H.B. Fuller Co (NYSE:FUL) reported a 1.9% year-on-year increase in organic revenue, driven by positive volume trends.
The company achieved solid progress on price increase efforts, particularly in the Hygiene, Health, and Consumables (HHC) segment.
EBITDA for the Engineering Adhesives (EA) segment increased by 16%, with a margin improvement of 180 basis points year-on-year.
The Building Adhesive Solutions (BAS) segment saw a 2% year-on-year increase in organic sales, driven by strength in roofing and infrastructure.
H.B. Fuller Co (NYSE:FUL) is maintaining pricing discipline and leveraging its global sourcing infrastructure to drive margin expansion.
Negative Points
EBITDA margin for the first quarter was 14.5%, which is the seasonally lowest margin quarter of the year.
Higher raw material costs more than offset positive pricing and volume leverage, impacting profitability.
The Engineering Adhesives (EA) segment experienced a 2% decline in organic revenue due to ongoing challenges in the solar market.
The company's net debt to EBITDA ratio increased to 3.5 times, up from 3.1 times at the end of 2024.
Cash flow from operations was down versus last year, driven by higher working capital needs associated with revenue growth.
Q & A Highlights
Q: Can you provide insights into the current operating conditions and whether there was any pre-buying ahead of the April 2 reciprocal tariffs? A: Celeste Mastin, President and CEO, stated that there was no significant pre-buying observed in the U.S. or globally. Customers remain cautious but continue to focus on innovation and new product development. The durable goods market, which was weak, would have shown pre-buying if it occurred.
Q: Could you elaborate on the market share gains in HHC and the impact of raw material cost inflation? A: Celeste Mastin explained that HHC has gained market share, particularly in the hygiene segment, by focusing on value creation and innovation. The company has moved away from cheaper products and is winning with innovative solutions. Raw material inflation impacted margins, but the company expects to see benefits from pricing and raw material cost actions throughout the year.
Q: What is the outlook for HHC pricing and EBITDA margins? A: Celeste Mastin and John Corkrean, CFO, indicated that HHC margins are expected to improve throughout the year, aiming for a 16% to 17% EBITDA margin range. Pricing is anticipated to increase by 1% to 2%, primarily driven by HHC, with margins improving as raw material impacts subside.
Q: How is the company managing working capital and cash flow expectations for 2025? A: John Corkrean noted that working capital was higher than expected in Q1 due to volume and pricing growth. The company plans to normalize trends and implement self-help actions to improve working capital as a percentage. Cash flow is expected to be weighted towards the second half of the year, with a target of $300 million to $325 million in operating cash flow.
Q: Can you discuss the performance and outlook for the solar business? A: Celeste Mastin stated that the solar business will continue to face revenue constraints as it repositions towards higher-margin, innovation-driven applications. Despite the revenue drag, margins are expected to improve significantly as the company moves away from lower-value products.
Q: What are the trends and expectations for the Chinese market? A: Celeste Mastin reported mid to high single-digit growth in China, with strong performance in HHC and EA segments. The company is focusing on higher-margin opportunities and taking market share in electronics and EVs. The overall environment in China remains mixed, with weak consumer demand in smaller electronics.
Q: How is the company addressing the recent Tesla Cybertruck adhesive bonding issue? A: Celeste Mastin clarified that the adhesive issue was not related to H.B. Fuller products. The company sees this as an opportunity to expand its automotive business, particularly in structural adhesives, by leveraging its technical expertise and innovation.
Q: What is the impact of tariffs on H.B. Fuller's business and its customers? A: Celeste Mastin acknowledged that while direct impacts are minimal, durable goods production, such as automotive, may be more affected. The company is well-positioned to manage through a recession, focusing on driving down raw material costs and delivering EBITDA growth even in a low-volume environment.
