H.B. Fuller Reports Second Quarter 2018 Results

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H.B. Fuller Reports Second Quarter 2018 Results

Second Quarter Diluted EPS $0.86 and Adjusted Diluted EPS $0.89(1); Fiscal Year 2018 Adjusted Diluted EPS Guidance Narrowed to between $3.15 and $3.40

ST. PAUL, Minn., June 27, 2018 (GLOBE NEWSWIRE) -- H.B. Fuller Company (NYSE:FUL) today reported financial results for the second quarter that ended June 2, 2018.

Second Quarter 2018 Highlights:

  • Net revenue grew 41 percent in the second quarter of 2018 versus the same period in 2017, driven by the addition of the Royal business. On a proforma basis, including Royal in 2017, net revenue increased 8 percent2, of which half was organic growth. The Engineering Adhesives, EIMEA, and Asia Pacific segments all experienced growth in the double digits;
  • Net income was $44.5 million or $0.86 per diluted share; adjusted net income was $46.4 million, or $0.891 per diluted share, 44 percent higher than the second quarter of 2017;
  • Gross profit margin was 28.2 percent; adjusted gross profit margin3 was 28.3 percent, an increase of 30 basis points versus a proforma second quarter of 20172 and up 190 basis points sequentially, reflecting pricing actions and acquisition-related synergies;
  • Adjusted EBITDA1 was $123 million, in-line with expectations, and up 72 percent versus the second quarter of 2017. On a proforma basis, this represents an increase of 12 percent2 over the same period the previous year with the impact of Royal included;
  • The Royal integration continues to progress well and generated an incremental $4 million in cost synergies in the second quarter, totaling $6 million year-to-date, in-line with expectations. Remain on target to realize a total of $15 million of cost synergies in 2018 and $35 million of savings by 2020, as previously communicated;
  • Cash flow from operations of $54 million in the quarter, slightly ahead of expectations, of which $36 million was used to repay debt. On track to meet our $170 million debt reduction goal for the 2018 fiscal year.
     

Second Quarter 2018 Key Financial Metrics:

    Reported   %   Adjusted / Proforma4   %
      2018   2017   Change     2018   2017   Change
Net Revenue   $   789,387 $   561,651   41 %   $   789,387 $   733,743   8 %
Operating Income   $   77,186 $   43,268   78 %   $   84,221 $   74,529   13 %
Net Income   $   44,451 $   25,867   72 %   $   46,378 $   31,804   46 %
Diluted Earnings per Share   $   0.86 $   0.50   72 %   $   0.89 $   0.62   44 %
                                 

Second Quarter 2018 Results:
Net revenue for the second quarter of 2018 was $789.4 million, an increase of 40.5 percent versus the second quarter of 2017. Proforma organic revenue growth, including Royal, increased approximately three and a half percent year-over-year2, driven by pricing, which made up about three percent, and volume/mix, which comprised about a half of a percent.

Net income for the second quarter of 2018 was $44.5 million, or $0.86 per diluted share, versus net income of $25.9 million, or $0.50 per diluted share, in the second quarter of 2017. Adjusted diluted earnings per share in the second quarter of 2018 was $0.891. Adjusted EBITDA1 was $123 million in the second quarter, in-line with expectations and up 72 percent versus the prior year, or 12 percent2 higher on proforma basis including Royal in 2017.

Gross profit margin was 28.2 percent. Adjusted gross profit margin3 was 28.3 percent, up 30 basis points versus the prior year on a proforma basis including Royal2, reflecting positive pricing contribution and realized raw material synergies. Selling, General and Administrative (SG&A) expense was $145.2 million. Adjusted SG&A expense5 was $139.3 million, an increase versus the second quarter of 2017, due to the impact of acquisitions and foreign currency translation. However, on a proforma basis, including Royal in 20172, adjusted SG&A declined 30 basis points as a percentage of net revenue, due to sales leverage and overall cost controls.

Jim Owens, President and Chief Executive Officer, said, “We had a very strong second quarter, driven by solid revenue growth and robust pricing momentum, which helped us deliver $123 million of EBITDA. We remain committed to strengthening the performance of both the core legacy H.B. Fuller businesses and our recently acquired businesses. The contributions being made to our business by Royal continue to gain traction, and we are pleased that the integration plans and synergy progress remain in-line with our expectations, as do our free cash flow improvement and debt reduction. In addition, we are closely monitoring raw materials inflation, have implemented the appropriate pricing changes needed to offset these cost increases and we continue to focus on volume improvements in all of our businesses and across all regions.

“Organic growth performance was solid at three and a half percent, in-line with our expectations, led by 17 percent growth in Engineering Adhesives as a result of a series of customer wins, strong organic volume growth in Asia Pacific and pricing improvements across nearly all segments. EBITDA margins also increased in all segments as a result of strong pricing and manufacturing and operating cost management, and we expect further improvement throughout the remainder of the year. Our focus on generating free cash flow resulted in debt pay down of $36 million during the quarter, and we continue to expect a total reduction of $170 million of debt in 2018. Our plans to deliver our EBITDA targets for both fiscal year 2018 and 2020 remain firmly on track.

“We look forward to discussing these metrics, our 2020 goals, and most importantly our path to achieving these targets in more detail at our Investor Day on July 19th.”

EBITDA Calculation Revision:
In order to conform with SEC interpretations, we modified our EBITDA calculation for 2017 and 2018 to include joint venture earnings as well as non-operating income and expenses. Using our historical methodology, adjusted EBITDA would have been $120 million in the second quarter of 2018. For the full year, this change is expected to impact EBITDA by approximately $6 million. This change has no impact on operating income or earnings per share.

Balance Sheet and Cash Flow:
At the end of the second quarter of 2018, the Company had cash on hand of $129 million and total debt equal to $2,405 million, of which approximately 70 percent had a fixed interest rate. This compares to cash and debt levels equal to $132 million and $2,441 million, respectively, in the first quarter of 2018. Cash flow from operations in the second quarter was $54 million, reflecting the improving profitability of the businesses. Capital expenditures were $15 million in the second quarter of 2018, compared to $7 million in the same period last year.

Fiscal 2018 Guidance:
The Company is narrowing its guidance for the 2018 fiscal year for adjusted EPS to $3.15 to $3.40, versus the previous range of $3.10 to $3.40. H.B. Fuller is also updating its adjusted EBITDA guidance to approximately $470 million to reflect the impact of the modified calculation of EBITDA. Revenue growth for the remainder of the 2018 fiscal year is expected to be between 5 and 6 percent when compared to 2017 on a proforma basis. The Company’s core tax rate, excluding the impact of discrete items, is unchanged and is expected to be between 25 and 27 percent. H.B. Fuller expects to invest a total of approximately $80 million in capital items in 2018.

This guidance excludes approximately $20 million of pre-tax expenses required to integrate the Royal business and other businesses acquired in 2017, and between $7 and $10 million of pre-tax expenses related to Project ONE ERP development costs. This guidance also excludes the discrete tax benefit of $35.6 million related to Tax Reform that was recorded in the first quarter, as well as any future discrete tax items. A complete reconciliation of the non-GAAP financial information contained in our 2018 guidance is not being provided in accordance with the “unreasonable efforts” exception of Item 10(e)(1)(i)(B) of Regulation S-K of the Securities and Exchange Commission.

Conference Call:
The Company will host an investor conference call to discuss first quarter results on Thursday, June 28, 2018, at 9:30 a.m. Central U.S. time (10:30 a.m. Eastern U.S. time). The conference call audio and accompanying presentation slides will be available to all interested parties via a simultaneous webcast at H.B. Fuller’s Investor Relations website. The event is scheduled to last one hour. For those unable to listen live, an audio replay of the event along with the accompanying presentation will be archived on the Company’s website.

Regulation G:
The information presented in this earnings release regarding segment operating income, adjusted gross profit, adjusted selling, general and administrative expense, adjusted diluted earnings per share, earnings before interest, taxes, depreciation, and amortization (EBITDA) and constant currency revenue does not conform to generally accepted accounting principles (GAAP) and should not be construed as an alternative to the reported results determined in accordance with 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. The non-GAAP information provided may not be consistent with the methodologies used by other companies. All non-GAAP information is reconciled with reported GAAP results in the tables below with the exception of our forward looking non-GAAP measures contained in our fiscal 2018 outlook, which are unknown or have not yet occurred.

About H.B. Fuller Company:
For 130 years, 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 2017 proforma net revenue of $2.9 billion, H.B. Fuller’s commitment to innovation 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, 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 www.hbfuller.com and subscribe to our blog.

Safe Harbor for Forward-Looking Statements:
Certain statements in this document may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, including but not limited to the following: the Royal transaction may involve unexpected costs or liabilities; our business or stock price may suffer as a result of uncertainty surrounding the transaction; the substantial amount of debt we have incurred to finance our acquisition of Royal, our ability to repay or refinance it or 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 restrictions contained in our debt agreements that limit the discretion of management in operating the business or ability to pay dividends; various risks to stockholders of not receiving dividends and risks to our ability to pursue growth opportunities if we continue to pay dividends according to the current dividend policy; we may be unable to achieve expected synergies and operating efficiencies from the transaction within the expected time frames or at all; we may be unable to successfully integrate Royal’s operations into our own, or such integration may be more difficult, time consuming or costly than expected; following the transaction, revenues may be lower than expected, and operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers) may be greater than expected; risks that the transaction disrupts current plans and operations and the potential difficulties in employee retention as a result of the transaction; the ability to effectively implement Project ONE; political and economic conditions; product demand; competitive products and pricing; costs of and savings from restructuring initiatives; geographic and product mix; availability and price of raw materials; the Company’s relationships with its major customers and suppliers; changes in tax laws and tariffs; devaluations and other foreign exchange rate fluctuations; the impact of litigation and environmental matters; the effect of new accounting pronouncements and accounting charges and credits; and similar matters. Further information about the various risks and uncertainties can be found in the Company’s SEC 10-K filing for the fiscal year ended December 2, 2017. All forward-looking information represents management’s best judgment as of this date based on information currently available that in the future may prove to have been inaccurate. Additionally, the variety of products sold by the Company and the regions where the Company does business make it difficult to determine with certainty the increases or decreases in net revenue resulting from changes in the volume of products sold, currency impact, changes in product mix, and selling prices. However, management’s best estimates of these changes as well as changes in other factors have been included.
 

 
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
  June 2, 2018   Net Revenue   June 3, 2017   Net Revenue
Net revenue $ 789,387     100.0 %   $ 561,651     100.0 %
Cost of sales   (567,002 )   (71.8 %)     (415,613 )   (74.0 %)
Gross profit   222,385     28.2 %     146,038     26.0 %
                   
Selling, general and administrative expenses   (145,199 )   (18.4 %)     (102,770 )   (18.3 %)
Operating income   77,186     9.8 %     43,268     7.7 %
                   
Other income (expense)   3,850     0.5 %     (929 )   (0.2 %)
Interest expense, net   (25,223 )   (3.2 %)     (7,329 )   (1.3 %)
Income before income taxes and income from equity method investments   55,813     7.0 %     35,010     6.2 %
                   
Income taxes   (13,488 )   (1.7 %)     (11,151 )   (2.0 %)
                   
Income from equity method investments   2,139     0.3 %     2,005     0.4 %
Net income including non-controlling interests   44,464     5.6 %     25,864     4.6 %
                   
Net income attributable to non-controlling interests   (13 )   (0.0 %)     3     0.0 %
Net income attributable to H.B. Fuller $ 44,451     5.6 %   $ 25,867     4.6 %
                   
Basic income per common share attributable to H.B. Fuller $ 0.88         $ 0.51      
                   
Diluted income per common share attributable to H.B. Fuller $ 0.86         $ 0.50      
                   
Weighted-average common shares outstanding:                  
Basic   50,551           50,496      
Diluted   51,846           51,686      
                   
Dividends declared per common share $ 0.155         $ 0.15      
                       

 

Selected Balance Sheet Information (subject to change prior to filing of the Company's Quarterly Report on Form 10-Q)
                 
  June 2, 2018   December 2, 2017   June 3, 2017
Cash & cash equivalents $ 129,248   $ 194,398   $ 94,102
Trade accounts receivable, net   477,655     473,700     378,622
Inventories   404,680     359,505     302,336
Trade payables   263,724     268,467     181,979
Total assets   4,338,897     4,360,646     2,200,236
Total debt   2,404,952     2,451,910     786,109
                 

 

H.B. FULLER COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
In thousands, except per share amounts (unaudited)
                   
  Six Months Ended   Percent of   Six Months Ended   Percent of
  June 2, 2018   Net Revenue   June 3, 2017   Net Revenue
Net revenue $ 1,502,466     100.0 %   $ 1,064,974     100.0 %
Cost of sales   (1,092,376 )   (72.7 %)     (779,940 )   (73.2 %)
Gross profit   410,090     27.3 %     285,034     26.8 %
                   
Selling, general and administrative expenses   (296,219 )   (19.7 %)     (215,685 )   (20.3 %)
Operating income   113,871     7.6 %     69,349     6.5 %
                   
Other income (expense)   4,883     0.3 %       (903 )     (0.1 %)
)Interest expense, net   (49,727 )   (3.3 %)     (15,114 )   (1.4 %)
Income before income taxes and income from equity method investments   69,027     4.6 %     53,332     5.0 %
                   
Income taxes   19,144     1.3 %     (16,916 )   (1.6 %)
                   
Income from equity method investments   3,960     0.3 %     4,279     0.4 %
Net income including non-controlling interests   92,131     6.1 %     40,695     3.8 %
                   
Net income attributable to non-controlling interests   2     0.0 %     (33 )   (0.0 %)
Net income attributable to H.B. Fuller $ 92,133     6.1 %   $ 40,662     3.8 %
                   
Basic income per common share attributable to H.B. Fuller $ 1.82         $ 0.81      
                   
Diluted income per common share attributable to H.B. Fuller $ 1.78         $ 0.79      
                   
Weighted-average common shares outstanding:                  
Basic   50,511           50,369      
Diluted   51,872           51,573      
                   
Dividends declared per common share $ 0.305         $ 0.29      
                       

 

H.B. FULLER COMPANY AND SUBSIDIARIES  
REGULATION G RECONCILIATION  
In thousands, except per share amounts (unaudited)  
                             
    Three Months Ended   Six Months Ended  
    June 2, 2018   June 3, 2017   June 2, 2018   June 3, 2017    
                             
Net income attributable to H.B. Fuller   $ 44,451     $ 25,867     $ 92,133     $ 40,662      
                             
Acquisition project costs     297       855       672       1,499      
Tonsan call option agreement     (2,294 )     (3,569 )     (2,170 )     (3,462 )    
Organizational realignment     725       6,156       1,432       14,598      
Royal restructuring and integration     4,344       -       9,314       -      
Tax reform     -       -       (35,555 )     -      
Other     (1,145 )     2,495       (1,095 )     3,397      
Adjusted net income attributable to H.B. Fuller     46,378       31,804       64,731       56,694      
                             
Add:                            
Interest expense, net     25,144       7,258       49,571       14,974      
Income taxes     15,565       12,270       21,298       22,003      
Depreciation expense     16,372       12,012       33,794       23,530      
Amortization expense     19,276       7,874       38,519       15,229      
Adjusted EBITDA     122,735       71,218       207,913       132,430      
                             
Diluted Shares     51,846       51,686       51,872       51,573      
Adjusted diluted income per common share attributable to H.B. Fuller   $ 0.89     $ 0.62     $ 1.25     $ 1.10      
Revenue   $ 789,387     $ 561,651     $ 1,502,466     $ 1,064,974      
Adjusted EBITDA margin     15.5 %     12.7 %     13.8 %     12.4 %    
                             
1) 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 GAAP.  
   

 

H.B. FULLER COMPANY AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
In thousands (unaudited)
           
  Three Months Ended   Three Months Ended
  June 2, 2018   June 3, 2017
Net Revenue:          
Americas Adhesives $ 277,992     $ 229,622  
EIMEA   193,427       135,226  
Asia Pacific   74,326       64,466  
Construction Adhesives   121,795       63,754  
Engineering Adhesives   121,847       68,583  
Total H.B. Fuller $ 789,387     $ 561,651  
           
Segment Operating Income:          
Americas Adhesives $ 32,607     $ 26,455  
EIMEA   14,040       8,083  
Asia Pacific   5,040       4,751  
Construction Adhesives   11,673       (1,853 )
Engineering Adhesives   13,826       5,832  
Total H.B. Fuller $ 77,186     $ 43,268  
           
 Adjusted EBITDA1          
 Americas Adhesives $ 44,412     $ 34,750  
 EIMEA   24,995       15,034  
 Asia Pacific   7,961       7,038  
 Construction Adhesives   23,356       6,837  
 Engineering Adhesives   19,143       6,417  
 Corporate Unallocated   2,868       1,142  
 Total H.B. Fuller $ 122,735     $ 71,218  
           
 Adjusted EBITDA Margin1          
 Americas Adhesives   16.0 %     15.1 %
 EIMEA   12.9 %     11.1 %
 Asia Pacific   10.7 %     10.9 %
 Construction Adhesives   19.2 %     10.7 %
 Engineering Adhesives   15.7 %     9.4 %
 Total H.B. Fuller   15.5 %     12.7 %
           
           

 

H.B. FULLER COMPANY AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
In thousands (unaudited)
           
           
  Six Months Ended   Six Months Ended
  June 2, 2018   June 3, 2017
Net Revenue:          
Americas Adhesives $ 539,323     $ 422,784  
EIMEA   372,010       259,265  
Asia Pacific   141,000       127,112  
Construction Products   219,039       120,800  
Engineering Adhesives   231,094       135,013  
Total H.B. Fuller $ 1,502,466     $ 1,064,974  
           
Segment Operating Income:          
Americas Adhesives $ 50,118     $ 47,488  
EIMEA   21,878       9,880  
Asia Pacific   7,362       6,630  
Construction Products   12,938       (2,536 )
Engineering Adhesives   21,575       7,887  
Total H.B. Fuller $ 113,871     $ 69,349  
           
 Adjusted EBITDA1          
 Americas Adhesives $ 76,161     $ 63,617  
 EIMEA   43,395       28,111  
 Asia Pacific   13,253       12,783  
 Construction Products   35,858       11,327  
 Engineering Adhesives   35,172       13,185  
 Corporate Unallocated   4,073       3,407  
 Total H.B. Fuller $ 207,913     $ 132,430  
           
 Adjusted EBITDA Margin1          
 Americas Adhesives   14.1 %     15.0 %
 EIMEA   11.7 %     10.8 %
 Asia Pacific   9.4 %     10.1 %
 Construction Products   16.4 %     9.4 %
 Engineering Adhesives   15.2 %     9.8 %
 Total H.B. Fuller   13.8 %     12.4 %
           
           

 

H.B. FULLER COMPANY AND SUBSIDIARIES  
REGULATION G RECONCILIATION  
In thousands, except per share amounts (unaudited)  
               
  Three Months Ended   Six Months Ended  
  June 2, 2018   June 3, 2017   June 2, 2018   June 3, 2017  
                           
Income before income taxes and income from equity method investments $ 55,813     $ 35,010     $ 69,027     $ 53,332      
                           
Adjustments:                          
Acquisition project costs   448       1,291       1,007       2,280      
Tonsan call option agreement   (2,294 )     (3,569 )     (2,170 )     (3,462 )    
Organizational realignment   837       6,795       1,182       18,373      
Royal restructuring and integration   6,544       -       14,063       -      
Other   (1,531 )     2,539       (1,042 )     3,928      
Adjusted income before income taxes and income from equity method investments $ 59,817     $ 42,066     $ 82,067     $ 74,451      
                           
Adjusted income before income taxes and income from equity investments is a non-GAAP financial measure. 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 GAAP. Adjusted income before income taxes and income from equity investments is defined as adjusted income before income taxes and income from equity investments before the specific adjustments shown above.   
                           
                           
                           
H.B. FULLER COMPANY AND SUBSIDIARIES  
REGULATION G RECONCILIATION  
In thousands, except per share amounts (unaudited)  
                           
  Three Months Ended   Six Months Ended  
  June 2, 2018   June 3, 2017   June 2, 2018   June 3, 2017  
                           
Income Taxes $ (13,488 )   $ (11,151 )   $ 19,144     $ (16,916 )    
                           
Adjustments:                          
Acquisition project costs   (152 )     (436 )     (336 )     (780 )    
Organizational realignment   (111 )     (639 )     249       (3,775 )    
Royal restructuring and integration   (2,200 )     -       (4,749 )     -      
Tax reform   -       -       (35,555 )     -      
Other   386       (44 )     (51 )     (532 )    
Adjusted income taxes $ (15,565 )   $ (12,270 )   $ (21,298 )   $ (22,003 )    
                           
Adjusted income before income taxes and income from equity method investments $ 59,817     $ 42,066     $ 82,067     $ 74,451      
Adjusted effective income tax rate   26.0 %     29.2 %     26.0 %     29.6 %    
                           
Adjusted income taxes and adjusted effective income tax rate are non-GAAP financial measures. 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 GAAP. Adjusted income taxes is defined as income taxes before the specific adjustments shown above. Adjusted effective income tax rate is defined as adjusted income taxes divided by adjusted income before income taxes and income from equity method investments.  
   

 

H.B. FULLER COMPANY AND SUBSIDIARIES  
REGULATION G RECONCILIATION  
In thousands (unaudited)  
                           
  Three Months Ended   Six Months Ended  
  June 2, 2018   June 3, 2017   June 2, 2018   June 3, 2017  
                           
Net revenue   789,387       561,651       1,502,466       1,064,974      
                           
Gross profit $ 222,385     $ 146,038     $ 410,090     $ 285,034      
Gross profit margin   28.2 %     26.0 %     27.3 %     26.8 %    
                           
Adjustments:                          
Acquisition project costs   70       831       173       1,024      
Tonsan call option agreement                          
Organizational realignment   431       5,944       597       10,907      
Royal restructuring and integration   619             908            
Adjusted gross profit $ 223,505     $ 152,813     $ 411,768     $ 296,965      
Adjusted gross profit margin   28.3 %     27.2 %     27.4 %     27.9 %    
                           
3) Adjusted gross profit and gross profit margin is a non-GAAP financial measure. 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 GAAP. Adjusted gross profit and gross profit margin is defined as adjusted gross profit and gross profit margin before the specific adjustments shown above.   
                           
                           
H.B. FULLER COMPANY AND SUBSIDIARIES  
REGULATION G RECONCILIATION  
In thousands (unaudited)  
                           
  Three Months Ended   Six Months Ended  
  June 2, 2018   June 3, 2017   June 2, 2018   June 3, 2017  
                           
Selling, general and administrative expenses $ (145,199 )   $ (102,770 )   $ (296,219 )   $ (215,685 )    
                           
Adjustments:                          
Acquisition project costs   379       459       834       1,255      
Tonsan call option agreement   (2,373 )     (3,639 )     (2,326 )     (3,603 )    
Organizational realignment   406       851       585       7,465      
Royal restructuring and integration   5,924             13,156            
Other   1,579       2,540       3,729       3,930      
Adjusted selling, general and administrative expenses $ (139,284 )   $ (102,559 )   $ (280,241 )   $ (206,638 )    
                           
5) Adjusted selling, general and administrative expenses is a non-GAAP financial measure. 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 GAAP. Adjusted selling, general and administrative expenses is defined as adjusted selling, general and administrative expenses before the specific adjustments shown above.   
   



 

  H.B. FULLER COMPANY AND SUBSIDIARIES
  REGULATION G RECONCILIATION
  In thousands (unaudited)
                                                     
      Americas         Asia   Construction   Engineering         Corporate   H.B. Fuller  
      Adhesives   EIMEA   Pacific   Adhesives   Adhesives   Total   Unallocated   Consolidated  
                                                     
  Three Months Ended
June 2, 2018
  $ 32,607   $ 14,040   $ 5,040   $ 11,673   $ 13,826     $ 77,186     $ (32,735 )   $ 44,451    
  Net income attributable to H.B. Fuller                                                  
                                                     
  Adjustments:                                                  
  Acquisition project costs     352     34     16     17     29       448       (151 )     297    
  Tonsan call option agreement     -     -     -     -     (2,373 )     (2,373 )     79       (2,294 )  
  Organizational realignment     54     655     -     129     -       838       (113 )     725    
  Royal restructuring and integration     2,137     1,730     555     1,200     922       6,544       (2,200 )     4,344    
  Other     610     390     186     196     194       1,576       (2,721 )     (1,145 )  
                                                     
  Adjusted net income attributable to H.B. Fuller     35,760     16,849     5,797     13,215     12,598       84,219       (37,841 )     46,378    
                                                     
  Add:                                                  
  Interest expense, net     -     -     -     -     -       -       25,144       25,144    
  Income taxes     -     -     -     -     -       -       15,565       15,565    
  Depreciation expense     4,144     5,478     1,646     2,654     2,450       16,372       -       16,372    
  Amortization expense     4,508     2,668     518     7,487     4,095       19,276       -       19,276    
  Adjusted EBITDA1 $   44,412   $ 24,995   $ 7,961   $ 23,356   $ 19,143     $ 119,867     $ 2,868     $ 122,735    
                                                     
                                                     
                     
      Americas         Asia   Construction   Engineering         Corporate   H.B. Fuller  
      Adhesives   EIMEA   Pacific   Adhesives   Adhesives   Total   Unallocated   Consolidated  
                                                     
  Six Months Ended
June 2, 2018
  $ 50,118   $ 21,878   $ 7,362   $ 12,938   $ 21,575     $ 113,871     $ (21,738 )   $ 92,133    
  Net income attributable to H.B. Fuller                                                  
                                                     
  Adjustments:                                                  
  Acquisition project costs     843     47     22     24     71       1,007       (335 )     672    
  Tonsan call option agreement     -     -     -     -     (2,326 )     (2,326 )     156       (2,170 )  
  Organizational realignment     179     717     3     279     3       1,181       251       1,432    
  Royal restructuring and integration     5,016     3,309     1,095     2,616     2,026       14,062       (4,748 )     9,314    
  Tax reform     -                       -       -       (35,555 )     (35,555 )  
  Other     1,429     929     442     464     468       3,732       (4,827 )     (1,095 )  
                                                     
  Adjusted net income attributable to H.B. Fuller     57,585     26,880     8,924     16,321     21,817       131,527       (66,796 )     64,731    
                                                     
  Add:                                                  
  Interest expense, net     -     -     -     -     -       -       49,571       49,571    
  Income taxes     -     -     -     -     -       -       21,298       21,298    
  Depreciation expense     8,613     11,195     3,326     5,675     4,985       33,794       -       33,794    
  Amortization expense     9,964     5,320     1,003     13,862     8,370       38,519       -       38,519    
  Adjusted EBITDA1 $   76,162   $ 43,395   $ 13,253   $ 35,858   $ 35,172     $ 203,839     $ 4,073     $ 207,913    
                                                     

 

  H.B. FULLER COMPANY AND SUBSIDIARIES
  REGULATION G RECONCILIATION
  In thousands (unaudited)
                                                   
      Americas         Asia   Construction   Engineering             H.B. Fuller
      Adhesives   EIMEA   Pacific   Adhesives   Adhesives   Total   Unallocated   Consolidated
                                                   
  Three Months Ended
June 3, 2017
  $ 26,456   $ 8,083   $ 4,751   $ (1,853 )   $ 5,832     $ 43,269     $ (17,402 )   $ 25,867  
  Net income attributable to H.B. Fuller                                                
                                                   
  Adjustments:                                                
  Acquisition project costs     1,027     124     45     47       48       1,291       (436 )     855  
  Tonsan call option agreement     -     -     -     -       (3,639 )     (3,639 )     70       (3,569 )
  Organizational realignment     984     1,495     22     4,209       85       6,795       (639 )     6,156  
  Other     899     606     302     319       348       2,474       21       2,495  
                                                   
  Adjusted net income attributable to H.B. Fuller     29,366     10,308     5,120     2,722       2,674       50,190       (18,386 )     31,804  
                                                   
  Add:                                                
  Interest expense, net     -     -     -     -       -       -       7,258       7,258  
  Income taxes     -     -     -     -       -       -       12,270       12,270  
  Depreciation expense     3,472     3,671     1,498     1,828       1,543       12,012       -       12,012  
  Amortization expense     1,912     1,055     420     2,287       2,200       7,874       -       7,874  
  Adjusted EBITDA1 $   34,750   $ 15,034   $ 7,038   $ 6,837     $ 6,417     $ 70,076     $ 1,142     $ 71,218  
                                                   
                                                   
                     
      Americas         Asia   Construction   Engineering             H.B. Fuller
      Adhesives   EIMEA   Pacific   Adhesives   Adhesives   Total   Unallocated   Consolidated
                                                   
  Six Months Ended
June 3, 2017
  $ 47,488   $ 9,880   $ 6,630   $ (2,536 )   $ 7,887     $ 69,349     $ (28,687 )   $ 40,662  
  Net income attributable to H.B. Fuller                                                
                                                   
  Adjustments:                                                
  Acquisition project costs     1,521     323     142     147       147       2,280       (781 )     1,499  
  Tonsan call option agreement     -     -     -     -       (3,603 )     (3,603 )     141       (3,462 )
  Organizational realignment     2,951     7,532     1,711     5,458       721       18,373       (3,775 )     14,598  
  Other     1,466     927     470     485       517       3,865       (468 )     3,397  
                                                   
  Adjusted net income attributable to H.B. Fuller     53,426     18,662     8,953     3,554       5,669       90,264       (33,570 )     56,694  
                                                   
  Add:                                                
  Interest expense, net     -     -     -     -       -       -       14,974       14,974  
  Income taxes     -     -     -     -       -       -       22,003       22,003  
  Depreciation expense     7,033     7,315     2,950     3,161       3,071       23,530       -       23,530  
  Amortization expense     3,158     2,134     880     4,612       4,445       15,229       -       15,229  
  Adjusted EBITDA1 $   63,617   $ 28,111   $ 12,783   $ 11,327     $ 13,185     $ 129,023     $ 3,407     $ 132,430  
                                                   

 

H.B. FULLER COMPANY AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
NET REVENUE GROWTH
(unaudited)
                       
Three Months Ended June 2, 2018
                       
  Americas
Adhesives
  EIMEA   Asia
Pacific
  Construction
Adhesives
  Engineering
Adhesives
  Total HBF
Price 3.0 %   4.8 %   0.6 %   (0.6 %)   6.8 %   3.2 %
Volume (5.2 %)   (1.5 %)   7.3 %   (0.2 %)   9.5 %   (0.5 %)
Mix 1.2 %   0.5 %   (0.7 %)   0.5 %   1.2 %   0.7 %
Acquisition 23.2 %   29.9 %   1.4 %   90.4 %   52.5 %   33.5 %
  Constant Currency Growth6 22.2 %   33.7 %   8.6 %   90.1 %   70.0 %   36.9 %
                       
F/X (1.1 %)   9.3 %   6.6 %   0.8 %   7.7 %   3.6 %
                       
  21.1 %   43.0 %   15.2 %   90.9 %   77.7 %   40.5 %
                       
                       
                       
                       
Six Months Ended June 2, 2018
                       
  Americas
Adhesives
  EIMEA   Asia
Pacific
  Construction
Adhesives
  Engineering
Adhesives
  Total HBF
Price 2.1 %   4.0 %   0.7 %   (0.4 %)   5.7 %   2.6 %
Volume (2.0 %)   (0.5 %)   3.0 %   (2.0 %)   7.6 %   0.1 %
Mix 0.9 %   0.3 %   (0.4 %)   (0.1 %)   1.7 %   0.6 %
Acquisition 27.1 %   29.7 %   1.7 %   82.9 %   49.8 %   33.9 %
  Constant Currency Growth6 28.1 %   33.5 %   5.0 %   80.4 %   64.8 %   37.2 %
                       
F/X (0.5 %)   10.0 %   5.9 %   0.9 %   6.4 %   3.9 %
                       
  27.6 %   43.5 %   10.9 %   81.3 %   71.2 %   41.1 %
 

 

1   Adjusted diluted earnings per share (EPS) is a non-GAAP financial measure and excludes the following costs included on the adjusted earnings per share reconciliation table above referenced in table 1): Tax reform impacts; organizational realignment to support the 2020 strategic plan as announced in December 2016; Project ONE development costs; integrating and accounting for past and present acquisitions; and Royal integration activities. Other than items referenced in the press release, we have not included a full reconciliation of adjusted EPS to EPS as part of our guidance because all potential adjustments are not known at this time. EBITDA is a non-GAAP financial measure defined on a consolidated basis as gross profit, less SG&A expense, plus depreciation expense, plus amortization expense. Adjusted EBITDA excludes items listed on the adjusted earnings per share reconciliation table above. On a segment basis it is defined as operating income, plus depreciation expense, plus amortization expense. Adjusted EBITDA margin is defined as adjusted EBITDA divided by net revenue. Other than items referenced in the press release, we have not included a full reconciliation of adjusted EBITDA to EBITDA or net income as part of our guidance because all of the potential adjustments are not known at this time.
2   Proforma financial results are provided to reflect the historical combination of H.B. Fuller and Royal as of the comparable prior periods before the acquisition was completed. The proforma results and reconciliations to GAAP outcomes were filed on form 8-k dated March 28, 2018.
3   Adjusted gross profit and adjusted gross profit margin are non-GAAP financial measures. Adjusted gross profit excludes costs associated with: organizational realignment to support the 2020 strategic plan as announced in December 2016; integrating and accounting for past and present acquisitions; and Royal integration activities. Adjusted gross profit margin is defined as adjusted gross profit divided by adjusted net revenue.
4   Revenue and Operating Income in FY 2017 are presented on a Proforma basis and reconciled in the 8-K filed March 28, 2018. Net Income and diluted EPS are adjusted as they were presented during FY 2017 and do not include the impact of Royal in 2017.
5   Adjusted SG&A expense is a non-GAAP financial measure which excludes costs associated with: organizational realignment to support the 2020 strategic plan as announced in December 2016; Project ONE development costs; integrating and accounting for past and present acquisitions; and Royal integration activities.
6   Constant currency revenue is a non-GAAP financial measure defined as changes in revenue due to price, volume, mix and acquisitions and excludes revenue changes driven by foreign currency translation. The schedule above reconciles each component of net revenue growth.

 

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1200 Willow Lake Boulevard
St. Paul, Minnesota 55110-5101
      Maximillian Marcy
  Investor Relations Contact
    651-236-5062

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Source: H.B. Fuller Company

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