H.B. Fuller Company

06/26/2019 | Press release | Distributed by Public on 06/27/2019 00:03

Second Quarter 2019 Results

Reported Diluted Net Income of $37 Million and EPS of $0.70; Adjusted Diluted EPS(1) of $0.88

Adjusted EBITDA(1) of $121 million in-line with company guidance

Company Accelerates Debt De-Leveraging Target

S.T. PAUL, Minn., June 26, 2019 /PRNewswire/ -- H.B. Fuller Company (NYSE: FUL) today reported financial results for the second quarter that ended on June 1, 2019.

Items of Note for Second Quarter 2019:

  • Net income was $37 millionor $0.70per diluted share (EPS), and adjusted net income was $46 million1, or $0.881of EPS;
  • Adjusted EBITDA of $121 million1was in line with the company's guidance and improved versus the prior year on a constant currency basis;
  • Adjusted EBITDA margin of 16%1increased by 50 basis points;
  • Organic sales increased by 10.5% year over year in Engineering Adhesives, the company's key strategic growth segment;
  • Gross margin of 28.8% and adjusted gross margin of 28.9%4were up 90 basis points year over year driven by pricing, improved business mix, Royal integration-related synergies and moderating raw material costs;
  • Debt paydown was $42 millionin the quarter and $54 millionyear to date. Year-to-date debt paydown was $7 millionhigher than the same period last year;
  • On June 11, 2019, the company announced a signed definitive agreement to sell a non-core, non-adhesive business for $71 million. Net proceeds will be utilized to increase 2019 debt paydown commitment from $200 millionto $250 million.

Summary of Second Quarter 2019 Results:
Net revenue for the quarter of $760 milliondecreased 3.8% compared with the second quarter of 2018. Organic revenue, which excludes the impact of foreign currency, increased approximately 1%. Pricing was a positive contributor to organic revenue growth, and total volumes, while down year over year, increased sequentially from the first quarter. Strong year-over-year organic sales growth in Engineering Adhesives was partially offset by lower construction-related volumes, primarily due to portfolio repositioning in Construction Adhesives toward more profitable product lines.

Gross profit margin was 28.8% and adjusted gross profit margin was 28.9%4, an increase of 90 basis points versus last year for both metrics, driven by positive pricing contribution, improved business mix, synergies from the integration of Royal Adhesives and lower raw material costs. Selling, General and Administrative (SG&A) expenses were $146 million. Adjusted SG&A expenses of $139 million5decreased 1.5% compared with the second quarter of 2018, driven by foreign currency exchange rates and continued focus on expense management.

As a result of these factors, net income attributable to H.B. Fuller for the second quarter of 2019 was $37 million, or $0.70per diluted share, compared with $44 million, or $0.86per diluted share in the same period last year. Adjusted net income attributable to H.B. Fuller was $46 million1, or $0.881adjusted EPS, compared with $46 million1, or $0.891adjusted EPS last year. Adjusted EBITDA was $121 million1, compared with $123 million1in the prior year, and adjusted EBITDA margin of 16%1increased versus 15.5%1in the prior year.

'Strong operational execution drove margin expansion, improved organic revenue growth and excellent cash flow performance in the second quarter, and we forecast additional improvement in the second half of the year,' said Jim Owens, H.B. Fuller president and chief executive officer. 'Our Engineering Adhesive business grew by double digits and despite weakness in some end markets we continue to drive increased profitability and cash flow conversion at H.B. Fuller. Strong free cash flow combined with the recently announced divestiture of a non-core surfactants and thickeners business are enabling us to increase our expected 2019 debt paydown by $50 million, accelerating our deleverage timeline. We continue to build on our strategic position as a global leader in adhesives, delivering innovation for our customers and sustainable value for our shareholders.'

Balance Sheet and Cash Flow:

At the end of the second quarter of 2019, the company had cash on hand of $100 millionand total debt equal to $2,194 million. This compares to cash and debt levels equal to $113 millionand $2,235 million, respectively, in the first quarter of 2019. Cash flow from operations in the second quarter was $77 millioncompared with $55 millionfor the same period in 2018, reflecting improved profitability and working capital management. Capital expenditures were $18 millionin the second quarter of 2019, compared with $15 millionin the prior year.

Updated Fiscal 2019 Guidance:
Full year organic sales growth is expected to be 1 to 2%. Foreign currency exchange is expected to have a full year negative impact on reported revenues of 3 to 4%, and the divestiture of the surfactants business is forecasted to impact sales by approximately 0.5%. Management anticipates annual adjusted EPS in the range of $3.10to $3.30, compared with prior guidance of $3.15to 3.45; and annual adjusted EBITDA in the range of $455to $465 million, compared with prior guidance of $465to $485 million. Adjusted EBITDA and adjusted EPS reflect the loss of approximately $5 million dollarsand $0.05related to the divestiture of the surfactants business, and continued macroeconomic challenges impacting growth in Europeand Asia Pacificregions. The company's core tax rate, excluding the impact of discrete items, is expected to be between 26 and 29%, and capital expenditures are expected to be approximately $90 million.

This guidance excludes approximately $20 millionof pre-tax expenses required to integrate the Royal business and other businesses acquired in 2017, between $6and $8 millionof pre-tax expenses related to ERP development costs, and any gain on the divestiture of the surfactants, thickeners and dispersants business. The company's guidance could be impacted by further rule making relative to U.S. Tax Reform. A complete reconciliation of the non-GAAP financial information contained in our 2019 guidance is not being provided in accordance with the 'unreasonable efforts' exception of Item 10(e)(1)(i)(B) of Regulation S-K of the Securities and Exchange Commission.

Conference Call:
The company will host an investor conference call to discuss second quarter results on Thursday, June 27, 2019, at 10:30 a.m.Eastern U.S. time. The conference call audio and accompanying presentation slides will be available to interested parties via a simultaneous webcast accessible on the company's website at https://investors.hbfuller.com/calendar. The slides will be made available approximately 30 minutes prior to the start of the call. Participants should access the webcast 15 minutes prior to the start of the call to register for the event and install and test any necessary software. The webcast and presentation will be archived on the company's website. A telephone replay of the conference call will be available approximately 1 hour after the conclusion of the call, through July 4, 2019. To access the telephone replay dial 1-877-344-7529 or 1-412-317-0088 and enter passcode 10132231.

Certain amounts presented in this release and the accompanying financial statements and data are preliminary and are subject to change in the company's Quarterly Report on Form 10-Q for the period ended June 1, 2019when it is filed with the Securities and Exchange Commission.

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