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Sep 23, 2020

Third Quarter Fiscal Year 2020 Results

ST. PAUL, Minn. – H.B. Fuller Company (NYSE: FUL) today reported financial results for its third quarter ended August 29, 2020.

Diluted EPS of $0.79; adjusted diluted EPS of $0.76

Adjusted EBITDA of $106 million exceeded guidance range

Debt paydown of $59M ahead of target

 

Items of Note for Third Quarter 2020

  • Strong operational performance with net income of $42 million and adjusted EBITDA of $106 million, which exceeded the company’s guidance, driven by solid organic sales results, benefits from restructuring efficiencies and lower raw material costs.
  • Total organic revenues declined by 2.5% compared with last year, ahead of the company’s expectations.
  • Continued share gains led to organic revenue growth in Hygiene, Health and Consumable Adhesives (HHC) and higher sequential revenues in Engineering Adhesives and Construction Adhesives.
  • Year-to-date cash flow from operations increased by 20% versus the same period in 2019, driven by working capital reductions.
  • Debt paydown of $59 million exceeded the company’s $40 to $50 million targeted debt paydown for the quarter. The company remains on track to achieve $200 million debt repayment target for 2020.
  • Delivered restructuring savings of $7 million in the quarter, with expected savings of approximately $30 million for fiscal year 2020, related to our realignment to three global business units (GBUs).
  • The company expects to deliver additional savings of $20 to $30 million by the end of 2022 related to the company’s operations and supply chain project initiated this year.

Summary of Third Quarter 2020 Results

Net revenue of $691 million decreased 4.7% compared with the third quarter of 2019.  Organic revenue was down 2.5% versus the same period last year, excluding impacts from foreign currency exchange rates and the sale of the surfactants, thickeners and dispersants business which, combined, negatively impacted revenues by 2.2%. Hygiene, Health and Consumable Adhesives organic revenue increased 1% year over year reflecting continued demand for adhesives for essential goods and packaging. Construction Adhesives and Engineering Adhesives organic revenues were lower than last year but increased versus the second quarter. Engineering Adhesives significantly improved revenue performance included double-digit year-over-year growth in Electronics, Recreational Vehicles and Technical Textiles.

Gross profit margin was 27.2%. Adjusted gross profit margin of 27.3% was down 150 basis points versus last year. The decline was due to lower revenues and unfavorable business mix related to impacts from COVID-19, partially offset by favorable raw material costs. Selling, General and Administrative (SG&A) expense was $129 million. Adjusted SG&A expense of $123 million declined 6.4% compared with the same period last year, driven by cost savings realized from the company’s business realignment to three global business units and lower discretionary expenses in the quarter.

As a result of these factors, net income attributable to H.B. Fuller in the quarter was $42 million, or $0.79 per diluted share. Adjusted net income attributable to H.B. Fuller was $40 million, or $0.76 of adjusted EPS, down from $44 million, or $0.86 of adjusted EPS in the prior year. Adjusted EBITDA was $106 million in the quarter, compared with $116 million in the same period last year, and adjusted EBITDA margin was 15.3% versus 16% in the prior year.

“In the third quarter, we delivered higher than expected organic revenue performance by building on our market share gains in HHC, improving performance in Construction Adhesives and winning new business in Engineering Adhesives,” said Jim Owens, H.B. Fuller president and chief executive officer. “We continued to realize operational cost efficiencies from our GBU realignment, reduce SG&A spending and bring down raw material costs, which drove EBITDA results that were also better than forecasted. Strong cash flow enabled us to exceed our debt paydown target in the quarter, keeping us on track for $200 million of total debt paydown for the year. During the quarter, we also began implementing the operational improvement projects we announced on our second quarter call that will drive $20 to $30 million of incremental cost savings in 2021 and 2022.

Owens continued, “H.B. Fuller has performed well during the pandemic due to the competitive advantages we’ve created through our new GBU and global customer focused business structure, our cultural emphasis on collaboration and speed and our investments in digital tools. We will build on our successes from the first nine months of the year and leverage those wins in the fourth quarter and into 2021. Our margins and cash flow remain resilient, and we are well-positioned to accelerate our performance as end markets continue to show signs of improvement. We remain focused on our vision to be the best adhesive company in the world by creating value for our customers and shareholders today, and as the world evolves following the pandemic.”

Key Balance Sheet and Cash Flow Items

At the end of the third quarter of 2020, the company had cash on hand of $75 million and total debt equal to $1,869 million. This compares to cash and debt levels equal to $70 million and $1,928 million, respectively, at the end of the second quarter of 2020. For the nine-month year-to-date period, cash flow from operations increased to $193 million from $160 million for the same period of 2019, driven by improved working capital management. Capital expenditures were $17 million versus $15 million in the third quarter of fiscal 2019, reflecting timing of capital projects and expenditures related to growth initiatives. The company estimates capital investment for the fiscal year totaling $80 to $85 million.

H.B. Fuller has more than adequate liquidity to meet any foreseeable needs, including a $400 million revolving credit facility with a feature that allows for an increase of the facility by $300 million dollars if needed. The company also has ample room under its debt covenants using significantly conservative outlook scenarios. 

Q4 2020 Guidance

The extent of COVID-19’s impact on global economic factors remains uncertain. The company is providing the following guidance based on current economic projections, order patterns and assumptions for global commercial activity:

  • Estimated revenue in the fourth quarter is anticipated to increase by 4% to 7% sequentially from the third quarter and be approximately flat to down 3% year over year.
  • Adjusted EBITDA is anticipated to be approximately $110 million to $115 million, in line with the fourth quarter of 2019.
  • Debt reduction of $200 million for the full year, consistent with our original 2020 plans.

Conference Call

The Company will host an investor conference call to discuss its third quarter results and fourth quarter planning assumptions on Thursday, Sept. 24, 2020, at 10:30 a.m. EDT. The conference call audio and accompanying presentation slides will be available to interested parties via a simultaneous webcast, and may be accessed from the company's website at https://investors.hbfuller.com/calendar. Participants should access the webcast prior to the start of the call to register for the event and install and test any necessary software. Accompanying presentation slides will be available at the link above 30 minutes prior to the call, and the webcast and presentation will be archived on the company's website. A telephone replay of the conference call will be available approximately 1 hour after the conclusion of the call, through Oct. 1, 2020. To access the telephone replay dial 1-877-344-7529 in the US, 855-669-9658 in Canada, and 1-412-317-0088 outside the US and Canada, and enter access code 10147504.

Regulation G

The information presented in this earnings release regarding segment operating income, adjusted gross profit, adjusted gross profit margin, adjusted selling, general and administrative expense, adjusted income before income taxes and income from equity investments, adjusted income taxes, adjusted effective tax rate, adjusted net income, adjusted diluted earnings per share and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) does not conform to generally accepted accounting principles (GAAP) and should not be construed as an alternative to the reported results determined in accordance with GAAP. Management has included this non-GAAP information to assist in understanding the operating performance of the company and its operating segments as well as the comparability of results to the results of other companies. The non-GAAP information provided may not be consistent with the methodologies used by other companies. All non-GAAP information is reconciled with reported GAAP results in the “Regulation G Reconciliation” tables in this press release with the exception of our forward-looking non-GAAP measures contained above in our fiscal 2020 Planning Assumptions, which the company cannot reconcile to forward-looking GAAP results without unreasonable effort.

About H.B. Fuller

Since 1887, H.B. Fuller has been a leading global adhesives provider focusing on perfecting adhesives, sealants and other specialty chemical products to improve products and lives. With fiscal 2019 net revenue of $2.9 billion, H.B. Fuller’s commitment to innovation brings together people, products and processes that answer and solve some of the world's biggest challenges. Our reliable, responsive service creates lasting, rewarding connections with customers in electronics, disposable hygiene, medical, transportation, aerospace, clean energy, packaging, construction, woodworking, general industries and other consumer businesses. And, our promise to our people connects them with opportunities to innovate and thrive. For more information, visit us at https://www.hbfuller.com/.

Safe Harbor for Forward-Looking Statements

Certain statements in this press release may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, including but not limited to the following: the consequences of the COVID-19 outbreak and other pandemics; the substantial amount of debt we have incurred to finance our acquisition of Royal, our ability to repay or refinance it or incur additional debt in the future, our need for a significant amount of cash to service and repay the debt and to pay dividends on our common stock, and the effect of restrictions contained in our debt agreements that limit the discretion of management in operating the business or ability to pay dividends; various risks to stockholders of not receiving dividends and risks to our ability to pursue growth opportunities if we continue to pay dividends according to the current dividend policy; we may be unable to achieve expected synergies, cost savings and operating efficiencies from the Royal transaction, the global business unit realignment or the operations and supply chain project within the expected time frames or at all; we may be unable to successfully integrate Royal’s operations into our own, or such integration may be more difficult, time consuming or more costly than expected; the ability to effectively implement Project ONE;  political and economic conditions; product demand; competitive products and pricing; costs of and savings from restructuring initiatives; geographic and product mix; availability and price of raw materials; the company’s relationships with its major customers and suppliers; changes in tax laws and tariffs; devaluations and other foreign exchange rate fluctuations; the impact of litigation and environmental matters; the effect of new accounting pronouncements and accounting charges and credits; and similar matters. Many of the foregoing risks and uncertainties are, and will be, exacerbated by COVID-19 and any worsening of the global business and economic environment as a result.

Further information about the various risks and uncertainties can be found in the company’s SEC 10-K filing for the fiscal year ended November 30, 2019. All forward-looking information represents management’s best judgment as of this date based on information currently available that in the future may prove to have been inaccurate. Additionally, the variety of products sold by the company and the regions where the company does business make it difficult to determine with certainty the increases or decreases in net revenue resulting from changes in the volume of products sold, currency impact, changes in product mix, and selling prices. However, managements’ best estimate of these changes as well as changes in other factors have been included.

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Media Contacts

News Media:
Kimberlee Sinclair
Director, Global Communications
H.B. Fuller
1200 Willow Lake Boulevard
St. Paul, MN 55110
Office: +1 651-236-5823
Investors:
Barbara Doyle
Vice President, Investor Relations
H.B. Fuller
1200 Willow Lake Boulevard
St. Paul, MN 55110
Office: +1 651-236-5023
All Others:
H.B. Fuller Corporate
1200 Willow Lake Boulevard
P.O. Box 64683
St. Paul, MN 55164-0683
+1 888-423-8553

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