H.B. Fuller Company Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Delivered strong quarter with continued margin expansion and double-digit EPS growth despite challenging environment.
• Tightened guidance range for the year due to globally subdued economic backdrop.
• Expect volume growth to remain elusive and end market conditions challenging.
• Actively focus on enhancing portfolio composition, driving efficiencies, and repositioning for growth and margin expansion.
• In Q3, organic sales slightly negative, with positive pricing offsetting volume decline; EBITDA grew 3% year on year to $171 million and EBITDA margin expanded to 19.1%.
• HHC organic revenue softened, EA had positive growth driven by automotive and electronics, BAS performed as expected with EBITDA margin improvement.

Segment Performance

• HHC: Organic revenue decreased 3.1% in Q3. EBITDA was up 2% year on year, and EBITDA margin increased 50 basis points year on year to 16.9%.
• EA: Organic revenue increased 2.2% in Q3. EBITDA increased 14%, and EBITDA margin expanded 190 basis points year on year to 23.3%. Electronics business returned to globally double-digit organic growth, and US business in EA moved from negative mid-single-digit organic growth in Q2 to positive mid-single-digit in Q3.
• BAS: Organic sales were flat year on year. EBITDA increased 3% versus Q3 last year to $41 million, and EBITDA margin expanded 10 basis points to 17.7%.
• Geographically: America's organic revenue was up 1% year on year in Q3. EIMEA organic revenue declined 2% year on year. Asia Pacific organic revenue decreased 4% year on year, with EA organic revenue in the region up 7% year on year excluding solar.

Guidance

• Net revenue expected to be down 2% to 3% year on year, organic revenue expected to be flat to up 1% year on year, foreign exchange to adversely impact revenue by approx. 1% year on year.
• Adjusted EBITDA range tightened to $615 million to $625 million, equating to 4%-5% year on year growth.
• 2025 core tax rate expected between 26% and 26.5%, full-year interest expense between $125 million and $130 million.
• Full-year adjusted diluted EPS in range of $4.10 to $4.25, year on year growth between 7% and 11%.
• Full-year operating cash flow expected between $275 million and $300 million.
• Full-year capital spending target reduced to approximately $140 million.

Risks

• Globally subdued economic backdrop.
• End market conditions challenging with customer demand uneven and unpredictable.
• Impact of global trade tensions and export-driven uncertainty.
• Interest rate fluctuations and their impact on business conditions.

Question and Answer

Q: Could you provide some more detail behind the reduction in cash flow guidance?

A: It really comes down to working capital, specifically inventory. As we're in preparation and in process on a number of these footprint consolidation actions, we're trying to manage inventory a little differently to accommodate these, which requires us to keep higher inventory levels. That's driving the increase in working capital and the decrease in cash flow expectations for the year, and they're temporary as we're positioning for these changes and expect to reduce inventory to more normal levels in the future.

Q: For me, what kind of struck me as interesting was that in EA, autos and durables, you're kind of saying that things were okay. I'm just curious if did anything accelerate in the quarter, or was anything whether it's in the mix or any kind of accretion from acquisitions? What kind of LPA volumes there and margins there?

A: In the EA business, in Q3, the electronics business returned to globally double-digit organic growth as more and more product upgrades were coming out featuring our adhesive, in some wins there as we continue to take share. Also, our US business in EA drove forward to positive mid-single-digit organic growth in Q3 from negative mid-single-digit in Q2, a lot based on some share take and new customer wins, but also strong execution by our sales and technical service teams.

Q: Good morning. It is actually good morning, Ghansham. So, Celeste, you know, just going back to your prepared comments and, you know, the caution you shared for obviously good reason, etcetera. But how would you explain the HHC decline in volumes versus EA in context of HHC, generally speaking, being, you know, considered a little bit more defensive versus EA, which has multiple dimensions of exposure, including to some of the cyclical end markets. How would you always think about that?

A: The way I think about that, Ghansham, is our EA business today is performing much stronger than the market. I do think we're still seeing slowing in durable goods. However, that team, as I mentioned, as it relates to electronics, but also as it relates to automotive, has really been successfully growing their business, taking share, bringing unique solutions to the customer base, and that has facilitated their above-market growth. In the HHC business, we saw strong pricing performance around the globe in the third quarter. However, volumes were really tough to come by, Ghansham. And you know, they really are a reflection of the consumer. And so in all major regions, The Americas, Europe, Asia, we saw mid-single-digit declines in HHC volume. And I just think that's a reflection of the eroding global economic consumer.

Q: Morning, Mike. You've talked about this, I believe it was $55 million worth of kind of pricing versus raw material cost tailwind for the year. Was hoping that you could give us a sense of where we stand on that. Are you tracking above or below that number? How much of it is yet to be realized? And maybe give us a little bit of a sense of how you're seeing raw material costs trending as we start to think about price cost and some potential tailwind from that into fiscal 2026?

A: At the beginning of the year, we established that in order to achieve our guidance of $600 million to $625 million of EBITDA, we would be delivering $55 million of price and raw material cost action benefit. Through the third quarter, we've generated about $15 million of the $55 million of price and cost action. We anticipate another $15 million benefit in Q4, and then the remainder will wrap around into the beginning of next year. In the interim, in order to still achieve our guidance, we did take action to pull forward some of our footprint optimization savings. So we still feel very confident and have tightened the range to be able to achieve $615 million to $625 million of EBITDA this year.

Q: Hi, good morning. Could you give some color on the pricing trends for your segments in the fourth quarter?

A: Just you probably noticed, Lydia, that the businesses, all three GBUs were positive price year on year in Q3. There's a very supportive pricing environment in the market, given so much inflation tariffs, etcetera. And in fact, speaking of the fourth quarter, I actually just was reading a survey that was done here in the U.S. by the Adhesives and Sealants Council. They had surveyed their members to understand amongst other things how they were responding to tariffs and price was one question related to that. And 84% of the respondents to that survey that are all adhesives and sealants companies responded that they were raising price. So again, it's a very supportive pricing environment, and I think you'll continue to see that throughout the fourth quarter.