H.B. Fuller Reports Second Quarter 2024 Results

Reported EPS (diluted) of $0.91; Adjusted EPS (diluted) of $1.12, up 20% year-on-year

Net income of $51 million; Adjusted EBITDA of $157 million, up 10% year-on-year

Adjusted EBITDA margin of 17.1%, up 120 basis points year-on-year

Updates full year adjusted EBITDA guidance to upper end of previously provided range

H.B. Fuller Company (NYSE:FUL) today reported financial results for its second quarter that ended June 1, 2024.

Second Quarter 2024 Noteworthy Items:

• Net revenue was $917 million, up 2.1% year-on-year; organic revenue was flat year-on-year with volume up 3.3% and all three global business units achieving volume growth;
• Gross profit margin was 30.8%; adjusted gross profit margin was 31.1%, up 210 basis points year-on-year, driven principally by favorable net pricing and raw material cost impact, restructuring benefits and volume growth;
• Net income was $51 million; adjusted EBITDA was $157 million, up 10% year-on-year; adjusted EBITDA margin expanded 120 basis points year-on-year to 17.1%;
• Reported EPS (diluted) was $0.91; adjusted EPS (diluted) was $1.12, up 20% versus the prior year, driven by strong operating income growth;
• Year-to-date cash flow from operations increased $21 million year-on-year to $129 million, driven by improved profitability;
• Net working capital, as a percentage of annualized net revenue, decreased 190 basis points year-on-year from 18.1% to 16.2%;
• Reinitiated share repurchase program, acquiring 182,400 shares during the quarter;
• Acquired ND Industries, Inc., a leading provider of specialty adhesives and fastener locking solutions for the automotive, electronics, and aerospace markets.

Summary of Second Quarter 2024 Results:

The Company's net revenue for the second quarter of fiscal 2024 was $917 million, up 2.1% versus the second quarter of fiscal 2023. Volume increased net revenue by 3.3% and was offset by anticipated pricing adjustments, resulting in flat organic revenue year-on-year. Volume grew in all three global business units. Foreign currency translation reduced net revenue by 1.7% and acquisitions increased net revenue by 3.9%.

Gross profit in the second quarter of fiscal 2024 was $282 million. Adjusted gross profit was $286 million. Adjusted gross profit margin of 31.1% increased 210 basis points year-on-year. The net impact of pricing and raw material cost actions as well as restructuring benefits and volume leverage principally drove the year-on-year increase in adjusted gross profit margin.

Selling, general and administrative (SG&A) expense was $181 million in the second quarter of fiscal 2024 and adjusted SG&A was $173 million versus $159 million in the second quarter of fiscal 2023. The impact of acquisitions, inflation in wages and services, and higher variable compensation expense, partially offset by restructuring savings, drove the year-on-year increase in adjusted SG&A.

Net income attributable to H.B. Fuller for the second quarter of fiscal 2024 was $51 million, or $0.91 per diluted share. Adjusted net income attributable to H.B. Fuller for the second quarter of fiscal 2024 was $64 million. Adjusted EPS was $1.12 per diluted share, up 20% year-on-year driven by strong operating income growth.

Adjusted EBITDA in the second quarter of fiscal 2024 was $157 million, up 10% year-on-year driven principally by the net impact of pricing and raw material cost actions, volume growth, restructuring savings, and benefits from recent acquisitions. Adjusted EBITDA margin increased 120 basis points year-on-year to 17.1%.

H.B. Fuller President and CEO Celeste Mastin said, "Our strong second quarter financial performance reflects the team's steadfast commitment to execution while driving our long-term strategy to focus on more profitable, higher growth segments of the market. We continue to innovate and deliver customized value-enhancing solutions to our customers while acquiring highly profitable, fast-growing businesses, like ND Industries, to expand our market presence in the most differentiated segments. As we execute our restructuring program focused on streamlining our global footprint, we are driving sustainable enhancements to our cost structure and improving our ROIC. In a large total addressable market, where we win one application at a time, we continue to meaningfully move the needle and remain on track to deliver adjusted EBITDA margin greater than 20 percent in the next three to five years."

Balance Sheet and Working Capital:

Net debt at the end of the second quarter of fiscal 2024 was $1,910 million, up $131 million year-on-year. The increase in net debt was driven primarily by the acquisition of ND Industries, Inc. during the quarter. The ratio of net debt-to-adjusted EBITDA increased from 2.9X at the end of fiscal year 2023 to 3.1X at the end of the second quarter.

Net working capital in the second quarter of fiscal 2024 decreased $56 million year-on-year. As a percentage of annualized net revenue, net working capital decreased 190 basis points year-on-year to 16.2%.

Fiscal 2024 Outlook:

As a result of our strong first half performance and recent acquisition activity, partially offset by the strengthening US Dollar, we are updating our previously communicated financial guidance for fiscal 2024 as follows:

• Net revenue growth is now expected to be in the range of up 2% to 4% with organic revenue flat to up 2% year-on-year;
• Adjusted EBITDA is now expected to be in the range of $620 million to $640 million, equating to growth of approximately 7% to 10% year-on-year, and for third quarter adjusted EBITDA to be in the range of $165 million to $175 million;
• Net interest expense is now expected to be approximately $130 million;
• Adjusted EPS (diluted) is now expected to be in the range of $4.20 to $4.45, equating to year-on-year growth of between 9% and 15%;
• Operating cash flow is still expected to be between $300 million and $350 million.

Conference Call:

The Company will hold a conference call on June 27, 2024, 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 June 27, 2024, to 10:59 p.m. CT on July 4, 2024. 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 2024 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 2023 revenue of $3.5 billion, our mission to Connect What Matters is brought to life by more than 7,000 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; the impact on the supply chain, raw material costs and pricing of our products due to military conflict, including between Russia and Ukraine and Israel and Hamas; the consequences of the COVID-19 outbreak and other pandemics on our operations and financial results; 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 acquire and integrate complementary businesses; 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; failures in our information technology systems; 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 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.