H.B. Fuller Reports First Quarter 2019 Results

ST. PAUL, Minn., March 27, 2019 /PRNewswire/ -- H.B. Fuller Company (NYSE: FUL) today reported financial results for the first quarter that began on Dec. 2, 2018 and ended on March 2, 2019.

Items of Note for First Quarter 2019:

• Net income was $12 million or $0.24 per diluted share (EPS), and adjusted net income was $17.5 million¹, or $0.34¹ of EPS;
• Adjusted EBITDA was $83 million¹, in line with the company's guidance, and increased 40 basis points¹ as a percent of revenue versus last year;
• Gross margin was 26.7 percent, and adjusted gross margin was 27 percent⁴, up 90 basis points year-over-year, driven by pricing gains, raw material sourcing synergies and improved business mix;
• Debt paydown was $12 million, on-track to meet the company's $200 million debt paydown target for the 2019 fiscal year. This is consistent with $11 million paydown in the first quarter last year, and $214 million total paydown in fiscal 2018;
• The company also reaffirmed its prior guidance ranges for fiscal 2019 adjusted EPS and EBITDA.

Summary of First Quarter 2019 Results:
Net revenue for the first quarter of 2019 of $673 million decreased 5.6 percent compared with the first quarter of 2018. Revenue excluding the impact of foreign currency was down 1 percent. Revenue performance was driven by favorable pricing, low-single digit organic growth in Americas Adhesives and EIMEA, and strong growth in electronics and aerospace solutions in the Engineering Adhesives segment, offset by a business slowdown in China, a weak December, portfolio repositioning in Construction Adhesives toward more profitable product lines, and softness in construction-related markets due to a colder and wetter winter.  

Gross profit margin was 26.7 percent and adjusted gross profit margin was 27 percent⁴, an increase of 90 basis points versus last year, driven by positive pricing contribution, raw material sourcing synergies from the integration of Royal Adhesives and improved business mix. Selling, General and Administrative (SG&A) expenses were $146 million. Adjusted SG&A expenses of $139 million⁵ decreased approximately 3 percent compared with the first quarter of 2018, driven by foreign currency exchange rates and continued focus on expense management. 

Net income attributable to H.B. Fuller for the first quarter of 2019 was $12 million, or $0.24 per diluted share, compared with $48 million, or $0.92 per diluted share in the same period last year. The decline was primarily due to a $35 million one-time, non-cash tax benefit in the first quarter of 2018 related to U.S. Tax Reform. Adjusted net income attributable to H.B. Fuller was $17.5 million¹, or $0.34¹ adjusted EPS, compared with $18 million¹, or $0.35¹ adjusted EPS last year. Adjusted EBITDA was $83 million¹, compared with $85 million¹ in the prior year, and adjusted EBITDA margin of 12.3 percent¹ increased versus 11.9 percent¹ in the prior year.

"We are off to a solid start in 2019, due primarily to our ability to respond quickly to dynamic external conditions impacting our revenue," said Jim Owens, H.B. Fuller president and chief executive officer. "In the first quarter, we leveraged solid pricing carry-over from 2018 and acquisition synergies to deliver earnings results and debt paydown in-line with our guidance. We are building on our strategic market position around the world to win with customers in our targeted growth sectors. And, based on improving trends in several segments throughout the quarter, we foresee stronger organic growth sequentially in the second quarter and continued EBITDA improvement throughout the year, within our prior guidance ranges for fiscal 2019."

Balance Sheet and Cash Flow:
At the end of the first quarter of 2019, the company had cash on hand of $113 million and total debt equal to $2,235 million. This compares to cash and debt levels equal to $151 million and $2,248 million, respectively, in the fourth quarter of 2018. Cash flow from operations in the first quarter was $0.5 million compared with ($32) million for the same period in 2018, reflecting improved working capital management. Capital expenditures were $14 million in the first quarter of 2019, compared with $19 million in the same period last year.

Fiscal 2019 Guidance:
The company is reaffirming its prior fiscal year 2019 guidance for adjusted EPS in the range of $3.15 to $3.45, and its prior guidance for adjusted EBITDA in the range of $465 to $485 million.

This guidance excludes approximately $20 million of pre-tax expenses required to integrate the Royal business and other businesses acquired in 2017, and between $6 and $8 million of pre-tax expenses related to ERP development costs. The company's guidance could be impacted by further rule making relative to U.S. Tax Reform. A complete reconciliation of the non-GAAP financial information contained in our 2019 guidance is not being provided in accordance with the "unreasonable efforts" exception of Item 10(e)(1)(i)(B) of Regulation S-K of the Securities and Exchange Commission.

Accounting Changes Adopted Retrospectively in Fiscal 2018
In a Current Report on Form 8-K filed on March 25, 2019, the company provided restated unaudited historical financial information for the fiscal quarters and the fiscal year ended Dec. 1, 2018. This filing reflects accounting changes implemented in the first quarter ended March 2, 2019 as if the changes were implemented on a retrospective basis at the beginning of fiscal year 2018. The changes include an Accounting Standards Update related to accounting for pension plans and a customer realignment between operating segments. These changes have no impact on the company's consolidated net income, consolidated balance sheets or consolidated statements of cash flows previously reported.

Conference Call:
The company will host an investor conference call to discuss first quarter results on Thursday, March 28, 2019, at 10:30 a.m. Eastern U.S. time. The conference call audio and accompanying presentation slides will be available to interested parties via a simultaneous webcast, and may be accessed from the company's website at https://investors.hbfuller.com/calendar. The slides will be made available approximately one hour prior to the start of the call. Participants should access the webcast 15 minutes prior to the start of the call to register for the event and install and test any necessary software. The webcast and presentation will be archived on the company's website. A telephone replay of the conference call will be available approximately 1 hour after the conclusion of the call, through April 4, 2019. To access the telephone replay dial 1-877-344-7529 or 1-412-317-0088 and enter passcode 10129329.

Certain amounts presented in this release and the accompanying financial statements and data are preliminary and are subject to change in the company's Quarterly Report on Form 10-Q for the period ended March 2, 2019 when it is filed with the Securities and Exchange Commission.

Regulation G:
The information presented in this earnings release regarding segment operating income, adjusted gross profit, adjusted gross profit margin, adjusted selling, general and administrative expense, adjusted income before income taxes and income from equity investments, adjusted income taxes, adjusted effective tax rate, adjusted net income, adjusted diluted earnings per share and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) 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 2019 outlook, which are unknown or have not yet occurred.

About H.B. Fuller:
Since 1887, 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 2018 net revenue of over $3 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, aerospace, 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 https://www.hbfuller.com/.

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: the Royal transaction may involve unexpected costs or liabilities; our business or stock price may suffer as a results of uncertainty surrounding the transaction; the substantial amount of debt we have incurred 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 contained on 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; 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 1, 2018. 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, managements' best estimate of these changes as well as changes in other factors have been included.

SOURCE H.B. Fuller Company