H.B. Fuller Reports Fourth Quarter and Fiscal Year 2017 Results

Fiscal Year 2017 Diluted EPS $1.13, Fiscal Year Adjusted Diluted EPS $2.45^1a;
Excluding Impacts of the Royal Transaction, Fiscal Year Adjusted Diluted EPS $2.50^1b
Fiscal Year 2018 Adjusted Diluted EPS Guidance set at $3.10 to $3.40

ST. PAUL, Minn., Jan. 23, 2018 (GLOBE NEWSWIRE) -- H.B. Fuller Company (NYSE:FUL) today reported financial results for the fourth quarter and fiscal year that ended December 2, 2017 and initiated guidance for fiscal 2018. In October 2017, the Company acquired Royal Adhesives & Sealants, LLC (“Royal”), which had net revenue of $658 million during the 2017 fiscal year ended December 2, 2017.

Items of Note for 2018 Guidance:

• More than 30 percent revenue growth versus 2017 fiscal year; 6 to 7 percent revenue growth on a pro forma basis²;
• Adjusted EBITDA³ of approximately $465 million, an increase of about 60 percent versus 2017 and approximately 13 percent growth versus 2017 on a pro forma basis²;
• Adjusted diluted EPS^1a in the range of $3.10 to $3.40, an increase of 24 percent to 36 percent versus 2017;
• Core tax rate of between 25 and 27 percent, reflecting an estimate based on the recently passed legislation;
• Cash flow from operating activities of approximately $290 million. Capital expenditures planned at approximately $90 million;
• Free cash flow⁴ of approximately $200 million of which approximately $170 million will be used to repay debt.

Items of Note for the Fourth Quarter of 2017:

• Our acquisition of Royal has expanded our position in markets that require highly specified adhesive solutions;
• Net revenue growth of 18 percent versus the fourth quarter of 2016. Adjusting for the Royal acquisition and the extra week in the fourth quarter of 2016, constant currency revenue⁵ growth was 12 percent, with organic revenue growth of 10 percent and organic volume growth of 8 percent;
• Net loss was $7.6 million in the fourth quarter of 2017; adjusted net income, excluding the impact of the Royal transaction, was $38.9 million, or $0.75¹ per diluted share;
• Adjusted EBITDA³ margin, excluding the impact of the Royal transaction, was up sequentially to 13.1 percent;
• Cash flow from operations for the 2017 fiscal year was $136 million. Excluding the impact of Royal, cash flow from operations was $120 million in the fourth quarter and $197 million for the 2017 fiscal year;
• Adjusting for the extra week in the fourth quarter of 2016, organic volume growth for Engineering Adhesives was 19 percent in the quarter; Asia Pacific and the Americas both grew volume approximately 10 percent versus last year; EIMEA had solid mid-single digit volume growth and Construction Products saw improved top-line trends versus prior periods this year;
• Construction Products adjusted EBITDA³ margin was up 550 basis points versus the prior year’s fourth quarter and back to double digits.

Fiscal 2018 Guidance:
We are introducing an adjusted EPS^1a guidance range for 2018 of between $3.10 and $3.40. Adjusted EBITDA³ for fiscal year 2018 is expected to be approximately $465 million. Organic growth on proforma revenue² is expected to be 6 to 7 percent for 2018 versus the 2017 fiscal year which reflects good volume growth, favorable foreign currency translation and further pricing to offset continued raw material inflation. Our core tax rate is expected to be between 25 and 27 percent, which reflects our current estimate of the impact of the recently passed tax legislation. We expect capital expenditures to be around $90 million, which includes approximately $15 million for integration related capital expenditures.

“Our 2018 guidance reflects a step change in performance as a result of the continuation of the strong underlying growth and profit improvement in our existing business combined with continued success of the Royal business which we acquired in the fourth quarter,” said Jim Owens, H.B. Fuller President and Chief Executive Officer. “Integration activities are well under way and are going very smoothly and we are excited about the cost synergy and growth opportunities that combining these two great companies will create. The combined businesses will create solid organic growth, sizable margin improvement and significant increases in free cash flow for H.B. Fuller.”

This guidance excludes between $15 and $20 million, pre-tax, of expenses required to integrate the Royal business and other businesses acquired in 2017, between $7 and $10 million of expenses, pre-tax, related to Project ONE ERP development costs as well as other items that cannot reasonably be estimated at this time. 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.

Fourth Quarter 2017 Results:
Net loss for the fourth quarter of 2017 was $7.6 million, or a loss of $0.15 per diluted share, versus net income of $39.1 million, or $0.76 per diluted share, in last year’s fourth quarter. Adjusted diluted earnings per share in the fourth quarter of 2017, excluding the impact of the Royal transaction, were $0.75^1b versus the prior year’s adjusted result of $0.74^1a, which included an extra week. Adjusting for the extra week in 2016, adjusted earnings per share were up 9 percent as strong volume growth was offset by higher year-over-year raw material costs.

Net revenue for the fourth quarter of 2017 was $678.2 million, up 18 percent versus the fourth quarter of 2016. Adjusting for the extra week in 2016 and excluding the impact of Royal, revenue was up 12 percent as higher volume, pricing and acquisitions all positively impacted net revenue growth. Organic revenue, defined as constant currency revenue less the impact from acquisitions, was up 10 percent year-over-year.

Gross profit margin was 24.7 percent. Adjusted gross profit margin⁶, excluding the impact of the Royal transaction, was 26.5 percent. Margins remained lower year-over-year due to continued increasing raw material costs relative to the timing of additional price increases. Selling, General and Administrative (SG&A) expense was $151.1 million. Adjusted SG&A expense⁷, excluding the impact of the Royal transaction, was $101.5 million, down versus the prior year, due to one fewer operating week as well as good overall expense control.

“We had continued strong revenue performance and excellent cash flow performance in the fourth quarter as organic growth was again very strong,” said Mr. Owens. “The pricing actions we implemented early in the year had a positive impact on our margins, however, as a result of Hurricane Harvey and continued environmental controls in China, raw materials continued to increase during the fourth quarter. We have implemented additional pricing actions that will offset inflation in the first half of 2018. Engineering Adhesives, Asia Pacific and Americas all delivered double digit sales growth, with results above our long term targets. Adjusting for the Royal acquisition, we had by far our strongest cash flow quarter of the year. Most importantly, we completed the transformative and complementary acquisition of Royal Adhesives which is accelerating our strategy by combining their strong presence in specified adhesive applications with our global reach and focus.” 

Balance Sheet and Cash Flow:
At the end of the fourth quarter of 2017, cash balances totaled $194 million with total debt of $2,452 million. This compares to third quarter 2017 cash and debt levels of $120 million and $799 million, respectively. Sequentially, net debt was up by approximately $1,579 million dollars, reflecting the purchase price of Royal offset by strong cash flow from operations. Cash flow from operations for the 2017 fiscal year was $136 million. Excluding the impact of Royal, cash flow from operations was $120 million in the fourth quarter and $197 million for the 2017 fiscal year, reflecting strong topline growth and good working capital management, offset by restructuring charges. Capital expenditures were $19 million in the fourth quarter of 2017 and $55 million for the 2017 fiscal year.

Year-To-Date Results:
Net income for the 2017 fiscal year was $58.2 million, or $1.13 per diluted share, versus net income of $124.1 million, or $2.42 per diluted share, in the 2016 fiscal year. Adjusted diluted earnings per share in the 2017 fiscal year, excluding the impact of the Royal transaction, were $2.50^1b. Adjusting for the extra week last year, adjusted diluted earnings per share were up 3 percent year-over-year.

Net revenue for the 2017 fiscal year was $2,306.0 million, up 10 percent versus the 2016 fiscal year. Adjusting for Royal and the extra week in 2016, constant currency revenue⁵ grew by 10.6 percent year-over-year and organic revenue, defined as constant currency revenue less the impact from acquisitions, was up 7 percent.

Conference Call:
The Company will host an investor conference call to discuss fourth quarter results on Wednesday, January 24, 2017, 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 under the Investor Relations section of the Company’s 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 net revenue of $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, 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 3, 2016, and its SEC 10-Q filing for the quarter ended September 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.

Maximillian Marcy
Investor Relations Contact
651-236-5062