H.B. Fuller Company Q1 FY2026 earnings call

• In the first quarter, delivered on profit commitment and executed with discipline in a challenging operating environment, expanding margins by leveraging global sourcing strength and maintaining a focused approach to cost and portfolio management. • Discussed the impact on supply chains resulting from the recent events in the Middle East, taking actions like deploying the full scope of global sourcing and supply assurance infrastructure, and announcing a minimum 10% price increase across all product lines globally effective April 1st. • Project Quantum Leap is progressing well and remains on track, with the redesigned plant and supply chain network to strengthen long-term competitiveness and deliver improved profitability. • Operational focus on controlling costs, leveraging global sourcing advantage, maintaining commercial discipline, and executing strategy with consistency. • Medical business in Europe had strong organic growth in the quarter, with the medical business in Europe up almost 20% organically.

EA organic revenue increased approximately 3 percent in the first quarter, excluding the impact of exiting the lower margin solar business, driven by continued strength in electronics and aerospace. Organic revenue declined 2 percent in EA including solar. EBITDA increased 9% in EA and EBITDA margin increased 120 basis points year on year to 19.9%. Favorable net pricing and raw material cost actions and the benefit from restructuring drove the year on year margin expansion. In HHC, organic revenue declined 10% year over year reflecting a challenging environment and a tough comparison to the first quarter of 2025 when the business delivered 4% organic growth. Through disciplined cost management, EBITDA margins were 13.9%, up 120 basis points versus last year, reflecting pricing and raw material cost actions as well as strong expense control. In BAS, organic sales decreased 5.1% year-on-year, consistent with our expectations. The team executed well, even under challenging weather conditions. EBITDA for BAS decreased 1% year on year and EBITDA margins were flat as positive price and raw material actions as well as restructuring savings were offset by volume declines. Geographically, America's organic revenue was down 4% year on year. Declines in HHC were partially offset by EA, which achieved organic revenue growth of 8% year on year driven by continued strength in the aerospace and general industries market segments. In EIMEA, organic revenue decreased 11% year-on-year, primarily driven by tighter customer inventory management in HHC, a weak construction market in BAS, and a tough comparison to the first quarter of 2025 when HHC revenue grew over 10%. Asia Pacific organic revenue was up 2%, excluding solar, lower than trend due to the timing of Chinese New Year. Total organic revenue decreased 6% year on year, including solar.

• Net revenue is now expected to be up mid-single digits and organic revenue is now expected to be up low single digits versus fiscal 2025, reflecting updated pricing actions and anticipated market share gains. Foreign currency translation is expected to positively impact revenue by 1 to 2%. • Adjusted EBITDA for fiscal 2026 is now expected to be in the range of $645 million to $675 million, and adjusted EPS is now expected to be in the range of $4.55 to $4.90. • Net revenue for the second quarter is expected to be up low single digits, and adjusted EBITDA is expected to be in the range of $175 to $185 million. • Paused on closing deals in the near term, focusing more cash deployment on share purchases while aiming to achieve the target of 2.5 times to three times net debt to EBITDA.

• The conflict in the Middle East is creating significant constraints on raw material availability with over 40 force majeure letters from suppliers, affecting feedstocks, intermediates, logistics lanes, and energy inputs, leading to potential broad-based inflationary pressure and raw material shortages. • Uncertainty in volume due to factors like customers potentially not being able to procure other materials to produce their products and erosion in global demand because of the inflationary environment.

Q: Regarding the 10% price hike and the guidance raise, how does the price cost assumption hold?

A: We are baking in additional price and raw material benefit but also considering negative volume benefit. The adhesive market is in a different environment where our ability to gain share is enhanced, with competitors facing raw material issues and us being proactive in sourcing, and the market reset providing an opportunity.

Q: What was the impact of the Lunar New Year on volume and activity in Asia?

A: We experienced about a $15 million to $20 million revenue impact from Chinese New Year in Q1, which was pushed out to the second quarter. China bounced back to double-digit growth, and our HHC business did very well in Asia Pacific in Q1, especially in higher-end femcare and adult incontinence products.

Q: Can you talk about the raw material supply concerns?

A: We've received over 40 force majeure notices, mostly from the Asia-Pacific region as crude feedstocks and LNG availability are impacted. Materials like VAM have seen significant price increases, and we're already experiencing higher raw material costs with price increases extending from 10% up to 40% - 50% on some finished goods.

Q: Why did the volume outlook change?

A: It's a balance of several factors including share gain, customers potentially not being able to procure other materials to produce their products, and erosion in global demand due to the inflationary environment.

Q: Where are the opportunities to gain share and how durable are they?

A: Opportunities exist in HHC, EA, and BAS. Share gains are durable through long-term relationships with suppliers, including in China where we have strong relationships, and by working with customers to sign long-term agreements.

Q: What are the cash flow prospects for 2026?

A: We had a good start to the year from a cash flow standpoint with better working capital performance in the first quarter. We're monitoring inventory management as it may be trickier in the current environment but are confident in our guidance.

Q: What are the order trends and visibility?

A: In March, we saw higher revenue and improved margins. Customers are anxious to get their orders in, and the team is being judicious to avoid facilitating hoarding.

Q: How is the impact of customers' raw material procurement affecting different GBUs?

A: We're anticipating an impact, and we work closely with customers to reformulate our products to enable them to get their finished goods to market.

Q: What about the medical business performance and solar impact?

A: The medical business in Europe had strong organic growth in the quarter. Solar revenue was about $12.5 million in the quarter, down 40%, and we're on track to reach the trough revenue for solar by the third quarter with no expected major impact beyond that, and we're still on track to achieve the 20% EBITDA margin target by 2028.