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H.B. Fuller Company$58.46$1.001.74%

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 H.B. Fuller Reports Third Quarter 2017 Results
   Wednesday, September 27, 2017 9:30:19 PM ET

Third Quarter Diluted EPS $0.49,

Third Quarter Adjusted Diluted EPS $0.65, In line With Company Guidance;

Fiscal Year 2017 Adjusted Diluted EPS Guidance Narrowed to $2.57 to $2.62

H.B. Fuller Company (FUL ) today reported financial results for the third quarter that ended September 2, 2017.

Items of Note for the Third Quarter of 2017:

-- Net revenue grew 9.8 percent. Constant currency revenue growth was 11 percent, with organic volume growth of 6 percent;

-- Net income was $25.1 million in the third quarter of 2017; Adjusted net income was $33.3 million, or $0.65 per diluted share;

-- Adjusted EBITDA margin up sequentially to 12.8 percent;

-- Organic volume growth for Engineering Adhesives was 18 percent and adjusted EBITDA margin grew to nearly 14 percent;

-- Asia Pacific, Americas and EIMEA delivered strong organic volume growth in the mid to high single digits;

-- Construction Products adjusted EBITDA margins were up 70 basis points versus the prior year’s third quarter;

-- Hurricane Harvey occurred one week prior to the end of the quarter, negatively impacting revenue by over $3 million and approximately $0.02 per diluted share;

-- Announced agreement to acquire Royal adhesives, a top 10 global adhesives supplier that operates in highly specified end markets, for $1.575 billion.

Third Quarter 2017 Results:

Net income for the third quarter of 2017 was $25.1 million, or $0.49 per diluted share, versus net income of $32.7 million, or $0.64 per diluted share, in last year’s third quarter. Adjusted diluted earnings per share in the third quarter of 2017 were $0.65 versus the prior year’s adjusted result of $0.64. Strong volume growth and positive pricing actions to offset higher year-over-year raw material costs were the primary driver of the year-over-year increase.

Net revenue for the third quarter of 2017 was $562.9 million, up 9.8 percent versus the third quarter of 2016. Higher volume, pricing and acquisitions positively impacted net revenue growth, which was offset by negative foreign currency translation. Constant currency revenue grew by 11 percent year over year. Organic revenue, defined as constant currency revenue less the impact from acquisitions, was up more than 7 percent year-on-year.

Gross profit margin was 26.7 percent and adjusted gross profit margin was 27.1 percent. Margins remained lower year-over-year due to higher raw material costs relative to the timing of price increases. Selling, General and Administrative (SG&A) expense was $110.2 million. Adjusted SG&A expense was $100.4 million, up versus the prior year, primarily driven by the prior year’s lower incentive compensation offset somewhat by discretionary expense management and restructuring actions.

"We are pleased with the positive progression of pricing and strong volume growth across the businesses," said Jim Owens, H.B. Fuller president and chief executive officer. "Our actions delivered earnings per share consistent with our expectations and higher EBITDA delivery versus the prior quarter and prior year despite the negative impact on sales from Hurricane Harvey late in the quarter. The Americas is solidly back to growth mode with organic volume delivery of over 6 percent. Engineering Adhesives continued to deliver sales growth above our long term target of 15 percent and drove margins higher to nearly 14 percent, a key tenet in our long term strategy. We also announced the transformative and complementary acquisition of Royal Adhesives which will accelerate our strategy by combining their strong presence in specified adhesive applications with our global reach and focus. We are delivering on our financial commitments and expect a successful completion of our 2017 plan while we prepare for the integration of the Royal Adhesive business."

Balance Sheet and Cash Flow:

At the end of the third quarter of 2017, cash balances totaled $120 million with total debt of $799 million. This compares to second quarter 2017 cash and debt levels of $94 million and $786 million, respectively. Sequentially, net debt was down by approximately $13 million dollars. Cash flow from operations was positive $38 million in the third quarter and $71 million for the first nine months, reflecting continued strength in the cash flow performance of the business, offset by restructuring charges and higher inventory balances. Capital expenditures were $8 million in the third quarter of 2017.

Year-To-Date Results:

Net income for the first nine months of 2017 was $65.8 million, or $1.28 per diluted share, versus net income of $85.0 million, or $1.66 per diluted share, in the first nine months of 2016. Adjusted total diluted earnings per share in the first nine months of 2017 were $1.74, flat versus the prior year’s result of $1.74.

Net revenue for the first nine months of 2017 was $1,627.8 million, up 7.1 percent versus the first nine months of 2016. Higher volume, acquisitions and price positively impacted net revenue growth offset by negative foreign currency translation and negative mix. Constant currency revenue grew by 10 percent year-over-year. Organic revenue, defined as constant currency revenue less the impact from acquisitions, was up 6 percent.

Fiscal 2017 Guidance:

We are narrowing our adjusted EPS guidance from our previous range of $2.57 to $2.67 to our new guidance range of $2.57 to $2.62 for fiscal year 2017, reflecting the short term impact of Hurricane Harvey. Adjusted EBITDA for fiscal year 2017 is expected to be approximately $290 million versus our previous estimate of $290 to $300 million. Constant currency growth, on a comparable 52-week basis, is now expected to be around 10 percent for 2017 versus the 2016 fiscal year which reflects strong volume growth and more pricing to offset raw material inflation, which will be offset by approximately 2 percentage points of negative foreign currency translation. Our core tax rate is expected to be between 29 and 30 percent. We expect capital investments to be around $50 million - below our previously announced $60 million in 2017 as a result of timing and planned shifting of resources toward the Royal acquisition.

This guidance excludes between $30 and $35 million, pre-tax, of previously announced restructuring charges, as well as acquisition related costs and Project ONE development costs. The guidance also excludes approximately $5 million of expenses, pre-tax, incurred in the third quarter related to the pending acquisition of Royal as well as any future impact of Royal, which cannot be estimated at this time.

Conference Call:

The Company will host an investor conference call to discuss second quarter results on Thursday, September 28, 2017, at 9:30 a.m. Central U.S. time (10:30 a.m. Eastern U.S. time). The conference call audio and accompanying presentation slides will be available to all interested parties via a simultaneous webcast under the Investor Relations section. The event is scheduled to last one hour. For those unable to listen live, an audio replay of the event along with the accompanying presentation will be archived on the Company’s website.

Regulation G:

The information presented in this earnings release regarding segment operating income, adjusted gross profit, adjusted selling, general and administrative expense, adjusted diluted earnings per share, earnings before interest, taxes, depreciation, and amortization (EBITDA) and constant currency revenue 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 2017 outlook, which are unknown or have not yet occurred.

About H.B. Fuller Company:

For 130 years, 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 2016 net revenue of $2.1 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, 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 www.hbfuller.com and subscribe to our blog.

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: risks to consummation of the Royal transaction, including the risk that the transaction will not be consummated within the expected time period or at all, the risk that conditions to the closing of the transaction, including receipt of required regulatory approvals, may not be satisfied, and the risk that the transaction may be terminated in circumstances requiring us to pay the $78.75 million termination fee; the Royal transaction may involve unexpected costs, liabilities or delays; our business or stock price may suffer as a result of uncertainty surrounding the transaction; we may be unable to secure the financing necessary for the transaction on favorable terms, or at all; the substantial amount of debt we would incur 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 to be contained in 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; following the Royal transaction, revenues may be lower than expected, and operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers) may be greater than expected; the outcome of any legal proceedings related to the transaction; risks that the pending transaction disrupts current plans and operations and the potential difficulties in employee retention as a result of the pending transaction; 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 3, 2016. 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, management’s best estimates 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
                                                                     September 2, 2017  Net Revenue  August 27, 2016    Net Revenue
Net revenue                                                          $      562,869     100.0 %      $      512,858     100.0 %
Cost of sales                                                               (412,469 )  (73.3 %)            (366,737 )  (71.5 %)
Gross profit                                                                150,400     26.7  %             146,121     28.5  %
Selling, general and administrative expenses                                (110,219 )  (19.6 %)            (97,692  )  (19.0 %)
Special charges, net                                                        -           0.0   %             2,807       0.5   %
Other income (expense), net                                                 150         0.0   %             (956     )  (0.2  %)
Interest expense                                                            (8,100   )  (1.4  %)            (6,809   )  (1.3  %)
Income before income taxes and income from equity method investments        32,231      5.7   %             43,471      8.5   %
Income taxes                                                                (9,262   )  (1.6  %)            (12,513  )  (2.4  %)
Income from equity method investments                                       2,170       0.4   %             1,840       0.3   %
Net income including non-controlling interests                              25,139      4.5   %             32,798      6.4   %
Net income attributable to non-controlling interests                        (1       )  (0.0  %)            (53      )  (0.0  %)
Net income attributable to H.B. Fuller                               $      25,138      4.5   %      $      32,745      6.4   %
Basic income per common share attributable to H.B. Fuller            $      0.50                     $      0.65
Diluted income per common share attributable to H.B. Fuller          $      0.49                     $      0.64
Weighted-average common shares outstanding:
Basic                                                                       50,384                          50,261
Diluted                                                                     51,605                          51,453
Dividends declared per common share                                  $      0.15                     $      0.14
Selected Balance Sheet Information (subject to change prior to filing of the Company’s Quarterly Report on Form 10-Q)
                               September 2, 2017            December 3, 2016             August 27, 2016
Cash & cash equivalents        $             119,595        $             142,245        $             133,102
Trade accounts receivable, net               393,054                      351,130                      344,305
Inventories                                  317,968                      247,399                      261,363
Trade payables                               193,345                      162,964                      160,836
Total assets                                 2,288,323                    2,055,868                    2,077,817
Total debt                                   798,973                      703,271                      708,994
H.B. FULLER COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
In thousands, except per share amounts (unaudited)
                                                                     Nine Months Ended   Percent of   Nine Months Ended   Percent of
                                                                     September 2, 2017   Net Revenue  August 27, 2016     Net Revenue
Net revenue                                                          $     1,627,843     100.0 %      $     1,519,698     100.0 %
Cost of sales                                                              (1,192,409 )  (73.3 %)           (1,077,716 )  (70.9 %)
Gross profit                                                               435,434       26.7  %            441,982       29.1  %
Selling, general and administrative expenses                               (325,904   )  (20.0 %)           (301,143   )  (19.8 %)
Special charges                                                            -             0.0   %            2,024         0.1   %
Other income (expense), net                                                661           0.0   %            (7,603     )  (0.5  %)
Interest expense                                                           (24,628    )  (1.5  %)           (19,714    )  (1.3  %)
Income before income taxes and income from equity method investments       85,563        5.2   %            115,546       7.6   %
Income taxes                                                               (26,178    )  (1.6  %)           (35,563    )  (2.3  %)
Income from equity method investments                                      6,449         0.4   %            5,172         0.3   %
Net income including non-controlling interests                             65,834        4.0   %            85,155        5.6   %
Net income attributable to non-controlling interests                       (34        )  (0.0  %)           (161       )  (0.0  %)
Net income attributable to H.B. Fuller                               $     65,800        4.0   %      $     84,994        5.6   %
Basic income per common share attributable to H.B. Fuller            $     1.31                       $     1.70
Diluted income per common share attributable to H.B. Fuller          $     1.28                       $     1.66
Weighted-average common shares outstanding:
Basic                                                                      50,374                           50,122
Diluted                                                                    51,584                           51,234
Dividends declared per common share                                  $     0.44                       $     0.41
H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands, except per share amounts (unaudited)
                                                                                                                                  Adjusted
                                                                                   Three Months      % of Net                     Three Months      % of Net
                                                                                   Ended                                          Ended
                                                                                   September 2, 2017 Revenue     Adjustments      September 2, 2017 Revenue
Net revenue                                                                        $     562,869     100.0 %     $                $     562,869     100.0 %
Cost of sales                                                                            (412,469 )  (73.3 %)        (2,022  )          (410,447 )  (72.9 %)
Gross profit                                                                             150,400     26.7  %         (2,022  )          152,422     27.1  %
Selling, general and administrative expenses                                             (110,219 )  (19.6 %)        (9,795  )          (100,424 )  (17.9 %)
Other income (expense), net                                                              150         0.0   %         -                  150         0.0   %
Interest expense                                                                         (8,100   )  (1.4  %)        (72     )          (8,028   )  (1.4  %)
Income before income taxes and income from equity method investments                     32,231      5.7   %         (11,889 )          44,120      7.8   %
Income taxes                                                                             (9,262   )  (1.6  %)        3,709              (12,971  )  (2.3  %)
- Effective tax rate                                                                     28.7     %                  31.2    %          29.4     %
Income from equity method investments                                                    2,170       0.4   %                            2,170       0.4   %
Net income including non-controlling interests                                           25,139      4.5   %         (8,180  )          33,319      5.9   %
Net income attributable to non-controlling interests                                     (1       )  (0.0  %)                           (1       )  (0.0  %)
Net income attributable to H.B. Fuller                                             $     25,138      4.5   %     $   (8,180  )    $     33,318      5.9   %
Basic income per common share attributable to H.B. Fuller                          $     0.50                    $   (0.16   )    $     0.66
Diluted income per common share attributable to H.B. Fuller                        $     0.49                    $   (0.16   )    $     0.65
Weighted-average common shares outstanding:
Basic                                                                                    50,384                      50,384             50,384
Diluted                                                                                  51,605                      51,605             51,605
a Income per share amounts may not add due to rounding
H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands, except per share amounts (unaudited)
                                                                                                                          Adjusted
                                                                            Three Months      % of Net                    Three Months      % of Net
                                                                            Ended                                         Ended
                                                                            August 27, 2016   Revenue     Adjustments     August 27, 2016   Revenue
Net revenue                                                                 $     512,858     100.0 %     $   -           $     512,858     100.0 %
Cost of sales                                                                     (366,737 )  (71.5 %)        (1,027 )          (365,710 )  (71.3 %)
Gross profit                                                                      146,121     28.5  %         (1,027 )          147,148     28.7  %
Selling, general and administrative expenses                                      (97,692  )  (19.0 %)        (908   )          (96,784  )  (18.8 %)
Acquisition and transformation related costs         (55               )
Facility exit costs                                  2,862
Special charges, net                                                              2,807       0.5   %         2,807             -           0.0   %
Other income (expense), net                                                       (956     )  (0.2  %)        (684   )          (272     )  (0.1  %)
Interest expense                                                                  (6,809   )  (1.3  %)        (74    )          (6,735   )  (1.3  %)
Income before income taxes and income from equity method investments              43,471      8.5   %         114               43,357      8.5   %
Income taxes                                                                      (12,513  )  (2.4  %)        (507   )          (12,006  )  (2.3  %)
- Effective tax rate                                                              28.8     %                  -                 27.7     %
Income from equity method investments                                             1,840       0.3   %         -                 1,840       0.3   %
Net income including non-controlling interests                                    32,798      6.4   %         (393   )          33,191      6.5   %
Net income attributable to non-controlling interests                              (53      )  (0.0  %)        -                 (53      )  (0.0  %)
Net income attributable to H.B. Fuller                                      $     32,745      6.4   %     $   (393   )    $     33,138      6.5   %
Basic income (loss) per common share attributable to H.B. Fuller            $     0.65                    $   (0.01  )    $     0.66
Diluted income (loss) per common share attributable to H.B. Fuller          $     0.64                    $   (0.01  )    $     0.64
Weighted-average common shares outstanding:
Basic                                                                             50,261                      50,261            50,261
Diluted                                                                           51,453                      51,453            51,453
a Income per share amounts may not add due to rounding
H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands, except per share amounts (unaudited)
                                                                                                                      Adjusted
                                                                     Nine Months         % of Net                     Nine Months         % of Net
                                                                     Ended                                            Ended
                                                                     September 2, 2017   Revenue     Adjustments      September 2, 2017   Revenue
Net revenue                                                          $     1,627,843     100.0 %     $                $     1,627,843     100.0 %
Cost of sales                                                              (1,192,409 )  (73.3 %)        (13,953 )          (1,178,456 )  (72.4 %)
Gross profit                                                               435,434       26.7  %         (13,953 )          449,387       27.6  %
Selling, general and administrative expenses                               (325,904   )  (20.0 %)        (18,841 )          (307,063   )  (18.9 %)
Other income (expense), net                                                661           0.0   %         -                  661           0.0   %
Interest expense                                                           (24,628    )  (1.5  %)        (213    )          (24,415    )  (1.5  %)
Income before income taxes and income from equity method investments       85,563        5.2   %         (33,007 )          118,570       7.2   %
Income taxes                                                               (26,178    )  (1.6  %)        8,796              (34,974    )  (2.1  %)
- Effective tax rate                                                       30.6       %                  26.6    %          29.5       %
Income from equity method investments                                      6,449         0.4   %                            6,449         0.4   %
Net income including non-controlling interests                             65,834        4.0   %         (24,211 )          90,045        5.5   %
Net income attributable to non-controlling interests                       (34        )  (0.0  %)                           (34        )  (0.0  %)
Net income attributable to H.B. Fuller                               $     65,800        4.0   %     $   (24,211 )    $     90,011        5.5   %
Basic income per common share attributable to H.B. Fuller            $     1.31                      $   (0.48   )    $     1.79
Diluted income per common share attributable to H.B. Fuller          $     1.28                      $   (0.47   )    $     1.74
Weighted-average common shares outstanding:
Basic                                                                      50,374                        50,374             50,374
Diluted                                                                    51,584                        51,584             51,584
a Income per share amounts may not add due to rounding
H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands, except per share amounts (unaudited)
                                                                                                                     Adjusted
                                                                     Nine Months         % of Net                    Nine Months         % of Net
                                                                     Ended                                           Ended
                                                                     August 27, 2016     Revenue     Adjustments     August 27, 2016     Revenue
Net revenue                                                          $     1,519,698     100.0 %     $   -           $     1,519,698     100.0 %
Cost of sales                                                              (1,077,716 )  (70.9 %)        (3,899 )          (1,073,817 )  (70.7 %)
Gross profit                                                               441,982       29.1  %         (3,899 )          445,881       29.3  %
Selling, general and administrative expenses                               (301,143   )  (19.8 %)        (1,823 )          (299,320   )  (19.7 %)
Acquisition and transformation related costs (242              )
Workforce reduction costs                    1
Facility exit costs                          2,455
Other related costs                          (190              )
Special charges                                                            2,024         0.1   %         2,024             -             0.0   %
Other income (expense), net                                                (7,603     )  (0.5  %)        (684   )          (6,919     )  (0.5  %)
Interest expense                                                           (19,714    )  (1.3  %)        (222   )          (19,492    )  (1.3  %)
Income before income taxes and income from equity method investments       115,546       7.6   %         (4,604 )          120,150       7.9   %
Income taxes                                                               (35,563    )  (2.3  %)        496               (36,059    )  (2.4  %)
- Effective tax rate                                                       30.8       %                  10.8   %          30.0       %
Income from equity method investments                                      5,172         0.3   %         -                 5,172         0.3   %
Net income including non-controlling interests                             85,155        5.6   %         (4,108 )          89,263        5.9   %
Net loss attributable to non-controlling interests                         (161       )  (0.0  %)        -                 (161       )  (0.0  %)
Net income attributable to H.B. Fuller                               $     84,994        5.6   %     $   (4,108 )    $     89,102        5.9   %
Basic income per common share attributable to H.B.Fuller             $     1.70                      $   (0.08  )    $     1.78
Diluted income per common share attributable to H.B. Fuller          $     1.66                      $   (0.08  )    $     1.74
Weighted-average common shares outstanding:
Basic                                                                      50,122                        50,122            50,122
Diluted                                                                    51,234                        51,234            51,234
a  Income per share amounts may not add due to rounding
H.B. FULLER COMPANY AND SUBSIDIARIES
ADJUSTED EARNING PER SHARE RECONCILIATION
In thousands (unaudited)
                              Three Months ended September 2, 2017                  Three Months ended August 27, 2016
                              Income                                                Income
                              before                 Income    Diluted              before                 Income      Diluted
                              Income Tax             Taxes     EPS                  Income Tax             Taxes       EPS
GAAP Earnings                 $        34,400      $ 9,262     $        0.49        $        45,258      $ 12,513      $        0.64
Acquisition project costs              7,375         2,578              0.09                 725           23                   0.01
Tonsan call option agreement           1,222         -                  0.02                 163           -                    -
Organizational Realignment             1,492         661                0.02                 (2,389   )    (772     )           (0.03    )
Other                                  1,800         470                0.03                 1,387         242                  0.02
Adjusted Earnings             $        46,289      $ 12,971    $        0.65        $        45,144      $ 12,006      $        0.64
                              Nine Months ended September 2, 2017                   Nine Months ended August 27, 2016
                              Income                                                Income
                              before                 Income    Diluted              before                 Income      Diluted
                              Income Tax             Taxes     EPS                  Income Tax             Taxes       EPS
GAAP Earnings                 $        91,978      $ 26,178    $        1.28        $        120,557     $ 35,563      $        1.66
Acquisition project costs              10,574        3,681              0.13                 2,132         499                  0.03
Tonsan call option agreement           (2,241   )    -                  (0.04    )           (197     )    -                    -
Organizational Realignment             18,946        4,114              0.29                 567           (487     )           0.02
Other                                  5,728         1,001              0.09                 2,102         484                  0.03
Adjusted Earnings             $        124,985     $ 34,974    $        1.74        $        125,161     $ 36,059      $        1.74
b  Costs related to integrating and accounting for acquisitions
c  Non-cash costs related to accretion and revaluation of the Tonsan call option agreement
d  Costs related to Organizational Realignment to Support 2020 Strategic Plan, Construction Products facility combination, EIMEA restructuring announced November 2015, business integration and Special Charges
e  Costs related to Project ONE development costs and discrete tax items
H.B. FULLER COMPANY AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
In thousands (unaudited)
                            Three Months Ended  Three Months Ended
                            September 2, 2017   August 27, 2016
Net Revenue:
Americas Adhesives          $      230,881      $      198,957
EIMEA                              137,408             130,619
Asia Pacific                       62,972              57,488
Construction Products              59,080              64,402
Engineering Adhesives              72,528              61,392
Total H.B. Fuller           $      562,869      $      512,858
Segment Operating Income:
Americas Adhesives          $      26,664       $      31,900
EIMEA                              9,900               8,430
Asia Pacific                       2,822               2,510
Construction Products              955                 2,093
Engineering Adhesives              4,591               3,496
Corporate Transaction Costs        (4,751  )           -
Total H.B. Fuller           $      40,181       $      48,429
Depreciation Expense:
Americas Adhesives          $      3,401        $      3,583
EIMEA                              3,955               3,689
Asia Pacific                       1,492               1,569
Construction Products              1,966               1,327
Engineering Adhesives              1,591               1,495
Total H.B. Fuller           $      12,405       $      11,663
Amortization Expense:
Americas Adhesives          $      1,799        $      1,075
EIMEA                              1,138               1,143
Asia Pacific                       413                 536
Construction Products              2,300               2,327
Engineering Adhesives              2,249               1,942
Total H.B. Fuller           $      7,899        $      7,023
EBITDA:
Americas Adhesives          $      31,864       $      36,558
EIMEA                              14,993              13,262
Asia Pacific                       4,727               4,615
Construction Products              5,221               5,747
Engineering Adhesives              8,431               6,933
Corporate Transaction Costs        (4,751  )           -
Total H.B. Fuller           $      60,485       $      67,115
Segment Operating Margin:
Americas Adhesives                 11.5    %           16.0    %
EIMEA                              7.2     %           6.5     %
Asia Pacific                       4.5     %           4.4     %
Construction Products              1.6     %           3.3     %
Engineering Adhesives              6.3     %           5.7     %
Corporate Transaction Costs        NMP                 -
Total H.B. Fuller                  7.1     %           9.4     %
EBITDA Margin:
Americas Adhesives                 13.8    %           18.4    %
EIMEA                              10.9    %           10.2    %
Asia Pacific                       7.5     %           8.0     %
Construction Products              8.8     %           8.9     %
Engineering Adhesives              11.6    %           11.3    %
Corporate Transaction Costs        NMP                 -
Total H.B. Fuller                  10.7    %           13.1    %
Adjusted EBITDA
Americas Adhesives          $      34,790       $      36,470
EIMEA                              16,629              13,616
Asia Pacific                       5,110               5,195
Construction Products              5,669               5,716
Engineering Adhesives              10,030              7,732
Total H.B. Fuller           $      72,228       $      68,729
Adjusted EBITDA Margin
Americas Adhesives                 15.1    %           18.3    %
EIMEA                              12.1    %           10.4    %
Asia Pacific                       8.1     %           9.0     %
Construction Products              9.6     %           8.9     %
Engineering Adhesives              13.8    %           12.6    %
Total H.B. Fuller                  12.8    %           13.4    %
H.B. FULLER COMPANY AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
In thousands (unaudited)
                            Nine Months Ended      Nine Months Ended
                            September 2, 2017      August 27, 2016
Net Revenue:
Americas Adhesives          $     653,665          $     588,422
EIMEA                             396,674                394,807
Asia Pacific                      190,083                171,467
Construction Products             179,880                192,111
Engineering Adhesives             207,541                172,891
Total H.B. Fuller           $     1,627,843        $     1,519,698
Segment Operating Income:
Americas Adhesives          $     74,152           $     94,043
EIMEA                             19,779                 25,620
Asia Pacific                      9,452                  9,299
Construction Products             (1,581    )            5,412
Engineering Adhesives             12,479                 6,465
Corporate Transaction Costs       (4,751    )            -
Total H.B. Fuller           $     109,530          $     140,839
Depreciation Expense:
Americas Adhesives          $     10,434           $     10,852
EIMEA                             11,269                 12,897
Asia Pacific                      4,883                  4,495
Construction Products             5,127                  3,928
Engineering Adhesives             4,662                  4,558
Total H.B. Fuller           $     36,375           $     36,730
Amortization Expense:
Americas Adhesives          $     4,958            $     3,111
EIMEA                             3,272                  3,424
Asia Pacific                      1,293                  1,127
Construction Products             6,912                  6,975
Engineering Adhesives             6,693                  5,872
Total H.B. Fuller           $     23,128           $     20,509
EBITDA:
Americas Adhesives          $     89,544           $     108,006
EIMEA                             34,320                 41,941
Asia Pacific                      15,628                 14,921
Construction Products             10,458                 16,315
Engineering Adhesives             23,834                 16,895
Corporate Transaction Costs       (4,751    )            -
Total H.B. Fuller           $     169,033          $     198,078
Segment Operating Margin:
Americas Adhesives                11.3      %            16.0      %
EIMEA                             5.0       %            6.5       %
Asia Pacific                      5.0       %            5.4       %
Construction Products             (0.9      %)           2.8       %
Engineering Adhesives             6.0       %            3.7       %
Corporate Transaction Costs       NMP                    -
Total H.B. Fuller                 6.7       %            9.3       %
EBITDA Margin:
Americas Adhesives                13.7      %            18.4      %
EIMEA                             8.7       %            10.6      %
Asia Pacific                      8.2       %            8.7       %
Construction Products             5.8       %            8.5       %
Engineering Adhesives             11.5      %            9.8       %
Corporate Transaction Costs       NMP                    -
Total H.B. Fuller                 10.4      %            13.0      %
Adjusted EBITDA
Americas Adhesives          $     98,431           $     108,554
EIMEA                             44,756                 42,873
Asia Pacific                      17,901                 15,884
Construction Products             17,004                 16,506
Engineering Adhesives             23,222                 17,372
Total H.B. Fuller           $     201,314          $     201,189
Adjusted EBITDA Margin
Americas Adhesives                15.1      %            18.4      %
EIMEA                             11.3      %            10.9      %
Asia Pacific                      9.4       %            9.3       %
Construction Products             9.5       %            8.6       %
Engineering Adhesives             11.2      %            10.0      %
Total H.B. Fuller                 12.4      %            13.2      %
H.B. FULLER COMPANY AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
NET REVENUE GROWTH
(unaudited)
Three Months Ended September 2, 2017
                         Americas   EIMEA    Asia      Construction   Engineering  Total HBF
                         Adhesives           Pacific   Products       Adhesives
Price                    0.2  %     5.6  %   0.2  %    0.2    %       0.0   %      1.6  %
Volume                   6.3  %     4.4  %   9.4  %    (8.9   %)      18.3  %      5.7  %
Mix                      (0.4 %)    (0.4 %)  0.8  %    0.6    %       (1.1  %)     (0.2 %)
Acquisition              10.6 %     0.0  %   0.0  %    0.0    %       0.7   %      4.2  %
Constant Currency Growth 16.7 %     9.6  %   10.4 %    (8.1   %)      17.9  %      11.3 %
F/X                      (0.7 %)    (4.4 %)  (0.9 %)   (0.2   %)      0.2   %      (1.5 %)
                         16.0 %     5.2  %   9.5  %    (8.3   %)      18.1  %      9.8  %
Nine Months Ended September 2, 2017
                         Americas   EIMEA    Asia      Construction   Engineering  Total HBF
                         Adhesives           Pacific   Products       Adhesives
Price                    (0.8 %)    4.1  %   (1.0 %)   (0.1   %)      (1.9  %)     0.4  %
Volume                   4.8  %     4.9  %   11.5 %    (6.3   %)      20.8  %      6.0  %
Mix                      (1.1 %)    0.0  %   (0.8 %)   (0.2   %)      (0.4  %)     (0.6 %)
Acquisition              8.7  %     0.0  %   3.9  %    0.0    %       4.5   %      4.3  %
Constant Currency Growth 11.6 %     9.0  %   13.6 %    (6.6   %)      23.0  %      10.1 %
F/X                      (0.5 %)    (8.5 %)  (2.7 %)   0.2    %       (3.0  %)     (3.0 %)
                         11.1 %     0.5  %   10.9 %    (6.4   %)      20.0  %      7.1  %
H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands (unaudited)
                                               Three Months Ended  Three Months Ended
                                               September 2, 2017   August 27, 2016
Net income including non-controlling interests $      25,139       $      32,798
Income from equity method investments                 (2,170  )           (1,840  )
Income taxes                                          9,262               12,513
Interest expense                                      8,100               6,809
Other income (expense), net                           (150    )           956
Special charges                                       -                   (2,807  )
Segment operating income                              40,181              48,429
Depreciation expense                                  12,405              11,663
Amortization expense                                  7,899               7,023
EBITDA                                         $      60,485       $      67,115
EBITDA margin                                         10.7    %           13.1    %
Restructuring, Acquisition and other costs            11,743              1,614
Adjusted EBITDA                                $      72,228       $      68,729
Adjusted EBITDA margin                                12.8    %           13.4    %
                                               Nine Months Ended   Nine Months Ended
                                               September 2, 2017   August 27, 2016
Net income including non-controlling interests $      65,834       $      85,155
Income from equity method investments                 (6,449  )           (5,172  )
Income taxes                                          26,178              35,563
Interest expense                                      24,628              19,714
Other income (expense), net                           (661    )           7,603
Special charges                                       -                   (2,024  )
Segment operating income                              109,530             140,839
Depreciation expense                                  36,375              36,730
Amortization expense                                  23,128              20,509
EBITDA                                         $      169,033      $      198,078
EBITDA margin                                         10.4    %           13.0    %
Restructuring, Acquisition and other costs            32,281              3,111
Adjusted EBITDA                                $      201,314      $      201,189
Adjusted EBITDA margin                                12.4    %           13.2    %

Adjusted diluted earnings per share (EPS) is a non-GAAP financial measure and excludes the following costs included on the adjusted earnings per share reconciliation table above: special charges related to the "business integration"; organizational realignment to support the 2020 strategic plan as announced in December 2016; restructuring in EIMEA related to operational efficiency improvement projects; combining Construction Products facilities in Illinois; Project ONE development costs; the closing of a facility in the Philippines; and integrating and accounting for past and present acquisitions. We have not included a reconciliation of adjusted EPS to EPS as part of our guidance because all potential adjustments are not known at this time.

Constant currency revenue is a non-GAAP financial measure defined as changes in revenue due to price, volume, mix and acquisitions and excludes revenue changes driven by foreign currency translation. The schedule above reconciles each component of net revenue growth.

EBITDA is a non-GAAP financial measure defined on a consolidated basis as gross profit, less SG&A expense, plus depreciation expense, plus amortization expense. Adjusted EBITDA excludes items listed on the adjusted earnings per share reconciliation table above. On a segment basis it is defined as operating income, plus depreciation expense, plus amortization expense. Adjusted EBITDA margin is defined as adjusted EBITDA divided by net revenue. We have not included a reconciliation of adjusted EBITDA to EBITDA or net income as part of our guidance because all of the potential adjustments are not known at this time.

Adjusted gross profit and adjusted gross profit margin are non-GAAP financial measures. Adjusted gross profit excludes costs associated with: organizational realignment to support the 2020 strategic plan as announced in December 2016; restructuring in EIMEA related to operational efficiency improvement projects; combining Construction Products facilities in Illinois; the closing of a facility in the Philippines; and integrating and accounting for past and present acquisitions. Adjusted gross profit margin is defined as adjusted gross profit divided by adjusted net revenue.

Adjusted SG&A expense is a non-GAAP financial measure which excludes costs associated with: organizational realignment to support the 2020 strategic plan as announced in December 2016; restructuring in EIMEA related to operational efficiency improvement projects; combining Construction Products facilities in Illinois; Project ONE development costs; and integrating and accounting for past and present acquisitions.

Segment operating income is defined as gross profit less SG&A expense. Segment operating margin is defined as segment operating income divided by net revenue.

Maximillian Marcy

Investor Relations Contact

651-236-5062

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