22% year-over-year organic growth drove record quarterly revenue

Earnings per diluted share (EPS) of $0.86; Adjusted diluted EPS of $1.11 up 18% year over year

Adjusted EBITDA of $139M, up 14% year over year

H.B. Fuller Company (NYSE: FUL) today reported financial results for its second quarter ended May 28, 2022.

Items of Note for Second Quarter 2022

• Strong operational execution delivered record quarterly revenue of $993 million.
• Net revenue increased 20% and organic revenue increased 22% versus last year.
• All three Global Business Units (GBUs) delivered mid-teens percentage or higher organic revenue growth compared with the prior year.
• Higher volumes, pricing gains and cost efficiencies resulted in net income of $47 million and adjusted EBITDA of $139 million which increased 14% year over year.
• Earnings per diluted share were $0.86; adjusted EPS of $1.11 increased 18% year over year.

Summary of Second Quarter 2022 Results

Net revenue of $993 million increased 20% compared with the second quarter of 2021. Foreign currency exchange rates unfavorably impacted revenue by 3.9%, and acquisitions favorably impacted revenue by 2%. Total company organic revenue increased 21.9% versus last year with 3.4% from volume growth and 18.5% from pricing. Hygiene, Health and Consumables Adhesives organic revenue increased 24.5% year over year, Engineering Adhesives organic revenue was up 21.8%, and Construction Adhesives organic revenue grew 14.3%.

Gross profit was $254 million. Adjusted gross profit of $255 million increased 16% versus the same period last year. Gross profit margin and adjusted gross profit margin declined year over year, as expected, as elevated raw material and freight costs were offset by sales volume and pricing gains. Selling, General and Administrative (SG&A) expense was $166 million. SG&A and adjusted SG&A improved as a percent of revenue compared with the second quarter last year resulting from strong volume leverage and general expense controls. Adjusted SG&A as a percent of revenue improved by 130 basis points versus last year

As a result of these factors, net income attributable to H.B. Fuller in the quarter was $47 million, or $0.86 per diluted share. Adjusted net income attributable to H.B. Fuller of $61 million and adjusted EPS of $1.11 were up 20% and 18%, respectively, versus the same period last year. Adjusted EBITDA of $139 million increased 14% compared with the prior year.

“H.B. Fuller continues to deliver differentiated performance for our customers and shareholders,” said Jim Owens, H.B. Fuller president and chief executive officer. “In the second quarter, we added to our track record of strong performance by delivering 22% organic revenue growth, a 14% increase in EBITDA and an 18% increase in EPS. Our organic sales have increased by double-digit percentages in each of the last 6 quarters and quarterly EBITDA growth has averaged 15%, even with prolonged supply chain constraints, shortages of materials, and significant economic impacts from COVID shutdowns and a war in Ukraine. With our focus on strategic pricing and delivering innovation to solve the toughest adhesion challenges, we are confident in our full year outlook for fiscal 2022 despite persistent inflationary pressures and expected slowing in some markets. Delivering strong, sustainable shareholder value regardless of the economic environment remains a priority in 2022 and in the years ahead.”

Key Balance Sheet and Cash Flow Items

At the end of the second quarter of fiscal 2022, the company had cash on hand of $68 million and total debt equal to $1,936 million. This compares with cash and debt levels of $64 million and $1,914 million, respectively, in the first fiscal quarter of 2022. Cash flow from operations of $8.5 million in the second quarter improved sequentially from the first quarter, as expected, as working capital as a percentage of annualized revenue improved by 140 basis points to 17.1%. Capital expenditures of $20 million in the second quarter increased from $15 million in the prior year quarter primarily due to timing of projects.

Fiscal 2022 Outlook

• Raw material and delivery costs are expected to continue to rise as the year progresses primarily driven by industrial demand and supply constraints of U.S. petrochemicals. The company anticipates an increase of more than 20% for the full year versus the fourth quarter 2021 exit rate.
• H.B. Fuller has implemented annualized price adjustments of approximately $330 million in the first half of 2022, including over $200 million in the second quarter, and is planning additional annualized increases of over $175 million in the third quarter. When combined with annualized price increases of approximately $450 million executed in fiscal 2021, the company’s total pricing actions are anticipated to more than offset raw material and delivery cost increases. The company is prepared to implement further increases as necessary.
• Adjusted EBITDA is expected to be in the range of $530 to $550 million, an increase of approximately 14% to 18% versus fiscal 2021, with double-digit year-over-year growth in all four quarters.
• Adjusted EPS is expected to be in the range of $4.10 to $4.35, an increase of between 18% and 25% versus fiscal year 2021.
• Working capital as a percentage of revenue is expected to continue to improve over the course of the year and to decline below 16% by fiscal 2022 year-end, resulting in more normalized levels of cash flow generation in the second half of the year.

Conference Call

The company will hold a conference call on June 23, 2022, 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 23, 2022 through 10:59 p.m. CT on June 30, 2022. To access the telephone replay dial 1-800-770-2030 (toll free) or 1-647-362-9199, 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 and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) 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 2022 Guidance, 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 2021 net revenue of $3.3 billion, H.B. Fuller’s commitment to innovation and sustainable adhesive solutions 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 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 consequences of the COVID-19 outbreak and other pandemics on our operations and financial results; the impact on the supply chain, raw material costs and pricing of our products due to the Russia-Ukraine war; 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, 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 the current dividend policy; 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; availability and price of raw materials; 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. Many of the foregoing risks and uncertainties are, and will be, exacerbated by COVID-19 and the Russia-Ukraine war and the resulting deterioration of the global business and economic environment.

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.