Recent Quotes View Full List My Watchlist Create Watchlist Indicators DJI Nasdaq Composite SPX Gold Crude Oil Hydroworld Market Index Markets Stocks ETFs Tools Overview News Currencies International Treasuries H.B. Fuller Reports Second Quarter 2023 Results By: H.B. Fuller Company via Business Wire June 28, 2023 at 16:05 PM EDT Net income of $40 million; Adjusted EBITDA of $143 million, at the mid-point of Company guidance Adjusted gross profit margin expanded 330 basis points year-on-year to 29.0% Adjusted EBITDA margin increased 190 basis points year-on-year to 15.9% Cash flow from operations increased $94 million year-on-year H.B. Fuller Company (NYSE: FUL) today reported financial results for its second quarter that ended June 3, 2023. Second Quarter 2023 Noteworthy Items: Net revenue of $898 million, down 9.6% year-on-year; organic revenue decreased 8.3% year-on-year, driven by lower volume; Gross margin was 28.6%; adjusted gross margin of 29.0% increased 330 basis points year-on-year, driven by the combined impact of pricing and raw material cost actions; Net income was $40 million; adjusted EBITDA was $143 million, at the mid-point of Company guidance and up 3% year-on-year, adjusted EBITDA margin expanded 190 basis points year-on-year to 15.9%; Reported EPS (diluted) was $0.73; adjusted EPS (diluted) was $0.93, down versus the prior year, driven by higher interest expense and unfavorable foreign currency exchange; Cash flow from operations in the second quarter improved $94 million year-on-year to $103 million. Summary of Second Quarter 2023 Results: The Company’s net revenue for the second quarter of fiscal 2023 was $898 million, down 9.6% versus the second quarter of fiscal 2022. Organic revenue declined 8.3% year-on-year, driven by lower volume, offset somewhat by favorable pricing. Volume declined 14.2%, driven by customer destocking actions and generally slower industrial demand across all three global business units. Pricing actions favorably impacted organic growth by 5.9 percentage points. Foreign currency translation reduced net revenue growth by 3.4 percentage points and acquisitions increased net revenue growth by 2.1 percentage points. Gross profit in the second quarter of fiscal 2023 was $257 million. Adjusted gross profit was $261 million. Adjusted gross profit margin of 29.0% increased 330 basis points year-on-year. Pricing and raw material cost actions and operating efficiencies drove the increase in adjusted gross margin year-on-year and more than offset the impact of lower volume. Selling, general and administrative (SG&A) expense was $167 million in the second quarter of fiscal 2023 and adjusted SG&A was $159 million, effectively flat year-on-year, as good cost management, restructuring benefits, and favorable foreign currency impacts offset inflation in wages and services. Net income attributable to H.B. Fuller for the second quarter of fiscal 2023 was $40 million, or $0.73 per diluted share. Adjusted net income attributable to H.B. Fuller for the second quarter of fiscal 2023 was $52 million. Adjusted EPS was $0.93 per diluted share, down year-on-year due to higher interest expense and unfavorable foreign currency impacts, which reduced diluted earnings per share by approximately $0.19 and $0.07, respectively, year-on-year in the second quarter. Adjusted EBITDA in the second quarter of fiscal 2023 was $143 million, at the mid-point of Company guidance and up 3% year-on-year. Adjusted EBITDA margin increased 190 basis points year-on-year to 15.9%, driven by the combined impact of pricing and raw material cost actions versus the prior year’s second quarter, as well as restructuring savings, partially offset by the impacts of lower volume and wage and other inflation. “Pricing discipline and focused efforts to reduce costs drove margin expansion and overcame a challenging volume environment, delivering second quarter profit performance in-line with our expectations,” said Celeste Mastin, H.B. Fuller president and chief executive officer. “Our ability to successfully manage changing price and raw material dynamics, and scale production costs with volume, is delivering EBITDA growth and significant margin improvement. We remain on track to deliver strong growth in adjusted EBITDA and outstanding cash flow in fiscal 2023. “Global industrial activity has slowed, but underlying demand across the portfolio remains much stronger than our second quarter volume performance implies, due to the effect of customer destocking, which is significant, but not unique to us, or our industry. This destocking is now tapering over a large portion of our portfolio, and we believe our year-on-year volume comparisons will be stronger in the second half of the year. “Our diverse portfolio and robust innovation pipeline engender continual product line upgrades that solve customer problems, enabling strong profit growth in almost any economic environment. Our confidence remains high in a stronger second half performance as we expect customer destocking activities to fade, EBITDA margins to continue to expand due to price and raw material cost management, demand in China to improve, better foreign currency comparisons, and restructuring benefits to ramp through the end of the year.” Balance Sheet and Cash Flow Items: Net debt at the end of the second quarter of fiscal 2023 was $1,779 million, up $31 million sequentially versus the first quarter and down $89 million year-on-year. The sequential increase in net debt was driven by acquisition activity during the second quarter, offset by improved cash flow from operations. Cash flow from operations in the second quarter was $103 million, up $94 million year-on-year, reflecting improving margins and lower net working capital requirements. Fiscal 2023 Outlook: Adjusted EBITDA for fiscal 2023 is still expected to be in the range of $580 million to $610 million, equating to growth of approximately 9% to 15% versus fiscal year 2022; Both net revenue and organic revenue for fiscal 2023 are now expected to be down 3% to 5% versus fiscal 2022, reflecting continued customer destocking actions and slower industrial production; the combined impact of FX, acquisitions, and the extra week in fiscal 2022 are expected to be effectively neutral versus fiscal 2023; Net interest expense is now expected to be in the range of $125 million to $135 million and depreciation and amortization expense is expected to be approximately $160 million, reflecting recent acquisition activity and higher interest rates; Adjusted EPS (diluted) is now expected to be in the range of $3.80 to $4.20, equating to a range of down 5% to up 5% year-on-year; Operating cash flow in fiscal 2023 is now expected to be between $325 million and $375 million. Conference Call: The Company will hold a conference call on June 29, 2023, at 9:30 a.m. CT (10:30 a.m. ET) to discuss its results. Interested parties may listen to the conference call on a live webcast. The webcast, along with a supplemental presentation, may be accessed from the Company’s website at https://investors.hbfuller.com. Participants must register prior to accessing the webcast using this link and should do so at least 10 minutes prior to the start of the call to install and test any necessary software and audio connections. A telephone replay of the conference call will be available from 12:30 p.m. CT on June 29, 2023, to 10:59 p.m. CT on July 6, 2023. To access the telephone replay dial 1-800-770-2030 (toll free) or 1-647-362-9199, and enter Conference ID: 6370505. Regulation G The information presented in this earnings release regarding consolidated and segment organic revenue growth, 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 U.S. generally accepted accounting principles (U.S. GAAP) and should not be construed as an alternative to the reported results determined in accordance with U.S. 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 to the results of other companies. The non-GAAP information provided may not be consistent with the methodologies used by other companies. All non-GAAP information is reconciled with reported U.S. GAAP results in the “Regulation G Reconciliation” tables in this press release with the exception of our forward-looking non-GAAP measures contained above in our Fiscal 2023 Outlook, which the Company cannot reconcile to forward-looking GAAP results without unreasonable effort. About H.B. Fuller Since 1887, H.B. Fuller has been a leading global adhesives provider focusing on perfecting adhesives and sealants to improve products and lives. With fiscal 2022 net revenue of $3.75 billion, H.B. Fuller’s commitment to innovation and sustainable adhesive solutions 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. 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 press release may be considered forward-looking statements within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements often address expected future business and financial performance, financial condition, and other matters, and often contain words or phrases such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “opportunity,” “outlook,” “plan,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “will be,” “will continue,” “will likely result,” “would” and similar expressions, and variations or negatives of these words or phrases. These statements are subject to various risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including but not limited to the following: the consequences of the COVID-19 outbreak and other pandemics on our operations and financial results; the impact on the supply chain, raw material costs and pricing of our products due to the Russia-Ukraine war; the impact on our margins and product demand due to inflationary pressures; the substantial amount of debt we have incurred to finance our acquisition of Royal, our ability to repay or refinance our debt or to 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, the effect of debt covenants that limit the discretion of management in operating the business or in paying dividends; our ability to pay dividends and to pursue growth opportunities if we continue to pay dividends according to the current dividend policy; our ability to achieve expected synergies, cost savings and operating efficiencies from our restructuring initiatives and operational improvement projects within the expected time frames or at all; our ability to effectively implement Project ONE; uncertain political and economic conditions; fluctuations in product demand; competing products and pricing; our geographic and product mix; availability and price of raw materials; disruptions to our relationships with our major customers and suppliers; failures in our information technology systems; regulatory compliance across our global footprint; trade policies and economic sanctions impacting our markets; changes in tax laws and tariffs; devaluations and other foreign exchange rate fluctuations; the impact of litigation and investigations, including for product liability and environmental matters; impairment charges on our goodwill or long-lived assets; the effect of new accounting pronouncements and accounting charges and credits; and similar matters. Additional information about these various risks and uncertainties can be found in the “Risk Factors” section of our Form 10-K filings, and any updates to the risk factors in our Form 10-Q and 8-K filings with the SEC, but there may be other risks and uncertainties that we are unable to identify at this time or that we do not currently expect to have a material impact on the business. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. We do not undertake to update or revise any forward-looking statements, except as required by law. H.B. FULLER COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL INFORMATION In thousands, except per share amounts (unaudited) Three Months Ended Percent of Three Months Ended Percent of June 3, 2023 Net Revenue May 28, 2022 Net Revenue Net revenue $ 898,239 100.0 % $ 993,258 100.0 % Cost of sales (641,464 ) (71.4 )% (739,737 ) (74.5 )% Gross profit 256,775 28.6 % 253,521 25.5 % Selling, general and administrative expenses (166,625 ) (18.6 )% (166,007 ) (16.7 )% Other income, net 605 0.1 % - 0.0 % Interest expense (33,131 ) (3.7 )% (19,828 ) (2.0 )% Interest income 932 0.1 % 2,091 0.2 % Income before income taxes and income from equity method investments 58,556 6.5 % 69,777 7.0 % Income taxes (19,291 ) (2.1 )% (23,616 ) (2.4 )% Income from equity method investments 1,157 0.1 % 1,066 0.1 % Net income including non-controlling interest 40,422 4.5 % 47,227 4.8 % Net income attributable to non-controlling interest (21 ) (0.0 )% (24 ) (0.0 )% Net income attributable to H.B. Fuller $ 40,401 4.5 % $ 47,203 4.8 % Basic income per common share attributable to H.B. Fuller $ 0.74 $ 0.88 Diluted income per common share attributable to H.B. Fuller $ 0.73 $ 0.86 Weighted-average common shares outstanding: Basic 54,269 53,497 Diluted 55,717 55,078 Dividends declared per common share $ 0.205 $ 0.190 H.B. FULLER COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL INFORMATION In thousands, except per share amounts (unaudited) Six Months Ended Percent of Six Months Ended Percent of June 3, 2023 Net Revenue May 28, 2022 Net Revenue Net revenue $ 1,707,421 100.0 % $ 1,849,739 100.0 % Cost of sales (1,235,838 ) (72.4 )% (1,383,326 ) (74.8 )% Gross profit 471,583 27.6 % 466,413 25.2 % Selling, general and administrative expenses (321,167 ) (18.8 )% (321,898 ) (17.4 )% Other income, net 3,209 0.2 % 6,142 0.3 % Interest expense (66,200 ) (3.9 )% (38,025 ) (2.1 )% Interest income 1,599 0.1 % 4,030 0.2 % Income before income taxes and income from equity method investments 89,024 5.2 % 116,662 6.3 % Income taxes (29,024 ) (1.7 )% (33,765 ) (1.8 )% Income from equity method investments 2,338 0.1 % 2,649 0.1 % Net income including non-controlling interest 62,338 3.7 % 85,546 4.6 % Net income attributable to non-controlling interest (48 ) (0.0 )% (37 ) (0.0 )% Net income attributable to H.B. Fuller $ 62,290 3.6 % $ 85,509 4.6 % Basic income per common share attributable to H.B. Fuller $ 1.15 $ 1.60 Diluted income per common share attributable to H.B. Fuller $ 1.12 $ 1.55 Weighted-average common shares outstanding: Basic 54,222 53,425 Diluted 55,818 55,237 Dividends declared per common share $ 0.395 $ 0.358 H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands, except per share amounts (unaudited) Three Months Ended Six Months Ended June 3, May 28, June 3, May 28, 2023 2022 2023 2022 Net income attributable to H.B. Fuller $ 40,401 $ 47,203 $ 62,290 $ 85,509 Adjustments: Acquisition project costs1 2,919 2,014 5,154 7,871 Organizational realignment2 5,690 2,818 8,634 4,446 Royal restructuring and integration3 - 412 - 810 Project One 2,681 1,853 4,853 5,057 Other4 521 6,264 3,594 7,430 Discrete tax items5 2,042 4,149 2,888 1,248 Income tax effect on adjustments6 (2,172 ) (3,526 ) (4,572 ) (7,035 ) Adjusted net income attributable to H.B. Fuller7 52,082 61,187 82,841 105,336 Add: Interest expense 33,131 19,841 63,511 38,051 Interest income (932 ) (2,091 ) (1,599 ) (4,041 ) Adjusted Income taxes 19,421 22,993 30,707 39,552 Depreciation and Amortization expense8 39,063 36,637 76,976 72,434 Adjusted EBITDA7 142,765 138,567 252,436 251,332 Diluted Shares 55,717 55,078 55,818 55,237 Adjusted diluted income per common share attributable to H.B. Fuller7 $ 0.93 $ 1.11 $ 1.48 $ 1.91 Revenue $ 898,239 $ 993,258 $ 1,707,421 $ 1,849,739 Adjusted EBITDA margin7 15.9 % 14.0 % 14.8 % 13.6 % 1 Acquisition project costs include costs related to integrating and accounting for acquisitions. 2 Organizational realignment includes costs incurred as a direct result of the organizational realignment program announced in 2023, including compensation for employees supporting the program, consulting expense and operational inefficiencies related to the closure of production facilities and consolidation of business activities. 3 Royal restructuring and integration program includes costs incurred as a direct result of the Royal restructuring and integration program including compensation for employees supporting the program, consulting expense and operational inefficiencies related to the closure of production facilities and consolidation of business activities. 4 For fiscal 2023, Other expenses include write-off of unamortized debt fees and non-cash gains and losses related to legal entity consolidations. For fiscal 2022, other expenses include a non-cash charge related to wind down and settlement of the Company’s Canadian defined benefit pension plan, hedging costs related to the Russian ruble devaluation driven by the war in Ukraine, transactional tax expense associated with an audit settlement, other expenses for COVID-19 testing, vaccinations, and exceptional medical claims, and non-cash gains and losses related to legal entity consolidations. 5 Discrete tax items for the current year are related to various foreign tax matters offset by an excess tax benefit related to U.S. stock compensation. Discrete tax items for the prior year are related to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S. Dollar, as well as various foreign tax matters offset by the tax effect of legal entity mergers. 6 Income tax effect on adjustments represents the difference between income taxes on net income before income taxes and income from equity method investments reported in accordance with U.S. GAAP and adjusted net income before income taxes and income from equity method investments. 7 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 U.S. GAAP. 8 Depreciation and amortization expense added back for EBITDA is adjusted for amounts already included in adjusted net income attributable to H.B. Fuller totaling $18 and ($153) for the three months ended June 3, 2023 and May 28, 2022, respectively and $0 and ($311) for the six months ended June 3, 2023 and May 28, 2022, respectively. H.B. FULLER COMPANY AND SUBSIDIARIES SEGMENT FINANCIAL INFORMATION In thousands (unaudited) Three Months Ended Six Months Ended June 3, May 28, June 3, May 28, 2023 2022 2023 2022 Net Revenue: Hygiene, Health and Consumable Adhesives $ 404,486 $ 437,889 $ 788,014 $ 827,427 Engineering Adhesives 364,080 405,346 697,147 759,323 Construction Adhesives 129,673 150,023 222,260 262,989 Corporate unallocated - - - - Total H.B. Fuller $ 898,239 $ 993,258 $ 1,707,421 $ 1,849,739 Segment Operating Income (Loss): Hygiene, Health and Consumable Adhesives $ 51,592 $ 43,267 $ 96,738 $ 75,480 Engineering Adhesives 44,400 42,917 76,875 75,489 Construction Adhesives 5,969 11,285 (3,664 ) 15,641 Corporate unallocated (11,811 ) (9,955 ) (19,533 ) (22,095 ) Total H.B. Fuller $ 90,150 $ 87,514 $ 150,416 $ 144,515 Adjusted EBITDA7 Hygiene, Health and Consumable Adhesives $ 65,234 $ 57,872 $ 124,953 $ 104,470 Engineering Adhesives 61,159 59,520 111,035 109,399 Construction Adhesives 18,221 24,121 21,065 39,998 Corporate unallocated (1,849 ) (2,946 ) (4,617 ) (2,535 ) Total H.B. Fuller $ 142,765 $ 138,567 $ 252,436 $ 251,332 Adjusted EBITDA Margin7 Hygiene, Health and Consumable Adhesives 16.1 % 13.2 % 15.9 % 12.6 % Engineering Adhesives 16.8 % 14.7 % 15.9 % 14.4 % Construction Adhesives 14.1 % 16.1 % 9.5 % 15.2 % Corporate unallocated NMP NMP NMP NMP Total H.B. Fuller 15.9 % 14.0 % 14.8 % 13.6 % NMP = non-meaningful percentage H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands, except per share amounts (unaudited) Three Months Ended Six Months Ended June 3, May 28, June 3, May 28, 2023 2022 2023 2022 Income before income taxes and income from equity method investments $ 58,556 $ 69,777 $ 89,024 $ 116,662 Adjustments: Acquisition project costs1 2,919 2,014 5,154 7,871 Organizational realignment2 5,690 2,818 8,634 4,446 Royal restructuring and integration3 - 412 - 810 Project One 2,681 1,853 4,853 5,057 Other4 521 6,264 3,594 7,430 Adjusted income before income taxes and income from equity method investments9 $ 70,367 $ 83,138 $ 111,259 $ 142,276 9 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 U.S. GAAP. H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands, except per share amounts (unaudited) Three Months Ended Six Months Ended June 3, May 28, June 3, May 28, 2023 2022 2023 2022 Income Taxes $ (19,291 ) $ (23,616 ) $ (29,024 ) $ (33,765 ) Adjustments: Acquisition project costs1 (537 ) (531 ) (1,051 ) (2,209 ) Organizational realignment2 (1,046 ) (744 ) (1,724 ) (1,210 ) Royal restructuring and integration3 - (109 ) - (223 ) Project One (493 ) (489 ) (993 ) (1,406 ) Other4 1,946 2,496 2,085 (739 ) Adjusted income taxes10 $ (19,421 ) $ (22,993 ) $ (30,707 ) $ (39,552 ) Adjusted income before income taxes and income from equity method investments $ 70,367 $ 83,138 $ 111,259 $ 142,276 Adjusted effective income tax rate10 27.6 % 27.7 % 27.6 % 27.8 % 10 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 U.S. GAAP. H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands (unaudited) Three Months Ended Six Months Ended June 3, May 28, June 3, May 28, 2023 2022 2023 2022 Net revenue $ 898,239 $ 993,258 $ 1,707,421 $ 1,849,739 Gross profit $ 256,775 $ 253,521 $ 471,583 $ 466,413 Gross profit margin 28.6 % 25.5 % 27.6 % 25.2 % Adjustments: Acquisition project costs1 1,058 (238 ) 1,101 424 Organizational realignment2 2,690 1,520 5,011 1,783 Royal restructuring and integration3 - 140 - 372 Project ONE - 6 - 6 Other4 53 447 160 825 Adjusted gross profit11 $ 260,576 $ 255,396 $ 477,855 $ 469,823 Adjusted gross profit margin11 29.0 % 25.7 % 28.0 % 25.4 % 11 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 adjusted gross profit margin to gross profit and gross profit margin, 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) Three Months Ended Six Months Ended June 3, May 28, June 3, May 28, 2023 2022 2023 2022 Selling, general and administrative expenses $ (166,625 ) $ (166,007 ) $ (321,167 ) $ (321,898 ) Adjustments: Acquisition project costs1 1,861 2,252 4,053 7,447 Organizational realignment2 3,000 2,275 3,623 3,630 Royal restructuring and integration3 - 286 - 464 Project ONE 2,681 1,847 4,853 5,051 Other4 468 1,421 731 2,094 Adjusted selling, general and administrative expenses12 $ (158,615 ) $ (157,926 ) $ (307,907 ) $ (303,212 ) 12 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 U.S. GAAP. H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands (unaudited) Three Months Ended Hygiene, Health and Consumable Engineering Construction Corporate H.B. Fuller June 3, 2023 Adhesives Adhesives Adhesives Total Unallocated Consolidated Net income attributable to H.B. Fuller $ 52,692 $ 45,172 $ 7,687 $ 105,551 $ (65,150 ) $ 40,401 Adjustments: Acquisition project costs1 - - - - 2,919 2,919 Organizational realignment2 - - - - 5,690 5,690 Royal Restructuring and integration3 - - - - - - Project One - - - - 2,681 2,681 Other4 - - - - 521 521 Discrete tax items5 - - - - 2,042 2,042 Income tax effect on adjustments6 - - - - (2,172 ) (2,172 ) Adjusted net income attributable to H.B. Fuller7 52,692 45,172 7,687 105,551 (53,469 ) 52,082 Add: Interest expense - - - - 33,131 33,131 Interest income - - - - (932 ) (932 ) Adjusted Income taxes - - - - 19,421 19,421 Depreciation and amortization expense8 12,542 15,987 10,534 39,063 - 39,063 Adjusted EBITDA7 $ 65,234 $ 61,159 $ 18,221 $ 144,614 $ (1,849 ) $ 142,765 Revenue $ 404,486 $ 364,080 $ 129,673 $ 898,239 - $ 898,239 Adjusted EBITDA Margin7 16.1 % 16.8 % 14.1 % 16.1 % NMP 15.9 % Six Months Ended June 3, 2023 Net income attributable to H.B. Fuller $ 100,399 $ 79,522 $ 156 $ 180,077 $ (117,787 ) $ 62,290 Adjustments: Acquisition project costs1 - - - - 5,154 5,154 Organizational realignment2 - - - - 8,634 8,634 Royal Restructuring and integration3 - - - - - - Project One - - - - 4,853 4,853 Other4 - - - - 3,594 3,594 Discrete tax items5 - - - - 2,888 2,888 Income tax effect on adjustments6 - - - - (4,572 ) (4,572 ) Adjusted net income attributable to H.B. Fuller7 100,399 79,522 156 180,077 (97,236 ) 82,841 Add: Interest expense - - - - 63,511 63,511 Interest income - - - - (1,599 ) (1,599 ) Adjusted Income taxes - - - - 30,707 30,707 Depreciation and amortization expense8 24,554 31,513 20,909 76,976 - 76,976 Adjusted EBITDA7 $ 124,953 $ 111,035 $ 21,065 $ 257,053 $ (4,617 ) $ 252,436 Revenue 788,014 697,147 222,260 1,707,421 - 1,707,421 Adjusted EBITDA Margin7 15.9 % 15.9 % 9.5 % 15.1 % NMP 14.8 % Note: Adjusted EBITDA is a non-GAAP financial measure. The table above provides 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. NMP = Non-meaningful percentage H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands (unaudited) Three Months Ended Hygiene, Health and Consumable Engineering Construction Corporate H.B. Fuller May 28, 2022 Adhesives Adhesives Adhesives Total Unallocated Consolidated Net income attributable to H.B. Fuller $ 46,186 $ 45,077 $ 13,613 $ 104,876 $ (57,673 ) $ 47,203 Adjustments: Acquisition project costs1 - - - - 2,014 2,014 Organizational realignment2 - - - - 2,818 2,818 Royal Restructuring and integration3 - - - - 412 412 Project One - - - - 1,853 1,853 Other4 - - - - 6,264 6,264 Discrete tax items5 - - - - 4,149 4,149 Income tax effect on adjustments6 - - - - (3,526 ) (3,526 ) Adjusted net income attributable to H.B. Fuller7 46,186 45,077 13,613 104,876 (43,689 ) 61,187 Add: Interest expense - - - - 19,841 19,841 Interest income - - - - (2,091 ) (2,091 ) Adjusted Income taxes - - - - 22,993 22,993 Depreciation and amortization expense8 11,686 14,443 10,508 36,637 - 36,637 Adjusted EBITDA7 $ 57,872 $ 59,520 $ 24,121 $ 141,513 $ (2,946 ) $ 138,567 Revenue $ 437,889 $ 405,346 $ 150,023 $ 993,258 - $ 993,258 Adjusted EBITDA Margin7 13.2 % 14.7 % 16.1 % 14.2 % NMP 14.0 % Six Months Ended May 28, 2022 Net income attributable to H.B. Fuller $ 81,323 $ 79,814 $ 20,296 $ 181,433 $ (95,924 ) $ 85,509 Adjustments: Acquisition project costs1 - - - - 7,871 7,871 Organizational realignment2 - - - - 4,446 4,446 Royal Restructuring and integration3 - - - - 810 810 Project One - - - - 5,057 5,057 Other4 - - - - 7,430 7,430 Discrete tax items5 - - - - 1,248 1,248 Income tax effect on adjustments6 - - - - (7,035 ) (7,035 ) Adjusted net income attributable to H.B. Fuller7 81,323 79,814 20,296 181,433 (76,097 ) 105,336 Add: Interest expense - - - - 38,051 38,051 Interest income - - - - (4,041 ) (4,041 ) Adjusted Income taxes - - - - 39,552 39,552 Depreciation and amortization expense8 23,147 29,585 19,702 72,434 - 72,434 Adjusted EBITDA7 $ 104,470 $ 109,399 $ 39,998 $ 253,867 $ (2,535 ) $ 251,332 Revenue $ 827,427 $ 759,323 $ 262,989 $ 1,849,739 - $ 1,849,739 Adjusted EBITDA Margin7 12.6 % 14.4 % 15.2 % 13.7 % NMP 13.6 % Note: Adjusted EBITDA is a non-GAAP financial measure. The table above provides 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. NMP = Non-meaningful percentage H.B. FULLER COMPANY AND SUBSIDIARIES SEGMENT FINANCIAL INFORMATION NET REVENUE GROWTH (DECLINE) (unaudited) Three Months Ended Six Months Ended June 3, 2023 June 3, 2023 Price 5.9 % 7.0 % Volume (14.2 )% (12.6 )% Organic Growth13 (8.3 )% (5.6 )% M&A 2.1 % 2.0 % Constant currency (6.2 )% (3.6 )% F/X (3.4 )% (4.1 )% Total H.B. Fuller Net Revenue Decline (9.6 )% (7.7 )% Revenue growth versus 2022 Three Months Ended June 3, 2023 Constant Organic Net Revenue F/X Currency M&A Growth13 Hygiene, Health and Consumable Adhesives (7.6 )% (4.8 )% (2.8 )% 2.7 % (5.5 )% Engineering Adhesives (10.2 )% (2.8 )% (7.4 )% 1.6 % (9.0 )% Construction Adhesives (13.6 )% (1.1 )% (12.5 )% 1.7 % (14.2 )% Total H.B. Fuller (9.6 )% (3.4 )% (6.2 )% 2.1 % (8.3 )% Revenue growth versus 2022 Six Months Ended June 3, 2023 Constant Organic Net Revenue F/X Currency M&A Growth13 Hygiene, Health and Consumable Adhesives (4.8 )% (5.5 )% 0.7 % 1.5 % (0.8 )% Engineering Adhesives (8.2 )% (3.6 )% (4.6 )% 1.5 % (6.1 )% Construction Adhesives (15.5 )% (1.3 )% (14.2 )% 5.0 % (19.2 )% Total H.B. Fuller (7.7 )% (4.1 )% (3.6 )% 2.0 % (5.6 )% 13 We use the term “organic revenue” to refer to net revenue, excluding the effect of foreign currency changes and acquisitions and divestitures. Organic growth reflects adjustments for the impact of period-over-period changes in foreign currency exchange rates on revenues and the revenues associated with acquisitions and divestitures. CONSOLIDATED BALANCE SHEETS H.B. Fuller Company and Subsidiaries (In thousands, except share and per share amounts) June 3, December 3, 2023 2022 Assets Current assets: Cash and cash equivalents $ 103,183 $ 79,910 Trade receivables (net of allowances of $11,512 and $10,939, as of June 3, 2023 and December 3, 2022, respectively) 586,609 607,365 Inventories 499,275 491,781 Other current assets 128,885 120,319 Total current assets 1,317,952 1,299,375 Property, plant and equipment 1,673,871 1,579,738 Accumulated depreciation (886,459 ) (846,071 ) Property, plant and equipment, net 787,412 733,667 Goodwill 1,441,414 1,392,627 Other intangibles, net 721,564 702,092 Other assets 349,705 335,868 Total assets $ 4,618,047 $ 4,463,629 Liabilities, non-controlling interest and total equity Current liabilities Notes payable $ 30,307 $ 28,860 Trade payables 436,376 460,669 Accrued compensation 66,749 108,328 Income taxes payable 28,229 18,530 Other accrued expenses 99,171 89,345 Total current liabilities 660,832 705,732 Long-term debt 1,852,036 1,736,256 Accrued pension liabilities 53,546 52,561 Other liabilities 368,476 358,286 Total liabilities $ 2,934,890 $ 2,852,835 Commitments and contingencies (Note 13) Equity H.B. Fuller stockholders' equity: Preferred stock (no shares outstanding) shares authorized – 10,045,900 - - Common stock, par value $1.00 per share, shares authorized – 160,000,000, shares outstanding – 53,859,908 and 53,676,576 as of June 3, 2023 and December 3, 2022, respectively $ 53,860 $ 53,677 Additional paid-in capital 280,120 266,491 Retained earnings 1,782,215 1,741,359 Accumulated other comprehensive loss (433,705 ) (451,357 ) Total H.B. Fuller stockholders' equity 1,682,490 1,610,170 Non-controlling interest 667 624 Total equity 1,683,157 1,610,794 Total liabilities, non-controlling interest and total equity $ 4,618,047 $ 4,463,629 CONSOLIDATED STATEMENTS of CASH FLOWS H.B. Fuller Company and Subsidiaries (In thousands) Six Months Ended June 3, 2023 May 28, 2022 Cash flows from operating activities: Net income including non-controlling interest $ 62,338 $ 85,546 Adjustments to reconcile net income including non-controlling interest to net cash (used in) provided by operating activities: Depreciation 39,163 36,333 Amortization 37,813 36,412 Deferred income taxes (16,831 ) (4,961 ) Income from equity method investments, net of dividends received (2,338 ) (2,649 ) Debt issuance costs write-off 2,689 - Loss on mark to market adjustment on contingent consideration liability (220 ) - Loss on sale or disposal of assets (42 ) (1,087 ) Share-based compensation 10,953 13,625 Pension and other post-retirement benefit plan activity (6,226 ) (9,720 ) Change in assets and liabilities, net of effects of acquisitions: Trade receivables, net 66,896 (35,491 ) Inventories 8,285 (95,413 ) Other assets (36,951 ) (21,908 ) Trade payables (20,301 ) 27,237 Accrued compensation (42,190 ) (40,448 ) Other accrued expenses (9,988 ) 4,402 Income taxes payable 10,025 (5,864 ) Other liabilities 7,866 (23,597 ) Other (2,544 ) 28,452 Net cash provided by (used in) operating activities 108,397 (9,131 ) Cash flows from investing activities: Purchased property, plant and equipment (82,578 ) (69,055 ) Purchased businesses, net of cash acquired (103,744 ) (229,314 ) Proceeds from sale of property, plant and equipment 2,623 1,269 Cash received from government grant - 3,928 Net cash used in investing activities (183,699 ) (293,172 ) Cash flows from financing activities: Proceeds from issuance of long-term debt 1,300,000 335,000 Repayment of long-term debt (1,176,650 ) - Payment of debt issuance costs (10,214 ) (600 ) Net payment of notes payable (239 ) 3,565 Dividends paid (21,258 ) (18,965 ) Contingent consideration payment - (5,000 ) Proceeds from stock options exercised 4,193 7,837 Repurchases of common stock (2,552 ) (3,609 ) Net cash provided by financing activities 93,280 318,228 Effect of exchange rate changes on cash and cash equivalents 5,295 (9,562 ) Net change in cash and cash equivalents 23,273 6,363 Cash and cash equivalents at beginning of period 79,910 61,786 Cash and cash equivalents at end of period $ 103,183 $ 68,149 View source version on businesswire.com: https://www.businesswire.com/news/home/20230628382323/en/Contacts Steven Brazones Investor Relations Contact 651-236-5060 Data & News supplied by www.cloudquote.io Stock quotes supplied by Barchart Quotes delayed at least 20 minutes. 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H.B. Fuller Reports Second Quarter 2023 Results By: H.B. Fuller Company via Business Wire June 28, 2023 at 16:05 PM EDT Net income of $40 million; Adjusted EBITDA of $143 million, at the mid-point of Company guidance Adjusted gross profit margin expanded 330 basis points year-on-year to 29.0% Adjusted EBITDA margin increased 190 basis points year-on-year to 15.9% Cash flow from operations increased $94 million year-on-year H.B. Fuller Company (NYSE: FUL) today reported financial results for its second quarter that ended June 3, 2023. Second Quarter 2023 Noteworthy Items: Net revenue of $898 million, down 9.6% year-on-year; organic revenue decreased 8.3% year-on-year, driven by lower volume; Gross margin was 28.6%; adjusted gross margin of 29.0% increased 330 basis points year-on-year, driven by the combined impact of pricing and raw material cost actions; Net income was $40 million; adjusted EBITDA was $143 million, at the mid-point of Company guidance and up 3% year-on-year, adjusted EBITDA margin expanded 190 basis points year-on-year to 15.9%; Reported EPS (diluted) was $0.73; adjusted EPS (diluted) was $0.93, down versus the prior year, driven by higher interest expense and unfavorable foreign currency exchange; Cash flow from operations in the second quarter improved $94 million year-on-year to $103 million. Summary of Second Quarter 2023 Results: The Company’s net revenue for the second quarter of fiscal 2023 was $898 million, down 9.6% versus the second quarter of fiscal 2022. Organic revenue declined 8.3% year-on-year, driven by lower volume, offset somewhat by favorable pricing. Volume declined 14.2%, driven by customer destocking actions and generally slower industrial demand across all three global business units. Pricing actions favorably impacted organic growth by 5.9 percentage points. Foreign currency translation reduced net revenue growth by 3.4 percentage points and acquisitions increased net revenue growth by 2.1 percentage points. Gross profit in the second quarter of fiscal 2023 was $257 million. Adjusted gross profit was $261 million. Adjusted gross profit margin of 29.0% increased 330 basis points year-on-year. Pricing and raw material cost actions and operating efficiencies drove the increase in adjusted gross margin year-on-year and more than offset the impact of lower volume. Selling, general and administrative (SG&A) expense was $167 million in the second quarter of fiscal 2023 and adjusted SG&A was $159 million, effectively flat year-on-year, as good cost management, restructuring benefits, and favorable foreign currency impacts offset inflation in wages and services. Net income attributable to H.B. Fuller for the second quarter of fiscal 2023 was $40 million, or $0.73 per diluted share. Adjusted net income attributable to H.B. Fuller for the second quarter of fiscal 2023 was $52 million. Adjusted EPS was $0.93 per diluted share, down year-on-year due to higher interest expense and unfavorable foreign currency impacts, which reduced diluted earnings per share by approximately $0.19 and $0.07, respectively, year-on-year in the second quarter. Adjusted EBITDA in the second quarter of fiscal 2023 was $143 million, at the mid-point of Company guidance and up 3% year-on-year. Adjusted EBITDA margin increased 190 basis points year-on-year to 15.9%, driven by the combined impact of pricing and raw material cost actions versus the prior year’s second quarter, as well as restructuring savings, partially offset by the impacts of lower volume and wage and other inflation. “Pricing discipline and focused efforts to reduce costs drove margin expansion and overcame a challenging volume environment, delivering second quarter profit performance in-line with our expectations,” said Celeste Mastin, H.B. Fuller president and chief executive officer. “Our ability to successfully manage changing price and raw material dynamics, and scale production costs with volume, is delivering EBITDA growth and significant margin improvement. We remain on track to deliver strong growth in adjusted EBITDA and outstanding cash flow in fiscal 2023. “Global industrial activity has slowed, but underlying demand across the portfolio remains much stronger than our second quarter volume performance implies, due to the effect of customer destocking, which is significant, but not unique to us, or our industry. This destocking is now tapering over a large portion of our portfolio, and we believe our year-on-year volume comparisons will be stronger in the second half of the year. “Our diverse portfolio and robust innovation pipeline engender continual product line upgrades that solve customer problems, enabling strong profit growth in almost any economic environment. Our confidence remains high in a stronger second half performance as we expect customer destocking activities to fade, EBITDA margins to continue to expand due to price and raw material cost management, demand in China to improve, better foreign currency comparisons, and restructuring benefits to ramp through the end of the year.” Balance Sheet and Cash Flow Items: Net debt at the end of the second quarter of fiscal 2023 was $1,779 million, up $31 million sequentially versus the first quarter and down $89 million year-on-year. The sequential increase in net debt was driven by acquisition activity during the second quarter, offset by improved cash flow from operations. Cash flow from operations in the second quarter was $103 million, up $94 million year-on-year, reflecting improving margins and lower net working capital requirements. Fiscal 2023 Outlook: Adjusted EBITDA for fiscal 2023 is still expected to be in the range of $580 million to $610 million, equating to growth of approximately 9% to 15% versus fiscal year 2022; Both net revenue and organic revenue for fiscal 2023 are now expected to be down 3% to 5% versus fiscal 2022, reflecting continued customer destocking actions and slower industrial production; the combined impact of FX, acquisitions, and the extra week in fiscal 2022 are expected to be effectively neutral versus fiscal 2023; Net interest expense is now expected to be in the range of $125 million to $135 million and depreciation and amortization expense is expected to be approximately $160 million, reflecting recent acquisition activity and higher interest rates; Adjusted EPS (diluted) is now expected to be in the range of $3.80 to $4.20, equating to a range of down 5% to up 5% year-on-year; Operating cash flow in fiscal 2023 is now expected to be between $325 million and $375 million. Conference Call: The Company will hold a conference call on June 29, 2023, at 9:30 a.m. CT (10:30 a.m. ET) to discuss its results. Interested parties may listen to the conference call on a live webcast. The webcast, along with a supplemental presentation, may be accessed from the Company’s website at https://investors.hbfuller.com. Participants must register prior to accessing the webcast using this link and should do so at least 10 minutes prior to the start of the call to install and test any necessary software and audio connections. A telephone replay of the conference call will be available from 12:30 p.m. CT on June 29, 2023, to 10:59 p.m. CT on July 6, 2023. To access the telephone replay dial 1-800-770-2030 (toll free) or 1-647-362-9199, and enter Conference ID: 6370505. Regulation G The information presented in this earnings release regarding consolidated and segment organic revenue growth, 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 U.S. generally accepted accounting principles (U.S. GAAP) and should not be construed as an alternative to the reported results determined in accordance with U.S. 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 to the results of other companies. The non-GAAP information provided may not be consistent with the methodologies used by other companies. All non-GAAP information is reconciled with reported U.S. GAAP results in the “Regulation G Reconciliation” tables in this press release with the exception of our forward-looking non-GAAP measures contained above in our Fiscal 2023 Outlook, which the Company cannot reconcile to forward-looking GAAP results without unreasonable effort. About H.B. Fuller Since 1887, H.B. Fuller has been a leading global adhesives provider focusing on perfecting adhesives and sealants to improve products and lives. With fiscal 2022 net revenue of $3.75 billion, H.B. Fuller’s commitment to innovation and sustainable adhesive solutions 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. 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 press release may be considered forward-looking statements within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements often address expected future business and financial performance, financial condition, and other matters, and often contain words or phrases such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “opportunity,” “outlook,” “plan,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “will be,” “will continue,” “will likely result,” “would” and similar expressions, and variations or negatives of these words or phrases. These statements are subject to various risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including but not limited to the following: the consequences of the COVID-19 outbreak and other pandemics on our operations and financial results; the impact on the supply chain, raw material costs and pricing of our products due to the Russia-Ukraine war; the impact on our margins and product demand due to inflationary pressures; the substantial amount of debt we have incurred to finance our acquisition of Royal, our ability to repay or refinance our debt or to 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, the effect of debt covenants that limit the discretion of management in operating the business or in paying dividends; our ability to pay dividends and to pursue growth opportunities if we continue to pay dividends according to the current dividend policy; our ability to achieve expected synergies, cost savings and operating efficiencies from our restructuring initiatives and operational improvement projects within the expected time frames or at all; our ability to effectively implement Project ONE; uncertain political and economic conditions; fluctuations in product demand; competing products and pricing; our geographic and product mix; availability and price of raw materials; disruptions to our relationships with our major customers and suppliers; failures in our information technology systems; regulatory compliance across our global footprint; trade policies and economic sanctions impacting our markets; changes in tax laws and tariffs; devaluations and other foreign exchange rate fluctuations; the impact of litigation and investigations, including for product liability and environmental matters; impairment charges on our goodwill or long-lived assets; the effect of new accounting pronouncements and accounting charges and credits; and similar matters. Additional information about these various risks and uncertainties can be found in the “Risk Factors” section of our Form 10-K filings, and any updates to the risk factors in our Form 10-Q and 8-K filings with the SEC, but there may be other risks and uncertainties that we are unable to identify at this time or that we do not currently expect to have a material impact on the business. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. We do not undertake to update or revise any forward-looking statements, except as required by law. H.B. FULLER COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL INFORMATION In thousands, except per share amounts (unaudited) Three Months Ended Percent of Three Months Ended Percent of June 3, 2023 Net Revenue May 28, 2022 Net Revenue Net revenue $ 898,239 100.0 % $ 993,258 100.0 % Cost of sales (641,464 ) (71.4 )% (739,737 ) (74.5 )% Gross profit 256,775 28.6 % 253,521 25.5 % Selling, general and administrative expenses (166,625 ) (18.6 )% (166,007 ) (16.7 )% Other income, net 605 0.1 % - 0.0 % Interest expense (33,131 ) (3.7 )% (19,828 ) (2.0 )% Interest income 932 0.1 % 2,091 0.2 % Income before income taxes and income from equity method investments 58,556 6.5 % 69,777 7.0 % Income taxes (19,291 ) (2.1 )% (23,616 ) (2.4 )% Income from equity method investments 1,157 0.1 % 1,066 0.1 % Net income including non-controlling interest 40,422 4.5 % 47,227 4.8 % Net income attributable to non-controlling interest (21 ) (0.0 )% (24 ) (0.0 )% Net income attributable to H.B. Fuller $ 40,401 4.5 % $ 47,203 4.8 % Basic income per common share attributable to H.B. Fuller $ 0.74 $ 0.88 Diluted income per common share attributable to H.B. Fuller $ 0.73 $ 0.86 Weighted-average common shares outstanding: Basic 54,269 53,497 Diluted 55,717 55,078 Dividends declared per common share $ 0.205 $ 0.190 H.B. FULLER COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL INFORMATION In thousands, except per share amounts (unaudited) Six Months Ended Percent of Six Months Ended Percent of June 3, 2023 Net Revenue May 28, 2022 Net Revenue Net revenue $ 1,707,421 100.0 % $ 1,849,739 100.0 % Cost of sales (1,235,838 ) (72.4 )% (1,383,326 ) (74.8 )% Gross profit 471,583 27.6 % 466,413 25.2 % Selling, general and administrative expenses (321,167 ) (18.8 )% (321,898 ) (17.4 )% Other income, net 3,209 0.2 % 6,142 0.3 % Interest expense (66,200 ) (3.9 )% (38,025 ) (2.1 )% Interest income 1,599 0.1 % 4,030 0.2 % Income before income taxes and income from equity method investments 89,024 5.2 % 116,662 6.3 % Income taxes (29,024 ) (1.7 )% (33,765 ) (1.8 )% Income from equity method investments 2,338 0.1 % 2,649 0.1 % Net income including non-controlling interest 62,338 3.7 % 85,546 4.6 % Net income attributable to non-controlling interest (48 ) (0.0 )% (37 ) (0.0 )% Net income attributable to H.B. Fuller $ 62,290 3.6 % $ 85,509 4.6 % Basic income per common share attributable to H.B. Fuller $ 1.15 $ 1.60 Diluted income per common share attributable to H.B. Fuller $ 1.12 $ 1.55 Weighted-average common shares outstanding: Basic 54,222 53,425 Diluted 55,818 55,237 Dividends declared per common share $ 0.395 $ 0.358 H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands, except per share amounts (unaudited) Three Months Ended Six Months Ended June 3, May 28, June 3, May 28, 2023 2022 2023 2022 Net income attributable to H.B. Fuller $ 40,401 $ 47,203 $ 62,290 $ 85,509 Adjustments: Acquisition project costs1 2,919 2,014 5,154 7,871 Organizational realignment2 5,690 2,818 8,634 4,446 Royal restructuring and integration3 - 412 - 810 Project One 2,681 1,853 4,853 5,057 Other4 521 6,264 3,594 7,430 Discrete tax items5 2,042 4,149 2,888 1,248 Income tax effect on adjustments6 (2,172 ) (3,526 ) (4,572 ) (7,035 ) Adjusted net income attributable to H.B. Fuller7 52,082 61,187 82,841 105,336 Add: Interest expense 33,131 19,841 63,511 38,051 Interest income (932 ) (2,091 ) (1,599 ) (4,041 ) Adjusted Income taxes 19,421 22,993 30,707 39,552 Depreciation and Amortization expense8 39,063 36,637 76,976 72,434 Adjusted EBITDA7 142,765 138,567 252,436 251,332 Diluted Shares 55,717 55,078 55,818 55,237 Adjusted diluted income per common share attributable to H.B. Fuller7 $ 0.93 $ 1.11 $ 1.48 $ 1.91 Revenue $ 898,239 $ 993,258 $ 1,707,421 $ 1,849,739 Adjusted EBITDA margin7 15.9 % 14.0 % 14.8 % 13.6 % 1 Acquisition project costs include costs related to integrating and accounting for acquisitions. 2 Organizational realignment includes costs incurred as a direct result of the organizational realignment program announced in 2023, including compensation for employees supporting the program, consulting expense and operational inefficiencies related to the closure of production facilities and consolidation of business activities. 3 Royal restructuring and integration program includes costs incurred as a direct result of the Royal restructuring and integration program including compensation for employees supporting the program, consulting expense and operational inefficiencies related to the closure of production facilities and consolidation of business activities. 4 For fiscal 2023, Other expenses include write-off of unamortized debt fees and non-cash gains and losses related to legal entity consolidations. For fiscal 2022, other expenses include a non-cash charge related to wind down and settlement of the Company’s Canadian defined benefit pension plan, hedging costs related to the Russian ruble devaluation driven by the war in Ukraine, transactional tax expense associated with an audit settlement, other expenses for COVID-19 testing, vaccinations, and exceptional medical claims, and non-cash gains and losses related to legal entity consolidations. 5 Discrete tax items for the current year are related to various foreign tax matters offset by an excess tax benefit related to U.S. stock compensation. Discrete tax items for the prior year are related to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S. Dollar, as well as various foreign tax matters offset by the tax effect of legal entity mergers. 6 Income tax effect on adjustments represents the difference between income taxes on net income before income taxes and income from equity method investments reported in accordance with U.S. GAAP and adjusted net income before income taxes and income from equity method investments. 7 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 U.S. GAAP. 8 Depreciation and amortization expense added back for EBITDA is adjusted for amounts already included in adjusted net income attributable to H.B. Fuller totaling $18 and ($153) for the three months ended June 3, 2023 and May 28, 2022, respectively and $0 and ($311) for the six months ended June 3, 2023 and May 28, 2022, respectively. H.B. FULLER COMPANY AND SUBSIDIARIES SEGMENT FINANCIAL INFORMATION In thousands (unaudited) Three Months Ended Six Months Ended June 3, May 28, June 3, May 28, 2023 2022 2023 2022 Net Revenue: Hygiene, Health and Consumable Adhesives $ 404,486 $ 437,889 $ 788,014 $ 827,427 Engineering Adhesives 364,080 405,346 697,147 759,323 Construction Adhesives 129,673 150,023 222,260 262,989 Corporate unallocated - - - - Total H.B. Fuller $ 898,239 $ 993,258 $ 1,707,421 $ 1,849,739 Segment Operating Income (Loss): Hygiene, Health and Consumable Adhesives $ 51,592 $ 43,267 $ 96,738 $ 75,480 Engineering Adhesives 44,400 42,917 76,875 75,489 Construction Adhesives 5,969 11,285 (3,664 ) 15,641 Corporate unallocated (11,811 ) (9,955 ) (19,533 ) (22,095 ) Total H.B. Fuller $ 90,150 $ 87,514 $ 150,416 $ 144,515 Adjusted EBITDA7 Hygiene, Health and Consumable Adhesives $ 65,234 $ 57,872 $ 124,953 $ 104,470 Engineering Adhesives 61,159 59,520 111,035 109,399 Construction Adhesives 18,221 24,121 21,065 39,998 Corporate unallocated (1,849 ) (2,946 ) (4,617 ) (2,535 ) Total H.B. Fuller $ 142,765 $ 138,567 $ 252,436 $ 251,332 Adjusted EBITDA Margin7 Hygiene, Health and Consumable Adhesives 16.1 % 13.2 % 15.9 % 12.6 % Engineering Adhesives 16.8 % 14.7 % 15.9 % 14.4 % Construction Adhesives 14.1 % 16.1 % 9.5 % 15.2 % Corporate unallocated NMP NMP NMP NMP Total H.B. Fuller 15.9 % 14.0 % 14.8 % 13.6 % NMP = non-meaningful percentage H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands, except per share amounts (unaudited) Three Months Ended Six Months Ended June 3, May 28, June 3, May 28, 2023 2022 2023 2022 Income before income taxes and income from equity method investments $ 58,556 $ 69,777 $ 89,024 $ 116,662 Adjustments: Acquisition project costs1 2,919 2,014 5,154 7,871 Organizational realignment2 5,690 2,818 8,634 4,446 Royal restructuring and integration3 - 412 - 810 Project One 2,681 1,853 4,853 5,057 Other4 521 6,264 3,594 7,430 Adjusted income before income taxes and income from equity method investments9 $ 70,367 $ 83,138 $ 111,259 $ 142,276 9 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 U.S. GAAP. H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands, except per share amounts (unaudited) Three Months Ended Six Months Ended June 3, May 28, June 3, May 28, 2023 2022 2023 2022 Income Taxes $ (19,291 ) $ (23,616 ) $ (29,024 ) $ (33,765 ) Adjustments: Acquisition project costs1 (537 ) (531 ) (1,051 ) (2,209 ) Organizational realignment2 (1,046 ) (744 ) (1,724 ) (1,210 ) Royal restructuring and integration3 - (109 ) - (223 ) Project One (493 ) (489 ) (993 ) (1,406 ) Other4 1,946 2,496 2,085 (739 ) Adjusted income taxes10 $ (19,421 ) $ (22,993 ) $ (30,707 ) $ (39,552 ) Adjusted income before income taxes and income from equity method investments $ 70,367 $ 83,138 $ 111,259 $ 142,276 Adjusted effective income tax rate10 27.6 % 27.7 % 27.6 % 27.8 % 10 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 U.S. GAAP. H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands (unaudited) Three Months Ended Six Months Ended June 3, May 28, June 3, May 28, 2023 2022 2023 2022 Net revenue $ 898,239 $ 993,258 $ 1,707,421 $ 1,849,739 Gross profit $ 256,775 $ 253,521 $ 471,583 $ 466,413 Gross profit margin 28.6 % 25.5 % 27.6 % 25.2 % Adjustments: Acquisition project costs1 1,058 (238 ) 1,101 424 Organizational realignment2 2,690 1,520 5,011 1,783 Royal restructuring and integration3 - 140 - 372 Project ONE - 6 - 6 Other4 53 447 160 825 Adjusted gross profit11 $ 260,576 $ 255,396 $ 477,855 $ 469,823 Adjusted gross profit margin11 29.0 % 25.7 % 28.0 % 25.4 % 11 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 adjusted gross profit margin to gross profit and gross profit margin, 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) Three Months Ended Six Months Ended June 3, May 28, June 3, May 28, 2023 2022 2023 2022 Selling, general and administrative expenses $ (166,625 ) $ (166,007 ) $ (321,167 ) $ (321,898 ) Adjustments: Acquisition project costs1 1,861 2,252 4,053 7,447 Organizational realignment2 3,000 2,275 3,623 3,630 Royal restructuring and integration3 - 286 - 464 Project ONE 2,681 1,847 4,853 5,051 Other4 468 1,421 731 2,094 Adjusted selling, general and administrative expenses12 $ (158,615 ) $ (157,926 ) $ (307,907 ) $ (303,212 ) 12 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 U.S. GAAP. H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands (unaudited) Three Months Ended Hygiene, Health and Consumable Engineering Construction Corporate H.B. Fuller June 3, 2023 Adhesives Adhesives Adhesives Total Unallocated Consolidated Net income attributable to H.B. Fuller $ 52,692 $ 45,172 $ 7,687 $ 105,551 $ (65,150 ) $ 40,401 Adjustments: Acquisition project costs1 - - - - 2,919 2,919 Organizational realignment2 - - - - 5,690 5,690 Royal Restructuring and integration3 - - - - - - Project One - - - - 2,681 2,681 Other4 - - - - 521 521 Discrete tax items5 - - - - 2,042 2,042 Income tax effect on adjustments6 - - - - (2,172 ) (2,172 ) Adjusted net income attributable to H.B. Fuller7 52,692 45,172 7,687 105,551 (53,469 ) 52,082 Add: Interest expense - - - - 33,131 33,131 Interest income - - - - (932 ) (932 ) Adjusted Income taxes - - - - 19,421 19,421 Depreciation and amortization expense8 12,542 15,987 10,534 39,063 - 39,063 Adjusted EBITDA7 $ 65,234 $ 61,159 $ 18,221 $ 144,614 $ (1,849 ) $ 142,765 Revenue $ 404,486 $ 364,080 $ 129,673 $ 898,239 - $ 898,239 Adjusted EBITDA Margin7 16.1 % 16.8 % 14.1 % 16.1 % NMP 15.9 % Six Months Ended June 3, 2023 Net income attributable to H.B. Fuller $ 100,399 $ 79,522 $ 156 $ 180,077 $ (117,787 ) $ 62,290 Adjustments: Acquisition project costs1 - - - - 5,154 5,154 Organizational realignment2 - - - - 8,634 8,634 Royal Restructuring and integration3 - - - - - - Project One - - - - 4,853 4,853 Other4 - - - - 3,594 3,594 Discrete tax items5 - - - - 2,888 2,888 Income tax effect on adjustments6 - - - - (4,572 ) (4,572 ) Adjusted net income attributable to H.B. Fuller7 100,399 79,522 156 180,077 (97,236 ) 82,841 Add: Interest expense - - - - 63,511 63,511 Interest income - - - - (1,599 ) (1,599 ) Adjusted Income taxes - - - - 30,707 30,707 Depreciation and amortization expense8 24,554 31,513 20,909 76,976 - 76,976 Adjusted EBITDA7 $ 124,953 $ 111,035 $ 21,065 $ 257,053 $ (4,617 ) $ 252,436 Revenue 788,014 697,147 222,260 1,707,421 - 1,707,421 Adjusted EBITDA Margin7 15.9 % 15.9 % 9.5 % 15.1 % NMP 14.8 % Note: Adjusted EBITDA is a non-GAAP financial measure. The table above provides 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. NMP = Non-meaningful percentage H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands (unaudited) Three Months Ended Hygiene, Health and Consumable Engineering Construction Corporate H.B. Fuller May 28, 2022 Adhesives Adhesives Adhesives Total Unallocated Consolidated Net income attributable to H.B. Fuller $ 46,186 $ 45,077 $ 13,613 $ 104,876 $ (57,673 ) $ 47,203 Adjustments: Acquisition project costs1 - - - - 2,014 2,014 Organizational realignment2 - - - - 2,818 2,818 Royal Restructuring and integration3 - - - - 412 412 Project One - - - - 1,853 1,853 Other4 - - - - 6,264 6,264 Discrete tax items5 - - - - 4,149 4,149 Income tax effect on adjustments6 - - - - (3,526 ) (3,526 ) Adjusted net income attributable to H.B. Fuller7 46,186 45,077 13,613 104,876 (43,689 ) 61,187 Add: Interest expense - - - - 19,841 19,841 Interest income - - - - (2,091 ) (2,091 ) Adjusted Income taxes - - - - 22,993 22,993 Depreciation and amortization expense8 11,686 14,443 10,508 36,637 - 36,637 Adjusted EBITDA7 $ 57,872 $ 59,520 $ 24,121 $ 141,513 $ (2,946 ) $ 138,567 Revenue $ 437,889 $ 405,346 $ 150,023 $ 993,258 - $ 993,258 Adjusted EBITDA Margin7 13.2 % 14.7 % 16.1 % 14.2 % NMP 14.0 % Six Months Ended May 28, 2022 Net income attributable to H.B. Fuller $ 81,323 $ 79,814 $ 20,296 $ 181,433 $ (95,924 ) $ 85,509 Adjustments: Acquisition project costs1 - - - - 7,871 7,871 Organizational realignment2 - - - - 4,446 4,446 Royal Restructuring and integration3 - - - - 810 810 Project One - - - - 5,057 5,057 Other4 - - - - 7,430 7,430 Discrete tax items5 - - - - 1,248 1,248 Income tax effect on adjustments6 - - - - (7,035 ) (7,035 ) Adjusted net income attributable to H.B. Fuller7 81,323 79,814 20,296 181,433 (76,097 ) 105,336 Add: Interest expense - - - - 38,051 38,051 Interest income - - - - (4,041 ) (4,041 ) Adjusted Income taxes - - - - 39,552 39,552 Depreciation and amortization expense8 23,147 29,585 19,702 72,434 - 72,434 Adjusted EBITDA7 $ 104,470 $ 109,399 $ 39,998 $ 253,867 $ (2,535 ) $ 251,332 Revenue $ 827,427 $ 759,323 $ 262,989 $ 1,849,739 - $ 1,849,739 Adjusted EBITDA Margin7 12.6 % 14.4 % 15.2 % 13.7 % NMP 13.6 % Note: Adjusted EBITDA is a non-GAAP financial measure. The table above provides 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. NMP = Non-meaningful percentage H.B. FULLER COMPANY AND SUBSIDIARIES SEGMENT FINANCIAL INFORMATION NET REVENUE GROWTH (DECLINE) (unaudited) Three Months Ended Six Months Ended June 3, 2023 June 3, 2023 Price 5.9 % 7.0 % Volume (14.2 )% (12.6 )% Organic Growth13 (8.3 )% (5.6 )% M&A 2.1 % 2.0 % Constant currency (6.2 )% (3.6 )% F/X (3.4 )% (4.1 )% Total H.B. Fuller Net Revenue Decline (9.6 )% (7.7 )% Revenue growth versus 2022 Three Months Ended June 3, 2023 Constant Organic Net Revenue F/X Currency M&A Growth13 Hygiene, Health and Consumable Adhesives (7.6 )% (4.8 )% (2.8 )% 2.7 % (5.5 )% Engineering Adhesives (10.2 )% (2.8 )% (7.4 )% 1.6 % (9.0 )% Construction Adhesives (13.6 )% (1.1 )% (12.5 )% 1.7 % (14.2 )% Total H.B. Fuller (9.6 )% (3.4 )% (6.2 )% 2.1 % (8.3 )% Revenue growth versus 2022 Six Months Ended June 3, 2023 Constant Organic Net Revenue F/X Currency M&A Growth13 Hygiene, Health and Consumable Adhesives (4.8 )% (5.5 )% 0.7 % 1.5 % (0.8 )% Engineering Adhesives (8.2 )% (3.6 )% (4.6 )% 1.5 % (6.1 )% Construction Adhesives (15.5 )% (1.3 )% (14.2 )% 5.0 % (19.2 )% Total H.B. Fuller (7.7 )% (4.1 )% (3.6 )% 2.0 % (5.6 )% 13 We use the term “organic revenue” to refer to net revenue, excluding the effect of foreign currency changes and acquisitions and divestitures. Organic growth reflects adjustments for the impact of period-over-period changes in foreign currency exchange rates on revenues and the revenues associated with acquisitions and divestitures. CONSOLIDATED BALANCE SHEETS H.B. Fuller Company and Subsidiaries (In thousands, except share and per share amounts) June 3, December 3, 2023 2022 Assets Current assets: Cash and cash equivalents $ 103,183 $ 79,910 Trade receivables (net of allowances of $11,512 and $10,939, as of June 3, 2023 and December 3, 2022, respectively) 586,609 607,365 Inventories 499,275 491,781 Other current assets 128,885 120,319 Total current assets 1,317,952 1,299,375 Property, plant and equipment 1,673,871 1,579,738 Accumulated depreciation (886,459 ) (846,071 ) Property, plant and equipment, net 787,412 733,667 Goodwill 1,441,414 1,392,627 Other intangibles, net 721,564 702,092 Other assets 349,705 335,868 Total assets $ 4,618,047 $ 4,463,629 Liabilities, non-controlling interest and total equity Current liabilities Notes payable $ 30,307 $ 28,860 Trade payables 436,376 460,669 Accrued compensation 66,749 108,328 Income taxes payable 28,229 18,530 Other accrued expenses 99,171 89,345 Total current liabilities 660,832 705,732 Long-term debt 1,852,036 1,736,256 Accrued pension liabilities 53,546 52,561 Other liabilities 368,476 358,286 Total liabilities $ 2,934,890 $ 2,852,835 Commitments and contingencies (Note 13) Equity H.B. Fuller stockholders' equity: Preferred stock (no shares outstanding) shares authorized – 10,045,900 - - Common stock, par value $1.00 per share, shares authorized – 160,000,000, shares outstanding – 53,859,908 and 53,676,576 as of June 3, 2023 and December 3, 2022, respectively $ 53,860 $ 53,677 Additional paid-in capital 280,120 266,491 Retained earnings 1,782,215 1,741,359 Accumulated other comprehensive loss (433,705 ) (451,357 ) Total H.B. Fuller stockholders' equity 1,682,490 1,610,170 Non-controlling interest 667 624 Total equity 1,683,157 1,610,794 Total liabilities, non-controlling interest and total equity $ 4,618,047 $ 4,463,629 CONSOLIDATED STATEMENTS of CASH FLOWS H.B. Fuller Company and Subsidiaries (In thousands) Six Months Ended June 3, 2023 May 28, 2022 Cash flows from operating activities: Net income including non-controlling interest $ 62,338 $ 85,546 Adjustments to reconcile net income including non-controlling interest to net cash (used in) provided by operating activities: Depreciation 39,163 36,333 Amortization 37,813 36,412 Deferred income taxes (16,831 ) (4,961 ) Income from equity method investments, net of dividends received (2,338 ) (2,649 ) Debt issuance costs write-off 2,689 - Loss on mark to market adjustment on contingent consideration liability (220 ) - Loss on sale or disposal of assets (42 ) (1,087 ) Share-based compensation 10,953 13,625 Pension and other post-retirement benefit plan activity (6,226 ) (9,720 ) Change in assets and liabilities, net of effects of acquisitions: Trade receivables, net 66,896 (35,491 ) Inventories 8,285 (95,413 ) Other assets (36,951 ) (21,908 ) Trade payables (20,301 ) 27,237 Accrued compensation (42,190 ) (40,448 ) Other accrued expenses (9,988 ) 4,402 Income taxes payable 10,025 (5,864 ) Other liabilities 7,866 (23,597 ) Other (2,544 ) 28,452 Net cash provided by (used in) operating activities 108,397 (9,131 ) Cash flows from investing activities: Purchased property, plant and equipment (82,578 ) (69,055 ) Purchased businesses, net of cash acquired (103,744 ) (229,314 ) Proceeds from sale of property, plant and equipment 2,623 1,269 Cash received from government grant - 3,928 Net cash used in investing activities (183,699 ) (293,172 ) Cash flows from financing activities: Proceeds from issuance of long-term debt 1,300,000 335,000 Repayment of long-term debt (1,176,650 ) - Payment of debt issuance costs (10,214 ) (600 ) Net payment of notes payable (239 ) 3,565 Dividends paid (21,258 ) (18,965 ) Contingent consideration payment - (5,000 ) Proceeds from stock options exercised 4,193 7,837 Repurchases of common stock (2,552 ) (3,609 ) Net cash provided by financing activities 93,280 318,228 Effect of exchange rate changes on cash and cash equivalents 5,295 (9,562 ) Net change in cash and cash equivalents 23,273 6,363 Cash and cash equivalents at beginning of period 79,910 61,786 Cash and cash equivalents at end of period $ 103,183 $ 68,149 View source version on businesswire.com: https://www.businesswire.com/news/home/20230628382323/en/Contacts Steven Brazones Investor Relations Contact 651-236-5060
Net income of $40 million; Adjusted EBITDA of $143 million, at the mid-point of Company guidance Adjusted gross profit margin expanded 330 basis points year-on-year to 29.0% Adjusted EBITDA margin increased 190 basis points year-on-year to 15.9% Cash flow from operations increased $94 million year-on-year
H.B. Fuller Company (NYSE: FUL) today reported financial results for its second quarter that ended June 3, 2023. Second Quarter 2023 Noteworthy Items: Net revenue of $898 million, down 9.6% year-on-year; organic revenue decreased 8.3% year-on-year, driven by lower volume; Gross margin was 28.6%; adjusted gross margin of 29.0% increased 330 basis points year-on-year, driven by the combined impact of pricing and raw material cost actions; Net income was $40 million; adjusted EBITDA was $143 million, at the mid-point of Company guidance and up 3% year-on-year, adjusted EBITDA margin expanded 190 basis points year-on-year to 15.9%; Reported EPS (diluted) was $0.73; adjusted EPS (diluted) was $0.93, down versus the prior year, driven by higher interest expense and unfavorable foreign currency exchange; Cash flow from operations in the second quarter improved $94 million year-on-year to $103 million. Summary of Second Quarter 2023 Results: The Company’s net revenue for the second quarter of fiscal 2023 was $898 million, down 9.6% versus the second quarter of fiscal 2022. Organic revenue declined 8.3% year-on-year, driven by lower volume, offset somewhat by favorable pricing. Volume declined 14.2%, driven by customer destocking actions and generally slower industrial demand across all three global business units. Pricing actions favorably impacted organic growth by 5.9 percentage points. Foreign currency translation reduced net revenue growth by 3.4 percentage points and acquisitions increased net revenue growth by 2.1 percentage points. Gross profit in the second quarter of fiscal 2023 was $257 million. Adjusted gross profit was $261 million. Adjusted gross profit margin of 29.0% increased 330 basis points year-on-year. Pricing and raw material cost actions and operating efficiencies drove the increase in adjusted gross margin year-on-year and more than offset the impact of lower volume. Selling, general and administrative (SG&A) expense was $167 million in the second quarter of fiscal 2023 and adjusted SG&A was $159 million, effectively flat year-on-year, as good cost management, restructuring benefits, and favorable foreign currency impacts offset inflation in wages and services. Net income attributable to H.B. Fuller for the second quarter of fiscal 2023 was $40 million, or $0.73 per diluted share. Adjusted net income attributable to H.B. Fuller for the second quarter of fiscal 2023 was $52 million. Adjusted EPS was $0.93 per diluted share, down year-on-year due to higher interest expense and unfavorable foreign currency impacts, which reduced diluted earnings per share by approximately $0.19 and $0.07, respectively, year-on-year in the second quarter. Adjusted EBITDA in the second quarter of fiscal 2023 was $143 million, at the mid-point of Company guidance and up 3% year-on-year. Adjusted EBITDA margin increased 190 basis points year-on-year to 15.9%, driven by the combined impact of pricing and raw material cost actions versus the prior year’s second quarter, as well as restructuring savings, partially offset by the impacts of lower volume and wage and other inflation. “Pricing discipline and focused efforts to reduce costs drove margin expansion and overcame a challenging volume environment, delivering second quarter profit performance in-line with our expectations,” said Celeste Mastin, H.B. Fuller president and chief executive officer. “Our ability to successfully manage changing price and raw material dynamics, and scale production costs with volume, is delivering EBITDA growth and significant margin improvement. We remain on track to deliver strong growth in adjusted EBITDA and outstanding cash flow in fiscal 2023. “Global industrial activity has slowed, but underlying demand across the portfolio remains much stronger than our second quarter volume performance implies, due to the effect of customer destocking, which is significant, but not unique to us, or our industry. This destocking is now tapering over a large portion of our portfolio, and we believe our year-on-year volume comparisons will be stronger in the second half of the year. “Our diverse portfolio and robust innovation pipeline engender continual product line upgrades that solve customer problems, enabling strong profit growth in almost any economic environment. Our confidence remains high in a stronger second half performance as we expect customer destocking activities to fade, EBITDA margins to continue to expand due to price and raw material cost management, demand in China to improve, better foreign currency comparisons, and restructuring benefits to ramp through the end of the year.” Balance Sheet and Cash Flow Items: Net debt at the end of the second quarter of fiscal 2023 was $1,779 million, up $31 million sequentially versus the first quarter and down $89 million year-on-year. The sequential increase in net debt was driven by acquisition activity during the second quarter, offset by improved cash flow from operations. Cash flow from operations in the second quarter was $103 million, up $94 million year-on-year, reflecting improving margins and lower net working capital requirements. Fiscal 2023 Outlook: Adjusted EBITDA for fiscal 2023 is still expected to be in the range of $580 million to $610 million, equating to growth of approximately 9% to 15% versus fiscal year 2022; Both net revenue and organic revenue for fiscal 2023 are now expected to be down 3% to 5% versus fiscal 2022, reflecting continued customer destocking actions and slower industrial production; the combined impact of FX, acquisitions, and the extra week in fiscal 2022 are expected to be effectively neutral versus fiscal 2023; Net interest expense is now expected to be in the range of $125 million to $135 million and depreciation and amortization expense is expected to be approximately $160 million, reflecting recent acquisition activity and higher interest rates; Adjusted EPS (diluted) is now expected to be in the range of $3.80 to $4.20, equating to a range of down 5% to up 5% year-on-year; Operating cash flow in fiscal 2023 is now expected to be between $325 million and $375 million. Conference Call: The Company will hold a conference call on June 29, 2023, at 9:30 a.m. CT (10:30 a.m. ET) to discuss its results. Interested parties may listen to the conference call on a live webcast. The webcast, along with a supplemental presentation, may be accessed from the Company’s website at https://investors.hbfuller.com. Participants must register prior to accessing the webcast using this link and should do so at least 10 minutes prior to the start of the call to install and test any necessary software and audio connections. A telephone replay of the conference call will be available from 12:30 p.m. CT on June 29, 2023, to 10:59 p.m. CT on July 6, 2023. To access the telephone replay dial 1-800-770-2030 (toll free) or 1-647-362-9199, and enter Conference ID: 6370505. Regulation G The information presented in this earnings release regarding consolidated and segment organic revenue growth, 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 U.S. generally accepted accounting principles (U.S. GAAP) and should not be construed as an alternative to the reported results determined in accordance with U.S. 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 to the results of other companies. The non-GAAP information provided may not be consistent with the methodologies used by other companies. All non-GAAP information is reconciled with reported U.S. GAAP results in the “Regulation G Reconciliation” tables in this press release with the exception of our forward-looking non-GAAP measures contained above in our Fiscal 2023 Outlook, which the Company cannot reconcile to forward-looking GAAP results without unreasonable effort. About H.B. Fuller Since 1887, H.B. Fuller has been a leading global adhesives provider focusing on perfecting adhesives and sealants to improve products and lives. With fiscal 2022 net revenue of $3.75 billion, H.B. Fuller’s commitment to innovation and sustainable adhesive solutions 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. 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 press release may be considered forward-looking statements within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements often address expected future business and financial performance, financial condition, and other matters, and often contain words or phrases such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “opportunity,” “outlook,” “plan,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “will be,” “will continue,” “will likely result,” “would” and similar expressions, and variations or negatives of these words or phrases. These statements are subject to various risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including but not limited to the following: the consequences of the COVID-19 outbreak and other pandemics on our operations and financial results; the impact on the supply chain, raw material costs and pricing of our products due to the Russia-Ukraine war; the impact on our margins and product demand due to inflationary pressures; the substantial amount of debt we have incurred to finance our acquisition of Royal, our ability to repay or refinance our debt or to 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, the effect of debt covenants that limit the discretion of management in operating the business or in paying dividends; our ability to pay dividends and to pursue growth opportunities if we continue to pay dividends according to the current dividend policy; our ability to achieve expected synergies, cost savings and operating efficiencies from our restructuring initiatives and operational improvement projects within the expected time frames or at all; our ability to effectively implement Project ONE; uncertain political and economic conditions; fluctuations in product demand; competing products and pricing; our geographic and product mix; availability and price of raw materials; disruptions to our relationships with our major customers and suppliers; failures in our information technology systems; regulatory compliance across our global footprint; trade policies and economic sanctions impacting our markets; changes in tax laws and tariffs; devaluations and other foreign exchange rate fluctuations; the impact of litigation and investigations, including for product liability and environmental matters; impairment charges on our goodwill or long-lived assets; the effect of new accounting pronouncements and accounting charges and credits; and similar matters. Additional information about these various risks and uncertainties can be found in the “Risk Factors” section of our Form 10-K filings, and any updates to the risk factors in our Form 10-Q and 8-K filings with the SEC, but there may be other risks and uncertainties that we are unable to identify at this time or that we do not currently expect to have a material impact on the business. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. We do not undertake to update or revise any forward-looking statements, except as required by law. H.B. FULLER COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL INFORMATION In thousands, except per share amounts (unaudited) Three Months Ended Percent of Three Months Ended Percent of June 3, 2023 Net Revenue May 28, 2022 Net Revenue Net revenue $ 898,239 100.0 % $ 993,258 100.0 % Cost of sales (641,464 ) (71.4 )% (739,737 ) (74.5 )% Gross profit 256,775 28.6 % 253,521 25.5 % Selling, general and administrative expenses (166,625 ) (18.6 )% (166,007 ) (16.7 )% Other income, net 605 0.1 % - 0.0 % Interest expense (33,131 ) (3.7 )% (19,828 ) (2.0 )% Interest income 932 0.1 % 2,091 0.2 % Income before income taxes and income from equity method investments 58,556 6.5 % 69,777 7.0 % Income taxes (19,291 ) (2.1 )% (23,616 ) (2.4 )% Income from equity method investments 1,157 0.1 % 1,066 0.1 % Net income including non-controlling interest 40,422 4.5 % 47,227 4.8 % Net income attributable to non-controlling interest (21 ) (0.0 )% (24 ) (0.0 )% Net income attributable to H.B. Fuller $ 40,401 4.5 % $ 47,203 4.8 % Basic income per common share attributable to H.B. Fuller $ 0.74 $ 0.88 Diluted income per common share attributable to H.B. Fuller $ 0.73 $ 0.86 Weighted-average common shares outstanding: Basic 54,269 53,497 Diluted 55,717 55,078 Dividends declared per common share $ 0.205 $ 0.190 H.B. FULLER COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL INFORMATION In thousands, except per share amounts (unaudited) Six Months Ended Percent of Six Months Ended Percent of June 3, 2023 Net Revenue May 28, 2022 Net Revenue Net revenue $ 1,707,421 100.0 % $ 1,849,739 100.0 % Cost of sales (1,235,838 ) (72.4 )% (1,383,326 ) (74.8 )% Gross profit 471,583 27.6 % 466,413 25.2 % Selling, general and administrative expenses (321,167 ) (18.8 )% (321,898 ) (17.4 )% Other income, net 3,209 0.2 % 6,142 0.3 % Interest expense (66,200 ) (3.9 )% (38,025 ) (2.1 )% Interest income 1,599 0.1 % 4,030 0.2 % Income before income taxes and income from equity method investments 89,024 5.2 % 116,662 6.3 % Income taxes (29,024 ) (1.7 )% (33,765 ) (1.8 )% Income from equity method investments 2,338 0.1 % 2,649 0.1 % Net income including non-controlling interest 62,338 3.7 % 85,546 4.6 % Net income attributable to non-controlling interest (48 ) (0.0 )% (37 ) (0.0 )% Net income attributable to H.B. Fuller $ 62,290 3.6 % $ 85,509 4.6 % Basic income per common share attributable to H.B. Fuller $ 1.15 $ 1.60 Diluted income per common share attributable to H.B. Fuller $ 1.12 $ 1.55 Weighted-average common shares outstanding: Basic 54,222 53,425 Diluted 55,818 55,237 Dividends declared per common share $ 0.395 $ 0.358 H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands, except per share amounts (unaudited) Three Months Ended Six Months Ended June 3, May 28, June 3, May 28, 2023 2022 2023 2022 Net income attributable to H.B. Fuller $ 40,401 $ 47,203 $ 62,290 $ 85,509 Adjustments: Acquisition project costs1 2,919 2,014 5,154 7,871 Organizational realignment2 5,690 2,818 8,634 4,446 Royal restructuring and integration3 - 412 - 810 Project One 2,681 1,853 4,853 5,057 Other4 521 6,264 3,594 7,430 Discrete tax items5 2,042 4,149 2,888 1,248 Income tax effect on adjustments6 (2,172 ) (3,526 ) (4,572 ) (7,035 ) Adjusted net income attributable to H.B. Fuller7 52,082 61,187 82,841 105,336 Add: Interest expense 33,131 19,841 63,511 38,051 Interest income (932 ) (2,091 ) (1,599 ) (4,041 ) Adjusted Income taxes 19,421 22,993 30,707 39,552 Depreciation and Amortization expense8 39,063 36,637 76,976 72,434 Adjusted EBITDA7 142,765 138,567 252,436 251,332 Diluted Shares 55,717 55,078 55,818 55,237 Adjusted diluted income per common share attributable to H.B. Fuller7 $ 0.93 $ 1.11 $ 1.48 $ 1.91 Revenue $ 898,239 $ 993,258 $ 1,707,421 $ 1,849,739 Adjusted EBITDA margin7 15.9 % 14.0 % 14.8 % 13.6 % 1 Acquisition project costs include costs related to integrating and accounting for acquisitions. 2 Organizational realignment includes costs incurred as a direct result of the organizational realignment program announced in 2023, including compensation for employees supporting the program, consulting expense and operational inefficiencies related to the closure of production facilities and consolidation of business activities. 3 Royal restructuring and integration program includes costs incurred as a direct result of the Royal restructuring and integration program including compensation for employees supporting the program, consulting expense and operational inefficiencies related to the closure of production facilities and consolidation of business activities. 4 For fiscal 2023, Other expenses include write-off of unamortized debt fees and non-cash gains and losses related to legal entity consolidations. For fiscal 2022, other expenses include a non-cash charge related to wind down and settlement of the Company’s Canadian defined benefit pension plan, hedging costs related to the Russian ruble devaluation driven by the war in Ukraine, transactional tax expense associated with an audit settlement, other expenses for COVID-19 testing, vaccinations, and exceptional medical claims, and non-cash gains and losses related to legal entity consolidations. 5 Discrete tax items for the current year are related to various foreign tax matters offset by an excess tax benefit related to U.S. stock compensation. Discrete tax items for the prior year are related to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S. Dollar, as well as various foreign tax matters offset by the tax effect of legal entity mergers. 6 Income tax effect on adjustments represents the difference between income taxes on net income before income taxes and income from equity method investments reported in accordance with U.S. GAAP and adjusted net income before income taxes and income from equity method investments. 7 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 U.S. GAAP. 8 Depreciation and amortization expense added back for EBITDA is adjusted for amounts already included in adjusted net income attributable to H.B. Fuller totaling $18 and ($153) for the three months ended June 3, 2023 and May 28, 2022, respectively and $0 and ($311) for the six months ended June 3, 2023 and May 28, 2022, respectively. H.B. FULLER COMPANY AND SUBSIDIARIES SEGMENT FINANCIAL INFORMATION In thousands (unaudited) Three Months Ended Six Months Ended June 3, May 28, June 3, May 28, 2023 2022 2023 2022 Net Revenue: Hygiene, Health and Consumable Adhesives $ 404,486 $ 437,889 $ 788,014 $ 827,427 Engineering Adhesives 364,080 405,346 697,147 759,323 Construction Adhesives 129,673 150,023 222,260 262,989 Corporate unallocated - - - - Total H.B. Fuller $ 898,239 $ 993,258 $ 1,707,421 $ 1,849,739 Segment Operating Income (Loss): Hygiene, Health and Consumable Adhesives $ 51,592 $ 43,267 $ 96,738 $ 75,480 Engineering Adhesives 44,400 42,917 76,875 75,489 Construction Adhesives 5,969 11,285 (3,664 ) 15,641 Corporate unallocated (11,811 ) (9,955 ) (19,533 ) (22,095 ) Total H.B. Fuller $ 90,150 $ 87,514 $ 150,416 $ 144,515 Adjusted EBITDA7 Hygiene, Health and Consumable Adhesives $ 65,234 $ 57,872 $ 124,953 $ 104,470 Engineering Adhesives 61,159 59,520 111,035 109,399 Construction Adhesives 18,221 24,121 21,065 39,998 Corporate unallocated (1,849 ) (2,946 ) (4,617 ) (2,535 ) Total H.B. Fuller $ 142,765 $ 138,567 $ 252,436 $ 251,332 Adjusted EBITDA Margin7 Hygiene, Health and Consumable Adhesives 16.1 % 13.2 % 15.9 % 12.6 % Engineering Adhesives 16.8 % 14.7 % 15.9 % 14.4 % Construction Adhesives 14.1 % 16.1 % 9.5 % 15.2 % Corporate unallocated NMP NMP NMP NMP Total H.B. Fuller 15.9 % 14.0 % 14.8 % 13.6 % NMP = non-meaningful percentage H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands, except per share amounts (unaudited) Three Months Ended Six Months Ended June 3, May 28, June 3, May 28, 2023 2022 2023 2022 Income before income taxes and income from equity method investments $ 58,556 $ 69,777 $ 89,024 $ 116,662 Adjustments: Acquisition project costs1 2,919 2,014 5,154 7,871 Organizational realignment2 5,690 2,818 8,634 4,446 Royal restructuring and integration3 - 412 - 810 Project One 2,681 1,853 4,853 5,057 Other4 521 6,264 3,594 7,430 Adjusted income before income taxes and income from equity method investments9 $ 70,367 $ 83,138 $ 111,259 $ 142,276 9 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 U.S. GAAP. H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands, except per share amounts (unaudited) Three Months Ended Six Months Ended June 3, May 28, June 3, May 28, 2023 2022 2023 2022 Income Taxes $ (19,291 ) $ (23,616 ) $ (29,024 ) $ (33,765 ) Adjustments: Acquisition project costs1 (537 ) (531 ) (1,051 ) (2,209 ) Organizational realignment2 (1,046 ) (744 ) (1,724 ) (1,210 ) Royal restructuring and integration3 - (109 ) - (223 ) Project One (493 ) (489 ) (993 ) (1,406 ) Other4 1,946 2,496 2,085 (739 ) Adjusted income taxes10 $ (19,421 ) $ (22,993 ) $ (30,707 ) $ (39,552 ) Adjusted income before income taxes and income from equity method investments $ 70,367 $ 83,138 $ 111,259 $ 142,276 Adjusted effective income tax rate10 27.6 % 27.7 % 27.6 % 27.8 % 10 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 U.S. GAAP. H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands (unaudited) Three Months Ended Six Months Ended June 3, May 28, June 3, May 28, 2023 2022 2023 2022 Net revenue $ 898,239 $ 993,258 $ 1,707,421 $ 1,849,739 Gross profit $ 256,775 $ 253,521 $ 471,583 $ 466,413 Gross profit margin 28.6 % 25.5 % 27.6 % 25.2 % Adjustments: Acquisition project costs1 1,058 (238 ) 1,101 424 Organizational realignment2 2,690 1,520 5,011 1,783 Royal restructuring and integration3 - 140 - 372 Project ONE - 6 - 6 Other4 53 447 160 825 Adjusted gross profit11 $ 260,576 $ 255,396 $ 477,855 $ 469,823 Adjusted gross profit margin11 29.0 % 25.7 % 28.0 % 25.4 % 11 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 adjusted gross profit margin to gross profit and gross profit margin, 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) Three Months Ended Six Months Ended June 3, May 28, June 3, May 28, 2023 2022 2023 2022 Selling, general and administrative expenses $ (166,625 ) $ (166,007 ) $ (321,167 ) $ (321,898 ) Adjustments: Acquisition project costs1 1,861 2,252 4,053 7,447 Organizational realignment2 3,000 2,275 3,623 3,630 Royal restructuring and integration3 - 286 - 464 Project ONE 2,681 1,847 4,853 5,051 Other4 468 1,421 731 2,094 Adjusted selling, general and administrative expenses12 $ (158,615 ) $ (157,926 ) $ (307,907 ) $ (303,212 ) 12 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 U.S. GAAP. H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands (unaudited) Three Months Ended Hygiene, Health and Consumable Engineering Construction Corporate H.B. Fuller June 3, 2023 Adhesives Adhesives Adhesives Total Unallocated Consolidated Net income attributable to H.B. Fuller $ 52,692 $ 45,172 $ 7,687 $ 105,551 $ (65,150 ) $ 40,401 Adjustments: Acquisition project costs1 - - - - 2,919 2,919 Organizational realignment2 - - - - 5,690 5,690 Royal Restructuring and integration3 - - - - - - Project One - - - - 2,681 2,681 Other4 - - - - 521 521 Discrete tax items5 - - - - 2,042 2,042 Income tax effect on adjustments6 - - - - (2,172 ) (2,172 ) Adjusted net income attributable to H.B. Fuller7 52,692 45,172 7,687 105,551 (53,469 ) 52,082 Add: Interest expense - - - - 33,131 33,131 Interest income - - - - (932 ) (932 ) Adjusted Income taxes - - - - 19,421 19,421 Depreciation and amortization expense8 12,542 15,987 10,534 39,063 - 39,063 Adjusted EBITDA7 $ 65,234 $ 61,159 $ 18,221 $ 144,614 $ (1,849 ) $ 142,765 Revenue $ 404,486 $ 364,080 $ 129,673 $ 898,239 - $ 898,239 Adjusted EBITDA Margin7 16.1 % 16.8 % 14.1 % 16.1 % NMP 15.9 % Six Months Ended June 3, 2023 Net income attributable to H.B. Fuller $ 100,399 $ 79,522 $ 156 $ 180,077 $ (117,787 ) $ 62,290 Adjustments: Acquisition project costs1 - - - - 5,154 5,154 Organizational realignment2 - - - - 8,634 8,634 Royal Restructuring and integration3 - - - - - - Project One - - - - 4,853 4,853 Other4 - - - - 3,594 3,594 Discrete tax items5 - - - - 2,888 2,888 Income tax effect on adjustments6 - - - - (4,572 ) (4,572 ) Adjusted net income attributable to H.B. Fuller7 100,399 79,522 156 180,077 (97,236 ) 82,841 Add: Interest expense - - - - 63,511 63,511 Interest income - - - - (1,599 ) (1,599 ) Adjusted Income taxes - - - - 30,707 30,707 Depreciation and amortization expense8 24,554 31,513 20,909 76,976 - 76,976 Adjusted EBITDA7 $ 124,953 $ 111,035 $ 21,065 $ 257,053 $ (4,617 ) $ 252,436 Revenue 788,014 697,147 222,260 1,707,421 - 1,707,421 Adjusted EBITDA Margin7 15.9 % 15.9 % 9.5 % 15.1 % NMP 14.8 % Note: Adjusted EBITDA is a non-GAAP financial measure. The table above provides 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. NMP = Non-meaningful percentage H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands (unaudited) Three Months Ended Hygiene, Health and Consumable Engineering Construction Corporate H.B. Fuller May 28, 2022 Adhesives Adhesives Adhesives Total Unallocated Consolidated Net income attributable to H.B. Fuller $ 46,186 $ 45,077 $ 13,613 $ 104,876 $ (57,673 ) $ 47,203 Adjustments: Acquisition project costs1 - - - - 2,014 2,014 Organizational realignment2 - - - - 2,818 2,818 Royal Restructuring and integration3 - - - - 412 412 Project One - - - - 1,853 1,853 Other4 - - - - 6,264 6,264 Discrete tax items5 - - - - 4,149 4,149 Income tax effect on adjustments6 - - - - (3,526 ) (3,526 ) Adjusted net income attributable to H.B. Fuller7 46,186 45,077 13,613 104,876 (43,689 ) 61,187 Add: Interest expense - - - - 19,841 19,841 Interest income - - - - (2,091 ) (2,091 ) Adjusted Income taxes - - - - 22,993 22,993 Depreciation and amortization expense8 11,686 14,443 10,508 36,637 - 36,637 Adjusted EBITDA7 $ 57,872 $ 59,520 $ 24,121 $ 141,513 $ (2,946 ) $ 138,567 Revenue $ 437,889 $ 405,346 $ 150,023 $ 993,258 - $ 993,258 Adjusted EBITDA Margin7 13.2 % 14.7 % 16.1 % 14.2 % NMP 14.0 % Six Months Ended May 28, 2022 Net income attributable to H.B. Fuller $ 81,323 $ 79,814 $ 20,296 $ 181,433 $ (95,924 ) $ 85,509 Adjustments: Acquisition project costs1 - - - - 7,871 7,871 Organizational realignment2 - - - - 4,446 4,446 Royal Restructuring and integration3 - - - - 810 810 Project One - - - - 5,057 5,057 Other4 - - - - 7,430 7,430 Discrete tax items5 - - - - 1,248 1,248 Income tax effect on adjustments6 - - - - (7,035 ) (7,035 ) Adjusted net income attributable to H.B. Fuller7 81,323 79,814 20,296 181,433 (76,097 ) 105,336 Add: Interest expense - - - - 38,051 38,051 Interest income - - - - (4,041 ) (4,041 ) Adjusted Income taxes - - - - 39,552 39,552 Depreciation and amortization expense8 23,147 29,585 19,702 72,434 - 72,434 Adjusted EBITDA7 $ 104,470 $ 109,399 $ 39,998 $ 253,867 $ (2,535 ) $ 251,332 Revenue $ 827,427 $ 759,323 $ 262,989 $ 1,849,739 - $ 1,849,739 Adjusted EBITDA Margin7 12.6 % 14.4 % 15.2 % 13.7 % NMP 13.6 % Note: Adjusted EBITDA is a non-GAAP financial measure. The table above provides 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. NMP = Non-meaningful percentage H.B. FULLER COMPANY AND SUBSIDIARIES SEGMENT FINANCIAL INFORMATION NET REVENUE GROWTH (DECLINE) (unaudited) Three Months Ended Six Months Ended June 3, 2023 June 3, 2023 Price 5.9 % 7.0 % Volume (14.2 )% (12.6 )% Organic Growth13 (8.3 )% (5.6 )% M&A 2.1 % 2.0 % Constant currency (6.2 )% (3.6 )% F/X (3.4 )% (4.1 )% Total H.B. Fuller Net Revenue Decline (9.6 )% (7.7 )% Revenue growth versus 2022 Three Months Ended June 3, 2023 Constant Organic Net Revenue F/X Currency M&A Growth13 Hygiene, Health and Consumable Adhesives (7.6 )% (4.8 )% (2.8 )% 2.7 % (5.5 )% Engineering Adhesives (10.2 )% (2.8 )% (7.4 )% 1.6 % (9.0 )% Construction Adhesives (13.6 )% (1.1 )% (12.5 )% 1.7 % (14.2 )% Total H.B. Fuller (9.6 )% (3.4 )% (6.2 )% 2.1 % (8.3 )% Revenue growth versus 2022 Six Months Ended June 3, 2023 Constant Organic Net Revenue F/X Currency M&A Growth13 Hygiene, Health and Consumable Adhesives (4.8 )% (5.5 )% 0.7 % 1.5 % (0.8 )% Engineering Adhesives (8.2 )% (3.6 )% (4.6 )% 1.5 % (6.1 )% Construction Adhesives (15.5 )% (1.3 )% (14.2 )% 5.0 % (19.2 )% Total H.B. Fuller (7.7 )% (4.1 )% (3.6 )% 2.0 % (5.6 )% 13 We use the term “organic revenue” to refer to net revenue, excluding the effect of foreign currency changes and acquisitions and divestitures. Organic growth reflects adjustments for the impact of period-over-period changes in foreign currency exchange rates on revenues and the revenues associated with acquisitions and divestitures. CONSOLIDATED BALANCE SHEETS H.B. Fuller Company and Subsidiaries (In thousands, except share and per share amounts) June 3, December 3, 2023 2022 Assets Current assets: Cash and cash equivalents $ 103,183 $ 79,910 Trade receivables (net of allowances of $11,512 and $10,939, as of June 3, 2023 and December 3, 2022, respectively) 586,609 607,365 Inventories 499,275 491,781 Other current assets 128,885 120,319 Total current assets 1,317,952 1,299,375 Property, plant and equipment 1,673,871 1,579,738 Accumulated depreciation (886,459 ) (846,071 ) Property, plant and equipment, net 787,412 733,667 Goodwill 1,441,414 1,392,627 Other intangibles, net 721,564 702,092 Other assets 349,705 335,868 Total assets $ 4,618,047 $ 4,463,629 Liabilities, non-controlling interest and total equity Current liabilities Notes payable $ 30,307 $ 28,860 Trade payables 436,376 460,669 Accrued compensation 66,749 108,328 Income taxes payable 28,229 18,530 Other accrued expenses 99,171 89,345 Total current liabilities 660,832 705,732 Long-term debt 1,852,036 1,736,256 Accrued pension liabilities 53,546 52,561 Other liabilities 368,476 358,286 Total liabilities $ 2,934,890 $ 2,852,835 Commitments and contingencies (Note 13) Equity H.B. Fuller stockholders' equity: Preferred stock (no shares outstanding) shares authorized – 10,045,900 - - Common stock, par value $1.00 per share, shares authorized – 160,000,000, shares outstanding – 53,859,908 and 53,676,576 as of June 3, 2023 and December 3, 2022, respectively $ 53,860 $ 53,677 Additional paid-in capital 280,120 266,491 Retained earnings 1,782,215 1,741,359 Accumulated other comprehensive loss (433,705 ) (451,357 ) Total H.B. Fuller stockholders' equity 1,682,490 1,610,170 Non-controlling interest 667 624 Total equity 1,683,157 1,610,794 Total liabilities, non-controlling interest and total equity $ 4,618,047 $ 4,463,629 CONSOLIDATED STATEMENTS of CASH FLOWS H.B. Fuller Company and Subsidiaries (In thousands) Six Months Ended June 3, 2023 May 28, 2022 Cash flows from operating activities: Net income including non-controlling interest $ 62,338 $ 85,546 Adjustments to reconcile net income including non-controlling interest to net cash (used in) provided by operating activities: Depreciation 39,163 36,333 Amortization 37,813 36,412 Deferred income taxes (16,831 ) (4,961 ) Income from equity method investments, net of dividends received (2,338 ) (2,649 ) Debt issuance costs write-off 2,689 - Loss on mark to market adjustment on contingent consideration liability (220 ) - Loss on sale or disposal of assets (42 ) (1,087 ) Share-based compensation 10,953 13,625 Pension and other post-retirement benefit plan activity (6,226 ) (9,720 ) Change in assets and liabilities, net of effects of acquisitions: Trade receivables, net 66,896 (35,491 ) Inventories 8,285 (95,413 ) Other assets (36,951 ) (21,908 ) Trade payables (20,301 ) 27,237 Accrued compensation (42,190 ) (40,448 ) Other accrued expenses (9,988 ) 4,402 Income taxes payable 10,025 (5,864 ) Other liabilities 7,866 (23,597 ) Other (2,544 ) 28,452 Net cash provided by (used in) operating activities 108,397 (9,131 ) Cash flows from investing activities: Purchased property, plant and equipment (82,578 ) (69,055 ) Purchased businesses, net of cash acquired (103,744 ) (229,314 ) Proceeds from sale of property, plant and equipment 2,623 1,269 Cash received from government grant - 3,928 Net cash used in investing activities (183,699 ) (293,172 ) Cash flows from financing activities: Proceeds from issuance of long-term debt 1,300,000 335,000 Repayment of long-term debt (1,176,650 ) - Payment of debt issuance costs (10,214 ) (600 ) Net payment of notes payable (239 ) 3,565 Dividends paid (21,258 ) (18,965 ) Contingent consideration payment - (5,000 ) Proceeds from stock options exercised 4,193 7,837 Repurchases of common stock (2,552 ) (3,609 ) Net cash provided by financing activities 93,280 318,228 Effect of exchange rate changes on cash and cash equivalents 5,295 (9,562 ) Net change in cash and cash equivalents 23,273 6,363 Cash and cash equivalents at beginning of period 79,910 61,786 Cash and cash equivalents at end of period $ 103,183 $ 68,149 View source version on businesswire.com: https://www.businesswire.com/news/home/20230628382323/en/