H.B. Fuller Company (NYSE: FUL) today reported financial results for its fourth quarter and fiscal year that ended December 3, 2022.

Fiscal Year 2022 Noteworthy Items:

• Net revenue of $3.75 billion, up 14% versus fiscal year 2021; organic revenue up 17% year-on-year, driven by responsibly strong pricing execution;
• Net income of $180 million or $3.26 per share (diluted); adjusted EPS of $4.00 per share (diluted), up 15% year-on-year; unfavorable foreign currency exchange reduced adjusted EPS by approximately $0.56, or 16% versus the prior year;
• Adjusted EBITDA of $530 million, up 14% year-on-year on pricing gains and strong execution, more than overcoming significant year-on-year raw material inflation and unfavorable foreign currency impacts;
• Cash flow from operations of $257 million, up 20% year-on-year;
• As a reminder, there was one additional reporting week in fiscal year 2022, which positively impacted net revenue and adjusted EBITDA growth versus 2021 by approximately 2% for the year and 7.5% for the fourth quarter; the definition of organic growth excludes the impact of the extra week.

Fourth Quarter 2022 Noteworthy Items:

• Net revenue of $958 million, up 7% year-on-year; organic revenue increased 6% year-on-year, driven by strong organic growth in both Hygiene, Health, and Consumable and Engineering Adhesives and solid pricing execution in all three GBUs;
• Net Income was $48 million; adjusted EBITDA of $141 million was up 5% year-on-year and adjusted EBITDA margin was 14.7%;
• Reported EPS (diluted) was $0.87; adjusted EPS (diluted) was $1.04, down slightly versus the prior year due to raw material inflation, higher interest expense and unfavorable foreign currency exchange impacts; unfavorable foreign currency exchange reduced adjusted EPS in the quarter by approximately $0.22, or 20% versus the prior year;
• Net working capital, as a percentage of annualized net revenue, decreased 100 basis points sequentially from 18.9% in the third quarter to 17.9% in the fourth quarter;
• Net debt-to-adjusted EBITDA ratio declined sequentially from 3.6X to 3.2X driven by improved cash flow from operations and growth in adjusted EBITDA.

Fiscal Year 2022 Summary:

Net revenue for fiscal year 2022 was $3.75 billion, up 14% versus fiscal year 2021. Organic revenue was up 17% year-on-year, with volume up 1% and the rest of the increase driven by higher year-on-year pricing. Unfavorable foreign currency exchange rates reduced net revenue growth by 5.8 percentage points, acquisitions increased net revenue growth by 1.6 percentage points, and the extra week in the fiscal year increased net revenue growth by 2.0 percentage points.

Net income attributable to H.B. Fuller for fiscal 2022 was $180 million, or $3.26 per diluted share. Adjusted net income attributable to H.B. Fuller was $221 million, or $4.00 per diluted share, up 15% compared to $3.47 per diluted share, in fiscal year 2021. Adjusted EBITDA for fiscal year 2022 was $530 million, up 14% versus adjusted EBITDA of $467 million in fiscal year 2021.

Summary of Fourth Quarter 2022 Results:

Net revenue for the fourth quarter of fiscal 2022 was $958 million, up 7% versus the fourth quarter of fiscal 2021. Organic revenue was up 6.4% year-on-year, as strong pricing actions increased revenue by 11.4% and volume was down 5.0% due to a slowdown in end market demand, particularly in Construction Adhesives, and softness in China due to more severe COVID-related lockdowns. Unfavorable foreign currency exchange rates reduced net revenue growth by 8.7 percentage points, acquisitions increased net revenue growth by 1.6 percentage points, and the extra week in the fourth quarter increased net revenue growth by 7.5 percentage points.

Gross profit in the fourth quarter of fiscal 2022 was $248 million. Adjusted gross profit in the fourth quarter of fiscal 2022 was $251 million. Adjusted gross profit margin of 26.2% decreased 90 basis points year-on-year. Raw material inflation and lower volumes, particularly in Construction Adhesives, offset higher pricing versus the prior year and resulted in lower gross profit margin.

Selling, general and administrative (SG&A) expense was $158 million in the fourth quarter of fiscal 2022 and adjusted SG&A was $153 million. Adjusted SG&A as a percent of net revenue decreased 130 basis points versus the fourth quarter of last year. The decrease in SG&A, as a percentage of net revenue, was driven by organic revenue growth, lower variable compensation and disciplined expense management.

Net income attributable to H.B. Fuller for the fourth quarter of fiscal 2022 was $48 million, or $0.87 per diluted share. Adjusted net income attributable to H.B. Fuller for the fourth quarter of fiscal 2022 was $58 million. Adjusted EPS was $1.04 per diluted share, down slightly year-on-year due to unfavorable foreign currency translation and higher interest rates.

Adjusted EBITDA in the fourth quarter of fiscal 2022 was $141 million, up 5% compared with the fourth quarter of last year. Adjusted EBITDA margin was relatively stable year-on-year. The increase in adjusted EBITDA was driven by strong pricing actions and good expense management, which offset the impact of significantly higher raw material costs and unfavorable foreign currency translation.

“We delivered double-digit growth in organic revenue, adjusted EBITDA, and adjusted EPS in fiscal year 2022, driven by market share gains, appropriately strong pricing actions, and improved execution,” said Celeste Mastin, H.B. Fuller president and chief executive officer. “I am proud of our team’s resilience and determination in executing our winning strategy in the face of significant headwinds, including continued raw material cost inflation, a strengthening U.S. dollar, and higher interest rates.”

“At the same time, we recognize that we did not finish the year as strong as we had expected. During the fourth quarter, we experienced a more pronounced and accelerated slowdown in demand for Construction Adhesives than we anticipated, which was driven by customer inventory de-stocking actions prior to the end of the calendar year. Additionally, we experienced unexpected softness in China due to more dramatic COVID-related lockdowns and on a global basis, greater than expected headwinds from foreign currency translation.

“As we look to the year ahead, we expect global economic conditions to remain slow and we are prepared to control expenses, expand margins by continuing to innovate for our customers and benefiting from scale with our suppliers, and grow cash flow in such an environment. We have managed pricing well in the face of unprecedented raw material inflation and we have the tools and capabilities to drive profit growth and meaningful margin expansion going forward.

“We are confident and optimistic in our ability to drive organic growth, expand EBITDA margin, and grow EBITDA at a rate consistent with our long-term financial goal of annual double-digit EBITDA growth. We have many competitive advantages to leverage in the current economic environment. In addition to our ability to collaboratively innovate with customers to serve their needs, we have pricing analytics and discipline, robust product substitution capabilities, and a track record of executing nimbly. I have great confidence in our strategy, and I see tremendous potential for continued strong financial performance.”

Balance Sheet and Cash Flow Items:

At the end of the fourth quarter of fiscal 2022 net debt was $1,685 million, down $172 million sequentially versus the third quarter. The sequential reduction in net debt, together with growth in adjusted EBITDA, reduced the ratio of net debt-to-adjusted EBITDA from 3.6X to 3.2X sequentially.

Net working capital in the fourth quarter of fiscal 2022 declined $73 million sequentially versus the third quarter. As a percentage of annualized net revenue, net working capital declined 100 basis points sequentially from 18.9% in the third quarter to 17.9%. Cash flow from operations in the fourth quarter was $208 million, up $150 million sequentially versus the third quarter and up $156 million year-on-year, reflecting actions taken to reduce net working capital requirements.

Fiscal 2023 Outlook:

• Adjusted EBITDA for fiscal 2023 is expected to be in the range of $580 million to $610 million, equating to growth of approximately 9% to 15% versus fiscal year 2022;
• Revenue for 2023 is expected to be flat to down 3% versus 2022; organic revenue growth for fiscal year 2023 is expected to be in the range of 2% to 4%, adjusting for the impact of the extra week in fiscal year 2022;
• Fiscal year 2023 will be a 52-week year compared to a 53-week year in fiscal year 2022, which will unfavorably impact year-on-year net revenue and adjusted EBITDA growth by approximately 2% in fiscal year 2023;
• Foreign currency translation is expected to unfavorably impact net revenue growth by between 3% to 4% in fiscal year 2023, with the first half of the year being more heavily impacted given the significant strengthening of the U.S. dollar that occurred in the second half of fiscal year 2022;
• The core tax rate, excluding the impact of discrete items, is anticipated to be between 27% and 29% in fiscal year 2023;
• Net interest expense for fiscal 2023 is expected to be between $115 million and $125 million, up from fiscal year 2022, reflecting higher interest rates;
• Adjusted EPS in fiscal year 2023 is expected to be in the range of $4.15 to $4.55, equating to growth of between 4% to 14% year-on-year, despite the significantly stronger U.S. dollar, higher borrowing costs, weakening global economic demand conditions, and one less week in fiscal 2023;
• Operating cash flow in fiscal year 2023 is expected to be between $300 million and $350 million, being more weighted to the second half of the year, and capital expenditures are expected to be $120 million.

Conference Call:

The company will hold a conference call on January 19, 2023, 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 19, 2023, through 10:59 p.m. CT on January 26, 2023. 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 2023 Outlook, 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 2022 net revenue of $3.75 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. 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.

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.