EX-99.1 2 ex_425766.htm EXHIBIT 99.1 ex_425766.htm

 

hbfuller01.jpg

Exhibit 99.1


                         

Worldwide Headquarters

1200 Willow Lake Boulevard

St. Paul, Minnesota 55110-5101

           Steven Brazones

                           Investor Relations Contact

                                    651-236-5060
   
NEWS September 21, 2022

 

H.B. Fuller Reports Third Quarter Fiscal 2022 Results

Net Revenue Growth of 13.8%; Organic Growth of 18.4% Year-on-Year

Reported EPS (diluted) of $0.84; Adjusted EPS (diluted) of $1.06, Up 34% Year-on-Year

Adjusted EBITDA of $138 million, up 24% y-on-y; Adjusted EBITDA Margin Increased 120 basis points y-on-y

Company Increasing FY2022 Adjusted EBITDA Expectations to a range of $540 to $550 million; 16% - 18% Growth

 

ST. PAUL, Minn. – H.B. Fuller Company (NYSE: FUL) today reported financial results for its third quarter that ended August 27, 2022.

 

Third Quarter 2022 Noteworthy Items:

 

■

Net revenue grew 13.8% year-on-year, with organic revenue increasing 18.4% year-on-year with strong organic growth in all operating segments;
 

■

Gross margin was 26.5%; Adjusted gross margin of 26.5% expanded 280 basis points year-on-year, driven by strong pricing execution to recover raw material cost inflation;
 

■

Net Income was $46.5 million; Adjusted EBITDA of $137.7 million was up 24.4% year-on-year and adjusted EBITDA margin was up 120 basis points;
 

■

Reported EPS (diluted) was $0.84; Adjusted EPS (diluted) was $1.06, increasing 34.2% versus the prior year.

 

Summary of Third Quarter 2022 Results:

Net revenue for the third quarter of fiscal 2022 was $941.2 million, up 13.8% versus the third quarter of fiscal 2021. Robust pricing actions to recover unprecedented raw material cost inflation increased net revenue by 18.7 percentage points. As expected, volume was down 0.3% as a result of slowing economic conditions, offset by market share gains. As a result, organic revenue increased 18.4% versus the third quarter of fiscal 2021. Unfavorable foreign currency exchange rates reduced net revenue growth by 6.6 percentage points, while acquisitions increased net revenue growth by 2.0 percentage points. On a year-on-year basis, Hygiene, Health and Consumable Adhesives organic revenue increased 22.9%, Engineering Adhesives organic revenue increased 17.5%, and Construction Adhesives organic revenue increased 6.9%.

 

1
 

 

Gross profit in the third quarter of fiscal 2022 was $249.2 million. Adjusted gross profit in the third quarter of fiscal 2022 was $249.8 million. Adjusted gross profit margin of 26.5% increased 280 basis points year-on-year. Strong pricing actions to recover raw material cost inflation, as well as operating efficiencies, drove adjusted gross margin higher year-on-year.

 

Selling, general and administrative (SG&A) expense was $161.2 million in the third quarter of fiscal 2022 and adjusted SG&A was $156.2 million. Adjusted SG&A as a percent of net revenue increased 100 basis points versus the third quarter of last year. The increase in SG&A, as a percentage of net revenue, was largely driven by higher variable compensation and higher travel related expenses following the pandemic driven slowdown in travel.

 

Net income attributable to H.B. Fuller for the third quarter of fiscal 2022 was $46.5 million, or $0.84 per diluted share. Adjusted net income attributable to H.B. Fuller for the third quarter of fiscal 2022 was $58.3 million, up 35.9% year-on-year. Adjusted EPS was $1.06 per diluted share, up $0.27 or 34.2% year-on-year, reflecting strong organic revenue growth and operating efficiencies which more than offset the unfavorable impact of currency and higher interest rates.

 

Adjusted EBITDA in the third quarter of fiscal 2022 was $137.7 million, up 24.4% compared with the third quarter of last year. Adjusted EBITDA margin increased 120 basis points year-on-year from 13.4% to 14.6%. Strong pricing actions, continued strategic mix shift towards more highly-specified products, and operational discipline drove the improvement year-on-year.

 

“Our strong organic growth and improved profitability in the third quarter serve as additional proof points that our strategy is working, particularly in light of continued raw material inflation and currency headwinds from the strong dollar,” said Jim Owens, H.B. Fuller president and chief executive officer. “Our innovation driven market share gains and mix shift to a more highly specified product portfolio through innovation and strategic M&A, coupled with our responsible pricing actions, are delivering significant improvement to our financial results.

 

2
 

 

“Our underlying market share gains are enabling us to drive a more favorable volume performance in the marketplace and position us well as the rate of raw material inflation subsides. These share gains will endure and should grow as we execute our strategy. At the same time, our ability to substitute adhesive technologies greatly improves with supply chain normalization and allows us to provide competitive offerings while improving margins. These substitution capabilities, combined with the pricing actions we have taken throughout this unprecedented inflationary environment, will enable us to grow organic revenues and expand margins in recessionary economic environments.

 

“We have very effectively managed both economic and currency headwinds and we remain on track to achieve significant double-digit EPS growth and EBITDA growth at the top end of the range we provided in the first quarter. We are performing exceptionally well, and we are uniquely positioned to continue to deliver above-market organic growth while expanding our margins,” concluded Owens.

 

Balance Sheet and Cash Flow Items:

At the end of the third quarter of fiscal 2022 net debt was $1,857 million, down $10 million sequentially versus the second quarter. Cash flow from operations in the quarter was $58 million, up $49 million sequentially reflecting strong revenue growth and improving margins but down versus last year due to higher year-on-year working capital requirements.

 

Fiscal 2022 Outlook:

 

■

Company is increasing full-year expectations for adjusted EBITDA, despite slower economic conditions, stronger U.S. Dollar, and continued raw material cost inflation;
 

■

Organic revenue growth for fiscal year 2022 is expected to be in the range of 17% to 18%, excluding the impact of the extra week;
 

■

Adjusted EBITDA for fiscal 2022 is expected to be in the range of $540 to $550 million, up from the previously provided range of $530 to $550 million and equating to growth of 16% to 18% versus fiscal year 2021;
 

■

Net interest expense for fiscal 2022 is expected to be between $80 and $85 million reflecting higher interest rates and the expectation of some opportunistic refinancing before the end of the year;
 

■

Adjusted EPS in the fourth quarter of fiscal 2022 is expected to be in the range of $1.15 to $1.30, resulting in fiscal year 2022 adjusted EPS increasing 19% to 23% year-on-year, despite the significantly stronger U.S. dollar and higher borrowing costs;
 

■

Working capital, as a percentage of annualized net revenue, is expected to be in the range of 16% to 17% by fiscal year-end, resulting in full-year cash flow from operations similar to the prior year.

 

3
 

 

Conference Call:

The company will hold a conference call on September 22, 2022, 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 22, 2022, through 10:59 p.m. CT on September 29, 2022. 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 2022 Guidance, 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, sealants and other specialty chemical products to improve products and lives. With fiscal 2021 net revenue of $3.3 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. And, our promise to our people connects them with opportunities to innovate and thrive. For more information, visit us at https://www.hbfuller.com.

 

4
 

 

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. Many of the foregoing risks and uncertainties are, and will be, exacerbated by COVID-19 and the Russia-Ukraine war and the resulting deterioration of the global business and economic environment.

 

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.

 

5
 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

CONSOLIDATED FINANCIAL INFORMATION

In thousands, except per share amounts (unaudited)

 

   

Three

Months

Ended

    

Percent of

    

Three

Months

Ended

    

Percent of

  
   

August 27,

2022

    

Net

Revenue

    

August 28,

2021

    

Net

Revenue

  

Net revenue

   $ 941,230       100.0

%

   $ 826,830       100.0

%

Cost of sales

     (692,066

)

     (73.5

)%

     (632,880

)

     (76.5

)%

Gross profit

     249,164       26.5

%

     193,950       23.5

%
                                 

Selling, general and administrative expenses

     (161,210

)

     (17.1

)%

     (134,497

)

     (16.3

)%

Other income, net

     6,559       0.7

%

     6,150       0.7

%

Interest expense

     (23,450

)

     (2.5

)%

     (19,396

)

     (2.3

)%

Interest income

     2,139       0.2

%

     2,520       0.3

%

Income before income taxes and income from equity method investments

     73,202       7.8

%

     48,727       5.9

%
                                 

Income taxes

     (28,259

)

     (3.0

)%

     (19,095

)

     (2.3

)%
                                 

Income from equity method investments

     1,587       0.2

%

     1,998       0.2

%

Net income including non-controlling interest

     46,530       4.9

%

     31,630       3.8

%
                                 

Net income attributable to non-controlling interest

     (33

)

     (0.0

)%

     (14

)

     (0.0

)%

Net income attributable to H.B. Fuller

   $ 46,497       4.9

%

   $ 31,616       3.8

%
                                 

Basic income per common share attributable to H.B. Fuller

   $ 0.87             $ 0.60          

Diluted income per common share attributable to H.B. Fuller

   $ 0.84             $ 0.58          
                                 

Weighted-average common shares outstanding:

                                

Basic

     53,644               53,049          

Diluted

     55,130               54,646          
                                 

Dividends declared per common share

   $ 0.190             $ 0.168          

 

6
 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

CONSOLIDATED FINANCIAL INFORMATION

In thousands, except per share amounts (unaudited)

 

   

Nine

Months

Ended

   

Percent of

    

Nine

Months

Ended

    

Percent of

  
   

August 27,

2022

    

Net

Revenue

    

August 28,

2021

    

Net

Revenue

  

Net revenue

   $ 2,790,969       100.0

%

   $ 2,380,607       100.0

%

Cost of sales

     (2,075,392

)

     (74.4

)%

     (1,776,744

)

     (74.6

)%

Gross profit

     715,577       25.6

%

     603,863       25.4

%
                                 

Selling, general and administrative expenses

     (483,109

)

     (17.3

)%

     (426,921

)

     (17.9

)%
                                 

Other income, net

     12,701       0.5

%

     25,899       1.1

%

Interest expense

     (61,475

)

     (2.2

)%

     (59,699

)

     (2.5

)%

Interest income

     6,170       0.2

%

     7,709       0.3

%

Income before income taxes and income from equity method investments

     189,864       6.8

%

     150,851       6.3

%
                                 

Income taxes

     (62,023

)

     (2.2

)%

     (46,362

)

     (1.9

)%
                                 

Income from equity method investments

     4,236       0.2

%

     6,071       0.3

%

Net income including non-controlling interest

     132,077       4.7

%

     110,560       4.6

%
                                 

Net income attributable to non-controlling interest

     (70

)

     (0.0

)%

     (51

)

     (0.0

)%

Net income attributable to H.B. Fuller

   $ 132,007       4.7

%

   $ 110,509       4.6

%
                                 
                                 

Basic income per common share attributable to H.B. Fuller

   $ 2.47             $ 2.09          

Diluted income per common share attributable to H.B. Fuller

   $ 2.39             $ 2.04          
                                 

Weighted-average common shares outstanding:

                                

Basic

     53,498               52,794          

Diluted

     55,201               54,093          
                                 

Dividends declared per common share

   $ 0.548             $ 0.498          

 

7
 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION

In thousands, except per share amounts (unaudited)

 

   

Three Months Ended

    

Nine Months Ended

  
   

August 27,

    

August 28,

    

August 27,

    

August 28,

  
   

2022

    

2021

    

2022

    

2021

  
                                 

Net income attributable to H.B. Fuller

   $ 46,497     $ 31,616     $ 132,007     $ 110,509  

Adjustments:

                                

Acquisition project costs1

     1,138       901       9,008       2,277  

Organizational realignment2

     595       3,087       4,915       9,029  

Royal restructuring and integration3

     196       1,016       1,007       3,537  

Project One

     2,502       2,305       7,559       6,469  

Other4

     711       111       8,267       (3,701

)

Discrete tax items5

     6,449       5,626       7,697       5,068  

Income tax effect on adjustments6

     251       (1,746

)

     (6,786

)

     (4,359

)

Adjusted net income attributable to H.B. Fuller7

     58,339       42,916       163,674       128,829  

Add:

                                

Interest expense

     23,450       19,412       61,501       59,769  

Interest income

     (2,139

)

     (2,520

)

     (6,181

)

     (7,709

)

Adjusted Income taxes

     21,559       15,216       61,112       45,653  

Depreciation and Amortization expense8

     36,491       35,705       108,925       106,596  

Adjusted EBITDA7

     137,700       110,729       389,031       333,138  
                                 

Diluted Shares

     55,130       54,646       55,201       54,093  

Adjusted diluted income per common share attributable to H.B. Fuller7

   $ 1.06     $ 0.79     $ 2.97     $ 2.38  

Revenue

   $ 941,230     $ 826,830     $ 2,790,969     $ 2,380,607  

Adjusted EBITDA margin7

     14.6

%

     13.4

%

     13.9

%

     14.0

%

 

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 are related to revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S. Dollar and 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 ($149) and ($292) for the three months ended August 27, 2022 and August 28, 2021, respectively and ($460) and ($1,026) for the nine months ended August 27, 2022 and August 28, 2021, respectively.

 

8
 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

In thousands (unaudited)

 

   

Three Months Ended

    

Nine Months Ended

  
   

August 27,

    

August 28,

    

August 27,

    

August 28,

  
   

2022

    

2021

    

2022

    

2021

  

Net Revenue:

                                

Hygiene, Health and Consumable Adhesives

   $ 424,978     $ 369,439     $ 1,252,405     $ 1,069,922  

Engineering Adhesives

     378,264       342,300       1,137,587       1,000,337  

Construction Adhesives

     137,988       115,091       400,977       310,348  

Corporate unallocated

     -       -       -       -  

Total H.B. Fuller

   $ 941,230     $ 826,830     $ 2,790,969     $ 2,380,607  
                                 

Segment Operating Income (Loss):

                                

Hygiene, Health and Consumable Adhesives

   $ 47,470     $ 29,652     $ 122,950     $ 98,493  

Engineering Adhesives

     39,776       34,087       115,266       96,580  

Construction Adhesives

     6,391       3,339       22,032       4,974  

Corporate unallocated

     (5,683

)

     (7,625

)

     (27,780

)

     (23,105

)

Total H.B. Fuller

   $ 87,954     $ 59,453     $ 232,468     $ 176,942  
                                 

Adjusted EBITDA7

                                

Hygiene, Health and Consumable Adhesives

   $ 61,834     $ 44,496     $ 166,304     $ 142,671  

Engineering Adhesives

     56,061       52,001       165,461       150,034  

Construction Adhesives

     19,619       14,247       59,616       37,785  

Corporate unallocated

     186       (15

)

     (2,350

)

     2,648  

Total H.B. Fuller

   $ 137,700     $ 110,729     $ 389,031     $ 333,138  
                                 

Adjusted EBITDA Margin7

                                

Hygiene, Health and Consumable Adhesives

     14.5

%

     12.0

%

     13.3

%

     13.3

%

Engineering Adhesives

     14.8

%

     15.2

%

     14.5

%

     15.0

%

Construction Adhesives

     14.2

%

     12.4

%

     14.9

%

     12.2

%

Corporate unallocated

  

NMP

    

NMP

    

NMP

    

NMP

  

Total H.B. Fuller

     14.6

%

     13.4

%

     13.9

%

     14.0

%
                                 

NMP = non-meaningful percentage

                                

 

9
 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION

In thousands, except per share amounts (unaudited)

 

   

Three Months Ended

    

Nine Months Ended

  
   

August 27,

    

August 28,

    

August 27,

    

August 28,

  
   

2022

    

2021

    

2022

    

2021

  

Income before income taxes and income from equity method investments

   $ 73,202     $ 48,727     $ 189,864     $ 150,851  
                                 

Adjustments:

                                

Acquisition project costs1

     1,138       901       9,008       2,277  

Organizational realignment2

     595       3,087       4,915       9,029  

Royal restructuring and integration3

     196       1,016       1,007       3,537  

Project One

     2,502       2,305       7,559       6,469  

Other4

     711       111       8,267       (3,701

)

Adjusted income before income taxes and income from equity method investments9

   $ 78,344     $ 56,147     $ 220,620     $ 168,462  

 

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

  
   

August 27,

    

August 28,

    

August 27,

    

August 28,

  
   

2022

    

2021

    

2022

    

2021

  

Income Taxes

   $ (28,259

)

   $ (19,095

)

   $ (62,023

)

   $ (46,362

)
                                 

Adjustments:

                                

Acquisition project costs1

     55       (212

)

     (2,154

)

     (495

)

Organizational realignment2

     29       (726

)

     (1,140

)

     (2,204

)

Royal restructuring and integration3

     10       (239

)

     (213

)

     (846

)

Project One

     122       (542

)

     (1,284

)

     (1,551

)

Other4

     6,484       5,598       5,702       5,805  

Adjusted income taxes10

   $ (21,559

)

   $ (15,216

)

   $ (61,112

)

   $ (45,653

)
                                 

Adjusted income before income taxes and income from equity method investments

   $ 78,344     $ 56,147     $ 220,620     $ 168,462  

Adjusted effective income tax rate10

     27.5

%

     27.1

%

     27.7

%

     27.1

%

 

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.

 

10
 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION

In thousands (unaudited)

 

   

Three Months Ended

    

Nine Months Ended

  
   

August 27,

    

August 28,

    

August 27,

    

August 28,

  
   

2022

    

2021

    

2022

    

2021

  
                                 

Net revenue

   $ 941,230     $ 826,830     $ 2,790,969     $ 2,380,607  
                                 

Gross profit

   $ 249,164     $ 193,950     $ 715,577     $ 603,863  

Gross profit margin

     26.5

%

     23.5

%

     25.6

%

     25.4

%
                                 

Adjustments:

                                

Acquisition project costs1

     (104

)

     1       320       64  

Organizational realignment2

     214       1,472       1,997       2,265  

Royal restructuring and integration3

     5       644       377       1,962  

Project ONE

     -       (22

)

     6       (22

)

Other4

     533       247       1,358       1,635  

Adjusted gross profit11

   $ 249,812     $ 196,292     $ 719,635     $ 609,767  

Adjusted gross profit margin11

     26.5

%

     23.7

%

     25.8

%

     25.6

%

 

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

  
   

August 27,

    

August 28,

    

August 27,

    

August 28,

  
   

2022

    

2021

    

2022

    

2021

  
                                 

Selling, general and administrative expenses

   $ (161,210

)

   $ (134,497

)

   $ (483,109

)

   $ (426,921

)
                                 

Adjustments:

                                

Acquisition project costs1

     1,241       901       8,688       2,214  

Organizational realignment2

     630       1,614       4,134       6,819  

Royal restructuring and integration3

     191       388       656       1,644  

Project ONE

     2,502       2,327       7,553       6,491  

Other4

     471       55       2,691       32  

Adjusted selling, general and administrative expenses12

   $ (156,175

)

   $ (129,212

)

   $ (459,387

)

   $ (409,721

)

 

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.

 

11
 

 

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

%

 

Nine Months Ended

                                                

August 27, 2022

                                                

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

 

12
 

 

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 28, 2021

  

Adhesives

    

Adhesives

    

Adhesives

    

Total

    

Unallocated

    

Consolidated

  

Net income attributable to H.B. Fuller

   $ 32,924     $ 36,599     $ 5,516     $ 75,039     $ (43,423

)

   $ 31,616  

Adjustments:

                                                

Acquisition project costs1

     -       -       -       -       901       901  

Organizational realignment2

     -       -       -       -       3,087       3,087  

Royal Restructuring and integration3

     -       -       -       -       1,016       1,016  

Project One

     -       -       -       -       2,305       2,305  

Other4

     -       -       -       -       111       111  

Discrete tax items5

     -       -       -       -       5,626       5,626  

Income tax effect on adjustments6

     -       -       -       -       (1,746

)

     (1,746

)

Adjusted net income attributable to H.B. Fuller7

     32,924       36,599       5,516       75,039       (32,123

)

     42,916  

Add:

                                                

Interest expense

     -       -       -       -       19,412       19,412  

Interest income

     -       -       -       -       (2,520

)

     (2,520

)

Adjusted Income taxes

     -       -       -       -       15,216       15,216  

Depreciation and amortization Expense8

     11,572       15,402       8,731       35,705       -       35,705  

Adjusted EBITDA7

   $ 44,496     $ 52,001     $ 14,247     $ 110,744     $ (15

)

   $ 110,729  

Revenue

   $ 369,439     $ 342,300     $ 115,091     $ 826,830       -     $ 826,830  

Adjusted EBITDA Margin7

     12.0

%

     15.2

%

     12.4

%

     13.4

%

  

NMP

       13.4

%

 

Nine Months Ended

                                                

August 28, 2021

                                                

Net income attributable to H.B. Fuller

   $ 108,291     $ 104,099     $ 11,504     $ 223,894     $ (113,385

)

   $ 110,509  

Adjustments:

                                                

Acquisition project costs1

     -       -       -       -       2,277       2,277  

Organizational realignment2

     -       -       -       -       9,029       9,029  

Royal Restructuring and integration3

     -       -       -       -       3,537       3,537  

Project One

     -       -       -       -       6,469       6,469  

Other4

     -       -       -       -       (3,701

)

     (3,701

)

Discrete tax items5

     -       -       -       -       5,068       5,068  

Income tax effect on adjustments6

     -       -       -       -       (4,359

)

     (4,359

)

Adjusted net income attributable to H.B. Fuller7

     108,291       104,099       11,504       223,894       (95,065

)

     128,829  

Add:

                                                

Interest expense

     -       -       -       -       59,769       59,769  

Interest income

     -       -       -       -       (7,709

)

     (7,709

)

Adjusted Income taxes

     -       -       -       -       45,653       45,653  

Depreciation and amortization expense8

     34,380       45,935       26,281       106,596       -       106,596  

Adjusted EBITDA7

   $ 142,671     $ 150,034     $ 37,785     $ 330,490     $ 2,648     $ 333,138  

Revenue

   $ 1,069,922     $ 1,000,337     $ 310,348     $ 2,380,607       -     $ 2,380,607  

Adjusted EBITDA Margin7

     13.3

%

     15.0

%

     12.2

%

     13.9

%

  

NMP

       14.0

%

 

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

 

13
 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

NET REVENUE GROWTH (DECLINE)

(unaudited)

 

   

Three Months

Ended

    

Nine Months

Ended

  
   

August 27,

2022

    

August 27,

2022

  

Price

     18.7

%

     17.6

%

Volume

     (0.3

)%

     2.8

%

Organic Growth13

     18.4

%

     20.4

%

M&A

     2.0

%

     1.6

%

Constant currency

     20.4 %     22.0 %

F/X

     (6.6

)%

     (4.8

)%

Total H.B. Fuller Net Revenue Growth

     13.8

%

     17.2

%

 

Revenue

growth

versus 2022

  

Three Months Ended

    

Nine Months Ended

  
   

August 27, 2022

    

August 27, 2022

  
                                                                                 
                                   

Organic

                                    

Organic

  
   

Net

Revenue

    

F/X

    

Constant

Currency

    

M&A

    

Growth

13

    

Net

Revenue

    

F/X

    

Constant

Currency

    

M&A

    

Growth

13

  

Hygiene, Health and Consumable Adhesives

     15.1

%

     (7.8

)%

     22.9

%

     0.0

%

     22.9

%

     17.0

%

     (5.7

)%

     22.7

%

     0.0

%

     22.7

%

Engineering Adhesives

     10.5

%

     (7.0

)%

     17.5

%

     0.0

%

     17.5

%

     13.7

%

     (5.0

)%

     18.7

%

     0.0

%

     18.7

%

Construction Adhesives

     19.8

%

     (1.3

)%

     21.1

%

     14.2

%

     6.9

%

     29.2

%

     (1.0

)%

     30.2

%

     12.6

%

     17.6

%

Total H.B. Fuller

     13.8

%

     (6.6

)%

     20.4

%

     2.0

%

     18.4

%

     17.2

%

     (4.8

)%

     22.0

%

     1.6

%

     20.4

%

 

 

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.

 

14
 

 

CONSOLIDATED BALANCE SHEETS

H.B. Fuller Company and Subsidiaries

(In thousands, except share and per share amounts)

 

   

August 27,

    

November 27,

  
   

2022

    

2021

  

Assets

                

Current assets:

                

Cash and cash equivalents

   $ 60,708     $ 61,786  

Trade receivables (net of allowances of $12,662 and $9,935, as of August 27, 2022 and November 27, 2021, respectively)

     649,727       614,645  

Inventories

     547,278       448,404  

Other current assets

     163,213       96,335  

Total current assets

     1,420,926       1,221,170  
                 

Property, plant and equipment

     1,526,602       1,500,989  

Accumulated depreciation

     (820,132

)

     (805,622

)

Property, plant and equipment, net

     706,470       695,367  
                 

Goodwill

     1,375,964       1,298,845  

Other intangibles, net

     707,690       687,075  

Other assets

     360,588       372,073  

Total assets

   $ 4,571,638     $ 4,274,530  
                 

Liabilities, non-controlling interest and total equity

                

Current liabilities:

                

Notes payable

   $ 33,116     $ 24,983  

Trade payables

     485,479       500,321  

Accrued compensation

     88,744       109,542  

Income taxes payable

     42,792       15,943  

Other accrued expenses

     87,260       86,061  

Total current liabilities

     737,391       736,850  
                 

Long-term debt

     1,885,041       1,591,479  

Accrued pension liabilities

     66,704       71,651  

Other liabilities

     303,817       277,190  

Total liabilities

     2,992,953       2,677,170  
                 

Commitments and contingencies (Note 12)

                
                 

Equity:

                

H.B. Fuller stockholders' equity:

                

Preferred stock (no shares outstanding) shares authorized – 10,045,900

     -       -  

Common stock, par value $1.00 per share, shares authorized – 160,000,000, shares outstanding – 53,298,831 and 52,777,753 as of August 27, 2022 and November 27, 2021, respectively

     53,299       52,778  

Additional paid-in capital

     245,826       213,637  

Retained earnings

     1,703,278       1,600,601  

Accumulated other comprehensive loss

     (424,312

)

     (270,247

)

Total H.B. Fuller stockholders' equity

     1,578,091       1,596,769  

Non-controlling interest

     594       591  

Total equity

     1,578,685       1,597,360  

Total liabilities, non-controlling interest and total equity

   $ 4,571,638     $ 4,274,530  

 

15
 

 

CONSOLIDATED STATEMENTS of CASH FLOWS

H.B. Fuller Company and Subsidiaries

(In thousands)

 

   

Nine Months Ended

  
   

August 27, 2022

    

August 28, 2021

  

Cash flows from operating activities:

                

Net income including non-controlling interest

   $ 132,077     $ 110,560  

Adjustments to reconcile net income including non-controlling interest to net cash (used in) provided by operating activities:

                

Depreciation

     54,297       54,158  

Amortization

     55,088       53,464  

Deferred income taxes

     (4,968

)

     (1,547

)

Income from equity method investments, net of dividends received

     1,420       4,363  

Loss (gain) on sale or disposal of assets

     (1,130

)

     641  

Share-based compensation

     20,358       19,400  

Pension and other post-retirement benefit plan activity

     (15,324

)

     (23,192

)

Change in assets and liabilities, net of effects of acquisitions:

                

Trade receivables, net

     (51,629

)

     (61,900

)

Inventories

     (112,390

)

     (141,112

)

Other assets

     (40,329

)

     (26,060

)

Trade payables

     17,381       176,210  

Accrued compensation

     (17,275

)

     (1,283

)

Other accrued expenses

     1,614       (2,292

)

Income taxes payable

     10,201       1,001  

Other liabilities

     (35,940

)

     (53,498

)

Other

     35,246       52,221  

Net cash provided by operating activities

     48,697       161,134  
                 

Cash flows from investing activities:

                

Purchased property, plant and equipment

     (98,352

)

     (77,237

)

Purchased businesses, net of cash acquired

     (242,870

)

     (5,445

)

Proceeds from sale of property, plant and equipment

     1,281       2,751  

Cash received from government grant

     3,928       5,800  

Cash payments related to government grant

     -       (1,526

)

Net cash used in investing activities

     (336,013

)

     (75,657

)
                 

Cash flows from financing activities:

                

Proceeds from debt

     335,000       -  

Repayment of long-term debt

     (15,000

)

     (118,000

)

Payment of debt issuance costs

     (600

)

     -  

Net proceeds of notes payable

     6,707       9,846  

Dividends paid

     (29,067

)

     (26,045

)

Contingent consideration payment

     (5,000

)

     -  

Proceeds from stock options exercised

     13,522       22,053  

Repurchases of common stock

     (3,885

)

     (2,668

)

Net cash provided by (used in) financing activities

     301,677       (114,814

)
                 

Effect of exchange rate changes on cash and cash equivalents

     (15,439

)

     (3,063

)

Net change in cash and cash equivalents

     (1,078

)

     (32,400

)

Cash and cash equivalents at beginning of period

     61,786       100,534  

Cash and cash equivalents at end of period

   $ 60,708     $ 68,134  

 

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