H.B. Fuller Reports Fourth Quarter and Fiscal Year 2024 Results

FY 2024 Net Income of $130 million; Adjusted EBITDA of $594 million

Continued expansion of FY Adjusted EBITDA Margin to 16.6%

Finalizing plan to drive savings through optimization of manufacturing and supply chain footprint

H.B. Fuller Company (NYSE:FUL) today reported financial results for its fourth quarter and fiscal year that ended November 30, 2024.

Fiscal Year 2024 Noteworthy Items:

• Net revenue was $3.57 billion, up 1.6% year-on-year; organic revenue decreased 1.0% year-on-year, driven by 2.7% unfavorable pricing, partially offset by 1.7% higher volume;
• Gross margin was 29.8%; adjusted gross margin of 30.3% increased 90 basis points year-on-year, driven by pricing and raw material cost actions, higher volume, and restructuring benefits;
• Net income was $130 million; adjusted EBITDA was $594 million, up 2.2% year-on-year; adjusted EBITDA margin expanded year-on-year to 16.6%;
• Reported EPS (diluted) was $2.30; adjusted EPS (diluted) was $3.84, effectively flat versus the prior year as higher adjusted EBITDA was offset by higher amortization expense;
• Net working capital, as a percentage of annualized net revenue, declined 160 basis points year-on-year to 14.5%; cash flow from operations was $301 million.

Fourth Quarter 2024 Noteworthy Items:

• Net revenue was $923 million, up 2.3% year-on-year, with organic sales down 0.2% year-on-year;
• Gross margin was 28.7%; adjusted gross margin of 29.6% decreased year-on-year driven by unfavorable raw material cost developments and delayed price realization;
• Net income/(loss) was ($7) million including an unfavorable $38 million non-cash, after-tax impact related to the Flooring divestiture; adjusted EBITDA was $148 million, down 14% year-on-year, and adjusted EBITDA margin was 16.1%;
• Reported EPS (diluted) was ($0.13); adjusted EPS (diluted) was $0.92, down versus the prior year, driven by lower operating income;
• Subsequent to quarter end, realigned building and construction market segments into the newly named Building Adhesive Solutions (BAS) global business unit (starting in fiscal 2025) and divested the Flooring market segment;
• Subsequent to quarter end, expanded the geographic reach and technology offering of our Medical Adhesive Technology market segment with the announced acquisitions of GEM S.r.l. and Medifill Ltd;
• Finalizing an expanded plan to streamline manufacturing and supply chain footprint and cost structure, which is expected to generate additional annualized pre-tax cost savings of approximately $75 million when completed by fiscal 2030.

Summary of Fourth Quarter 2024 Results:

The Company's net revenue for the fourth quarter of fiscal 2024 was $923 million, up 2.3% versus the fourth quarter of fiscal 2023. Organic revenue declined 0.2% year-on-year, with pricing adjustments reducing organic revenue by 1.5% and volume increasing organic revenue by 1.3%. Foreign currency translation decreased net revenue by 0.2%, and acquisitions increased net revenue by 2.7%.

Gross profit in the fourth quarter of fiscal 2024 was $265 million. Adjusted gross profit was $273 million. Adjusted gross profit margin of 29.6% decreased 170 basis points year-on-year. Unfavorable pricing in conjunction with higher raw material costs, principally led to the decline in adjusted gross margin year-on-year.

Selling, general and administrative (SG&A) expense was $188 million in the fourth quarter of fiscal 2024 and adjusted SG&A was $174 million, up 12 percent year-on-year. The impact of acquisitions and higher variable compensation drove most of the year-on-year increase in adjusted SG&A.

Net income/(loss) attributable to H.B. Fuller for the fourth quarter of fiscal 2024 was ($7) million, including an unfavorable $38 million non-cash, after-tax impact related to the Flooring divestiture. Adjusted net income attributable to H.B. Fuller for the fourth quarter of fiscal 2024 was $52 million. Adjusted EPS was $0.92 per diluted share.

Adjusted EBITDA in the fourth quarter of fiscal 2024 was $148 million, down 14% year-on-year, driven by unfavorable raw material cost developments, delayed price realization, and higher variable compensation expense.

"Overall, I am proud of the progress we made in fiscal year 2024. We continued to expand adjusted EBITDA margin and enhanced the profile of our portfolio through several strategic acquisitions and the divestiture of our Flooring business," said Celeste Mastin, President and Chief Executive Officer. "At the same time, I am disappointed that we were unable to finish the year as strong as we had expected. In the fourth quarter, we encountered an unexpected deceleration in volume across the majority of our end markets. Furthermore, delays in customer order patterns, particularly in the consumer product goods related market segments, shifted price increase realization into fiscal 2025, delaying the offset of higher raw material costs and resulting in margin deterioration.

"We are intensely focused on what we can control and have already begun executing additional pricing actions and cost controls to prudently prepare for a challenging volume growth environment in 2025. Our strategic plan to continue to evolve H.B Fuller into a higher growth, higher margin company remains on track on the timeline we originally communicated."

Balance Sheet and Working Capital:

Net debt at the end of the fourth quarter of fiscal 2024 was $1,841 million, down $48 million sequentially versus the third quarter and up $182 million year-on-year. Net debt-to-adjusted EBITDA of 3.1X was flat versus the previous quarter.

Net working capital in the fourth quarter of fiscal 2024 declined $56 million sequentially versus the third quarter and $46 million year-on-year. As a percentage of annualized net revenue, net working capital declined 160 basis points, both sequentially and year-on-year, to 14.5%.

Manufacturing and Supply Chain Footprint Consolidation:

The Company is finalizing an expanded plan to significantly reduce its global manufacturing footprint and streamline its North American planning and logistics structure. This multi-year plan is expected to reduce the number of manufacturing facilities from 82 today to a target of 55 when completed in 2030. Additionally, it will reduce the number of warehouses in North America from 55 today to approximately 10 by the end of 2027.

As a result of these combined actions, the Company expects to generate approximately $75 million in annualized cost savings once the plan is fully implemented in fiscal 2030. These figures are incremental to the ongoing restructuring actions, which are still expected to generate annualized cost savings of $45 million by the end of fiscal 2025. The Company expects to invest approximately $150 million in incremental capital over the next five years associated with the expanded plan.

"Our manufacturing footprint consolidation, coupled with our planning and logistics reorganization, are important steps in our strategic plan to achieve an EBITDA margin consistently greater than 20 percent. These actions will not only reduce costs through improved capacity utilization, they will also enable us to better serve our customers and reduce future capital expenditure requirements," said Mastin.

Fiscal 2025 Outlook:

• Net revenue growth for fiscal 2025 is expected to be down 2% to 4%, adjusting for the divestiture of the Flooring business, net revenue is expected to be up 1% to 2%;
• Organic revenue growth is expected to be flat to up 2% versus fiscal 2024;
• Adjusted EBITDA for fiscal 2025 is expected to be in the range of $600 million to $625 million, equating to growth of approximately 1% to 5% year-on-year;
• Adjusted EBITDA for the first quarter of 2025 is expected to be in the range of $105 million to $115 million;
• The core tax rate, excluding the impact of discrete items, is anticipated to be between 26% and 27% in fiscal year 2025;
• Net interest expense for fiscal 2025 is expected to be between $120 million and $125 million;
• Adjusted EPS (diluted) is expected to be in the range of $3.90 to $4.20, equating to a range of up 2% to 9% year-on-year;
• Operating cash flow in fiscal year 2025 is expected to be between $300 million and $325 million;

• Capital expenditures of approximately $160 million are expected in fiscal 2025, which includes approximately $40 million related to the Company's manufacturing footprint consolidation initiative.

Conference Call:

The Company will hold a conference call on January 16, 2025, at 9:30 a.m. CT (10:30 a.m. ET) to discuss its results. Interested parties may listen to the conference call on a live webcast. The webcast, along with a supplemental presentation, may be accessed from the Company's website at https://investors.hbfuller.com. Participants must register prior to accessing the webcast using this link and should do so at least 10 minutes prior to the start of the call to install and test any necessary software and audio connections. A telephone replay of the conference call will be available from 12:30 p.m. CT on January 16, 2025, to 10:59 p.m. CT on January 23, 2025. To access the telephone replay dial 1-800-770-2030 (toll free) or 1-609-800-9909, and enter Conference ID: 6370505.

Regulation G:

The information presented in this earnings release regarding consolidated and segment organic revenue growth, 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, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted EBITDA margin, net debt, net debt-to-adjusted EBITDA, trailing twelve months adjusted EBITDA, net working capital, annualized net revenue and net working capital as a percentage of annualized net revenue does not conform to U.S. generally accepted accounting principles (U.S. GAAP) and should not be construed as an alternative to the reported results determined in accordance with U.S. 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 U.S. 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 2025 Outlook, which the Company cannot reconcile to forward-looking GAAP results without unreasonable effort.

About H.B. Fuller:

As the largest pureplay adhesives company in the world, H.B. Fuller's (NYSE:FUL) innovative, functional coatings, adhesives and sealants enhance the quality, safety and performance of products people use every day. Founded in 1887, with 2024 revenue of $3.6 billion, our mission to Connect What Matters is brought to life by more than 7,500 global team members who collaborate with customers across more than 30 market segments in over 140 countries to develop highly specified solutions that enable customers to bring world-changing innovations to their end markets. Learn more at 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 federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements often address expected future business and financial performance, financial condition, and other matters, and often contain words or phrases such as "anticipate," "believe," "estimate," "expect," "intend," "may," "opportunity," "outlook," "plan," "project," "seek," "should," "strategy," "target," "will," "will be," "will continue," "will likely result," "would" and similar expressions, and variations or negatives of these words or phrases. These statements are subject to various risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including but not limited to the following: the availability and pricing of raw materials; the impact of potential cybersecurity attacks and security breaches; failures in our information technology systems; the impact on the supply chain, raw material costs and pricing of our products due to military conflict, including between Russia and Ukraine and in the Middle East; the impact on our margins and product demand due to inflationary pressures; the substantial amount of debt we have incurred to finance our acquisition of Royal, our ability to repay or refinance our debt or to 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 debt covenants that limit the discretion of management in operating the business or in paying dividends; our ability to pay dividends and to pursue growth opportunities if we continue to pay dividends according to our current dividend policy; our ability to effectively manage and realize expected benefits from completed and future mergers, acquisitions, and divestitures; our ability to achieve expected synergies, cost savings and operating efficiencies from our restructuring initiatives and operational improvement projects within the expected time frames or at all; our ability to effectively implement Project ONE; uncertain political and economic conditions; fluctuations in product demand; competing products and pricing; our geographic and product mix; disruptions to our relationships with our major customers and suppliers; regulatory compliance across our global footprint; trade policies and economic sanctions impacting our markets; changes in tax laws and tariffs; devaluations and other foreign exchange rate fluctuations; the impact of litigation and investigations, including for product liability and environmental matters; impairment charges on our goodwill or long-lived assets; the consequences of the COVID-19 outbreak and other pandemics on our operations and financial results; the effect of new accounting pronouncements and accounting charges and credits; and similar matters.

Additional information about these various risks and uncertainties can be found in the "Risk Factors" section of our Form 10-K filings, and any updates to the risk factors in our Form 10-Q and 8-K filings with the SEC, but there may be other risks and uncertainties that we are unable to identify at this time or that we do not currently expect to have a material impact on the business. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. We do not undertake to update or revise any forward-looking statements, except as required by law.