H.B. Fuller Company Q2 FY2026 earnings call

- **Core Q2 2026 Operational Performance** * Delivered strong year-on-year top and bottom line growth, with results above the midpoint of prior EBITDA guidance. Total revenue grew 5.8% year-on-year, organic revenue grew 2.6% (3% pricing offset slightly lower volume), adjusted EBITDA hit $181 million (up 9% YoY), adjusted EBITDA margin expanded 70 basis points to 19.1%, and adjusted EPS grew 19% YoY. * Global sourcing capabilities and timely pricing actions maintained supply continuity amid ongoing petrochemical supply chain disruption, improving competitive position as peers face availability challenges. * Progress on the Quantum Leap restructuring initiative continues to deliver expected cost savings, supporting margin expansion. * Working capital improved sequentially, operating cash flow hit a record Q2 level of $121 million, and 750,000 shares were repurchased in the quarter; net debt to adjusted EBITDA fell to 3.1x from 3.4x year-over-year.

- **Strategic Acquisition of Advanced Medical Solutions (AMS)** * The all-cash acquisition offer for AMS at 285 pence per share values AMS at ~715 million pounds enterprise value, representing 12.9x 2026 consensus pre-synergy EBITDA, dropping to under 8x including expected run-rate synergies. AMS delivered 2025 revenue of ~$302 million and adjusted GAAP EBITDA of ~$54 million, with 8% annual organic growth from 2023 to 2025. * The transaction is a highly strategic fit aligned with HB Fuller's goal to build a $100 million+ EBITDA medical business (a core high-margin, resilient growth market). It expands HB Fuller's medical revenue from ~$68 million to ~$370 million pro forma, bringing total addressable market to $95 billion and making medical a new 10% revenue share fourth segment. * Expected total run-rate synergies are $55 million: ~$20 million in commercial synergies from cross-selling and geographic expansion, and ~$35 million in cost synergies from overlapping back office rationalization. 50% of synergies are expected by 2028, with full synergies achieved by 2030; the transaction is expected to add 100 basis points to consolidated EBITDA margin within 24 months. * The complementary product and operational footprint creates value: complementary product portfolios, cross-selling opportunities across existing sales channels, combined R&D and regulatory expertise to accelerate time-to-market, and a complementary global manufacturing footprint enabling vertical integration benefits. HB Fuller has a proven track record of delivering value from acquisitions, with independent workstreams for AMS integration and Quantum Leap to ensure successful execution.

1. **HHC (Home and Construction Adhesives)**: Organic revenue grew 3% year-on-year driven by positive pricing; strength in medical, tape and label, and end-of-line packaging was partially offset by weakness in flexible packaging. EBITDA margin came in at 17.9%, up 230 basis points year-on-year on strong pricing execution. It contributed ~X% of total revenue, with strong sequential volume improvement from Q1 2026. 2. **EA (Engineering Adhesives)**: Organic revenue grew 5% year-on-year excluding the exited lower-margin solar business (driven by strength in aerospace, electronics, and general industries), and declined 1% including the solar exit. EBITDA margin was 22.4%, slightly down year-on-year as favorable pricing and restructuring savings were offset by higher variable compensation tied to higher profits. 3. **BAS (Bonding and Assembly Adhesives)**: Organic sales grew 6% year-on-year, with positive contributions from both pricing and volume driven by strength in glass, infrastructure, and mechanical end markets. EBITDA increased 10% year-on-year from positive pricing and volume gains.

Geographic performance: Americas organic revenue grew 1% year-on-year (4% growth for both EA and BAS offset HHC declines); EIMEA organic revenue grew 8% year-on-year with positive price and volume across all three segments; Asia Pacific organic revenue grew 10% year-on-year excluding solar, and was flat including solar.

- Full-year 2026 net revenue is still expected to grow mid-single digits, with organic revenue expected to grow low single digits year-on-year, and foreign currency translation expected to add a 1-2% positive impact to revenue. This guidance maintains prior growth targets. - Full-year 2026 adjusted EBITDA guidance is raised to a range of $650 million to $675 million, and adjusted EPS guidance is raised to a range of $4.60 to $4.90, with an increase to the midpoint of both ranges. - Full-year 2026 operating cash flow guidance is set at $300 million to $325 million, with cash flow delivery expected to be weighted to the second half of the year. - Third quarter 2026 revenue is expected to grow mid-single digits, with adjusted EBITDA expected in the range of $180 million to $190 million. None of the 2026 guidance includes the impact of the proposed AMS acquisition. - Pricing is expected to hit high single-digit approaching double-digit growth in the second half of 2026, with volumes expected to decline mid-single digits in the second half, consistent with prior outlooks. - Management reaffirmed the prior long-term targets of 5% constant currency sales growth and 20% consolidated EBITDA margin by 2028; the AMS acquisition does not accelerate this timeline, though it may bring margin achievement earlier in 2028.

- Ongoing petrochemical supply chain disruption from Middle East conflict is not expected to see rapid resolution, even after Strait of Hormuz activity normalizes. Aftershocks of the disruption will persist, with ongoing risk of intermittent raw material shortages, and raw material costs are not expected to return to pre-disruption levels, permanently resetting the industry cost structure. - Macroeconomic inflation and high interest rates are pushing down demand in some end markets, particularly automotive, with continued weak demand expected in the second half of 2026. - The AMS acquisition faces approval risks: it requires regulatory clearance and AMS shareholder approval to close, and has faced public opposition from some AMS shareholders that has contributed to HB Fuller's share price decline following the announcement. - Extracting non-core assets for accelerated deleveraging carries a high risk of dis-synergies due to shared manufacturing plant infrastructure across business segments.

Q: Will HB Fuller still characterize itself as a pure-play adhesives company after the AMS acquisition, and does the ongoing strategic review include potential divestitures? / A: HB Fuller will remain a pure-play adhesives company, as the majority of AMS's business is adhesive and adhesive-reliant products, with the rest of AMS's portfolio consistent with HB Fuller's identity as a differentiated formulator. Management confirms the strategic review does include ongoing portfolio evaluation for fit and shareholder value, and divestitures are possible, consistent with the 2025 divestment of the non-strategic flooring business.

Q: Why is the AMS cost synergy estimate higher than typical past acquisitions, and what is the synergy pathway for the deal? / A: The higher 11-12% of acquired revenue synergy estimate (vs 7-8% for prior deals like Royal) stems from two key factors: AMS is a standalone public company with redundant public company overhead that will be eliminated, and the $14 million in uncompleted synergy benefits from AMS's prior acquisition of Peter's Surgical are included in the total cost synergy figure. The remaining cost synergies come from overlapping back office rationalization, sourcing benefits, and operational consolidation.

Q: Investor opposition to the AMS deal has pushed HB Fuller's share down 8% — why should shareholders support moving ahead with this transaction? / A: The deal directly delivers on the long-term strategy management previously communicated to investors: it expands the medical business to 10% of total portfolio, establishes the segment with high-single digit annual growth, and accelerates the strategic shift to faster-growing, higher-margin, more resilient end markets. Management notes this is a rare one-of-a-kind opportunity that aligns perfectly with stated strategic priorities and has been in the company's strategic acquisition pipeline for three years.

Q: What are the main cross-selling and commercial synergy opportunities between HB Fuller and AMS, and is there expected product overlap/cannibalization? / A: The two businesses have highly complementary product portfolios, channels, and geographic footprints: HB Fuller has existing successful medical products that AMS can distribute through its existing channels, while AMS has approved novel products that HB Fuller can bring to market through its U.S. infrastructure, and the combination accelerates growth in underpenetrated markets like China and India by combining AMS's distribution with HB Fuller's local operational expertise. No meaningful product overlap is expected, so management anticipates little to no cannibalization.