Fuller(FUL) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) This section presents H.B. Fuller Company's unaudited consolidated financial statements, including income, balance sheets, cash flows, and related notes Consolidated Statements of Income Net revenue and income attributable to H.B. Fuller decreased for both the three and six months ended May 31, 2025, compared to the prior year Consolidated Statements of Income Highlights (In thousands, except per share amounts) | Metric | Three Months Ended May 31, 2025 | Three Months Ended June 1, 2024 | Six Months Ended May 31, 2025 | Six Months Ended June 1, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $898,095 | $917,107 | $1,686,758 | $1,727,525 | | Gross profit | $286,384 | $282,052 | $513,459 | $521,288 | | Net income attributable to H.B. Fuller | $41,828 | $51,264 | $55,076 | $82,255 | | Diluted EPS | $0.76 | $0.91 | $0.99 | $1.45 | Consolidated Statements of Comprehensive Income Comprehensive income attributable to H.B. Fuller significantly increased for both the three and six months ended May 31, 2025, primarily due to positive foreign currency translation adjustments Comprehensive Income Highlights (In thousands) | Metric | Three Months Ended May 31, 2025 | Three Months Ended June 1, 2024 | Six Months Ended May 31, 2025 | Six Months Ended June 1, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income | $41,845 | $51,297 | $55,109 | $82,309 | | Other comprehensive income (loss) | $75,916 | $(16,188) | $60,907 | $(32,106) | | Comprehensive income attributable to H.B. Fuller | $117,696 | $35,108 | $115,918 | $50,190 | Consolidated Balance Sheets As of May 31, 2025, total assets and liabilities increased, driven by goodwill and long-term debt, while stockholders' equity also saw an increase Balance Sheet Highlights (In thousands) | Metric | May 31, 2025 | November 30, 2024 | | :--- | :--- | :--- | | Total current assets | $1,294,575 | $1,299,205 | | Goodwill | $1,670,078 | $1,532,221 | | Total assets | $5,132,457 | $4,933,244 | | Total current liabilities | $692,127 | $719,290 | | Long-term debt | $2,112,428 | $2,010,052 | | Total liabilities | $3,256,472 | $3,103,396 | | Total H.B. Fuller stockholders' equity | $1,874,698 | $1,828,659 | Consolidated Statements of Cash Flows Net cash from operating activities decreased for the six months ended May 31, 2025, with significant cash used in investing activities for acquisitions Six Months Ended Cash Flow Summary (In thousands) | Cash Flow Activity | May 31, 2025 | June 1, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $57,769 | $128,975 | | Net cash used in investing activities | $(151,950) | $(343,774) | | Net cash provided by financing activities | $12,461 | $160,816 | | Net change in cash and cash equivalents | $(72,567) | $(64,630) | | Cash and cash equivalents at end of period | $96,785 | $114,823 | Notes to Consolidated Financial Statements The notes detail key accounting policies, recent acquisitions, divestitures, restructuring activities, segment reorganization, debt, and legal contingencies - In fiscal 2025, the company acquired ND Industries Asia, Inc for ~$8.2M, and GEM S.r.l and Medifill Limited for ~$197.3M to expand its Engineering and Medical Adhesives businesses[28][29] - On December 2, 2024, the company sold its North American Flooring business for $75.7 million, resulting in a pre-tax loss of $1.5 million[37] - Restructuring plans initiated in 2023 are expected to incur total pre-tax costs of $70-75 million and are anticipated to be completed in fiscal 2026 For the six months ended May 31, 2025, the company incurred $5.7 million in restructuring charges[38][39] - Effective fiscal 2025, the company realigned its operating segments, creating the new 'Building Adhesive Solutions' segment and moving the results of the divested North American Flooring business to 'Corporate Unallocated' Prior period information has been recast[95] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2025 revenue decrease, improved gross margin, segment performance, liquidity changes, and compliance with debt covenants Results of Operations Q2 2025 net revenue decreased due to M&A and currency impacts, despite organic growth, while gross profit margin improved and net income declined Net Revenue Variance Analysis | Variance Driver | Three Months Ended May 31, 2025 | Six Months Ended May 31, 2025 | | :--- | :--- | :--- | | Organic growth | 0.4% | 1.0% | | M&A | (1.3)% | (1.2)% | | Currency | (1.2)% | (2.2)% | | Total | (2.1)% | (2.4)% | - Gross profit margin for Q2 2025 increased by 110 basis points to 31.9%, primarily due to the impact of acquisitions/divestitures[112] - SG&A expenses for Q2 2025 increased by 90 basis points as a percentage of net revenue, also due to the impact of acquisitions/divestitures[114] - The effective tax rate for Q2 2025 was 44.7%, significantly higher than 30.7% in Q2 2024, due to $14.0 million in discrete tax expenses related to withholding tax on foreign earnings[123] Operating Segment Results Q2 2025 segment results show varied performance, with Engineering Adhesives revenue and margin growth driven by acquisitions, while Hygiene, Health and Consumable Adhesives saw margin decline Q2 2025 Segment Performance vs. Q2 2024 (in millions) | Segment | Net Revenue (Q2'25) | YoY Change | Operating Income (Q2'25) | YoY Change | Operating Margin (Q2'25) | | :--- | :--- | :--- | :--- | :--- | :--- | | Hygiene, Health & Consumable | $397.5 | 1.1% | $43.4 | (12.9)% | 10.9% | | Engineering Adhesives | $276.4 | 7.3% | $46.9 | 20.3% | 17.0% | | Building Adhesive Solutions | $224.2 | 0.8% | $22.1 | 0.5% | 9.9% | | Corporate Unallocated | $0.0 | (100.0)% | $(12.4) | 21.6% | NMP | - Hygiene, Health and Consumable Adhesives operating margin decreased by 180 basis points due to higher raw material and compensation costs[137] - Engineering Adhesives revenue growth was driven by an 8.4% contribution from the ND Industries acquisition, which also improved operating margin by 190 basis points[140] Financial Condition, Liquidity and Capital Resources The company's cash position decreased, total debt increased, and net cash from operations declined, yet it remains in compliance with all debt covenants and maintains adequate liquidity Selected Liquidity Metrics | Metric | May 31, 2025 | June 1, 2024 | | :--- | :--- | :--- | | Net working capital as a % of annualized net revenue | 16.6% | 16.2% | | Accounts receivable DSO (in days) | 59 | 57 | | Inventory days on hand (in days) | 77 | 74 | | Free cash flow (YTD, in millions) | $(6.7) | $38.8 | | Total debt to total capital ratio | 53.0% | 53.0% | - The company was in compliance with all debt covenants as of May 31, 2025, with a Secured Total Indebtedness / TTM EBITDA ratio of 2.5 (covenant: not greater than 4.50) and a TTM EBITDA / Consolidated Interest Expense ratio of 4.8 (covenant: not less than 2.0)[149] - Net cash used in investing activities for the first six months of 2025 was $152.0 million, which included $162.0 million for business acquisitions and was partially offset by $75.8 million in proceeds from the sale of the NA Flooring business[160][161] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks including changes in interest rates, foreign currency rates, and raw material prices There have been no material changes in the company's reported market risk since the fiscal year ended November 30, 2024 - There have been no material changes in the reported market risk of the Company since November 30, 2024[166] Controls and Procedures Based on an evaluation conducted as of May 31, 2025, the company's president, CEO, and CFO concluded that disclosure controls and procedures were effective There were no changes in internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting - The president, CEO, and CFO concluded that as of May 31, 2025, the company's disclosure controls and procedures were effective[167] - No material changes to internal control over financial reporting occurred during the most recent fiscal quarter[169] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, including environmental matters and asbestos-related lawsuits, in the ordinary course of business Based on current information, management has concluded that these matters, individually or in aggregate, will not have a material adverse effect on the company's financial condition or results of operations - The company is involved in environmental investigations and clean-up activities and has been identified as a potentially responsible party (PRP) under CERCLA[170] - The company continues to be a defendant in asbestos-related lawsuits for products manufactured over 35 years ago, but does not expect these to have a material adverse effect on its financial condition[172] Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended November 30, 2024 - There have been no material changes in the risk factors disclosed by the company in its Annual Report on Form 10-K for the fiscal year ended November 30, 2024[174] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2025, the company repurchased shares under its existing program, with a significant amount remaining available for future repurchases Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid per Share | Maximum Dollar Value Remaining (millions) | | :--- | :--- | :--- | :--- | | March 2 - April 5, 2025 | - | - | $227 | | April 6 - May 3, 2025 | 300,000 | $52.59 | $211 | | May 4 - May 31, 2025 | - | - | $211 | Exhibits This section lists the exhibits filed with the Form 10-Q, including the incentive plan, credit agreement amendment, and required certifications - Key exhibits filed include a refinancing amendment to the credit agreement dated March 6, 2025, and required CEO/CFO certifications[178]