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 Third Quarter 2023 Results By: H.B. Fuller Company via Business Wire September 27, 2023 at 16:05 PM EDT Net income of $38 million; Adjusted EBITDA of $156 million, up 13% year-on-year Adjusted gross profit margin expanded 350 basis points year-on-year to 30.0% Adjusted EBITDA margin increased 270 basis points year-on-year to 17.3% Cash flow from operations increased $50 million year-on-year to $108 million H.B. Fuller Company (NYSE: FUL) today reported financial results for its third quarter that ended September 2, 2023. Third Quarter 2023 Noteworthy Items: Net revenue of $901 million, down 4.3% year-on-year; organic revenue decreased 7.4% year-on-year, driven by lower volume; Gross margin was 29.3%; adjusted gross margin of 30.0% increased 350 basis points year-on-year, driven by pricing and raw material cost actions and restructuring benefits; Net income was $38 million; adjusted EBITDA was $156 million, up 13% year-on-year, adjusted EBITDA margin expanded 270 basis points year-on-year to 17.3%; Reported EPS (diluted) was $0.67; adjusted EPS (diluted) was $1.06, flat versus the prior year, as strong operating income growth was offset by higher interest expense and unfavorable foreign currency exchange; Cash flow from operations in the third quarter improved $50 million year-on-year, or 87%, to $108 million. Summary of Third Quarter 2023 Results: The Company’s net revenue for the third quarter of fiscal 2023 was $901 million, down 4.3% versus the third quarter of fiscal 2022. Organic revenue declined 7.4% year-on-year, driven by lower volume, offset somewhat by favorable pricing. Volume declined 8.0%, driven by customer destocking actions, principally in Hygiene, Health, and Consumable Adhesives, and generally slower industrial demand across all three global business units. Volume development in the third quarter improved significantly versus the second quarter, when volume declined 14.2% year-on-year. Pricing actions favorably impacted organic growth by 0.6 percentage points. Foreign currency translation reduced net revenue growth by 1.7 percentage points and acquisitions increased net revenue growth by 4.8 percentage points. Gross profit in the third quarter of fiscal 2023 was $263 million. Adjusted gross profit was $270 million. Adjusted gross profit margin of 30.0% increased 350 basis points year-on-year. Pricing and raw material cost actions, restructuring benefits and general cost reductions 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 $172 million in the third quarter of fiscal 2023 and adjusted SG&A was $159 million, up slightly year-on-year. Continued cost management and additional restructuring benefits offset inflation in wages and services and the incremental SG&A costs associated with acquisitions completed over the previous year. Net income attributable to H.B. Fuller for the third quarter of fiscal 2023 was $38 million, or $0.67 per diluted share. Adjusted net income attributable to H.B. Fuller for the third quarter of fiscal 2023 was $59 million. Adjusted EPS was $1.06 per diluted share, essentially flat year-on-year as strong operating income growth was offset by higher interest expense and unfavorable foreign currency impacts, which reduced diluted earnings per share by approximately $0.17 and $0.05, respectively, year-on-year in the third quarter. Adjusted EBITDA in the third quarter of fiscal 2023 was $156 million, up 13.1% year-on-year. Adjusted EBITDA margin increased 270 basis points year-on-year to 17.3%, driven by the combined impact of pricing and raw material cost actions versus the prior year’s third quarter, as well as restructuring savings, partially offset by the impacts of lower volume and wage and other inflation. “In the third quarter we successfully drove a double-digit increase in adjusted EBITDA year-on-year and increased adjusted EBITDA margin meaningfully, demonstrating the strength of our business model and ability to increase profitability regardless of market conditions. We achieved profit growth despite weaker than expected volumes, driven by a more adverse customer destocking impact in Hygiene, Health, and Consumable Adhesives and lower market demand in construction related markets,” said Celeste Mastin, H.B. Fuller president and chief executive officer. “The restructuring actions we announced in the first quarter in anticipation of a challenging volume environment were timely and prudent. During the third quarter, we increased the scope of these actions to deliver additional cost savings and enhance our overall operating efficiency. These actions, plus ongoing execution on price and raw material management, enabled us to drive adjusted EBITDA higher despite temporary volume weakness that exceeds true underlying demand. “Looking ahead, we are encouraged that the unusual global customer destocking phenomenon that has taken place across nearly all end markets is abating. Customer destocking largely ran its course in Engineering Adhesives and Construction Adhesives and peaked for Hygiene, Health, and Consumable Adhesives during the third quarter. As demand conditions normalize, we expect the continued strength of our innovation pipeline, coupled with the operating leverage created through our restructuring actions, to drive significant value for our business in 2024 and beyond.” Balance Sheet and Cash Flow Items: Net debt at the end of the third quarter of fiscal 2023 was $1,790 million, up $11 million sequentially versus the second quarter and down $67 million year-on-year. The sequential increase in net debt was driven by acquisition activity during the third quarter, offset by improved cash flow from operations. Cash flow from operations in the third quarter was $108 million, up $50 million year-on-year, reflecting improving margins and lower net working capital requirements. Fiscal 2023 Outlook: Net revenue for fiscal 2023 is now expected to be in the range of $3.50 billion to $3.55 billion with organic revenue down 4.5% to 5.5% versus fiscal 2022, reflecting lower volume expectations due to customer destocking actions and slower than anticipated underlying demand conditions; Adjusted EBITDA for fiscal 2023 is now expected to be in the range of $580 million to $590 million, reflecting lower volume expectations more than offset by higher margins, contributions from acquisitions, and restructuring benefits, equating to growth of approximately 9% to 11% versus fiscal year 2022; Adjusted EPS (diluted) is now expected to be in the range of $3.80 to $3.90, equating to a range of down 2.5% to 5.0% year-on-year; We now expect actions from the previously announced, and subsequently expanded, strategic restructuring to generate between $40 and $45 million in annual pre-tax run-rate cost savings, up from our original estimate of $30 to $35 million in annual pre-tax run-rate savings. This is in addition to approximately $20 million of pre-tax run-rate savings associated with the Beardow Adams integration, which was announced during the third quarter. Conference Call: The Company will hold a conference call on September 28, 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 September 28, 2023, to 10:59 p.m. CT on October 5, 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 Three Months Ended September 2, 2023 Percent of Net Revenue August 27, 2022 Percent of Net Revenue Net revenue $ 900,634 100.0 % $ 941,230 100.0 % Cost of sales (637,162 ) (70.7 )% (692,066 ) (73.5 )% Gross profit 263,472 29.3 % 249,164 26.5 % Selling, general and administrative expenses (172,153 ) (19.1 )% (161,210 ) (17.1 )% Other income, net 1,555 0.2 % 6,559 0.7 % Interest expense (35,105 ) (3.9 )% (23,450 ) (2.5 )% Interest income 1,128 0.1 % 2,139 0.2 % Income before income taxes and income from equity method investments 58,897 6.5 % 73,202 7.8 % Income taxes (22,231 ) (2.5 )% (28,259 ) (3.0 )% Income from equity method investments 984 0.1 % 1,587 0.2 % Net income including non-controlling interest 37,650 4.2 % 46,530 4.9 % Net income attributable to non-controlling interest (23 ) (0.0 )% (33 ) (0.0 )% Net income attributable to H.B. Fuller $ 37,627 4.2 % $ 46,497 4.9 % Basic income per common share attributable to H.B. Fuller $ 0.69 $ 0.87 Diluted income per common share attributable to H.B. Fuller $ 0.67 $ 0.84 Weighted-average common shares outstanding: Basic 54,394 53,644 Diluted 56,033 55,130 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) Nine Months Ended Nine Months Ended September 2, 2023 Percent of Net Revenue August 27, 2022 Percent of Net Revenue Net revenue $ 2,608,055 100.0 % $ 2,790,969 100.0 % Cost of sales (1,873,000 ) (71.8 )% (2,075,392 ) (74.4 )% Gross profit 735,055 28.2 % 715,577 25.6 % Selling, general and administrative expenses (493,320 ) (18.9 )% (483,109 ) (17.3 )% Other income, net 4,764 0.2 % 12,701 0.5 % Interest expense (101,305 ) (3.9 )% (61,475 ) (2.2 )% Interest income 2,726 0.1 % 6,170 0.2 % Income before income taxes and income from equity method investments 147,920 5.7 % 189,864 6.8 % Income taxes (51,255 ) (2.0 )% (62,023 ) (2.2 )% Income from equity method investments 3,322 0.1 % 4,236 0.2 % Net income including non-controlling interest 99,987 3.8 % 132,077 4.7 % Net income attributable to non-controlling interest (71 ) (0.0 )% (70 ) (0.0 )% Net income attributable to H.B. Fuller $ 99,916 3.8 % $ 132,007 4.7 % Basic income per common share attributable to H.B. Fuller $ 1.84 $ 2.47 Diluted income per common share attributable to H.B. Fuller $ 1.79 $ 2.39 Weighted-average common shares outstanding: Basic 54,279 53,498 Diluted 55,890 55,201 Dividends declared per common share $ 0.600 $ 0.548 H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands, except per share amounts (unaudited) Three Months Ended Nine Months Ended September 2, August 27, September 2, August 27, 2023 2022 2023 2022 Net income attributable to H.B. Fuller $ 37,627 $ 46,497 $ 99,916 $ 132,007 Adjustments: Acquisition project costs1 6,480 1,138 11,634 9,008 Organizational realignment2 10,421 595 19,055 4,915 Royal restructuring and integration3 - 196 - 1,007 Project One 2,734 2,502 7,587 7,559 Other4 503 711 4,098 8,267 Discrete tax items5 6,243 6,449 9,131 7,697 Income tax effect on adjustments6 (4,875 ) 251 (9,447 ) (6,786 ) Adjusted net income attributable to H.B. Fuller7 59,133 58,339 141,974 163,674 Add: Interest expense 35,105 23,450 98,615 61,501 Interest income (1,128 ) (2,139 ) (2,726 ) (6,181 ) Adjusted Income taxes 20,862 21,559 51,569 61,112 Depreciation and Amortization expense8 41,826 36,491 118,803 108,925 Adjusted EBITDA7 155,798 137,700 408,235 389,031 Diluted Shares 56,033 55,130 55,890 55,201 Adjusted diluted income per common share attributable to H.B. Fuller7 $ 1.06 $ 1.06 $ 2.54 $ 2.97 Revenue $ 900,634 $ 941,230 $ 2,608,055 $ 2,790,969 Adjusted EBITDA margin7 17.3 % 14.6 % 15.7 % 13.9 % 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, 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 Other expenses for the nine months ended August 27, 2022, include a $3.3 million non-cash charge related to the wind down and settlement of the Company’s Canadian defined benefit pension plan, $1.3 million of hedging costs related to the Russian ruble devaluation driven by the war in Ukraine, $1.2 million of 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 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 ($348) for both the three and nine months ended September 2, 2023, respectively and ($148) and ($459) for the three and nine months ended August 27, 2022, respectively. H.B. FULLER COMPANY AND SUBSIDIARIES SEGMENT FINANCIAL INFORMATION In thousands (unaudited) Three Months Ended Nine Months Ended September 2, August 27, September 2, August 27, 2023 2022 2023 2022 Net Revenue: Hygiene, Health and Consumable Adhesives $ 402,388 $ 424,978 $ 1,190,402 $ 1,252,405 Engineering Adhesives 365,862 378,264 1,063,009 1,137,587 Construction Adhesives 132,384 137,988 354,644 400,977 Corporate unallocated - - - - Total H.B. Fuller $ 900,634 $ 941,230 $ 2,608,055 $ 2,790,969 Segment Operating Income (Loss): Hygiene, Health and Consumable Adhesives $ 52,737 $ 47,470 $ 149,474 $ 122,950 Engineering Adhesives 52,931 39,776 129,806 115,266 Construction Adhesives 5,853 6,391 2,189 22,032 Corporate unallocated (20,202 ) (5,683 ) (39,734 ) (27,780 ) Total H.B. Fuller $ 91,319 $ 87,954 $ 241,735 $ 232,468 Adjusted EBITDA7 Hygiene, Health and Consumable Adhesives $ 69,172 $ 61,834 $ 194,125 $ 166,304 Engineering Adhesives 70,723 56,061 181,758 165,461 Construction Adhesives 18,519 19,619 39,584 59,616 Corporate unallocated (2,616 ) 186 (7,232 ) (2,350 ) Total H.B. Fuller $ 155,798 $ 137,700 $ 408,235 $ 389,031 Adjusted EBITDA Margin7 Hygiene, Health and Consumable Adhesives 17.2 % 14.5 % 16.3 % 13.3 % Engineering Adhesives 19.3 % 14.8 % 17.1 % 14.5 % Construction Adhesives 14.0 % 14.2 % 11.2 % 14.9 % Corporate unallocated NMP NMP NMP NMP Total H.B. Fuller 17.3 % 14.6 % 15.7 % 13.9 % NMP = non-meaningful percentage H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands, except per share amounts (unaudited) Three Months Ended Nine Months Ended September 2, August 27, September 2, August 27, 2023 2022 2023 2022 Income before income taxes and income from equity method investments $ 58,897 $ 73,202 $ 147,920 $ 189,864 Adjustments: Acquisition project costs1 6,480 1,138 11,634 9,008 Organizational realignment2 10,421 595 19,055 4,915 Royal restructuring and integration3 - 196 - 1,007 Project One 2,734 2,502 7,587 7,559 Other4 503 711 4,098 8,267 Adjusted income before income taxes and income from equity method investments9 $ 79,035 $ 78,344 $ 190,294 $ 220,620 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 Nine Months Ended September 2, August 27, September 2, August 27, 2023 2022 2023 2022 Income Taxes $ (22,231 ) $ (28,259 ) $ (51,255 ) $ (62,023 ) Adjustments: Acquisition project costs1 (1,569 ) 55 (2,620 ) (2,154 ) Organizational realignment2 (2,523 ) 29 (4,247 ) (1,140 ) Royal restructuring and integration3 - 10 - (213 ) Project One (662 ) 122 (1,655 ) (1,284 ) Discrete tax items5 and Other4 6,123 6,484 8,208 5,702 Adjusted income taxes10 $ (20,862 ) $ (21,559 ) $ (51,569 ) $ (61,112 ) Adjusted income before income taxes and income from equity method investments $ 79,035 $ 78,344 $ 190,294 $ 220,620 Adjusted effective income tax rate10 26.4 % 27.5 % 27.1 % 27.7 % 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 Nine Months Ended September 2, August 27, September 2, August 27, 2023 2022 2023 2022 Net revenue $ 900,634 $ 941,230 $ 2,608,055 $ 2,790,969 Gross profit $ 263,472 $ 249,164 $ 735,055 $ 715,577 Gross profit margin 29.3 % 26.5 % 28.2 % 25.6 % Adjustments: Acquisition project costs1 1,516 (104 ) 2,617 320 Organizational realignment2 4,961 214 9,972 1,997 Royal restructuring and integration3 - 5 - 377 Project ONE - - - 6 Other4 318 533 479 1,358 Adjusted gross profit11 $ 270,267 $ 249,812 $ 748,123 $ 719,635 Adjusted gross profit margin11 30.0 % 26.5 % 28.7 % 25.8 % 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 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 Nine Months Ended September 2, August 27, September 2, August 27, 2023 2022 2023 2022 Selling, general and administrative expenses $ (172,153 ) $ (161,210 ) $ (493,320 ) $ (483,109 ) Adjustments: Acquisition project costs1 5,066 1,241 9,119 8,688 Organizational realignment2 5,460 630 9,083 4,134 Royal restructuring and integration3 - 191 - 656 Project ONE 2,734 2,502 7,587 7,553 Other4 149 471 880 2,691 Adjusted selling, general and administrative expenses12 $ (158,744 ) $ (156,175 ) $ (466,651 ) $ (459,387 ) 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) Hygiene, Health Three Months Ended: and Consumable Engineering Construction Corporate H.B. Fuller September 2, 2023 Adhesives Adhesives Adhesives Total Unallocated Consolidated Net income attributable to H.B. Fuller $ 54,568 $ 54,256 $ 7,764 $ 116,588 $ (78,961 ) $ 37,627 Adjustments: Acquisition project costs1 - - - - 6,480 6,480 Organizational realignment2 - - - - 10,421 10,421 Royal Restructuring and integration3 - - - - - - Project One - - - - 2,734 2,734 Other4 - - - - 503 503 Discrete tax items5 - - - - 6,243 6,243 Income tax effect on adjustments6 - - - - (4,875 ) (4,875 ) Adjusted net income attributable to H.B. Fuller7 54,568 54,256 7,764 116,588 (57,455 ) 59,133 Add: Interest expense - - - - 35,105 35,105 Interest income - - - - (1,128 ) (1,128 ) Adjusted Income taxes - - - - 20,862 20,862 Depreciation and amortization expense8 14,604 16,467 10,755 41,826 - 41,826 Adjusted EBITDA7 $ 69,172 $ 70,723 $ 18,519 $ 158,414 $ (2,616 ) $ 155,798 Revenue $ 402,388 $ 365,862 $ 132,384 $ 900,634 - $ 900,634 Adjusted EBITDA Margin7 17.2 % 19.3 % 14.0 % 17.6 % NMP 17.3 % Hygiene, Health Nine Months Ended: and Consumable Engineering Construction Corporate H.B. Fuller September 2, 2023 Adhesives Adhesives Adhesives Total Unallocated Consolidated Net income attributable to H.B. Fuller $ 154,966 $ 133,778 $ 7,920 $ 296,664 $ (196,748 ) $ 99,916 Adjustments: Acquisition project costs1 - - - - 11,634 11,634 Organizational realignment2 - - - - 19,055 19,055 Project One - - - - 7,587 7,587 Other4 - - - - 4,098 4,098 Discrete tax items5 - - - - 9,131 9,131 Income tax effect on adjustments6 - - - - (9,447 ) (9,447 ) Adjusted net income attributable to H.B. Fuller7 154,966 133,778 7,920 296,664 (154,690 ) 141,974 Add: Interest expense - - - - 98,615 98,615 Interest income - - - - (2,726 ) (2,726 ) Adjusted Income taxes - - - - 51,569 51,569 Depreciation and amortization expense8 39,159 47,980 31,664 118,803 - 118,803 Adjusted EBITDA7 $ 194,125 $ 181,758 $ 39,584 $ 415,467 $ (7,232 ) $ 408,235 Revenue $ 1,190,402 $ 1.063,009 $ 354,644 $ 2,608,055 - $ 2,608,055 Adjusted EBITDA Margin7 16.3 % 17.1 % 11.2 % 15.9 % NMP 15.7 % 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) Hygiene, Health Three Months Ended: and Consumable Engineering Construction Corporate H.B. Fuller August 27, 2022 Adhesives Adhesives Adhesives Total Unallocated Consolidated Net income attributable to H.B. Fuller $ 50,378 $ 41,927 $ 8,718 $ 101,023 $ (54,526 ) $ 46,497 Adjustments: Acquisition project costs1 - - - - 1,138 1,138 Organizational realignment2 - - - - 595 595 Royal Restructuring and integration3 - - - - 196 196 Project One - - - - 2,502 2,502 Other4 - - - - 711 711 Discrete tax items5 - - - - 6,449 6,449 Income tax effect on adjustments6 - - - - 251 251 Adjusted net income attributable to H.B. Fuller7 50,378 41,927 8,718 101,023 (42,684 ) 58,339 Add: Interest expense - - - - 23,450 23,450 Interest income - - - - (2,139 ) (2,139 ) Adjusted Income taxes - - - - 21,559 21,559 Depreciation and amortization expense8 11,456 14,134 10,901 36,491 - 36,491 Adjusted EBITDA7 $ 61,834 $ 56,061 $ 19,619 $ 137,514 $ 186 $ 137,700 Revenue $ 424,978 $ 378,264 $ 137,988 $ 941,230 - $ 941,230 Adjusted EBITDA Margin7 14.5 % 14.8 % 14.2 % 14.6 % NMP 14.6 % Hygiene, Health Nine Months Ended: and Consumable Engineering Construction Corporate H.B. Fuller August 27, 2022 Adhesives Adhesives Adhesives Total Unallocated Consolidated Net income attributable to H.B. Fuller $ 131,702 $ 121,741 $ 29,013 $ 282,456 $ (150,449 ) $ 132,007 Adjustments: Acquisition project costs1 - - - - 9,008 9,008 Organizational realignment2 - - - - 4,915 4,915 Royal Restructuring and integration3 - - - - 1,007 1,007 Project One - - - - 7,559 7,559 Other4 - - - - 8,267 8,267 Discrete tax items5 - - - - 7,697 7,697 Income tax effect on adjustments6 - - - - (6,786 ) (6,786 ) Adjusted net income attributable to H.B. Fuller7 131,702 121,741 29,013 282,456 (118,782 ) 163,674 Add: Interest expense - - - - 61,501 61,501 Interest income - - - - (6,181 ) (6,181 ) Adjusted Income taxes - - - - 61,112 61,112 Depreciation and amortization expense8 34,602 43,720 30,603 108,925 - 108,925 Adjusted EBITDA7 $ 166,304 $ 165,461 $ 59,616 $ 391,381 $ (2,350 ) $ 389,031 Revenue $ 1,252,405 $ 1,137,587 $ 400,977 $ 2,790,969 - $ 2,790,969 Adjusted EBITDA Margin7 13.3 % 14.5 % 14.9 % 14.0 % NMP 13.9 % 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 Nine Months Ended September 2, 2023 September 2, 2023 Price 0.6 % 4.7 % Volume (8.0 )% (11.1 )% Organic Growth13 (7.4 )% (6.4 )% M&A 4.8 % 3.0 % Constant currency (2.6 )% (3.4 )% F/X (1.7 )% (3.2 )% Total H.B. Fuller Net Revenue Decline (4.3 )% (6.6 )% Revenue growth versus 2022 Three Months Ended September 2, 2023 Organic Net Revenue F/X Constant Currency M&A Growth 13 Hygiene, Health and Consumable Adhesives (5.3 )% (2.4 )% (2.9 )% 7.6 % (10.5 )% Engineering Adhesives (3.3 )% (1.4 )% (1.9 )% 1.4 % (3.3 )% Construction Adhesives (4.1 )% (0.1 )% (4.0 )% 5.4 % (9.4 )% Total H.B. Fuller (4.3 )% (1.7 )% (2.6 )% 4.8 % (7.4 )% Revenue growth versus 2022 Nine Months Ended September 2, 2023 Organic Net Revenue F/X Constant Currency M&A Growth 13 Hygiene, Health and Consumable Adhesives (5.0 )% (4.4 )% (0.6 )% 3.6 % (4.2 )% Engineering Adhesives (6.6 )% (2.8 )% (3.8 )% 1.5 % (5.3 )% Construction Adhesives (11.6 )% (0.7 )% (10.9 )% 5.1 % (16.0 )% Total H.B. Fuller (6.6 )% (3.2 )% (3.4 )% 3.0 % (6.4 )% 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) September 2, December 3, 2023 2022 Assets Current assets: Cash and cash equivalents $ 94,934 $ 79,910 Trade receivables (net of allowances of $12,458 and $10,939, as of September 2, 2023 and December 3, 2022, respectively) 576,060 607,365 Inventories 472,641 491,781 Other current assets 97,756 120,319 Total current assets 1,241,391 1,299,375 Property, plant and equipment 1,709,191 1,579,738 Accumulated depreciation (907,895 ) (846,071 ) Property, plant and equipment, net 801,296 733,667 Goodwill 1,490,535 1,392,627 Other intangibles, net 746,521 702,092 Other assets 380,165 335,868 Total assets $ 4,659,908 $ 4,463,629 Liabilities, non-controlling interest and total equity Current liabilities Notes payable $ 12,553 $ 28,860 Trade payables 394,914 460,669 Accrued compensation 75,035 108,328 Income taxes payable 33,007 18,530 Other accrued expenses 102,837 89,345 Total current liabilities 618,346 705,732 Long-term debt 1,872,468 1,736,256 Accrued pension liabilities 54,661 52,561 Other liabilities 387,307 358,286 Total liabilities $ 2,932,782 $ 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 – 54,016,374 and 53,676,576 as of September 2, 2023 and December 3, 2022, respectively $ 54,016 $ 53,677 Additional paid-in capital 294,035 266,491 Retained earnings 1,808,687 1,741,359 Accumulated other comprehensive loss (430,295 ) (451,357 ) Total H.B. Fuller stockholders' equity 1,726,443 1,610,170 Non-controlling interest 683 624 Total equity 1,727,126 1,610,794 Total liabilities, non-controlling interest and total equity $ 4,659,908 $ 4,463,629 CONSOLIDATED STATEMENTS of CASH FLOWS H.B. Fuller Company and Subsidiaries (In thousands) Nine Months Ended September 2, 2023 August 27, 2022 Cash flows from operating activities: Net income including non-controlling interest $ 99,987 $ 132,077 Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities: Depreciation 60,518 54,297 Amortization 58,633 55,088 Deferred income taxes (30,064 ) (4,968 ) Income from equity method investments, net of dividends received 260 1,420 Debt issuance costs write-off 2,689 - Loss on fair value adjustment on contingent consideration liability 2,893 - Gain on sale or disposal of assets (78 ) (1,130 ) Share-based compensation 16,279 20,358 Pension and other post-retirement benefit plan activity (8,890 ) (15,324 ) Change in assets and liabilities, net of effects of acquisitions: Trade receivables, net 79,495 (51,629 ) Inventories 38,212 (112,390 ) Other assets (30,901 ) (40,329 ) Trade payables (74,443 ) 17,381 Accrued compensation (33,796 ) (17,275 ) Other accrued expenses (6,992 ) 1,614 Income taxes payable 24,461 10,201 Other liabilities 12,408 (35,940 ) Other 6,023 35,246 Net cash provided by operating activities 216,696 48,697 Cash flows from investing activities: Purchased property, plant and equipment (109,545 ) (98,352 ) Purchased businesses, net of cash acquired (194,248 ) (242,870 ) Proceeds from sale of property, plant and equipment 4,257 1,281 Cash received from government grant - 3,928 Net cash used in investing activities (299,536 ) (336,013 ) Cash flows from financing activities: Proceeds from issuance of long-term debt 1,333,000 335,000 Repayment of long-term debt (1,184,900 ) (15,000 ) Payment of debt issuance costs (10,214 ) (600 ) Net payment of notes payable (18,000 ) 6,707 Dividends paid (32,319 ) (29,067 ) Contingent consideration payment - (5,000 ) Proceeds from stock options exercised 11,251 13,522 Repurchases of common stock (2,560 ) (3,885 ) Net cash provided by financing activities 96,258 301,677 Effect of exchange rate changes on cash and cash equivalents 1,608 (15,439 ) Net change in cash and cash equivalents 15,024 (1,078 ) Cash and cash equivalents at beginning of period 79,910 61,786 Cash and cash equivalents at end of period $ 94,934 $ 60,708 View source version on businesswire.com: https://www.businesswire.com/news/home/20230927227415/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 Third Quarter 2023 Results By: H.B. Fuller Company via Business Wire September 27, 2023 at 16:05 PM EDT Net income of $38 million; Adjusted EBITDA of $156 million, up 13% year-on-year Adjusted gross profit margin expanded 350 basis points year-on-year to 30.0% Adjusted EBITDA margin increased 270 basis points year-on-year to 17.3% Cash flow from operations increased $50 million year-on-year to $108 million H.B. Fuller Company (NYSE: FUL) today reported financial results for its third quarter that ended September 2, 2023. Third Quarter 2023 Noteworthy Items: Net revenue of $901 million, down 4.3% year-on-year; organic revenue decreased 7.4% year-on-year, driven by lower volume; Gross margin was 29.3%; adjusted gross margin of 30.0% increased 350 basis points year-on-year, driven by pricing and raw material cost actions and restructuring benefits; Net income was $38 million; adjusted EBITDA was $156 million, up 13% year-on-year, adjusted EBITDA margin expanded 270 basis points year-on-year to 17.3%; Reported EPS (diluted) was $0.67; adjusted EPS (diluted) was $1.06, flat versus the prior year, as strong operating income growth was offset by higher interest expense and unfavorable foreign currency exchange; Cash flow from operations in the third quarter improved $50 million year-on-year, or 87%, to $108 million. Summary of Third Quarter 2023 Results: The Company’s net revenue for the third quarter of fiscal 2023 was $901 million, down 4.3% versus the third quarter of fiscal 2022. Organic revenue declined 7.4% year-on-year, driven by lower volume, offset somewhat by favorable pricing. Volume declined 8.0%, driven by customer destocking actions, principally in Hygiene, Health, and Consumable Adhesives, and generally slower industrial demand across all three global business units. Volume development in the third quarter improved significantly versus the second quarter, when volume declined 14.2% year-on-year. Pricing actions favorably impacted organic growth by 0.6 percentage points. Foreign currency translation reduced net revenue growth by 1.7 percentage points and acquisitions increased net revenue growth by 4.8 percentage points. Gross profit in the third quarter of fiscal 2023 was $263 million. Adjusted gross profit was $270 million. Adjusted gross profit margin of 30.0% increased 350 basis points year-on-year. Pricing and raw material cost actions, restructuring benefits and general cost reductions 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 $172 million in the third quarter of fiscal 2023 and adjusted SG&A was $159 million, up slightly year-on-year. Continued cost management and additional restructuring benefits offset inflation in wages and services and the incremental SG&A costs associated with acquisitions completed over the previous year. Net income attributable to H.B. Fuller for the third quarter of fiscal 2023 was $38 million, or $0.67 per diluted share. Adjusted net income attributable to H.B. Fuller for the third quarter of fiscal 2023 was $59 million. Adjusted EPS was $1.06 per diluted share, essentially flat year-on-year as strong operating income growth was offset by higher interest expense and unfavorable foreign currency impacts, which reduced diluted earnings per share by approximately $0.17 and $0.05, respectively, year-on-year in the third quarter. Adjusted EBITDA in the third quarter of fiscal 2023 was $156 million, up 13.1% year-on-year. Adjusted EBITDA margin increased 270 basis points year-on-year to 17.3%, driven by the combined impact of pricing and raw material cost actions versus the prior year’s third quarter, as well as restructuring savings, partially offset by the impacts of lower volume and wage and other inflation. “In the third quarter we successfully drove a double-digit increase in adjusted EBITDA year-on-year and increased adjusted EBITDA margin meaningfully, demonstrating the strength of our business model and ability to increase profitability regardless of market conditions. We achieved profit growth despite weaker than expected volumes, driven by a more adverse customer destocking impact in Hygiene, Health, and Consumable Adhesives and lower market demand in construction related markets,” said Celeste Mastin, H.B. Fuller president and chief executive officer. “The restructuring actions we announced in the first quarter in anticipation of a challenging volume environment were timely and prudent. During the third quarter, we increased the scope of these actions to deliver additional cost savings and enhance our overall operating efficiency. These actions, plus ongoing execution on price and raw material management, enabled us to drive adjusted EBITDA higher despite temporary volume weakness that exceeds true underlying demand. “Looking ahead, we are encouraged that the unusual global customer destocking phenomenon that has taken place across nearly all end markets is abating. Customer destocking largely ran its course in Engineering Adhesives and Construction Adhesives and peaked for Hygiene, Health, and Consumable Adhesives during the third quarter. As demand conditions normalize, we expect the continued strength of our innovation pipeline, coupled with the operating leverage created through our restructuring actions, to drive significant value for our business in 2024 and beyond.” Balance Sheet and Cash Flow Items: Net debt at the end of the third quarter of fiscal 2023 was $1,790 million, up $11 million sequentially versus the second quarter and down $67 million year-on-year. The sequential increase in net debt was driven by acquisition activity during the third quarter, offset by improved cash flow from operations. Cash flow from operations in the third quarter was $108 million, up $50 million year-on-year, reflecting improving margins and lower net working capital requirements. Fiscal 2023 Outlook: Net revenue for fiscal 2023 is now expected to be in the range of $3.50 billion to $3.55 billion with organic revenue down 4.5% to 5.5% versus fiscal 2022, reflecting lower volume expectations due to customer destocking actions and slower than anticipated underlying demand conditions; Adjusted EBITDA for fiscal 2023 is now expected to be in the range of $580 million to $590 million, reflecting lower volume expectations more than offset by higher margins, contributions from acquisitions, and restructuring benefits, equating to growth of approximately 9% to 11% versus fiscal year 2022; Adjusted EPS (diluted) is now expected to be in the range of $3.80 to $3.90, equating to a range of down 2.5% to 5.0% year-on-year; We now expect actions from the previously announced, and subsequently expanded, strategic restructuring to generate between $40 and $45 million in annual pre-tax run-rate cost savings, up from our original estimate of $30 to $35 million in annual pre-tax run-rate savings. This is in addition to approximately $20 million of pre-tax run-rate savings associated with the Beardow Adams integration, which was announced during the third quarter. Conference Call: The Company will hold a conference call on September 28, 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 September 28, 2023, to 10:59 p.m. CT on October 5, 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 Three Months Ended September 2, 2023 Percent of Net Revenue August 27, 2022 Percent of Net Revenue Net revenue $ 900,634 100.0 % $ 941,230 100.0 % Cost of sales (637,162 ) (70.7 )% (692,066 ) (73.5 )% Gross profit 263,472 29.3 % 249,164 26.5 % Selling, general and administrative expenses (172,153 ) (19.1 )% (161,210 ) (17.1 )% Other income, net 1,555 0.2 % 6,559 0.7 % Interest expense (35,105 ) (3.9 )% (23,450 ) (2.5 )% Interest income 1,128 0.1 % 2,139 0.2 % Income before income taxes and income from equity method investments 58,897 6.5 % 73,202 7.8 % Income taxes (22,231 ) (2.5 )% (28,259 ) (3.0 )% Income from equity method investments 984 0.1 % 1,587 0.2 % Net income including non-controlling interest 37,650 4.2 % 46,530 4.9 % Net income attributable to non-controlling interest (23 ) (0.0 )% (33 ) (0.0 )% Net income attributable to H.B. Fuller $ 37,627 4.2 % $ 46,497 4.9 % Basic income per common share attributable to H.B. Fuller $ 0.69 $ 0.87 Diluted income per common share attributable to H.B. Fuller $ 0.67 $ 0.84 Weighted-average common shares outstanding: Basic 54,394 53,644 Diluted 56,033 55,130 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) Nine Months Ended Nine Months Ended September 2, 2023 Percent of Net Revenue August 27, 2022 Percent of Net Revenue Net revenue $ 2,608,055 100.0 % $ 2,790,969 100.0 % Cost of sales (1,873,000 ) (71.8 )% (2,075,392 ) (74.4 )% Gross profit 735,055 28.2 % 715,577 25.6 % Selling, general and administrative expenses (493,320 ) (18.9 )% (483,109 ) (17.3 )% Other income, net 4,764 0.2 % 12,701 0.5 % Interest expense (101,305 ) (3.9 )% (61,475 ) (2.2 )% Interest income 2,726 0.1 % 6,170 0.2 % Income before income taxes and income from equity method investments 147,920 5.7 % 189,864 6.8 % Income taxes (51,255 ) (2.0 )% (62,023 ) (2.2 )% Income from equity method investments 3,322 0.1 % 4,236 0.2 % Net income including non-controlling interest 99,987 3.8 % 132,077 4.7 % Net income attributable to non-controlling interest (71 ) (0.0 )% (70 ) (0.0 )% Net income attributable to H.B. Fuller $ 99,916 3.8 % $ 132,007 4.7 % Basic income per common share attributable to H.B. Fuller $ 1.84 $ 2.47 Diluted income per common share attributable to H.B. Fuller $ 1.79 $ 2.39 Weighted-average common shares outstanding: Basic 54,279 53,498 Diluted 55,890 55,201 Dividends declared per common share $ 0.600 $ 0.548 H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands, except per share amounts (unaudited) Three Months Ended Nine Months Ended September 2, August 27, September 2, August 27, 2023 2022 2023 2022 Net income attributable to H.B. Fuller $ 37,627 $ 46,497 $ 99,916 $ 132,007 Adjustments: Acquisition project costs1 6,480 1,138 11,634 9,008 Organizational realignment2 10,421 595 19,055 4,915 Royal restructuring and integration3 - 196 - 1,007 Project One 2,734 2,502 7,587 7,559 Other4 503 711 4,098 8,267 Discrete tax items5 6,243 6,449 9,131 7,697 Income tax effect on adjustments6 (4,875 ) 251 (9,447 ) (6,786 ) Adjusted net income attributable to H.B. Fuller7 59,133 58,339 141,974 163,674 Add: Interest expense 35,105 23,450 98,615 61,501 Interest income (1,128 ) (2,139 ) (2,726 ) (6,181 ) Adjusted Income taxes 20,862 21,559 51,569 61,112 Depreciation and Amortization expense8 41,826 36,491 118,803 108,925 Adjusted EBITDA7 155,798 137,700 408,235 389,031 Diluted Shares 56,033 55,130 55,890 55,201 Adjusted diluted income per common share attributable to H.B. Fuller7 $ 1.06 $ 1.06 $ 2.54 $ 2.97 Revenue $ 900,634 $ 941,230 $ 2,608,055 $ 2,790,969 Adjusted EBITDA margin7 17.3 % 14.6 % 15.7 % 13.9 % 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, 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 Other expenses for the nine months ended August 27, 2022, include a $3.3 million non-cash charge related to the wind down and settlement of the Company’s Canadian defined benefit pension plan, $1.3 million of hedging costs related to the Russian ruble devaluation driven by the war in Ukraine, $1.2 million of 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 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 ($348) for both the three and nine months ended September 2, 2023, respectively and ($148) and ($459) for the three and nine months ended August 27, 2022, respectively. H.B. FULLER COMPANY AND SUBSIDIARIES SEGMENT FINANCIAL INFORMATION In thousands (unaudited) Three Months Ended Nine Months Ended September 2, August 27, September 2, August 27, 2023 2022 2023 2022 Net Revenue: Hygiene, Health and Consumable Adhesives $ 402,388 $ 424,978 $ 1,190,402 $ 1,252,405 Engineering Adhesives 365,862 378,264 1,063,009 1,137,587 Construction Adhesives 132,384 137,988 354,644 400,977 Corporate unallocated - - - - Total H.B. Fuller $ 900,634 $ 941,230 $ 2,608,055 $ 2,790,969 Segment Operating Income (Loss): Hygiene, Health and Consumable Adhesives $ 52,737 $ 47,470 $ 149,474 $ 122,950 Engineering Adhesives 52,931 39,776 129,806 115,266 Construction Adhesives 5,853 6,391 2,189 22,032 Corporate unallocated (20,202 ) (5,683 ) (39,734 ) (27,780 ) Total H.B. Fuller $ 91,319 $ 87,954 $ 241,735 $ 232,468 Adjusted EBITDA7 Hygiene, Health and Consumable Adhesives $ 69,172 $ 61,834 $ 194,125 $ 166,304 Engineering Adhesives 70,723 56,061 181,758 165,461 Construction Adhesives 18,519 19,619 39,584 59,616 Corporate unallocated (2,616 ) 186 (7,232 ) (2,350 ) Total H.B. Fuller $ 155,798 $ 137,700 $ 408,235 $ 389,031 Adjusted EBITDA Margin7 Hygiene, Health and Consumable Adhesives 17.2 % 14.5 % 16.3 % 13.3 % Engineering Adhesives 19.3 % 14.8 % 17.1 % 14.5 % Construction Adhesives 14.0 % 14.2 % 11.2 % 14.9 % Corporate unallocated NMP NMP NMP NMP Total H.B. Fuller 17.3 % 14.6 % 15.7 % 13.9 % NMP = non-meaningful percentage H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands, except per share amounts (unaudited) Three Months Ended Nine Months Ended September 2, August 27, September 2, August 27, 2023 2022 2023 2022 Income before income taxes and income from equity method investments $ 58,897 $ 73,202 $ 147,920 $ 189,864 Adjustments: Acquisition project costs1 6,480 1,138 11,634 9,008 Organizational realignment2 10,421 595 19,055 4,915 Royal restructuring and integration3 - 196 - 1,007 Project One 2,734 2,502 7,587 7,559 Other4 503 711 4,098 8,267 Adjusted income before income taxes and income from equity method investments9 $ 79,035 $ 78,344 $ 190,294 $ 220,620 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 Nine Months Ended September 2, August 27, September 2, August 27, 2023 2022 2023 2022 Income Taxes $ (22,231 ) $ (28,259 ) $ (51,255 ) $ (62,023 ) Adjustments: Acquisition project costs1 (1,569 ) 55 (2,620 ) (2,154 ) Organizational realignment2 (2,523 ) 29 (4,247 ) (1,140 ) Royal restructuring and integration3 - 10 - (213 ) Project One (662 ) 122 (1,655 ) (1,284 ) Discrete tax items5 and Other4 6,123 6,484 8,208 5,702 Adjusted income taxes10 $ (20,862 ) $ (21,559 ) $ (51,569 ) $ (61,112 ) Adjusted income before income taxes and income from equity method investments $ 79,035 $ 78,344 $ 190,294 $ 220,620 Adjusted effective income tax rate10 26.4 % 27.5 % 27.1 % 27.7 % 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 Nine Months Ended September 2, August 27, September 2, August 27, 2023 2022 2023 2022 Net revenue $ 900,634 $ 941,230 $ 2,608,055 $ 2,790,969 Gross profit $ 263,472 $ 249,164 $ 735,055 $ 715,577 Gross profit margin 29.3 % 26.5 % 28.2 % 25.6 % Adjustments: Acquisition project costs1 1,516 (104 ) 2,617 320 Organizational realignment2 4,961 214 9,972 1,997 Royal restructuring and integration3 - 5 - 377 Project ONE - - - 6 Other4 318 533 479 1,358 Adjusted gross profit11 $ 270,267 $ 249,812 $ 748,123 $ 719,635 Adjusted gross profit margin11 30.0 % 26.5 % 28.7 % 25.8 % 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 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 Nine Months Ended September 2, August 27, September 2, August 27, 2023 2022 2023 2022 Selling, general and administrative expenses $ (172,153 ) $ (161,210 ) $ (493,320 ) $ (483,109 ) Adjustments: Acquisition project costs1 5,066 1,241 9,119 8,688 Organizational realignment2 5,460 630 9,083 4,134 Royal restructuring and integration3 - 191 - 656 Project ONE 2,734 2,502 7,587 7,553 Other4 149 471 880 2,691 Adjusted selling, general and administrative expenses12 $ (158,744 ) $ (156,175 ) $ (466,651 ) $ (459,387 ) 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) Hygiene, Health Three Months Ended: and Consumable Engineering Construction Corporate H.B. Fuller September 2, 2023 Adhesives Adhesives Adhesives Total Unallocated Consolidated Net income attributable to H.B. Fuller $ 54,568 $ 54,256 $ 7,764 $ 116,588 $ (78,961 ) $ 37,627 Adjustments: Acquisition project costs1 - - - - 6,480 6,480 Organizational realignment2 - - - - 10,421 10,421 Royal Restructuring and integration3 - - - - - - Project One - - - - 2,734 2,734 Other4 - - - - 503 503 Discrete tax items5 - - - - 6,243 6,243 Income tax effect on adjustments6 - - - - (4,875 ) (4,875 ) Adjusted net income attributable to H.B. Fuller7 54,568 54,256 7,764 116,588 (57,455 ) 59,133 Add: Interest expense - - - - 35,105 35,105 Interest income - - - - (1,128 ) (1,128 ) Adjusted Income taxes - - - - 20,862 20,862 Depreciation and amortization expense8 14,604 16,467 10,755 41,826 - 41,826 Adjusted EBITDA7 $ 69,172 $ 70,723 $ 18,519 $ 158,414 $ (2,616 ) $ 155,798 Revenue $ 402,388 $ 365,862 $ 132,384 $ 900,634 - $ 900,634 Adjusted EBITDA Margin7 17.2 % 19.3 % 14.0 % 17.6 % NMP 17.3 % Hygiene, Health Nine Months Ended: and Consumable Engineering Construction Corporate H.B. Fuller September 2, 2023 Adhesives Adhesives Adhesives Total Unallocated Consolidated Net income attributable to H.B. Fuller $ 154,966 $ 133,778 $ 7,920 $ 296,664 $ (196,748 ) $ 99,916 Adjustments: Acquisition project costs1 - - - - 11,634 11,634 Organizational realignment2 - - - - 19,055 19,055 Project One - - - - 7,587 7,587 Other4 - - - - 4,098 4,098 Discrete tax items5 - - - - 9,131 9,131 Income tax effect on adjustments6 - - - - (9,447 ) (9,447 ) Adjusted net income attributable to H.B. Fuller7 154,966 133,778 7,920 296,664 (154,690 ) 141,974 Add: Interest expense - - - - 98,615 98,615 Interest income - - - - (2,726 ) (2,726 ) Adjusted Income taxes - - - - 51,569 51,569 Depreciation and amortization expense8 39,159 47,980 31,664 118,803 - 118,803 Adjusted EBITDA7 $ 194,125 $ 181,758 $ 39,584 $ 415,467 $ (7,232 ) $ 408,235 Revenue $ 1,190,402 $ 1.063,009 $ 354,644 $ 2,608,055 - $ 2,608,055 Adjusted EBITDA Margin7 16.3 % 17.1 % 11.2 % 15.9 % NMP 15.7 % 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) Hygiene, Health Three Months Ended: and Consumable Engineering Construction Corporate H.B. Fuller August 27, 2022 Adhesives Adhesives Adhesives Total Unallocated Consolidated Net income attributable to H.B. Fuller $ 50,378 $ 41,927 $ 8,718 $ 101,023 $ (54,526 ) $ 46,497 Adjustments: Acquisition project costs1 - - - - 1,138 1,138 Organizational realignment2 - - - - 595 595 Royal Restructuring and integration3 - - - - 196 196 Project One - - - - 2,502 2,502 Other4 - - - - 711 711 Discrete tax items5 - - - - 6,449 6,449 Income tax effect on adjustments6 - - - - 251 251 Adjusted net income attributable to H.B. Fuller7 50,378 41,927 8,718 101,023 (42,684 ) 58,339 Add: Interest expense - - - - 23,450 23,450 Interest income - - - - (2,139 ) (2,139 ) Adjusted Income taxes - - - - 21,559 21,559 Depreciation and amortization expense8 11,456 14,134 10,901 36,491 - 36,491 Adjusted EBITDA7 $ 61,834 $ 56,061 $ 19,619 $ 137,514 $ 186 $ 137,700 Revenue $ 424,978 $ 378,264 $ 137,988 $ 941,230 - $ 941,230 Adjusted EBITDA Margin7 14.5 % 14.8 % 14.2 % 14.6 % NMP 14.6 % Hygiene, Health Nine Months Ended: and Consumable Engineering Construction Corporate H.B. Fuller August 27, 2022 Adhesives Adhesives Adhesives Total Unallocated Consolidated Net income attributable to H.B. Fuller $ 131,702 $ 121,741 $ 29,013 $ 282,456 $ (150,449 ) $ 132,007 Adjustments: Acquisition project costs1 - - - - 9,008 9,008 Organizational realignment2 - - - - 4,915 4,915 Royal Restructuring and integration3 - - - - 1,007 1,007 Project One - - - - 7,559 7,559 Other4 - - - - 8,267 8,267 Discrete tax items5 - - - - 7,697 7,697 Income tax effect on adjustments6 - - - - (6,786 ) (6,786 ) Adjusted net income attributable to H.B. Fuller7 131,702 121,741 29,013 282,456 (118,782 ) 163,674 Add: Interest expense - - - - 61,501 61,501 Interest income - - - - (6,181 ) (6,181 ) Adjusted Income taxes - - - - 61,112 61,112 Depreciation and amortization expense8 34,602 43,720 30,603 108,925 - 108,925 Adjusted EBITDA7 $ 166,304 $ 165,461 $ 59,616 $ 391,381 $ (2,350 ) $ 389,031 Revenue $ 1,252,405 $ 1,137,587 $ 400,977 $ 2,790,969 - $ 2,790,969 Adjusted EBITDA Margin7 13.3 % 14.5 % 14.9 % 14.0 % NMP 13.9 % 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 Nine Months Ended September 2, 2023 September 2, 2023 Price 0.6 % 4.7 % Volume (8.0 )% (11.1 )% Organic Growth13 (7.4 )% (6.4 )% M&A 4.8 % 3.0 % Constant currency (2.6 )% (3.4 )% F/X (1.7 )% (3.2 )% Total H.B. Fuller Net Revenue Decline (4.3 )% (6.6 )% Revenue growth versus 2022 Three Months Ended September 2, 2023 Organic Net Revenue F/X Constant Currency M&A Growth 13 Hygiene, Health and Consumable Adhesives (5.3 )% (2.4 )% (2.9 )% 7.6 % (10.5 )% Engineering Adhesives (3.3 )% (1.4 )% (1.9 )% 1.4 % (3.3 )% Construction Adhesives (4.1 )% (0.1 )% (4.0 )% 5.4 % (9.4 )% Total H.B. Fuller (4.3 )% (1.7 )% (2.6 )% 4.8 % (7.4 )% Revenue growth versus 2022 Nine Months Ended September 2, 2023 Organic Net Revenue F/X Constant Currency M&A Growth 13 Hygiene, Health and Consumable Adhesives (5.0 )% (4.4 )% (0.6 )% 3.6 % (4.2 )% Engineering Adhesives (6.6 )% (2.8 )% (3.8 )% 1.5 % (5.3 )% Construction Adhesives (11.6 )% (0.7 )% (10.9 )% 5.1 % (16.0 )% Total H.B. Fuller (6.6 )% (3.2 )% (3.4 )% 3.0 % (6.4 )% 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) September 2, December 3, 2023 2022 Assets Current assets: Cash and cash equivalents $ 94,934 $ 79,910 Trade receivables (net of allowances of $12,458 and $10,939, as of September 2, 2023 and December 3, 2022, respectively) 576,060 607,365 Inventories 472,641 491,781 Other current assets 97,756 120,319 Total current assets 1,241,391 1,299,375 Property, plant and equipment 1,709,191 1,579,738 Accumulated depreciation (907,895 ) (846,071 ) Property, plant and equipment, net 801,296 733,667 Goodwill 1,490,535 1,392,627 Other intangibles, net 746,521 702,092 Other assets 380,165 335,868 Total assets $ 4,659,908 $ 4,463,629 Liabilities, non-controlling interest and total equity Current liabilities Notes payable $ 12,553 $ 28,860 Trade payables 394,914 460,669 Accrued compensation 75,035 108,328 Income taxes payable 33,007 18,530 Other accrued expenses 102,837 89,345 Total current liabilities 618,346 705,732 Long-term debt 1,872,468 1,736,256 Accrued pension liabilities 54,661 52,561 Other liabilities 387,307 358,286 Total liabilities $ 2,932,782 $ 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 – 54,016,374 and 53,676,576 as of September 2, 2023 and December 3, 2022, respectively $ 54,016 $ 53,677 Additional paid-in capital 294,035 266,491 Retained earnings 1,808,687 1,741,359 Accumulated other comprehensive loss (430,295 ) (451,357 ) Total H.B. Fuller stockholders' equity 1,726,443 1,610,170 Non-controlling interest 683 624 Total equity 1,727,126 1,610,794 Total liabilities, non-controlling interest and total equity $ 4,659,908 $ 4,463,629 CONSOLIDATED STATEMENTS of CASH FLOWS H.B. Fuller Company and Subsidiaries (In thousands) Nine Months Ended September 2, 2023 August 27, 2022 Cash flows from operating activities: Net income including non-controlling interest $ 99,987 $ 132,077 Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities: Depreciation 60,518 54,297 Amortization 58,633 55,088 Deferred income taxes (30,064 ) (4,968 ) Income from equity method investments, net of dividends received 260 1,420 Debt issuance costs write-off 2,689 - Loss on fair value adjustment on contingent consideration liability 2,893 - Gain on sale or disposal of assets (78 ) (1,130 ) Share-based compensation 16,279 20,358 Pension and other post-retirement benefit plan activity (8,890 ) (15,324 ) Change in assets and liabilities, net of effects of acquisitions: Trade receivables, net 79,495 (51,629 ) Inventories 38,212 (112,390 ) Other assets (30,901 ) (40,329 ) Trade payables (74,443 ) 17,381 Accrued compensation (33,796 ) (17,275 ) Other accrued expenses (6,992 ) 1,614 Income taxes payable 24,461 10,201 Other liabilities 12,408 (35,940 ) Other 6,023 35,246 Net cash provided by operating activities 216,696 48,697 Cash flows from investing activities: Purchased property, plant and equipment (109,545 ) (98,352 ) Purchased businesses, net of cash acquired (194,248 ) (242,870 ) Proceeds from sale of property, plant and equipment 4,257 1,281 Cash received from government grant - 3,928 Net cash used in investing activities (299,536 ) (336,013 ) Cash flows from financing activities: Proceeds from issuance of long-term debt 1,333,000 335,000 Repayment of long-term debt (1,184,900 ) (15,000 ) Payment of debt issuance costs (10,214 ) (600 ) Net payment of notes payable (18,000 ) 6,707 Dividends paid (32,319 ) (29,067 ) Contingent consideration payment - (5,000 ) Proceeds from stock options exercised 11,251 13,522 Repurchases of common stock (2,560 ) (3,885 ) Net cash provided by financing activities 96,258 301,677 Effect of exchange rate changes on cash and cash equivalents 1,608 (15,439 ) Net change in cash and cash equivalents 15,024 (1,078 ) Cash and cash equivalents at beginning of period 79,910 61,786 Cash and cash equivalents at end of period $ 94,934 $ 60,708 View source version on businesswire.com: https://www.businesswire.com/news/home/20230927227415/en/Contacts Steven Brazones Investor Relations Contact 651-236-5060
Net income of $38 million; Adjusted EBITDA of $156 million, up 13% year-on-year Adjusted gross profit margin expanded 350 basis points year-on-year to 30.0% Adjusted EBITDA margin increased 270 basis points year-on-year to 17.3% Cash flow from operations increased $50 million year-on-year to $108 million
H.B. Fuller Company (NYSE: FUL) today reported financial results for its third quarter that ended September 2, 2023. Third Quarter 2023 Noteworthy Items: Net revenue of $901 million, down 4.3% year-on-year; organic revenue decreased 7.4% year-on-year, driven by lower volume; Gross margin was 29.3%; adjusted gross margin of 30.0% increased 350 basis points year-on-year, driven by pricing and raw material cost actions and restructuring benefits; Net income was $38 million; adjusted EBITDA was $156 million, up 13% year-on-year, adjusted EBITDA margin expanded 270 basis points year-on-year to 17.3%; Reported EPS (diluted) was $0.67; adjusted EPS (diluted) was $1.06, flat versus the prior year, as strong operating income growth was offset by higher interest expense and unfavorable foreign currency exchange; Cash flow from operations in the third quarter improved $50 million year-on-year, or 87%, to $108 million. Summary of Third Quarter 2023 Results: The Company’s net revenue for the third quarter of fiscal 2023 was $901 million, down 4.3% versus the third quarter of fiscal 2022. Organic revenue declined 7.4% year-on-year, driven by lower volume, offset somewhat by favorable pricing. Volume declined 8.0%, driven by customer destocking actions, principally in Hygiene, Health, and Consumable Adhesives, and generally slower industrial demand across all three global business units. Volume development in the third quarter improved significantly versus the second quarter, when volume declined 14.2% year-on-year. Pricing actions favorably impacted organic growth by 0.6 percentage points. Foreign currency translation reduced net revenue growth by 1.7 percentage points and acquisitions increased net revenue growth by 4.8 percentage points. Gross profit in the third quarter of fiscal 2023 was $263 million. Adjusted gross profit was $270 million. Adjusted gross profit margin of 30.0% increased 350 basis points year-on-year. Pricing and raw material cost actions, restructuring benefits and general cost reductions 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 $172 million in the third quarter of fiscal 2023 and adjusted SG&A was $159 million, up slightly year-on-year. Continued cost management and additional restructuring benefits offset inflation in wages and services and the incremental SG&A costs associated with acquisitions completed over the previous year. Net income attributable to H.B. Fuller for the third quarter of fiscal 2023 was $38 million, or $0.67 per diluted share. Adjusted net income attributable to H.B. Fuller for the third quarter of fiscal 2023 was $59 million. Adjusted EPS was $1.06 per diluted share, essentially flat year-on-year as strong operating income growth was offset by higher interest expense and unfavorable foreign currency impacts, which reduced diluted earnings per share by approximately $0.17 and $0.05, respectively, year-on-year in the third quarter. Adjusted EBITDA in the third quarter of fiscal 2023 was $156 million, up 13.1% year-on-year. Adjusted EBITDA margin increased 270 basis points year-on-year to 17.3%, driven by the combined impact of pricing and raw material cost actions versus the prior year’s third quarter, as well as restructuring savings, partially offset by the impacts of lower volume and wage and other inflation. “In the third quarter we successfully drove a double-digit increase in adjusted EBITDA year-on-year and increased adjusted EBITDA margin meaningfully, demonstrating the strength of our business model and ability to increase profitability regardless of market conditions. We achieved profit growth despite weaker than expected volumes, driven by a more adverse customer destocking impact in Hygiene, Health, and Consumable Adhesives and lower market demand in construction related markets,” said Celeste Mastin, H.B. Fuller president and chief executive officer. “The restructuring actions we announced in the first quarter in anticipation of a challenging volume environment were timely and prudent. During the third quarter, we increased the scope of these actions to deliver additional cost savings and enhance our overall operating efficiency. These actions, plus ongoing execution on price and raw material management, enabled us to drive adjusted EBITDA higher despite temporary volume weakness that exceeds true underlying demand. “Looking ahead, we are encouraged that the unusual global customer destocking phenomenon that has taken place across nearly all end markets is abating. Customer destocking largely ran its course in Engineering Adhesives and Construction Adhesives and peaked for Hygiene, Health, and Consumable Adhesives during the third quarter. As demand conditions normalize, we expect the continued strength of our innovation pipeline, coupled with the operating leverage created through our restructuring actions, to drive significant value for our business in 2024 and beyond.” Balance Sheet and Cash Flow Items: Net debt at the end of the third quarter of fiscal 2023 was $1,790 million, up $11 million sequentially versus the second quarter and down $67 million year-on-year. The sequential increase in net debt was driven by acquisition activity during the third quarter, offset by improved cash flow from operations. Cash flow from operations in the third quarter was $108 million, up $50 million year-on-year, reflecting improving margins and lower net working capital requirements. Fiscal 2023 Outlook: Net revenue for fiscal 2023 is now expected to be in the range of $3.50 billion to $3.55 billion with organic revenue down 4.5% to 5.5% versus fiscal 2022, reflecting lower volume expectations due to customer destocking actions and slower than anticipated underlying demand conditions; Adjusted EBITDA for fiscal 2023 is now expected to be in the range of $580 million to $590 million, reflecting lower volume expectations more than offset by higher margins, contributions from acquisitions, and restructuring benefits, equating to growth of approximately 9% to 11% versus fiscal year 2022; Adjusted EPS (diluted) is now expected to be in the range of $3.80 to $3.90, equating to a range of down 2.5% to 5.0% year-on-year; We now expect actions from the previously announced, and subsequently expanded, strategic restructuring to generate between $40 and $45 million in annual pre-tax run-rate cost savings, up from our original estimate of $30 to $35 million in annual pre-tax run-rate savings. This is in addition to approximately $20 million of pre-tax run-rate savings associated with the Beardow Adams integration, which was announced during the third quarter. Conference Call: The Company will hold a conference call on September 28, 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 September 28, 2023, to 10:59 p.m. CT on October 5, 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 Three Months Ended September 2, 2023 Percent of Net Revenue August 27, 2022 Percent of Net Revenue Net revenue $ 900,634 100.0 % $ 941,230 100.0 % Cost of sales (637,162 ) (70.7 )% (692,066 ) (73.5 )% Gross profit 263,472 29.3 % 249,164 26.5 % Selling, general and administrative expenses (172,153 ) (19.1 )% (161,210 ) (17.1 )% Other income, net 1,555 0.2 % 6,559 0.7 % Interest expense (35,105 ) (3.9 )% (23,450 ) (2.5 )% Interest income 1,128 0.1 % 2,139 0.2 % Income before income taxes and income from equity method investments 58,897 6.5 % 73,202 7.8 % Income taxes (22,231 ) (2.5 )% (28,259 ) (3.0 )% Income from equity method investments 984 0.1 % 1,587 0.2 % Net income including non-controlling interest 37,650 4.2 % 46,530 4.9 % Net income attributable to non-controlling interest (23 ) (0.0 )% (33 ) (0.0 )% Net income attributable to H.B. Fuller $ 37,627 4.2 % $ 46,497 4.9 % Basic income per common share attributable to H.B. Fuller $ 0.69 $ 0.87 Diluted income per common share attributable to H.B. Fuller $ 0.67 $ 0.84 Weighted-average common shares outstanding: Basic 54,394 53,644 Diluted 56,033 55,130 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) Nine Months Ended Nine Months Ended September 2, 2023 Percent of Net Revenue August 27, 2022 Percent of Net Revenue Net revenue $ 2,608,055 100.0 % $ 2,790,969 100.0 % Cost of sales (1,873,000 ) (71.8 )% (2,075,392 ) (74.4 )% Gross profit 735,055 28.2 % 715,577 25.6 % Selling, general and administrative expenses (493,320 ) (18.9 )% (483,109 ) (17.3 )% Other income, net 4,764 0.2 % 12,701 0.5 % Interest expense (101,305 ) (3.9 )% (61,475 ) (2.2 )% Interest income 2,726 0.1 % 6,170 0.2 % Income before income taxes and income from equity method investments 147,920 5.7 % 189,864 6.8 % Income taxes (51,255 ) (2.0 )% (62,023 ) (2.2 )% Income from equity method investments 3,322 0.1 % 4,236 0.2 % Net income including non-controlling interest 99,987 3.8 % 132,077 4.7 % Net income attributable to non-controlling interest (71 ) (0.0 )% (70 ) (0.0 )% Net income attributable to H.B. Fuller $ 99,916 3.8 % $ 132,007 4.7 % Basic income per common share attributable to H.B. Fuller $ 1.84 $ 2.47 Diluted income per common share attributable to H.B. Fuller $ 1.79 $ 2.39 Weighted-average common shares outstanding: Basic 54,279 53,498 Diluted 55,890 55,201 Dividends declared per common share $ 0.600 $ 0.548 H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands, except per share amounts (unaudited) Three Months Ended Nine Months Ended September 2, August 27, September 2, August 27, 2023 2022 2023 2022 Net income attributable to H.B. Fuller $ 37,627 $ 46,497 $ 99,916 $ 132,007 Adjustments: Acquisition project costs1 6,480 1,138 11,634 9,008 Organizational realignment2 10,421 595 19,055 4,915 Royal restructuring and integration3 - 196 - 1,007 Project One 2,734 2,502 7,587 7,559 Other4 503 711 4,098 8,267 Discrete tax items5 6,243 6,449 9,131 7,697 Income tax effect on adjustments6 (4,875 ) 251 (9,447 ) (6,786 ) Adjusted net income attributable to H.B. Fuller7 59,133 58,339 141,974 163,674 Add: Interest expense 35,105 23,450 98,615 61,501 Interest income (1,128 ) (2,139 ) (2,726 ) (6,181 ) Adjusted Income taxes 20,862 21,559 51,569 61,112 Depreciation and Amortization expense8 41,826 36,491 118,803 108,925 Adjusted EBITDA7 155,798 137,700 408,235 389,031 Diluted Shares 56,033 55,130 55,890 55,201 Adjusted diluted income per common share attributable to H.B. Fuller7 $ 1.06 $ 1.06 $ 2.54 $ 2.97 Revenue $ 900,634 $ 941,230 $ 2,608,055 $ 2,790,969 Adjusted EBITDA margin7 17.3 % 14.6 % 15.7 % 13.9 % 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, 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 Other expenses for the nine months ended August 27, 2022, include a $3.3 million non-cash charge related to the wind down and settlement of the Company’s Canadian defined benefit pension plan, $1.3 million of hedging costs related to the Russian ruble devaluation driven by the war in Ukraine, $1.2 million of 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 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 ($348) for both the three and nine months ended September 2, 2023, respectively and ($148) and ($459) for the three and nine months ended August 27, 2022, respectively. H.B. FULLER COMPANY AND SUBSIDIARIES SEGMENT FINANCIAL INFORMATION In thousands (unaudited) Three Months Ended Nine Months Ended September 2, August 27, September 2, August 27, 2023 2022 2023 2022 Net Revenue: Hygiene, Health and Consumable Adhesives $ 402,388 $ 424,978 $ 1,190,402 $ 1,252,405 Engineering Adhesives 365,862 378,264 1,063,009 1,137,587 Construction Adhesives 132,384 137,988 354,644 400,977 Corporate unallocated - - - - Total H.B. Fuller $ 900,634 $ 941,230 $ 2,608,055 $ 2,790,969 Segment Operating Income (Loss): Hygiene, Health and Consumable Adhesives $ 52,737 $ 47,470 $ 149,474 $ 122,950 Engineering Adhesives 52,931 39,776 129,806 115,266 Construction Adhesives 5,853 6,391 2,189 22,032 Corporate unallocated (20,202 ) (5,683 ) (39,734 ) (27,780 ) Total H.B. Fuller $ 91,319 $ 87,954 $ 241,735 $ 232,468 Adjusted EBITDA7 Hygiene, Health and Consumable Adhesives $ 69,172 $ 61,834 $ 194,125 $ 166,304 Engineering Adhesives 70,723 56,061 181,758 165,461 Construction Adhesives 18,519 19,619 39,584 59,616 Corporate unallocated (2,616 ) 186 (7,232 ) (2,350 ) Total H.B. Fuller $ 155,798 $ 137,700 $ 408,235 $ 389,031 Adjusted EBITDA Margin7 Hygiene, Health and Consumable Adhesives 17.2 % 14.5 % 16.3 % 13.3 % Engineering Adhesives 19.3 % 14.8 % 17.1 % 14.5 % Construction Adhesives 14.0 % 14.2 % 11.2 % 14.9 % Corporate unallocated NMP NMP NMP NMP Total H.B. Fuller 17.3 % 14.6 % 15.7 % 13.9 % NMP = non-meaningful percentage H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands, except per share amounts (unaudited) Three Months Ended Nine Months Ended September 2, August 27, September 2, August 27, 2023 2022 2023 2022 Income before income taxes and income from equity method investments $ 58,897 $ 73,202 $ 147,920 $ 189,864 Adjustments: Acquisition project costs1 6,480 1,138 11,634 9,008 Organizational realignment2 10,421 595 19,055 4,915 Royal restructuring and integration3 - 196 - 1,007 Project One 2,734 2,502 7,587 7,559 Other4 503 711 4,098 8,267 Adjusted income before income taxes and income from equity method investments9 $ 79,035 $ 78,344 $ 190,294 $ 220,620 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 Nine Months Ended September 2, August 27, September 2, August 27, 2023 2022 2023 2022 Income Taxes $ (22,231 ) $ (28,259 ) $ (51,255 ) $ (62,023 ) Adjustments: Acquisition project costs1 (1,569 ) 55 (2,620 ) (2,154 ) Organizational realignment2 (2,523 ) 29 (4,247 ) (1,140 ) Royal restructuring and integration3 - 10 - (213 ) Project One (662 ) 122 (1,655 ) (1,284 ) Discrete tax items5 and Other4 6,123 6,484 8,208 5,702 Adjusted income taxes10 $ (20,862 ) $ (21,559 ) $ (51,569 ) $ (61,112 ) Adjusted income before income taxes and income from equity method investments $ 79,035 $ 78,344 $ 190,294 $ 220,620 Adjusted effective income tax rate10 26.4 % 27.5 % 27.1 % 27.7 % 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 Nine Months Ended September 2, August 27, September 2, August 27, 2023 2022 2023 2022 Net revenue $ 900,634 $ 941,230 $ 2,608,055 $ 2,790,969 Gross profit $ 263,472 $ 249,164 $ 735,055 $ 715,577 Gross profit margin 29.3 % 26.5 % 28.2 % 25.6 % Adjustments: Acquisition project costs1 1,516 (104 ) 2,617 320 Organizational realignment2 4,961 214 9,972 1,997 Royal restructuring and integration3 - 5 - 377 Project ONE - - - 6 Other4 318 533 479 1,358 Adjusted gross profit11 $ 270,267 $ 249,812 $ 748,123 $ 719,635 Adjusted gross profit margin11 30.0 % 26.5 % 28.7 % 25.8 % 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 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 Nine Months Ended September 2, August 27, September 2, August 27, 2023 2022 2023 2022 Selling, general and administrative expenses $ (172,153 ) $ (161,210 ) $ (493,320 ) $ (483,109 ) Adjustments: Acquisition project costs1 5,066 1,241 9,119 8,688 Organizational realignment2 5,460 630 9,083 4,134 Royal restructuring and integration3 - 191 - 656 Project ONE 2,734 2,502 7,587 7,553 Other4 149 471 880 2,691 Adjusted selling, general and administrative expenses12 $ (158,744 ) $ (156,175 ) $ (466,651 ) $ (459,387 ) 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) Hygiene, Health Three Months Ended: and Consumable Engineering Construction Corporate H.B. Fuller September 2, 2023 Adhesives Adhesives Adhesives Total Unallocated Consolidated Net income attributable to H.B. Fuller $ 54,568 $ 54,256 $ 7,764 $ 116,588 $ (78,961 ) $ 37,627 Adjustments: Acquisition project costs1 - - - - 6,480 6,480 Organizational realignment2 - - - - 10,421 10,421 Royal Restructuring and integration3 - - - - - - Project One - - - - 2,734 2,734 Other4 - - - - 503 503 Discrete tax items5 - - - - 6,243 6,243 Income tax effect on adjustments6 - - - - (4,875 ) (4,875 ) Adjusted net income attributable to H.B. Fuller7 54,568 54,256 7,764 116,588 (57,455 ) 59,133 Add: Interest expense - - - - 35,105 35,105 Interest income - - - - (1,128 ) (1,128 ) Adjusted Income taxes - - - - 20,862 20,862 Depreciation and amortization expense8 14,604 16,467 10,755 41,826 - 41,826 Adjusted EBITDA7 $ 69,172 $ 70,723 $ 18,519 $ 158,414 $ (2,616 ) $ 155,798 Revenue $ 402,388 $ 365,862 $ 132,384 $ 900,634 - $ 900,634 Adjusted EBITDA Margin7 17.2 % 19.3 % 14.0 % 17.6 % NMP 17.3 % Hygiene, Health Nine Months Ended: and Consumable Engineering Construction Corporate H.B. Fuller September 2, 2023 Adhesives Adhesives Adhesives Total Unallocated Consolidated Net income attributable to H.B. Fuller $ 154,966 $ 133,778 $ 7,920 $ 296,664 $ (196,748 ) $ 99,916 Adjustments: Acquisition project costs1 - - - - 11,634 11,634 Organizational realignment2 - - - - 19,055 19,055 Project One - - - - 7,587 7,587 Other4 - - - - 4,098 4,098 Discrete tax items5 - - - - 9,131 9,131 Income tax effect on adjustments6 - - - - (9,447 ) (9,447 ) Adjusted net income attributable to H.B. Fuller7 154,966 133,778 7,920 296,664 (154,690 ) 141,974 Add: Interest expense - - - - 98,615 98,615 Interest income - - - - (2,726 ) (2,726 ) Adjusted Income taxes - - - - 51,569 51,569 Depreciation and amortization expense8 39,159 47,980 31,664 118,803 - 118,803 Adjusted EBITDA7 $ 194,125 $ 181,758 $ 39,584 $ 415,467 $ (7,232 ) $ 408,235 Revenue $ 1,190,402 $ 1.063,009 $ 354,644 $ 2,608,055 - $ 2,608,055 Adjusted EBITDA Margin7 16.3 % 17.1 % 11.2 % 15.9 % NMP 15.7 % 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) Hygiene, Health Three Months Ended: and Consumable Engineering Construction Corporate H.B. Fuller August 27, 2022 Adhesives Adhesives Adhesives Total Unallocated Consolidated Net income attributable to H.B. Fuller $ 50,378 $ 41,927 $ 8,718 $ 101,023 $ (54,526 ) $ 46,497 Adjustments: Acquisition project costs1 - - - - 1,138 1,138 Organizational realignment2 - - - - 595 595 Royal Restructuring and integration3 - - - - 196 196 Project One - - - - 2,502 2,502 Other4 - - - - 711 711 Discrete tax items5 - - - - 6,449 6,449 Income tax effect on adjustments6 - - - - 251 251 Adjusted net income attributable to H.B. Fuller7 50,378 41,927 8,718 101,023 (42,684 ) 58,339 Add: Interest expense - - - - 23,450 23,450 Interest income - - - - (2,139 ) (2,139 ) Adjusted Income taxes - - - - 21,559 21,559 Depreciation and amortization expense8 11,456 14,134 10,901 36,491 - 36,491 Adjusted EBITDA7 $ 61,834 $ 56,061 $ 19,619 $ 137,514 $ 186 $ 137,700 Revenue $ 424,978 $ 378,264 $ 137,988 $ 941,230 - $ 941,230 Adjusted EBITDA Margin7 14.5 % 14.8 % 14.2 % 14.6 % NMP 14.6 % Hygiene, Health Nine Months Ended: and Consumable Engineering Construction Corporate H.B. Fuller August 27, 2022 Adhesives Adhesives Adhesives Total Unallocated Consolidated Net income attributable to H.B. Fuller $ 131,702 $ 121,741 $ 29,013 $ 282,456 $ (150,449 ) $ 132,007 Adjustments: Acquisition project costs1 - - - - 9,008 9,008 Organizational realignment2 - - - - 4,915 4,915 Royal Restructuring and integration3 - - - - 1,007 1,007 Project One - - - - 7,559 7,559 Other4 - - - - 8,267 8,267 Discrete tax items5 - - - - 7,697 7,697 Income tax effect on adjustments6 - - - - (6,786 ) (6,786 ) Adjusted net income attributable to H.B. Fuller7 131,702 121,741 29,013 282,456 (118,782 ) 163,674 Add: Interest expense - - - - 61,501 61,501 Interest income - - - - (6,181 ) (6,181 ) Adjusted Income taxes - - - - 61,112 61,112 Depreciation and amortization expense8 34,602 43,720 30,603 108,925 - 108,925 Adjusted EBITDA7 $ 166,304 $ 165,461 $ 59,616 $ 391,381 $ (2,350 ) $ 389,031 Revenue $ 1,252,405 $ 1,137,587 $ 400,977 $ 2,790,969 - $ 2,790,969 Adjusted EBITDA Margin7 13.3 % 14.5 % 14.9 % 14.0 % NMP 13.9 % 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 Nine Months Ended September 2, 2023 September 2, 2023 Price 0.6 % 4.7 % Volume (8.0 )% (11.1 )% Organic Growth13 (7.4 )% (6.4 )% M&A 4.8 % 3.0 % Constant currency (2.6 )% (3.4 )% F/X (1.7 )% (3.2 )% Total H.B. Fuller Net Revenue Decline (4.3 )% (6.6 )% Revenue growth versus 2022 Three Months Ended September 2, 2023 Organic Net Revenue F/X Constant Currency M&A Growth 13 Hygiene, Health and Consumable Adhesives (5.3 )% (2.4 )% (2.9 )% 7.6 % (10.5 )% Engineering Adhesives (3.3 )% (1.4 )% (1.9 )% 1.4 % (3.3 )% Construction Adhesives (4.1 )% (0.1 )% (4.0 )% 5.4 % (9.4 )% Total H.B. Fuller (4.3 )% (1.7 )% (2.6 )% 4.8 % (7.4 )% Revenue growth versus 2022 Nine Months Ended September 2, 2023 Organic Net Revenue F/X Constant Currency M&A Growth 13 Hygiene, Health and Consumable Adhesives (5.0 )% (4.4 )% (0.6 )% 3.6 % (4.2 )% Engineering Adhesives (6.6 )% (2.8 )% (3.8 )% 1.5 % (5.3 )% Construction Adhesives (11.6 )% (0.7 )% (10.9 )% 5.1 % (16.0 )% Total H.B. Fuller (6.6 )% (3.2 )% (3.4 )% 3.0 % (6.4 )% 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) September 2, December 3, 2023 2022 Assets Current assets: Cash and cash equivalents $ 94,934 $ 79,910 Trade receivables (net of allowances of $12,458 and $10,939, as of September 2, 2023 and December 3, 2022, respectively) 576,060 607,365 Inventories 472,641 491,781 Other current assets 97,756 120,319 Total current assets 1,241,391 1,299,375 Property, plant and equipment 1,709,191 1,579,738 Accumulated depreciation (907,895 ) (846,071 ) Property, plant and equipment, net 801,296 733,667 Goodwill 1,490,535 1,392,627 Other intangibles, net 746,521 702,092 Other assets 380,165 335,868 Total assets $ 4,659,908 $ 4,463,629 Liabilities, non-controlling interest and total equity Current liabilities Notes payable $ 12,553 $ 28,860 Trade payables 394,914 460,669 Accrued compensation 75,035 108,328 Income taxes payable 33,007 18,530 Other accrued expenses 102,837 89,345 Total current liabilities 618,346 705,732 Long-term debt 1,872,468 1,736,256 Accrued pension liabilities 54,661 52,561 Other liabilities 387,307 358,286 Total liabilities $ 2,932,782 $ 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 – 54,016,374 and 53,676,576 as of September 2, 2023 and December 3, 2022, respectively $ 54,016 $ 53,677 Additional paid-in capital 294,035 266,491 Retained earnings 1,808,687 1,741,359 Accumulated other comprehensive loss (430,295 ) (451,357 ) Total H.B. Fuller stockholders' equity 1,726,443 1,610,170 Non-controlling interest 683 624 Total equity 1,727,126 1,610,794 Total liabilities, non-controlling interest and total equity $ 4,659,908 $ 4,463,629 CONSOLIDATED STATEMENTS of CASH FLOWS H.B. Fuller Company and Subsidiaries (In thousands) Nine Months Ended September 2, 2023 August 27, 2022 Cash flows from operating activities: Net income including non-controlling interest $ 99,987 $ 132,077 Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities: Depreciation 60,518 54,297 Amortization 58,633 55,088 Deferred income taxes (30,064 ) (4,968 ) Income from equity method investments, net of dividends received 260 1,420 Debt issuance costs write-off 2,689 - Loss on fair value adjustment on contingent consideration liability 2,893 - Gain on sale or disposal of assets (78 ) (1,130 ) Share-based compensation 16,279 20,358 Pension and other post-retirement benefit plan activity (8,890 ) (15,324 ) Change in assets and liabilities, net of effects of acquisitions: Trade receivables, net 79,495 (51,629 ) Inventories 38,212 (112,390 ) Other assets (30,901 ) (40,329 ) Trade payables (74,443 ) 17,381 Accrued compensation (33,796 ) (17,275 ) Other accrued expenses (6,992 ) 1,614 Income taxes payable 24,461 10,201 Other liabilities 12,408 (35,940 ) Other 6,023 35,246 Net cash provided by operating activities 216,696 48,697 Cash flows from investing activities: Purchased property, plant and equipment (109,545 ) (98,352 ) Purchased businesses, net of cash acquired (194,248 ) (242,870 ) Proceeds from sale of property, plant and equipment 4,257 1,281 Cash received from government grant - 3,928 Net cash used in investing activities (299,536 ) (336,013 ) Cash flows from financing activities: Proceeds from issuance of long-term debt 1,333,000 335,000 Repayment of long-term debt (1,184,900 ) (15,000 ) Payment of debt issuance costs (10,214 ) (600 ) Net payment of notes payable (18,000 ) 6,707 Dividends paid (32,319 ) (29,067 ) Contingent consideration payment - (5,000 ) Proceeds from stock options exercised 11,251 13,522 Repurchases of common stock (2,560 ) (3,885 ) Net cash provided by financing activities 96,258 301,677 Effect of exchange rate changes on cash and cash equivalents 1,608 (15,439 ) Net change in cash and cash equivalents 15,024 (1,078 ) Cash and cash equivalents at beginning of period 79,910 61,786 Cash and cash equivalents at end of period $ 94,934 $ 60,708 View source version on businesswire.com: https://www.businesswire.com/news/home/20230927227415/en/