Net income of $38 million; Adjusted EBITDA of $156 million, up 13% year-on-year

Adjusted gross profit margin expanded 350 basis points year-on-year to 30.0%

Adjusted EBITDA margin increased 270 basis points year-on-year to 17.3%

Cash flow from operations increased $50 million year-on-year to $108 million

H.B. Fuller Company (NYSE: FUL) today reported financial results for its third quarter that ended September 2, 2023.

Third Quarter 2023 Noteworthy Items:

• Net revenue of $901 million, down 4.3% year-on-year; organic revenue decreased 7.4% year-on-year, driven by lower volume;
• Gross margin was 29.3%; adjusted gross margin of 30.0% increased 350 basis points year-on-year, driven by pricing and raw material cost actions and restructuring benefits;
• Net income was $38 million; adjusted EBITDA was $156 million, up 13% year-on-year, adjusted EBITDA margin expanded 270 basis points year-on-year to 17.3%;
• Reported EPS (diluted) was $0.67; adjusted EPS (diluted) was $1.06, flat versus the prior year, as strong operating income growth was offset by higher interest expense and unfavorable foreign currency exchange;
• Cash flow from operations in the third quarter improved $50 million year-on-year, or 87%, to $108 million.

Summary of Third Quarter 2023 Results:

The Company’s net revenue for the third quarter of fiscal 2023 was $901 million, down 4.3% versus the third quarter of fiscal 2022. Organic revenue declined 7.4% year-on-year, driven by lower volume, offset somewhat by favorable pricing. Volume declined 8.0%, driven by customer destocking actions, principally in Hygiene, Health, and Consumable Adhesives, and generally slower industrial demand across all three global business units. Volume development in the third quarter improved significantly versus the second quarter, when volume declined 14.2% year-on-year. Pricing actions favorably impacted organic growth by 0.6 percentage points. Foreign currency translation reduced net revenue growth by 1.7 percentage points and acquisitions increased net revenue growth by 4.8 percentage points.

Gross profit in the third quarter of fiscal 2023 was $263 million. Adjusted gross profit was $270 million. Adjusted gross profit margin of 30.0% increased 350 basis points year-on-year. Pricing and raw material cost actions, restructuring benefits and general cost reductions drove the increase in adjusted gross margin year-on-year and more than offset the impact of lower volume.

Selling, general and administrative (SG&A) expense was $172 million in the third quarter of fiscal 2023 and adjusted SG&A was $159 million, up slightly year-on-year. Continued cost management and additional restructuring benefits offset inflation in wages and services and the incremental SG&A costs associated with acquisitions completed over the previous year.

Net income attributable to H.B. Fuller for the third quarter of fiscal 2023 was $38 million, or $0.67 per diluted share. Adjusted net income attributable to H.B. Fuller for the third quarter of fiscal 2023 was $59 million. Adjusted EPS was $1.06 per diluted share, essentially flat year-on-year as strong operating income growth was offset by higher interest expense and unfavorable foreign currency impacts, which reduced diluted earnings per share by approximately $0.17 and $0.05, respectively, year-on-year in the third quarter.

Adjusted EBITDA in the third quarter of fiscal 2023 was $156 million, up 13.1% year-on-year. Adjusted EBITDA margin increased 270 basis points year-on-year to 17.3%, driven by the combined impact of pricing and raw material cost actions versus the prior year’s third quarter, as well as restructuring savings, partially offset by the impacts of lower volume and wage and other inflation.

“In the third quarter we successfully drove a double-digit increase in adjusted EBITDA year-on-year and increased adjusted EBITDA margin meaningfully, demonstrating the strength of our business model and ability to increase profitability regardless of market conditions. We achieved profit growth despite weaker than expected volumes, driven by a more adverse customer destocking impact in Hygiene, Health, and Consumable Adhesives and lower market demand in construction related markets,” said Celeste Mastin, H.B. Fuller president and chief executive officer.

“The restructuring actions we announced in the first quarter in anticipation of a challenging volume environment were timely and prudent. During the third quarter, we increased the scope of these actions to deliver additional cost savings and enhance our overall operating efficiency. These actions, plus ongoing execution on price and raw material management, enabled us to drive adjusted EBITDA higher despite temporary volume weakness that exceeds true underlying demand.

“Looking ahead, we are encouraged that the unusual global customer destocking phenomenon that has taken place across nearly all end markets is abating. Customer destocking largely ran its course in Engineering Adhesives and Construction Adhesives and peaked for Hygiene, Health, and Consumable Adhesives during the third quarter. As demand conditions normalize, we expect the continued strength of our innovation pipeline, coupled with the operating leverage created through our restructuring actions, to drive significant value for our business in 2024 and beyond.”

Balance Sheet and Cash Flow Items:

Net debt at the end of the third quarter of fiscal 2023 was $1,790 million, up $11 million sequentially versus the second quarter and down $67 million year-on-year. The sequential increase in net debt was driven by acquisition activity during the third quarter, offset by improved cash flow from operations.

Cash flow from operations in the third quarter was $108 million, up $50 million year-on-year, reflecting improving margins and lower net working capital requirements.

Fiscal 2023 Outlook:

• Net revenue for fiscal 2023 is now expected to be in the range of $3.50 billion to $3.55 billion with organic revenue down 4.5% to 5.5% versus fiscal 2022, reflecting lower volume expectations due to customer destocking actions and slower than anticipated underlying demand conditions;
• Adjusted EBITDA for fiscal 2023 is now expected to be in the range of $580 million to $590 million, reflecting lower volume expectations more than offset by higher margins, contributions from acquisitions, and restructuring benefits, equating to growth of approximately 9% to 11% versus fiscal year 2022;
• Adjusted EPS (diluted) is now expected to be in the range of $3.80 to $3.90, equating to a range of down 2.5% to 5.0% year-on-year;
• We now expect actions from the previously announced, and subsequently expanded, strategic restructuring to generate between $40 and $45 million in annual pre-tax run-rate cost savings, up from our original estimate of $30 to $35 million in annual pre-tax run-rate savings. This is in addition to approximately $20 million of pre-tax run-rate savings associated with the Beardow Adams integration, which was announced during the third quarter.

Conference Call:

The Company will hold a conference call on September 28, 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 September 28, 2023, to 10:59 p.m. CT on October 5, 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 and sealants 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.