Net income of $22 million

Adjusted EBITDA of $110 million, at the high-end of the Company's guidance

Pricing and raw material management results in year-on-year gross profit and EBITDA margin expansion

Lower working capital and improved margins drove higher cash flow from operations year-on-year

H.B. Fuller Company (NYSE: FUL) today reported financial results for its first quarter that ended March 4, 2023.

First Quarter 2023 Noteworthy Items:

• Net revenue of $809 million, down 5.5% year-on-year, in-line with Company expectations; organic revenue decreased 2.5% year-on-year, driven by lower volume, offset by favorable pricing;
• Gross margin was 26.5%; adjusted gross margin of 26.9% increased 190 basis points year-on-year, driven by the combined effect of pricing and raw material cost developments;
• Net Income was $22 million; adjusted EBITDA was $110 million, at the high end of Company expectations, and adjusted EBITDA margin expanded year-on-year to 13.6%;
• Reported EPS (diluted) was $0.39; adjusted EPS (diluted) was $0.55, down versus the prior year, driven by lower volume, higher interest expense, and unfavorable foreign currency exchange; excluding the impacts of higher interest expense and unfavorable foreign currency, adjusted EPS (diluted) was up approximately 6% year-on-year;
• Cash flow from operations in the first quarter, historically our lowest cash flow quarter, improved $23 million year-on-year;
• Initiated strategic restructuring to align cost structure to drive ongoing margin expansion and align with Construction Adhesives market demand, expected to generate annualized pre-tax run-rate cost savings of approximately $30 to $35 million;
• Successfully completed a refinancing of a majority of outstanding debt, improving overall liquidity, extending maturities, and securing advantageous interest rate spreads.

Summary of First Quarter 2023 Results:

Net revenue for the first quarter of fiscal 2023 was $809 million, down 5.5% versus the first quarter of fiscal 2022. Organic revenue declined 2.5% year-on-year, driven by lower volume, mostly offset by favorable pricing. Volume declined 10.8% due to continued customer destocking actions in Construction Adhesives and generally slower economic demand conditions across all three global business units. Pricing actions favorably impacted organic growth by 8.3 percentage points. Foreign currency translation reduced net revenue growth by 4.9 percentage points and acquisitions increased net revenue growth by 1.9 percentage points.

Consolidated organic growth was impacted by continued customer destocking and demand weakness affecting Construction Adhesives; however, the benefits of the Company’s geographic and end market diversification led to stable consolidated organic sales year-on-year. This was driven by Hygiene, Health and Consumable and Engineering Adhesives, which, on a combined basis, continued to generate positive organic growth in the first quarter.

Gross profit in the first quarter of fiscal 2023 was $215 million. Adjusted gross profit was $217 million. Adjusted gross profit margin of 26.9% increased 190 basis points year-on-year. Pricing actions, net of raw material cost developments, drove the increase in adjusted gross margin year-on-year and more than offset the impact of reduced operating leverage due to lower volume.

Selling, general and administrative (SG&A) expense was $155 million in the first quarter of fiscal 2023 and adjusted SG&A was $149 million, up approximately 3% year-on-year as higher wage inflation offset good cost management and the favorable impact of exchange.

Net income attributable to H.B. Fuller for the first quarter of fiscal 2023 was $22 million, or $0.39 per diluted share. Adjusted net income attributable to H.B. Fuller for the first quarter of fiscal 2023 was $31 million. Adjusted EPS was $0.55 per diluted share, down year-on-year due to higher interest expense and unfavorable foreign currency impacts, which combined to reduce diluted earnings per share by approximately $0.28 year-on-year in the first quarter. Excluding the impacts of these items, adjusted EPS (diluted) was up approximately 6% year-on-year.

Adjusted EBITDA in the first quarter of fiscal 2023 was $110 million, at the high end of Company guidance and relatively flat with the first quarter of last year and up approximately 6% on a constant currency basis. Adjusted EBITDA margin increased 40 basis points year-on-year to 13.6%, driven by favorable pricing actions/raw material cost developments versus the prior year’s first quarter, offset somewhat by the impacts of lower volume and inflation.

“Despite challenging demand conditions, particularly in Construction Adhesives, our team executed exceptionally well to deliver solid first quarter results that were in-line with our expectations,” said Celeste Mastin, H.B. Fuller president and chief executive officer. “The diversification of our portfolio enabled us to deliver stable organic sales and diligent management of price and raw material dynamics drove significant gross margin improvement year-on-year and sequentially. Overall, this resulted in strong adjusted EBITDA performance and led to higher adjusted EBITDA margin year-on-year.

“Consistent with our strategic focus of continuously improving operational efficiency, we are implementing prudent and decisive actions to align our cost structure with lower volume expectations for 2023. These actions will lower our cost structure and improve the capacity utilization of our manufacturing network, allowing us to more effectively meet market needs and expand margins in-line with our long-term strategic plan.

“As we look ahead, we remain confident we will achieve our full-year guidance. We began to see margin expansion, driven by a combination of favorable price and raw material dynamics, and we expect this benefit to accelerate as we progress through the year and meaningfully benefit adjusted EBITDA margin. With our unique advantages and a more optimized cost structure, we are well positioned to continue creating value for shareholders and achieve our financial expectations for the year and beyond.”

Balance Sheet and Cash Flow Items:

During the first quarter, the Company successfully completed a refinancing of most of its debt. This extended maturities and improved liquidity, while maintaining favorable pricing. Net debt at the end of the first quarter of fiscal 2023 was $1,748 million, up $63 million sequentially versus the fourth quarter.

Cash flow from operations in the first quarter was $6 million, up $23 million year-on-year, reflecting lower net working capital requirements.

Restructuring:

During the first quarter, the Company initiated a restructuring plan to better align its cost structure with the current economic outlook, including high inflation and lower market demand. These actions are also consistent with the Company’s longer-term strategic objectives of improving gross profit and EBITDA margins and increasing return on invested capital (ROIC). The restructuring is focused on reducing both manufacturing costs and SG&A and is heavily weighted to Construction Adhesives.

As a result of these actions the Company expects to incur, on a pre-tax basis, one-time costs of approximately $15 to $20 million and generate approximately $30 to $35 million in annualized cost savings once the plan is fully implemented, with approximately $10 million of savings expected to be realized in fiscal 2023.

Fiscal 2023 Outlook:

• The Company continues to expect adjusted EBITDA for fiscal 2023 to be in the range of $580 million to $610 million, equating to growth of approximately 9% to 15% versus fiscal year 2022;
• Adjusted EPS (diluted) is now expected to be in the range of $4.10 to $4.50, equating to growth of between 3% to 13% year-on-year and fully diluted shares outstanding is now expected to be approximately 56 million;
• Revenue for fiscal 2023 is now expected to be down 1% to 4% versus 2022; organic revenue for fiscal 2023 is now expected to be in the range of down 1% to up 1%, reflecting expected demand weakness in Construction Adhesives;
• Foreign currency translation is now expected to unfavorably impact net revenue growth by between 1% and 2% in fiscal year 2023;
• Operating cash flow in fiscal 2023 is still expected to be between $300 million and $350 million.

Conference Call:

The Company will hold a conference call on March 30, 2023, at 9:30 a.m. CT (10:30 a.m. ET) to discuss its results. Interested parties may listen to the conference call on a live webcast. The webcast, along with a supplemental presentation, may be accessed from the Company’s website at https://investors.hbfuller.com. Participants must register prior to accessing the webcast using this link and should do so at least 10 minutes prior to the start of the call to install and test any necessary software and audio connections. A telephone replay of the conference call will be available from 12:30 p.m. CT on March 30, 2023, to 10:59 p.m. CT on April 6, 2023. To access the telephone replay dial 1-800-770-2030 (toll free) or 1-647-362-9199, and enter Conference ID: 6370505.

Regulation G

The information presented in this earnings release regarding consolidated and segment organic revenue growth, operating income, adjusted gross profit, adjusted gross profit margin, adjusted selling, general and administrative expense, adjusted income before income taxes and income from equity investments, adjusted income taxes, adjusted effective tax rate, adjusted net income, adjusted diluted earnings per share and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) does not conform to U.S. generally accepted accounting principles (U.S. GAAP) and should not be construed as an alternative to the reported results determined in accordance with U.S. GAAP. Management has included this non-GAAP information to assist in understanding the operating performance of the Company and its operating segments as well as the comparability of results to the results of other companies. The non-GAAP information provided may not be consistent with the methodologies used by other companies. All non-GAAP information is reconciled with reported U.S. GAAP results in the “Regulation G Reconciliation” tables in this press release with the exception of our forward-looking non-GAAP measures contained above in our Fiscal 2023 Outlook, which the Company cannot reconcile to forward-looking GAAP results without unreasonable effort.

About H.B. Fuller

Since 1887, H.B. Fuller has been a leading global adhesives provider focusing on perfecting adhesives, sealants and other specialty chemical products to improve products and lives. With fiscal 2022 net revenue of $3.75 billion, H.B. Fuller’s commitment to innovation and sustainable adhesive solutions brings together people, products and processes that answer and solve some of the world's biggest challenges. Our reliable, responsive service creates lasting, rewarding connections with customers in electronics, disposable hygiene, medical, transportation, aerospace, clean energy, packaging, construction, woodworking, general industries and other consumer businesses. Our promise to our people connects them with opportunities to innovate and thrive. For more information, visit us at https://www.hbfuller.com.

Safe Harbor for Forward-Looking Statements

Certain statements in this press release may be considered forward-looking statements within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements often address expected future business and financial performance, financial condition, and other matters, and often contain words or phrases such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “opportunity,” “outlook,” “plan,” “project,” “seek,” “should,” “strategy,” "target," “will,” “will be,” “will continue,” “will likely result,” “would” and similar expressions, and variations or negatives of these words or phrases. These statements are subject to various risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including but not limited to the following: the consequences of the COVID-19 outbreak and other pandemics on our operations and financial results; the impact on the supply chain, raw material costs and pricing of our products due to the Russia-Ukraine war; the impact on our margins and product demand due to inflationary pressures; the substantial amount of debt we have incurred to finance our acquisition of Royal, our ability to repay or refinance our debt or to incur additional debt in the future, our need for a significant amount of cash to service and repay the debt and to pay dividends on our common stock, the effect of debt covenants that limit the discretion of management in operating the business or in paying dividends; our ability to pay dividends and to pursue growth opportunities if we continue to pay dividends according to the current dividend policy; our ability to achieve expected synergies, cost savings and operating efficiencies from our restructuring initiatives and operational improvement projects within the expected time frames or at all; our ability to effectively implement Project ONE; uncertain political and economic conditions; fluctuations in product demand; competing products and pricing; our geographic and product mix; availability and price of raw materials; disruptions to our relationships with our major customers and suppliers; failures in our information technology systems; regulatory compliance across our global footprint; trade policies and economic sanctions impacting our markets; changes in tax laws and tariffs; devaluations and other foreign exchange rate fluctuations; the impact of litigation and investigations, including for product liability and environmental matters; impairment charges on our goodwill or long-lived assets; the effect of new accounting pronouncements and accounting charges and credits; and similar matters.

Additional information about these various risks and uncertainties can be found in the “Risk Factors” section of our Form 10-K filings, and any updates to the risk factors in our Form 10-Q and 8-K filings with the SEC, but there may be other risks and uncertainties that we are unable to identify at this time or that we do not currently expect to have a material impact on the business. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. We do not undertake to update or revise any forward-looking statements, except as required by law.

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