H.B. Fuller Reports Third Quarter 2018 Results

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H.B. Fuller Reports Third Quarter 2018 Results

Third Quarter Diluted EPS $0.72 and Adjusted Diluted EPS $0.861;
Fiscal Year 2018 Adjusted Diluted EPS Guidance Updated to $3.05 to $3.20;
Unfavorable Foreign Exchange Rate Movement Impacted Adjusted EPS by approximately $0.10 in the Second Half of 2018

ST. PAUL, Minn., Sept. 26, 2018 (GLOBE NEWSWIRE) -- Fuller Company (NYSE:FUL) today reported financial results for the third quarter that ended Sept. 1, 2018.

Third Quarter 2018 Highlights:

  • Net revenue of $770 million increased 37 percent compared with the third quarter of 2017, including the Royal business which was acquired in October, 2017. Organic revenue increased approximately 5 percent;
  • Net income of $38 million or $0.72 per diluted share, increased compared with $25 million, or $0.49 in the third quarter of 2017; adjusted net income1 of $45 million, or $0.861 per diluted share, increased 34 percent compared with $33 million, or $0.65 in the third quarter of 2017;
  • Adjusted EBITDA1 of $120 million increased 63 percent compared with the third quarter of 2017; adjusted EBITDA margin1 increased to 15.6 percent from 13.1 percent in the same period last year as a result of the Royal acquisition and effective management of our legacy business;
  • The Royal integration continues to progress well with approximately $4 million of incremental cost synergies in the third quarter. On track to realize $15 million of cost synergies in fiscal 2018 and $35 million of savings by 2020, as previously communicated;
  • Cash flow from operations of $84 million increased compared with $38 million in the same period last year. Debt pay down in the quarter was $41 million. On track to meet our $170 million debt reduction goal for the 2018 fiscal year.
 
Third Quarter 2018 Key Financial Metrics:
               
  Reported   Adjusted/Proforma4
  2018 2017 % Change   2018 2017 % Change
Net Revenue $770,107 $562,869 37%   $770,107 $741,993 4%
Operating Income 71,135 40,181 77%   83,327 75,781 10%
Net Income 37,730 25,138 50%   44,666 33,318 34%
Diluted Earnings per Share 0.72 0.49 47%   0.86 0.65 32%
               

Summary of Third Quarter 2018 Results:
Net revenue for the third quarter of 2018 was $770.1 million, an increase of 36.8 percent compared with the third quarter of 2017. Organic revenue increased 4.8 percent year-over-year, driven by sales growth in every segment, and double-digit growth in Engineering Adhesives.

Gross profit margin was 28.2 percent. Adjusted gross profit margin3 of 28.7 percent increased 110 basis points compared with the prior year on a proforma basis including Royal2 in 2017, and increased 40 basis points sequentially, reflecting positive pricing contribution and raw material sourcing synergies. Selling, General and Administrative (SG&A) expense was $146.1 million. Adjusted SG&A expense5 of $137.7 million increased compared with the third quarter of 2017, primarily due to the impact of acquisitions.

Net income for the third quarter of 2018 was $37.7 million, or $0.72 per diluted share, compared with net income of $25.1 million, or $0.49 per diluted share, in the third quarter of 2017. Adjusted diluted earnings per share were $0.861, an increase of 32 percent compared with $0.65 in the prior year. Adjusted EBITDA1 was $120 million, up 63 percent compared with the prior year, and up 7 percent2 on a proforma basis including Royal in 2017.

“Our strong third quarter results demonstrated the earnings power of our business as we grew organic revenue by nearly 5 percent and increased profitability in an environment of rising raw materials and currency headwinds,” said Jim Owens, president and chief executive officer. “We continue to grow organically by winning new opportunities in targeted markets and by managing pricing to offset raw materials inflation.

“Foreign currency shifts in the quarter impacted revenues by approximately two percent and also impacted earnings. Strong sales performance combined with managerial discipline generated adjusted EBITDA of $120 million and operating cash flow of $84 million in the quarter. Free cash flow resulted in debt pay down of $41 million, and we are on track to deliver our committed total reduction of $170 million of debt in 2018,” continued Owens.

"While foreign currency exchange rate fluctuations and near-term headwinds are impacting the current year results, our overall commitment to achieve $605 million of EBITDA and $600 million of debt pay down by 2020 remains intact and unchanged.”

EBITDA Calculation Revision:
In order to conform to 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 $119.5 million in the third 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 third quarter of 2018, the Company had cash on hand of $150 million and total debt equal to $2,364 million, of which approximately 70 percent had a fixed interest rate. This compares to cash and debt levels equal to $129 million and $2,405 million, respectively, in the second quarter of 2018. Cash flow from operations in the third quarter was $84 million compared to $38 million for the same period in 2017, reflecting the increased profitability of the business. Capital expenditures were $13 million in the third quarter of 2018, compared with $8 million in the same period last year.

Fiscal 2018 Guidance:
H.B. Fuller is updating its guidance for the 2018 fiscal year. The company is adjusting EPS guidance by $0.10 per share to reflect unfavorable movement in foreign currency exchange rates and narrowing the EPS range to reflect current business conditions. The company now anticipates adjusted EPS of $3.05 to $3.20, compared with the previous range of $3.15 to $3.40; and adjusted EBITDA of $455 to $470 million, compared with previous guidance of approximately $470 million. Revenue growth for the fourth quarter is expected to be approximately 3 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 $70 million in capital items in 2018.

This guidance excludes approximately $20 to $25 million of pre-tax expenses required to integrate the Royal business and other businesses acquired in 2017, and between $7 and $8 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 third quarter results on Thursday, September 27, 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 income before taxes, income from equity investments, adjusted income tax and adjusted effective tax rate, 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:
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 2017 net revenue of over $2.3 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, aerospace, 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.

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
  September 1, 2018   Net Revenue   September 2, 2017   Net Revenue
Net revenue $ 770,107     100.0 %   $ 562,869     100.0 %
Cost of sales   (552,903 )   (71.8 %)     (412,469 )   (73.3 %)
Gross profit   217,204     28.2 %     150,400     26.7 %
                   
Selling, general and administrative expenses   (146,069 )   (19.0 %)     (110,219 )   (19.6 %)
Operating income   71,135     9.2 %     40,181     7.1 %
                   
Other expense   (1,375 )   (0.2 %)     (602 )   (0.1 %)
Interest expense, net   (24,924 )   (3.2 %)     (7,348 )   (1.3 %)
Income before income taxes and income from equity method investments   44,836     5.8 %     32,231     5.7 %
                   
Income taxes   (9,300 )   (1.2 %)     (9,262 )   (1.6 %)
                   
Income from equity method investments   2,200     0.3 %     2,170     0.4 %
Net income including non-controlling interests   37,736     4.9 %     25,139     4.5 %
                   
Net income attributable to non-controlling interests   (6 )   (0.0 %)     (1 )   0.0 %
Net income attributable to H.B. Fuller $ 37,730     4.9 %   $ 25,138     4.5 %
                   
Basic income per common share attributable to H.B. Fuller $ 0.75         $ 0.50      
                   
Diluted income per common share attributable to H.B. Fuller $ 0.72         $ 0.49      
                   
Weighted-average common shares outstanding:                  
Basic   50,632           50,384      
Diluted   52,138           51,605      
                   
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)
                 
  September 1, 2018   December 2, 2017   September 2, 2017
Cash & cash equivalents $ 150,084   $ 194,398   $ 119,595
Trade accounts receivable, net   465,942     473,700     393,054
Inventories   401,091     359,505     317,968
Trade payables   256,042     268,467     193,345
Total assets   4,289,777     4,360,646     2,288,323
Total debt   2,364,237     2,451,910     798,973
                 

 

 
H.B. FULLER COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
In thousands, except per share amounts (unaudited)
                   
  Nine Months Ended   Percent of   Nine Months Ended   Percent of
  September 1, 2018   Net Revenue   September 2, 2017   Net Revenue
Net revenue $ 2,272,573     100.0 %   $ 1,627,843     100.0 %
Cost of sales   (1,645,279 )   (72.4 %)     (1,192,409 )   (73.3 %)
Gross profit   627,294     27.6 %     435,434     26.7 %
                   
Selling, general and administrative expenses   (442,288 )   (19.5 %)     (325,904 )   (20.0 %)
Operating Income   185,006     8.1 %     109,530     6.7 %
                   
Other income (expense)   3,508     0.2 %     (1,506 )   (0.1 %)
Interest expense, net   (74,651 )   (3.3 %)     (22,461 )   (1.4 %)
Income before income taxes and income from equity method investments   113,863     5.0 %     85,563     5.2 %
                   
Income taxes   9,844     0.4 %     (26,178 )   (1.6 %)
                   
Income from equity method investments   6,160     0.3 %     6,449     0.4 %
Net income including non-controlling interests   129,867     5.7 %     65,834     4.0 %
                   
Net income attributable to non-controlling interests   (4 )   (0.0 %)     (34 )   (0.0 %)
Net income attributable to H.B. Fuller $ 129,863     5.7 %   $ 65,800     4.0 %
                   
Basic income per common share attributable to H.B. Fuller $ 2.57         $ 1.31      
                   
Diluted income per common share attributable to H.B. Fuller $ 2.50         $ 1.28      
                   
Weighted-average common shares outstanding:                  
Basic   50,551           50,374      
Diluted   51,961           51,584      
                   
Dividends declared per common share $ 0.460         $ 0.44      
                       

 

 
H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands, except per share amounts (unaudited)
                         
    Three Months Ended   Nine Months Ended
    September 1, 2018   September 2, 2017   September 1, 2018   September 2, 2017
                         
Net income attributable to H.B. Fuller   $ 37,730     $ 25,138     $ 129,863     $ 65,800  
                         
Acquisition project costs     1,544       1,266       2,215       3,363  
Tonsan call option agreement     110       1,222       (2,059 )     (2,241 )
Organizational realignment     879       832       2,311       14,831  
Royal restructuring and integration     5,164       3,530       14,478       3,530  
Tax reform     -       -       (35,555 )     -  
Other     (761 )     1,330       (1,857 )     4,728  
Adjusted net income attributable to H.B. Fuller     44,666       33,318       109,396       90,011  
                         
Add:                        
Interest expense, net     24,816       7,276       74,387       22,248  
Income taxes     14,664       12,971       35,962       34,974  
Depreciation expense     17,007       12,332       50,801       35,862  
Amortization expense     19,116       7,899       57,635       23,128  
Adjusted EBITDA     120,269       73,796       328,181       206,223  
                         
Diluted Shares     52,138       51,605       51,961       51,584  
Adjusted diluted income per common share attributable to H.B. Fuller   $ 0.86     $ 0.65     $ 2.11     $ 1.74  
Revenue   $ 770,107     $ 562,869     $ 2,272,573     $ 1,627,843  
Adjusted EBITDA margin     15.6 %     13.1 %     14.4 %     12.7 %
                         
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 excluding 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 expense and amortization expense, and excluding acquisition project costs, TONSAN call option agreement, organizational realignment Royal restructuring and integration, the impact from tax reform and other costs, primarily consisting of Project ONE ERP development costs. 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
  September 1, 2018   September 2, 2017
Net Revenue:          
Americas Adhesives $ 282,490   $ 230,881
EIMEA   182,020     137,408
Asia Pacific   65,944     62,972
Construction Adhesives   121,140     59,080
Engineering Adhesives   118,513     72,528
Total H.B. Fuller $ 770,107   $ 562,869
           
Segment Operating Income:          
Americas Adhesives $ 34,816   $ 25,434
EIMEA   8,758     8,873
Asia Pacific   3,694     2,793
Construction Adhesives   12,767     (698
Engineering Adhesives   11,100     3,779
Total H.B. Fuller $ 71,135   $ 40,181
           
Adjusted EBITDA1          
Americas Adhesives $ 50,964   $ 35,361
EIMEA   19,158     16,808
Asia Pacific   6,580     5,648
Construction Adhesives   23,516     4,612
Engineering Adhesives   19,232     9,799
Total H.B. Fuller $ 119,450   $ 72,228
           
Adjusted EBITDA Margin1          
Americas Adhesives   18.0%     15.3%
EIMEA   10.5%     12.2%
Asia Pacific   10.0%     9.0%
Construction Adhesives   19.4%     7.8%
Engineering Adhesives   16.2%     13.5%
Total H.B. Fuller   15.5%     12.8%
           
           

 

 
H.B. FULLER COMPANY AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
In thousands (unaudited)
           
  Nine Months Ended   Nine Months Ended
  September 1, 2018   September 2, 2017
Net Revenue:          
Americas Adhesives $ 821,813   $ 653,665
EIMEA   554,031     396,674
Asia Pacific   206,944     190,083
Construction Products   340,179     179,880
Engineering Adhesives   349,606     207,541
Total H.B. Fuller $ 2,272,573   $ 1,627,843
           
Segment Operating Income:          
Americas Adhesives $ 84,934   $ 72,921
EIMEA   30,636     18,753
Asia Pacific   11,056     9,423
Construction Products   25,705     (3,234
Engineering Adhesives   32,675     11,667
Total H.B. Fuller $ 185,006   $ 109,530
           
Adjusted EBITDA1          
Americas Adhesives $ 127,124   $ 99,002
EIMEA   62,554     44,965
Asia Pacific   19,833     18,438
Construction Products   59,374     15,947
Engineering Adhesives   54,404     22,962
Total H.B. Fuller $ 323,289   $ 201,314
           
Adjusted EBITDA Margin1          
Americas Adhesives   15.5%     15.1%
EIMEA   11.3%     11.3%
Asia Pacific   9.6%     9.7%
Construction Products   17.5%     8.9%
Engineering Adhesives   15.6%     11.1%
Total H.B. Fuller   14.2%     12.4%
           
           

 

 
H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands, except per share amounts (unaudited)
             
  Three Months Ended   Nine Months Ended
  September 1, 2018   September 2, 2017   September 1, 2018   September 2, 2017
                       
Income before income taxes and income from equity method investments $ 44,836     $ 32,231     $ 113,863     $ 85,563  
                       
Adjustments:                      
Acquisition project costs   2,101       1,944       3,108       5,144  
Tonsan call option agreement   110       1,222       (2,059 )     (2,241 )
Organizational realignment   1,029       1,492       2,211       18,945  
Royal restructuring and integration   6,496       5,431       20,558       5,431  
Other   2,564       1,800       1,522       5,728  
Adjusted income before income taxes and income from equity method investments $ 57,136     $ 44,120     $ 139,203     $ 118,570  
                       
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 excluding the specific adjustments shown above. 
                       
                       
H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands, except per share amounts (unaudited)
                       
  Three Months Ended   Nine Months Ended
  September 1, 2018   September 2, 2017   September 1, 2018   September 2, 2017
                       
Income Taxes $ (9,300 )   $ (9,262 )   $ 9,844     $ (26,178 )
                       
Adjustments:                      
Acquisition project costs   (556 )     (677 )     (892 )     (1,780 )
Organizational realignment   (150 )     (661 )     100       (4,114 )
Royal restructuring and integration   (1,332 )     (1,901 )     (6,081 )     (1,901 )
Tax reform   -       -       (35,555 )      
Other   (3,326 )     (470 )     (3,378 )     (1,001 )
                               
Adjusted income taxes $ (14,664 )   $ (12,971 )   $ (35,962 )   $ (34,974 )
                       
Adjusted income before income taxes and income from equity method investments $ 57,136     $ 44,120     $ 139,203     $ 118,570  
Adjusted effective income tax rate   25.7 %     29.4 %     25.8 %     29.5 %
                       
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 excluding 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   Nine Months Ended
  September 1,
2018
  September 2,
2017
  September 1,
2018
  September 2,
2017
                       
Net revenue   770,107       562,869       2,272,573       1,627,843  
                       
Gross profit $ 217,204     $ 150,400     $ 627,294     $ 435,434  
Gross profit margin   28.2 %     26.7 %     27.6 %     26.7 %
                       
Adjustments:                      
Acquisition project costs   1,822       1,400       1,995       2,942  
Organizational realignment   615       622       1,212       11,011  
Royal restructuring and integration   1,395             2,303        
Tax reform                      
Other                      
Adjusted gross profit $ 221,036     $ 152,422     $ 632,804     $ 449,387  
Adjusted gross profit margin   28.7 %     27.1 %     27.8 %     27.6 %
                       
Adjusted gross profit and gross profit margin is a non-GAAP financial measures. 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 excluding the specific adjustments shown above. 
                       
                       
H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands (unaudited)
                       
  Three Months Ended   Nine Months Ended
  September 1,
2018
  September 2,
2017
  September 1,
2018
  September 2,
2017
                       
Selling, general and administrative expenses $ (146,069 )   $ (110,219 )   $ (442,288 )   $ (325,904 )
                       
Adjustments:                      
Acquisition project costs   279       544       1,113       2,201  
Tonsan call option agreement   2       1,150       (2,323 )     (2,453 )
Organizational realignment   413       870       998       7,934  
Royal restructuring and integration   5,101       5,431       18,256       5,431  
Other   2,565       1,800       6,293       5,728  
Adjusted selling, general and administrative expenses $ (137,709 )   $ (100,424 )   $ (417,951 )   $ (307,063 )
                       
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 excluding 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 September 1, 2018   $ 34,816   $ 8,758   $ 3,694   $ 12,767   $ 11,100     $ 71,135     $ (33,405 )   $ 37,730  
Net income attributable to H.B. Fuller                                                
                                                 
Adjustments:                                                
Acquisition project costs     2,036     26     12     13     13       2,100       (556 )     1,544  
Tonsan call option agreement     -     -     -     -     2       2       108       110  
Organizational realignment     7     623     3     393     3       1,029       (150 )     879  
Royal restructuring and integration     2,123     1,286     429     1,902     756       6,496       (1,332 )     5,164  
Other     972     642     306     323     322       2,565       (3,326 )     (761 )
                                                 
Adjusted net income attributable to H.B. Fuller     39,954     11,335     4,444     15,398     12,196       83,327       (38,661 )     44,666  
                                                 
Add:                                                
Interest expense, net     -     -     -     -     -       -       24,816       24,816  
Income taxes     -     -     -     -     -       -       14,664       14,664  
Depreciation expense     4,510     5,492     1,649     2,887     2,469       17,007       -       17,007  
Amortization expense     6,500     2,331     487     5,231     4,567       19,116       -       19,116  
Adjusted EBITDA1 $   50,964   $ 19,158   $ 6,580   $ 23,516   $ 19,232     $ 119,450     $ 819     $ 120,269  
                                                 
 
    Americas         Asia   Construction Engineering         Corporate   H.B. Fuller
    Adhesives   EIMEA   Pacific   Adhesives   Adhesives   Total   Unallocated   Consolidated
                                                 
Nine Months Ended
September 1, 2018
  $ 84,934   $ 30,636   $ 11,056   $ 25,705   $ 32,675     $ 185,006 $ (55,143 )   $ 129,863  
Net income attributable to H.B. Fuller                                                
                                                 
Adjustments:                                                
Acquisition project costs     2,878     73     35     37     84       3,107       (892 )     2,215  
Tonsan call option agreement     -     -     -     -     (2,323 )     (2,323 )     264       (2,059 )
Organizational realignment     187     1,340     5     673     6       2,211       100       2,311  
Royal restructuring and integration     7,140     4,596     1,524     4,518     2,781       20,559       (6,081 )     14,478  
Tax reform     -     -     -     -     -       -       (35,555 )     (35,555 )
Other     2,398     1,570     748     787     790       6,293       (8,150 )     (1,857 )
                                                 
Adjusted net income attributable to H.B. Fuller     97,537     38,215     13,368     31,720     34,013       214,853       (105,457 )     109,396  
                                                 
Add:                                                
Interest expense     -     -     -     -     -       -       74,387       74,387  
Income taxes     -     -     -     -     -       -       35,962       35,962  
Depreciation expense     13,123     16,688     4,975     8,562     7,453       50,801       -       50,801  
Amortization expense     16,464     7,651     1,490     19,092     12,938       57,635       -       57,635  
Adjusted EBITDA1 $   127,124   $ 62,554   $ 19,833   $ 59,374   $ 54,404     $ 323,289     $ 4,892     $ 328,181  
                                                     

 

 
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 September 2, 2017   $ 25,434   $ 8,873   $ 2,793   $ (698 )   $ 3,779     $ 40,181     $ (15,043 )   $ 25,138  
Net income attributable to H.B. Fuller                                                
                                                 
Adjustments:                                                
Acquisition project costs     1,703     108     43     45       45       1,944       (678 )     1,266  
Tonsan call option agreement     -     -     -     -       1,149       1,149       73       1,222  
Organizational realignment     283     926     44     164       75       1,492       (660 )     832  
Royal Restructuring     2,059     1,359     647     682       684       5,431       (1,901 )     3,530  
Other     683     450     214     226       227       1,800       (470 )     1,330  
                                                 
Adjusted net income attributable to H.B. Fuller     30,162     11,716     3,741     419       5,959       51,997       (18,679 )     33,318  
                                                 
Add:                                                
Interest expense     -     -     -     -       -       -       7,276       7,276  
Income taxes     -     -     -     -       -       -       12,971       12,971  
Depreciation expense     3,401     3,955     1,492     1,892       1,592       12,332       -       12,332  
Amortization expense     1,798     1,137     415     2,301       2,248       7,899       -       7,899  
                                                           
Adjusted EBITDA1    $ 35,361   $ 16,808   $ 5,648   $ 4,612     $ 9,799     $ 72,228     $ 1,568     $ 73,796  
                                                 
                                                 
                                                 
    Americas         Asia   Construction Engineering           H.B. Fuller
    Adhesives   EIMEA   Pacific   Adhesives   Adhesives   Total   Unallocated   Consolidated
                                                 
Nine Months Ended September 2, 2017   $ 72,921   $ 18,753   $ 9,423   $ (3,234 )   $ 11,667     $ 109,530     $ (43,730 )   $ 65,800  
Net income attributable to H.B. Fuller                                                
                                                 
Adjustments:                                                
Acquisition project costs     4,143     430     185     192       193       5,143       (1,780 )     3,363  
Tonsan call option agreement     -     -     -     -       (2,453 )     (2,453 )     212       (2,241 )
Organizational realignment     2,314     8,459     1,755     5,622       795       18,945       (4,114 )     14,831  
Royal Restructuring     2,059     1,359     647     682       684       5,431       (1,901 )     3,530  
Other     2,172     1,433     683     719       721       5,728       (1,000 )     4,728  
                                                 
Adjusted net income attributable to H.B. Fuller     83,609     30,434     12,693     3,981       11,607       142,324       (52,313 )     90,011  
                                                 
Add:                                                
Interest expense, net     -     -     -     -       -       -       22,248       22,248  
Income taxes     -     -     -     -       -       -       34,974       34,974  
Depreciation expense     10,434     11,260     4,452     5,054       4,662       35,862       -       35,862  
Amortization expense     4,959     3,271     1,293     6,912       6,693       23,128       -       23,128  
                                                           
Adjusted EBITDA1    $ 99,002   $ 44,965   $ 18,438   $ 15,947     $ 22,962     $ 201,314     $ 4,909     $ 206,223  
                                                 

 

 
 H.B. FULLER COMPANY AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
NET REVENUE GROWTH
(unaudited)
                       
Three Months Ended September 1, 2018
                       
  Americas
Adhesives
  EIMEA   Asia
Pacific
  Construction
Adhesives
  Engineering
Adhesives
  Total HBF
Price 5.5 %   5.1 %   1.7 %   0.5 %   7.0 %   4.6 %
Volume (5.0 %)   0.4 %   1.1 %   5.2 %   6.1 %   (0.5 %)
Mix 1.2 %   0.7 %   (0.1 %)   (1.0 %)   1.3 %   0.7 %
Acquisition 24.4 %   29.3 %   1.9 %   100.5 %   48.4 %   34.2 %
  Constant Currency Growth6 26.1 %   35.5 %   4.6 %   105.2 %   62.8 %   39.0 %
F/X (3.8 %)   (3.0 %)   0.0 %   (0.1 %)   0.6 %   (2.2 %)
                       
  22.3 %   32.5 %   4.6 %   105.1 %   63.4 %   36.8 %
                       
                       
Nine Months Ended September 1, 2018
                       
  Americas
Adhesives
  EIMEA   Asia
Pacific
  Construction
Adhesives
  Engineering
Adhesives
  Total HBF
Price 3.3 %   4.4 %   1.1 %   (0.1 %)   6.1 %   3.3 %
Volume (3.1 %)     (0.1 %)   2.4 %   0.3 %   6.5 %   (0.2 %)
Mix 1.0 %   0.4 %   (0.4 %)   (0.4 %)   1.5 %   0.6 %
Acquisition 26.1 %   29.5 %   1.7 %   88.8 %   49.3 %   34.0 %
  Constant Currency Growth6 27.3 %   34.2 %   4.8 %   88.6 %   63.4 %   37.7 %
F/X (1.6 %)   5.5 %   4.0 %   0.6 %   5.1 %   1.9 %
                       
  25.7 %   39.7 %   8.8 %   89.2 %   68.5 %   39.6 %

__________________________________

Adjusted net income and adjusted diluted earnings per share (EPS) are non-GAAP financial measures and exclude the following costs: Tax reform impacts; organizational realignment to support the 2020 strategic plan as announced in December 2016; acquisition project costs for integrating and accounting for past and present acquisitions; Royal restructuring and integration activities; and other costs, primarily consisting of Project ONE ERP development costs. 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 is defined as net income before interest, income taxes, depreciation expense and amortization expense, and excluding acquisition project costs, TONSAN call option agreement, organizational realignment Royal restructuring and integration, the impact from tax reform and other costs, primarily consisting of Project ONE ERP development costs. 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.
   

Barbara Doyle
Investor Relations contact
651-236-5023

H.B. Fuller Company

 

Source: H.B. Fuller Company

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