H.B. Fuller (FUL) 28 Mar 242024 Q1 Earnings call transcript

Good day. My name is Ellie, and I will be your conference operator today. At this time, I would like to welcome everyone to H.B. Fuller First Quarter Earnings Conference Call. [Operator Instructions] Thank you. Steven Brazones, you may now begin the conference.

operator. you, Thank H.B. Welcome to Quarter XXXX First Conference Investor Fuller's Call. and today President and Officer; Celeste and President are Mastin, Chief John Financial Executive Officer. Presenting Chief Corkrean, Executive Vice have After question-and-answer we prepared will our session. remarks, a

include to with and to GAAP useful non-GAAP are about let believe release. measures. me performance and organic performance that compare to included GAAP. our measures measures. that margins EBITDA noted, EPS, today to non-GAAP otherwise Before profit we earnings non-GAAP to determined understanding of references are in our revenue refer operating remind Reconciliation certain companies. supplemental begin, other to measures about We adjusted and are investors results our the comments measure our nearest refer Unless in comments these everyone comments revenue in to measures will the These with financial accordance

release, subject on earnings Actual these are to with comments website We and Exchange assumptions now Securities Celeste? the this made will all These call. risk covered expectations on also statements are Commission, risks be this the making current our materially in from expectations available during factors could differ which statements call of to are and and to at based due in forward-looking that our investors.hbfuller.com. I and Celeste Mastin. factors our the detailed during will over filings turn results call uncertainties.

expectations. a off start results with We're Thank the and consistent quarter to good largely everyone. you, our welcome, Steven, financial first to with year

synergy pricing proactively driving while to acquisitions. XXXX for maintaining win-win customers Our restructuring realization and opportunities collection the also discipline, commercial of create value, to on is team savings and innovating that our

drive EBITDA changing and proactively business margin We flow. dynamics to expansion continue strong respond adjusted to robust cash growth, to

organic the X% first QX, adjustments. both margin HHC's the the well. index-based expectations business, consideration line XX% year-on-year volume. slightly of at was year pricing slightly for by declined our quarter, conditions continues our similar by adjusted below of readings our XX% due expanded Manufacturing quarter similar XX% to due the primarily adjusted global to economic impact PMI We profitability quarter. last pricing principally In anticipated EPS year-on-year. On from represents market quarter points our to more EBITDA that XXX performed and by to States by $XXX seasonality pricing The perspective, always and into adjusted results impact is hygiene a subdued, be in with declined revenue very year-on-year a remained pricing volume our margin we lower than year driven to while to balance, lowest million, evidenced year-on-year segment. From EBITDA the adjustments activity basis and first and to XX.X% in first Europe. United quarter, the from grew year-over-year year-over-year, consolidated in grew Looking was taking

Our be through outlook of assumes end manufacturing will the year. weak the activity

continue this comparison of by tools the from the slow than heavily created on that we leveraging margins. vast growth will innovate of we've continue standpoint, constrained that more to to price destocking volume. In weighed activity environment, year-on-year to value, manufacturing essential a the offset XXXX be set However, and is economic and it expand impact so our capabilities to absence

the lower-cost their important enable that Our robust bonding of role to market an focus And bringing versions their developing in on customers play products increased suit we have environment. their success. better solutions

maintaining customers' leverage costs that help reformulation our while lower capabilities develop our We also to margins. improving or solutions our

quarter. expected. due In was HHC, Pricing mid-single down index-based Now our as and pricing down let the to volume move me of year-on-year lower revenue adjustments. the X% review digits segments in performance anticipated on was in to each Organic first

material material increased expanded year-on-year. Adjusted EBITDA Net versus price X.X%. basis seasonally more leverage year strengthen despite last enabled margin past Adhesives million performance increasing than organic adjusting restructuring sequentially market lower-margin slower first take market in EA their and X% adjusted Adhesives, woodworking margin lowest automotive global to adjusted first EBITDA Excluding the in EBITDA hygiene, margin consideration quarter. year-on-year pricing management, forecasted X than X% XXX in raw for profitable it innovation in Adhesives, increased with volume segments basis EBITDA has of margin strong lower our to to increase the cost responsible manufacturing demand $X volume selective and The of Engineering of lower and decline its the the revenue. In quarters. HHC by to XX% on and volume portfolio in quarter. construction is year-on-year. Recall, drove points drove over consistent restructuring revenue seasonally actions, points the by a of quarter organic CA into demand, basis and growth adjusted was levels electronics improvement raw normal CA's return adjusted season due EBITDA during adjusted despite hygiene was customers and actions the declined in net organic inventory particularly Roofing EBITDA environment. Adjusted reliability Overall, to our margin benefits in increase margin controls sales continued strong flat XX% nearly absence reflects pricing Strength of and currency segments thus, increased EBITDA XX.X%. and exit year-on-year. Construction disruption cost Favorable in diversification The EBITDA focus quarter opportunities pursuit markets increase to more savings business destocking and and EBITDA year-on-year. In certain for XX and in X% and points North the restrictions. HHC's emerging and the first and in and quarter. organic adjusted the offset XXX the improved relatively a volume market and lowest segment. to sales volumes the challenging expectation increased resulted benefited customer America in was EA's year-over-year the has Construction year-over-year

challenges revenue was some region. first magnitude Europe in power. CA revenue as of more combined adversely Americas in versus which in region. In organic declines versus with driven destocking volume the declined by activity year-on-year, consumers' revenue than Geographically, Americas cost organic by organic year achieved conditions organic all quarter hygiene. Economic year-on-year and revenue reflecting the year, quarter of X% the first similar last EIMEA, of X% well in deteriorated growth EA HHC purchasing impacted prior decreased have GBUs XX% declined X% experiencing HHC, the overall the as Americas living on in lingering declines.

which broader developments a currency to and political Strength the revenues was region the Pacific, rest adversely and due than mid-single-digit in achieved organic region. Egypt weaker increased Middle by sales in East of organic In addition, volume in EIMEA demand offset the in restrictions continued increase year-on-year. more Asia impacted throughout X% China, uncertainty. In

with select and we'll by optimistic gains business in China markets automotive the we market direct to We're continue construction And the market the over about innovation grow near remain segments. strong activity to to continue what of uneven expect our choice. we're share Chinese our seeing. through term, encouraged We and in while no market in exposure electronics representation some

call first detail in the XXXX. over quarter let outlook for more our me and turn results to Corkrean review Now to John our

first Thank quarter. on you, I'll with begin additional Celeste. some financial the details

guidance the share effect gross first XX% quarter XXXX was favorable quarter, at and that, last year. and expected compensation quarter. Adjusted year of down was impact pricing than quarter, down revenue wage first more from impact for organic of same the acquisitions slightly turn the up XXX $X.XX and partially period X.X% of of X.Xx offset and by down and up operating year-over-year for growth the margins, X.X% year. strong year-on-year and the negative as higher the flow net compensation quarter for increased material income in contribution by in restructuring net lower with X.X% end increase profit the material Adjusting a of in driving XX% EBITDA was offset lower impact than XX.X%, Currency accrued cash offset X%. organic half last higher savings. Adjusted requirements year-on-year, expense revenue. Strong and resulted revenue from the of XXXX, year, growth. Operating working favorable as X.X% cash to last of of selling, let X.Xx pricing fiscal of of versus increase the resulting the now versus was the end capital more variable volume. Adjusted acquisitions with and first at of XXXX. With of volume the positive versus growth X.Xx $XXX administrative the the those revenue general actions higher had million me actions, points cost net the restructuring end the at in EBITDA the down up our the inflation raw quarter and of savings of items, and up rest the driven lower the up year-on-year was For by was of X.X% and per debt-to-EBITDA reflecting as earnings flow basis and restructuring savings quarter raw significantly pricing acquisitions. Adjusted improved margin

our to largely flat communicated $X.XX, be in to range previously fiscal up the range full to and XXXX. Net revenue equating $XXX with X% guidance range which $XXX assumptions of be to year, year-on-year. Combined, our financial approximately growth in EPS the between in organic million result to year-on-year. Adjusted is consistent the expectations, million, of $X.XX up the X% to these in X% was good of start EBITDA X% expected year-on-year expected growth our As adjusted we're XX% revenue a to is reiterating result growth XX%. to to of of for of with to equating year X%,

to year be the weighted year. cash $XXX full expect the second and operating to million, half continue toward of $XXX flow million We between

EBITDA Finally, we million. our $XXX million of seasonality range in based to the would second the quarter on of expect $XXX business,

back Celeste us over Now wrap turn to up. let the to me call

Thank you, John.

we've take improve think risk courage the innovation, world. the differently, act the differently to leader most privilege in some marketplace. to exhibit in that companies Companies As forward-thinking of our the and of collaborating the exciting and market a with

social to enabled continuing to the we'll for will eye with the website look recognize to Fuller during who to forward most and in we're inaugural that a our to technology. We and an first the H.B. winners. In adhesive quarter. official innovations on pleased celebrating were conclusion, Innovation proud month, our we're our good Awards. Keep results be their previous the support learn be our named by customers media outstanding year, the announcement publicly innovate Customer to Next our and these launching objectives. year We're to customer start with platforms the off

savings cost demonstrate are drive to to meaningful and and acquisition in well in balancing from cost Our EBITDA. realization drive initiatives material continue discipline changing restructuring dynamics, teams adjusted executing growth challenging price and in synergy environment a raw deliver

portfolio and look We'll in year As to for expansion margin Operator, remarks for our prepared ahead, long-term volume profitability line investments and growth, acquisitions, and fiscal targeted continued confident track questions. profit we continue ability we're remain highly strengthen XXXX. in new the open synergistic goals. That we growth through to and our our achieve on another concludes of for strategic trends strong organic improved today. please the

Panjabi comes Baird. Ghansham [Operator from Instructions] Our first question from

Maybe on you comments saw quarter. your during just the what on build you first can

you said China and bit a Europe bit stronger. think a I deteriorating little

across relative thinking Just you we're the for year? also, update of how then X to And your the the can about backdrop us segments? rest you based macroeconomic on fiscal on on destocking core are operating the that, where your view regional

Sure.

So destocking. let's start with

for we're I that saw little and effects we QX, might the part, some of in in in most destocking be XXXX. There lingering think think there the largely a were in that's But complete. HHC I phenomena QX. through that

you As the overall, weaker. stronger and stated, quarter anticipated far was than as as Europe China

declines In all greater. in X or volume our pretty of Europe GBUs was notable fact, XX% experienced that of

out. of So was seen versus to for a what significant we we balance -- again, -- in given change the XXXX. that But had China, that strength able were

and HHC was at and we look -- overall get segment saw declines. by HHC, where If down really deeper it pretty segment, little flat, was but you volume within at hygiene for it the just a volume look

So that was nutshell. really -- on comparisons. percentage CA in really increase, lifted a And double-digit the given up quarter what's in China. easier was EA happening

the will and was quarter. Ghansham. for we add did I improve on Europe a over although color it because Maybe it think it that the assume to weak, just I'll weak year, continue be little sequentially

PX So year-to-date, just QX. the digits on high Europe PX then in PX, perspective of to cadence give the high PX, you single and it's kind digits. down in was in some mid-teens Revenue in teens in down down down the in in mid-single

We sign, cautious we're sequential Europe. we're on that's remaining positive still So think seeing improvement. a but

elaborate to on And bit. little Yes. a Europe just

North XXXX. pronounced I phenomena is saw same this this the don't America in really believe So destocking we thing. in

anecdotes few again, In that being from fact, statement our of repeated on a kept they GBUs, across that based was demand. and large the customers, had customers overproduced

little activity. think a temporary pointed we I what we're and month numbers and is volume of a there is been it indicate that, over as production really a in has John So correction correction. that the And date experienced to seeing this happening not a correction major destocking month-over-month now Europe ending a out,

seeing tick And my your expansion question margin Fuller and oil and at H.B. optimization seen significant second We're a costs. just on also restructuring helpful. just et And for Super bit. obviously, cost Okay. up then cost price cetera. through initiatives, commodity you've

have of China, inputs about up some et cetera, Fuller the to if starting cetera, for that inflation also et started pick are to upstream dynamic of relates thinking and How the you sort forward other the in of as propylene pulse, will? to as you in H.B. up. pick it terms of well TiOX, Some going

in Ghansham. things, lot same again, experienced a differently those we business. But our seen We've Yes. this

material raw of the remember different they're monitor We they don't of use, spend so bases, our chemicals. specialty like commodities. by in XX% material where trade so, volume is happening, So what's and influenced that more much the they're X,XXX

but -- we see deflationary volume more or if we're anticipating if flatter materials going raw remains so likely constrained. I'm possibly, And deflationary to that is what more

getting remains I think because raws, like then move the -- really again, propylenes see continues oils I weak, those crude think we'll and we'll volume suppliers don't our the squeezed. deflationary world, if more So the they of see

Kevin Our next from question Vertical Research. McCarthy from comes

little that for it's in talk Celeste, opportunity? baking guide can see margin a the what you're did into bit seasonality, annual -- your that nice Adhesives to about Construction Post it and terms business. of the results sales segment you

Welcome, Yes. Kevin.

to quarter to sentiment relates the equivalent CA, their call as of what So normal season. really saw would I it construction was anecdotes and this what customers buying start we and a

to So anticipating case. and we're we're that be see starting the the will build,

at high CA anticipated single-digit want If the what was year, growth our the guide you any we John? you there organic to for business. Do further, look elaborate for

have we're construction complete say, we're a Yes. think would about market. assuming echo our the I We just that going North to jus normal assumptions, is in Celeste comments American to season. destocking

easiest strong So from see you saw comparisons too, half the growth as we half. year's the first quarter, strong, a QX will see predict our should because will standpoint. CA strongest QX second in trend. get improvements a would against be have we we'll And I comparison. last it to is comparison then in be our moderating

So of -- about but that still type we high feel single-digit range. growth good

business we're our particular, Yes, unit that price Kevin, in QX. instituting And very as strong business in increases roofing was actually, in well. some

part hygiene And for is that that and there? softness space you evolving thoughts your can to you the in of expectations? equation Maybe relative is Okay. separate to is secondly, business HHC. the And progresses? the as some business within Celeste, of on Good think I your know. then referenced dialogue that the likely update Or kind distinct? just trajectory year European How

Yes, absolutely.

hygiene saw the of responsible volume for again, the in decline decline, entirety the was we market So that within HHC. HHC that volume

to particular. it talk let than growth medical business used that a hygiene, and smaller down the space. about that were of to a past. for in us go it's offset But in And me we I our Now in just with before able tangent, adhesive packaging be lot

in Yes, big market. Also, overproducing question customers in of a there hygiene relative so see did happening So is going some lead that there. lot hygiene particular, correction things our the the Europe your to and us nations. markets Europe, often developing demand, of in we a per in few on market our a for

in to those the so had in particularly halt And that Argentina that impact. sales restrictions caused currency us Egypt, in we and particular an regions experienced,

index lot hygiene -- flattening a space. that in by got I Those is for future adjustments. course, those this reference, some last the note of the out future are we've competition index significant pricing was way, Asia that quarters and pricing finally, the now would Of of just where opposed as to down. And -- to occurring decided from quarter in the business. there some X price there is that and were walk some indexes we And away

it of So in forward. that's my to of what's comments, see -- and how course, some I that's been hygiene sort of QX, moving relate

in I think as We how correction as to going continue areas. weak it will sorry, Europe right? going saw are core I -- but be in production some lifting -- there? a weak, mean, to future as won't in these to the first future, correct, the of These quarter. they're Europe about currency Europe. asked things is as restrictions, lot this far you be

getting So -- help some some there. we've seen

As I now price noted, are switching index to flat. the adjustments

So some parts see in price, better future you'll because of hygiene the away of in aside market some walking that business world from we're from performed quarters.

Our from Zekauskas next comes question JPMorgan. Jeff from

I on or And the expect allocate the that us about discretion course was quarter. I think Do you number a stay know $XXX to lot Can SG&A a assistance adjusted in that rise in year SG&A you the weak million. of expense some the seasonally to or through way that? terms absolute same? your you in there's lower give be of

this Jeff. take I'll one, Sure.

have last first seasonally. the our it you of in the about up because as a with of XX%. at quarter higher quarter in if it's lowest the didn't revenue acquisitions Half look percentage that line year. in it's quarter that certainly And increase, So was revenue, expectations. It's we first is revenue

increase. really by variable driven is about of remainder that driving the And that's higher half compensation. So then

than impact the and rate a year were wage So time we this last of we're at accruing at higher inflation.

look decrease expect we you if sequentially increase it but terms So revenue. total as dollars, a in forward, to would of percentage of

at things we we like accrue seasonality variable compensation, accrue of percentage the we we we how So business. the adjust -- when to match look do the

less QX in a So we than accrue in little QX.

but should see and you'll year-on-year down percentage to terms you those come that should the both So that because annualize step of start as revenue. see up, a it down, increase acquisitions, against we'll in come also of

stay volumes no And you guys think second that quarter Great. flat? for then follow-up. year-over-year or in grow my the Do will or

sequentially improve, down of would should couple may down, than percent, we're -- that a I they down may they projecting flat less they be a certainly I of say maybe they be but a still kind percent, percent. to to up think maybe but flat would

don't think we're QX. to I from significant deviation going see a So

Our from from question Patrick next Cunningham comes Citi.

This us negative Eric for XXXX there you And walk Zhang the on surprises? how positive through any have is are acquisitions Patrick. or performed? Can vintage

Eric. Sure,

I we've on just morning So actually looking results there. was doubled was delighted deal that to actually at Adhesion, this model Integration our see the acquisition. performance the

the look achieved, if synergies of million collection, have synergy our I think, was So -- performance, $XX overall, projection year of you at strong for to deal ahead $XX be be would last and model entire this plan year. we're million

And can that, add a just Yes. little Eric. color on I

And well, we and the very that the year-on-year first so in impact line -- QX. That's right from performing first in about said, far, That's with million. what versus they're acquisitions is Celeste impact should expectations. discussed XXXX incremental total we're all line. quarter, $XX quarter As see in we

Our David Begleiter next Deutsche Bank. question from comes from

below little expectations. a Is other due to Street is bit that guidance QX factors? hygiene your or Celeste,

relative one. consensus, at probably in to trends and David, I kind it, so at look of I'll on when more guess, we but it don't we look to this year-on-year. chip

a little than So be bit midpoint, growth rate would lower yes, QX.

in synergies benefit be biggest biggest raws restructuring lower the QX. seeing item benefits and narrow there our little we're year. But getting the through we're little That go in net will a offsetting pricing bit think up. we ramp is, a QX I actually bit as that, and

for really little bit get looks very similar a So pricing -- and that QX the things backdrop -- assumptions raw but less to I think QX, it's the net we benefit.

half half you guidance, EBITDA QX half based that half QX almost increase from up versus your help and first us And EBITDA it. Can XX% guide, Got EBITDA? that to results. XX% second second bridge is your -- guidance on of from first

it by I it's a such driven the Yes. seasonality the is mostly low mean fact -- and QX is quarter. volume that

think restructuring mentioned So I and I the benefits the synergies.

as a we half, too through second up go largely seasonality step go half first to from but as will those -- we So impact. it's

trends our Yes. on And David, got the in So trends out. our the at business, when right? side, prices look favorable you flattening index we've we've some

particularly market on that margin strength continued construction for in space, our EBITDA gains high some drives is share the China, is that well. which Our roofing tremendous market us. China, elaborate in want up, in part but season ramping really and because in I'm I China a as to anticipating also really in

I'll So back that. to come

and destocking And market just prior got work of to XX% about bit was just And to in we've excellent GBUs. all complete electronics really the versus But of share year John identified, some there. QX. up gains, We've that's some restructuring. our seeing synergies little fruition as we're got a come these talk business

In actually in of electronics from coming new volume fact, models. our XX% new is

fully is development that their So now so become tells much part cycle. so what these is team that integrated into that our customers of they me

We're entrenched it back indicates lot. that also to and well winning a gone innovating. in that space, customers we're So have our

cycle take solutions their we've that So And they're to back pandemic. drive upgrade really opportunity base. in product bring the that's and because to the important to on get that's share customer really post and

So that's example. just one

year and guess always our a half half. up I XX% was EBITDA sequential versus I something impact little I on at an second because might and business that had first I David, last last before. over insight don't look And looked same the looked year, that's just at add at the But the the way we

-- pretty that not of see it's unusual trajectory. a that's think type to I So

Funds. next from Rosemarie Gabelli from Our question Morbelli comes

I Celeste, -- X was wondering well, things.

things. lot innovating and electronic the on First you're customers, gaining of a now following of in all, encompasses electronic up arena, your shares

for And could my areas then ahead, you go feel ahead, you're doing later. if go I'll really us oh, second well. -- give better ask So which a

that. happy Okay. Thanks, Rosemarie. on And elaborate absolutely to

a So let me few examples. give you

with would example replaced We a one our epoxy for two-part just containing with competitor PFAS product So be a own in PFAS-free electronics. consumer trackpads.

able from bring products away take trend that without advantage perform our PFAS to we're of own So and can this it.

mobile Another phones. example in be would

going we of one a touchpad just touchpad hot-melt and XXX% this even automotive took we -- that pursuing reactive with to phone share be edge to Africa, electronics. pretty is the with shipped market particular mobile just that So manufacturer, category supplier a bonding phone is African is the for which call the exciting, there's from bonding polyurethane China. And a the gap then I'll

So in over with XXx OEM. grown Europe, had the business an of year. bonding course won That last we year, prior by has vehicle display the a application

those success would that in are electronics our Closely be to some examples. related aerospace. So

the honeycomb of So airplanes epoxy Europe -- trim syntactic including supplying in adhesives in and now or great compressive be the in to skins providing in aerospace. interior door of kind that one carbon last us a providing for applications, aircraft. quarter business this in bonding brings Example high our was points technical more for would wall strength -- there or even material

So that as we've category, are of in those it, of that and really winning. we're and competing markets are sorts defined this growth products examples now all successfully

will that something for I doors.... That hope the you've helpful. is aerospace very prevent

Me too.

then hygiene side. would second And be question on my the

that mentioned was it the smaller past. You in than

is as businesses? industry to the of has So Or the it are interesting? you changed that from lot away not a degree walking

a we of performance away bringing just of some -- challenging excel The tough. -- some we where product weren't region. we've not markets, other has in a China emerging have price time performance walked of to been really having to value, these compared to is particularly some does able consequence where Well, as to

So bigger we're Engineered is talked focus on hygiene, growth the our a about us. that other business, but we've hygiene our business. we're just business, got for Adhesives really parts We of lot of that from walking some segment a area. And growing is leverage away in impact, Rosemarie,

to drive where drive to margin also is may in hygiene play. do but productivity, EBITDA we with objective our that improvement, selective that, continue have order to we recognize to So be

that's going kind So of where we're really with directionally hygiene.

Zekauskas follow-up a from from Jeff question We've Instructions] [Operator JPMorgan.

the strengthening, was Can about U.S.? quarter? the you What trends U.S. doing? we second demand weakening? we during the it you in to the Or quarter and talk in how seems are Are how like

Absolutely, Jeff.

U.S. let's -- about talk just start. So about QX to in I'll talk

ended CA season. in our our a simultaneously impact construction started preparing customers that HHC GBU. And So big destocking that normal there for was

So was U.S. They've volume were low as the packaging of our well business. with in team up digits I'm packaging, single sort packaging delighted business was our really there. in Strong And as -- our solar done customers high digits creating business 'XX consequence. We've job, XXX by QX and an basis we packaging amazing solutions our for margin grew EBITDA growing and versus as by a in volume -- grown points. 'XX expanded single

adhesives. business wouldn't all -- creatively solutions bring that focus bringing they've gone. to team to pollution So that rather channels that but we where traditionally channels also Channels industries bring has at on their channels, identified how not distribution into than to solutions, expand of only how specific looked have kinds

more as building business anything? as in do woodworking to they've products challenged. well the are U.S. our hygiene done So great they get you of influenced add mean, products in a was, by John, want It's used is QX as in sure. I business so course, the construction mentioned, job. or Weaker for that

seeing. bit tend showing Engineering show And of probably some a too, level continues they the trends or for to consistent out be good key for little we're Construction QX. Celeste stronger. Well, growth that as started growth, little growth. but they're QX HHC was quarter pretty Jeff, -- items It strong points to about improving about a will some in comment Adhesives is the weaker not question QX. that be And the of highlighted. hit on QX, still showing is of and the Celeste we just your across in did bit improvement, to

small size, stronger QX so So started than sample has out far, but a little QX.

As closing we hand over to have raised. call Mastin I'd now any Celeste like to don't back remarks. of hands right for the now,

continued interest. your all speaking We with you again call you next thank and Well, for look Great. forward to joining quarter. the

Thank attending you today's conference call. for

all day. disconnect. now may a Have wonderful You