FULLER H B CO Q3 FY2024 earnings call

• Continued to incrementally expand EBITDA margin year-on-year and realized positive organic growth, driven by volume leverage, restructuring actions, and acquisitions. - Volume growth was at the low end of expectations due to slowing market demand in certain durable goods related segments in EA. - Expect volume dynamics in EA to moderate and reverse as interest rates decline. - Confident long-term strategy of investing in higher growth, higher margin businesses will drive EBITDA growth and margin >20%. - Recognized by Newsweek as one of America's most admired workplaces, highlighting focus on being a talent magnet and employer of choice.

In the third quarter, HHC's organic revenue development improved significantly with strength in bottle labeling, packaging, and medical. Adjusted EBITDA was down 7% year-on-year to $165 million, and margin decreased 70 basis points to 16.5%. Engineering Adhesives (EA) organic revenue decreased 2% due to lower pricing and volumes, but adjusted EBITDA increased 5% with margin expanding 40 basis points to 19.7%. Construction Adhesives (CA) organic sales increased 10% with adjusted EBITDA up 36% and margin expanding 240 basis points to 16.4%. Geographically, Americas organic revenue was up 3% with CA driving growth; EIMEA organic revenue declined 2% but GBUs improved sequentially; Asia-Pacific organic revenue decreased 2% driven by clean energy, but excluding clean energy, organic sales increased ~6%. The acquisition of HS Butyl Limited in the third quarter, with 2024 annualized sales ~$23 million, strengthens the butyl tape portfolio and complements prior acquisitions.

• Net revenue growth now expected to be up approximately 2% with organic revenue flat year-on-year. - Adjusted EBITDA expected to be in the range of $610 million to $620 million (5%-7% growth y/y). - Full year adjusted diluted EPS in the range of $4.10 to $4.20 (6%-9% growth y/y). - Operating cash flow expected to be between $325 and $350 million.

• Macro conditions and interest rate uncertainties impacting volume growth. - Solar market overcapacity causing significant volume declines in EA. - Slowdown in certain durable goods markets due to fatigue from multiple years of higher interest rates.

Q: On the EA volume decline, what was driving the significantly lower clean energy sales and expectations for next several quarters?

A: Solar business saw volumes down globally due to overcapacity in the solar panel industry. Expect solar to be bumpy but see opportunities with new technology and customers.

Q: Similar follow-up on EA, any business being walked away from?

A: Retrenching in parts of the solar industry where overcapacity has no short-term solution while doubling down on value-creating segments.

Q: Volume trends in China versus other regions?

A: China business down low single-digits but up high single-digits excluding solar; strong growth in automotive and HHC in China.

Q: Confidence in sustaining adjusted gross margin north of 30%?

A: Focus on growing gross margins into mid-30s through restructuring, footprint optimization, and pricing enhancements.

Q: Solar business size, China portion, and volume decline in China?

A: Solar business <5% of revenue, ~60% in China, double-digit reduction in China solar volumes due to overcapacity and redeployment of silicon sealants.