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H.B. Fuller Reports First Quarter 2019 Results

Reported Diluted EPS of $0.24 ; Adjusted Diluted EPS[1] of $0.34

Adjusted EBITDA[1] and Adjusted Diluted EPS[1] in-line with company guidance

Company reaffirms fiscal 2019 Adjusted EPS and EBITDA guidance

ST. PAUL, Minn. , March 27, 2019 /PRNewswire/ -- H.B. Fuller Company ( FUL ) today reported financial results for the first quarter that began on Dec. 2, 2018 and ended on March 2, 2019 .

(PRNewsfoto/H.B. Fuller Company)

Items of Note for First Quarter 2019:

  • Net income was $12 million or $0.24 per diluted share (EPS), and adjusted net income was $17.5 million 1 , or $0.34 1 of EPS;
  • Adjusted EBITDA was $83 million 1 , in line with the company's guidance, and increased 40 basis points 1 as a percent of revenue versus last year;
  • Gross margin was 26.7 percent, and adjusted gross margin was 27 percent 4 , up 90 basis points year-over-year, driven by pricing gains, raw material sourcing synergies and improved business mix;
  • Debt paydown was $12 million , on-track to meet the company's $200 million debt paydown target for the 2019 fiscal year. This is consistent with $11 million paydown in the first quarter last year, and $214 million total paydown in fiscal 2018;
  • The company also reaffirmed its prior guidance ranges for fiscal 2019 adjusted EPS and EBITDA.

Summary of First Quarter 2019 Results :
Net revenue for the first quarter of 2019 of $673 million decreased 5.6 percent compared with the first quarter of 2018. Revenue excluding the impact of foreign currency was down 1 percent. Revenue performance was driven by favorable pricing, low-single digit organic growth in Americas Adhesives and EIMEA, and strong growth in electronics and aerospace solutions in the Engineering Adhesives segment, offset by a business slowdown in China , a weak December, portfolio repositioning in Construction Adhesives toward more profitable product lines, and softness in construction-related markets due to a colder and wetter winter.

Gross profit margin was 26.7 percent and adjusted gross profit margin was 27 percent 4 , an increase of 90 basis points versus last year, driven by positive pricing contribution, raw material sourcing synergies from the integration of Royal Adhesives and improved business mix. Selling, General and Administrative (SG&A) expenses were $146 million . Adjusted SG&A expenses of $139 million 5 decreased approximately 3 percent compared with the first quarter of 2018, driven by foreign currency exchange rates and continued focus on expense management.

Net income attributable to H.B. Fuller for the first quarter of 2019 was $12 million , or $0.24 per diluted share, compared with $48 million , or $0.92 per diluted share in the same period last year. The decline was primarily due to a $35 million one-time, non-cash tax benefit in the first quarter of 2018 related to U.S. Tax Reform. Adjusted net income attributable to H.B. Fuller was $17.5 million 1 , or $0.34 1 adjusted EPS, compared with $18 million 1 , or $0.35 1 adjusted EPS last year. Adjusted EBITDA was $83 million 1 , compared with $85 million 1 in the prior year, and adjusted EBITDA margin of 12.3 percent 1 increased versus 11.9 percent 1 in the prior year.

"We are off to a solid start in 2019, due primarily to our ability to respond quickly to dynamic external conditions impacting our revenue," said Jim Owens , H.B. Fuller president and chief executive officer. "In the first quarter, we leveraged solid pricing carry-over from 2018 and acquisition synergies to deliver earnings results and debt paydown in-line with our guidance. We are building on our strategic market position around the world to win with customers in our targeted growth sectors. And, based on improving trends in several segments throughout the quarter, we foresee stronger organic growth sequentially in the second quarter and continued EBITDA improvement throughout the year, within our prior guidance ranges for fiscal 2019."

Balance Sheet and Cash Flow:
At the end of the first quarter of 2019, the company had cash on hand of $113 million and total debt equal to $2,235 million . This compares to cash and debt levels equal to $151 million and $2,248 million , respectively, in the fourth quarter of 2018. Cash flow from operations in the first quarter was $0.5 million compared with ($32) million for the same period in 2018, reflecting improved working capital management. Capital expenditures were $14 million in the first quarter of 2019, compared with $19 million in the same period last year.

Fiscal 2019 Guidance:
The company is reaffirming its prior fiscal year 2019 guidance for adjusted EPS in the range of $3.15 to $3.45 , and its prior guidance for adjusted EBITDA in the range of $465 to $485 million .

This guidance excludes approximately $20 million of pre-tax expenses required to integrate the Royal business and other businesses acquired in 2017, and between $6 and $8 million of pre-tax expenses related to ERP development costs. 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.

Accounting Changes Adopted Retrospectively in Fiscal 2018
In a Current Report on Form 8-K filed on March 25, 2019 , the company provided restated unaudited historical financial information for the fiscal quarters and the fiscal year ended Dec. 1, 2018 . This filing reflects accounting changes implemented in the first quarter ended March 2, 2019 as if the changes were implemented on a retrospective basis at the beginning of fiscal year 2018. The changes include an Accounting Standards Update related to accounting for pension plans and a customer realignment between operating segments. These changes have no impact on the company's consolidated net income, consolidated balance sheets or consolidated statements of cash flows previously reported.

Conference Call:
The company will host an investor conference call to discuss first quarter results on Thursday, March 28, 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, and may be accessed from the company's website at https://investors.hbfuller.com/calendar . The slides will be made available approximately one hour 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 April 4, 2019. To access the telephone replay dial 1-877-344-7529 or 1-412-317-0088 and enter passcode 10129329.

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 March 2, 2019 when it is filed with the Securities and Exchange Commission.

Regulation G:
The information presented in this earnings release regarding segment 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 generally accepted accounting principles (GAAP) and should not be construed as an alternative to the reported results determined in accordance with 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. The non-GAAP information provided may not be consistent with the methodologies used by other companies. All non-GAAP information is reconciled with reported GAAP results in the tables below with the exception of our forward-looking non-GAAP measures contained in our fiscal 2019 outlook, which are unknown or have not yet occurred.

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 2018 net revenue of over $3 billion , H.B. Fuller's commitment to innovation 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 document may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, including but not limited to the following: the Royal transaction may involve unexpected costs or liabilities; our business or stock price may suffer as a results of uncertainty surrounding the transaction; the substantial amount of debt we have incurred to finance our acquisition of Royal, our ability to repay or refinance it or 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 restrictions contained on our debt agreements that limit the discretion of management in operating the business or ability to pay dividends; various risks to stockholders of not receiving dividends and risks to our ability to pursue growth opportunities if we continue to pay dividends according to the current dividend policy; we may be unable to achieve expected synergies and operating efficiencies from the transaction within the expected time frames or at all; we may be unable to successfully integrate Royal's operations into our own, or such integration may be more difficult, time consuming or costly than expected; the ability to effectively implement Project ONE; political and economic conditions; product demand; competitive products and pricing; costs of and savings from restructuring initiatives; geographic and product mix; availability and price of raw materials; the company's relationships with its major customers and suppliers; changes in tax laws and tariffs; devaluations and other foreign exchange rate fluctuations; the impact of litigation and environmental matters; the effect of new accounting pronouncements and accounting charges and credits; and similar matters. Further information about the various risks and uncertainties can be found in the company's SEC 10-K filing for the fiscal year ended December 1, 2018 . All forward-looking information represents management's best judgment as of this date based on information currently available that in the future may prove to have been inaccurate. Additionally, the variety of products sold by the company and the regions where the company does business make it difficult to determine with certainty the increases or decreases in net revenue resulting from changes in the volume of products sold, currency impact, changes in product mix, and selling prices. However, managements' best estimate of these changes as well as changes in other factors have been included.

H.B. FULLER COMPANY AND SUBSIDIARIES

CONSOLIDATED FINANCIAL INFORMATION

In thousands, except per share amounts (unaudited)












Three Months Ended


Percent of


Three Months Ended


Percent of


March 2, 2019


Net Revenue


March 3, 2018


Net Revenue

Net revenue

$

672,935


100.0%


$

713,079


100.0%

Cost of sales


(493,010)


(73.3%)



(527,566)


(74.0%)

Gross profit


179,925


26.7%



185,513


26.0%











Selling, general and administrative expenses


(145,713)


(21.7%)



(152,707)


(21.4%)











Other income (expense), net


3,365


0.5%



4,912


0.7%

Interest expense


(26,807)


(4.0%)



(27,545)


(3.9%)

Interest income


3,053


0.5%



3,041


0.4%

Income before income taxes and income from equity method investments


13,823


2.1%



13,214


1.9%











Income tax


(3,140)


(0.5%)



32,632


4.6%











Income from equity method investments


1,565


0.2%



1,821


0.3%

Net income including non-controlling interests


12,248


1.8%



47,667


6.7%











Net (loss) income attributable to non-controlling interests


(4)


(0.0%)



15


0.0%

Net income attributable to H.B. Fuller

$

12,244


1.8%


$

47,682


6.7%











Basic income per common share attributable to H.B. Fuller

$

0.24




$

0.94



Diluted income per common share attributable to H.B. Fuller

$

0.24




$

0.92













Weighted-average common shares outstanding:










Basic


50,752





50,471



Diluted


51,901





51,898













Dividends declared per common share

$

0.155




$

0.150



Selected Balance Sheet Information (subject to change prior to filing of the Company's Quarterly Report on Form 10-Q)











March 2, 2019


December 1, 2018


March 3, 2018

Cash & cash equivalents

$

113,476


$

150,793


$

132,478

Trade accounts receivable, net


478,326



495,008



466,876

Inventories


386,725



348,461



410,205

Trade payables


284,909



273,378



257,417

Total assets


4,166,100



4,176,314



4,374,053

Total debt


2,235,306



2,247,527



2,441,206

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION

In thousands, except per share amounts (unaudited)










Three Months Ended



March 2, 2019


March 3, 2018








Net income attributable to H.B. Fuller


$

12,244


$

47,682








Adjustments:







Acquisition project costs



84



375

Tonsan call option agreement



-



125

Organizational realignment



350



748

Royal restructuring and integration



4,365



4,928

Tax reform



55



(35,186)

Project ONE



813



1,394

Other



(392)



(1,713)

Adjusted net income attributable to H.B. Fuller1



17,519



18,353








Add:







Interest expense



26,807



27,468

Interest income



(3,053)



(3,042)

Income taxes



6,050



5,733

Depreciation and amortization expense



35,528



36,665

Adjusted EBITDA1



82,851



85,177








Diluted shares



51,901



51,898

Adjusted diluted income per common share attributable to H.B. Fuller


$

0.34


$

0.35

Revenue


$

672,935


$

713,079

Adjusted EBITDA margin1



12.3%



11.9%

_______________














1 Adjusted net income attributable to H.B. Fuller, adjusted diluted income per common share attributable to H.B. Fuller, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures. Adjusted net income attributable to H.B. Fuller is defined as net income before the specific adjustments shown above. Adjusted diluted income per common share is defined as adjusted net income attributable to H.B. Fuller divided by the number of diluted common shares. Adjusted EBITDA is defined as net income before interest, income taxes, depreciation, amortization and the specific adjustments shown above. Adjusted EBITDA margin is defined as adjusted EBITDA divided by net revenue. The table above provides a reconciliation of adjusted net income attributable to H.B. Fuller, adjusted diluted income per common share attributable to H.B. Fuller, adjusted EBITDA and adjusted EBITDA margin to net income attributable to H.B. Fuller, the most directly comparable financial measure determined and reported in accordance with GAAP.

H.B. FULLER COMPANY AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

In thousands (unaudited)










Three Months Ended



Three Months Ended



March 2, 2019



March 3, 2018


Net Revenue:








Americas Adhesives

$

241,950



$

250,963


EIMEA


156,513




168,978


Asia Pacific


63,388




66,609


Construction Adhesives


82,456




98,257


Engineering Adhesives


128,628




128,272


Total H.B. Fuller

$

672,935



$

713,079










Segment Operating Income:








Americas Adhesives

$

15,695



$

14,537


EIMEA


3,426




5,892


Asia Pacific


3,779




2,305


Construction Adhesives


(3,339)




461


Engineering Adhesives


14,651




9,611


Total H.B. Fuller

$

34,212



$

32,806










Adjusted EBITDA1








Americas Adhesives

$

29,244



$

29,639


EIMEA


12,918




16,259


Asia Pacific


6,605




5,287


Construction Adhesives


7,926




12,413


Engineering Adhesives


24,675




20,373


Corporate unallocated


1,483




1,206


Total H.B. Fuller

$

82,851



$

85,177










Adjusted EBITDA Margin1








Americas Adhesives


12.1

%



11.8

%

EIMEA


8.3

%



9.6

%

Asia Pacific


10.4

%



7.9

%

Construction Adhesives


9.6

%



12.6

%

Engineering Adhesives


19.2

%



15.9

%

Total H.B. Fuller


12.3

%



11.9

%









H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION

In thousands, except per share amounts (unaudited)


Three Months Ended



March 2, 2019


March 3, 2018









Income before income taxes and income from equity method investments

$

13,823


$

13,214









Adjustments:







Acquisition project costs


115



559


Tonsan call option agreement


-



125


Organizational realignment


475



410


Royal restructuring and integration


5,917



7,454


Tax reform


75



-


Project ONE


1,102



2,144


Other


502



(1,656)


Adjusted income before income taxes and income from equity method investments2 

$

22,009


$

22,250



_______________














2 Adjusted income before income taxes and income from equity investments is a non-GAAP financial measure. Adjusted income before income taxes and income from equity investments is defined as income before income taxes and income from equity investments before the specific adjustments shown above. The table above provides a reconciliation of adjusted income before income taxes and income from equity investments to income before income taxes and income from equity investments, the most directly comparable financial measure determined and reported in accordance with GAAP.








H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION

In thousands, except per share amounts (unaudited)


Three Months Ended



March 2, 2019


March 3, 2018









Income Taxes

$

(3,140)


$

32,632









Adjustments:







Acquisition project costs


(30)



(184)


Organizational realignment


(124)



338


Royal restructuring and integration


(1,552)



(2,526)


Tax reform


(20)



(35,186)


Project ONE


(289)



(750)


Other


(895)



(57)


Adjusted income taxes3

$

(6,050)


$

(5,733)









Adjusted income before income taxes and income from equity method investments

$

22,009


$

22,250


Adjusted effective income tax rate3 


27.5%



25.8%



_______________














3 Adjusted income taxes and adjusted effective income tax rate are non-GAAP financial measures. Adjusted income taxes is defined as income taxes before the specific adjustments shown above. Adjusted effective income tax rate is defined as income taxes divided by adjusted income before income taxes and income from equity method investments. The table above provides a reconciliation of adjusted income taxes and adjusted effective income tax rate to income taxes, the most directly comparable financial measure determined and reported in accordance with GAAP.

H.B. FULLER COMPANY AND SUBSIDIARIES


REGULATION G RECONCILIATION


In thousands (unaudited)










Three Months Ended



March 2, 2019


March 3, 2018









Net revenue


672,935



713,079









Gross profit

$

179,925


$

185,513


Gross profit margin


26.7%



26.0%









Adjustments:







Acquisition project costs


-



103


Organizational realignment


48



231


Royal restructuring and integration


1,419



224


Other


(3)



-


Adjusted gross profit4

$

181,389


$

186,071


Adjusted gross profit margin4


27.0%



26.1%



_______________














4 Adjusted gross profit and adjusted gross profit margin are non-GAAP financial measures. Adjusted gross profit and adjusted gross profit margin is defined as gross profit and gross profit margin excluding the specific adjustments shown above. The table above provides a reconciliation of adjusted gross profit and gross profit margin to gross profit and gross profit margin, the most directly comparable financial measure determined and reported in accordance with GAAP. 









H.B. FULLER COMPANY AND SUBSIDIARIES


REGULATION G RECONCILIATION


In thousands (unaudited)










Three Months Ended



March 2, 2019


March 3, 2018









Selling, general and administrative expenses

$

(145,713)


$

(152,707)









Adjustments:







Acquisition project costs


115



456


Tonsan call option agreement


-



48


Organizational realignment


427



179


Royal restructuring and integration


4,497



7,230


Tax reform


75



-


Project ONE


1,102



2,144


Other


506



6


Adjusted selling, general and administrative expenses5 

$

(138,991)


$

(142,644)



_______________










5 Adjusted selling, general and administrative expenses is a non-GAAP financial measure. Adjusted selling, general and administrative expenses is defined as selling, general and administrative expenses excluding the specific adjustments shown above. The table above provides a reconciliation of adjusted selling, general and administrative expenses to selling, general and administrative expenses, the most directly comparable financial measure determined and reported in accordance with GAAP.



H.B. FULLER COMPANY AND SUBSIDIARIES


REGULATION G RECONCILIATION


In thousands (unaudited)































Americas





Asia


Construction


Engineering





Corporate


H.B. Fuller





Adhesives


EIMEA


Pacific


Adhesives


Adhesives


Total


Unallocated


Consolidated






























Three Months Ended

March 2, 2019



























Net income attributable to H.B. Fuller


$

17,671


$

4,081


$

3,820


$

(2,653)


$

14,736


$

37,655


$

(25,411)


$

12,244






























Adjustments:



























Acquisition project costs



43



28



14



13



16



114



(30)



84



Organizational realignment



563



(340)



15



220



16



474



(124)



350



Royal restructuring and integration



1,584



1,803



469



1,285



776



5,917



(1,552)



4,365



Tax reform



28



18



9



9



11



75



(20)



55



Project ONE



415



270



136



125



156



1,102



(289)



813



Other



384



119



-



-



-



503



(895)



(392)






























Adjusted net income attributable to H.B. Fuller1



20,688



5,979



4,463



(1,001)



15,711



45,840



(28,321)



17,519






























Add:



























Interest expense



-



-



-



-



-



-



26,807



26,807



Interest income



-



-



-



-



-



-



(3,053)



(3,053)



Income taxes



-



-



-



-



-



-



6,050



6,050



Depreciation and amortization expense



8,556



6,939



2,142



8,927



8,964



35,528



-



35,528



Adjusted EBITDA1

$


29,244


$

12,918


$

6,605


$

7,926


$

24,675


$

81,368


$

1,483


$

82,851




_______________































Note: Adjusted EBITDA is a non-GAAP financial measure. The tables above provide a reconciliation of adjusted EBITDA for each segment to net income attributable to H.B. Fuller for each segment, the most directly comparable financial measure determined and reported in accordance with U.S. GAAP.


H.B. FULLER COMPANY AND SUBSIDIARIES


REGULATION G RECONCILIATION


In thousands (unaudited)






























Americas





Asia


Construction


Engineering





Corporate


H.B. Fuller




Adhesives


EIMEA


Pacific


Adhesives


Adhesives


Total


Unallocated


Consolidated




























Three Months Ended

March 3, 2018


























Net income attributable to H.B. Fuller


$

16,399


$

6,858


$

2,343


$

1,289


$

9,796


$

36,685


$

10,997


$

47,682




























Adjustments:


























Acquisition project costs



492



12



7



6



42



559



(184)



375


Tonsan call option agreement



-



-



-



-



48



48



77



125


Organizational realignment



126



62



3



215



4



410



338



748


Royal Restructuring and integration



2,942



1,561



525



1,317



1,109



7,454



(2,526)



4,928


Tax Reform



-



-



-



-



-



-



(35,186)



(35,186)


Project ONE



843



528



248



253



272



2,144



(750)



1,394


Other



2



1



1



1



1



6



(1,719)



(1,713)


Adjusted net income attributable to H.B. Fuller1



20,804



9,022



3,127



3,081



11,272



47,306



(28,953)



18,353




























Add:


























Interest expense



-



-



-



-



-



-



27,468



27,468


Interest income



-



-



-



-



-



-



(3,042)



(3,042)


Income taxes



-



-



-



-



-



-



5,733



5,733


Depreciation and amortization expense



8,835



7,237



2,160



9,332



9,101



36,665



-



36,665


Adjusted EBITDA1

$


29,639


$

16,259


$

5,287


$

12,413


$

20,373


$

83,971


$

1,206


$

85,177



_______________














Note: Adjusted EBITDA is a non-GAAP financial measure. The tables above provide a reconciliation of adjusted EBITDA for each segment to net income attributable to H.B. Fuller for each segment, the most directly comparable financial measure determined and reported in accordance with U.S. GAAP.

H.B. FULLER COMPANY AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

NET REVENUE GROWTH

(unaudited)









Three Months Ended






March 2, 2019







Total





Price


3.0%





Volume


(4.0%)





Organic Growth


(1.0%)












F/X


(4.6%)












Total


(5.6%)





















Three Months Ended



March 2, 2019



Net Revenue


F/X


Organic Growth








Americas Adhesives


(3.6%)


(3.8%)


0.2%

EIMEA


(7.4%)


(8.1%)


0.7%

Asia Pacific


(4.8%)


(4.8%)


0.0%

Construction Adhesives


(16.1%)


(1.0%)


(15.1%)

Engineering Adhesives


0.3%


(4.1%)


4.4%

Total


(5.6%)


(4.6%)


(1.0%)