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H.B. Fuller Reports Fourth Quarter 2016 Results
Sep 26, 2018

Third Quarter 2018 Results

Third Quarter Diluted EPS $0.72 and Adjusted Diluted EPS $0.861;

Fiscal Year 2018 Adjusted Diluted EPS Guidance Updated to $3.05 to $3.20;

Unfavorable Foreign Exchange Rate Movement Impacted Adjusted EPS by approximately $0.10 in the Second Half of 2018

 

ST. PAUL, Minn. – H.B. Fuller Company (NYSE: FUL) today reported financial results for the third quarter that ended Sept. 1, 2018.

 

Third Quarter 2018 Highlights:

  • Net revenue of $770 million increased 37 percent compared with the third quarter of 2017, including the Royal business which was acquired in October, 2017. Organic revenue increased approximately 5 percent;
  • Net income of $38 million or $0.72 per diluted share, increased compared with $25 million, or $0.49 in the third quarter of 2017; adjusted net income1 of $45 million, or $0.861 per diluted share, increased 34 percent compared with $33 million, or $0.65 in the third quarter of 2017;
  • Adjusted EBITDA1 of $120 million increased 63 percent compared with the third quarter of 2017; adjusted EBITDA margin1 increased to 15.6 percent from 13.1 percent in the same period last year as a result of the Royal acquisition and effective management of our legacy business;
  • The Royal integration continues to progress well with approximately $4 million of incremental cost synergies in the third quarter. On track to realize $15 million of cost synergies in fiscal 2018 and $35 million of savings by 2020, as previously communicated;
  • Cash flow from operations of $84 million increased compared with $38 million in the same period last year. Debt pay down in the quarter was $41 million. On track to meet our $170 million debt reduction goal for the 2018 fiscal year.

Q3 2018 Earnings

 

Summary of Third Quarter 2018 Results:

Net revenue for the third quarter of 2018 was $770.1 million, an increase of 36.8 percent compared with the third quarter of 2017. Organic revenue increased 4.8 percent year-over-year, driven by sales growth in every segment, and double-digit growth in Engineering Adhesives.

 

Gross profit margin was 28.2 percent. Adjusted gross profit margin3 of 28.7 percent increased 110 basis points compared with the prior year on a proforma basis including Royal2 in 2017, and increased 40 basis points sequentially, reflecting positive pricing contribution and raw material sourcing synergies. Selling, General and Administrative (SG&A) expense was $146.1 million. Adjusted SG&A expense5 of $137.7 million increased compared with the third quarter of 2017, primarily due to the impact of acquisitions.

 

Net income for the third quarter of 2018 was $37.7 million, or $0.72 per diluted share, compared with net income of $25.1 million, or $0.49 per diluted share, in the third quarter of 2017. Adjusted diluted earnings per share were $0.861, an increase of 32 percent compared with $0.65 in the prior year. Adjusted EBITDA1 was $120 million, up 63 percent compared with the prior year, and up 7 percent2 on a proforma basis including Royal in 2017.

 

“Our strong third quarter results demonstrated the earnings power of our business as we grew organic revenue by nearly 5 percent and increased profitability in an environment of rising raw materials and currency headwinds,” said Jim Owens, president and chief executive officer. “We continue to grow organically by winning new opportunities in targeted markets and by managing pricing to offset raw materials inflation.

 

“Foreign currency shifts in the quarter impacted revenues by approximately two percent and also impacted earnings. Strong sales performance combined with managerial discipline generated adjusted EBITDA of $120 million and operating cash flow of $84 million in the quarter. Free cash flow resulted in debt pay down of $41 million, and we are on track to deliver our committed total reduction of $170 million of debt in 2018,” continued Owens.

 

"While foreign currency exchange rate fluctuations and near-term headwinds are impacting the current year results, our overall commitment to achieve $605 million of EBITDA and $600 million of debt pay down by 2020 remains intact and unchanged.”

 

EBITDA Calculation Revision:

In order to conform to SEC interpretations, we modified our EBITDA calculation for 2017 and 2018 to include joint venture earnings as well as non-operating income and expenses. Using our historical methodology, adjusted EBITDA would have been $119.5 million in the third quarter of 2018.  For the full year, this change is expected to impact EBITDA by approximately $6 million. This change has no impact on operating income or earnings per share.

 

Balance Sheet and Cash Flow:

At the end of the third quarter of 2018, the Company had cash on hand of $150 million and total debt equal to $2,364 million, of which approximately 70 percent had a fixed interest rate. This compares to cash and debt levels equal to $129 million and $2,405 million, respectively, in the second quarter of 2018. Cash flow from operations in the third quarter was $84 million compared to $38 million for the same period in 2017, reflecting the increased profitability of the business. Capital expenditures were $13 million in the third quarter of 2018, compared with $8 million in the same period last year.

 

Fiscal 2018 Guidance:

H.B. Fuller is updating its guidance for the 2018 fiscal year. The company is adjusting EPS guidance by $0.10 per share to reflect unfavorable movement in foreign currency exchange rates and narrowing the EPS range to reflect current business conditions. The company now anticipates adjusted EPS of $3.05 to $3.20, compared with the previous range of $3.15 to $3.40; and adjusted EBITDA of $455 to $470 million, compared with previous guidance of approximately $470 million. Revenue growth for the fourth quarter is expected to be approximately 3 percent when compared to 2017 on a proforma basis. The company’s core tax rate, excluding the impact of discrete items, is unchanged and is expected to be between 25 and 27 percent. H.B. Fuller expects to invest a total of approximately $70 million in capital items in 2018.

 

This guidance excludes approximately $20 to $25 million of pre-tax expenses required to integrate the Royal business and other businesses acquired in 2017, and between $7 and $8 million of pre-tax expenses related to Project ONE ERP development costs. This guidance also excludes the discrete tax benefit of $35.6 million related to Tax Reform that was recorded in the first quarter, as well as any future discrete tax items. A complete reconciliation of the non-GAAP financial information contained in our 2018 guidance is not being provided in accordance with the “unreasonable efforts” exception of Item 10(e)(1)(i)(B) of Regulation S-K of the Securities and Exchange Commission.

 

Conference Call:

The Company will host an investor conference call to discuss third quarter results on Thursday, September 27, 2018, at 9:30 a.m. Central U.S. time (10:30 a.m. Eastern U.S. time). The conference call audio and accompanying presentation slides will be available to all interested parties via a simultaneous webcast at H.B. Fuller’s Investor Relations website. The event is scheduled to last one hour. For those unable to listen live, an audio replay of the event along with the accompanying presentation will be archived on the Company’s website.

 

Regulation G:

The information presented in this earnings release regarding segment operating income, adjusted gross profit, adjusted selling, general and administrative expense, adjusted income before taxes, income from equity investments, adjusted income tax and adjusted effective tax rate, adjusted diluted earnings per share, earnings before interest, taxes, depreciation, and amortization (EBITDA) and constant currency revenue 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. 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 tables below with the exception of our forward looking non-GAAP measures contained in our fiscal 2018 outlook, which are unknown or have not yet occurred.

 

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 2017 net revenue of over $2.3 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 
www.hbfuller.com.

 

Safe Harbor for Forward-Looking Statements:

Certain statements in this document 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 Royal transaction may involve unexpected costs or liabilities; our business or stock price may suffer as a result of uncertainty surrounding the transaction; 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 and operating efficiencies from the transaction 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 costly than expected; following the transaction, revenues may be lower than expected, and operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers) may be greater than expected; risks that the transaction disrupts current plans and operations and the potential difficulties in employee retention as a result of the transaction; 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. Further information about the various risks and uncertainties can be found in the Company’s SEC 10-K filing for the fiscal year ended December 2, 2017. 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, management’s best estimates 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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