS. So I'm just trying to understand, maybe you can unpack the $0.35 raise between the businesses? I mean it doesn't seem like maybe the other 2 segments are moving that much, which goes back to like your comment that you're seeing broad-based growth. I'm just trying to understand like this backlog and the order growth, like how differentiated the ATS is versus the other 2 segments?

Daniel Hopgood

Yes. I guess maybe just to give a little color on it. I would say, broadly speaking, IPS is as expected as we think about heading into the quarter and then how we finished in our outlook. I would say the upside that we're seeing, certainly in the third quarter, but even in our outlook for Q4 is certainly, ATS is a big driver, but I would say Medical is the other area that we're seeing acceleration. And maybe just to go back to our pre-Q3 commentary, we said, look, if order momentum sustained, I think we said we felt comfortable we'd probably be on the higher end of our guidance. I would say in both Medical and ATS order momentum, not only sustained but actually accelerated in some areas. And so I would say it's those 2 segments driving the increased outlook for the year. But again, I think on the IPS side, no surprise, I think just kind of steady state with IPS.

Sundaram Nagarajan

Right, Jeff, if you would sort of compare against long-term targets for these growth rates of these businesses is to put it in context. Clearly, ATS was significantly higher than our long term. And we are at the peak of the cycle, and we're starting to really have legs to this cycle even more than we were. So we're on the upside of the cycle. And hence, you see some very elevated growth rates. But IPS, for example, right, it's 50% of the company. We're at our long-term goal of growing 3% in the quarter. And for the first 9 months, again, growing over 3%, okay, that number is not big when compared to the 30-some percent in ATS, but 3% for this business is pretty darn good.

And if you think about MFS, that's even a better story, what our long-term expectations are 6, 7 kind of percentage growth rates. And in the quarter, they were 11%. And clearly, there is some benefit from the EFD business that has some electronic exposure. But even if you take that out, I would say medical businesses are trending towards where our long-term targets are, and we're really -- feel good about where we're headed into next quarter and the following year.

Jeffrey Hammond

Okay. Great. And then just on IPS, I think for all year, like the margins, obviously very good, but down year-on-year, and I think you mentioned price cost dynamics. Just talk about the margin dynamic. And I think you mentioned kind of prioritizing growth and balancing that with margins. So just speak to IPS margins. And then just while we're on it, any thoughts on -- did you have any IEEPA refunds? Are those to come? Will you exclude those kind of things?

Daniel Hopgood

Yes. No, it's both great questions. So let me start with just Jeff, maybe reiterate margin expectations. I mean really no fundamental change in margin expectations. Our target incrementals are 35% to 40% that's consistent across all 3 of our segments. But I will say that, I mean, these are long-term targets, right? And so in any given year, we may do better or worse given different dynamics that are going on in the market.

I would say given the current market dynamics, our focus is really maximizing growth potential and maintaining margin performance, which is already very strong, certainly within the IPS business. And so I think if you look at our margins of 35% in the quarter, it's in line with where we've been. We're holding serve while maximizing our growth potential. And if we think in the current market dynamics, that's the right playbook for IPS. And so I think that's the simple way to think about it, no fundamental change in the margin profile, no fundamental change in our long-term targets, but there's plenty of room for margin enhancement in the future. We think the right playbook is to focus on growth and maintain our margin position today.

Your second question on tariffs, I guess, a couple of things just to comment on that. Maybe I'll remind everybody, tariffs and themselves have never -- have not had a material impact on Nordson. That said, I would tell you, of course, where we have potential, we are pursuing recoveries for selected tariffs, like everybody else. But in the context of, a, tariffs, not having a material impact overall and the fact that those recoveries only being a portion and offsetting, let's just say, any ongoing tariff impact. In the context of our overall results, tariffs and tariff recoveries are really not a significant item to talk about. I think that's the short answer.

That said, I would say we are seeing clearly through, let's call it, the direct and indirect impact of tariffs as well as other geopolitical events. We are seeing general inflationary pressures that we are managing and mitigating our way through while maximizing our growth potential. And that has -- it's not just tariffs, but I would say that has broader implications if you think about freight, if you think about selected commodities. So more of a general pressure that I would say tied to, but not directly related to tariffs.

Sundaram Nagarajan

But put all of it together, still the company delivering 32% EBITDA, each of the segments delivering best-in-class margins. So we're managing through all of these different pressure points, but continuing to stay focused on what is the best value creation opportunity for Nordson, which is really profitable growth. And that's what you're seeing play out in the first 9 months of the year as well as in the quarter.

Operator

Your next question is from Matt Summerville with D.A. Davidson.

Matt Summerville

Just on the MFS segment. Can you maybe just give a little bit more granularity on what you're seeing between the EFD business versus medical components versus interventional kind of just parse that out a bit around that 11% organic. And then specifically for that business, what's kind of implied in organic for the fourth quarter?

Daniel Hopgood

Yes. So we don't typically give segment level detail on our outlook. But let me just maybe address the first part of your question. I appreciate the question. I would say the 11% growth that we're seeing in the quarter is pretty broad-based. And certainly, as Naga commented, relative to EFD, one of the drivers is what I'll call electronics-based demand, and we're seeing nice growth and ongoing demand in our order outlook for that space. But we are seeing pretty broad-based growth and order demand in the medical component space as well. That would include the interventional space, that would include some of our medical specialty products, our fluid components products. And so as well as even within EFD, a significant portion of EFD's business is actually tied to medical investments.

So pretty broad-based. I wouldn't say it's across-the-board growth yet in medical, but in all spaces, it's clear to us based on actual performance in Q3, what's on our order board and our pipeline. We're walking our way right back to, I would say, our ongoing normal mid-single-digit plus growth in our medical components business. Some are already there, some on their way there is the way, I guess, I would say it.

Matt Summerville

And then maybe Naga, if you could just speak back to the ATS business, how you're thinking about cycle durability, how long this cycle extends, any early views you have on fiscal '27 growth in that business, just given you're obviously going to have some tougher compares versus this year, but I really want to understand kind of how this cycle maybe feels versus prior.

Sundaram Nagarajan

Yes. Clearly, based on what we see both in our businesses where we are at in terms of pipeline activity with customers, order entry, backlog buildup and revenue delivery, right? So if you think all 4 of those things together and if you think about in terms of our dispense business, our test and inspection business, our exposure in EFD to electronics, all of them indicating that we are -- we still have room in this cycle, right? As we are headed to delivering what is looking like a very strong probably an all-time record. As you know, in the quarter, we delivered an all-time record for this segment. We feel really good about where we are at and where we are going.

To address your question, which I'm glad you asked this. Look, we, this quarter, we delivered 30% organic growth in this segment, which is fantastic results. But as we head into next year, though, our expectation is we're going to build off of this peak, and we're going to build at a rate that is more in line with our longer-term mid single-digit number. But that is going to be of an all-time peak is sort of what you want to think about.

And everything we see in the business and what we follow for our customers, this demand looks pretty strong going into '27. And I'd give you 1 point of clarification in terms of -- just 1 proof point, I should say, for that comment, if you think about investments, chip manufacturing infrastructure investments in North America specifically, none of that has happened yet, right, or at least not in the context of orders for Nordson yet. That is to come. And so a lot of this demand that we are fulfilling today is a significant portion of it is in Asia. As North American chip infrastructure gets built out. I think that's an opportunity for Nordson, and we are yet to see that.

Operator

Your next question is from Christopher Glynn with Oppenheimer & Co. Inc.

Christopher Glynn

Yes. And just wanted to ask about IPS. You talked about it being right in your ZIP code and expectation. Over the years, you have some step-out opportunities, cans, clothing, recycling comes to mind. Wondering if there are any emerging applications, market adoption opportunities for polymers, coatings or core adhesives that are popping up in the pipeline?

Sundaram Nagarajan

Yes. I mean, look, if you think about our IPS business, it really thrives on finding applications or pivoting to end market niches where the growth is. And so we continue to build out new applications. I wouldn't say anything that pops up. We are certainly watching the growth. If I would take you back and give you some examples around battery or solar, we are in pretty early stages of thinking about how IPS segment applications will play both in defense as well as, as you think about a number of data center build-out applications where you -- these are early stages.

So for us, it's really -- you have to be careful in that we have multiple single applications in many different end markets. And they don't particularly -- so for example, if we think about our [indiscernible] examples. That business is doing incredibly well this year. That is because they have multiple different end market applications that they're going after. But I wouldn't say we have something that we would highlight as we've highlighted in the past around fabric bonding or things like that.

Christopher Glynn

Okay. And then sorry, Dan?

Daniel Hopgood

I was just going to say, the context I would give you on it is I think it's kind of what Naga's articulating. There's lots of opportunities. But these, I'll use some baseball analogies. These tend to be more like singles, not home runs. Lots of singles. It's not like there's a big home run out there.

Sundaram Nagarajan

But for the business to deliver a 3% growth, they have to do that, right? And so I think it is underestimating the potential of this business. When you have as significantly, what is going to be [ $1 billion ] kind of business that is growing at 3%. That is pretty strong for the company and not to be underestimated, the power of this business.

Christopher Glynn

Yes, I agree, the stability in particular. And then the fourth quarter, I think, implies a pretty meaningful acceleration in sequential incrementals. I know you had that and then some last year, fourth quarter over third quarter. But we're kind of in a year of managing inflation, as you've described in tail. So yes, just curious kind of relative stability sequentially in the third quarter. It looks like the fourth quarter has a fairly meaningful ramp without a particularly pronounced sequential volume lift.

Daniel Hopgood

Yes. No, I appreciate the observation. And certainly, I would say that's tied to normal operational improvements and enhancements that we are continually working on. I think we have good line of sight to that. And I think that's also why when we look at our margins, we tend to look at it more as an average over time as opposed to on any given quarter. And so I think, certainly, I think there's a nice step-up in our profitability. Some of that is tied to mix in our outlook, but also tied to ongoing operational initiatives and the impact that, that has on us going forward.

And so that's a normal part of our NBS Next framework and our operational excellence focus. And I think on a year-over-year basis, as an example, the incrementals are a little more challenging. But largely, that's because the fourth quarter of last year was a bit of an outlier from a profitability standpoint. So I would say we're on track with our average annual growth algorithm or margin expectations and Q4 is reflective of that. .

Sundaram Nagarajan

Right? I mean the simple -- the way to think about Nordson going forward is, look, we want to maximize our best growth opportunities, deliver against our growth commitments that we have made with best-in-class margins, right? And I think that is how we believe we will create the best value for our shareholders. And we continue to stay focused on organic growth improvement, maximizing all the main market opportunities that has -- where we have a right to play in.

Christopher Glynn

Okay. And last one for me, if I could sneak it in. To the lower end on the tax rate, this has been to trend a couple of years, so clearly doing excellent tax model. And you indicated stability into next year. Is there -- how would you describe the longer-term tax rate opportunity from here in the context of the progress the last few years?

Daniel Hopgood

Yes. As I said in my opening comments, 18% is kind of reflective of our ongoing rate expectation. We think that's a good spot to be in. And I think is reflective of our ongoing run rate. It's obviously something that we continue to look at and assess. But I would give you 18% as a good long-term expectation going forward. We think that's a good ZIP code to be in.

Operator

[Operator Instructions] Your next question is from Andrew Buscaglia from BNB Praibas.

Edward Magi

This is Ed on for Andrew. Many of my questions were already asked, but I wanted to touch on M&A. You pointed out the 1.7x leverage and sales firing on most cylinders are going to be driving some strong free cash as well. So just wondering if you could provide some color on the M&A pipeline, what you're seeing and whether there may be some end markets which are more or less attractive from a valuation perspective or otherwise?

Sundaram Nagarajan

Yes. Look, I would continue to remind us, M&A is an important part of Nordson's growth algorithm. This is an area that we continue to spend time on. We have a healthy number of opportunities. We are always pursuing them with our strategic and financial criteria in mind.

Look, we have demonstrated that we would do various different sizes and types of deals. Most recently, we did a very small bolt-on acquisition with CapstanAG. The previous year we had Atrion. So we continue to stay focused on acquisitions. Because we have not announced anything significant, doesn't mean we're not working on it. Oftentimes, things are not appropriate, either from a strategic criteria perspective or there is not a financial return that we can do for the best way to deploy our cash.

Just a reminder, right, our strategic criteria, our attractive end market niches and applications, differentiated technologies, clearly adding to our growth focus portfolio is sort of 3 strategic criteria. On the financial returns, certainly, we want to have growth that is above market with Nordson like margins and returns that are sufficiently that exceeds our cost of capital.

The areas we're spending a lot of time in. We've talked about it in the past, just as a reminder, we're spending a ton of time around our medical, continuing to expand our medical platform and as with Capstone, you can see we will continue to add bolt-on assets to performing strong existing core franchises of the company. So we'll do both. We certainly look at test and inspection as well as the other area we're spending time on.

Daniel Hopgood

The only thing I'd add to that is, maybe I'll just take you back to our -- what we call our growth algorithm, which is, on average, over time, half our growth, organic, half our growth, inorganic. We still think that's the right long-term formula. And so certainly, as Naga said, we're continuing to actively work the M&A piece. But I think as you think about it broadly, I think that's still the right way to think over time, half our growth coming from inorganic as well as the other half from organic.

Sundaram Nagarajan

Well, we got to get stayed disciplined, and that's really what you're seeing from the company is staying disciplined with the right kind of assets that fits both strategic and financial criteria.

Operator

There are no further questions at this time. I will now turn the call back to Naga for closing remarks.

Sundaram Nagarajan

Thank you for your time and attention on today's call. Nordson is well positioned as a diversified precision technology company. Our close to the customer model, proprietary and niche technology, diversified geographic and end market exposures, high level of recurring revenue and strong balance sheet are among the many attributes that makes us a quality growth compounder. Have a great day.

Operator

This concludes today's call. Thank you so much for attending. You may now disconnect.