Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Equities  >  Nyse  >  H.B. Fuller Company    FUL

H.B. FULLER COMPANY

(FUL)
  Report
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
News SummaryMost relevantAll newsPress ReleasesOfficial PublicationsSector news

H B Fuller : FULLER H B CO Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

share with twitter share with LinkedIn share with facebook
share via e-mail
03/26/2020 | 03:34pm EDT

Overview




The Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) should be read in conjunction with the MD&A included in our
Annual Report on Form 10-K for the year ended November 30, 2019 for important
background information related to our business.



Net revenue in the first quarter of 2020 decreased 3.9 percent from the first
quarter of 2019. Net revenue decreased 0.2 percent due to sales volume, 1.1
percent due to unfavorable product pricing and 0.9 percent due to the
divestiture of our surfactants and thickeners business. Negative currency
effects of 1.7 percent compared to the first quarter of 2019 were primarily
driven by the weaker Brazilian real, Euro, Argentinian peso, Turkish lira,
Chinese renminbi and Australian dollar compared to the U.S. dollar. Gross profit
margin decreased 40 basis points primarily due to lower sales price and
unfavorable mix partially offset by decreased raw material costs.



Net income attributable to H.B. Fuller in the first quarter of 2020 was $9.9
million compared to $12.2 million in the first quarter of 2019. On a diluted
earnings per share basis, the first quarter of 2020 was $0.19 per share compared
to $0.24 per share for the first quarter of 2019.



Restructuring Plan



2020 Restructuring Plan



During the fourth quarter of 2019, we approved a restructuring plan related to
organizational changes and other actions to optimize operations in connection
with the realignment of the Company into three segments ("2020 Restructuring
Plan"). In implementing the 2020 Restructuring Plan, we expect to incur costs of
approximately $9.0 million to $11.0 million ($7.1 million to $8.7 million
after-tax), which includes (i) cash expenditures of approximately $6.0 million
to $8.0 million ($4.8 million to $6.4 million after tax) for severance and
related employee costs globally and (ii) $3.0 million ($2.3 million after-tax)
related to streamlining of processes and other restructuring-related costs. All
restructuring costs are expected to be cash costs. We have incurred costs of
$9.8 million under this plan as of February 29, 2020. The 2020 Restructuring
Plan was implemented in the fourth quarter of 2019 and is currently expected to
be completed by mid-year of fiscal year 2021.



Royal Adhesives Restructuring Plan




During the first quarter of 2018, we approved a restructuring plan consisting of
consolidation plans, organizational changes and other actions related to the
integration of the operations of Royal Adhesives with the operations of the
Company (the "Royal Adhesives Restructuring Plan"). In implementing the Royal
Adhesives Restructuring Plan, we have incurred costs of approximately $10.5
million, which includes (i) cash expenditures of approximately $6.2 million for
severance and related employee costs globally and (ii) other costs of
approximately $4.3 million related to the optimization of production facilities,
streamlining of processes and accelerated depreciation of long-lived assets.
Approximately $8.0 million of the costs were cash costs. The Royal Adhesives
Restructuring Plan was implemented in the first quarter of 2018 and is
substantially complete.



Results of Operations

Net revenue:




                             Three Months Ended
                  February 29,       March 2,      2020 vs
($ in millions)       2020             2019          2019
Net revenue       $       646.6$    672.9        (3.9% )




                                       25

--------------------------------------------------------------------------------

Table of Contents




We review variances in net revenue in terms of changes related to sales volume,
product pricing, business acquisitions and divestitures (M&A) and changes in
foreign currency exchange rates. The following table shows the net revenue
variance analysis for the first quarter of 2020 compared to the same period in
2019:



                 Three Months Ended February 29, 2020
                           vs March 2, 2019
Organic growth                                   (1.3% )
M&A                                              (0.9% )
Currency                                         (1.7% )
Total                                            (3.9% )




Organic growth was a negative 1.3 percent in the first quarter of 2020 compared
to the first quarter of 2019. The 1.3 percent negative organic growth in the
first quarter of 2020 was driven by a 4.4 percent decrease in Engineering
Adhesives, partially offset by 3.2 percent growth in Construction Adhesives. HHC
was flat. The decrease is predominately driven by a decrease in sales price. The
0.9 percent decrease related to M&A is due to the sale of our surfactants and
thickeners business. The negative 1.7 percent currency impact was primarily
driven by a weaker Brazilian real, Euro, Argentinian peso, Turkish lira, Chinese
renminbi and Australian dollar compared to the U.S. dollar.



Cost of sales:




                                       Three Months Ended
                            February 29,       March 2,      2020 vs
($ in millions)                 2020             2019          2019
Raw materials               $       345.2$    361.1        (4.4% )
Other manufacturing costs           131.1          131.9        (0.6% )
Cost of sales               $       476.3$    493.0        (3.4% )
Percent of net revenue              73.7%          73.3%




Cost of sales in the first quarter of 2020 compared to the first quarter of 2019
increased 40 basis points as a percentage of net revenue. Raw material cost as a
percentage of net revenue decreased 30 basis points in the first quarter of 2020
compared to the first quarter of 2019 primarily due to decreased raw material
costs. Other manufacturing costs as a percentage of revenue increased 70 basis
points in the first quarter of 2020 compared to the first quarter of 2019
primarily due to the impact of lower net revenue.



Gross profit:




                                    Three Months Ended
                         February 29,       March 2,      2020 vs
($ in millions)              2020             2019          2019
Gross profit             $       170.3$    179.9        (5.3% )
Percent of net revenue           26.3%          26.7%



Gross profit in the first quarter of 2020 decreased 5.3 percent and gross profit margin decreased 40 basis points compared to the first quarter of 2019. The decrease in gross profit margin was primarily due to lower sales price and unfavorable mix partially offset by decreased raw material costs.

Selling, general and administrative (SG&A) expenses:




                                    Three Months Ended
                         February 29,       March 2,      2020 vs
($ in millions)              2020             2019          2019
SG&A                     $       141.5$    145.7        (2.9% )
Percent of net revenue           21.9%          21.7%



SG&A expenses for the first quarter of 2020 decreased $4.2 million, or 2.9 percent, compared to the first quarter of 2019. The decrease is primarily due to cost savings realized from our business realignment to three segments.

                                       26

--------------------------------------------------------------------------------

  Table of Contents



Other income (expense), net:




                                         Three Months Ended
                              February 29,      March 2,      2020 vs
($ in millions)                   2020            2019          2019
Other income (expense), net   $         5.0     $     3.4        47.1%



Other income, net in the first quarter of 2020 included $4.5 million of net defined benefit pension benefits, $0.3 of other income and $0.2 million of currency transaction gains. Other income, net in the first quarter of 2019 included $3.4 million of net defined benefit pension benefits and $0.3 million of other income offset by $0.3 million of currency transaction losses.



Interest expense:




                               Three Months Ended
                    February 29,       March 2,      2020 vs
($ in millions)         2020             2019          2019
Interest expense   $         22.8     $     26.8       (14.9% )




Interest expense in the first quarter of 2020 was $22.8 million compared to
$26.8 million in the first quarter of 2019. Interest expense in the first
quarter of 2020 compared to the first quarter of 2019 was lower due to lower
U.S. debt balances. We capitalized $0.1 million of interest expense in both the
first quarter of 2020 and 2019.



Interest income:




                             Three Months Ended
                  February 29,      March 2,      2020 vs
($ in millions)       2020            2019          2019
Interest income   $         2.9     $     3.1        (6.5% )



Interest income in the first quarter of 2020 was $2.9 million. Interest income in the first quarter of 2019 was $3.1 million.



Income taxes:




                                Three Months Ended
                     February 29,       March 2,      2020 vs
($ in millions)          2020             2019          2019
Income taxes         $         5.6     $      3.1        80.6%
Effective tax rate           40.4%          22.7%




                                       27

--------------------------------------------------------------------------------

Table of Contents




Income tax expense of $5.6 million in the first quarter of 2020 includes $2.0
million of discrete tax expense. Excluding the discrete tax expense of $2.0
million related to various foreign tax matters, the overall effective tax rate
was 25.9 percent. Income tax expense of $3.1 million in the first quarter of
2019 included $0.8 million of discrete tax benefit. Excluding the discrete tax
benefit, the overall effective tax rate was 28.2 percent. The reduction in rate
without discrete taxes relates to changes in the geographic mix of earnings.



Income from equity method investments:




                                                    Three Months Ended
                                         February 29,      March 2,       2020 vs
($ in millions)                              2020            2019          2019

Income from equity method investments $ 1.6 $ 1.6

  0.0%



The income from equity method investments relates to our 50 percent ownership of the Sekisui-Fuller joint venture in Japan.

Net income attributable to H.B. Fuller:




                                                     Three Months Ended
                                          February 29,       March 2,      2020 vs
($ in millions)                               2020             2019          2019

Net income attributable to H.B. Fuller $ 9.9 $ 12.2

 (18.9% )
Percent of net revenue                             1.5%           1.8%




The net income attributable to H.B. Fuller for the first quarter of 2020 was
$9.9 million compared to $12.2 million for the first quarter of 2019. The
diluted earnings per share for the first quarter of 2020 was $0.19 per share as
compared to $0.24 per share for the first quarter of 2019.



Operating Segment Results



As of November 30, 2019, we had five reportable segments: Americas Adhesives,
EIMEA, Asia Pacific, Construction Adhesives and Engineering Adhesives. As of the
beginning of fiscal 2020, we realigned our operating segment structure and now
have three reportable segments: Hygiene, Health and Consumable Adhesives,
Engineering Adhesives and Construction Adhesives. The change in operating
segments is based on how we have organized the company to make operating
decisions and assess business performance. Prior period segment information has
been recast retrospectively to reflect the realignment.



The tables below provide certain information regarding the net revenue and segment operating income of each of our operating segments.

Corporate Unallocated includes acquisition and integration-related charges, restructuring-related charges and the results of business divestitures.



Net Revenue by Segment:




                                                         Three Months Ended
                                             February 29, 2020           March 2, 2019
                                              Net           % of        Net         % of
($ in millions)                             Revenue        Total      Revenue      Total
Hygiene, Health and Consumable Adhesives   $    312.5         48%     $  319.8        48%
Engineering Adhesives                           248.9         39%        264.4        39%
Construction Adhesives                           85.2         13%         82.8        12%
Segment total                              $    646.6        100%     $  667.0        99%
Corporate Unallocated                               -           -          5.9         1%
Total                                      $    646.6        100%     $  672.9       100%




                                       28

--------------------------------------------------------------------------------

Table of Contents

Segment Operating Income (Loss):



                                                                    Three Months Ended
                                                   February 29, 2020                      March 2, 2019
                                               Segment                               Segment
                                              Operating                             Operating
($ in millions)                             Income (Loss)        % of Total       Income (Loss)      % of Total
Hygiene, Health and Consumable Adhesives   $          22.7               79%     $          20.9             61%
Engineering Adhesives                                 15.4               53%                22.0             64%
Construction Adhesives                                (1.4 )             (5% )              (1.7 )           (5% )
Segment total                                         36.7              127%                41.2            120%
Corporate Unallocated                                 (7.9 )            (27% )              (7.0 )          (20% )
Total                                      $          28.8              100%     $          34.2            100%



Hygiene, Health and Consumable Adhesives




                                      Three Months Ended
                           February 29,       March 2,      2020 vs
($ in millions)                2020             2019          2019
Net revenue                $       312.5$    319.8        (2.3% )
Segment operating income   $        22.7$     20.9         8.6%
Segment operating margin            7.3%           6.5%



The following table provides details of the Hygiene, Health and Consumable Adhesives net revenue variances:




                 Three Months Ended February 29, 2020
                           vs March 2, 2019
Organic growth                                    0.0%
Currency                                         (2.3% )
Total                                            (2.3% )




Net revenue decreased 2.3 percent in the first quarter of 2020 compared to the
first quarter of 2019. Flat organic growth reflected increased sales volume
offset by a decrease in product pricing. The negative currency effect was due to
the weaker Brazilian real, Argentinian peso, Euro, Turkish lira, Chilean peso,
Chinese renminbi and Colombian peso compared to the U.S. dollar. As a percentage
of net revenue, raw material costs decreased 80 basis points due to lower raw
material costs. Other manufacturing costs as a percentage of net revenue
increased 20 basis points. SG&A expenses as a percentage of net revenue
decreased 20 basis points. Segment operating income increased 8.6 percent and
segment operating margin as a percentage of net revenue increased 80 basis
points compared to the first quarter of 2019.



                                       29

--------------------------------------------------------------------------------

  Table of Contents



Engineering Adhesives




                                      Three Months Ended
                           February 29,       March 2,      2020 vs
($ in millions)                2020             2019          2019
Net revenue                $       248.9$    264.4        (5.9% )
Segment operating income   $        15.4$     22.0       (30.0% )
Segment operating margin            6.2%           8.3%




The following tables provide details of the Engineering Adhesives net revenue
variances:




                 Three Months Ended February 29, 2020
                           vs March 2, 2019
Organic growth                                   (4.4% )
Currency                                         (1.5% )
Total                                            (5.9% )




Net revenue decreased 5.9 percent in the first quarter of 2020 compared to the
first quarter of 2019. The decrease in organic growth was attributable to a
decrease in sales volume and product pricing. The negative currency effect was
due to a weaker Euro, Chinese renminbi, Turkish lira, Brazilian real,
Argentinian peso and South Korean won compared to the U.S. dollar. Raw material
costs as a percentage of net revenue increased 20 basis points. Other
manufacturing costs as a percentage of net revenue increased 120 basis points
due to lower sales volume and unfavorable product mix. SG&A expenses as a
percentage of net revenue increased 70 basis points due to lower net revenue.
Segment operating income decreased 30.0 percent and segment operating margin
decreased 210 basis points compared to the first quarter of 2019.



Construction Adhesives




                                      Three Months Ended
                           February 29,       March 2,      2020 vs
($ in millions)                2020             2019          2019
Net revenue                $        85.2$     82.8         2.9%
Segment operating loss     $        (1.4 )$     (1.7 )      17.6%
Segment operating margin           (1.6% )        (2.1% )



The following tables provide details of the Construction Adhesives net revenue variances:




                 Three Months Ended February 29, 2020
                           vs March 2, 2019
Organic growth                                    3.2%
Currency                                         (0.3% )
Total                                             2.9%




Net revenue increased 2.9 percent in the first quarter of 2020 compared to the
first quarter of 2019. The increase in organic growth was driven by higher sales
volume, partially offset by unfavorable product pricing. The negative currency
effect was due to the weaker Australian dollar and Euro compared to the U.S.
dollar. Raw material costs as a percentage of net revenue decreased 30 basis
points. Other manufacturing costs as a percentage of net revenue increased 90
basis points due to higher production costs. SG&A expenses as a percentage of
net revenue decreased 110 basis points due to cost savings realized from the
Company's business realignment. Segment operating loss decreased 17.6 percent
and segment operating margin increased 50 basis points compared to the first
quarter of 2019.



                                       30

--------------------------------------------------------------------------------

  Table of Contents



Corporate Unallocated




                                       Three Months Ended
                            February 29,       March 2,       2020 vs
($ in millions)                 2020             2019          2019
Net revenue                $            -     $      5.9       (100.0% )
Segment operating income   $         (7.9 )   $     (7.0 )       12.9%
Segment operating margin              NMP            NMP



NMP = Non-meaningful percentage

Corporate Unallocated includes acquisition and integration-related charges, restructuring-related charges and the results of business divestitures.

Net revenue in Corporate Unallocated in the first quarter of 2019 included revenue from our surfactants and thickeners business that was divested during the third quarter of 2019. Segment operating loss increased 12.9 percent compared to the first quarter of 2019 reflecting increased organizational realignment costs.

Financial Condition, Liquidity and Capital Resources




Total cash and cash equivalents as of February 29, 2020 were $78.7 million
compared to $112.2 million as of November 30, 2019 and $113.5 million as of
March 2, 2019. The majority of the $78.7 million in cash and cash equivalents as
of February 29, 2020 was held outside the United States. Total long and
short-term debt was $1,973.5 million as of February 29, 2020, $1,979.1 million
as of November 30, 2019 and $2,235.2 million as of March 2, 2019. The total debt
to total capital ratio as measured by Total Debt divided by (Total Debt plus
Total Stockholders' Equity) was 61.8 percent as of February 29, 2020 as compared
to 61.8 percent as of November 30, 2019 and 65.6 percent as of March 2, 2019.



We believe that cash flows from operating activities will be adequate to meet
our ongoing liquidity and capital expenditure needs. In addition, we believe we
have the ability to obtain both short-term and long-term debt to meet our
financing needs for the foreseeable future. Cash available in the United States
has historically been sufficient and we expect it will continue to be sufficient
to fund U.S. operations, U.S. capital spending and U.S. pension and other
postretirement benefit contributions in addition to funding U.S. acquisitions,
dividend payments, debt service and share repurchases as needed. For those
international earnings considered to be reinvested indefinitely, we currently
have no intention to, and plans do not indicate a need to, repatriate these
funds for U.S. operations.



Our credit agreements include restrictive covenants that, if not met, could lead
to a renegotiation of our credit lines and a significant increase in our cost of
financing. At February 29, 2020, we were in compliance with all covenants of our
contractual obligations as shown in the following table:



                                                                      Result as of
Covenant                     Debt Instrument       Measurement      February 29, 2020
Secured Indebtedness / TTM   Revolving Credit  Not greater than 5.9        3.8
EBITDA                      Agreement and Term
                              Loan B Credit
                                Agreement


  ? TTM = Trailing 12 months




? EBITDA for covenant purposes is defined as consolidated net income, plus

interest expense, expense for taxes paid or accrued, depreciation and

amortization, certain non-cash impairment losses, extraordinary non-cash

losses incurred other than in the ordinary course of business, nonrecurring

extraordinary non-cash restructuring charges and the non-cash impact of

purchase accounting, expenses related to the Royal Adhesives acquisition not

to exceed $40.0 million, expenses relating to the integration of Royal

Adhesives during the fiscal years ending in 2017, 2018 and 2019 not exceeding

$30 million in aggregate, restructuring expenses that began prior to the Royal

Adhesives acquisition incurred in fiscal years ending in 2017 and 2018 not

exceeding $28 million in aggregate, and non-capitalized charges relating to

the SAP implementation during fiscal years ending in 2017 through 2021 not

exceeding $13 million in any single fiscal year, minus extraordinary non-cash

gains. For the Total Indebtedness / TTM EBITDA ratio, TTM EBITDA is adjusted

for the pro forma results from Material Acquisitions and Material Divestitures

as if the acquisition or divestiture occurred at the beginning of the

calculation period. The full definition is set forth in the Term Loan B Credit

Agreement and the Amended Revolving Credit Agreement, and can be found in the

Company's 8-K filings dated October 20, 2017 and 8-K dated November 17, 2017,

    respectively.




                                       31

--------------------------------------------------------------------------------

Table of Contents

We believe we have the ability to meet all of our contractual obligations and commitments in fiscal 2020.

Selected Metrics of Liquidity




Key metrics we monitor are net working capital as a percent of annualized net
revenue, trade accounts receivable days sales outstanding ("DSO"), inventory
days on hand, free cash flow after dividends and debt capitalization ratio.



                                                         February 29,        March 2,
                                                             2020              2019

Net working capital as a percentage of annualized net revenue1

                                                         19.7%      

21.4%

Accounts receivable DSO (in days)2                                  58      

57

Inventory days on hand (in days)3                                   70      

68

Free cash flow after dividends4                          $        (5.9 )$       (21.3 )
Total debt to total capital ratio5                               61.8%             65.6%




1 Current quarter net working capital (trade receivables, net of allowance for
doubtful accounts plus inventory minus trade payables) divided by annualized net
revenue (current quarter multiplied by four).

2 Trade receivables net of the allowance for doubtful accounts at the balance
sheet date multiplied by 56 (8 weeks) and divided by the net revenue for the
last 2 months of the quarter.

3 Total inventory multiplied by 56 and divided by cost of sales (excluding delivery costs) for the last 2 months of the quarter.

4 Year-to-date net cash provided by operating activities, less purchased property, plant and equipment and dividends paid. See reconciliation to Net cash provided by operating activities from continuing operations below.

5 Total debt divided by (total debt plus total stockholders' equity).




Free cash flow after dividends, a non-GAAP financial measure, is defined as
net cash provided by (used in) operations less purchased property, plant and
equipment and dividends paid. Free cash flow after dividends is an integral
financial measure used by the Company to assess its ability to generate cash
in excess of its operating needs, therefore, the Company believes this
financial measure provides useful information to investors. The following
table reflects the manner in which free cash flow after dividends is
determined and provides a reconciliation of free cash flow after dividends to
net cash provided by (used in) operating activities from continuing
operations, the most directly comparable financial measure calculated and
reported in accordance with U.S. GAAP.




Reconciliation of "Net cash provided by operating activities" to Free cash
flow after dividends




                                                                      Three Months Ended
($ in millions)                                             February 29, 2020         March 2, 2019
Net cash provided by operating activities                  $              34.4       $           0.5
Less: Purchased property, plant and equipment                             32.1                  13.9
Less: Dividends paid                                                       8.2                   7.9
Free cash flow after dividends                                            (5.9 )               (21.3 )




                                       32

--------------------------------------------------------------------------------

  Table of Contents



Summary of Cash Flows

© Edgar Online, source Glimpses

share with twitter share with LinkedIn share with facebook
share via e-mail
Latest news on H.B. FULLER COMPANY
04/07FULLER H B CO : Change in Directors or Principal Officers, Submission of Matters..
AQ
04/02H B FULLER : Increases Quarterly Dividend for the 51st Consecutive Year
PR
03/26H B FULLER : FULLER H B CO Management's Discussion and Analysis of Financial Con..
AQ
03/26H B FULLER : Q1 2020 H.B. Fuller Company Earnings Call Presentation
PU
03/26FULLER H B CO : Results of Operations and Financial Condition, Financial Stateme..
AQ
03/25H. B. FULLER : Fiscal 1Q Earnings Snapshot
AQ
03/25H B FULLER : Reports First Quarter Fiscal Year 2020 Results
PR
03/20H.B. FULLER COMPANY : quaterly earnings release
03/11H B FULLER : to Report First Quarter 2020 Results on March 25, 2020
PR
03/04FULLER H B CO : Other Events, Financial Statements and Exhibits (form 8-K)
AQ
More news