JP Morgan Slashes H.B. Fuller Price Forecast For Softening Growth

J.P. Morgan analyst Jeffrey J. Zekauskas maintained an Underweight rating on H. B. Fuller Company FUL on Thursday, lowering the price forecast from $60 to $50.

The company reported first-quarter results, where net revenue was $789 million, down 2.7% year over year.

Organic revenue was up 1.9% year-on-year, driven by improved volume.

The analyst notes that H.B. Fuller’s performance showed negative year-over-year comparisons, primarily due to the underperformance of its Health, Hygiene, and Consumable segment.

Despite flat sales in the segment at $368 million, its EBITDA dropped by 25%, from $62.9 million to $46.9 million, continuing a trend of weakness that began in the previous quarter.

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Per Zekauskas, this drop was partly due to the company previously benefiting from declining raw material costs, which have now leveled off, leading to reduced price adjustments.

While raw material costs for waxes and tackifying resins increased year-over-year, no sequential inflation was noted.

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On the other hand, H.B. Fuller’s Engineering and Building Adhesive Solutions segments showed more positive results, the analyst writes.

Zekauskas expects H.B. Fuller’s adjusted EBITDA to grow by about 1% in FY2025, from $594 million to $597 million.

The company is expected to face a negative EBITDA comparison in the first quarter of FY25, with the second quarter EBITDA likely staying flat year-over-year.

The analyst suggests the firm may lower its earnings guidance after 2Q of FY25, especially considering a softer U.S. macro environment. Additionally, Fuller’s $100 million solar panel business in the Engineering Adhesives segment could see a 20% sales contraction, causing a $5 million year-over-year EBITDA decline due to oversupply in the Chinese solar market.

The key focus for Fuller will be improving price realizations in the HHC segment to restore profitability and margins, the analyst writes.

Price Action: FUL stock is down 5.6% at $54.38 at last check Friday.

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