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H.B. Fuller Reports Fourth Quarter and Fiscal Year 2018 Results

Fourth Quarter Organic Revenue Growth of 4 percent[7]
Fourth Quarter Reported Diluted EPS of $0.79
Adjusted Diluted EPS of $0.90[2]
 increased 27 percent versus Q4’17
Debt pay down of $204 million in 2018 exceeded target
Fiscal Year 2019 Adjusted Diluted EPS Guidance is $3.15 to $3.45

ST. PAUL, Minnesota, Jan. 16, 2019 /PRNewswire/ — H.B. Fuller Company (NYSE: FUL) today reported financial results for the fourth quarter and fiscal year ended Dec. 1, 2018.

Items of Note for Fourth Quarter 2018:

  • Cash flow from operations of $146 million up versus $70 million in the fourth quarter of 2017; debt pay down of $204 million in fiscal 2018, exceeding the company’s target of $170 million;
  • Net revenue of $768 million, up 13 percent versus fourth quarter of 2017. Organic revenue up 4 percent7, driven by pricing and double-digit growth in Engineering Adhesives;
  • Net income of $41 million or $0.79 of earnings per diluted share (EPS), compared with a net loss in the fourth quarter of 2017; adjusted net income of $47 million2, or $0.902 adjusted EPS, up 27 percent;
  • Gross margin up 240 basis points and adjusted gross margin5 up 150 basis points versus fourth quarter of 2017;
  • Adjusted EBITDA of $121 million2 up 30 percent year-over-year, driven by acquisitions, strategic pricing gains and acquisition synergies; up 8 percent on a pro-forma basis for Royal1;
  • Adjusted EBITDA margin of 15.7 percent2 increased compared with fourth quarter 2017 margin of 13.7 percent2, and 14.2 percent, on a pro-forma basis including Royal1;
  • Integration of Royal Adhesives on target with $5 million of incremental cost synergies in the fourth quarter and $15 million of cost synergies in fiscal 2018.

Items of Note for 2019 Guidance:

  • Assumes challenging macroeconomic conditions continue in China and around the globe, the U.S. dollar remains strong and raw materials prices will be generally flat to 2018;
  • Organic revenue growth of 3 to 5 percent, or net revenue growth of 1 to 2 percent reflecting unfavorable foreign currency impact estimated to be 2 to 3 percent;
  • Adjusted diluted EPS of $3.15 to $3.45; up approximately 10 percent at the midpoint;
  • Adjusted EBITDA of $465 to $485 million; up approximately 6 percent at the midpoint;
  • Core tax rate of between 26 and 29 percent;
  • Approximately $100 million of capital expenditures;
  • Debt repayment of $200 million, on-track to the company’s deleveraging targets.
Fourth Quarter 2018 Key Financials:
($ in Millions) Reported Adjusted/Proforma
2018 2017 % Change 2018 2017 % Change
Net Revenue 768 678 +13% 768 7711 -0.3%
Gross Profit Margin 27.3% 24.9% +240bps 28.1%5 26.6%5 +150bps
Net Income 41 (7) N/A 472 372 +27%
Diluted EPS $0.79 ($0.13) N/A $0.902 $0.712 +27%

Summary of Fourth Quarter 2018 Results :
Net revenue for the fourth quarter of 2018 of $768 million increased 13 percent compared with the fourth quarter of 2017. Organic revenue grew 3.8 percent7, driven by pricing improvements and double-digit growth in Engineering Adhesives.

Gross profit margin was 27.3 percent, compared with 24.9 percent in the same period in 2017 and adjusted gross profit margin of 28.1 percent5 increased 150 basis points versus last year, driven by strategic pricing gains, raw material sourcing synergies and lower manufacturing costs. Selling, General and Administrative (SG&A) expense was $140 million compared with $151 million last year. Adjusted SG&A expense of $131 million6 increased compared with $117 million in the fourth quarter of 2017, primarily due to the impact of acquisitions. Adjusted SG&A expense declined by $2 million, on a pro-forma basis for Royal1.

Net income for the fourth quarter of 2018 was $41 million, or $0.79 per diluted share, compared with a net loss of $7 million, or ($0.13) per share in the same period last year, and adjusted net income of $47 million2, or $0.902 adjusted EPS, increased 27 percent compared with $37 million2, or $0.712 adjusted EPS, versus last year. Adjusted EBITDA was $121 million2, up 30 percent compared with the prior year, with increases in all five operating segments. Adjusted EBITDA was up 8 percent on a proforma basis including Royal8.

“Our strategy to gain share in Engineering Adhesives, manage margins through effective pricing and leverage acquisition synergies continues to drive success at H.B. Fuller,” said Jim Owens, president and chief executive officer. “We achieved solid organic revenue growth in the quarter driven by pricing gains and double-digit growth in Engineering Adhesives. Foreign currency exchange rates and slower growth in China impacted our results more than we anticipated in our financial guidance for the fourth quarter. Despite these challenging macroeconomic factors, we increased adjusted EBITDA by 8 percent, doubled cash flow from operations compared with the fourth quarter of last year and paid down $204 million of debt in 2018, exceeding our $170 million target.”

Full Year 2018 Summary:
Net revenue for the 2018 fiscal year of $3,041 million increased 32 percent compared with fiscal 2017. Organic revenue grew by 3.77 percent year-over-year, driven by pricing gains and double-digit growth in Engineering Adhesives.

Gross profit margin of 27.5 percent increased 130 basis points compared with fiscal 2017 and adjusted gross profit margin of 27.9 percent5 increased 60 basis points versus last year. Net income for fiscal 2018 was $171 million, or $3.29 per diluted share, compared with net income of $59 million, or $1.15 per diluted share in fiscal 2017, and adjusted net income of $156 million2, or $3.002 per diluted share, increased 23 percent compared with $1272 million, or $2.452 per diluted share, in fiscal 2017. Adjusted EBITDA of $449 million2 was up 50 percent compared with the prior year, and increased 7 percent on a proforma basis including Royal8.

Balance Sheet and Cash Flow:
At the end of the fourth quarter of 2018, the Company had cash on hand of $151 million and total debt equal to $2,248 million, of which approximately 70 percent had a fixed interest rate. This compares to cash and debt levels equal to $150 million and $2,364 million, respectively, in the third quarter of 2018. Cash flow from operations in the fourth quarter was $146 million compared to $70 million for the same period in 2017, reflecting the increased profitability of the business and improved working capital management. Capital expenditures were $22 million in the fourth quarter of 2018, compared with $19 million in the same period last year.

Financial Guidance:
For fiscal year 2019, the company anticipates adjusted EPS of $3.15 to $3.45 and adjusted EBITDA of $465 to $485 million. Full year organic revenue growth is expected to be 3 to 5 percent compared with 2018, with net revenue growth of approximately 1 to 2 percent including an estimated unfavorable impact from foreign currency exchange rates of 2 to 3 percent. The company’s core tax rate, excluding the impact of discrete items, is expected to be between 26 and 29 percent. H.B. Fuller expects to invest approximately $100 million in capital items in 2019.

“In 2019 we will focus on driving solid organic revenue growth and margin improvement, achieving our committed cost and revenue synergies, and delivering $200 million of debt repayment. Engineering Adhesives will continue to grow into a larger and more profitable part of our business in 2019 and going forward,” Owens said. “In terms of guidance sensitivity, we are projecting a continued strong US dollar and China weakness along with relatively neutral raw material prices outside of China in 2019. Raw material demand and prices are currently declining in China and that trend may expand to the rest of the world if tariff and trade disputes persist. If raw material demand and prices start to decline in the rest of the world, our second half 2019 margins could be favorably impacted, resulting in EPS and EBITDA above the midpoint of our guidance range.

Owens continued, “We estimate that currency fluctuations and China impacted our 2019 guidance by approximately $40 million versus our original long-term forecast. Adjusting for these factors, our underlying EBITDA growth rates in 2018 and 2019 are in line with our original forecast of about 10 to 12 percent, and we anticipate annual EBITDA growth in this range through 2020. These factors impact the time to achieve our $600 million EBITDA target by about a year. We remain on track to meet or exceed our commitment of $600 million in debt paydown by the end of 2020 as a result of strong profit performance, high cash flow conversion rates and our focused capital management programs.”

This guidance excludes approximately $15 to $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 US 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.

Conference Call:
The Company will host an investor conference call to discuss fourth quarter results on Thursday, January 17, 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. 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 Jan. 31, 2019. To access the telephone replay dial 1-877-344-7529 or 1-412-317-0088 and enter passcode 10127319.

Certain amounts presented in this release and the accompanying financial statements and data are preliminary and are subject to change in the company’s Annual Report on Form 10-K for the year ended December 1, 2018 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 dividend; 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 2, 2017. 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.

 

H.B. FULLER COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
In thousands, except per share amounts (unaudited)
13 Weeks Ended Percent of 13 Weeks Ended Percent of
December 1, 2018 Net Revenue December 2, 2017 Net Revenue
Net revenue $ 768,429 100.0% $ 678,200 100.0%
Cost of sales (558,829) (72.7%) (509,412) (75.1%)
Gross profit 209,600 27.3% 168,788 24.9%
Selling, general and administrative expenses (139,844) (18.2%) (151,126) (22.3%)
Other expense, net (2,324) (0.3%) (26,163) (3.9%)
Interest expense (27,574) (3.6%) (19,073) (2.8%)
Interest income 3,005 0.4% 1,762 0.3%
Income (loss) before income taxes and income from equity method investments 42,863 5.6% (25,812) (3.8%)
Income (taxes) benefit (3,488) (0.5%) 16,691 2.5%
Income from equity method investments 1,990 0.3% 2,228 0.3%
Income (loss) from continuing operations 41,365 5.4% (6,893) (1.0%)
Net income (loss) including non-controlling interests 41,365 5.4% (6,893) (1.0%)
Net income attributable to non-controlling interests (20) (0.0%) (14) (0.0%)
Net income (loss) attributable to H.B. Fuller $ 41,345 5.4% $ (6,907) (1.0%)
Basic income (loss) per common share attributable to H.B. Fuller
   Income from continuing operations 0.82 (0.14)
Basic income (loss) per common share attributable to H.B. Fuller $ 0.82 $ (0.14)
Diluted income (loss) per common share attributable to H.B. Fuller
   Income from continuing operations 0.79 (0.13)
Diluted income (loss) per common share attributable to H.B. Fuller $ 0.79 $ (0.13)
Weighted-average common shares outstanding:
Basic 50,712 50,356
Diluted 52,017 51,724

 

Selected Balance Sheet Information (subject to change prior to filing of the Company’s Annual Report on Form 10-K)
December 1, 2018 December 2, 2017 December 3, 2016
Cash & cash equivalents $ 150,793 $ 194,398 $ 142,245
Trade accounts receivable, net 485,719 473,700 351,130
Inventories 355,563 372,102 258,096
Trade payables 273,378 268,467 162,964
Total assets 4,175,271 4,373,243 2,066,565
Total debt 2,247,527 2,451,910 703,271

 

H.B. FULLER COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
In thousands, except per share amounts (unaudited)
52 Weeks Ended Percent of 52 Weeks Ended Percent of
December 1, 2018 Net Revenue December 2, 2017 Net Revenue
Net revenue $ 3,041,002 100.0% $ 2,306,043 100.0%
Cost of sales (2,204,108) (72.5%) (1,700,973) (73.8%)
Gross profit 836,894 27.5% 605,070 26.2%
Selling, general and administrative expenses (582,132) (19.1%) (477,030) (20.7%)
Other income (expense), net 1,184 0.0% (27,667) (1.2%)
Interest expense (110,994) (3.6%) (43,701) (1.9%)
Interest income 11,774 0.4% 3,927 0.2%
Income from continuing operations before income taxes and income from equity method investments 156,726 5.2% 60,599 2.6%
Income benefit (taxes) 6,356 0.2% (9,810) (0.4%)
Income from equity method investments 8,150 0.3% 8,677 0.4%
Income from continuing operations 171,232 5.6% 59,466 2.6%
Net income including non-controlling interests 171,232 5.6% 59,466 2.6%
Net income attributable to non-controlling interests (24) (0.0%) (48) (0.0%)
Net income attributable to H.B. Fuller $ 171,208 5.6% $ 59,418 2.6%
Basic income per common share attributable to H.B. Fuller
   Income from continuing operations 3.38 1.18
Basic income per common share attributable to H.B. Fuller $ 3.38 $ 1.18
Diluted income per common share attributable to H.B. Fullera
   Income from continuing operations 3.29 1.15
Diluted income per common share attributable to H.B. Fullera $ 3.29 $ 1.15
Weighted-average common shares outstanding:
Basic 50,591 50,370
Diluted 51,975 51,619
Dividends declared per common share $ 0.615 $ 0.590
a Income per share amounts may not add due to rounding

 

H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands, except per share amounts (unaudited)
13 Weeks Ended 52 Weeks Ended
December 1, 2018 December 2, 2017 December 1, 2018 December 2, 2017
Net income attributable to H.B. Fuller $ 41,345 $ (6,907) $ 171,208 $ 59,418
Acquisition project costs 616 1,894 2,833 5,258
Tonsan call option agreement 3,555 (1,705) 1,496 (3,946)
Organizational realignment 469 789 2,836 15,620
Royal restructuring and integration 5,930 43,893 20,351 47,423
Tax reform (7,138) (43,276)
Other 1,787 (1,415) 514 2,787
Adjusted net income attributable to H.B. Fuller 2 46,564 36,549 155,962 126,560
Add:
Interest expense 27,468 17,949 110,624 42,365
Interest income (3,005) (720) (11,774) (2,886)
Income taxes 13,580 11,226 49,541 46,200
Depreciation expense 17,109 14,697 67,910 50,559
Amortization expense 18,855 13,114 76,490 36,243
Adjusted EBITDA 2 120,571 92,815 448,753 299,041
Diluted Shares 52,017 51,724 51,975 51,619
Adjusted diluted income per common share attributable to H.B. Fuller 2 $ 0.90 $ 0.71 $ 3.00 $ 2.45
Revenue $ 768,429 $ 678,200 $ 3,041,002 $ 2,306,043
Adjusted EBITDA margin 2 15.7% 13.7% 14.8% 13.0%
2 Adjusted net income attributable to H.B. Fuller, adjusted diluted income per common share attributable to H.B. Fuller, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures. Adjusted net income attributable to H.B. Fuller is defined as net income before the specific adjustments shown above. Adjusted diluted income per common share is defined as adjusted net income attributable to H.B. Fuller divided by the number of diluted common shares. Adjusted EBITDA is defined as net income before interest, income taxes, depreciation, amortization and the specific adjustments shown above. Adjusted EBITDA margin is defined as adjusted EBITDA divided by net revenue. The table above provides a reconciliation of adjusted net income attributable to H.B. Fuller, adjusted diluted income per common share attributable to H.B. Fuller, adjusted EBITDA and adjusted EBITDA margin to net income attributable to H.B. Fuller, the most directly comparable financial measure determined and reported in accordance with GAAP.

 

H.B. FULLER COMPANY AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
In thousands (unaudited)
13 Weeks Ended 13 Weeks Ended
December 1, 2018 December 2, 2017
Net Revenue:
Americas Adhesives $ 278,105 $ 254,100
EIMEA 184,522 171,984
Asia Pacific 71,135 74,609
Construction Adhesives 105,922 80,450
Engineering Adhesives 128,745 97,057
Total H.B. Fuller $ 768,429 $ 678,200
Segment Operating Income:
Americas Adhesives $ 30,430 $ 17,579
EIMEA 9,424 68
Asia Pacific 6,939 5,402
Construction Adhesives 7,212 (9,891)
Engineering Adhesives 15,751 4,504
Total H.B. Fuller $ 69,756 $ 17,662
Adjusted EBITDA 2
Americas Adhesives $ 44,988 $ 39,151
EIMEA 20,937 18,011
Asia Pacific 9,312 8,461
Construction Adhesives 18,460 9,389
Engineering Adhesives 27,059 15,869
Total H.B. Fuller $ 120,756 $ 90,881
Adjusted EBITDA Margin 2
Americas Adhesives 16.2% 15.4%
EIMEA 11.3% 10.5%
Asia Pacific 13.1% 11.3%
Construction Adhesives 17.4% 11.7%
Engineering Adhesives 21.0% 16.4%
Total H.B. Fuller 15.7% 13.4%

 

H.B. FULLER COMPANY AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
In thousands (unaudited)
52 Weeks Ended 52 Weeks Ended
December 1, 2018 December 2, 2017
Net Revenue:
Americas Adhesives $ 1,099,918 $ 907,765
EIMEA 738,553 568,658
Asia Pacific 278,079 264,692
Construction Adhesives 446,101 260,330
Engineering Adhesives 478,351 304,598
Total H.B. Fuller $ 3,041,002 $ 2,306,043
Segment Operating Income:
Americas Adhesives $ 115,363 $ 91,198
EIMEA 40,060 18,821
Asia Pacific 17,995 14,826
Construction Adhesives 32,917 (12,975)
Engineering Adhesives 48,427 16,170
Total H.B. Fuller $ 254,762 $ 128,040
Adjusted EBITDA 2
Americas Adhesives $ 172,112 $ 137,583
EIMEA 83,491 62,767
Asia Pacific 29,145 26,362
Construction Adhesives 77,834 26,393
Engineering Adhesives 81,463 39,090
Total H.B. Fuller $ 444,045 $ 292,195
Adjusted EBITDA Margin 2
Americas Adhesives 15.6% 15.2%
EIMEA 11.3% 11.0%
Asia Pacific 10.5% 10.0%
Construction Adhesives 17.4% 10.1%
Engineering Adhesives 17.0% 12.8%
Total H.B. Fuller 14.6% 12.7%

 

H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands, except per share amounts (unaudited)
13 Weeks Ended 52 Weeks Ended
December 1, 2018 December 2, 2017 December 1, 2018 December 2, 2017
Income before income taxes and income from equity method investments $ 42,863 $ (25,812) $ 156,726 $ 60,599
Adjustments:
Acquisition project costs 848 2,846 3,957 7,990
Tonsan call option agreement 3,555 (1,705) 1,496 (3,946)
Organizational realignment 544 1,018 2,840 19,963
Royal restructuring and integration 8,094 66,486 28,566 71,917
Tax reform 305 305
Other 1,965 2,728 3,487 7,608
Adjusted income before income taxes and income from equity method investments 3 $ 58,174 $ 45,561 $ 197,377 $ 164,131
3 Adjusted income before income taxes and income from equity investments is a non-GAAP financial measure. Adjusted income before income taxes and income from equity investments is defined as income before income taxes and income from equity investments before the specific adjustments shown above. The table above provides a reconciliation of adjusted income before income taxes and income from equity investments to income before income taxes and income from equity investments, the most directly comparable financial measure determined and reported in accordance with GAAP.
H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands, except per share amounts (unaudited)
13 Weeks Ended 52 Weeks Ended
December 1, 2018 December 2, 2017 December 1, 2018 December 2, 2017
Income Taxes $ (3,488) $ 16,691 $ 6,356 $ (9,810)
Adjustments:
Acquisition project costs (232) (952) (1,124) (2,732)
Organizational realignment (75) (230) (4) (4,343)
Royal restructuring and integration (2,164) (22,592) (8,215) (24,494)
Tax reform (7,444) (43,582)
Other (177) (4,143) (2,972) (4,821)
Adjusted income taxes 4 $ (13,580) $ (11,226) $ (49,541) $ (46,200)
Adjusted income before income taxes and income from equity method investments $ 58,174 $ 45,561 $ 197,377 $ 164,131
Adjusted effective income tax rate 4 23.3% 24.6% 25.1% 28.1%
4 Adjusted income taxes and adjusted effective income tax rate are non-GAAP financial measures. Adjusted income taxes is defined as income taxes before the specific adjustments shown above. Adjusted effective income tax rate is defined as income taxes divided by adjusted income before income taxes and income from equity method investments. The table above provides a reconciliation of adjusted income taxes and adjusted effective income tax rate to income taxes, the most directly comparable financial measure determined and reported in accordance with GAAP.

 

H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands (unaudited)
13 Weeks Ended 52 Weeks Ended
December 1, 2018 December 2, 2017 December 1, 2018 December 2, 2017
Net revenue $ 768,429 $ 678,200 $ 3,041,002 $ 2,306,043
Gross profit $ 209,600 $ 168,788 $ 836,894 $ 605,070
Gross profit margin 27.3% 24.9% 27.5% 26.2%
Adjustments:
Acquisition project costs 526 1,344 2,521 4,287
Organizational realignment 235 442 1,533 11,452
Royal restructuring and integration 2,810 10,781 5,027 10,781
Other 2,407 (1,052) 2,407 (1,900)
Adjusted gross profit 5 $ 215,578 $ 180,303 $ 848,382 $ 629,690
Adjusted gross profit margin 5 28.1% 26.6% 27.9% 27.3%
5 Adjusted gross profit and adjusted gross profit margin are non-GAAP financial measures. Adjusted gross profit and adjusted gross profit margin is defined as gross profit and gross profit margin excluding the specific adjustments shown above. The table above provides a reconciliation of adjusted gross profit and gross profit margin to gross profit and gross profit margin, the most directly comparable financial measure determined and reported in accordance with GAAP.
H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands (unaudited)
13 Weeks Ended 52 Weeks Ended
December 1, 2018 December 2, 2017 December 1, 2018 December 2, 2017
Selling, general and administrative expenses $ (139,844) $ (151,126) $ (582,132) $ (477,030)
Adjustments:
Acquisition project costs 323 1,359 1,436 3,561
Tonsan call option agreement 3,450 (1,780) 1,126 (4,233)
Organizational realignment 309 577 1,308 8,511
Royal restructuring and integration 5,114 29,957 23,370 35,387
Tax reform 305 305
Other (442) 3,780 5,851 9,508
Adjusted selling, general and administrative expenses 6 $ (130,785) $ (117,233) $ (548,736) $ (424,296)
6 Adjusted selling, general and administrative expenses is a non-GAAP financial measure. Adjusted selling, general and administrative expenses is defined as selling, general and administrative expenses excluding the specific adjustments shown above. The table above provides a reconciliation of adjusted selling, general and administrative expenses to selling, general and administrative expenses, the most directly comparable financial measure determined and reported in accordance with GAAP.

 

H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands (unaudited)
Americas Asia Construction Engineering Corporate H.B. Fuller
Adhesives EIMEA Pacific Adhesives Adhesives Total Unallocated Consolidated
13 Weeks Ended

December 1, 2018

$ 30,430 $ 9,424 $ 6,939 $ 7,212 $ 15,751 $ 69,756 $ (28,411) $ 41,345
Net income attributable to H.B. Fuller
Adjustments:
Acquisition project costs 794 22 10 12 10 848 (232) 616
Tonsan call option agreement 3,449 3,449 106 3,555
Organizational realignment 12 361 4 163 4 544 (75) 469
Royal restructuring and integration 1,641 3,067 401 1,532 1,284 7,925 (1,995) 5,930
Tax reform 116 77 36 38 38 305 (7,443) (7,138)
Other 2,024 142 (97) (2) (102) 1,965 (178) 1,787
Adjusted net income attributable to H.B. Fuller 2 35,017 13,093 7,293 8,955 20,434 84,792 (38,228) 46,564
Add:
Interest expense 27,468 27,468
Interest income (3,005) (3,005)
Income taxes 13,580 13,580
Depreciation expense 4,504 5,400 1,599 3,091 2,515 17,109 17,109
Amortization expense 5,467 2,444 420 6,414 4,110 18,855 18,855
Adjusted EBITDA 2 $ 44,988 $ 20,937 $ 9,312 $ 18,460 $ 27,059 $ 120,756 $ (185) $ 120,571
Americas Asia Construction Engineering Corporate H.B. Fuller
Adhesives EIMEA Pacific Adhesives Adhesives Total Unallocated Consolidated
52 Weeks Ended

December 1, 2018

$ 115,363 $ 40,060 $ 17,995 $ 32,917 $ 48,427 $ 254,762 $ (83,554) $ 171,208
Net income attributable to H.B. Fuller
Adjustments:
Acquisition project costs 3,674 95 45 48 95 3,957 (1,124) 2,833
Tonsan call option agreement 1,126 1,126 370 1,496
Organizational realignment 199 1,701 9 922 9 2,840 (4) 2,836
Royal restructuring and integration 8,781 7,663 1,925 5,963 4,065 28,397 (8,046) 20,351
Tax reform 116 77 36 38 38 305 (43,581) (43,276)
Other 4,422 1,712 651 786 687 8,258 (7,744) 514
Adjusted net income attributable to H.B. Fuller 2 132,555 51,308 20,661 40,674 54,447 299,645 (143,683) 155,962
Add:
Interest expense 110,624 110,624
Interest income (11,774) (11,774)
Income taxes 49,541 49,541
Depreciation expense 17,626 22,088 6,574 11,653 9,969 67,910 67,910
Amortization expense 21,931 10,095 1,910 25,507 17,047 76,490 76,490
Adjusted EBITDA 2 $ 172,112 $ 83,491 $ 29,145 $ 77,834 $ 81,463 $ 444,045 $ 4,708 $ 448,753
Note: Adjusted EBITDA is a non-GAAP financial measure. The tables above provide a reconciliation of adjusted EBITDA for each segment to net income attributable to H.B. Fuller for each segment, the most directly comparable financial measure determined and reported in accordance with U.S. GAAP.

 

H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands (unaudited)
Americas Asia Construction Engineering H.B. Fuller
Adhesives EIMEA Pacific Adhesives Adhesives Total Unallocated Consolidated
13 Weeks Ended

December 2, 2017

$ 17,579 $ 68 $ 5,402 $ (9,891) $ 4,504 $ 17,662 $ (24,569) $ (6,907)
Net income attributable to H.B. Fuller
Adjustments:
Acquisition project costs 2,760 (71) (34) (35) 83 2,703 (809) 1,894
Tonsan call option agreement (1,780) (1,780) 75 (1,705)
Organizational realignment 130 514 35 274 66 1,019 (230) 789
Royal Restructuring 10,362 10,024 621 12,283 7,448 40,738 3,155 43,893
Other 713 946 451 142 476 2,728 (4,143) (1,415)
Adjusted net income attributable to H.B. Fuller 2 31,544 11,481 6,475 2,773 10,797 63,070 (26,521) 36,549
Add:
Interest expense 17,949 17,949
Interest income (720) (720)
Income taxes 11,226 11,226
Depreciation expense 4,056 4,656 1,525 2,378 2,082 14,697 14,697
Amortization expense 3,551 1,874 461 4,238 2,990 13,114 13,114
Adjusted EBITDA 2 $ 39,151 $ 18,011 $ 8,461 $ 9,389 $ 15,869 $ 90,881 $ 1,934 $ 92,815
Americas Asia Construction Engineering H.B. Fuller
Adhesives EIMEA Pacific Adhesives Adhesives Total Unallocated Consolidated
52 Weeks Ended

December 2, 2017

$ 91,198 $ 18,821 $ 14,826 $ (12,975) $ 16,170 $ 128,040 $ (68,622) $ 59,418
Net income attributable to H.B. Fuller
Adjustments:
Acquisition project costs 6,904 312 151 157 323 7,847 (2,589) 5,258
Tonsan call option agreement (4,233) (4,233) 287 (3,946)
Organizational realignment 2,444 8,973 1,790 5,895 861 19,963 (4,343) 15,620
Royal Restructuring 11,850 11,220 731 14,022 8,345 46,168 1,255 47,423
Other 2,188 2,379 1,133 711 1,197 7,608 (4,821) 2,787
Adjusted net income attributable to H.B. Fuller 2 114,584 41,705 18,631 7,810 22,663 205,393 (78,833) 126,560
Add:
Interest expense 42,365 42,365
Interest income (2,886) (2,886)
Income taxes 46,200 46,200
Depreciation expense 14,491 15,917 5,976 7,432 6,743 50,559 50,559
Amortization expense 8,508 5,145 1,755 11,151 9,684 36,243 36,243
Adjusted EBITDA 2 $ 137,583 $ 62,767 $ 26,362 $ 26,393 $ 39,090 $ 292,195 $ 6,846 $ 299,041
Note: Adjusted EBITDA is a non-GAAP financial measure. The tables above provide a reconciliation of adjusted EBITDA for each segment to net income attributable to H.B. Fuller for each segment, the most directly comparable financial measure determined and reported in accordance with U.S. GAAP.

 

H.B. FULLER COMPANY AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
NET REVENUE GROWTH
(unaudited)
13 Weeks Ended December 1, 2018
Americas
Adhesives
EIMEA Asia Pacific Construction
Adhesives
Engineering
Adhesives
Total HBF
Price 5.0% 4.3% 2.4% 0.2% 2.1% 3.5%
Volume (4.0%) (1.5%) (3.1%) (1.0%) 15.8% (0.1%)
Mix 2.4% 0.3% (1.1%) (2.5%) (1.1%) 0.4%
Acquisition 11.8% 12.1% 1.1% 35.9% 19.8% 14.7%
  Constant Currency Growth 7 15.2% 15.2% (0.7%) 32.6% 36.6% 18.5%
F/X (5.8%) (7.9%) (4.0%) (1.0%) (4.0%) (5.2%)
9.4% 7.3% (4.7%) 31.6% 32.6% 13.3%
Organic Revenue Growth 7 3.4% 3.1% (1.8%) (3.3%) 16.8% 3.8%
52 Weeks Ended December 1, 2018
Americas
Adhesives
EIMEA Asia Pacific Construction
Adhesives
Engineering
Adhesives
Total HBF
Price 3.8% 4.4% 1.4% 0.0% 4.8% 3.4%
Volume (3.4%) (0.9%) 0.9% (0.2%) 9.2% (0.3%)
Mix 1.4% 0.4% (0.5%) (1.0%) 0.7% 0.6%
Acquisition 22.1% 24.3% 1.5% 72.4% 39.9% 28.3%
  Constant Currency Growth 7 23.9% 28.2% 3.3% 71.2% 54.6% 32.0%
F/X (2.7%) 1.7% 1.8% 0.2% 2.5% (0.1%)
21.2% 29.9% 5.1% 71.4% 57.1% 31.9%
Organic Revenue Growth 7 1.8% 3.9% 1.8% (1.2%) 14.7% 3.7%
7 Constant currency revenue growth is a non-GAAP financial measure defined as changes in revenue due to price, volume, mix and acquisitions and excludes revenue changes driven by foreign currency translation. Organic revenue growth is a non-GAAP financial measure defined as constant currency revenue growth less growth from acquisitions.

 

1 Proforma results were provided to reflect the historical combination of H.B. Fuller and Royal as of the comparable prior periods before the acquisition was completed in October of 2017. The proforma results and reconciliations to GAAP outcomes were filed on a Form 8-K dated March 28, 2018.

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H.B. Fuller Reports Fourth Quarter and Fiscal Year 2018 Results

Fourth Quarter Organic Revenue Growth of 4 percent[7]
Fourth Quarter Reported Diluted EPS of $0.79
Adjusted Diluted EPS of $0.90[2]
 increased 27 percent versus Q4’17
Debt pay down of $204 million in 2018 exceeded target
Fiscal Year 2019 Adjusted Diluted EPS Guidance is $3.15 to $3.45

ST. PAUL, Minnesota, Jan. 16, 2019 /PRNewswire/ — H.B. Fuller Company (NYSE: FUL) today reported financial results for the fourth quarter and fiscal year ended Dec. 1, 2018.

Items of Note for Fourth Quarter 2018:

  • Cash flow from operations of $146 million up versus $70 million in the fourth quarter of 2017; debt pay down of $204 million in fiscal 2018, exceeding the company’s target of $170 million;
  • Net revenue of $768 million, up 13 percent versus fourth quarter of 2017. Organic revenue up 4 percent7, driven by pricing and double-digit growth in Engineering Adhesives;
  • Net income of $41 million or $0.79 of earnings per diluted share (EPS), compared with a net loss in the fourth quarter of 2017; adjusted net income of $47 million2, or $0.902 adjusted EPS, up 27 percent;
  • Gross margin up 240 basis points and adjusted gross margin5 up 150 basis points versus fourth quarter of 2017;
  • Adjusted EBITDA of $121 million2 up 30 percent year-over-year, driven by acquisitions, strategic pricing gains and acquisition synergies; up 8 percent on a pro-forma basis for Royal1;
  • Adjusted EBITDA margin of 15.7 percent2 increased compared with fourth quarter 2017 margin of 13.7 percent2, and 14.2 percent, on a pro-forma basis including Royal1;
  • Integration of Royal Adhesives on target with $5 million of incremental cost synergies in the fourth quarter and $15 million of cost synergies in fiscal 2018.

Items of Note for 2019 Guidance:

  • Assumes challenging macroeconomic conditions continue in China and around the globe, the U.S. dollar remains strong and raw materials prices will be generally flat to 2018;
  • Organic revenue growth of 3 to 5 percent, or net revenue growth of 1 to 2 percent reflecting unfavorable foreign currency impact estimated to be 2 to 3 percent;
  • Adjusted diluted EPS of $3.15 to $3.45; up approximately 10 percent at the midpoint;
  • Adjusted EBITDA of $465 to $485 million; up approximately 6 percent at the midpoint;
  • Core tax rate of between 26 and 29 percent;
  • Approximately $100 million of capital expenditures;
  • Debt repayment of $200 million, on-track to the company’s deleveraging targets.
Fourth Quarter 2018 Key Financials:
($ in Millions) Reported Adjusted/Proforma
2018 2017 % Change 2018 2017 % Change
Net Revenue 768 678 +13% 768 7711 -0.3%
Gross Profit Margin 27.3% 24.9% +240bps 28.1%5 26.6%5 +150bps
Net Income 41 (7) N/A 472 372 +27%
Diluted EPS $0.79 ($0.13) N/A $0.902 $0.712 +27%

Summary of Fourth Quarter 2018 Results :
Net revenue for the fourth quarter of 2018 of $768 million increased 13 percent compared with the fourth quarter of 2017. Organic revenue grew 3.8 percent7, driven by pricing improvements and double-digit growth in Engineering Adhesives.

Gross profit margin was 27.3 percent, compared with 24.9 percent in the same period in 2017 and adjusted gross profit margin of 28.1 percent5 increased 150 basis points versus last year, driven by strategic pricing gains, raw material sourcing synergies and lower manufacturing costs. Selling, General and Administrative (SG&A) expense was $140 million compared with $151 million last year. Adjusted SG&A expense of $131 million6 increased compared with $117 million in the fourth quarter of 2017, primarily due to the impact of acquisitions. Adjusted SG&A expense declined by $2 million, on a pro-forma basis for Royal1.

Net income for the fourth quarter of 2018 was $41 million, or $0.79 per diluted share, compared with a net loss of $7 million, or ($0.13) per share in the same period last year, and adjusted net income of $47 million2, or $0.902 adjusted EPS, increased 27 percent compared with $37 million2, or $0.712 adjusted EPS, versus last year. Adjusted EBITDA was $121 million2, up 30 percent compared with the prior year, with increases in all five operating segments. Adjusted EBITDA was up 8 percent on a proforma basis including Royal8.

“Our strategy to gain share in Engineering Adhesives, manage margins through effective pricing and leverage acquisition synergies continues to drive success at H.B. Fuller,” said Jim Owens, president and chief executive officer. “We achieved solid organic revenue growth in the quarter driven by pricing gains and double-digit growth in Engineering Adhesives. Foreign currency exchange rates and slower growth in China impacted our results more than we anticipated in our financial guidance for the fourth quarter. Despite these challenging macroeconomic factors, we increased adjusted EBITDA by 8 percent, doubled cash flow from operations compared with the fourth quarter of last year and paid down $204 million of debt in 2018, exceeding our $170 million target.”

Full Year 2018 Summary:
Net revenue for the 2018 fiscal year of $3,041 million increased 32 percent compared with fiscal 2017. Organic revenue grew by 3.77 percent year-over-year, driven by pricing gains and double-digit growth in Engineering Adhesives.

Gross profit margin of 27.5 percent increased 130 basis points compared with fiscal 2017 and adjusted gross profit margin of 27.9 percent5 increased 60 basis points versus last year. Net income for fiscal 2018 was $171 million, or $3.29 per diluted share, compared with net income of $59 million, or $1.15 per diluted share in fiscal 2017, and adjusted net income of $156 million2, or $3.002 per diluted share, increased 23 percent compared with $1272 million, or $2.452 per diluted share, in fiscal 2017. Adjusted EBITDA of $449 million2 was up 50 percent compared with the prior year, and increased 7 percent on a proforma basis including Royal8.

Balance Sheet and Cash Flow:
At the end of the fourth quarter of 2018, the Company had cash on hand of $151 million and total debt equal to $2,248 million, of which approximately 70 percent had a fixed interest rate. This compares to cash and debt levels equal to $150 million and $2,364 million, respectively, in the third quarter of 2018. Cash flow from operations in the fourth quarter was $146 million compared to $70 million for the same period in 2017, reflecting the increased profitability of the business and improved working capital management. Capital expenditures were $22 million in the fourth quarter of 2018, compared with $19 million in the same period last year.

Financial Guidance:
For fiscal year 2019, the company anticipates adjusted EPS of $3.15 to $3.45 and adjusted EBITDA of $465 to $485 million. Full year organic revenue growth is expected to be 3 to 5 percent compared with 2018, with net revenue growth of approximately 1 to 2 percent including an estimated unfavorable impact from foreign currency exchange rates of 2 to 3 percent. The company’s core tax rate, excluding the impact of discrete items, is expected to be between 26 and 29 percent. H.B. Fuller expects to invest approximately $100 million in capital items in 2019.

“In 2019 we will focus on driving solid organic revenue growth and margin improvement, achieving our committed cost and revenue synergies, and delivering $200 million of debt repayment. Engineering Adhesives will continue to grow into a larger and more profitable part of our business in 2019 and going forward,” Owens said. “In terms of guidance sensitivity, we are projecting a continued strong US dollar and China weakness along with relatively neutral raw material prices outside of China in 2019. Raw material demand and prices are currently declining in China and that trend may expand to the rest of the world if tariff and trade disputes persist. If raw material demand and prices start to decline in the rest of the world, our second half 2019 margins could be favorably impacted, resulting in EPS and EBITDA above the midpoint of our guidance range.

Owens continued, “We estimate that currency fluctuations and China impacted our 2019 guidance by approximately $40 million versus our original long-term forecast. Adjusting for these factors, our underlying EBITDA growth rates in 2018 and 2019 are in line with our original forecast of about 10 to 12 percent, and we anticipate annual EBITDA growth in this range through 2020. These factors impact the time to achieve our $600 million EBITDA target by about a year. We remain on track to meet or exceed our commitment of $600 million in debt paydown by the end of 2020 as a result of strong profit performance, high cash flow conversion rates and our focused capital management programs.”

This guidance excludes approximately $15 to $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 US 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.

Conference Call:
The Company will host an investor conference call to discuss fourth quarter results on Thursday, January 17, 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. 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 Jan. 31, 2019. To access the telephone replay dial 1-877-344-7529 or 1-412-317-0088 and enter passcode 10127319.

Certain amounts presented in this release and the accompanying financial statements and data are preliminary and are subject to change in the company’s Annual Report on Form 10-K for the year ended December 1, 2018 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 dividend; 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 2, 2017. 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.

 

H.B. FULLER COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
In thousands, except per share amounts (unaudited)
13 Weeks Ended Percent of 13 Weeks Ended Percent of
December 1, 2018 Net Revenue December 2, 2017 Net Revenue
Net revenue $ 768,429 100.0% $ 678,200 100.0%
Cost of sales (558,829) (72.7%) (509,412) (75.1%)
Gross profit 209,600 27.3% 168,788 24.9%
Selling, general and administrative expenses (139,844) (18.2%) (151,126) (22.3%)
Other expense, net (2,324) (0.3%) (26,163) (3.9%)
Interest expense (27,574) (3.6%) (19,073) (2.8%)
Interest income 3,005 0.4% 1,762 0.3%
Income (loss) before income taxes and income from equity method investments 42,863 5.6% (25,812) (3.8%)
Income (taxes) benefit (3,488) (0.5%) 16,691 2.5%
Income from equity method investments 1,990 0.3% 2,228 0.3%
Income (loss) from continuing operations 41,365 5.4% (6,893) (1.0%)
Net income (loss) including non-controlling interests 41,365 5.4% (6,893) (1.0%)
Net income attributable to non-controlling interests (20) (0.0%) (14) (0.0%)
Net income (loss) attributable to H.B. Fuller $ 41,345 5.4% $ (6,907) (1.0%)
Basic income (loss) per common share attributable to H.B. Fuller
   Income from continuing operations 0.82 (0.14)
Basic income (loss) per common share attributable to H.B. Fuller $ 0.82 $ (0.14)
Diluted income (loss) per common share attributable to H.B. Fuller
   Income from continuing operations 0.79 (0.13)
Diluted income (loss) per common share attributable to H.B. Fuller $ 0.79 $ (0.13)
Weighted-average common shares outstanding:
Basic 50,712 50,356
Diluted 52,017 51,724

 

Selected Balance Sheet Information (subject to change prior to filing of the Company’s Annual Report on Form 10-K)
December 1, 2018 December 2, 2017 December 3, 2016
Cash & cash equivalents $ 150,793 $ 194,398 $ 142,245
Trade accounts receivable, net 485,719 473,700 351,130
Inventories 355,563 372,102 258,096
Trade payables 273,378 268,467 162,964
Total assets 4,175,271 4,373,243 2,066,565
Total debt 2,247,527 2,451,910 703,271

 

H.B. FULLER COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
In thousands, except per share amounts (unaudited)
52 Weeks Ended Percent of 52 Weeks Ended Percent of
December 1, 2018 Net Revenue December 2, 2017 Net Revenue
Net revenue $ 3,041,002 100.0% $ 2,306,043 100.0%
Cost of sales (2,204,108) (72.5%) (1,700,973) (73.8%)
Gross profit 836,894 27.5% 605,070 26.2%
Selling, general and administrative expenses (582,132) (19.1%) (477,030) (20.7%)
Other income (expense), net 1,184 0.0% (27,667) (1.2%)
Interest expense (110,994) (3.6%) (43,701) (1.9%)
Interest income 11,774 0.4% 3,927 0.2%
Income from continuing operations before income taxes and income from equity method investments 156,726 5.2% 60,599 2.6%
Income benefit (taxes) 6,356 0.2% (9,810) (0.4%)
Income from equity method investments 8,150 0.3% 8,677 0.4%
Income from continuing operations 171,232 5.6% 59,466 2.6%
Net income including non-controlling interests 171,232 5.6% 59,466 2.6%
Net income attributable to non-controlling interests (24) (0.0%) (48) (0.0%)
Net income attributable to H.B. Fuller $ 171,208 5.6% $ 59,418 2.6%
Basic income per common share attributable to H.B. Fuller
   Income from continuing operations 3.38 1.18
Basic income per common share attributable to H.B. Fuller $ 3.38 $ 1.18
Diluted income per common share attributable to H.B. Fullera
   Income from continuing operations 3.29 1.15
Diluted income per common share attributable to H.B. Fullera $ 3.29 $ 1.15
Weighted-average common shares outstanding:
Basic 50,591 50,370
Diluted 51,975 51,619
Dividends declared per common share $ 0.615 $ 0.590
a Income per share amounts may not add due to rounding

 

H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands, except per share amounts (unaudited)
13 Weeks Ended 52 Weeks Ended
December 1, 2018 December 2, 2017 December 1, 2018 December 2, 2017
Net income attributable to H.B. Fuller $ 41,345 $ (6,907) $ 171,208 $ 59,418
Acquisition project costs 616 1,894 2,833 5,258
Tonsan call option agreement 3,555 (1,705) 1,496 (3,946)
Organizational realignment 469 789 2,836 15,620
Royal restructuring and integration 5,930 43,893 20,351 47,423
Tax reform (7,138) (43,276)
Other 1,787 (1,415) 514 2,787
Adjusted net income attributable to H.B. Fuller 2 46,564 36,549 155,962 126,560
Add:
Interest expense 27,468 17,949 110,624 42,365
Interest income (3,005) (720) (11,774) (2,886)
Income taxes 13,580 11,226 49,541 46,200
Depreciation expense 17,109 14,697 67,910 50,559
Amortization expense 18,855 13,114 76,490 36,243
Adjusted EBITDA 2 120,571 92,815 448,753 299,041
Diluted Shares 52,017 51,724 51,975 51,619
Adjusted diluted income per common share attributable to H.B. Fuller 2 $ 0.90 $ 0.71 $ 3.00 $ 2.45
Revenue $ 768,429 $ 678,200 $ 3,041,002 $ 2,306,043
Adjusted EBITDA margin 2 15.7% 13.7% 14.8% 13.0%
2 Adjusted net income attributable to H.B. Fuller, adjusted diluted income per common share attributable to H.B. Fuller, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures. Adjusted net income attributable to H.B. Fuller is defined as net income before the specific adjustments shown above. Adjusted diluted income per common share is defined as adjusted net income attributable to H.B. Fuller divided by the number of diluted common shares. Adjusted EBITDA is defined as net income before interest, income taxes, depreciation, amortization and the specific adjustments shown above. Adjusted EBITDA margin is defined as adjusted EBITDA divided by net revenue. The table above provides a reconciliation of adjusted net income attributable to H.B. Fuller, adjusted diluted income per common share attributable to H.B. Fuller, adjusted EBITDA and adjusted EBITDA margin to net income attributable to H.B. Fuller, the most directly comparable financial measure determined and reported in accordance with GAAP.

 

H.B. FULLER COMPANY AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
In thousands (unaudited)
13 Weeks Ended 13 Weeks Ended
December 1, 2018 December 2, 2017
Net Revenue:
Americas Adhesives $ 278,105 $ 254,100
EIMEA 184,522 171,984
Asia Pacific 71,135 74,609
Construction Adhesives 105,922 80,450
Engineering Adhesives 128,745 97,057
Total H.B. Fuller $ 768,429 $ 678,200
Segment Operating Income:
Americas Adhesives $ 30,430 $ 17,579
EIMEA 9,424 68
Asia Pacific 6,939 5,402
Construction Adhesives 7,212 (9,891)
Engineering Adhesives 15,751 4,504
Total H.B. Fuller $ 69,756 $ 17,662
Adjusted EBITDA 2
Americas Adhesives $ 44,988 $ 39,151
EIMEA 20,937 18,011
Asia Pacific 9,312 8,461
Construction Adhesives 18,460 9,389
Engineering Adhesives 27,059 15,869
Total H.B. Fuller $ 120,756 $ 90,881
Adjusted EBITDA Margin 2
Americas Adhesives 16.2% 15.4%
EIMEA 11.3% 10.5%
Asia Pacific 13.1% 11.3%
Construction Adhesives 17.4% 11.7%
Engineering Adhesives 21.0% 16.4%
Total H.B. Fuller 15.7% 13.4%

 

H.B. FULLER COMPANY AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
In thousands (unaudited)
52 Weeks Ended 52 Weeks Ended
December 1, 2018 December 2, 2017
Net Revenue:
Americas Adhesives $ 1,099,918 $ 907,765
EIMEA 738,553 568,658
Asia Pacific 278,079 264,692
Construction Adhesives 446,101 260,330
Engineering Adhesives 478,351 304,598
Total H.B. Fuller $ 3,041,002 $ 2,306,043
Segment Operating Income:
Americas Adhesives $ 115,363 $ 91,198
EIMEA 40,060 18,821
Asia Pacific 17,995 14,826
Construction Adhesives 32,917 (12,975)
Engineering Adhesives 48,427 16,170
Total H.B. Fuller $ 254,762 $ 128,040
Adjusted EBITDA 2
Americas Adhesives $ 172,112 $ 137,583
EIMEA 83,491 62,767
Asia Pacific 29,145 26,362
Construction Adhesives 77,834 26,393
Engineering Adhesives 81,463 39,090
Total H.B. Fuller $ 444,045 $ 292,195
Adjusted EBITDA Margin 2
Americas Adhesives 15.6% 15.2%
EIMEA 11.3% 11.0%
Asia Pacific 10.5% 10.0%
Construction Adhesives 17.4% 10.1%
Engineering Adhesives 17.0% 12.8%
Total H.B. Fuller 14.6% 12.7%

 

H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands, except per share amounts (unaudited)
13 Weeks Ended 52 Weeks Ended
December 1, 2018 December 2, 2017 December 1, 2018 December 2, 2017
Income before income taxes and income from equity method investments $ 42,863 $ (25,812) $ 156,726 $ 60,599
Adjustments:
Acquisition project costs 848 2,846 3,957 7,990
Tonsan call option agreement 3,555 (1,705) 1,496 (3,946)
Organizational realignment 544 1,018 2,840 19,963
Royal restructuring and integration 8,094 66,486 28,566 71,917
Tax reform 305 305
Other 1,965 2,728 3,487 7,608
Adjusted income before income taxes and income from equity method investments 3 $ 58,174 $ 45,561 $ 197,377 $ 164,131
3 Adjusted income before income taxes and income from equity investments is a non-GAAP financial measure. Adjusted income before income taxes and income from equity investments is defined as income before income taxes and income from equity investments before the specific adjustments shown above. The table above provides a reconciliation of adjusted income before income taxes and income from equity investments to income before income taxes and income from equity investments, the most directly comparable financial measure determined and reported in accordance with GAAP.
H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands, except per share amounts (unaudited)
13 Weeks Ended 52 Weeks Ended
December 1, 2018 December 2, 2017 December 1, 2018 December 2, 2017
Income Taxes $ (3,488) $ 16,691 $ 6,356 $ (9,810)
Adjustments:
Acquisition project costs (232) (952) (1,124) (2,732)
Organizational realignment (75) (230) (4) (4,343)
Royal restructuring and integration (2,164) (22,592) (8,215) (24,494)
Tax reform (7,444) (43,582)
Other (177) (4,143) (2,972) (4,821)
Adjusted income taxes 4 $ (13,580) $ (11,226) $ (49,541) $ (46,200)
Adjusted income before income taxes and income from equity method investments $ 58,174 $ 45,561 $ 197,377 $ 164,131
Adjusted effective income tax rate 4 23.3% 24.6% 25.1% 28.1%
4 Adjusted income taxes and adjusted effective income tax rate are non-GAAP financial measures. Adjusted income taxes is defined as income taxes before the specific adjustments shown above. Adjusted effective income tax rate is defined as income taxes divided by adjusted income before income taxes and income from equity method investments. The table above provides a reconciliation of adjusted income taxes and adjusted effective income tax rate to income taxes, the most directly comparable financial measure determined and reported in accordance with GAAP.

 

H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands (unaudited)
13 Weeks Ended 52 Weeks Ended
December 1, 2018 December 2, 2017 December 1, 2018 December 2, 2017
Net revenue $ 768,429 $ 678,200 $ 3,041,002 $ 2,306,043
Gross profit $ 209,600 $ 168,788 $ 836,894 $ 605,070
Gross profit margin 27.3% 24.9% 27.5% 26.2%
Adjustments:
Acquisition project costs 526 1,344 2,521 4,287
Organizational realignment 235 442 1,533 11,452
Royal restructuring and integration 2,810 10,781 5,027 10,781
Other 2,407 (1,052) 2,407 (1,900)
Adjusted gross profit 5 $ 215,578 $ 180,303 $ 848,382 $ 629,690
Adjusted gross profit margin 5 28.1% 26.6% 27.9% 27.3%
5 Adjusted gross profit and adjusted gross profit margin are non-GAAP financial measures. Adjusted gross profit and adjusted gross profit margin is defined as gross profit and gross profit margin excluding the specific adjustments shown above. The table above provides a reconciliation of adjusted gross profit and gross profit margin to gross profit and gross profit margin, the most directly comparable financial measure determined and reported in accordance with GAAP.
H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands (unaudited)
13 Weeks Ended 52 Weeks Ended
December 1, 2018 December 2, 2017 December 1, 2018 December 2, 2017
Selling, general and administrative expenses $ (139,844) $ (151,126) $ (582,132) $ (477,030)
Adjustments:
Acquisition project costs 323 1,359 1,436 3,561
Tonsan call option agreement 3,450 (1,780) 1,126 (4,233)
Organizational realignment 309 577 1,308 8,511
Royal restructuring and integration 5,114 29,957 23,370 35,387
Tax reform 305 305
Other (442) 3,780 5,851 9,508
Adjusted selling, general and administrative expenses 6 $ (130,785) $ (117,233) $ (548,736) $ (424,296)
6 Adjusted selling, general and administrative expenses is a non-GAAP financial measure. Adjusted selling, general and administrative expenses is defined as selling, general and administrative expenses excluding the specific adjustments shown above. The table above provides a reconciliation of adjusted selling, general and administrative expenses to selling, general and administrative expenses, the most directly comparable financial measure determined and reported in accordance with GAAP.

 

H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands (unaudited)
Americas Asia Construction Engineering Corporate H.B. Fuller
Adhesives EIMEA Pacific Adhesives Adhesives Total Unallocated Consolidated
13 Weeks Ended

December 1, 2018

$ 30,430 $ 9,424 $ 6,939 $ 7,212 $ 15,751 $ 69,756 $ (28,411) $ 41,345
Net income attributable to H.B. Fuller
Adjustments:
Acquisition project costs 794 22 10 12 10 848 (232) 616
Tonsan call option agreement 3,449 3,449 106 3,555
Organizational realignment 12 361 4 163 4 544 (75) 469
Royal restructuring and integration 1,641 3,067 401 1,532 1,284 7,925 (1,995) 5,930
Tax reform 116 77 36 38 38 305 (7,443) (7,138)
Other 2,024 142 (97) (2) (102) 1,965 (178) 1,787
Adjusted net income attributable to H.B. Fuller 2 35,017 13,093 7,293 8,955 20,434 84,792 (38,228) 46,564
Add:
Interest expense 27,468 27,468
Interest income (3,005) (3,005)
Income taxes 13,580 13,580
Depreciation expense 4,504 5,400 1,599 3,091 2,515 17,109 17,109
Amortization expense 5,467 2,444 420 6,414 4,110 18,855 18,855
Adjusted EBITDA 2 $ 44,988 $ 20,937 $ 9,312 $ 18,460 $ 27,059 $ 120,756 $ (185) $ 120,571
Americas Asia Construction Engineering Corporate H.B. Fuller
Adhesives EIMEA Pacific Adhesives Adhesives Total Unallocated Consolidated
52 Weeks Ended

December 1, 2018

$ 115,363 $ 40,060 $ 17,995 $ 32,917 $ 48,427 $ 254,762 $ (83,554) $ 171,208
Net income attributable to H.B. Fuller
Adjustments:
Acquisition project costs 3,674 95 45 48 95 3,957 (1,124) 2,833
Tonsan call option agreement 1,126 1,126 370 1,496
Organizational realignment 199 1,701 9 922 9 2,840 (4) 2,836
Royal restructuring and integration 8,781 7,663 1,925 5,963 4,065 28,397 (8,046) 20,351
Tax reform 116 77 36 38 38 305 (43,581) (43,276)
Other 4,422 1,712 651 786 687 8,258 (7,744) 514
Adjusted net income attributable to H.B. Fuller 2 132,555 51,308 20,661 40,674 54,447 299,645 (143,683) 155,962
Add:
Interest expense 110,624 110,624
Interest income (11,774) (11,774)
Income taxes 49,541 49,541
Depreciation expense 17,626 22,088 6,574 11,653 9,969 67,910 67,910
Amortization expense 21,931 10,095 1,910 25,507 17,047 76,490 76,490
Adjusted EBITDA 2 $ 172,112 $ 83,491 $ 29,145 $ 77,834 $ 81,463 $ 444,045 $ 4,708 $ 448,753
Note: Adjusted EBITDA is a non-GAAP financial measure. The tables above provide a reconciliation of adjusted EBITDA for each segment to net income attributable to H.B. Fuller for each segment, the most directly comparable financial measure determined and reported in accordance with U.S. GAAP.

 

H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands (unaudited)
Americas Asia Construction Engineering H.B. Fuller
Adhesives EIMEA Pacific Adhesives Adhesives Total Unallocated Consolidated
13 Weeks Ended

December 2, 2017

$ 17,579 $ 68 $ 5,402 $ (9,891) $ 4,504 $ 17,662 $ (24,569) $ (6,907)
Net income attributable to H.B. Fuller
Adjustments:
Acquisition project costs 2,760 (71) (34) (35) 83 2,703 (809) 1,894
Tonsan call option agreement (1,780) (1,780) 75 (1,705)
Organizational realignment 130 514 35 274 66 1,019 (230) 789
Royal Restructuring 10,362 10,024 621 12,283 7,448 40,738 3,155 43,893
Other 713 946 451 142 476 2,728 (4,143) (1,415)
Adjusted net income attributable to H.B. Fuller 2 31,544 11,481 6,475 2,773 10,797 63,070 (26,521) 36,549
Add:
Interest expense 17,949 17,949
Interest income (720) (720)
Income taxes 11,226 11,226
Depreciation expense 4,056 4,656 1,525 2,378 2,082 14,697 14,697
Amortization expense 3,551 1,874 461 4,238 2,990 13,114 13,114
Adjusted EBITDA 2 $ 39,151 $ 18,011 $ 8,461 $ 9,389 $ 15,869 $ 90,881 $ 1,934 $ 92,815
Americas Asia Construction Engineering H.B. Fuller
Adhesives EIMEA Pacific Adhesives Adhesives Total Unallocated Consolidated
52 Weeks Ended

December 2, 2017

$ 91,198 $ 18,821 $ 14,826 $ (12,975) $ 16,170 $ 128,040 $ (68,622) $ 59,418
Net income attributable to H.B. Fuller
Adjustments:
Acquisition project costs 6,904 312 151 157 323 7,847 (2,589) 5,258
Tonsan call option agreement (4,233) (4,233) 287 (3,946)
Organizational realignment 2,444 8,973 1,790 5,895 861 19,963 (4,343) 15,620
Royal Restructuring 11,850 11,220 731 14,022 8,345 46,168 1,255 47,423
Other 2,188 2,379 1,133 711 1,197 7,608 (4,821) 2,787
Adjusted net income attributable to H.B. Fuller 2 114,584 41,705 18,631 7,810 22,663 205,393 (78,833) 126,560
Add:
Interest expense 42,365 42,365
Interest income (2,886) (2,886)
Income taxes 46,200 46,200
Depreciation expense 14,491 15,917 5,976 7,432 6,743 50,559 50,559
Amortization expense 8,508 5,145 1,755 11,151 9,684 36,243 36,243
Adjusted EBITDA 2 $ 137,583 $ 62,767 $ 26,362 $ 26,393 $ 39,090 $ 292,195 $ 6,846 $ 299,041
Note: Adjusted EBITDA is a non-GAAP financial measure. The tables above provide a reconciliation of adjusted EBITDA for each segment to net income attributable to H.B. Fuller for each segment, the most directly comparable financial measure determined and reported in accordance with U.S. GAAP.

 

H.B. FULLER COMPANY AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
NET REVENUE GROWTH
(unaudited)
13 Weeks Ended December 1, 2018
Americas
Adhesives
EIMEA Asia Pacific Construction
Adhesives
Engineering
Adhesives
Total HBF
Price 5.0% 4.3% 2.4% 0.2% 2.1% 3.5%
Volume (4.0%) (1.5%) (3.1%) (1.0%) 15.8% (0.1%)
Mix 2.4% 0.3% (1.1%) (2.5%) (1.1%) 0.4%
Acquisition 11.8% 12.1% 1.1% 35.9% 19.8% 14.7%
  Constant Currency Growth 7 15.2% 15.2% (0.7%) 32.6% 36.6% 18.5%
F/X (5.8%) (7.9%) (4.0%) (1.0%) (4.0%) (5.2%)
9.4% 7.3% (4.7%) 31.6% 32.6% 13.3%
Organic Revenue Growth 7 3.4% 3.1% (1.8%) (3.3%) 16.8% 3.8%
52 Weeks Ended December 1, 2018
Americas
Adhesives
EIMEA Asia Pacific Construction
Adhesives
Engineering
Adhesives
Total HBF
Price 3.8% 4.4% 1.4% 0.0% 4.8% 3.4%
Volume (3.4%) (0.9%) 0.9% (0.2%) 9.2% (0.3%)
Mix 1.4% 0.4% (0.5%) (1.0%) 0.7% 0.6%
Acquisition 22.1% 24.3% 1.5% 72.4% 39.9% 28.3%
  Constant Currency Growth 7 23.9% 28.2% 3.3% 71.2% 54.6% 32.0%
F/X (2.7%) 1.7% 1.8% 0.2% 2.5% (0.1%)
21.2% 29.9% 5.1% 71.4% 57.1% 31.9%
Organic Revenue Growth 7 1.8% 3.9% 1.8% (1.2%) 14.7% 3.7%
7 Constant currency revenue growth is a non-GAAP financial measure defined as changes in revenue due to price, volume, mix and acquisitions and excludes revenue changes driven by foreign currency translation. Organic revenue growth is a non-GAAP financial measure defined as constant currency revenue growth less growth from acquisitions.

 

1 Proforma results were provided to reflect the historical combination of H.B. Fuller and Royal as of the comparable prior periods before the acquisition was completed in October of 2017. The proforma results and reconciliations to GAAP outcomes were filed on a Form 8-K dated March 28, 2018.

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