H.B. Fuller Reports Third Quarter 2024 Results - H.B. Fuller (NYSE:FUL)

Reported EPS (diluted) of $0.98; Adjusted EPS (diluted) of $1.13, up 7% year-on-year Net income of $55 million; Adjusted EBITDA of $165 million, up 6% year-on-year Adjusted EBITDA margin of 18.0%, up 70 basis points year-on-year H.B. Fuller Company (NYSE:FUL) today reported financial results for its third quarter that ended August 31, 2024. Third Quarter 2024 Noteworthy Items: Net income was $55 million; adjusted EBITDA was $165 million, up 6% year-on-year; adjusted EBITDA margin expanded 70 basis points year-on-year to 18.0%; Reported EPS (diluted) was $0.98; adjusted EPS (diluted) was $1.13, up 7% versus the prior year; Net revenue was $918 million, up 1.9% year-on-year including organic volume growth of 3.0%; Gross profit margin was 30.0%; adjusted gross profit margin was 30.4%, up 40 basis points year-on-year; Net working capital, as a percentage of annualized net revenue, decreased 200 basis points year-on-year from 18.1% to 16.1%; Repurchased 407,400 shares year-to-date, including 225,000 shares in the quarter; Acquired HS Butyl Limited, the UK's largest manufacturer and distributor of high-quality butyl tapes, expanding H.B. Fuller's position in the global waterproofing tape market. Summary of Third Quarter 2024 Results: The Company's net revenue for the third quarter of fiscal 2024 was $918 million, up 1.9% versus the third quarter of fiscal 2023. Organic revenue increased slightly year-on-year, with pricing adjustments reducing organic revenue by 2.6% and volume increasing organic revenue by 3.0%. Foreign currency translation reduced net revenue by 1.5% and acquisitions increased net revenue by 3.0%. Gross profit in the third quarter of fiscal 2024 was $276 million. Adjusted gross profit was $279 million. Adjusted gross profit margin of 30.4% increased 40 basis points year-on-year. Volume leverage, restructuring savings, and the benefit from acquisitions primarily drove the year-on-year increase in adjusted gross profit. Selling, general and administrative (SG&A) expense was $171 million in the third quarter of fiscal 2024 and adjusted SG&A was $164 million versus $159 million in the third quarter of fiscal 2023. The impact of acquisitions and inflation in wages and services drove most of the year-on-year increase in adjusted SG&A. Net income attributable to H.B. Fuller for the third quarter of fiscal 2024 was $55 million, or $0.98 per diluted share. Adjusted net income attributable to H.B. Fuller for the third quarter of fiscal 2024 was $64 million. Adjusted EPS was $1.13 per diluted share, up 7% year-on-year. Adjusted EBITDA in the third quarter of fiscal 2024 was $165 million, up 6% year-on-year, driven principally by volume growth, restructuring savings, and benefits from recent acquisitions. Adjusted EBITDA margin increased 70 basis points year-on-year to 18.0%. H.B. Fuller President and CEO Celeste Mastin said, "In the third quarter, we continued to advance our strategy and expand EBITDA margins through volume growth, restructuring actions, and the acquisition of highly profitable, fast-growing businesses. At the same time, we continue to navigate a dynamic macroeconomic environment across our portfolio. Our volume growth during the quarter was impacted by slowing market demand in certain durable goods markets in EA, and we are adjusting our full year outlook accordingly. While this quarter's volume growth was at the low end of our expectations, we have a clear and focused strategy and a highly engaged team that is well equipped to execute and drive business success. We remain on track to deliver upon our long-term EBITDA margin and organic growth targets." Balance Sheet and Working Capital: Net debt at the end of the third quarter of fiscal 2024 was $1,890 million, up $100 million year-on-year. The ratio of net debt-to-adjusted EBITDA was 3.1X, consistent with the second quarter. Net working capital in the third quarter of fiscal 2024 decreased $64 million year-on-year. As a percentage of annualized net revenue, net working capital decreased 200 basis points year-on-year to 16.1%. Fiscal 2024 Outlook: As a result of our year-to-date performance and current macroeconomic conditions, we are updating our previously communicated financial guidance for fiscal 2024 as follows: Net revenue growth is now expected to be up approximately 2% with organic revenue flat year-on-year; Adjusted EBITDA is now expected to be in the range of $610 million to $620 million, equating to year-on-year growth of between 5% and 7%; Adjusted EPS (diluted) is now expected be in the range of $4.10 to $4.20, equating to year-on-year growth of between 6% and 9%; Operating cash flow is now expected to be between $325 million and $350 million. Conference Call: The Company will hold a conference call on September 26, 2024, 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 26, 2024, to 10:59 p.m. CT on October 3, 2024. To access the telephone replay dial 1-800-770-2030 (toll free) or 1-609-800-9909, 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, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted EBITDA margin, net debt, net debt-to-adjusted EBITDA, trailing twelve months adjusted EBITDA, net working capital, annualized net revenue and net working capital as a percentage of annualized net revenue 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 2024 Outlook, which the Company cannot reconcile to forward-looking GAAP results without unreasonable effort. About H.B. Fuller: As the largest pureplay adhesives company in the world, H.B. Fuller's (NYSE:FUL) innovative, functional coatings, adhesives and sealants enhance the quality, safety and performance of products people use every day. Founded in 1887, with 2023 revenue of $3.5 billion, our mission to Connect What Matters is brought to life by more than 7,000 global team members who collaborate with customers across more than 30 market segments in over 140 countries to develop highly specified solutions that enable customers to bring world-changing innovations to their end markets. Learn more at 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 availability and pricing of raw materials; the impact of potential cybersecurity attacks and security breaches; the impact on the supply chain, raw material costs and pricing of our products due to military conflict, including between Russia and Ukraine and Israel and Hamas; the consequences of the COVID-19 outbreak and other pandemics on our operations and financial results; 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, and 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 our current dividend policy; our ability to acquire and integrate complementary businesses; 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; 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 August 31, 2024 Percent of Net Revenue Three Months Ended September 2, 2023 Percent of Net Revenue Net revenue $ 917,927 100.0 % $ 900,634 100.0 % Cost of sales (642,198 ) (70.0 )% (637,162 ) (70.7 )% Gross profit 275,729 30.0 % 263,472 29.3 % Selling, general and administrative expenses (171,388 ) (18.7 )% (172,153 ) (19.1 )% Other income, net 2,148 0.2 % 1,555 0.2 % Interest expense (35,288 ) (3.8 )% (35,105 ) (3.9 )% Interest income 1,092 0.1 % 1,128 0.1 % Income before income taxes and income from equity method investments 72,293 7.9 % 58,897 6.5 % Income taxes (18,264 ) (2.0 )% (22,231 ) (2.5 )% Income from equity method investments 1,310 0.1 % 984 0.1 % Net income including non-controlling interest 55,339 6.0 % 37,650 4.2 % Net income attributable to non-controlling interest 22 0.0 % (23 ) (0.0 )% Net income attributable to H.B. Fuller $ 55,361 6.0 % $ 37,627 4.2 % Basic income per common share attributable to H.B. Fuller $ 1.01 $ 0.69 Diluted income per common share attributable to H.B. Fuller $ 0.98 $ 0.67 Weighted-average common shares outstanding: Basic 54,975 54,394 Diluted 56,650 56,033 Dividends declared per common share $ 0.223 $ 0.205 H.B. FULLER COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL INFORMATION In thousands, except per share amounts (unaudited) Nine Months Ended August 31, 2024 Percent of Net Revenue Nine Months Ended September 2, 2023 Percent of Net Revenue Net revenue $ 2,645,452 100.0 % $ 2,608,055 100.0 % Cost of sales (1,848,435 ) (69.9 )% (1,873,000 ) (71.8 )% Gross profit 797,017 30.1 % 735,055 28.2 % Selling, general and administrative expenses (525,204 ) (19.9 )% (493,320 ) (18.9 )% Other income, net 7,282 0.3 % 4,764 0.2 % Interest expense (99,504 ) (3.8 )% (101,305 ) (3.9 )% Interest income 3,597 0.1 % 2,726 0.1 % Income before income taxes and income from equity method investments 183,188 6.9 % 147,920 5.7 % Income taxes (48,496 ) (1.8 )% (51,255 ) (2.0 )% Income from equity method investments 2,955 0.1 % 3,322 0.1 % Net income including non-controlling interest 137,647 5.2 % 99,987 3.8 % Net income attributable to non-controlling interest (32 ) (0.0 )% (71 ) (0.0 )% Net income attributable to H.B. Fuller $ 137,615 5.2 % $ 99,916 3.8 % Basic income per common share attributable to H.B. Fuller $ 2.51 $ 1.84 Diluted income per common share attributable to H.B. Fuller $ 2.43 $ 1.79 Weighted-average common shares outstanding: Basic 54,874 54,279 Diluted 56,620 55,890 Dividends declared per common share $ 0.651 $ 0.600 H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands, except per share amounts (unaudited) Three Months Ended Nine Months Ended August 31, September 2, August 31, September 2, 2024 2023 2024 2023 Net income attributable to H.B. Fuller $ 55,361 $ 37,627 $ 137,615 $ 99,916 Adjustments: Acquisition project costs1 3,474 6,480 6,984 11,634 Organizational realignment2 9,471 10,421 24,038 19,055 Project One3 3,154 2,734 9,213 7,587 Other4 (2,904 ) 503 (2,021 ) 4,098 Discrete tax items5 (2,937 ) 6,243 (4,147 ) 9,131 Income tax effect on adjustments6 (1,624 ) (4,875 ) (6,472 ) (9,447 ) Adjusted net income attributable to H.B. Fuller7 63,995 59,133 165,210 141,974 Add: Interest expense 35,287 35,105 99,502 98,615 Interest income (1,090 ) (1,128 ) (3,594 ) (2,726 ) Adjusted Income taxes 22,825 20,862 59,114 51,569 Depreciation and Amortization expense8 44,235 41,826 125,288 118,803 Adjusted EBITDA7 165,252 155,798 445,520 408,235 Diluted Shares 56,650 56,033 56,620 55,890 Adjusted diluted income per common share attributable to H.B. Fuller7 $ 1.13 $ 1.06 $ 2.92 $ 2.54 Revenue $ 917,927 $ 900,634 $ 2,645,452 $ 2,608,055 Adjusted EBITDA margin7 18.0 % 17.3 % 16.8 % 15.7 % 1 Acquisition project costs include costs related to evaluating, acquiring and integrating business acquisitions. Acquisition project costs include $2,457 and $1,757 in transaction costs (primarily consulting and professional fees, representations and warranties insurance premiums and employee acquisition-related travel expenses) and $1,017 and $4,723 in purchase accounting costs (primarily professional fees for valuation services, inventory step-up cost and the impact of changes to contingent consideration liabilities after the completion of the purchase price allocation) for the three months ended August 31, 2024 and September 2, 2023, respectively. Acquisition project costs include $5,135 and $5,498 in transaction costs (primarily consulting and professional fees, representations and warranties insurance premiums and employee acquisition related travel expenses), $1,272 and $6,136 in purchase accounting costs (primarily professional fees for valuation services, inventory step-up cost and the impact of changes to contingent consideration liabilities after the completion of the purchase price allocation) and $577 and $0 in business integration costs (primarily costs of transition services agreements and, for the three months ended March 2, 2024, retention bonuses paid to employees of the acquired entities) for the nine months ended August 31, 2024 and September 2, 2023, respectively. 2 Organizational realignment includes costs incurred as a direct result of the organizational realignment program, including professional fees related to legal entity and business structure changes, employee retention and severance costs, and facility rationalization costs related to the closure of production facilities and consolidation of business activities. Facility rationalization costs include plant closure costs, the impact of accelerated depreciation, and, for the three months ended March 2, 2024, operational inefficiencies. Organizational realignment includes $2,939 and $139 in professional fees related to legal entity and business structure changes, $5,363 and $8,798 in employee severance and other related costs, and $1,169 and $1,484 related to facility rationalization costs for the three months ended August 31, 2024 and September 2, 2023, respectively. Organizational realignment includes $6,915 and $3,863 in professional fees related to legal entity and business structure changes, $9,721 and $13,708 in employee severance and other related costs, and $7,402 and $1,484 related to facility rationalization costs for the nine months ended August 31, 2024 and September 2, 2023, respectively. 3 Project One includes non-capitalizable project costs related implementing our global Enterprise Resource Planning system, including upgrading to SAP S/4HANA®, which will upgrade and standardize our information system. 4 Other includes a gain from insurance recoveries and a loss from the write-off of a cost method investment for the three and nine months ended August 31, 2024. Other includes the write-off of unamortized debt fees and non-cash gains and losses related to legal entity consolidations for fiscal 2023. 5 Discrete tax items for the three and nine months ended August 31, 2024 are related to various foreign tax matters as well as excess tax benefit related to U.S. stock compensation. Discrete tax items for fiscal 2023 are related to various foreign tax matters offset by excess tax benefit related to U.S. stock compensation. 6 The income tax effect on adjustments represents the difference between income taxes on net income before income taxes and income from equity method investments reported in accordance with U.S. GAAP and adjusted net income before income taxes and income from equity method investments. 7 Adjusted net income attributable to H.B. Fuller, adjusted diluted income per common share attributable to H.B. Fuller, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures. Adjusted net income attributable to H.B. Fuller is defined as net income before the specific adjustments shown above. Adjusted diluted income per common share is defined as adjusted net income attributable to H.B. Fuller divided by the number of diluted common shares. Adjusted EBITDA is defined as net income before interest, income taxes, depreciation, amortization and the specific adjustments shown above. Adjusted EBITDA margin is defined as adjusted EBITDA divided by net revenue. The table above provides a reconciliation of adjusted net income attributable to H.B. Fuller, adjusted diluted income per common share attributable to H.B. Fuller, adjusted EBITDA and adjusted EBITDA margin to net income attributable to H.B. Fuller, the most directly comparable financial measure determined and reported in accordance with U.S. GAAP. 8 Depreciation and amortization expense added back for EBITDA is adjusted for amounts already included in adjusted net income attributable to H.B. Fuller totaling $194 and ($348) for the three months ended August 31, 2024 and September 2, 2023, respectively and ($3,425) and ($348) for the nine months ended August 31, 2024 and September 2, 2023, respectively. H.B. FULLER COMPANY AND SUBSIDIARIES SEGMENT FINANCIAL INFORMATION In thousands (unaudited) Three Months Ended Nine Months Ended August 31, September 2, August 31, September 2, 2024 2023 2024 2023 Net Revenue: Hygiene, Health and Consumable Adhesives $ 389,854 $ 402,388 $ 1,150,658 $ 1,190,402 Engineering Adhesives 374,923 365,862 1,077,206 1,063,009 Construction Adhesives 153,150 132,384 417,588 354,644 Corporate unallocated - - - - Total H.B. Fuller $ 917,927 $ 900,634 $ 2,645,452 $ 2,608,055 Segment Operating Income (Loss): Hygiene, Health and Consumable Adhesives $ 49,782 $ 52,737 $ 147,147 $ 149,474 Engineering Adhesives 52,865 52,931 139,522 129,806 Construction Adhesives 12,543 5,853 20,342 2,189 Corporate unallocated (10,849 ) (20,202 ) (35,198 ) (39,734 ) Total H.B. Fuller $ 104,341 $ 91,319 $ 271,813 $ 241,735 Adjusted EBITDA7 Hygiene, Health and Consumable Adhesives $ 64,320 $ 69,172 $ 191,793 $ 194,125 Engineering Adhesives 73,968 70,723 195,133 181,758 Construction Adhesives 25,119 18,519 57,314 39,584 Corporate unallocated 1,845 (2,616 ) 1,280 (7,232 ) Total H.B. Fuller $ 165,252 $ 155,798 $ 445,520 $ 408,235 Adjusted EBITDA Margin7 Hygiene, Health and Consumable Adhesives 16.5 % 17.2 % 16.7 % 16.3 % Engineering Adhesives 19.7 % 19.3 % 18.1 % 17.1 % Construction Adhesives 16.4 % 14.0 % 13.7 % 11.2 % Corporate unallocated NMP NMP NMP NMP Total H.B. Fuller 18.0 % 17.3 % 16.8 % 15.7 % 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 August 31, September 2, August 31, September 2, 2024 2023 2024 2023 Income before income taxes and income from equity method investments $ 72,293 $ 58,897 $ 183,188 $ 147,920 Adjustments: Acquisition project costs1 3,474 6,480 6,984 11,634 Organizational realignment2 9,471 10,421 24,038 19,055 Project One3 3,154 2,734 9,213 7,587 Other4 (2,904 ) 503 (2,021 ) 4,098 Adjusted income before income taxes and income from equity method investments9 $ 85,488 $ 79,035 $ 221,402 $ 190,294 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 31, September 2, August 31, September 2, 2024 2023 2024 2023 Income Taxes $ (18,264 ) $ (22,231 ) $ (48,496 ) $ (51,255 ) Adjustments: Acquisition project costs1 (428 ) (1,569 ) (1,147 ) (2,620 ) Organizational realignment2 (1,166 ) (2,523 ) (3,984 ) (4,247 ) Project One3 (388 ) (662 ) (1,587 ) (1,655 ) Other4 (2,579 ) 6,123 (3,900 ) 8,208 Adjusted income taxes10 $ (22,825 ) $ (20,862 ) $ (59,114 ) $ (51,569 ) Adjusted income before income taxes and income from equity method investments $ 85,488 $ 79,035 $ 221,402 $ 190,294 Adjusted effective income tax rate10 26.7 % 26.4 % 26.7 % 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. H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands (unaudited) Three Months Ended Nine Months Ended August 31, September 2, August 31, September 2, 2024 2023 2024 2023 Net revenue $ 917,927 $ 900,634 $ 2,645,452 $ 2,608,055 Gross profit $ 275,729 $ 263,472 $ 797,017 $ 735,055 Gross profit margin 30.0 % 29.3 % 30.1 % 28.2 % Adjustments: Acquisition project costs1 927 1,516 1,000 2,617 Organizational realignment2 2,799 4,961 10,679 9,972 Project One3 - - 13 - Other4 - 318 - 479 Adjusted gross profit11 $ 279,455 $ 270,267 $ 808,709 $ 748,123 Adjusted gross profit margin11 30.4 % 30.0 % 30.6 % 28.7 % 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 31, September 2, August 31, September 2, 2024 2023 2024 2023 Selling, general and administrative expenses $ (171,388 ) $ (172,153 ) $ (525,204 ) $ (493,320 ) Adjustments: Acquisition project costs1 2,524 5,066 5,962 9,119 Organizational realignment2 6,307 5,460 12,322 9,083 Project One3 3,154 2,734 9,200 7,587 Other4 (4,871 ) 149 (3,988 ) 880 Adjusted selling, general and administrative expenses12 $ (164,274 ) $ (158,744 ) $ (501,708 ) $ (466,651 ) 12 Adjusted selling, general and administrative expenses is a non-GAAP financial measure. Adjusted selling, general and administrative expenses is defined as selling, general and administrative expenses excluding the specific adjustments shown above. The table above provides a reconciliation of adjusted selling, general and administrative expenses to selling, general and administrative expenses, the most directly comparable financial measure determined and reported in accordance with U.S. GAAP. H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands (unaudited) Three Months Ended: Hygiene, Health and Consumable Engineering Construction Corporate H.B. Fuller August 31, 2024 Adhesives Adhesives Adhesives Total Unallocated Consolidated Net income attributable to H.B. Fuller $ 51,280 $ 53,918 $ 13,974 $ 119,172 $ (63,811 ) $ 55,361 Adjustments: Acquisition project costs1 - - - - 3,474 3,474 Organizational realignment2 - - - - 9,471 9,471 Project One3 - - - - 3,154 3,154 Other4 - - - - (2,904 ) (2,904 ) Discrete tax items5 - - - - (2,937 ) (2,937 ) Income tax effect on adjustments6 - - - - (1,624 ) (1,624 ) Adjusted net income attributable to H.B. Fuller7 51,280 53,918 13,974 119,172 (55,177 ) 63,995 Add: Interest expense - - - - 35,287 35,287 Interest income - - - - (1,090 ) (1,090 ) Adjusted Income taxes - - - - 22,825 22,825 Depreciation and amortization expense8 13,040 20,050 11,145 44,235 - 44,235 Adjusted EBITDA7 $ 64,320 $ 73,968 $ 25,119 $ 163,407 $ 1,845 $ 165,252 Revenue $ 389,854 $ 374,923 $ 153,150 $ 917,927 - $ 917,927 Adjusted EBITDA Margin7 16.5 % 19.7 % 16.4 % 17.8 % NMP 18.0 % Nine Months Ended Hygiene, Health and Consumable Engineering Construction Corporate H.B. Fuller August 31, 2024 Adhesives Adhesives Adhesives Total Unallocated Consolidated Net income attributable to H.B. Fuller $ 151,636 $ 142,681 $ 24,635 $ 318,952 $ (181,337 ) $ 137,615 Adjustments: Acquisition project costs1 - - - - 6,984 6,984 Organizational realignment2 - - - - 24,038 24,038 Project One3 - - - - 9,213 9,213 Other4 - - - - (2,021 ) (2,021 ) Discrete tax items5 - - - - (4,147 ) (4,147 ) Income tax effect on adjustments6 - - - - (6,472 ) (6,472 ) Adjusted net income attributable to H.B. Fuller7 151,636 142,681 24,635 318,952 (153,742 ) 165,210 Add: Interest expense - - - - 99,502 99,502 Interest income - - - - (3,594 ) (3,594 ) Adjusted Income taxes - - - - 59,114 59,114 Depreciation and amortization expense8 40,157 52,452 32,679 125,288 - 125,288 Adjusted EBITDA7 $ 191,793 $ 195,133 $ 57,314 $ 444,240 $ 1,280 $ 445,520 Revenue 1,150,658 1,077,206 417,588 2,645,452 - 2,645,452 Adjusted EBITDA Margin7 16.7 % 18.1 % 13.7 % 16.8 % NMP 16.8 % Note: Adjusted EBITDA is a non-GAAP financial measure. The table above provides a reconciliation of adjusted EBITDA for each segment to net income attributable to H.B. Fuller for each segment, the most directly comparable financial measure determined and reported in accordance with U.S. GAAP. NMP = Non-meaningful percentage H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands (unaudited) Three Months Ended: Hygiene, Health and Consumable Engineering Construction Corporate H.B. Fuller 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 Project One3 - - - - 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 % Nine Months Ended Hygiene, Health 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 One3 - - - - 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 SEGMENT FINANCIAL INFORMATION NET REVENUE GROWTH (DECLINE) (unaudited) Three Months Ended Nine Months Ended August 31, 2024 August 31, 2024 Price (2.6 )% (3.1 )% Volume 3.0 % 1.9 % Organic Growth13 0.4 % (1.2 )% M&A 3.0 % 3.9 % Constant currency 3.4 % 2.7 % F/X (1.5 )% (1.3 )% Total H.B. Fuller Net Revenue 1.9 % 1.4 % Revenue growth versus 2023 Three Months Ended August 31, 2024 Net Revenue F/X Constant Currency M&A Organic Growth13 Hygiene, Health and Consumable Adhesives (3.1 )% (2.6 )% (0.5 )% 0.0 % (0.5 )% Engineering Adhesives 2.5 % (0.8 )% 3.3 % 5.3 % (2.0 )% Construction Adhesives 15.7 % (0.1 )% 15.8 % 5.6 % 10.2 % Total H.B. Fuller 1.9 % (1.5 )% 3.4 % 3.0 % 0.4 % Revenue growth versus 2023 Nine Months Ended August 31, 2024 Net Revenue F/X Constant Currency M&A Organic Growth13 Hygiene, Health and Consumable Adhesives (3.3 )% (1.7 )% (1.6 )% 3.2 % (4.8 )% Engineering Adhesives 1.3 % (1.2 )% 2.5 % 3.2 % (0.7 )% Construction Adhesives 17.7 % 0.0 % 17.7 % 8.7 % 9.0 % Total H.B. Fuller 1.4 % (1.3 )% 2.7 % 3.9 % (1.2 )% 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. H.B. FULLER COMPANY AND SUBSIDIARIES REGULATION G RECONCILIATION In thousands (unaudited) Three Months Ended Trailing Twelve Months16 Ended Year Ended September 2, 2023 December 2, 2023 March 2, 2024 June 1, 2024 August 31, 2024 August 31, 2024 June 1, 2024 December 2, 2023 Net income attributable to H.B. Fuller $ 37,627 $ 44,991 $ 30,991 $ 51,264 $ 55,361 $ 182,607 $ 164,873 $ 144,906 Adjustments: Acquisition project costs1 6,480 4,765 2,043 1,467 3,474 11,749 14,755 16,874 Organizational realignment2 10,421 10,549 7,262 7,275 9,471 34,557 35,507 29,900 Project One3 2,734 2,193 3,213 2,845 3,154 11,405 10,985 9,815 Other4 503 (3,903 ) - 914 (2,904 ) (5,893 ) (2,486 ) (611 ) Discrete tax items14 6,243 16,955 (2,527 ) 1,317 (2,937 ) 12,808 21,988 26,085 Income tax effect on adjustments5 (4,875 ) (1,158 ) (3,290 ) (1,558 ) (1,624 ) (7,630 ) (10,881 ) (10,604 ) Adjusted net income attributable to H.B. Fuller7 59,133 74,392 37,692 63,524 63,995 239,603 234,741 216,365 Add: Interest expense 35,105 33,297 31,901 32,313 35,287 132,798 132,616 131,913 Interest income (1,128 ) (1,217 ) (1,307 ) (1,197 ) (1,090 ) (4,811 ) (4,849 ) (3,943 ) Adjusted Income taxes 20,862 26,477 13,631 22,658 22,825 85,591 83,628 78,047 Depreciation and Amortization expense15 41,826 39,653 41,101 39,952 44,235 164,941 162,532 158,456 Adjusted EBITDA7 $ 155,798 $ 172,602 $ 123,018 $ 157,250 $ 165,252 $ 618,122 $ 608,668 $ 580,838 14 Discrete tax items for the three months ended September 2, 2024 are related to various U.S. and foreign tax matters offset by an excess tax benefit related to U.S. stock compensation. Discrete tax items for the three months ended March 2, 2024 are related to various foreign tax matters as well as excess tax benefit related to U.S. stock compensation. Discrete tax items for the three months ended June 1, 2024 are related to various foreign tax matters as well as excess tax benefit related to U.S. stock compensation. Discrete tax items for the three months ended August 31, 2024 are related to various foreign tax matters as well as excess tax benefit related to U.S. stock compensation. Discrete tax items for the three months and year ended December 2, 2023 are related to the tax impact of withholding tax recorded on earnings that are no longer permanently reinvested, as well as other various U.S. and foreign tax matters. 15 Depreciation and amortization expense added back for EBITDA is adjusted for amounts already included in adjusted net income attributable to H.B. Fuller. Depreciation and amortization expense added back was $348 for the three months ended September 2, 2023, ($1,036) for the three months ended December 2, 2023, ($2,422) for the three months ended March 2, 2024, ($1,198) for the three months ended June 1, 2024, $194 for the three months ended August 31, 2024 and ($1,384) for the year ended December 2, 2023. 16 Trailing twelve months adjusted EBITDA is a non-GAAP financial measure and is defined as adjusted EBITDA for the twelve-month period ended on the date presented. The table above provides a reconciliation of trailing twelve month adjusted EBITDA to net income attributable to H.B. Fuller for the trailing twelve-month period presented, 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) June 1, 2024 August 31, 2024 December 2, 2023 September 2, 2023 Total debt $ 2,024,916 $ 2,021,070 $ 1,838,431 $ 1,885,021 Less: Cash and cash equivalents 114,823 131,412 179,453 94,934 Net debt17 $ 1,910,093 $ 1,889,658 $ 1,658,978 $ 1,790,087 Trailing twelve months Adjusted EBITDA16 $ 608,668 $ 618,122 580,838 Net Debt-to-Adjusted EBITDA17 3.1 3.1 2.9 17 Net debt and net debt-to-adjusted EBITDA are non-GAAP financial measures. Net debt is defined as total debt less cash and cash equivalents. Net debt-to-adjusted EBITDA is defined as net debt divided by trailing twelve months adjusted EBITDA. The calculations of these non-GAAP financial measures are shown in the table above. The table above provides a reconciliation of each of these non-GAAP financial measures to total debt, 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) August 31, 2024 September 2, 2023 December 2, 2023 Trade receivables, net $ 574,781 $ 576,060 $ 577,932 Inventory 509,029 472,641 442,040 Trade payables 493,550 394,914 439,700 Net working capital18 $ 590,260 $ 653,787 $ 580,272 Net revenue three months ended $ 917,927 $ 900,634 Annualized net revenue18 3,671,708 3,602,536 Net working capital as a percentage of annualized revenue18 16.1 % 18.1 % 18 Net working capital, annualized net revenue and net working capital as a percentage of annualized net revenue are non-GAAP financial measures. Net working capital is defined as trade receivables, net plus inventory less trade payables. Annualized net revenue is defined as net revenue for the three months ended on the date presented multiplied by four. Net working capital as a percentage of annualized net revenue is net working capital divided by annualized net revenue. The calculations of these non-GAAP financial measures are shown in the table above. The table above provides a reconciliation of each of these non-GAAP financial measures to the most directly comparable financial measure determined and reported in accordance with U.S. GAAP. CONSOLIDATED BALANCE SHEETS H.B. Fuller Company and Subsidiaries (In thousands, except share and per share amounts) August 31, December 2, 2024 2023 Assets Current assets: Cash and cash equivalents $ 131,412 $ 179,453 Trade receivables (net of allowances of $13,389 and $11,080, as of August 31, 2024 and December 2, 2023, respectively) 574,781 577,932 Inventories 509,029 442,040 Other current assets 115,070 112,678 Total current assets 1,330,292 1,312,103 Property, plant and equipment 1,855,203 1,755,035 Accumulated depreciation (993,884 ) (930,380 ) Property, plant and equipment, net 861,319 824,655 Goodwill 1,591,709 1,486,512 Other intangibles, net 806,148 729,140 Other assets 388,777 371,165 Total assets $ 4,978,245 $ 4,723,575 Liabilities, non-controlling interest and total equity Current liabilities Notes payable $ 797 $ 1,841 Trade payables 493,550 439,700 Accrued compensation 83,861 95,680 Income taxes payable 39,244 47,688 Other accrued expenses 87,495 107,902 Total current liabilities 704,947 692,811 Long-term debt 2,020,273 1,836,590 Accrued pension liabilities 51,739 50,189 Other liabilities 359,565 388,072 Total liabilities $ 3,136,524 $ 2,967,662 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 – 54,612,541 and 54,092,987 as of August 31, 2024 and December 2, 2023, respectively $ 54,613 $ 54,093 Additional paid-in capital 316,324 301,485 Retained earnings 1,944,380 1,842,507 Accumulated other comprehensive loss (474,326 ) (442,880 ) Total H.B. Fuller stockholders' equity 1,840,991 1,755,205 Non-controlling interest 730 708 Total equity 1,841,721 1,755,913 Total liabilities, non-controlling interest and total equity $ 4,978,245 $ 4,723,575 CONSOLIDATED STATEMENTS of CASH FLOWS H.B. Fuller Company and Subsidiaries (In thousands) Nine Months Ended August 31, 2024 September 2, 2023 Cash flows from operating activities: Net income including non-controlling interest $ 137,647 $ 99,987 Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities: Depreciation 66,990 60,518 Amortization 61,723 58,633 Deferred income taxes (45,998 ) (30,064 ) (Income) loss from equity method investments, net of dividends received 622 260 Gain from Insurance Proceeds (7,264 ) - Equity Investment Impairment Loss 1,966 - 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 (501 ) (78 ) Share-based compensation 17,662 16,279 Pension and other post-retirement benefit plan activity (6,671 ) (8,890 ) Change in assets and liabilities, net of effects of acquisitions: Trade receivables, net 26,373 79,495 Inventories (62,206 ) 38,212 Other assets (39,025 ) (30,901 ) Trade payables 49,705 (74,443 ) Accrued compensation (11,566 ) (33,796 ) Other accrued expenses (5,244 ) (6,992 ) Income taxes payable (17,873 ) 24,461 Other liabilities 856 12,408 Other 49,591 6,023 Net cash provided by operating activities 216,787 216,694 Cash flows from investing activities: Purchased property, plant and equipment (112,799 ) (109,545 ) Purchased businesses, net of cash acquired (274,067 ) (194,248 ) Proceeds from sale of property, plant and equipment 1,048 4,257 Net cash used in investing activities (385,818 ) (299,536 ) Cash flows from financing activities: Proceeds from issuance of long-term debt 1,732,900 1,333,000 Repayment of long-term debt (1,556,135 ) (1,184,900 ) Payment of debt issuance costs (3,493 ) (10,214 ) Net payment of notes payable (1,014 ) (18,000 ) Dividends paid (35,440 ) (32,319 ) Proceeds from stock options exercised 34,161 11,251 Repurchases of common stock (39,371 ) (2,560 ) Net cash provided by financing activities 131,608 96,258 Effect of exchange rate changes on cash and cash equivalents (10,618 ) 1,608 Net change in cash and cash equivalents (48,041 ) 15,024 Cash and cash equivalents at beginning of period 179,453 79,910 Cash and cash equivalents at end of period $ 131,412 $ 94,934 View source version on businesswire.com: https://www.businesswire.com/news/home/20240925304542/en/